<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended October 31, 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 0-22532
ULTIMATE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0585211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
321A WEST 84TH AVENUE, THORNTON, COLORADO 80221
(Address of principal executive offices, zip code)
(303) 412-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- -----
The number of outstanding shares of Common Stock, $.01 par value, as of
December 6, 1996 was 6,995,000.
<PAGE>
ULTIMATE ELECTRONICS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited): Page No.
Condensed Balance Sheets as of October 31, 1996
and January 31, 1996............................................ 3
Statements of Operations for the three and
nine months ended October 31, 1996 and
October 31, 1995................................................ 4
Condensed Statements of Cash Flows for the
nine months ended October 31, 1996 and
October 31, 1995................................................ 5
Notes to Condensed Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 10
Item 2. Changes in Securities........................................... 10
Item 3. Defaults Upon Senior Securities................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............. 10
Item 5. Other Information............................................... 10
Item 6. Exhibits and Reports on Form 8-K................................ 10
2
<PAGE>
ITEM 1.
ULTIMATE ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(amounts in thousands)
October 31, January 31,
1996 1996
----------- -----------
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 1,283 $ 979
Accounts receivable 14,103 16,406
Merchandise inventories 42,868 38,053
Other assets 1,037 1,147
-------- --------
Total current assets 59,291 56,585
Property and equipment, net 44,674 41,503
Property under capital leases,
including related parties, net 1,085 1,283
Other assets 1,083 1,095
-------- --------
Total assets $106,133 $100,466
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 22,898 $ 16,972
Other current liabilities 5,771 8,618
-------- --------
Total current liabilities 28,669 25,590
Notes payable 21,000 18,000
Bonds payable 13,000 13,000
Term loan 995 996
1,083 1,295
Capital lease obligations, including
related parties 752 667
Deferred tax liability
Commitments
Stockholders' equity:
Preferred Stock, par value $.01 per share
Authorized shares - 10,000,000
No shares issued and outstanding - -
Common Stock, par value $.01 per share
Authorized shares - 10,000,000
Issued and outstanding shares, 6,995,000
at October 31, 1996 and January 31, 1996 70 70
Additional paid-in capital 31,009 31,009
Retained earnings 9,555 9,839
-------- --------
Total stockholders' equity 40,634 40,918
-------- --------
Total liabilities and stockholders' equity $106,133 $100,466
-------- --------
-------- --------
See accompanying notes.
3
<PAGE>
ULTIMATE ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended
October 31, October 31,
------------------ --------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $60,772 $62,547 $177,531 $163,340
Cost of goods sold 44,468 45,537 130,591 118,640
------- ------- -------- --------
Gross profit 16,304 17,010 46,940 44,700
Selling, general and administrative expenses 15,161 14,538 44,950 39,633
------- ------- -------- --------
Income from operations 1,143 2,472 1,990 5,067
Interest expense on debt and capital leases 841 551 2,438 1,326
------- ------- -------- --------
Income (loss) before income taxes 302 1,921 (448) 3,741
Provision (benefit) for income taxes 112 709 (165) 1,382
------- ------- -------- --------
Net income (loss) $ 190 $ 1,212 $ (283) $ 2,359
------- ------- -------- --------
------- ------- -------- --------
Pro forma information:
Historical income before effect of change in
accounting method $ 1,212 $ 2,359
Pro forma effect of change in accounting
method, net of taxes (18) 46
------- --------
Pro forma net income $ 1,194 $ 2,405
------- --------
------- --------
Earnings (loss) per share of Common Stock $ .03 $ .22 $ (.04) $ .42
Pro forma earnings per share of Common Stock - .21 - .43
Weighted average shares outstanding 6,995 5,585 6,995 5,563
</TABLE>
See accompanying notes.
4
<PAGE>
ULTIMATE ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Nine Months Ended
October 31,
-------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ 3,723 $(8,877)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,287) (21,367)
Proceeds from sales of property and equipment - 5,875
------- -------
Net cash used in investing activities (6,287) (15,492)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from note payable 3,000 10,250
Net proceeds from bonds payable - 13,000
Proceeds from term loans 225 -
Principal payments on term loans and
capital lease obligations (357) (313)
------- -------
Net cash provided by financing activities 2,868 22,937
------- -------
Net increase (decrease) in cash and cash
equivalents 304 (1,432)
Cash and cash equivalents at beginning of period 979 2,238
------- -------
Cash and cash equivalents at end of period 1,283 806
------- -------
------- -------
See accompanying notes.
5
<PAGE>
ULTIMATE ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1996
1. ACCOUNTING POLICIES
The Company's unaudited interim financial statements have been prepared
by the Company in accordance with generally accepted accounting principles
for interim financial reporting and the regulations of the Securities and
Exchange Commission for quarterly reporting. Accordingly, they do not
include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, the statements include all adjustments, consisting only of
normal recurring adjustments, which are necessary for a fair presentation
of the financial position, results of operations and cash flows for the
interim periods. Operating results for the nine month period ended
October 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending January 31, 1997. Seasonal fluctuations in
sales of the Company's products result primarily from the purchasing
patterns of individual consumers during the Christmas holiday season.
These patterns tend to moderately concentrate sales in the latter half of
the year, particularly in the fourth quarter. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report to Stockholders for the year ended January 31, 1996.
2. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on (A) 6,995,000, and
5,500,000 outstanding shares for the three and nine months ended October 31,
1996 and 1995, respectively, and (B) in order to give effect to the
potential exercise of options under the Company's stock option plans, (i)
no outstanding shares for the three and nine months ended October 31,
1996, respectively, and (ii) 84,538 and 63,123 outstanding shares for the
three and nine months ended October 31, 1995, respectively.
3. CHANGE IN ACCOUNTING METHOD FOR PREOPENING EXPENSES
In the fourth quarter of fiscal 1996, the Company changed its method of
accounting for preopening expenses. The Company now expenses preopening
costs as incurred rather than capitalizing such costs and amortizing them
over twelve months for a new store and over six months for a remodeled
store. The Company believes this new method is preferable because it
results in a more conservative presentation of the Company's financial
position and results of operations and is the most commonly used method of
accounting for preopening expenses among other companies in the consumer
electronics industry. The quarterly results for the three month and nine
months ended October 31, 1995 have been restated to reflect this change in
accounting method.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations and the financial statements and accompanying notes contain
forward-looking information which is subject to risks and uncertainties,
including, but not limited to, increases in promotional activities of
competitors, further expansion by competitors into the Company's markets,
changes in consumer buying attitudes, the presence or absence of new products
or product features in the Company's merchandise categories, changes in vendor
support for advertising and promotional programs, changes in the Company's
merchandise sales mix and general economic conditions. Please refer to a
discussion of these and other factors in the Company's Annual Report on
Form 10-K and other filings with the Securities and Exchange Commission.
The Company disclaims any interest or obligation to update publically these
forward-looking statements, whether as a result of new information, future
events or otherwise.
RESULTS OF OPERATIONS
Net sales for the three months ended October 31, 1996 decreased 3% to $60.8
million from $62.5 million for the three months ended October 31, 1995. Net
sales for the nine months ending October 31, 1996 increased 9% to $177.5
million from $163.3 million for the nine months ended October 31, 1995. The
increase in sales during this nine month period was due primarily to the
opening of new stores in Nevada, Utah, Idaho and Oklahoma since April 1995.
Comparable store sales decreased 20% and 15% for the three and nine months
ended October 31, 1996, respectively, compared to a 1% and 5% increase in
comparable store sales for the three and nine months ended October 31, 1995,
respectively. The decrease in comparable store sales for the three and nine
month periods ending October 1996 is due in part to continuing sluggish sales
of consumer electronics products nationally and the grand openings of
competitors' stores within markets the Company already serves. The Company
expects the current retail environment for consumer electronics companies to
continue through the balance of the year.
Gross profit for the three months ended October 31, 1996 decreased 4% to
$16.3 million (26.8% of net sales) from $17.0 million (27.2% of net sales) for
the three months ended October 31, 1995. Gross profit for the nine months
ended October 31, 1996 increased 5% to $46.9 million (26.4% of net sales)
from $44.7 million (27.4% of net sales) for the nine months ended October 31,
1995. The decrease in gross profit as a percentage of net sales was
primarily attributable to a higher mix of sales of discontinued and
promotional computer products.
Selling, general and administrative expenses for the three months ended
October 31, 1996 increased to $15.2 million (24.9% of net sales) from $14.6
million (23.3% of net sales) for the three months ended October 31, 1995.
Selling, general and administrative expenses for the nine months ending
October 31, 1996 increased to $45.0 million (25.3% of net sales) from $39.6
million (24.2% of net sales) for the nine months ended October 31, 1995.
Selling, general and administrative expenses increased as a percentage of net
sales due primarily to higher advertising and promotional costs associated
with discontinued and promotional computer products. Management has
addressed this sales trend during fiscal year 1997 by reducing support staff
where appropriate, changing the sales commission structure and reducing
variable expenses throughout the Company.
As a result of the foregoing, income from operations decreased 53% to $1.1
million (1.9% of net sales) for the three months ended October 31, 1996,
compared to income from operations of $2.4 million (3.9% of net sales) for
the three months ended October 31, 1995. Income from operations decreased
61% to $2.0 million (1.1% of net sales) for the nine months ended October
31, 1996 from $5.1 million (3.1% of net sales) for the nine months ended
October 31, 1995.
Interest expense increased to $841,000 and $2.4 million for the three and
nine months ended October 31, 1996, respectively, from $551,000 and $1.3
million for the three and nine months ended October 31, 1995, respectively,
due to higher average amounts outstanding under the Company's revolving line
of credit (Notes payable) used for new store expansion over the past year and
additional interest expense from the Bond Offering (as defined below) used
for the construction the Company's Thornton Facility (as defined below).
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity have been net cash
from operations and from revolving credit lines and term loans. Over the
last three years, the Company has expanded its operations outside Colorado
and now operates stores in Colorado, Idaho, Nevada, New Mexico, Oklahoma and
Utah. The Company has funded this expansion in part through two public
offerings of its Common Stock. The Company's initial public offering in
October 1993 resulted in proceeds of $18.2 million (net of underwriting
discounts and expenses). The Company completed a second offering of its
Common Stock in November 1995 and received proceeds of $12.7 million (net of
underwriting discounts and expenses).
In March 1995, the Company received proceeds of $12.3 million (net of the
underwriting discount and other associated costs) from the sale of $13.0
million aggregate principal amount of 10.25% First Mortgage Bonds (the "Bond
Offering"). The proceeds of the Bond Offering were used to fund a substantial
portion of the construction of the Company's warehouse, office, service and
store facility in Thornton, Colorado (the "Thornton Facility"). Interest on
the bonds accrues at the rate of 10.25% per year until maturity or earlier
redemption. The Company is required to redeem $3.25 million aggregate
principal amount of the bonds annually (reduced to the extent of the bonds
purchased or redeemed by the Company earlier) on January 31, 2002 and on
January 31 of each of the three years thereafter, at a redemption price equal
to par plus accrued interest to the date of redemption. The bonds are not
redeemable prior to March 31, 2000 and are secured by the Thornton Facility.
Net cash provided by operations was $3.7 million for the nine months ended
October 31, 1996 compared to net cash used in operations of $8.9 million for
the nine months ended October 31, 1995. The cash provided by operations for
the nine months ending October 31, 1996 was due primarily to decreased
accounts receivable balances from increasing collection efforts.
As business conditions allow, and as deemed appropriate, the Company
intends to continue its expansion into select metropolitan areas in the Rocky
Mountain, Midwest and Southwest regions with the larger Ultimate Electronics
store format. In November, 1996, the Company relocated and expanded its
Boulder, Colorado and one of its Littleton, Colorado stores to the larger
Ultimate Electronics store format. In fiscal 1998, the Company expects to
relocate and expand two to three Colorado stores into the larger store format
and may continue its expansion into new markets.
The Company's primary capital requirements are directly related to
expenditures for new store openings and the remodeling and upgrading of
existing store locations. All stores opened in the last two fiscal years,
with the exception of the Thornton Facility, have been leased. Capital
expenditures to open these new stores have averaged $1.5 to $2.0 million,
excluding preopening costs ranging from $300,000 to $600,000. Capital
expenditures to relocate and expand existing stores in fiscal 1997 are
expected to range from $1.8 to $2.0 million per store, excluding preopening
expenses ranging from $100,000 to $300,000. Preopening costs include such
items as advertising prior to opening, recruitment and training of new
employees and any costs of early termination of store leases. Effective
February 1, 1995, the Company changed its method of accounting for preopening
expenses and began expensing preopening costs as incurred prior to the
opening of a new store or relocation of an existing store. The initial
inventory requirement for the Company's new larger format stores averages
approximately $2.0 million per store, approximately $1.0 million of which is
expected to be financed through trade credit.
