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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, 1998
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 as of December 14, 1998 was
8,155,215.
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ULTIMATE ELECTRONICS, INC.
FORM 10-Q
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of October 31, 1998 and
January 31, 1998................................................. 3
Consolidated Statements of Operations for the three and nine
months ended October 31, 1998 and October 31, 1997............... 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended October 31, 1998 and October 31, 1997............... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 7
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
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ULTIMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
October 31, January 31,
1998 1998
------------ -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 4,165 $ 2,006
Accounts receivable 17,675 19,826
Merchandise inventories 52,220 43,908
Other assets 836 1,362
--------- ---------
Total current assets 74,896 67,102
Property and equipment, net 47,609 50,855
Property under capital leases, including
related parties, net 1,814 2,068
Goodwill, net 2,379 2,385
Other assets 1,030 1,036
--------- ---------
Total assets $ 127,728 $ 123,446
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Revolving line of credit $ -- $ 26,564
Accounts payable 31,488 25,550
Other current liabilities 12,308 9,410
--------- ---------
Total current liabilities 43,796 61,524
Revolving line of credit 24,015 --
Bonds payable 13,000 13,000
Term loans 411 642
Capital lease obligations, including
related parties 1,858 2,049
Deferred tax liability 810 1,510
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, 8,152,148
at October 31, 1998 and 8,139,548 at
January 31, 1998 82 81
Additional paid-in capital 33,888 33,868
Retained earnings 9,868 10,772
--------- ---------
Total stockholders' equity 43,838 44,721
--------- ---------
Total liabilities and stockholders' equity $ 127,728 $ 123,446
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
3
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ULTIMATE ELECTRONICS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
---------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 79,441 $ 81,990 $ 221,505 $ 199,442
Cost of goods sold 55,038 59,140 156,939 145,228
--------- --------- --------- ---------
Gross profit 24,403 22,850 64,566 54,214
Selling, general and administrative expenses 21,451 21,923 62,824 52,698
--------- --------- --------- ---------
Income from operations 2,952 927 1,742 1,516
Interest expense, net 978 1,107 3,176 2,861
--------- --------- --------- ---------
Income (loss) before income taxes 1,974 (180) (1,434) (1,345)
Income tax expense (benefit) 724 (65) (531) (497)
--------- --------- --------- ---------
Net income (loss) $ 1,250 $ (115) $ (903) $ (848)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per share of common stock - basic and diluted $ .15 $ (.01) $ (.11) $ (.11)
Weighted average shares outstanding - basic 8,152 8,038 8,147 7,459
Weighted average shares outstanding - diluted 8,160 8,038 8,147 7,459
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
4
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ULTIMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 6,201 $ 4,564
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,068) (4,333)
Purchase of Audio King -- (3,302)
-------- --------
Net cash used in investing activities (1,068) (7,635)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (paydown) borrowings on line of credit (2,549) 4,740
Proceeds from exercise of stock options 21 199
Principal payments on term loans and capital lease obligations (446) (444)
-------- --------
Net cash (used in) provided by financing activities (2,974) 4,495
-------- --------
Net increase in cash and cash equivalents 2,159 1,424
Cash and cash equivalents at beginning of period 2,006 764
-------- --------
Cash and cash equivalents at end of period $ 4,165 $ 2,188
-------- --------
-------- --------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
5
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ULTIMATE ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1998
1. ACCOUNTING POLICIES
The Company's unaudited condensed consolidated 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 the Company, 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, 1998 are not necessarily indicative of the results that
may be expected for the year ending January 31, 1999. 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, 1998.
2. PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the
accounts of all subsidiaries. All intercompany accounts and transactions
have been eliminated upon consolidation.
3. MERGER
On June 27, 1997, the Company completed a merger in which the Company
acquired all of the outstanding shares of Audio King Corporation ("Audio
King"). Audio King, a consumer specialty electronics company, operated 11
retail stores; eight in Minnesota, two in Iowa and one in South Dakota.
The purchase price consisted of $2.5 million in cash, 986,432 shares of
Ultimate's common stock valued at $2.6 million, assumed debt of $7.2
million, and other expenses and severance costs of $1.2 million. The
transaction was accounted for as a purchase, whereby the purchase price has
been allocated to the acquired assets and liabilities based on estimated
fair value at the acquisition date. The transaction resulted in the
Company recording goodwill in the amount of $2.5 million. The results of
operations since the acquisition date are included in the accompanying
condensed consolidated financial statements.
6
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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 that
may cause future results to vary materially. Such information includes
reference to future profitability and steps being taken to achieve that
result. Factors that may cause these results not to be achieved include,
without limitation, risks regarding increases in promotional activities of
competitors, changes in consumer buying, the presence or absence of new
products or product features in the Company's merchandise categories, changes
in the distribution strategy of the Company's vendors, changes in vendor
support for advertising and promotional programs, changes in the Company's
merchandise sales and mix as well as general economic conditions. Please
refer to a discussion of these and other factors in the Company's Annual
Report on Form 10-K for the year ended January 31, 1998 and other filings
with the Securities and Exchange Commission. The Company disclaims any
intent or obligation to update publicly 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, 1998 decreased 3% to $79.4
million from $82.0 million for the three months ended October 31, 1997. The
sales decrease was the result of the Company's previously announced plan to
reduce its mix of computer products. This planned reduction of computer
hardware selection to one computer vendor and one printer vendor resulted in
significantly lower computer sales. Excluding the computer category, sales
increased by 4% for the quarter over the same period in the prior year. Net
sales for the nine months ending October 31, 1998 increased 11% to $221.5
million from $199.4 million for the nine months ended October 31, 1997. The
increase in sales for the nine months was due primarily to the acquisition of
Audio King effective June 27, 1997. Sales of comparable stores were down 3%
and 7%, respectively, for the quarter and nine months ended October 31,
1998. Excluding the computer category, comparable store sales were up 4% for
the quarter and decreased 2% for the nine months ended October 31, 1998.
Gross profit for the three months ended October 31, 1998 increased 7% to
$24.4 million (30.7% of net sales) from $22.9 million (27.9% of net sales)
for the three months ended October 31, 1997. Gross profit for the nine
months ended October 31, 1998 increased 19% to $64.6 million (29.1% of net
sales) from $54.2 million (27.2% of net sales) for the nine months ended
October 31, 1997. During the quarter, sales of higher margin products in the
Company's core categories of audio, television and mobile electronics
contributed to the increase in gross margins.
Selling, general and administrative expenses for the three months ended
October 31, 1998 decreased to $21.5 million (27.0% of net sales) from $21.9
million (26.8% of net sales) for the same period in the prior year and down
from 29.0% of sales for the second quarter ended July 31, 1998. Selling,
general, and administrative expenses for the nine months ending October 31,
1998 increased to $62.8 million (28.3% of net sales) from $52.7 million
(26.4% of net sales) for the nine months ended October 31, 1997. Selling,
general and administrative expenses for the nine months were impacted by
higher store and advertising expenses associated with the Company's strategic
initiatives to increase the sales in the stores acquired through the Audio
King merger.
As a result of the foregoing, income from operations increased to $3.0
million (3.7% of net sales) for the three months ended October 31, 1998,
compared to income from operations of $927,000 (1.1% of net sales) for the
three months ended October 31, 1997. Income from operations was $1.7 million
(0.8% of net sales) for the nine months ended October 31, 1998 compared to
income from operations of $1.5 million (0.8% of net sales) for the nine
months ended October 31, 1997.
Interest expense decreased to $1.0 million for the three months ended October
31, 1998 from $1.1 million for the three months ended October 31, 1997,
primarily due to lower amounts outstanding under the Company's revolving line
of credit. Interest expense increased to $3.2 million for the nine months
ended October 31, 1998
7
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from $2.9 million for the nine months ended October 31, 1997 due to the
additional borrowings required as a result of the acquisition of Audio King.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity for funding
expansion and growth have been net cash from operations, revolving credit
lines, term loans and issuance of common stock. The Company's initial public
offering in October 1993 resulted in proceeds of $17.8 million (net of all
offering costs). The Company completed a second offering of its common stock
in November 1995 and received net proceeds of $12.5 million (net of all
offering costs). With the addition of Audio King, the Company now operates a
total of 30 stores in nine states.