The Company executed a new revolving line of credit agreement with Norwest Bank
Colorado, N.A., on November 21, 1996, pursuant to which the Company may borrow
up to the lesser of $35.0 million or 70% of the value of the Company's trade
inventory through September 30, 1998. Borrowings under the existing credit
facility, dated July 24, 1995, in the amount of $21.0 million were outstanding
as of October 31, 1996.
8
<PAGE>
The Company believes that its cash flow from operations and borrowings under
available credit facilities will be sufficient to fund the Company's
operations and its store relocation plans for fiscal 1998. There can be no
assurance that the Company will not experience significant delays, cost
overruns or completion problems in connection with the relocation of existing
stores or that business conditions will be appropriate to open or relocate new
stores. Moreover, there can be no assurance that the capital requirements
for the Company's stores will not exceed the Company's current estimates. In
order to fund the capital requirements for its anticipated expansion plans
beyond fiscal 1998, the Company may be required to seek additional financing,
which could take the form of expansion of its existing credit facility or
possibly additional debt or equity financing. There can be no assurance that
the Company will be able to obtain such funds on favorable terms, if at all.
The Company's business is affected by seasonal consumer buying patterns. As
is the case with other retailers, the Company's sales and profits have been
greatest in the fourth quarter (which includes the Christmas selling season).
If, for any reason, the Company's sales were to be substantially below
expectations during these months, the Company's annual results would be
affected in an adverse and disproportionate manner. Operating results are
dependent upon a number of factors, including discretionary consumer
spending, which is in turn affected by local, regional or national economic
conditions affecting disposable consumer income, such as employment, business
conditions, interest rates and taxation. The Company's quarterly results of
operations may fluctuate significantly as a result of a number of factors,
including the timing of new or relocated and expanded store openings and
related expenses, the success of new stores and the impact of new stores on
existing stores, among others. As the Company has opened additional stores
or relocated and expanded stores within markets it already serves, sales at
existing stores have been adversely affected. Such adverse effects may occur
again in the future. The Company's quarterly operating results also may be
affected by increases in merchandise costs, price changes in response to
competitive factors, new and increased competition, product availability and
the costs associated with the opening of new stores.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is a party to certain legal proceedings
arising in the ordinary course of its business. Management believes
that any resulting liability, individually or in the aggregate, will
either be covered by insurance or will not have a material adverse
effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Documents filed with this report:
10.11 Credit Agreement between Ultimate Electronics, Inc. and
Norwest Bank Colorado, N.A. dated November 21, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
10
<PAGE>
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.
Ultimate Electronics, Inc.
Date: December 13, 1996 By: /s/ Alan E. Kessock
--------------------- ------------------------
Alan E. Kessock
Vice President - Finance and
Administration, Secretary, Treasurer
and a Director (Principal Financial
Officer)
11
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of the 21st day of November, 1996, and
is by and among ULTIMATE ELECTRONICS, INC., a Delaware corporation (the
"Borrower"). NORWEST BANK COLORADO, NATIONAL ASSOCIATION (the "Lender") and
NORWEST BUSINESS CREDIT, INC. as administrative agent for the Lender
("Administrative Agent").
RECITALS
The Borrower, the Lender and First Security National Bank of Utah, N.A.
("First Security") are parties to a Credit Agreement dated as of July 24, 1995,
pursuant to which the Lender and First Security agreed to make loans and other
financial accommodations available to the Borrower (the "Original Credit
Agreement").
The parties hereto and First Security have agreed to terminate the Original
Credit Agreement and the Lender has agreed to redocument the credit facilities
provided by the Original Credit Agreement in the name of the Lender with the
Administrative Agent, First Security and, possibly, other lenders purchasing
participations in the loans and other financial accommodations provided by the
Lender.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. The following terms, as used herein, shall
have the following meanings:
"Acceptable Facility" means a distribution facility or retail store
(a) either (i) owned by the Borrower or (ii) leased by the Borrower
subject to a lease acceptable to the Administrative Agent pursuant to
which the landlord under such lease has executed a landlord's waiver
acceptable to the Administrative Agent, and (b) identified in the
Security Agreement as a location at which Inventory will be located or
otherwise identified in writing by the Borrower to the Administrative
Agent as a location at which Inventory will be located.
<PAGE>
"Acceptable Inventory" means consumer electronics products held for
sale, net of any unearned vendors' discounts (a) in which the Lender has
a valid perfected first priority security interest, (b) which are
located in an Acceptable Facility and (c) which are subject to no other
lien, encumbrance or security interest. Without limiting the foregoing,
the following shall not be Acceptable Inventory:
(1) Supplies and packaging inventory;
(2) Inventory that is damaged, defective, obsolete or not
currently saleable in the normal course of the Borrower's
operations.
(3) Inventory that the Borrower has returned, has attempted
to return, is in the process of returning or intends to return to
the vendor thereof, including, without limitation, factory
returns:
(4) Inventory in an amount equal to the Borrower's invoice
variance reserves;
(5) Discontinued inventory in an amount in excess of 12% of
total Inventory (determined after deducting unearned vendors'
discounts);
(6) Free goods;
(7) That portion of the Borrower's aggregate service and
parts Inventory, and Inventory consisting of cellular phones,
promotional items, custom items and third party warranties which,
in the aggregate, exceeds 12% of total Inventory (determined
after deducting unearned vendors' discounts); and
(8) Inventory otherwise deemed ineligible by the
Administrative Agent in its sole discretion; provided, however,
that unless an Event of Default or event that with notice or the
passage of time would constitute an Event of Default then exists,
the Administrative Agent will give Borrower (20) days' notice of
any change in the types or amount of Inventory which shall be
Acceptable Inventory and shall base any such change on the
Administrative Agent's good faith judgment as to the liquidation
value of such Inventory.
"Accommodation Obligation" means as applied to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary
obligations") or to hold harmless the owner of such primary obligation
against loss in respect thereof. The amount of any Accommodation
Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Accommodation Obligation is made
2
<PAGE>
or, if not stated or determinable, the maximum anticipated liability in
respect thereof (assuming such Person is required to perform thereunder)
as determined by the Administrative Agent.
"Administrative Agent" means Norwest Business Credit, Inc. in its
capacity as administrative agent for the Lender hereunder.
"Advance" means an advance by the Lender to the Borrower pursuant
to Section 2 or any advance to fund any draw on any Letter of Credit.
"Agreement" shall mean this Credit Agreement and all amendments,
restatements, modification and supplements hereto which may from time to
time become effective hereafter in accordance with the terms hereof.
"Base Rate" shall have the meaning set forth in the Note.
"Base Rate Advance" shall mean an Advance which initially bears
interest at the Base Rate.
"Bond Indebtedness" means Indebtedness not in excess of $13,000,000
incurred in connection with Borrower's issuance of $13,000,000 of first
mortgage bonds due January 31, 2005.
"Borrowing Base" shall mean, and at any time and subject to change
from time to time in the Administrative Agent's sole discretion, 70% of
the value of the Acceptable Inventory determined in accordance with GAAP
on a basis consistent with accounting practices used in the financial
statements of the Borrower referred to in Section 5.8 hereof, subject to
audit, review and adjustment based thereon by the Administrative Agent,
provided, however, that unless an Event of Default or event that with
notice or the passage of time would constitute an Event of Default then
exists, the Administrative Agent will give Borrower (20) days' notice of
any change in the method of calculation of the Borrowing Base, and will
base any reduction in the percentage of Acceptable Inventory used in
determining the Borrowing Base on the Administrative Agent's good faith
judgment as to the liquidation value of such Acceptable Inventory.
"Borrowing Base Certificate" shall mean a schedule of the
Borrower's Acceptable Inventory, which shall be executed by an
authorized officer of the Borrower, the form of which is attached hereto
as Exhibit A.
"Business Day" shall have the same meaning set forth in the Note.
3
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended,
or any successor statute, and the regulations promulgated thereunder and
the rulings issued thereunder, as amended from time to time.
"Collateral" shall have the meaning set forth in the Security
Agreement.
"Collateral Account" shall have the meaning set forth in Section
4.l(a)(iii).
"Collateral Account Agreement" shall have the meaning set forth in
Section 4.1(a)(iii).
"Commitment" shall mean $35,000,000.
"Default Rate" shall have the meaning set forth in the Note.
"EBITDA" means earnings from continuing operations before interest
expense, taxes, amortization and depreciation expense and any
miscellaneous and/or extraordinary gains and losses for the Borrower
calculated in accordance with GAAP, and in each case, on the basis of
the four fiscal quarters immediately preceding the date of calculation.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, or any successor statute and the regulations
promulgated and rulings issued thereunder, as amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is a member of a controlled or affiliated group of
which the Borrower or any Subsidiary of the Borrower is a member and
which is under common control, or required to be aggregated with, with
the Borrower or any Subsidiary of the Borrower within the meaning of
Section 414(b), (c), (m), or (o) of the Code.
"ERISA Event" shall mean (a) a "reportable event" as such term is
described in Section 4043 of ERISA (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC under 29 C.F.R.
2615) with respect to any Plan or (b) the withdrawal of the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate of either of them
from a Plan subject to Section 4063 of ERISA during a plan year in which
it was a "substantial employer," as such term is defined in Section
4001(a)(2) of ERISA, or the incurrence of liability by the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate of either of them
under Section 4064 of ERISA upon the termination of a Multiple Employer
Plan, or (c) an event described in Section 4068(a) of ERISA, or (d) the
filing of a notice of intent to terminate a Plan pursuant to Section
4041 or 4041A of ERISA, the treatment of a Plan amendment as a
termination under Section 4041 of
4
<PAGE>
ERISA or (e) the failure by the Borrower, a Subsidiary of the Borrower
or any ERISA Affiliate of either of them to make a payment to a Plan
pursuant to Section 302(f)(1) of ERISA or (f) the adoption of any
amendment to a Plan requiring the provision of security, to such Plan
pursuant to Section 307 of ERISA, or (g) the imposition of any liability
under Title IV of ERISA, other than PBGC premiums due but not delinquent
under Section 4007 of ERISA, upon the Borrower, any Subsidiary of the
Borrower, or any ERISA Affiliate of either of them, or (h) any other
event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or (i) an application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code
with respect to any Plan, or (j) a nonexempt prohibited transaction that
occurs with respect to any Plan for which the Borrower or any Subsidiary
of the Borrower may be directly or indirectly liable.
"Events of Default" shall mean any and all events of default
described in Section 7 hereof.
"Financial Covenants" means the covenants of the Borrower set forth
in Section 6.13 of this Agreement.
"Funded Indebtedness" means all Indebtedness of the Borrower other
than Manufacturer Payables and trade payables and accrued expenses
incurred in the ordinary course of business.
"Indebtedness" of any Person means, without duplication (a)
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (b) the principal portion of
obligations of such Person as lessee under leases which have been or
should be, in accordance with GAAP, recorded as capital leases, (c) all
Accommodation Obligations of such Person in respect of borrowed money,
(d) at the date of such determination thereof the aggregate amount which
may then be drawn under, plus the aggregate amount of all unreimbursed
drawings in respect of, letters of credit issued for the account of such
Person, and (e) all indebtedness, obligations or other liabilities of
such Person or of others for borrowed money secured by a lien on any
property of such Person, whether or not such indebtedness, obligations
or liabilities are assumed by such Person.
"Inventory" shall have the meaning set forth in the Security
Agreement.
"Insufficiency" means, with respect to any Plan, the excess of its
benefit liabilities, as defined in Section 4001(a)(16) of ERISA over the
current value of such Plan's assets, determined in accordance with the
assumptions used by the Plan's actuaries for funding the Plan pursuant
to Section 412 of the Code for the applicable plan year.
5
<PAGE>
"Lender" shall mean Norwest Bank Colorado, National Association.
"Letter of Credit Application" means the form of an application
for a Letter of Credit which shall be the form of application then
generally used by the Lender, or, if Norwest Minnesota is to issue the
Letter of Credit, Norwest Minnesota.
"Letter of Credit Liability" means, without duplication (a) the
maximum amount available to be drawn under all outstanding Letters of
Credit (converted to U.S. Dollars based on the exchange rate generally
offered by the Lender at the time Letter of Credit Liability is
determined), PLUS (b) the maximum face amount of any Letters of Credit
that the Lender has committed in writing to issue or to cause to be
issued on behalf of the Borrower (even if such commitment is conditioned
or otherwise qualified).
"Letters of Credit" means collectively all Letters of Credit
issued pursuant to the terms of this Agreement.
"LIBOR Rate" shall have the meaning set forth in the Note.
"LIBOR Rate Advance" means an Advance which initially bears
interest at the LIBOR Rate.
"Loan" means the loan made by the Lender to the Borrower pursuant
to this Agreement consisting of all Advances hereunder and all other
amounts advanced pursuant hereto.
"Loan Documents" means this Agreement, the Note, the Security
Agreement, the Collateral Account Agreement, and any and all other
documents, instruments or agreements evidencing, governing, securing or
otherwise relating to the Loan, as any such document may be amended,
extended, renewed, restated or modified at any time or from time to
time, and "Loan Document" means any one of the foregoing.