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 previously purchased or redeemed by the Company) 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 $6.2 million for the nine months ended
October 31, 1998 compared to $4.6 million for the nine months ended
October 31, 1997.
The Company intends to continue its expansion into select metropolitan areas
in the Rocky Mountain, Midwest and Southwest regions with its larger format
stores. The Company has begun analyzing new store opportunities in existing
markets to replace some of the Company's smaller locations. The Company
completed the conversion of its County Line store from an outlet store to a
regular store on September 4, 1998. The Company expects to relocate and
expand two to five of its locations within the next three years along with
the possibility of adding new stores. At the present time, no firm
commitments for relocated or new stores have been made. The Company
currently anticipates these events to occur after fiscal 1999. The size of
these future stores is anticipated to be approximately 24,000 to 36,000
square feet at a projected cost of $30 to $55 per square foot. The inventory
requirement for the Company's new larger format stores averages approximately
$1.8 million per store, approximately $900,000 of which is financed through
credit.
The Company's primary capital requirements are directly related to
expenditures for new store openings and the remodeling and upgrading of
existing store locations. With the exception of the Thornton Facility, all
stores are leased. Capital expenditures to relocate and expand existing
stores are expected to average $1.3 million per store, excluding preopening
expenses averaging $250,000. 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.
On September 30, 1998, the Company executed a new three year $40 million
credit agreement with Foothill Capital Corporation (a wholly owned subsidiary
of Norwest Bank). This new facility replaced the Company's $35 million line
of credit with Norwest Bank Colorado, N.A. Borrowings under the Company's
new revolving line of credit are limited to the lesser of $40 million or 80%
of eligible inventory and a portion of accounts receivable. Borrowings bear
interest, payable monthly, based on a blend of LIBOR plus 2.0% or Norwest
Bank's prime rate minus 3/8%. Borrowings under this credit facility in the
amount of $24.0 million were outstanding as of October 31, 1998. Borrowings
are secured by inventories, accounts receivable, equipment and intangibles.
The Company was in compliance with all borrowing covenants at October 31, 1998.
The Company believes that its cash flow from operations and borrowings under
its new credit facility will be sufficient to fund the Company's operations
and debt repayment for fiscal 1999.
8
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To fund the capital requirements for its anticipated expansion plans beyond
fiscal 1999, the Company may be required to seek additional financing, which
may take the form of expansion of its new credit facility, or possibly
additional debt or equity financings. There can be no assurance that the
Company will be able to obtain such funds on favorable terms, if at all.
SEASONALITY
The Company's business is affected by seasonal consumer buying patterns. As
is the case with many other retailers, the Company's sales and profits have
been greatest in the fourth quarter (which includes the holiday selling
season). Operating results are dependent upon a number of factors, including
discretionary consumer spending, which is 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 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.
YEAR 2000 ISSUE
Until recently most computer programs were written to store only two digits
of date related information in order to more efficiently handle and sort
data. As a result, these programs were unable to properly distinguish
between dates occurring in the year 1900 and dates occurring in the year
2000. This is referred to as the "Year 2000 Issue". During fiscal 1999, the
Company has begun to review all applications and equipment to evaluate the
Company's exposure to the Year 2000 Issue. The required modifications to
existing systems have been identified and plans have been developed for
upgrades or remediation. The Company anticipates that the upgrades and
remediation will be completed by August 31, 1999. The Company's primary
information system software is provided by Tyler Retail Systems, Inc.
("Tyler") of Clearwater, FL. This software operates the vast majority of the
Company's systems and has been evaluated for Year 2000 compliance. Tyler has
assured the Company that the software version currently in use by the company
will be Year 2000 compliant during the first quarter of 1999. The Company
believes that no significant modifications to the Tyler software will be
necessary. The Company's system review also identified that some older
hardware and software may not currently be Year 2000 compliant. These items
are few in number and will be replaced on an accelerated basis to ensure Year
2000 compliance. In the opinion of the Company, costs of these upgrades are
not material to the financial condition or operation of the Company. The
Company is also in communication with third parties with whom it does
significant business in order to assess their Year 2000 compliance and
minimize the potential for adverse consequences, if any, that could result
from failure of such entities to address this issue. Year 2000 issues do
present risks that are outside of the control of the Company, including but
not limited to, the failure of utility companies to provide electricity, the
failure of telecommunications companies to provide voice and data transfer
services, the failure of financial services companies to process transactions
or transfer funds, and the failure of third party vendors or suppliers to
become Year 2000 compliant. The Company can make no assurances that Year 2000
issues will not have an adverse effect on the Company's business, financial
condition, or future operations.
9
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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:
10.24 Loan and Security Agreement between Ultimate
Electronics, Inc. and Foothill Capital Corporation
dated September 30, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
10
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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 14, 1998 By: /s/ Alan E. Kessock
----------------------- ---------------------------
Alan E. Kessock
Vice President, Chief Financial Officer,
Secretary and a Director (Principal
Financial and Accounting Officer)
11
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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND AMONG
ULTIMATE ELECTRONICS, INC.
ULTIMATE AKQUISITION CORP., AND
FAST TRAK, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF NOVEMBER 24, 1998
<PAGE>
TABLE OF CONTENTS
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Page(s)
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1. DEFINITIONS AND CONSTRUCTION 1
1.1. DEFINITIONS 1
1.2 ACCOUNTING TERMS 18
1.3 CODE 18
1.4 CONSTRUCTION 18
1.5 SCHEDULES AND EXHIBITS 18
1.6 THE TERM "BORROWER" OR "BORROWERS" 18
2. LOAN AND TERMS OF PAYMENT 19
2.1 REVOLVING ADVANCES 19
2.2 LETTERS OF CREDIT 20
2.3 OVERADVANCES 22
2.4 INTEREST AND LETTER OF CREDIT FEES; RATES, PAYMENTS AND CALCULATIONS 22
2.5 CREDIT CARD COLLECTIONS 23
2.6 DEPOSITORY ACCOUNTS 23
2.7 COLLECTIONS 24
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS 25
2.9 DESIGNATED ACCOUNT 25
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENT OF OBLIGATIONS 25
2.11 FEES 26
2.12 EURODOLLAR RATE LOANS 26
2.13 ILLEGALITY 28
2.14 REQUIREMENTS OF LAW 28
2.15 TAXES 30
2.16 INDEMNITY 32
2.17 JOINT AND SEVERAL LIABILITY; RIGHTS OF CONTRIBUTION 32
3. CONDITIONS; TERM OF AGREEMENT 33
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND LETTER
OF CREDIT PURSUANT TO SEPTEMBER 30, 1998 LOAN AGREEMENT 33
3.1A CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT 36
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND ALL LETTERS OF CREDIT, 37
3.3 CONDITION SUBSEQUENT 38
3.4 TERM; AUTOMATIC RENEWAL 38
3.5 EFFECT OF TERMINATION 38
3.6 EARLY TERMINATION BY BORROWER 38
3.7 TERMINATION UPON EVENT OF DEFAULT 40
<PAGE>
4. CREATION OF SECURITY INTEREST 40
4.1 GRANT OF SECURITY INTEREST 40
4.2 NEGOTIABLE COLLATERAL 40
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE COLLATERAL 40
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED 41
4.5 POWER OF ATTORNEY 41
4.6 RIGHT TO INSPECT 41
5. REPRESENTATIONS AND WARRANTIES 41
5.1 NO ENCUMBRANCES 42
5.2 ELIGIBLE ACCOUNTS 42
5.3 ELIGIBLE INVENTORY 42
5.4 EQUIPMENT 42
5.5 LOCATION OF INVENTORY AND EQUIPMENT 42
5.6 INVENTORY RECORDS 42
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN 42
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES 42
5.9 DUE AUTHORIZATION; NO CONFLICT 43
5.10 LITIGATION 44
5.11 NO MATERIAL ADVERSE CHANGE 44
5.12 SOLVENCY 44
5.13 EMPLOYEE BENEFITS 44
5.14 ENVIRONMENTAL CONDITION 44
5.15 YEAR 2000 COMPATIBILITY 45
5.16 LOCATIONS; LEASES 45
6. AFFIRMATIVE COVENANTS 46
6.1 ACCOUNTING SYSTEM 46
6.2 COLLATERAL AND FINANCIAL REPORTING 46
6.3 [INTENTIONALLY OMITTED] 50
6.4 TAX RETURNS 50
6.5 GUARANTOR REPORTS 50
6.6 RETURNS 50
6.7 TITLE TO EQUIPMENT 50
6.8 MAINTENANCE OF EQUIPMENT 50
6.9 TAXES 50
6.10 INSURANCE 51
6.11 NO SETOFFS OR COUNTERCLAIMS 52
6.12 LOCATION OF INVENTORY AND EQUIPMENT 52
6.13 COMPLIANCE WITH LAWS 52
6.14 EMPLOYEE BENEFITS 52
6.15 LEASES 53
6.16 LANDLORD WAIVERS AND CONSENTS 53
6.17 MATERIAL INVENTORY SUPPLIER 53
<PAGE>
6.18 YEAR 2000 COMPATIBILITY 53
7. NEGATIVE COVENANTS 54
7.1 INDEBTEDNESS 54
7.2 LIENS 54
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES 54
7.4 DISPOSAL OF ASSETS 55
7.5 CHANGE NAME 55
7.6 GUARANTEE 55
7.7 NATURE OF BUSINESS 55
7.8 PREPAYMENTS AND AMENDMENTS 55
7.9 CHANGE OF CONTROL 55
7.10 CONSIGNMENTS 56
7.11 DISTRIBUTIONS 56
7.12 ACCOUNTING METHODS 56
7.13 INVESTMENTS 56
7.14 TRANSACTIONS WITH AFFILIATES 56
7.15 SUSPENSION 57
7.16 [INTENTIONALLY OMITTED] 57
7.17 USE OF PROCEEDS 57
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES 57
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA 57
7.20 FINANCIAL COVENANTS 58
7.21 CAPITAL EXPENDITURES 58
8. EVENTS OF DEFAULT 59
9. FOOTHILL'S RIGHTS AND REMEDIES. 61
9.1 RIGHTS AND REMEDIES 61
9.2 REMEDIES CUMULATIVE 63
9.3 LICENSE 63
10. TAXES AND EXPENSES 63
11. WAIVERS; INDEMNIFICATION 64
11.1 DEMAND; PROTEST; ETC. 64
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL 64
11.3 INDEMNIFICATION 64
12. NOTICES 65
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 66
14. DESTRUCTION OF BORROWER'S DOCUMENTS 66
<PAGE>
15. GENERAL PROVISIONS 66
15.1 EFFECTIVENESS 66
15.2 SUCCESSORS AND ASSIGNS 67
15.3 SECTION HEADINGS 67
15.4 INTERPRETATION 67
15.5 SEVERABILITY OF PROVISIONS 67
15.6 AMENDMENTS IN WRITING 67
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION 67
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS 68
15.9 INTEGRATION 68
15.10 CONFIDENTIALITY 68
</TABLE>
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SCHEDULES AND EXHIBITS
- ----------------------
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 2.5 Credit Card Collection Arrangements
Schedule 2.6 Depository Account Schedule
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.16 Leased Locations
Schedule 6.12 Location of Inventory and Equipment
Exhibit C-1 Form of Compliance Certificate
Exhibit 6-2 Form of Borrowing Base Certificate
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "AGREEMENT") is
entered into as of November 24, 1998, by and among FOOTHILL CAPITAL
CORPORATION, a California corporation ("FOOTHILL"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, and ULTIMATE ELECTRONICS, INC., a Delaware corporation
("ULTIMATE"), with its chief executive office located at 321 West 84th
Avenue, Suite A, Thornton, Colorado 80221, ULTIMATE AKQUISITION CORP., a
Delaware corporation ("AKQUISITION"), with its chief executive office located
at 321 West 84th Avenue, Suite A, Thornton, Colorado 80221, and FAST TRAK,
INC., a Minnesota corporation ("FAST TRAK"), with its chief executive office
located at 321 West 84th Avenue, Suite A, Thornton, Colorado 80221
(Ultimate, Akquisition, and Fast Trak being hereinafter individually and
collectively referred to as "BORROWER", as governed by the provisions of
SECTION 1.6 of this Agreement).
A. Foothill and Ultimate entered into that certain Loan and Security
Agreement, dated as of September 30, 1998 (the "SEPTEMBER 30, 1998, LOAN
AGREEMENT").
B. The parties hereto desire to add Akquisition and Fast Trak as
co-borrowers to the credit facility established by the September 30, 1998
Loan Agreement and to make certain revisions to the September 30, 1998 Loan
Agreement.
C. To effectuate the foregoing, the parties hereto wish to
completely amend, restate and modify (but not extinguish) the September 30,
1998 Loan Agreement through the execution of this Agreement.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties intending to be legally bound, agree as
follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account.
"ACCOUNTS" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
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"ADJUSTED EURODOLLAR RATE" means, with respect to each Interest Period
for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next 1/16%) determined by dividing (a) the Eurodollar Rate
for such Interest Period by (b) a percentage equal to (i) 100% minus (ii) the
Reserve Percentage. The Adjusted Eurodollar Rate shall be adjusted on and as
of the effective day of any change in the Reserve Percentage.
"ADVANCES" has the meaning set forth in SECTION 2.1(a).
"AFFILIATE" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control
with or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the
power to vote 5% or more of the securities having ordinary voting power for
the election of directors or the direct or indirect power to direct the
management and policies of a Person.
"AGREEMENT" has the meaning set forth in the preamble hereto.
"AKQUISITION" has the meaning set forth in the preamble hereto.
"AKQUISITION STOCK PLEDGE AGREEMENT" means that certain Stock Pledge
Agreement, dated on or about the date hereof, executed by Akquisition in
favor of Foothill, whereby Akquisition grants Foothill a first priority
Lien in all capital stock of Fast Trak.
"AUTHORIZED PERSON" means any officer or other employee of Borrower.
"AVAILABILITY" means that amount available for loans and advances as
calculated by Foothill based upon the lending formula set forth in SECTION
2.1(a).
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
Section 101 ET SEQ.), as amended, and any successor statute.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"BLOCKED ACCOUNT AGREEMENT(S)" has the meaning set forth in SECTION
2.7(a)(i).
"BORROWER" has the meaning set forth in the preamble to this Agreement.
"BORROWER'S BOOKS" means all of Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing Borrower's properties
or assets (including the Collateral) or liabilities; all information relating
to Borrower's business operations or financial condition; and all computer
programs, disk or tape files, printouts, runs, or other computer prepared
information.
"BORROWING BASE" has the meaning set forth in SECTION 2.1(a).
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"BUSINESS DAY" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.
"BUSINESS PLAN" means the business plan of Borrower submitted to
Foothill, which business plan is hereby incorporated by reference, and any
revision, amendment or update to such business plan as to which Foothill has
given written approval.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than William J. Pearse, Barbara A.
Pearse and the various immediate family trusts of William J. Pearse and
Barbara A. Pearse, whether now existing or hereafter created including,
without limitation, the Williams James Pearse III Trust No. 1, the William
James Pearse III Trust No. 2, the Megan Pearse Trust No. 1, the Megan Pearse
Trust No. 2, the Bradford Pearse Trust No. 1 and the Bradford Pearse Trust
No. 2 and with respect to Akquisition, other than Ultimate, and with respect
to Fast Trak, other than Ultimate and Akquisition) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of more than 15% of the total voting power of all
classes of stock then outstanding of any Borrower entitled to vote in the
election of directors.
"CHATTEL PAPER" shall have the meaning set forth in the Code.
"CLOSING DATE" means September 30, 1998.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Chattel Paper
(d) the Equipment,
(e) the General Intangibles,
(f) the Inventory,
(g) the Investment Property,
(h) the Negotiable Collateral,
(i) any money, or other assets of Borrower that now or
hereafter come into
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the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance covering any or all
of the Collateral, and any and all Accounts, Borrower's Books, Equipment,
General Intangibles, Inventory, Investment Property, Negotiable Collateral,
money, deposit accounts, or other tangible or intangible property resulting
from the sale, exchange, collection, or other disposition of any of the
foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver, mortgagee waiver,
bailee letter, or acknowledgment agreement of any warehouseman, processor,
lessor, consignee, or other Person in possession of, having a Lien upon, or
having rights or interests in the Equipment or Inventory, in each case, in
form and substance satisfactory to Foothill.