"Loan Expenses" means all charges, costs, fees and expenses of any
nature whatsoever of or incurred by either or both of the Lender and the
Administrative Agent at any time in connection with the making,
administration, modification, amendment, repayment or enforcement of the
Loan or the Loan Documents, all recording and filing fees, charges and
taxes, collateral audit fees, document preparation fees, reasonable fees
and disbursements of attorneys acting jointly for the Lender and the
Administrative Agent and their staff (including allocated costs of
in-house counsel), search fees, and credit reporting and investigation
fees.
"Manufacturer Payables" means Indebtedness of the Borrower to the
manufacturers, suppliers, providers, vendors or distributors of the
Borrower's Inventory
6
<PAGE>
incurred by Borrower for the acquisition of such Inventory, which
Indebtedness is not secured by any lien, security interest or
encumbrance.
"Material Inventory Supplier" means any supplier, provider,
manufacturer, vendor or distributor of Borrower's Inventory from whom
Borrower purchases, directly or indirectly, one and one-half percent
(1 1/2%) or more of the total Inventory purchased by Borrower.
"Maximum Loan Amount" means, at any given time, an amount equal to
(a) the lesser of (i) the Commitment or (ii) the Borrowing Base, minus
(b) the Letter of Credit Liability.
"Maturity Date" shall mean the earlier of the date on which the
maturity date of the Note is accelerated or September 30, 1998.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined
in Section 4001 (a)(3) of ERISA to which the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate of either of them is making or
accruing an obligation to make contributions or has within any of the
preceding three plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" shall mean an employee benefit plan,
other than a Multiemployer Plan, subject to Title IV of ERISA to which
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of
the Borrower or any Subsidiary of the Borrower, and more than one
employer other than the Borrower, any Subsidiary of the Borrower, or an
ERISA Affiliate of the Borrower or any Subsidiary of the Borrower, is
making or accruing an obligation to make contributions or, in the event
that any such plan has terminated, to which the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary
of the Borrower made or accrued an obligation to make contributions
during any of the five plan years preceding the date of termination of
such plan.
"Net Worth" shall mean the sum of the par or stated value of all
outstanding capital stock, surplus and undivided profits of the
Borrower, less any amounts attributable to treasury stock, and any
intangible assets, including, but not limited to, goodwill, patents,
copyrights, mailing lists, catalogues, trademarks, bond discount and
underwriting expenses, organization expenses and other like intangibles,
all as determined in accordance with generally, accepted accounting
principles; PROVIDED HOWEVER, that capitalized offering costs in the
amount of $715,000 and organization and trademark costs in the amount of
$30,000 which are included as assets on Borrower's financial statements
as of July 31, 1996 shall not be considered to be intangible assets.
7
<PAGE>
"Norwest Minnesota" means Norwest Bank Minnesota, National
Association.
"Note" shall mean the promissory note from the Borrower payable to
the Lender evidencing the Loan, as such promissory note may be amended,
extended, renewed, restated or modified at any time and from time to
time.
"Obligations" shall mean all obligations and liabilities of the
Borrower under or in connection with the Loan Documents, now existing or
hereafter created, contingent or not, due or not, arising by operation
of law or otherwise.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"Plan" means an employee pension benefit plan (other than a
Multiemployer Plan) within the meaning of Section 3(2) of ERISA, which
is or has been maintained for employees of the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate of the Borrower or ERISA
Affiliate of any Subsidiary of the Borrower.
"Request for Advance" means a request from Borrower for an Advance
of the Loan in the form of Exhibit C attached hereto.
"Security Agreement" shall mean the General Security Agreement
dated July 24, 1995, as amended, from the Borrower to the Lender,
pursuant to which, among other things, the Borrower grants the Lender a
security interest in the Collateral, and any and all other security
agreements, assignments, pledges and other similar documents pursuant to
which the Borrower grants to the Lender a security interest in the
property of the Borrower, as any such agreement may be amended,
extended, restated or modified at any time and from time to time.
"Security Documents" means the Security Agreement and the
Collateral Account Agreement, together with all other documents,
instruments or agreements securing the Loan.
"Subsidiary" shall mean any corporation or other entity of which
securities or other ownership interests have ordinary voting power to
elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by the
Borrower.
8
<PAGE>
"Welfare Plan" means an "employee welfare benefit plan" as defined
in Section 3(1) of ERISA maintained for the benefit of employees of the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the
Borrower or any Subsidiary of the Borrower.
Section 1.2 ACCOUNTING TERMS AND TERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles as in effect from
time to time, applied on a basis consistent (except for changes concurred in
by the Borrower's independent public accountants) with the most recent
audited consolidated financial statements of the Borrower delivered to the
Administrative Agent ("GAAP"). The parties hereto further agree that in the
event that any change in accounting principles from those used in the
preparation of the financial statements of the Borrower to be delivered to
the Administrative Agent pursuant to the terms of this Agreement hereafter
occasioned by the promulgation of rules, regulations, pronouncements and
opinions by or required by the Financial Accounting Standards Board or
Accounting Principles Board of the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions)
results in any change in the method of calculation of Financial Covenants,
standards or terms found in this Agreement, the parties hereto agree to
likewise enter into negotiations to amend the Financial Covenants, terms or
standards contained in this Agreement to reflect equitably such change in
accounting principles with the desired result that the criteria for
evaluating the Borrower's financial condition shall be the same after such
change as if such change had not been made. If the parties cannot agree on
such an amendment as contemplated under the immediately preceding sentence,
then the Financial Covenants shall be computed without giving effect to such
change in accounting principles.
ARTICLE II
THE LOAN
Section 2.1 THE LOAN. Subject to the terms and conditions of this
Agreement, the Lender agrees to make advances to Borrower (each such advance is
called an "ADVANCE") from time to time prior to the Maturity Date, in an
aggregate principal amount outstanding at any time not to exceed the Maximum
Loan Amount. So long as an Event of Default or event that with notice or the
passage of time would constitute an Event of Default has not occurred and is
continuing, Borrower may borrow, repay and reborrow under the Loan prior to the
Maturity Date in accordance with the terms of this Agreement.
Section 2.2 MAXIMUM LOAN AMOUNT. No Advance requested hereunder
(other than to fund a draw on a Letter of Credit) shall be requested by the
Borrower if, immediately after such requested Advance, the aggregate
principal amount of the Loan which would be
9
<PAGE>
outstanding, would exceed the Maximum Loan Amount. If at any time the
aggregate outstanding amount of the Loan exceeds the Maximum Loan Amount, the
Borrower shall, within five days after notice from the Administrative Agent,
repay the Loan in an amount at least equal to such excess.
Section 2.3 INTEREST RATE. The Loan shall bear interest at the LIBOR
Rate or the Base Rate as determined pursuant to the Note and be payable in
accordance with the terms of the Note.
Section 2.4 MATURITY OF THE LOAN. The principal of the Loan and all
accrued and unpaid interest and all other amounts due under the Loan
Documents shall be due and payable at the Maturity Date.
Section 2.5 PAYMENTS OF PRINCIPAL AND INTEREST. Principal and interest
under the Loan shall be payable as follows:
(a) Accrued but unpaid interest on the Loan shall be payable
monthly in arrears on the last day of each month commencing on the last
day of November, 1996 and continuing on the last day of each month
thereafter and with respect to portions of the Loan bearing interest at
the LIBOR Rate, on the last day of each Interest Period (as such term is
defined in the Note). Notwithstanding the foregoing, if the aggregate
interest accruing on the Loan in any calendar month is less than
$20,000, the Borrower shall, on the first day of the next succeeding
month, pay the Lender a minimum interest charge equal to the difference
between $20,000 and the aggregate interest accruing in such month.
(b) The entire principal balance of the Loan together with all
accrued but unpaid interest thereon and all other amounts due the Lender
or the Administrative Agent pursuant to the Loan Documents shall be due
and payable in full on the Maturity Date.
Section 2.6 PREPAYMENT; TERMINATION OF CREDIT FACILITY. Except as
otherwise provided in the Note with respect to LIBOR Rate Advances, the
Borrower may pay the Loan from time to time without penalty or premium. The
Borrower may terminate the Agreement and obtain a release of any security
interests in the Collateral only upon thirty days prior written notice to the
Administrative Agent, and, if such termination is on a date other than the
Maturity Date, payment of a termination fee determined as follows:
DATE OF TERMINATION FEE
-------------------- ---
On or before September 30, 1997 1.5% of the Commitment
After September 30, 1997 1% of the Commitment;
10
<PAGE>
provided, however, that (i) no termination fee shall be payable if the
Loan is refinanced by a direct or indirect subsidiary of Norwest Corporation,
and (ii) provided that the termination occurs after September 30, 1997, the
termination fee shall be 1/2 of 1% of the Commitment if the termination date
occurs within 30 days of the acquisition by a Person and any of the "affiliates"
of such Person within the meaning of Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended, (other than any current affiliate
of the Borrower) of an aggregate of 75% or more of the assets or capital stock
of the Borrower.
Section 2.7 FEES. The Borrower shall pay to the Lender the following fees
in connection with the Loan and this Agreement:
(a) Annually in advance an administrative fee equal to
one-eighth of one percent of the Commitment. Payment of the administrative
fee shall be due on the date of this Agreement and annually on the same date
each year thereafter.
(b) Monthly in arrears on the last day of November, 1996 and on
the last day of each month thereafter, an unused commitment fee of one eighth of
one percent per annum of the difference between the Commitment and the daily
average sum of the aggregate outstanding principal balance of the Loan and
Borrower's Letter of Credit Liability during such month.
Section 2.8 SECURITY. The Loan shall be secured by a first priority
security interest in the Collateral.
Section 2.9 REQUEST FOR ADVANCE UNDER THE LOAN.
The Borrower agrees to comply with the following procedures in
requesting Advances:
(a) Each request for a BASE Rate Advance shall be made to the
Administrative Agent prior to 11:00 a.m. (Colorado time) of the day of the
requested Advance, and each request for a LIBOR Rate Advance shall be made to
the Administrative Agent prior to 11:00 a.m. (Colorado time) of the day three
days prior to the date of the requested Advance. Each request for an Advance
shall be made by (i) any officer of the Borrower; or (ii) any person designated
as the Borrower's agent by any officer of the Borrower in a writing delivered to
the Lender; or (iii) any person reasonably believed by the Lender to be an
officer of the Borrower or such a designated agent, by delivery to the
Administrative Agent of a Request for an Advance.
(b) Upon fulfillment of the applicable conditions therefore, the
Lender, or the Administrative Agent acting on behalf of the Lender, shall
disburse loan proceeds by crediting the same to the Borrower's demand deposit
account maintained with the Lender unless the
11
<PAGE>
Lender and the Borrower shall agree in writing to another manner of
disbursement. The Borrower shall be obligated to repay all Advances
notwithstanding the fact that the person requesting the same was not in fact
authorized to do so. Any request for an Advance shall be deemed to be a
representation by the Borrower that (i) the conditions set forth in Section 2.2
hereof have been met, and (ii) the conditions set forth in Section 4.2 hereof
have been met as of the time of the request.
(c) Each request for a Base Rate Advance under the Loan shall be
in an amount of at least $100,000 or such lesser amount equal to the unadvanced
portion of the Loan, and each request for a LIBOR Rate Advance shall be in an
amount of $1,000,000 or an integer multiple thereof.
(d) Each request for an Advance under the Loan shall be
irrevocable and binding upon the Borrower from and after the time that a
Request for Advance is received by the Administrative Agent and the submission
of a Request for Advance to the Administrative Agent shall obligate Borrower to
accept such Advance.
(e) If any Person shall acquire a participation in the Loan, the
Borrower shall be obligated to the Lender to pay the full amount of all interest
calculated under the Note, along with all other fees, charges and other amounts
due under this Agreement, regardless if such Person elects to accept interest
with respect to its participation at a lower rate, or otherwise elects to accept
less than its prorata share of such fees, charges or other amounts due under
this Agreement.
Section 2.10 PAYMENTS BY BORROWER. All payments of principal and interest
on the Loan shall be made to the Administrative Agent for the account of the
Lender in immediately available funds. The Borrower hereby authorizes the
Lender, in its discretion at any time or from time to time and without request
by the Borrower, to make an Advance in an amount equal to the accrued interest
from time to time due and payable to the Lender hereunder and in the amount of
any fees, costs or expenses due to the Lender or the Administrative Agent
hereunder or under any other Loan Documents.
Section 2.11 REPAYMENT OF EXISTING INDEBTEDNESS. The Borrower hereby
requests that the Lender make an initial Advance of the Loan in an amount
equal to the outstanding principal amount and all accrued but unpaid interest
and all the fees and expenses due in connection with the indebtedness of the
Borrower under the Original Credit Agreement and that such advance be
remitted directly to the Persons entitled thereto to pay the Borrower's
outstanding obligations under the Original Credit Agreement.