"COLLECTIONS" means all cash, checks, notes, instruments, and other
items of payment (including, without limitation, all cash equivalents,
checks, and credit card slips and receipts as arise out of the sale of the
Collateral, insurance proceeds, proceeds of cash sales, rental proceeds, and
tax refunds).
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT C-1 and delivered by the chief accounting officer of Ultimate, on
behalf of Borrowers, to Foothill.
"CONCENTRATION ACCOUNT" means the Concentration Account Number
1018169963 established pursuant to the Blocked Account Agreement with the
Concentration Account Bank.
"CONCENTRATION ACCOUNT BANK" means Norwest Bank Colorado NA, whose
office is located at 1740 Broadway, Denver, Colorado 80274, and whose ABA
number is 102000076, or such other banks as may be agreed to by Borrower and
Foothill from time to time.
"COST" means the calculated cost of purchases, as determined from
invoices received by Borrower, Borrower's purchase journal or stock ledger,
based upon Borrower's accounting principles, known to Foothill, which
practices are in effect on the date on which this Agreement was executed.
"Cost" does not include any inventory capitalization costs inclusive of
advertising, but may include other charges used in Borrower's determination
of cost of goods sold and bringing goods to market, all within Foothill's
reasonable discretion and in accordance with GAAP.
"COST FACTOR" means the result of 1 minus Borrower's then cumulative
markup percent derived from Borrower's purchase journal.
"DAILY BALANCE" means the amount of an Obligation owed at the end of a
given day.
"DATED ASSETS" has the meaning set forth in SECTION 2.17.
"DATED LIABILITIES" has the meaning set forth in SECTION 2.17.
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"DEEMS ITSELF INSECURE" means that the Person deems itself insecure in
accordance with the provisions of Section 1208 of the Code.
"DEFAULT" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
"DESIGNATED ACCOUNT" means account number 1018169955 of Ultimate
maintained with Borrower's Designated Account Bank, or such other deposit
account of Ultimate (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Foothill.
"DESIGNATED ACCOUNT BANK" means Norwest Bank Colorado NA, whose office
is located at 1740 Broadway, Denver, Colorado 80274, and whose ABA number is
102000076, or such other bank as is acceptable to Foothill.
"DISBURSEMENT LETTER" means an instructional letter executed and
delivered by Borrower to Foothill regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be
satisfactory to Foothill.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION PREMIUM" has the meaning set forth in SECTION 3.6.
"ELIGIBLE ACCOUNTS" means those Accounts created by Borrower in the
ordinary course of business, that arise out of Borrower's sale of goods or
rendition of services, that strictly comply with each and all of the
representations and warranties respecting Accounts made by Borrower to
Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; PROVIDED, HOWEVER, that standards of
eligibility may be fixed and revised from time to time by Foothill in
Foothill's reasonable credit judgment. Eligible Accounts shall not include
the following:
(a) Accounts that the Account Debtor has failed to pay (i)
within 90 days of original invoice date or (ii) within 60 days of original
due date;
(b) Accounts owed by an Account Debtor or its Affiliates where
50% or more of all Accounts owed by that Account Debtor (or its Affiliates)
are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and
hold, or other terms by reason of which the payment by the Account Debtor may
be conditional;
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(e) Accounts that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office
in the United States, or (ii) is not organized under the laws of the United
States or any State thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (y) the Account is
supported by an irrevocable letter of credit satisfactory to Foothill (as to
form, substance, and issuer or domestic confirming bank) that has been
delivered to Foothill and is directly drawable by Foothill, or (z) the
Account is covered by credit insurance in form and amount, and by an insurer,
satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment
of Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United
States (exclusive, however, of Accounts owed by any State that does not have
a statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account;
(h) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage, unless otherwise consented to by Foothill;
(i) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts with respect to which the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by
the Account Debtor, or the Account otherwise does not represent a final sale;
(l) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report
or similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of
taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing
requirement; and
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(m) Accounts that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of
the subject contract for goods or services.
"ELIGIBLE INVENTORY" means consumer electronic products Inventory
consisting of first quality, finished goods held for sale in the ordinary
course of Borrower's business, net of any unearned vendors' discounts and
Inventory Reserves (as defined below), that are located at Borrower's
premises identified on SCHEDULE E-1, that strictly comply with each and all
of the representations and warranties respecting Inventory made by Borrower
to Foothill in the Loan Documents, and that are and at all times continue to
be acceptable to Foothill in all respects; PROVIDED, HOWEVER, that standards
of eligibility may be fixed and revised from time to time by Foothill in
Foothill's reasonable credit judgment. In determining the amount to be so
included, Inventory shall be valued at the lower of cost or market on a basis
consistent with Borrower's current and historical accounting practices.
Without limiting the foregoing, the following shall not be Eligible Inventory:
(a) Inventory that is not owned solely by Borrower or in which
Borrower does not have good, valid, and marketable title;
(b) Inventory that is not located at one of the locations set
forth on SCHEDULE E-1;
(c) Inventory that is not located on property owned or leased
by Borrower or in a contract warehouse, in each case (except for the County
Line Store and Colorado Boulevard Store), subject to a Collateral Access
Agreement executed by the mortgagee, lessor, the warehouseman, or other third
party, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;
(d) Inventory that is not subject to a valid and perfected
first priority security interest in favor of Foothill;
(e) Inventory that consists of goods in transit, other than
goods in transit between the locations specified in SCHEDULE E-1;
(f) Inventory that is damaged, defective, or not currently
saleable in the normal course of Borrower's operations;
(g) Inventory in an amount equal to Borrower's invoice
variance reserves;
(h) Discontinued consumer electronic products Inventory (to
include obsolete and slow-moving Inventory based upon it being on hand beyond
a number of days determined by Foothill from time to time) in an amount in
excess of 12% of total net amount of Borrower's consumer electronic products
Inventory (determined after deducting unearned vendors' discounts);
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(i) Free goods;
(j) That portion of Borrower's consumer electronic products
Inventory consisting of cellular phones in the net amount in excess of
$1,000,000 (determined after deducting unearned vendors' discounts);
(k) Inventory that is a restrictive or custom item,
work-in-process, a component that is not part of finished goods, or
constitutes parts, packaging and shipping materials, supplies used or
consumed in Borrower's business, is subject to a Lien in favor of any third
Person, consists of bill and hold goods, or Inventory acquired on
consignment; and
(l) Inventory that is non-SKU Inventory.
Foothill may establish reserves ("Inventory Reserves") from time to time in
Foothill's discretion with respect to the determination of the saleability,
at retail, of the Eligible Inventory or which reflect such other factors as
affect the current Retail or market value of the Eligible Inventory. Without
limiting the generality of the foregoing, Inventory Reserves may include (but
are not limited to) reserves based on the following: (i) the estimated
reclamation claims of unpaid sellers of Inventory sold to Borrower; (ii)
change in Inventory character, composition or mix; (iii) imbalance of
Inventory; (iv) retail markdowns or markups inconsistent with prior period
practice and performance; current business plans; or advertising calendar and
planned advertising events; (v) Inventory shrinkage; or (vi) the change in
the Orderly Liquidation Value of the Inventory.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts,
goods (other than consumer goods, farm products, or Inventory), wherever
located, including, (a) any interest of Borrower in any of the foregoing, and
(b) all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. Sections 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees
of Borrower under IRC Section 414(c), (c) solely for purposes of Section 302
of ERISA and Section 412 of the IRC, any organization subject to ERISA that
is a member of an affiliated service group of which Borrower is a member
under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA
and Section 412 of the IRC, any party subject to ERISA that is a party to an
arrangement with Borrower and whose employees are aggregated with the
employees of Borrower under IRC Section 414(o).
"ERISA EVENT" means (a) a Reportable Event with respect to any Benefit
Plan or
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Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in
a distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis
under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer
Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant
to Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing
any security to any Plan under Section 401(a)(29) of the IRC by Borrower or
its Subsidiaries or any of their ERISA Affiliates.
"EURODOLLAR RATE" means, with respect to the Interest Period for a
Eurodollar Rate Loan, the rate for deposits in U.S. dollars that appears as
the "LIBOR" or "Eurodollar" rate, as the case may be, in the BLOOMBERG
REPORTER two Business Days prior to the commencement of such Interest Period
as to the amount comparable to the amount of the Eurodollar Rate Loans
requested by and available to Borrower in accordance with this Agreement,
with a maturity of comparable duration to the Interest Period selected by
Borrower, or if no such "LIBOR" or "Eurodollar" rate appears on such day in
the BLOOMBERG REPORTER, the comparable "LIBOR" or "Eurodollar" rate, as the
case may be, that appears in THE WALL STREET JOURNAL two Business Days prior
to the commencement of such Interest Period. If no such "LIBOR" or
"Eurodollar Rate" appears on such date in either the BLOOMBERG REPORTER or
THE WALL STREET JOURNAL, the term "Eurodollar" rate shall mean, with respect
to the Interest Period for a Eurodollar Rate Loan, the interest rate per
annum at which United States dollar deposits are offered to Foothill (or its
Affiliates) by major banks in the London interbank market (or other
Eurodollar Rate market elected by Foothill) on or about 11:00 a.m. (New York
time) 2 Business Days prior to the commencement of such Interest Period in
amounts comparable to the amount of the Eurodollar Rate Loans requested by
and available to Borrower in accordance with this Agreement, with a maturity
of comparable duration to the Interest Period selected by Borrower.
"EURODOLLAR RATE LOANS" means any Advance (or any portion thereof) made
or outstanding hereunder during any period when interest on such Advance (or
portion thereof) is payable based on the Adjusted Eurodollar Rate.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCESS AVAILABILITY" means the amount as determined by Foothill at any
time, equal to (a) the amount of Advances available to Borrower as of such
time based upon the applicable lending formulas set forth in SECTION 2.1,
subject to the sublimits, Reserves Against Availability and other reserves
from time to time established in accordance with this Agreement minus (b) the
amount of the outstanding Obligations (including Letters of Credit).
"EXISTING LENDER" means Norwest Bank Colorado, National Association.
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"FAST TRAK" has the meaning set forth in the preamble to this Agreement.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this Agreement.
"FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.10.
"FOOTHILL EXPENSES" means all: costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with
Borrower, including, fees or charges for photocopying, notarization, couriers
and messengers, telecommunication, public record searches (including tax
lien, litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Collateral
appraisals), real estate surveys, real estate title policies and
endorsements, and environmental audits; costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the dishonor
of checks; costs and expenses paid or incurred by Foothill to correct any
default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion
thereof, irrespective of whether a sale is consummated; costs and expenses
paid or incurred by Foothill in examining Borrower's Books; costs and
expenses of third party claims or any other suit paid or incurred by Foothill
in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or Foothill's relationship
with Borrower or any guarantor; and Foothill's reasonable attorneys fees and
expenses incurred in advising, structuring, drafting, reviewing,
administering, amending, terminating, enforcing (including attorneys fees and
expenses incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations), defending, or concerning the Loan Documents, irrespective of
whether suit is brought.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and future general
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names (including, without limitation the
trade names "Soundtrack", "Ultimate Electronics", "Fast Trak", and "Audio
King"), trademarks, servicemarks, copyrights, blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension funds, route
lists, rights to payment and other rights under any royalty or licensing
agreements, infringement claims, computer programs, information contained on
computer disks or tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims), other than
goods, Accounts, and Negotiable Collateral.
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"GOVERNING DOCUMENTS" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROSS MARGIN PERCENTAGE" means, with respect to the subject accounting
period for which it is being calculated, the following (determined in
accordance with the cost method of accounting):
sales (minus) cost of goods sold x 100
--------------------------------
sales
"HAZARDOUS MATERIALS" means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations
as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable substances
or explosives or any radioactive materials, and (d) asbestos in any form or
electrical equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of 50 parts per million.
"INDEBTEDNESS" means: (a) all obligations of Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes,
or other similar instruments and all reimbursement or other obligations of
Borrower in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of Borrower under
capital leases, (d) all obligations or liabilities of others secured by a
Lien on any property or asset of Borrower, irrespective of whether such
obligation or liability is assumed, and (e) any obligation of Borrower
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"INTEREST PERIOD" means for any Eurodollar Rate Loan, the period
commencing on the Business Day such Eurodollar Rate Loan is disbursed or
continued, or on the Business Day on
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which a Reference Rate Loan is converted to such Eurodollar Rate Loan, and
ending on the date 1, 2, or 3 months thereafter, as selected by Borrower and
notified to Foothill pursuant to SECTION 2.1(c), and as further provided in
SECTION 2.12(a).
"INVENTORY" means all present and future inventory in which Borrower has
any interest, including goods held for sale or lease or to be furnished under
a contract of service and all of Borrower's present and future raw materials,
work in process, finished goods, and packing and shipping materials, wherever
located.
"INVESTMENT PROPERTY" means any security, whether certificated or
uncertificated, any security entitlement, any securities account, any
commodity contract or any commodity account.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in SECTION 2.2(a).
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(a).
"LANDLORD LIEN STATE" means any state or other jurisdiction under whose
statutory or common law the rights of a landlord in assets of that landlord's
tenant, for unpaid rent, may be senior to a perfected security interest in
such assets.
"LETTER OF CREDIT" means an L/C or an L/C Guaranty, as the context
requires.
"LIEN" means any interest in property securing an obligation owed to, or
a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the
existence of some future circumstance or circumstances, including the lien or
security interest arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, security agreement,
adverse claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, and other title exceptions and encumbrances
affecting Real Property.
"LOAN ACCOUNT" has the meaning set forth in SECTION 2.13.
"LOAN DOCUMENTS" means this Agreement, the Disbursement Letter, the
Letters of Credit, the Blocked Account Agreements, the Stock Pledge
Agreements, any note or notes executed by Borrower and payable to Foothill,
and any other agreement entered into, now or in the future, in connection
with this Agreement.
"MANUFACTURER PAYABLES" means Indebtedness of Borrower to the
manufacturers, suppliers, providers, vendors or distributors of Borrower's
Inventory incurred by Borrower for
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the acquisition of such Inventory, which Indebtedness is not secured by any
lien, security interest or encumbrance.
"MATERIAL ADVERSE CHANGE" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrowers, taken as a whole, (b) the
material impairment of Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or of Foothill to enforce the
Obligations or realize upon the Collateral, (c) a material adverse effect on
the value of the Collateral or the amount that Foothill would be likely to
receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral, or (d) a material
impairment of the priority of Foothill's Liens with respect to the Collateral.
"MATERIAL INVENTORY SUPPLIER" means any supplier, provider,
manufacturer, vendor or distributor of Borrower's Inventory from whom
Borrower purchases, directly or indirectly, two percent (2%) or more of the
total Inventory purchased by Borrower.
"MAXIMUM REVOLVING AMOUNT" means $40,000,000.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past
six years.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, investment property, security
entitlements, securities (including the shares of stock of Subsidiaries of
Borrower), documents, personal property leases (wherein Borrower is the
lessor), chattel paper, and Borrower's Books relating to any of the foregoing.
"ORDERLY LIQUIDATION VALUE" means the liquidation value of Eligible
Inventory as determined from time to time by Ozer Valuation Services LLC,
Gordon Brothers Retail Partners, LLC, or other appraiser reasonably
acceptable to Foothill (in each case, as selected by Foothill).
"OBLIGATIONS" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination
Premiums), liabilities (including all amounts charged to Borrower's Loan
Account pursuant hereto), obligations, fees, charges, costs, or Foothill
Expenses (including any fees or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties owing by Borrower to Foothill of any kind and description (whether
pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between Foothill and Borrower, and irrespective of whether for the
payment of money), whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not
paid when due and all Foothill Expenses that Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise.
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"ONE TURN STATE" means any state or other jurisdiction under whose
statutory or common law the relative priority of the rights of a landlord in
assets of that landlord's tenant, for unpaid rent, vis a vis the rights of
the holder of a perfected security interest therein is dependent upon whether
such security interest arose prior or subsequent to the subject asset's
coming onto the demised premises.
"OVERADVANCE" has the meaning set forth in SECTION 2.5.