12
<PAGE>
ARTICLE III
LETTERS OF CREDIT
Section 3.1 LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement, the Lender agrees, upon request of Borrower, to issue or to
cause Norwest Minnesota to issue one or more stand-by or documentary letters of
credit for such purposes as Borrower may reasonably request and the
Administrative Agent may reasonably approve; provided, however, that the
Borrower shall not request any Letter of Credit if immediately after the
issuance thereof, the Letter of Credit Liability would exceed S500,000. The
Letter of Credit Liability shall be evidenced by the Note and secured by all of
the Security Documents. The issuance of any Letter of Credit in accordance with
the provisions of this Section 3.1 shall require the satisfaction of each
condition set forth in this Article III.
Section 3.2 LETTER OF CREDIT APPLICATION.
(a) Whenever Borrower desires the issuance of a Letter of Credit,
it shall deliver to the Administrative Agent a Letter of Credit Application
no later than 12:00 noon, Denver time, at least five Business Days or such
shorter period as may be agreed to by the Administrative Agent, in advance of
the proposed date of issuance. The Letter of Credit Application shall
specify (i) the proposed date of issuance (which shall be a Business Day),
(ii) the face amount and text of the Letter of Credit, (iii) the expiration
date of the Letter of Credit, which shall be no later than the earlier of 365
days after the date of issuance thereof or the Maturity Date and (iv) the
name and address of the beneficiary, with respect to such Letter of Credit.
(b) Prior to the date of issuance, Borrower shall specify a precise
description of the form of Letter of Credit and related documents and the
verbatim text of any certificate to be presented by the beneficiary of such
Letter of Credit which, if presented by such beneficiary prior to the
expiration date of such Letter of Credit, would require the Lender to make
payment under such Letter of Credit; PROVIDED that the Administrative Agent
or the Lender, in its sole judgment, may, prior to the date of issuance,
require changes in the form of Letter of Credit and any such documents and
certificates; and PROVIDED, FURTHER, that no Letter of Credit shall require
payment against a conforming draft to be made thereunder sooner than the
third Business Day after presentation of the conforming draft.
Section 3.3 CONDITIONS TO ISSUANCE OF LETTER OF CREDIT. The Lender's
obligation to issue or to cause any Letter of Credit to be issued by Norwest
Minnesota shall be subject to satisfaction of the following conditions in a
manner acceptable to the Lender prior to the issuance of such Letter of Credit:
13
<PAGE>
(a) Receipt of the Letter of Credit Application in accordance
with the provisions of Section 3.2(a) above.
(b) Receipt of the Letter of Credit fee in accordance with the
provisions of Section 3.5 below.
(c) Satisfaction of all of the conditions set forth in Sections
4.1 and 4.2, below.
(d) The outstanding principal amount of the Loan shall not
exceed the Maximum Loan Amount (taking into account the face amount of the
Letter of Credit being requested).
(e) Such other conditions as the Lender may reasonably require.
Section 3.4 PAYMENT OF AMOUNTS DRAWN UNDER LETTER OF CREDIT. Any
drawing under a Letter of Credit (whether before or after the Maturity Date)
shall be deemed to be a Base Rate Advance under the Loan made by the Lender to
Borrower on the date such drawing was paid by the Lender and shall remain
outstanding under the Loan and be payable in accordance with the terms and
conditions of other Advances; PROVIDED, HOWEVER, if any Advance deemed made
to cover a draw on a Letter of Credit would cause the outstanding amount of
the Loan to exceed the Maximum Loan Amount, Borrower shall immediately repay
the Loan in an amount sufficient to reduce the outstanding amount of the Loan
to an amount equal to no greater than the Maximum Loan Amount.
Section 3.5 LETTER OF CREDIT FEES AND COMPENSATION. Borrower agrees to
pay the following amounts to the Lender:
(a) With respect to the issuance of each Letter of Credit which
is a standby Letter of Credit, a fee equal to the greater of $250.00 or one and
one-half percent (1 1/2%) per annum of the face amount of the Letter of Credit,
calculated for the term of the Letter of Credit.
(b) With respect to issuance of each Letter of Credit which is a
documentary Letter of Credit, a fee equal to the Lender's then standard issuance
fee for documentary letters of credit based on the face amount of such Letter of
Credit.
(c) With respect to any amendment or transfer of any Letter of
Credit, documentary and processing charges in accordance with the Lender's
standard schedule for such charges in effect at the time of such drawing.
14
<PAGE>
(d) With respect to drawing made under any Letter of Credit,
processing charges in accordance with the Lender's standard schedule for such
charges in effect at the time of such drawing.
(e) Amounts payable under this Section 3.5 shall be paid to the
Administrative Agent for the account of the Lender in immediately available
funds and shall be payable in full on the date of such issuance, amendment,
transfer or drawing, as the case may be.
Section 3.6 OBLIGATIONS ABSOLUTE. The obligation of Borrower to
reimburse the Lender for Advances made to fund drawings under the Letters of
Credit shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstance including,
without limitation, the following circumstances:
(a) Any lack of validity or unenforceability of any Letter of
Credit;
(b) The existence of any claim, set-off, defense or other right
which Borrower or any affiliate of Borrower may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any person or
entities for whom any such beneficiary or transferee may be acting), the Lender
or any other Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between Borrower and the beneficiary for which the Letter of Credit
was procured);
(c) Any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect other than solely as the result of gross negligence or
willful misconduct of the Lender or Norwest Minnesota as issuer of the Letter of
Credit;
(d) Payment by the Lender or Norwest Minnesota as issuer of the
Letter of Credit under any Letter of Credit against presentation of a demand,
draft or certificate or other document which does not comply with the terms of
such Letter of Credit other than if said payment is solely the result of the
gross negligence or willful misconduct of the Lender or Norwest Minnesota as the
issuer of the Letter of Credit;
(e) Any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(f) The fact that an Event of Default or an event that with
notice or the passage of time might constitute an Event of Default shall have
occurred.
Section 3.7 INDEMNIFICATION: NATURE OF THE LENDER'S DUTIES.
15
<PAGE>
(a) In addition to amounts payable as elsewhere provided in this
Article III, without duplication. Borrower hereby agrees to protect, indemnify,
pay and hold harmless the Lender, the Administrative Agent and Norwest Minnesota
from and against any and all claims, demands, liabilities, judgments. damages,
losses, costs, charges and expenses (including reasonable attorneys' fees) which
the Lender or the Administrative Agent may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of the Letters of Credit,
other than solely as a result of the gross negligence or willful misconduct of
the Lender, the Administrative Agent or Norwest Minnesota or (ii) the failure of
the Lender or Norwest Minnesota as the issuer of such Letter of Credit to honor
a drawing under any Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future DE JURE or DE FACTO government or
governmental authority or court (all such acts or omissions herein called
"GOVERNMENT ACTS").
(b) Borrower assumes all risks of the acts and omissions of, or
misuses of the Letters of Credit by the respective beneficiaries of such Letters
of Credit. In furtherance and not in limitation of the foregoing, neither the
Lender, the Administrative Agent nor Norwest Minnesota shall be responsible: (i)
for the form, validity, sufficiency, accuracy, genuineness or legal effects of
any document submitted by any party in connection with the application for and
issuance of such Letters of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason (unless the Lender acts upon such
transfer and such transfer is expressly prohibited on the face of this Letter of
Credit); (iii) for failure of the beneficiary of any such Letter or Credit to
comply fully with conditions required in order to draw upon such Letter of
Credit; (iv) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any such Letter of Credit or of the
proceeds thereof; (vii) for the misapplication by the beneficiary of any such
Letter of Credit of the proceeds of any drawing under such Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of the
Lender, the Administrative Agent or Norwest Minnesota, including, without
limitation, any Government Acts. None of the above shall affect, impair, or
prevent the vesting of any of the Lender's rights or powers hereunder, all of
which shall be borne by Borrower.
(c) In furtherance and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by the Lender, the
Administrative Agent or Norwest Minnesota under or in connection with any
Letter of Credit or the related certificates, if taken or omitted in good
faith, shall not put the Lender, the Administrative Agent or Norwest
Minnesota under any resulting liability to Borrower.
16
<PAGE>
(d) Notwithstanding anything to the contrary contained in this
Section 3.7, Borrower shall not have any obligation to indemnify the Lender, the
Administrative Agent or Norwest Minnesota in respect of any liability incurred
by the Lender, the Administrative Agent or Norwest Minnesota arising solely out
of the gross negligence or willful misconduct of the Lender, the Administrative
Agent or Norwest Minnesota.
Section 3.8 RELEASE OF COLLATERAL. The Lender shall not be under any
obligation whatsoever to release any Collateral until such time as all Letters
of Credit have expired or been surrendered for cancellation and the Lender has
no obligation to renew any such Letter of Credit, or any other obligation to
make any payments in connection with any Letter of Credit.
Section 3.9 ISSUANCE OF LETTERS OF CREDIT. Notwithstanding anything to
the contrary herein, all Letters of Credit will be issued by the Lender, Norwest
Minnesota or another affiliate of Norwest Corporation. In the event that any
Letter of Credit is issued by Norwest Minnesota or any other affiliate of
Norwest Corporation, the Lender shall reimburse the issuer thereof for the
amount drawn under such Letter of Credit. The fact that any Letter of Credit
may be issued by Norwest Minnesota or an affiliate of Norwest Corporation, shall
in no way alter or affect Borrower's obligations with respect to such Letter of
Credit set forth in this Article III.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 INITIAL ADVANCE. The Lender shall not be obligated to make
the first Advance of the Loan hereunder or issue the first Letter of Credit
hereunder unless and until all of the following shall have been complied with in
a manner acceptable to the Administrative Agent:
(a) EXECUTION AND DELIVERY OF DOCUMENTS. The Borrower shall have
delivered the following to the Administrative Agent:
(i) The Loan Documents, duly executed by the Borrower;
(ii) Financing statements evidencing the security interest
granted by the Security Agreement, duly executed by the Borrower;
(iii) A Collateral Account Agreement, duly executed by the
Borrower, the Administrative Agent and the Lender (the "Collateral Account
Agreement"), pursuant to which the Borrower and the Lender establish a
depository account (the "Collateral Account") in the name of and under the
sole and exclusive control of the Lender, from which finally collected funds
shall be transferred to Lender for application to the Advances;
17
<PAGE>
(iv) Separate Support Agreements duly executed by William J.
Pearse, David J. Workman, Alan E. Kessock, Neal Bobrick and J. Edward McEntire;
(v) A copy, of the Borrower's certificate of incorporation
certified by the Borrower's corporate secretary;
(vi) Certificates, as of the most recent dates practicable,
of the Secretary of State of the States of Colorado, Utah, New Mexico, Nevada,
Idaho and Oklahoma that the Borrower is qualified and in good standing as a
foreign corporation in each such state;
(vii) A certified copy of the Borrower's Articles of
Incorporation and Bylaws;
(viii) A copy of a resolution of the Borrower's board of
directors authorizing the execution, delivery and performance of this Agreement,
the Note, the Security Agreement, the Loan Documents and each other document to
be delivered pursuant hereto, certified by the Secretary of the Borrower;
(ix) A certificate of the Borrower's corporate secretary as
to the incumbency and signatures of the officers of the Borrower signing this
Agreement, the Note, all the other Loan Documents, and each other document to be
delivered pursuant hereto;
(x) Certificates of insurance, in form and substance
reasonably acceptable to the Lender, evidencing that Borrower's insurance
coverage is in compliance with the provisions of this Agreement and the Security
Agreement;
(xi) A written opinion from the Borrower's legal counsel in
form and substance satisfactory to the Lender;
(xii) An initial Borrowing Base Certificate; and
(xiii) Such other documents as the Administrative Agent may
reasonably request.
(b) NO DEFAULT. (i) The Borrower shall have complied with all of
the conditions, terms, covenants and agreements contained in this Agreement, the
Note, and all other Loan Documents, (ii) all representations and warranties of
the Borrower contained in any of the Loan Documents shall be true as of the date
of any Advance as if first made on that date, (iii) immediately before and
after such Advance, no default shall have occurred under any of the Loan
Documents and no event shall have occurred that with notice or the passage of
time or both would constitute a default under any of the Loan Documents and (iv)
no material adverse
18
<PAGE>
change shall have occurred in the assets, liabilities, properties, business,
operation or financial condition of the Borrower.
(c) LOAN EXPENSES. The Borrower shall have paid all of the Loan
Expenses incurred by the Lender or the Administrative Agent and invoiced to the
Borrower in connection with the transactions contemplated hereby.
(d) REQUEST FOR ADVANCE. The Borrower shall have provided the
Administrative Agent with a Request for Advance.
(e) LIEN CONFIRMATION. The Administrative Agent shall have received
a search of the Uniform Commercial Code records of the Secretary of State of
the States of Colorado, Utah, New Mexico, Nevada, Idaho and Oklahoma which
shall confirm that there are no liens, security interests or encumbrances
against the Collateral.