"PARTICIPANT" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PAY-OFF LETTER" means a letter, in form and substance reasonably
satisfactory to Foothill, from Existing Lender respecting the amount
necessary to repay in full all of the obligations of Borrower owing to
Existing Lender and obtain a termination or release of all of the Liens
existing in favor of Existing Lender in and to the properties or assets of
Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"PERMITTED LIENS" means (a) Liens held by Foothill, (b) Liens for unpaid
taxes that either (i) are not yet due and payable or (ii) are the subject of
Permitted Protests, (c) Liens set forth on SCHEDULE P-1, (d) the interests of
lessors under operating leases and purchase money Liens of lessors under
capital leases to the extent that the acquisition or lease of the underlying
asset is permitted under SECTION 7.21 and so long as the Lien only attaches
to the asset purchased or acquired (and proceeds from the sale or transfer
thereof) and only secures the purchase price of the asset, (e) Liens arising
by operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of
business of Borrower and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet due and payable, or (ii) are the
subject of Permitted Protests, (f) Liens arising from deposits made in
connection with obtaining worker's compensation or other unemployment
insurance, (g) Liens or deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement), incurred in the
ordinary course of business of Borrower and not in connection with the
borrowing of money, (h) Liens arising by reason of security for surety or
appeal bonds in the ordinary course of business of Borrower, (i) Liens of or
resulting from any judgment or award that would not cause a Material Adverse
Change and as to which the time for the appeal or petition for rehearing of
which has not yet expired, or in respect of which Borrower is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which a
stay of execution pending such appeal or proceeding for review has been
secured, and (j) with respect to any Real Property, easements, rights of way,
zoning and similar covenants and restrictions, and similar encumbrances that
customarily exist on properties of Persons engaged in similar activities and
similarly situated and that in any event do not materially interfere with or
impair the use or operation of the Collateral by Borrower or the value of
Foothill's Lien thereon or therein, or materially interfere with the ordinary
conduct of the business of Borrower.
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"PERMITTED PROTEST" means the right of Borrower to protest any Lien
other than any such Lien that secures the Obligations, tax (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (c) Foothill is
satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Liens
of Foothill in and to the Collateral.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts,
or other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PERSONAL PROPERTY" means all Collateral.
"PLAN" means any employee benefit plan, program, or arrangement
maintained or contributed to by Borrower or with respect to which it may
incur liability.
"REAL PROPERTY" means any estates or interests in real property now
owned or hereafter acquired by Borrower.
"REFERENCE RATE" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"REFERENCE RATE LOAN" means any Advance (or any portion thereof) made or
outstanding hereunder during any period when interest on such Advance (or
portion thereof) is payable based on the Reference Rate.
"RENEWAL DATE" has the meaning set forth in SECTION 3.4.
"REPORTABLE EVENT" means any of the events described in Section 4043(c)
of ERISA or the regulations thereunder other than a Reportable Event as to
which the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"REQUIREMENT OF LAW" means, as to any Person: all (i) statutes and
regulations and (ii) court orders and injunctions, arbitrator's decisions,
and/or similar rulings, in each instance by any Governmental Authority, or
other body which has jurisdiction over such Person, or any property of such
Person, or of any other Person for whose conduct such Person would be
responsible.
"RESERVE PERCENTAGE" means and refers to, as of the date of
determination thereof, the maximum percentage (rounded upward, if necessary
to the nearest 1/100th of 1%), as determined by Foothill (or its Affiliates)
in accordance with its (or their) usual procedures (which determination shall
be conclusive in the absence of manifest error), that is in effect on such
date
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as prescribed by the Federal Reserve Board for determining the reserve
requirements ( including supplemental, marginal, and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as
"eurocurrency liabilities") by Foothill or its Affiliates.
"RESERVES AGAINST AVAILABILITY" means such reserves as Foothill from
time to time determines in Foothill's discretion as being appropriate to
reflect impediments to Foothill's ability to realize upon the Collateral.
Without limiting the generality of the foregoing, Reserves Against
Availability may include (but are not limited to) reserves based on the
following:
(a) Rent
(i) based upon past due rent, and
(ii) based upon Borrower's locations in a Landlord Lien State or
One-Turn State if no landlord waiver acceptable to Foothill
has been obtained.
(b) In store customer credits and gift certificates.
(c) Past due payables.
(d) Layaway and customer deposits, including special order customer
deposits.
(e) Past due or accrued taxes and other governmental charges, including,
ad valorem, personal property and other taxes which may have
priority over the security interests of Foothill in the Collateral.
(f) Past due or accrued warehouse and storage charges.
Notwithstanding the foregoing, (i) as long as during the period beginning the
Closing Date and continuing through December 31, 1998 Borrower's Tangible Net
Worth is in excess of $38,500,000, no Reserves Against Availability will be
established as to either of the items described in clauses (b) and (d) above,
and (ii) as long as during the period beginning January 1, 1999 and
continuing thereafter during the term of this Agreement, Borrower's Tangible
Net Worth is in excess of $40,000,000 no Reserves Against Availability will
be established as to either of the items described in clauses (b) and (d)
above.
"RETAIL" means the Cost of Inventory divided by the Cost Factor.
"RETIREE HEALTH PLAN" means an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA that provides benefits to individuals
after termination of their employment, other than as required by Section 601
of ERISA.
"SALE OF CONTROL" means 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 Borrower) of an aggregate of 75% or more of the assets of the
Borrowers, taken as a whole, or capital stock of Ultimate.
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"SEPTEMBER 30, 1998 LOAN AGREEMENT" has the meaning set forth in the
preamble to this Agreement.
"SOLVENT" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature,
and (e) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
properties and assets would constitute unreasonably small capital after
giving due consideration to the prevailing practices in the industry in which
such Person is engaged. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.
"SPECIAL INVENTORY ADVANCE AMOUNT" means, at any date of determination,
the lesser of (a) $5,000,000 or (b) five percent (5%) of the Cost of Eligible
Inventory.
"SPECIAL INVENTORY ADVANCES" means Advances made by Foothill to Borrower
due to the "Special Inventory Advance Amount" portion of the Borrowing Base.
"STOCK PLEDGE AGREEMENTS" means the Akquisition Stock Pledge Agreement
and the Ultimate Stock Pledge Agreement.
"SUBSIDIARY" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors
(or appoint other comparable managers) of such corporation, partnership,
limited liability company, or other entity.
"SUSPENSION EVENT" means any occurrence, circumstance or state of facts
which (a) is an Event of Default or (b) would become an Event of Default with
the passage of time.
"TANGIBLE NET WORTH" means, as of any date of determination, the sum of
the par or stated value of all outstanding capital stock, surplus and
undistributed profits of 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,
prepaid items and deposits, all as determined on a consolidated basis in
accordance with generally accepted accounting principles.
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"ULTIMATE" has the meaning set forth in the preamble to this Agreement.
"ULTIMATE STOCK PLEDGE AGREEMENT" means that certain Stock Pledge
Agreement, dated on or about the date hereof, executed by Ultimate in favor
of Foothill whereby Ultimate grants Foothill a first priority Lien in all
capital stock of Akquisition.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
"YEAR 2000 COMPLIANT" means that Borrower's computer software programs
(whether used in Borrower's business or licensed by or to Borrower to or from
third parties) effectively processes data including data fields requiring
references to dates on and after January 1, 2000 and have been designed not
to experience or produce invalid or incorrect results or abnormal software
operation related to or as a result of the occurrence of such dates.
1.2. ACCOUNTING TERMS All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3. CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4. CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references
to the singular include the plural, the term "including" is not limiting, and
the term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of
Default shall "continue" or be "continuing" until such Event of Default has
been waived in writing by Foothill. Section, subsection, clause, schedule,
and exhibit references are to this Agreement unless otherwise specified. Any
reference in this Agreement or in the Loan Documents to this Agreement or any
of the Loan Documents shall include all alterations, amendments,
restatements, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.
1.5. SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
1.6 THE TERM "BORROWER" OR "BORROWERS". Unless otherwise
specifically provided herein, all references to "Borrower" or "Borrowers"
herein shall refer to and include each Borrower separately and all
representations contained herein shall be deemed to be separately made by
each of them, and each of the covenants, agreements and obligations set forth
herein shall be deemed to be the joint and several covenants, agreements and
obligations of them.
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Any notice, request, consent, report or other information or agreement
delivered to Foothill by any Borrower shall be deemed to be ratified by,
consented to and also delivered by each other Borrower. Each Borrower
recognizes and agrees that each covenant and agreement of "Borrower" or
"Borrowers" under this Agreement and the other Loan Documents shall create a
joint and several obligation of the Borrowers, which may be enforced against
Borrowers, jointly or against each Borrower separately. Without limiting the
terms of this Agreement and the other Loan Documents, security interests,
assets and collateral shall extend to the properties, interests, assets and
collateral of each Borrower. Similarly, the term "Obligations" shall
include, without limitation, all obligations, liabilities and indebtedness of
such corporations, or any one of them, to Foothill, whether such obligations,
liabilities and indebtedness shall be joint, several, joint and several or
individual. Unless otherwise specified in this Agreement, the parties hereto
anticipate that any notice, request, consent, report or other information or
agreement to be delivered in connection with this Agreement by Borrowers to
Foothill will be executed by Ultimate, on behalf of Borrowers, and that any
such notice, request, consent, report or other information or agreement
delivered to Foothill and executed by Ultimate shall be deemed to be executed
by Ultimate on behalf of all the Borrowers. In addition, unless otherwise
specified in this Agreement, the parties hereto anticipate that any advances
made hereunder by Foothill to Borrowers shall be disbursed directly to
Ultimate.
2. LOAN AND TERMS OF PAYMENT.
2.1. REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum
Revolving Amount LESS the outstanding balance of all undrawn or unreimbursed
Letters of Credit, or (ii) the Borrowing Base LESS the aggregate amount of
all undrawn or unreimbursed Letters of Credit. For purposes of this
Agreement, "Borrowing Base", as of any date of determination, shall mean the
result of:
(w) THE LESSER OF (i) 75% of Eligible Accounts, and (ii)
$2,500,000, PLUS
(x) 75% of the Cost of Eligible Inventory, PLUS
(y) the Special Inventory Advance Amount, MINUS
(z) the aggregate of such Reserves Against Availability as
may have been established by Foothill.
(b) Each Advance shall be made upon Borrower's request
(pursuant to the terms of SECTION 2.9), which request shall be irrevocable
except as set forth in SECTION 2.12, specifying (i) the amount of the
requested Advance; (ii) the requested funding date of such Advance; (iii)
whether the Advance is to constitute a Eurodollar Rate Loan or a Reference
Rate Loan (provided that a Special Inventory Advance must be a Reference Rate
Loan); and (iv) if such Advance is to constitute a Eurodollar Rate Loan, the
requested Interest Period therefor. If
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the requested Advance constitutes a Eurodollar Rate Loan, such request must
be delivered to Foothill no later than 11:00 a.m. (California time) two
Business Days prior to the requested funding date therefor.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations to
exceed the Maximum Revolving Amount.
(d) Amounts borrowed pursuant to this SECTION 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
2.2. LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue letters of credit for the account of Borrower (each,
an "L/C") or to issue guarantees of payment (each such guaranty, an "L/C
Guaranty") with respect to letters of credit issued by an issuing bank for
the account of Borrower. Foothill shall have no obligation to issue a Letter
of Credit if any of the following would result:
(i) 100% of the aggregate amount of all undrawn and
unreimbursed Letters of Credit would exceed the Borrowing Base LESS
the amount of outstanding Advances and LESS the aggregate amount of
all Reserves Against Availability; or
(ii) the aggregate amount of all undrawn or unreimbursed
Letters of Credit would exceed the lower of: (x) the Maximum
Revolving Amount LESS the amount of outstanding Advances and LESS
the aggregate amount of the Reserves Against Availability; or (y)
$1,000,000; or
(iii) the outstanding Obligations would exceed the Maximum
Revolving Amount.
Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of
credit that are to be the subject of L/C Guarantees. Borrower and Foothill
acknowledge and agree that certain of the letters of credit that are to be
the subject of L/C Guarantees may be outstanding on the Closing Date. Each
Letter of Credit shall have an expiry date no later than 60 days prior to the
date on which this Agreement is scheduled to terminate under SECTION 3.4
(without regard to any potential renewal term) and all such Letters of Credit
shall be in form and substance acceptable to Foothill in its sole discretion.
If Foothill is obligated to advance funds under a Letter of Credit, Borrower
immediately shall reimburse such amount to Foothill and, in the absence of
such reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an Advance hereunder and, thereafter, shall bear
interest at the rate then applicable to Advances under SECTION 2.4.
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(b) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred
by Foothill arising out of or in connection with any Letter of Credit.
Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any Letters of Credit guarantied by Foothill and opened to
or for Borrower's account or by Foothill's interpretations of any L/C issued
by Foothill to or for Borrower's account, even though this interpretation may
be different from Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrower's instructions or those
contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that the L/C Guarantees may
require Foothill to indemnify the issuing bank for certain costs or
liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify, save, defend, and hold Foothill harmless
with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by Foothill under any L/C Guaranty as a result
of Foothill's indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the
issuing bank pursuant to such letter of credit, and to accept and rely upon
Foothill's instructions and agreements with respect to all matters arising in
connection with such letter of credit and the related application. Borrower
may or may not be the "applicant" or "account party" with respect to such
letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred
by Foothill relating to the letters of credit guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Foothill
in an amount equal to 110% of the maximum amount of Foothill's obligations
under Letters of Credit (such cash collateral to be released upon the release
of all of Foothill's obligations thereunder), or (ii) cause to be delivered
to Foothill releases of all of Foothill's obligations under outstanding
Letters of Credit. At Foothill's discretion, any proceeds of Collateral
received by Foothill after the occurrence and during the continuation of an
Event of Default may be held as the cash collateral required by this SECTION
2.2(E).
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or
application by any governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or Foothill with
any direction, request, or requirement (irrespective of whether having the
force of law) of any governmental authority or monetary authority including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is or
shall be imposed
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or modified in respect of any Letters of Credit issued hereunder, or
(B) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the
cost to the issuing bank or Foothill of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or
Foothill, then, and in any such case, Foothill may, at any time within a
reasonable period after the additional cost is incurred or the amount
received is reduced, notify Borrower, and Borrower shall pay on demand such
amounts as the issuing bank or Foothill may specify to be necessary to
compensate the issuing bank or Foothill for such additional cost or reduced
receipt, together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in SECTION 2.4(a)(i) or
(c)(i), as applicable. The determination by the issuing bank or Foothill, as
the case may be, of any amount due pursuant to this SECTION 2.2(f), as set
forth in a certificate setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest or demonstrable error, be final and
conclusive and binding on all of the parties hereto.
2.3. OVERADVANCES. If, at any time or for any reason, the aggregate
amount of Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1
AND 2.2 is greater than either the Dollar or percentage limitations set forth
in SECTIONS 2.1 OR 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under SECTION 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.
2.4. INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate. Except as provided in clause (c) below,
all Obligations (except for undrawn Letters of Credit) shall bear interest on
the Daily Balance as follows: (i) Each Eurodollar Rate Loan shall bear
interest at a per annum rate of two percentage points ABOVE the Adjusted
Eurodollar Rate; (ii) each Special Inventory Advance shall bear interest at a
per annum rate of 1.5 percentage points ABOVE the Reference Rate, and (iii)
all other Obligations shall bear interest at a per annum rate of 0.375
percentage points BELOW the Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Foothill a fee
(in addition to the charges, commissions, fees, and costs set forth in
SECTION 2.2(d)) equal to 1.50% per annum times the Daily Balance of the
aggregate undrawn amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit) shall bear interest at a per annum rate equal to 2.50
percentage points ABOVE the interest rate otherwise stated in SECTION 2.4(a)
above, and (ii) the Letter of Credit fee provided in SECTION 2.4(b) shall be
increased to 2.50% ABOVE the rate otherwise stated in SECTION 2.4(b) herein.
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(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 6% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less
than the foregoing minimum daily rate, the interest rate chargeable hereunder
for such day automatically shall be deemed increased to the minimum rate. To
the extent that interest accrued hereunder at the rate set forth herein
(including the minimum interest rate) would yield less than the foregoing
minimum amount, the interest rate chargeable hereunder for the period in
question automatically shall be deemed increased to that rate that would
result in the minimum amount of interest being accrued and payable hereunder.