(f) SUPPLIER AGREEMENTS. The Administrative Agent shall have
received from the Borrower a certificate signed by an authorized officer of the
Borrower certifying that attached thereto are (i) a list of all Material
Inventory Suppliers and (ii) true and correct copies of all agreements in effect
as of such date between the Borrower and each Material Inventory Supplier.
(g) LANDLORD'S WAIVERS. The Borrower shall deliver to the
Administrative Agent a landlord's waiver from the landlord of any premises at
which the Collateral is located.
(h) OTHER DOCUMENTS AND INFORMATION. The Administrative Agent
shall have received such additional information and documents, in form and
substance satisfactory to the Administrative Agent, as the Administrative Agent
may reasonably request.
Section 4.2 SUBSEQUENT ADVANCES. The Lender will not be obligated to
make any Advance in connection with the Loan or to issue any Letters of Credit
unless and until all of the following shall have been complied with in a manner
acceptable to the Lender:
(a) REQUEST FOR ADVANCE. The Borrower shall have provided the
Administrative Agent with a Request for Advance, or, in the case of a Letter of
Credit, a Letter of Credit Application.
(b) NO DEFAULT. (i) The Borrower shall have complied with all of
the conditions, terms, covenants and agreements contained in this Agreement, the
Note, and all other Loan Documents, (ii) all representations and warranties of
the Borrower contained in any of the Loan Documents shall be true as of the date
of any Advance as if first made on that date, (iii) immediately before and after
such Advance, no default shall have occurred and be continuing under any of the
Loan Documents and no event shall have occurred and be
19
<PAGE>
continuing that with notice or the passage of time or both would constitute a
default under any of the Loan Documents and (iv) no material adverse change
shall have occurred in the assets, liabilities, properties, business, operation
or financial condition of the Borrower or its Subsidiaries.
(c) LIEN CONFIRMATION. Borrower shall have provided the
Administrative Agent with such confirmation as the Administrative Agent may
reasonably request that there are no liens, security interests or encumbrances
against the Collateral.
(d) OTHER DOCUMENTS. The Borrower shall have provided the
Administrative Agent with such other documents and information as the
Administrative Agent may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower represents
and warrants to the Lender as of the date hereof and as of the date of any
Advance hereunder as follows:
Section 5.1 ORGANIZATION; AUTHORITY; POWER; ETC. The Borrower (a) is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, (b) has the power and authority to own its properties and to carry
on its business in every jurisdiction in which the nature of its business or its
properties makes such qualification necessary, and (c) is in material
compliance with all laws, regulations, ordinances, and orders of public
authorities applicable to it.
Section 5.2 VALIDITY OF LOAN DOCUMENTS. The execution, delivery and
performance by the Borrower of this Agreement and all of the other Loan
Documents delivered to the Lender in connection herewith (a) are within the
power of the Borrower, (b) have been duly authorized by all requisite actions on
the part of the Borrower, and (c) do not require approval of any governmental
authority. This Agreement and all of the other Loan Documents are, or upon
execution and delivery will be, the legal, valid and binding obligations of the
Borrower, fully enforceable in accordance with their respective terms except to
the extent the enforceability thereof is limited by bankruptcy, insolvency or
other laws relating to or affecting the enforcement of creditors' rights or by
the general principles of equity.
Section 5.3 NO CONFLICT. The execution, delivery and performance by the
Borrower of this Agreement and all of the other Loan Documents will not (a)
violate any provision of any law, rule, regulation, writ, order, judgment,
injunction, decree, determination or award of any court or other governmental
authority applicable to the Borrower, or conflict with any of the
20
<PAGE>
provisions of the certificate of incorporation or bylaws of the Borrower, or (b)
result in a breach of, or constitute a default under any indenture, agreement or
other instrument to which the Borrower is or will be a party or by which it or
its properties are bound.
Section 5.4 NO LITIGATION OR ADVERSE PROCEEDINGS. There is no pending or,
to the best of the Borrower's knowledge, threatened, action, suit, proceeding,
arbitration or investigation against or affecting the Borrower or the Collateral
which, in any case, might materially adversely affect the value of the
Collateral or any of the Borrower's operations, business, assets, properties,
condition (financial or otherwise) or ability to perform its obligations to the
Lender hereunder. If, in the future, such action, suit, proceeding, arbitration
or investigation is pending or threatened, the Borrower shall immediately
provide the Lender with detailed notification thereof.
Section 5.5 NO DEFAULTS OR VIOLATION. The Borrower is not in default,
in any manner which would materially adversely affect its properties, assets,
operations or condition (financial or otherwise), in the performance, observance
or fulfillment of any of the obligations, covenants or conditions set forth in
any agreement or instrument to which it is a party or by which it or any of its
properties, assets or revenues may be bound or affected, or any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award of
any court or governmental authority.
Section 5.6 ERISA.
(a) Neither the Borrower nor any of its Subsidiaries
participates in any Multiemployer Plans.
(b) Each Plan and Welfare Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code, and other Federal or
state law, including all requirements under the Code or ERISA for filing reports
(that are true and correct in all material respects as of the date filed), and
benefits have been paid in accordance with the provisions of the Plan and
Welfare Plan.
(c) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan that would result in any liability of the
Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate of the Borrower
or any Subsidiary of the Borrower.
(d) With respect to each Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA and which, is intended
to qualify under Section 401 of the Code and each trust created thereunder, a
favorable determination letter has been received from the Internal Revenue
Service stating that such Plan so qualifies and is exempt from tax, and nothing
has occurred since the date of the issuance of such determination letter
21
<PAGE>
which would cause such Plan and trust to cease to qualify under Section 401 of
the Code or to lose tax-exempt status under Section 501 of the Code.
(e) None of the transactions contemplated by this Agreement or
by any Plan constitute a prohibited transaction as such term is defined in
Section 406 of ERISA or Section 4976 of the Code.
(f) There is no outstanding liability that has been asserted or
assessed under Title IV of ERISA with respect to any Plan maintained or
sponsored by the Borrower, any Subsidiary of the Borrower, or any ERISA
Affiliate of the Borrower or any Subsidiary of the Borrower, nor with respect to
any Plan to which the Borrower, any Subsidiary of the Borrower, or any ERISA
Affiliate of the Borrower or any Subsidiary of the Borrower contributes or is
obligated to contribute.
(g) No Plan subject to Title IV of ERISA has any Insufficiency
as of the most recent valuation date for such Plan.
(h) Neither the Borrower, any Subsidiary of the Borrower, nor
any ERISA Affiliate of the Borrower or any Subsidiary of the Borrower has ever
represented, promised or contracted (whether in oral or written form) to any
current or former employee (either individually or to any employees as a group)
that such current or former employee(s) would be provided, at any cost to the
Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate of the Borrower
or any Subsidiary of the Borrower, with life insurance or employee welfare plan
benefits (within the meaning of Section 3(3) of ERISA) following retirement or
termination of employment. To the extent that the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary of the
Borrower has made any such representation, promise or contract, such person has
expressly reserved the right to amend or terminate such life insurance or
employee welfare plan benefits with respect to claims not yet incurred.
(i) The Borrower, each Subsidiary of the Borrower, and each
ERISA Affiliate of the Borrower or any ERISA Affiliate of any Subsidiary of the
Borrower have complied in all respects with the notice and continuation coverage
requirements of Section 4980B of the Code.
(j) There are no pending or threatened claims, actions or
lawsuits, other than routine claims for benefits in the usual and ordinary
course, asserted or instituted against any Plan, Welfare Plan, or any fiduciary
with respect to any Plan or Welfare Plan.
(k) Neither the Borrower, any Subsidiary of the Borrower, nor
any ERISA Affiliate of the Borrower or any ERISA Affiliate of any Subsidiary of
the Borrower has incurred or reasonably expects to incur any liability under
Title IV of ERISA (other than premiums due and not delinquent under Section 4007
of ERISA) with respect to a Plan.
22
<PAGE>
(l) Neither the Borrower, any Subsidiary of the Borrower,
nor any ERISA Affiliate of the Borrower or any ERISA Affiliate of any
Subsidiary of the Borrower has transferred any Insufficiency to a person
other than the Borrower, any Subsidiary of the Borrower, or any ERISA
Affiliate of the Borrower or any ERISA Affiliate of any Subsidiary of the
Borrower or otherwise engaged in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.
(m) Neither the Borrower, any Subsidiary of the Borrower,
nor any ERISA Affiliate of the Borrower or any ERISA Affiliate of any
Subsidiary of the Borrower has engaged, directly or indirectly, in a
nonexempt prohibited transaction (as defined in Section 406 of ERISA or
Section 4975 of the Code) in connection with any Plan.
Section 5.7 COMPLIANCE WITH FEDERAL RESERVE BOARD REGULATIONS.
No part of the proceeds of the Loan will be used, directly or indirectly, for
the purpose of purchasing or carrying any "margin stock" within the meaning
of Regulation U or G of the Board of Governors of the Federal Reserve System.
Section 5.8 FINANCIAL CONDITION. The audited financial
statements of the Borrower dated January 31, 1996 and the unaudited
statements dated July 31, 1996 heretofore delivered to the Lender
(collectively, the "Financial Statements") are accurate and complete in all
material respects, have been prepared in accordance with GAAP and presents
fairly the financial condition of the Borrower as of the respective dates
thereof. The Borrower does not know of any material contingent liabilities
affecting the Borrower or the Collateral that are not disclosed in the
Financial Statements. Since the date of the Financial Statements delivered
to the Lender, there has been no material adverse change in the Borrower's
financial condition, assets, liabilities or business nor has any other vent
or condition of any character occurred or arisen that materially and
adversely affects or that could materially and adversely affect the business,
or, to the extent reasonably foreseeable, the prospects of the Borrower. No
additional material obligations have been entered into by the Borrower since
the date of the Financial Statements.
Section 5.9 GOVERNMENTAL REGULATIONS. The Borrower is not
subject to any federal or state statute or regulation limiting its ability to
incur Indebtedness.
Section 5.10 VARIOUS REPRESENTATIONS TO THE LENDER OR
ADMINISTRATIVE AGENT. None of the statements or any certificate, document or
statement furnished to the Lender or the Administrative Agent (or to be
furnished to the Lender or the Administrative Agent) by or on behalf of the
Borrower, and none of the representations and warranties in this Agreement or
any other Loan Document contains (or will contain) any untrue statement of a
material fact or omits (or will omit) to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
There is no fact which materially adversely affects or in the future (so far
as the Borrower can now reasonably foresee) may materially adversely affect
the ability of the Borrower to perform its obligations to the Lender which
has not been set forth herein or
23
<PAGE>
in a certificate or opinion of counsel or other written statement furnished
to the Lender by or on behalf of the Borrower. All balance sheets,
statements of profit and loss, and other financial data that have been given
(or will be given) to the Lender or the Administrative Agent with respect to
the Borrower (a) are (or will be) complete and correct in all material
respects, (b) accurately present (or will present) the financial condition of
the Borrower as of the dates, and the results of its operations for the
periods for which, the same have been (or will be) furnished, (c) have been
(or will be) prepared in accordance with GAAP consistently followed
throughout the periods covered thereby.
Section 5.11 TAXES. The Borrower has filed all tax returns which
are required to be filed by the Borrower and has paid all indebtedness,
obligations, assessments, governmental charges and taxes, real and personal,
including federal and state income taxes, levied upon or assessed against it
or against its properties or income which are currently due.
Section 5.12 TRADEMARKS, PATENTS, ETC. The Borrower possesses all
the trademarks, trade names, copyrights, patents, licenses, or rights in any
thereof, adequate in all material respects for the conduct of its business as
now conducted and presently proposed to be conducted, without conflict with
the rights or claimed rights of others. The Borrower has not within the
four-year period preceding the date hereof received any notice of any deemed
rights of others with respect to the foregoing.
Section 5.13 SUBSIDIARIES AND AFFILIATES. Borrower does not have
any affiliates or Subsidiaries.
Section 5.14 PARTNERSHIPS AND JOINT VENTURES. Borrower is not a
partner in any partnership, a member of any limited liability company or a
partner or a party to any joint venture or similar agreement.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any indebtedness
or Obligations remain outstanding hereunder, unless the Lender or the
Administrative Agent shall otherwise consent in writing in advance, it will:
Section 6.1 PAY NOTE. Duly and punctually pay or cause to be
paid the principal of and interest on the Note on the dates, in the places
and in the manner set forth therein and herein, without notice or demand.
24
<PAGE>
Section 6.2 PERFORM OTHER OBLIGATIONS. Promptly and strictly
perform and comply with all other terms, conditions, covenants and
prohibitions required by the terms of any of the Loan Documents.
Section 6.3 COLLATERAL ACCOUNT. The Borrower agrees to deposit
in the Collateral Account or, at the Lender's option, to deliver to the
Lender all collections on Receivables, contract rights, chattel paper and
other rights to payment constituting Collateral, and all other cash proceeds
of Collateral, which the Borrower may receive directly, immediately upon
receipt thereof, in the form received, except for the Borrower's endorsement
when deemed necessary; provided, however, that the Borrower may establish
depository accounts to clear collections provided that (i) in the case of any
depository account established in the State of Colorado, such account is
swept to the Collateral Account on each Business Day, (ii) in the case of
depository accounts established in states other than the State of Colorado,
such accounts are swept to the Collateral Account at least one time per week
(or more frequently if the Administrative Agent shall request), and (iii) at
the request of the Administrative Agent, all depository accounts are assigned
to the Lender as additional security for the Loan on terms and conditions
satisfactory to the Administrative Agent in its sole discretion. The
Borrower further agrees to irrevocably require all processors of credit card
receipts to remit all payments due in respect thereof directly to the
depository account maintained in the State of Colorado. Until delivered to
the Lender or deposited in the Collateral Account, all proceeds or
collections of Collateral shall be held in trust by the Borrower for and as
the property of the Lender and shall not be commingled with any other funds
or property of the Borrower. Amounts deposited in the Collateral Account
shall not bear interest and shall not be subject to withdrawal by the
Borrower, except after full payment and discharge of all Obligations. All
such collections shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. Collected funds from the Collateral
Account shall be transferred to the Lender's general account, and the Lender
may deposit in its general account or in the Collateral Account any and all
collections received by it directly from the Borrower. The Lender may
commingle such funds with other property of the Lender or any other person.
The Lender shall apply such collected funds in the Collateral on a daily
basis to the payment of any and all Obligations, in any order or manner of
application satisfactory to the Lender provided, however, that in lieu of
applying any such amounts to payment of LIBOR Rate Advances prior to the
maturity thereof, the Lender may, at its option, remit such amounts to the
Borrower. All items delivered to the Lender or deposited in the Collateral
Account shall be subject to final payment. If any such item is returned
uncollected, the Borrower will immediately pay the Lender, the amount of that
item, or the Lender at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be liable
as an endorser on all items deposited in the Collateral Account, whether or
not in fact endorsed by the Borrower.
25
<PAGE>
Section 6.4 CORPORATE. Maintain and preserve the existence,
rights, privileges and franchises of the Borrower in good standing under the
laws of Delaware and maintain its right to transact business in all other
states, including Colorado, Utah and any other states in which the Borrower
has any retail operation or where its activities and ownership of assets are
such that qualification to transact business is necessary under the laws of
such states.
Section 6.5 ACCOUNTS AND RECORDS. Keep and maintain full and
accurate accounts and records of its operations in accordance with GAAP
applicable to businesses of the type in which the Borrower is engaged and
consistent with principles heretofore applied by the Borrower in preparation
of the Financial Statements, including, without limitation, records of the
Borrower's verification of the validity of accounts.
Section 6.6 INSPECTION/AUDIT RIGHTS. Permit the Administrative
Agent, the Lender or any representatives thereof at any reasonable time, and
from time to time, to examine and make copies of and abstract from the files,
records and books of account of the Borrower and to discuss the affairs,
finances and accounts of the Borrower with any of its officers or directors
and their independent public accountants. The Administrative Agent and the
Lender shall have the right to inspect the Collateral upon reasonable notice
to the Borrower during the Borrower's normal business hours. In addition,
the Administrative Agent and the Lender shall have a right to conduct an
audit of the Inventory at any time and from time to time to confirm, among
other things, the existence and value of such Inventory and the Borrower
shall be responsible for paying the cost of such audit (including the
internal costs of the Administrative Agent's and the Lender's own employees
at the rate of $50 per hour or the Administrative Agent's or the Lender's
then current per hour auditor charge, if different); provided that the
Borrower shall have the obligation to pay the cost of such audit no more
frequently than four times in each twelve month period provided there is no
Event of Default. The Administrative Agent shall also have the right to
obtain an appraisal of the Borrower's Inventory annually (or more frequently
if an Event of Default has occurred and is continuing), at the expense of the
Borrower.
Section 6.7 REPORTING REQUIREMENTS.
(a) ANNUAL FINANCIAL STATEMENT. Within ninety (90) days
after the end of each fiscal year, deliver to the Administrative Agent
audited year-end financial statements of the Borrower (including balance
sheets, statements of income and statements of cash flow), unqualified as to
scope of review, prepared by certified public accountants reasonably
acceptable to the Administrative Agent, together with a compliance
certificate signed by the chief financial officer or other officer of the
Borrower satisfactory to the Administrative Agent showing the calculation of
the Financial Covenants set forth in Section 6.13 and certifying that no
Event of Default exists under this Agreement or any of the other Loan
Documents, in the form of Exhibit B attached hereto or such other form as the
Administrative Agent may require.
26
<PAGE>
(b) QUARTERLY FINANCIAL STATEMENTS. Within forty-five
(45) days after the end of each fiscal quarter, deliver to the Administrative
Agent a copy of the Borrower's internally prepared quarterly financial
statement (including a balance, sheet and income statement) prepared
consistently with fiscal year-end statements and certified by the chief
financial officer of the Borrower as being true and correct in all material
respects together with a compliance certificate signed by the chief financial
officer of the Borrower showing the calculation of the Financial Covenants
set forth in Section 6.13 and certifying that no Event of Default exists
under this Agreement or any of the other Loan Documents, in the form of
Exhibit B attached hereto or such other form as the Administrative Agent may
require.
(c) MONTHLY FINANCIAL STATEMENTS. Within thirty (30) days
after the end of each fiscal month, deliver to the Administrative Agent
monthly internally prepared financial statements (including a balance sheet
and income statement) of the Borrower prepared consistently with fiscal
year-end statements and certified by the chief financial officer of the
Borrower as being true and correct in all material respects.
(d) MONTHLY ACCOUNTS PAYABLE AGING. Within thirty (30)
days after the end of each fiscal month, deliver to the Administrative Agent
a copy of the Borrower's internally prepared monthly accounts payable aging.
(e) BORROWING BASE CERTIFICATE. Within fifteen (15) days
after the end of each fiscal month, deliver to the Administrative Agent a
Borrowing Base Certificate and an Inventory Report (with such supporting
schedules as the Administrative Agent may request) signed by the chief
financial officer or other officer of the Borrower satisfactory to the
Administrative Agent, provided, however, that if excess Borrowing Base
availability is less than or equal to $2,500,000, the Borrower shall deliver
the Borrowing Base Certificate to the Administrative Agent on a weekly basis.
Notwithstanding the foregoing, the Borrower shall deliver a Borrowing Base
Certificate more frequently than otherwise provided herein at the request of
the Administrative Agent.
(f) ANNUAL PROJECTIONS. Before the first day of each
fiscal year, deliver to the Administrative Agent financial statement
projections prepared on a monthly basis for the following fiscal year.
(g) MATERIAL INVENTORY SUPPLIER LIST. Within thirty (30)
days after the end of each calendar year, deliver to the Administrative Agent
a list of all Material Inventory Suppliers during the prior fiscal year.
(h) SEC FILINGS. Within five (5) days after filing with
the Securities and Exchange Commission, deliver to the Administrative Agent a
copy of the Borrower's Forms 10-K, 10-Q and any other material
non-confidential filings with the SEC.
27
<PAGE>
(i) ADDITIONAL INFORMATION. Deliver to the
Administrative Agent such additional financial information, statements and
reports as the Administrative Agent may reasonably request from time to time,
including a Borrowing Base Certificate more frequently than monthly if the
Administrative Agent so requests.
Section 6.8 INSURANCE. Carry and maintain in full force and
effect at all times with financially sound and reputable insurance companies
(a) all insurance required pursuant to the Security Agreement, (b) insurance
acceptable to the Lender covering all of its property of an insurable nature
(including, without limitation, the Inventory) against casualty risks of such
types and in such amounts as such insurance is usually carried by businesses
of established reputation and comparable type and size and as may be
acceptable to the Lender; including, without limitation, liability on account
of damage to persons or property and applicable workers' compensation
insurance, and (c) and such other insurance as the Lender may reasonably
require. The Borrower shall deliver to the Administrative Agent from time to
time at the Administrative Agent's request schedules setting forth all then
in effect and shall cause the Lender to be named as additional insured or
loss payee and provide the Lender with such certificates of insurance as the
Lender may require.
Section 6.9 MAINTENANCE OF PROPERTY. Maintain and preserve all
of its properties in good working order and condition, so that the efficiency
of the Borrower's operations and business shall be fully maintained and
preserved.
Section 6.10 COMPLIANCE WITH LAWS. Comply in all material respects
with all laws, regulations, rules and orders of governmental authorities
applicable to the Borrower or to its operations, business or property.
Section 6.11 TAXES AND OTHER CHARGES. Duly pay and discharge all
indebtedness, obligations, assessments, governmental charges and taxes, real
and personal, including federal and state income taxes, levied upon or
assessed against it or against its properties or income prior to the date on
which penalties are attached thereto, unless, and only to the extent that,
such shall be contested in good faith and by appropriate proceedings
diligently conducted by the Borrower (unless and until foreclosure,
distraint, sale or other similar proceedings shall have been commenced) and
provided that such reserve or other appropriate provision, if any, as shall
be required by GAAP has been made.
Section 6.12 FURTHER ASSURANCE. Execute and deliver to the Lender
or the Administrative Agent such other and further instruments, security
agreements, documents and information and do such other and further acts as
may be reasonably required and requested by the Lender or the Administrative
Agent in order to fully vest, perfect and maintain in the Lender any security
interests or other rights herein contemplated.
Section 6.13 FINANCIAL COVENANTS. Maintain the following:
28
<PAGE>
(a) A ratio of current assets to the sum of current
liabilities plus the aggregate outstanding balance under the Loan of at least
1.10 to 1.00 computed monthly as at the end of each month. Current assets
and current liabilities shall be calculated in accordance with GAAP. For
purposes of this Section 6.13(a), prepaid expenses and stockholder
receivables included in the calculation of current assets shall not exceed
$1,250,000.
(b) Maintain during each of the periods set forth below,
a minimum Net Worth calculated as at the end of each month in such period in
an amount which is greater than or equal to the amount set forth opposite
such period; PROVIDED THAT the minimum Net Worth that the Borrower is
required to maintain shall be increased by the sum of (i) 100% of the net
proceeds received by the Borrower for the sale of any equity securities after
the date of this Agreement, and (ii) 75% of the amount, if any, by which the
Borrower's net after-tax income determined in accordance with GAAP for the
fiscal year of the Borrower ending January 31, 1997 exceeds $2,900,000:
Period Minimum Net Worth
------ -----------------
Date hereof to and including $39,000,000
December 30, 1996
December 31, 1996 to and including $42,000,000
December 30, 1997
December 31, 1997 to and including $44,500,000
September 30, 1998
(c) Maintain on each of the dates set forth below a
maximum ratio of Funded Debt to EBITDA determined for the four fiscal
quarters of the Borrower ending on such date that is less than or equal to
the ratio set forth opposite such date;
Date Ratio
---- -----
January 31, 1997 3.5 to 1.0
April 30, 1997 3.5 to 1.0
July 31, 1997 3.5 to 1.0
October 31, 1997 3.5 to 1.0
January 31, 1998 3.5 to 1.0
April 30, 1998 3.5 to 1.0
July 31, 1998 3.5 to 1.0
Section 6.14 NOTIFICATIONS. Promptly after learning thereof,
notify the Administrative Agent in writing of the occurrence of (a) any Event
of Default or any act, condition or event that with the giving of notice
and/or the passage of time would constitute an Event of Default,
29
<PAGE>
which notification shall include a statement of the chief executive or
financial officer of the Borrower setting forth details of such act,
condition or event and the action the Borrower proposes to take with respect
thereto; (b) any material adverse change in the business, operations or
financial condition of the Borrower; or (c) the pendency or threat of any
investigation or material litigation or arbitration and of any tax deficiency
or other proceeding before any governmental body or official affecting the
Borrower.
Section 6.15 PRIMARY DEPOSIT RELATIONSHIP. Maintain the
Borrower's primary deposit relationship with the Lender and its affiliates.
Section 6.16 CHANGE IN MANAGEMENT. Immediately notify the
Administrative Agent of any change in the senior management (which shall mean
vice president or above) of the Borrower.
Section 6.17 INDEMNITY. The Borrower shall indemnify and hold
harmless the Lender and the Administrative Agent and persons or entities
owned or controlled by or affiliated with the Lender or the Administrative
Agent and their directors, officers, shareholders, partners, employees,
consultants and agents (herein individually called an "INDEMNIFIED PARTY,"
and collectively called "INDEMNIFIED PARTIES") from and against, and
reimburse and pay Indemnified Parties with respect to, any and all claims,
demands, liabilities, losses, damages (including, without limitation, actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs and expenses (including, without limitation,
attorneys' fees, court costs and legal expenses and consultants' and experts'
fees and expenses), of any and every kind or character, known or unknown,
fixed or contingent, that may be imposed upon, asserted against or incurred
or paid by or on behalf of any Indemnified Party on account of, in connection
with, or arising out of (a) any act performed or omitted to be performed
hereunder or the breach of or failure to perform any warranty,
representation, indemnity, covenant, agreement or condition contained in any
of the Loan Documents, (b) any transaction, act, omission, event or
circumstance arising out of or in any way connected with the Collateral or
the Borrower's performance or obligation under any of the Loan Documents, (c)
the Borrower's violation of or failure to comply with any statute, law, rule,
regulation or order now existing or hereafter occurring, including, without
limitation, environmental laws and statutes, laws, rules, regulations and
orders relating to pollutants, contaminants, wastes or hazardous, dangerous
or toxic substances, and (d) the Borrower's failure to pay any expense
associated with the Loan. Without limiting the generality of the foregoing,
it is the intention of the Borrower and the Borrower agrees that the
foregoing indemnities shall apply to each Indemnified Party with respect to
claims, demands, liabilities, losses, damages (including, without limitation,
actual, consequential, exemplary and punitive damages, causes of action,
judgments, penalties, fees, costs and expenses (including without
limitation, attorneys' fees, court costs and legal expenses and consultants'
and experts' fees and expenses) of any and every kind or character, known or
unknown, fixed or contingent, that in whole or in part are caused by or arise
out of the negligence of such Indemnified Party; however, such indemnities
shall not apply to any
30
<PAGE>
Indemnified Party to the extent the subject of that indemnification is caused
by or arises out of the gross negligence or willful misconduct of such
Indemnified Party. The foregoing indemnities shall not terminate upon release
or foreclosure of the Collateral, but shall survive foreclosure of the liens
and security interests created by the Loan Documents or conveyance in lieu of
foreclosure and the repayment and performance of the Loan and the discharge
and release of the liens and security interest created by the other Loan
Documents. Any amount to be paid hereunder by the Borrower or for which the
Borrower has indemnified an Indemnified Party shall be a demand obligation
owing by the Borrower to the Lender or the Administrative Agent and shall
bear interest at the Default Rate until paid, and shall constitute a part of
the Obligations and be indebtedness secured and evidenced by the Loan
Documents.
Section 6.18 LANDLORD'S WAIVERS. The Borrower shall deliver to
the Administrative Agent a landlord's waiver in form and substance acceptable
to the Administrative Agent from the landlord of any premises at which any of
the Collateral is located.
Section 6.19 LOAN EXPENSES. Within five (5) days after demand by
the Lender or the Administrative Agent, pay to the Administrative Agent any
Loan Expenses incurred by either the Lender or the Administrative Agent.
Section 6.20 MATERIAL INVENTORY SUPPLIER. Promptly after entering
into any agreement with any Material Inventory Supplier or any amendment to
any agreement with any Material Inventory Supplier (other than any amendment
which adds additional retail locations at which the Borrower is transacting
business), provide the Administrative Agent with a copy of such agreement or
amendment.
ARTICLE VII
NEGATIVE COVENANTS
Without the Lender's or the Administrative Agent's prior written
consent, so long as any or Obligations remain outstanding hereunder, the
Borrower will not:
Section 7.1 FIXED ASSET EXPENDITURES. Make any capital
expenditures (as such term is defined in accordance with GAAP) or
expenditures for fixed assets in excess of $8,000,000 during any fiscal year
of the Borrower.
Section 7.2 INDEBTEDNESS. Create, incur, permit, assume or
suffer to exist any Indebtedness, except (a) the obligations created hereby;
(b) Indebtedness created or incurred in the ordinary course of business which
constitutes trade payables or obligations other than indebtedness for
borrowed money or Indebtedness representing the deferred purchase price of
goods, (c) leases which are or should be classified as operating leases in
accordance with
31
<PAGE>
GAAP; (d) Manufacturer Payables, (e) the Bond Indebtedness, and (f) the
capital leases and term debt described on Schedule 7.2 hereto and additional
capital leases for store locations entered into in the ordinary course of
business.
Section 7.3 LIENS. Create, incur, permit, assume or suffer to
exist any liens on any Collateral not permitted by the Security Agreement.
Section 7.4 SELL, MERGE, DISPOSE OF ASSETS. Merge or consolidate
into or with any other corporation, or permit any other corporation to merge
into the Borrower, or dissolve or liquidate, or sell, lease or otherwise
dispose of, in a single transaction or a series of related transactions, all
or a substantial part of its assets or operating properties or the Collateral.
Section 7.5 CAPITAL STRUCTURE. Effect any recapitalization,
alter or amend its capital structure, or sell, transfer or otherwise convey any
or all of the stock of the Borrower the result of which would be to effectuate
a change in control of the Borrower.
Section 7.6 CHANGE OF BUSINESS. Change materially the nature of
the business conducted by the Borrower, engage to any material extent in a
kind of business materially different from that presently conducted or change
the Borrower's fiscal year.
Section 7.7 LOAN. Make any loan or salary advance to any Person;
except loans or salary advances to Borrower's officers, directors,
shareholders or employees not in excess of $100,000 in the aggregate
outstanding at any one time for all such loans and advances.
Section 7.8 ERISA COMPLIANCE. Permit any Plan maintained by it to
(a) engage in any "prohibited transaction" as such term is defined in Section
4975 of the Code, (b) incur any "accumulated funding deficiency" as such term
is defined in Section 302 of ERISA, (c) terminate in a manner which could
result in liability to the Borrower, any Subsidiary of the Borrower, or any
ERISA Affiliate of the Borrower or any ERISA Affiliate of any Subsidiary of
the Borrower that exceeds $1,200,000 or in the imposition of a lien on the
property of the Borrower pursuant to Section 4068 of ERISA or (d) experience
an ERISA Event or any other event or condition that may reasonably be
expected to result in liability to the Borrower, any ERISA Affiliate of any
Subsidiary of the Borrower, or any ERISA Affiliate of the Borrower or any
Subsidiary of the Borrower in an aggregate amount exceeding $1,200,000, or
(e) have nonforfeitable accrued benefits with a present value in excess of
the fair market value of Plan assets by $1,200,000 or more, all determined as
of the most recent actuarial valuation date for each such Plan based upon the
actuarial assumptions used by the Plan's actuaries for purposes of
determining the funding for the Plan pursuant to Section 412 of the Code.
The Borrower will not, and will not permit any Subsidiary of the Borrower or
any ERISA Affiliate of either of them to, create or suffer to exist any
liability, including, without limitation, liabilities with respect to
terminated employees, with respect to a Welfare Plan, if, immediately after
giving effect to such liability, the aggregate annualized cost (including,
without limitation, the cost of
32
<PAGE>
insurance premiums) with respect to Welfare Plans for which the Borrower, all
Subsidiaries of the Borrower and all ERISA Affiliates thereof are or may
become liable in any fiscal year of the Borrower would exceed $1,200,000.
Section 7.9 DISTRIBUTIONS, DIVIDENDS. Declare, pay, set aside
funds for or make any distribution or dividend, in cash or assets or trust,
to or for the benefit of the Borrower's shareholders.
Section 7.10 ASSIGNMENT. Assign or attempt to assign any of its
rights or delegate any of its duties under this Agreement or any other Loan
Document.
Section 7.11 USE OF FUNDS. Use funds advanced under this
Agreement for any purpose other than for ordinary working capital purposes.
Section 7.12 ACCOUNTING PROCEDURES. Make a material change in the
Borrower's accounting procedures, whether for tax purposes or otherwise,
except as may be required by GAAP.
Section 7.13 BORROWING BASE CONFORMITY. The Borrowing Base shall
not at any time include Inventory which the Borrower knows or should know to
be other than Acceptable Inventory.
Section 7.14 SUBSIDIARY OR AFFILIATE. Form or consent to or take
part in the formation of any Subsidiary or affiliate.
Section 7.15 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Amend or
permit any amendments to its Certificate of Incorporation, Bylaws or other
governing documents.
Section 7.16 INVESTMENTS AND NEW BUSINESSES. Make any
acquisitions of or capital contributions to or other investments in any
Person other than (a) investments in open market commercial paper, maturing
within 365 days after acquisition thereof, with a credit rating of at least
A-1 or P-1 by either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (b) marketable obligations issued or unconditionally
guaranteed by the United States of America or an instrumentality or agency
thereof and entitled to the full faith and credit of the United States of
America, (c) municipal bonds with a credit rating of at least A by either
Standard & Poor's or Moody's, and (d) demand deposits, time deposits
(including certificates of deposit), and money market accounts.
Section 7.17 BURDENSOME UNDERTAKINGS. Undertake, or become
contractually bound to undertake, any action that is reasonably likely to
have a material adverse affect on Borrower or its present or future business,
properties, assets, operations or financial condition.
33
<PAGE>
ARTICLE VIII
EVENTS OF DEFAULT
The occurrence of any one or more of the following events or existence of
one or more of the following conditions shall, at the election of the Lender,
constitute an Event of Default under this Agreement and all other Loan
Documents:
Section 8.1 FAILURE TO PAY NOTE. The Borrower shall fail to pay the
principal of or interest on the Note, or any installment thereof (whether due
on the date provided for therein or by acceleration or otherwise).
Section 8.2 OTHER OBLIGATIONS. The failure of the Borrower properly to
observe or perform any other obligation, covenant or agreement set forth
herein, which failure is not cured within 10 days after notice from the
Lender or the Administrative Agent.
Section 8.3 MISREPRESENTATION. Any representation or warranty made by
the Borrower to the Lender herein or in connection with the making of the
Loan, or in any certificate, statement or report made pursuant to this
Agreement is false, misleading or erroneous in any material respect.
Section 8.4 DEFAULT UNDER LOAN DOCUMENT. The occurrence of any default
by the Borrower, or the occurrence of any event or circumstance defined as an
event of default, under any of the Loan Documents, not cured within the
applicable cure period, if any, set forth therein.
Section 8.5 BANKRUPTCY. The Borrower or any of its Subsidiaries shall
make an assignment for the benefit of creditors; file a petition in
bankruptcy; be adjudicated insolvent or bankrupt or admit in writing the
inability to pay debts as they mature; petition or apply to any tribunal for
the appointment of a receiver of any trustee or similar officer for the
Borrower or a substantial part of the assets of the Borrower; or shall
commence any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or if there shall have been
filed any such petition or application, or any such proceeding shall have
been commenced against the Borrower that remains undismissed for a period of
sixty (60) days or more; or the Borrower by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding, or the appointment of a receiver of or any trustee
or similar officer for the Borrower, or the Collateral or any substantial
part of any of the properties of the Borrower, or shall suffer any such
receivership or trusteeship to continue undischarged for a period of thirty
days or more; or any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the
34
<PAGE>
Borrower, and such judgment, writ or similar process shall not be released,
vacated or fully bonded within sixty days after its issue or levy.
Section 8.6 INDEBTEDNESS. The Borrower shall fail to pay when due the
principal or interest on any Indebtedness of the Borrower in excess of
$250,000 in the aggregate, or a default by the Borrower in the observance or
performance of any term, covenant or agreement of the Borrower in any
agreement relating to any indebtedness of the Borrower, and the passage of
any period of grace with respect thereto, the effect of which default is to
permit the holder of such indebtedness to declare the same due prior to the
date fixed for its payment under the terms thereof.
Section 8.7 LOAN DOCUMENTS. This Agreement or any Loan Document shall at
any time for any reason cease to be in full force and effect.
Section 8.8 CONTEST LOAN DOCUMENTS. The Borrower shall contest the
validity or enforceability of, or deny that it has any or further liability
or obligations under, this Agreement or any Loan Document.
Section 8.9 MATERIAL ADVERSE CHANGE. There shall occur a material
adverse change, as reasonably determined by the Lender acting in good faith,
in the condition, value or marketability of the Collateral or in the
financial condition of the Borrower.
Section 8.10 LITIGATION. The commencement of any litigation or
proceeding which may reasonably be expected, in the good faith determination
of the Lender, to materially and adversely affect the ability of the Borrower
to perform its obligations under the Loan Documents, which has not been
dismissed within 120 days after filing.
Section 8.11 JUDGMENTS. The entry of a final judgment against the Borrower
in excess of $250,000 which shall not be discharged or execution thereon stayed
pending appeal or, in the event of such stay, such judgment shall not be
discharged immediately after such stay expires.
Section 8.12 ERISA. Any ERISA Event shall have occurred with
respect to a Plan and, thirty days after notice thereof shall have been given
to the Borrower by the Lender or the Administrative Agent (i) such ERISA Event
shall still exist and (ii) in the case of an ERISA Event described in clauses
(a), (e), (f), (i) and (j) of the definition of ERISA Event, the sum (determined
as of the date of occurrence of such ERISA Event) of the insufficiency of such
Plan and the Insufficiency of any and all other Plans with respect to which an
ERISA Event shall have occurred and then exist is equal to or greater than
$1,200,000.
Section 8.13 SECURITY INTEREST. Borrower shall grant or permit the
manufacturer, supplier, vendor or distributor of any of Borrower's Inventory or
any other Party to have any
35
<PAGE>
security interest in any of Borrower's Inventory, including, without
limitation, any purchase money security interest.
Section 8.14 QUALIFIED OPTION. The auditor's opinion accompanying the
audited financial statements provided by the Borrower pursuant to Section 6.7
shall contain any qualifications not acceptable to the Administrative Agent
in its reasonable discretion.
ARTICLE IX
REMEDIES
Section 9.1 RIGHT TO ACCELERATE. Upon the occurrence of any Event of
Default and at any time thereafter during the continuance thereof, the Lender
shall be under no further obligation to make Advances of the Loan hereunder
or take any other action with respect to this Agreement, and all amounts
advanced under the Loan shall, at the option of the Lender, bear interest
from the date of such Event of Default at the Default Rate of interest. Upon
the occurrence of an Event of Default, the Loan with all accrued interest and
other amounts payable hereunder, shall, at the option of the Lender during
the continuance of such Event of Default, become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of
which are expressly waived by the Borrower. Except as set forth in the
preceding sentence, the Lender may declare a default under all other Loan
Documents, and the Administrative Agent or the Lender (as applicable) may
proceed with every remedy available at law or in equity or provided for
herein or in any other Loan Documents, and all expenses incurred by the
Lender or the Administrative Agent (including, but not limited to, reasonable
attorneys' fees and disbursements) in connection with any remedy shall be
deemed Obligations of the Borrower to the Lender and a part of the
Obligations owed by the Borrower to the Lender hereunder.
Section 9.2 NO WAIVER; REMEDIES CUMULATIVE. No delay or failure of the
Lender or the Administrative Agent in the exercise of any right or remedy
provided for hereunder shall be deemed a waiver of the right by the Lender or
the Administrative Agent, and no exercise or partial exercise or waiver of
any right or remedy shall be deemed a waiver of any further exercise of such
right or remedy or of any other right or remedy that the Lender or the
Administrative Agent may have. The enforcement of any rights of the Lender
or the Administrative Agent as to any security for the Loan shall not affect
the rights of the Lender to enforce payment of the Loan and to recover
judgment for any portion thereof remaining unpaid. The rights and remedies
herein expressed are cumulative and not exclusive of any right or remedy that
the Lender or the Administrative Agent shall otherwise have.
36
<PAGE>
ARTICLE X
THE ADMINISTRATIVE AGENT
Section 10.1 APPOINTMENT. The Lender hereby irrevocably designates
and appoints the Administrative Agent as its agent under this Agreement and
the other Loan Documents, and irrevocably authorizes the Administrative Agent
as the agent for such Lender, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary contained elsewhere
in this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with the Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
Section 10.2 DELEGATION OF DUTIES. The Administrative Agent may
execute any of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to rely on
advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible to the Lender for the
negligence or misconduct of any agents or attorneys-in-fact selected by them,
provided that the Administrative Agent selects such agent or attorney-in-fact
with reasonable care.
Section 10.3 EXCULPATORY PROVISIONS. Neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates shall be (a) liable to Lender for any action lawfully taken or
omitted to be taken by it or such Person or entity under or in connection with
this Agreement or any other Loan Document (except for its or such Person's or
entity's own gross negligence or willful misconduct), or (b) responsible in any
manner to the Lender for any recitals, statements, representations or warranties
made by Borrower or any representative thereof or any other Person contained in
this Agreement or any other Loan Document or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with this Agreement or any other
Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Note or any other Loan
Document or for any failure of Borrower to perform its obligations hereunder or
thereunder. The Administrative Agent shall not be under any obligation to the
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
Section 10.4 RELIANCE BY THE ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
(a) any writing, resolution, notice,
37
<PAGE>
consent, certificate, affidavit, letter, telecopy or telex message, statement,
order or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
(b) advice and statements of legal counsel (including, without limitation,
counsel to the Borrower), (c) independent accountants and (d) other experts
selected by the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Lender (except as otherwise expressly provided
herein) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lender against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the Note and
the other Loan Documents in accordance with a request of the Lender (except
as otherwise expressly provided herein), and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lender
and all future holders of the Note.
Section 10.5 INDEMNIFICATION. The Lender agrees to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Note) be imposed on, incurred by or
asserted against the Administrative Agent in any way relating to or arising
out of this Agreement, any of the other Loan Documents or the transactions
contemplated hereby or thereby or any action taken or omitted the
Administrative Agent under or in connection with any of the foregoing;
PROVIDED THAT the Lender shall not be liable for the payment of any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Administrative Agent's gross negligence or willful misconduct. The
agreements in this subsection shall survive the payment of the Note and all
other amounts payable hereunder.
Section 10.6 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its affiliates may participate in the Loan and make
loans to, accept deposits from and generally engage in any kind of business
with Borrower as though it was not an Administrative Agent, hereunder and
under the other Loan Documents.
38
<PAGE>
ARTICLE XI
RIGHTS AND DUTIES OF LENDER
Section 11.1 ASSIGNMENTS AND PARTICIPATIONS. The Lender shall be
entitled at any time, and from time to time, to grant a participation
interest in portions of its interest in the Loan provided that the Lender
shall continue to act on behalf of itself and all participants hereunder and
such participants' interests in the Loan and the Loan Documents shall be
confined solely to the contractual relationship between the Lender and its
participants and such participants shall not be deemed a direct Lender
hereunder, or to sell an assignment of the Loan; provided, however, that no
such participation or sale of an assignment (other than the first three such
participations) shall result in any additional expense to the Borrower or
shall alter any of the rights or obligations of the Borrower hereunder. The
Borrower acknowledges that the Lender intends to sell participating interests
in the Loan and the Loan Documents and may sell an assignment of the Loan and
agrees to cooperate with the Lender in the sale of any such participating
interests or assignment.
Section 11.2 RELIANCE UPON ATTORNEYS. The Lender and the
Administrative Agent may rely upon advice received from time to time from
attorneys, experienced as bank counsel, and any action taken by the Lender or
the Administrative Agent upon the basis (if any such advice shall be deemed
to be reasonable.
Section 11.3 ACCEPTANCE AND CONSENT BY THE LENDER. Unless otherwise
indicated herein, the phrases "acceptable to the Lender," and "as the Lender
may require" or other similar phrases used in this Agreement, shall mean
acceptable to the Lender, in its sole and absolute discretion and as the
Lender, may require in its sole and absolute discretion. In addition, any
consent by or other action required by the Lender or the Administrative Agent
hereunder or under any other Loan Document or any discretion to be rendered
by the Lender or the Administrative Agent hereunder or under any other Loan
Document shall be in the Lender's or the Administrative Agent's sole and
absolute discretion unless otherwise indicated.
ARTICLE XII
MISCELLANEOUS
Section 12.1 COMMUNICATION.
(a) Any notice, request, demand, consent, approval or other
communication required or permitted hereunder to be given by the Borrower to
the Lender or the Administrative Agent shall be in writing and shall be
deemed to have been given when personally delivered, when delivered if by
overnight delivery service or three days after having
39
<PAGE>
been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the Lender or the Administrative
Agent at the address adjacent to such party's name on the signature page
hereto.
(b) Any notice, request, demand, consent, approval or other
communication required or permitted hereunder to be given to the Borrower
shall be deemed to have been given when personally delivered, when delivered
if sent by overnight delivery service, or three days after having been mailed
by United States registered or certified mail, return receipt requested,
postage prepaid, addressed to the Borrower at the address adjacent to
Borrower's name on the signature page hereto.
(c) Any party may change its address for purposes of receipt
of any such communication by giving ten (10) days' prior written notice of
such change to the other parties in the manner above prescribed.
Section 12.2 SEVERABILITY. In the event any provision of this Agreement
or any other Loan Document shall be held invalid or unenforceable by any
court of competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision hereof or thereof, nor affect the validity
or enforceability of such provision in any other jurisdiction.
Section 12.3 WAIVERS. No course of dealing on the part of any Lender or
the Administrative Agent, or the officers, employees, consultants or agents
thereof, nor any failure or delay by the Lender or the Administrative Agent
with respect to exercising any right, remedy, power or privilege under any
Loan Document or at law or in equity shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise or the exercise of any other right, remedy, power or privilege. No
waiver or consent shall be effective unless the same shall be in writing and
signed by the Lender, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances.
Section 12.4 CUMULATIVE RIGHTS. The enforcement of any rights of
the Lender as to any security for the Loan shall not affect the Lender's
rights to enforce payment of the Loan and to recover judgment for any portion
thereof remaining unpaid. The rights and remedies herein expressed are
cumulative and not exclusive of any right or remedy that the Lender, shall
otherwise have.
Section 12.5 RIGHT OF SETOFF. The Borrower hereby confirms the Lender's
rights of banker's lien and setoff and nothing in this Agreement, or any
other Loan Document shall be deemed a waiver, limitation or prohibition of
such right of banker's lien or setoff.
40
<PAGE>
Section 12.6 COLORADO LAW. The substantive law of Colorado shall govern
all the terms, conditions and interpretations of the Loan, this Agreement and
all other Loan Documents.
Section 12.7 VENUE AND JURISDICTION. In the event of litigation concerning
the Loan, this Agreement or any other Loan Documents, the parties hereto agree
that the exclusive venue and place of jurisdiction shall be the State of
Colorado, City and County of Denver, including the United States District Court
for the District of Colorado.
Section 12.8 ASSIGNMENT. The Borrower may not assign any of its rights
hereunder without the prior written consent of the Lender. Any assignment
without such consent shall be void and shall constitute a default hereunder.
Subject to Section 11.1, the Lender may sell, assign, transfer or grant
participations in all or any part of the Loan without the prior written
consent of the Borrower.
Section 12.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of and be enforceable by, the Borrower
the Administrative Agent and the Lender and their respective successors and
assigns.
Section 12.10 HEADINGS. The paragraph headings herein are for
convenience only and shall not affect the construction hereof.
Section 12.11 THIRD-PARTY BENEFICIARY. This Agreement and all
instruments, documents or agreements executed pursuant hereto are not
intended to benefit any person other than the Borrower and the Lender.
Section 12.12 ENTIRE AGREEMENT. This Agreement and the other Loan
Documents contain the entire agreement between the Borrower, the Lender and
the Administrative Agent with respect to the subject matter contained herein
and therein, and supersede and cancel any prior agreement or understanding,
oral or written, with respect to such subject matter.
Section 12.13 CONFLICT. In the event of a conflict between the terms,
covenants and conditions stated herein and those stated in any other Loan
Document, this Agreement shall govern.
41
<PAGE>
Section 12.14 SURVIVAL OF REPRESENTATION AND WARRANTIES. All
representations and warranties contained in this Agreement or made in writing
by or on behalf of the Borrower in connection with the actions contemplated
hereby shall survive the execution and delivery of this Agreement and of the
Note, regardless of any investigation at any time made by the Lender or on
any of their behalf. All statements contained in any certificate or other
instruments delivered by or on behalf of the Borrower hereunder or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties of the Borrower hereunder.
Section 12.15 EXECUTED COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of
which together shall constitute one agreement.
Section 12.16 WAIVER OF JURY TRIAL. The Borrower, the Lender and the
Administrative Agent hereby waive any right either may have to a jury trial
in the event of litigation concerning the Loan, this Agreement, or any other
Loan Document.
Section 12.17 NO ORAL AGREEMENTS. This document and all other documents
relating hereto constitute a credit agreement under C.R.S. Section 38-10-101
et seq. which represents the final agreement between the parties and may not
be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreement between the parties.
42
<PAGE>
Section 12.18 AMENDMENTS. This Agreement may be amended only by a
written agreement executed by the Borrower, the Lender and the Administrative
Agent.
BORROWER:
ULTIMATE ELECTRONICS, INC. a
Delaware corporation
By: /s/ David J. Workman
--------------------------------
David J. Workman, President
By: /s/ Alan Kessock
--------------------------------
Alan Kessock, Vice President,
Finance and Administration
321A W. 84th Avenue
Thornton, Colorado 80221
LENDER:
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION, a National Banking
Association
By: /s/ Karen I. Hardy
-------------------------------
Karen I. Hardy, Vice President
1740 Broadway
Denver, Colorado 80274-8673
Attention: Karen I. Hardy
ADMINISTRATIVE AGENT:
NORWEST BUSINESS CREDIT, INC.,
a Minnesota corporation
By: /s/ David Larsen
-------------------------------
David Larsen, Vice President
1740 Broadway
Denver, Colorado 80274-8625
43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 1283
<SECURITIES> 0
<RECEIVABLES> 14103
<ALLOWANCES> 0
<INVENTORY> 42868
<CURRENT-ASSETS> 59291
<PP&E> 53034
<DEPRECIATION> 8359
<TOTAL-ASSETS> 106133
<CURRENT-LIABILITIES> 28669
<BONDS> 34000
0
0
<COMMON> 70
<OTHER-SE> 40564
<TOTAL-LIABILITY-AND-EQUITY> 106133
<SALES> 177531
<TOTAL-REVENUES> 177531
<CGS> 130591
<TOTAL-COSTS> 44950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2438
<INCOME-PRETAX> (448)
<INCOME-TAX> (165)
<INCOME-CONTINUING> (283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