(e) Payments. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each
month during the term hereof. Borrower hereby authorizes Foothill, at its
option, without prior notice to Borrower, to charge such interest and Letter
of Credit fees, all Foothill Expenses (as and when incurred), the charges,
commissions, fees, and costs provided for in SECTION 2.2(d) (as and when
accrued or incurred), the fees and charges provided for in SECTION 2.10 (as
and when accrued or incurred), and all installments or other payments due
under any Loan Document to Borrower's Loan Account, which amounts thereafter
shall accrue interest at the rate then applicable to Advances hereunder. Any
interest not paid when due shall be compounded and shall thereafter accrue
interest at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is 8.50% per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. All interest and fees chargeable
under the Loan Documents shall be computed on the basis of a 360 day year for
the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill, in executing
and delivering this Agreement, intend legally to agree upon the rate or rates
of interest and manner of payment stated within it; PROVIDED, HOWEVER, that,
anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, IPSO FACTO as of the date of this Agreement, Borrower
is and shall be liable only for the payment of such maximum as allowed by
law, and payment received from Borrower in excess of such legal maximum,
whenever received, shall be applied to reduce the principal balance of the
Obligations to the extent of such excess.
2.5. CREDIT CARD COLLECTIONS.
(a) Annexed hereto is SCHEDULE 2.5, which describes all
arrangements to which Borrower is a party with respect to the payment to
Borrower of the proceeds of all credit card charges for sales by Borrower.
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(b) Payment of all credit card charges submitted by Borrower
to credit card clearinghouses or other processors identified on SCHEDULE 2.5
or otherwise and any other amounts payable to Borrower by such clearinghouses
or other processors shall be directed to such account as may be designated by
Foothill.
2.6. DEPOSITORY ACCOUNTS. Annexed hereto is SCHEDULE 2.6 which
describes all present depository accounts of Borrower, which schedule
includes, with respect to each such depository account (i) the name and
address of that depository; (ii) the account number(s) maintained with such
depository; and (iii) a contact person at such depository. In addition, the
following depository accounts have been or will be established (and are
referred to herein):
(a) The Concentration Account, the contents of which shall
constitute Collateral and Negotiable Collateral.
(i) Borrower shall contemporaneous with the execution
of this Agreement, (x) provide Foothill with such blocked account agreements
(the "Blocked Account Agreements"), in form and substance satisfactory to
Foothill, of the depository with which the Concentration Account is
maintained as may be satisfactory to Foothill; and (y) not establish any
Concentration Account hereafter except upon not less than thirty (30) days
prior written notice to Foothill and the delivery to Foothill of a similar
such agreement acceptable to Foothill.
(ii) Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by Foothill or by any
bank in which any account is opened as required hereby (even if such account
is opened by Foothill).
(b) The Designated Account.
Borrower shall not establish any depository accounts hereafter unless
Borrower, contemporaneous with such establishment, delivers to Foothill an
agreement (in form satisfactory to Foothill) executed on behalf of the
depository with which such depository account is being established.
2.7. COLLECTIONS.
(a) All Collections constitute Collateral and proceeds of
Collateral and shall be held in trust by Borrower for Foothill; shall not be
commingled with any of Borrower's other funds; and shall be deposited and/or
transferred daily only to the Concentration Account.
(b) Borrower shall cause the ACH or wire transfer to the
Concentration Account, no less than daily (and whether or not there is then
an outstanding balance in the Loan Account) of all Collections, including,
without limitation:
(i) The then contents of each depository account (other
than the Designated Account), each such transfer to be
net of any minimum balance, not to exceed $1,500, as
may be required to be maintained
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in the subject depository account by the bank at
which such depository account is maintained.
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
(c) Foothill shall transfer to the Designated Account any
surplus (attributable to Borrower) in excess of the Obligations in Foothill
Account remaining after the application to the Obligations referred to in
Section 2.10 (less those amounts which are to be netted out as provided
therein).
(d) Upon terms and conditions set forth in the Blocked Account
Agreement, all Collections received in the Concentration Account shall be
wired into an account designated by Foothill (the "Foothill Account").
2.8. CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of
any Collections by Foothill (whether from transfers to Foothill by the
depository account banks or Concentration Account Banks or otherwise)
immediately shall be applied provisionally to reduce the Obligations
outstanding under SECTION 2.1, but shall not be considered a payment on
account unless such Collection item is a wire transfer of immediately
available federal funds and is made to Foothill Account or unless and until
such Collection item is honored when presented for payment. From and after
the Closing Date, Foothill shall be entitled to charge Borrower for one
Business Day of 'clearance' or 'float' at the rate set forth in SECTION
2.4(a)(i) or SECTION 2.4(c)(i), as applicable, on all Collections that are
received by Foothill (regardless of whether forwarded by the depository
account banks or Concentration Account Banks to Foothill, whether
provisionally applied to reduce the Obligations under SECTION 2.1, or
otherwise). This across-the-board one Business Day clearance or float charge
on all Collections is acknowledged by the parties to constitute an integral
aspect of the pricing of Foothill's financing of Borrower, and shall apply
irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances,
the effect of such clearance or float charge being the equivalent of charging
one Business Days of interest on such Collections. Should any Collection
item not be honored when presented for payment, then Borrower shall be deemed
not to have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein notwithstanding, any
Collection item shall be deemed received by Foothill only if it is received
into Foothill Account on a Business Day on or before 11:00 a.m. California
time. If any Collection item is received into Foothill Account on a
non-Business Day or after 11:00 a.m. California time on a Business Day, it
shall be deemed to have been received by Foothill as of the opening of
business on the immediately following Business Day.
2.9. DESIGNATED ACCOUNT. Foothill is authorized to make the Advances and
the Letters of Credit under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Person, or
without instructions if pursuant to SECTION 2.4(e). Borrower agrees to
establish and maintain the Designated Account with the Designated Account Bank
for the purpose of receiving the proceeds of the Advances requested by Borrower
and made by Foothill hereunder. Unless otherwise agreed by Foothill and
Borrower, any
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Advance requested by Borrower and made by Foothill hereunder shall be made to
the Designated Account.
2.10. MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Foothill
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances made by
Foothill to Borrower or for Borrower's account, including accrued interest,
Foothill Expenses, and any other payment Obligations of Borrower. In
accordance with SECTION 2.8, the Loan Account will be credited with all
payments received by Foothill from Borrower or for Borrower's account.
Foothill shall render statements, on a monthly basis, regarding the Loan
Account to Borrower, including principal, interest, fees, and including an
itemization of all charges and expenses constituting Foothill Expenses owing,
and such statements shall be conclusively presumed to be correct and accurate
and constitute an account stated between Borrower and Foothill unless, within
30 days after receipt thereof by Borrower, Borrower shall deliver to Foothill
written objection thereto describing the error or errors contained in any
such statements.
2.11. FEES. Borrower shall pay to Foothill the following fees:
(a) CLOSING FEE. On the Closing Date, a closing fee of $100,000;
(b) FACILITY FEE. On the Closing Date, a facility fee in an amount
equal to 0.125% of the Maximum Revolving Amount, which facility fee
shall be deemed fully earned as of the Closing Date and shall be
payable in three equal installments of one-third of the facility fee
each, with the first installment being due on the Closing Date, the
second installment being due on the earliest to occur of the first
anniversary of the Closing Date, the date of the termination of this
Agreement or the date upon which Foothill declares all Obligations
immediately due and payable, and third installment being due on the
earliest to occur of the second anniversary of the Closing, the date
of the termination of this Agreement or the date upon which Foothill
declares all Obligations immediately due and payable;
(c) FINANCIAL EXAMINATION, DOCUMENTATION, AND APPRAISAL FEES.
Foothill's customary fee of $650 per day per examiner, plus
reasonable out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel
employed by Foothill (except such fee of $650 per day per examiner
shall not be payable with respect to Foothill's initial prospect
audit of Borrower performed prior to the date of this Agreement);
Foothill's customary appraisal fee of $1,500 per day per appraiser,
plus reasonable out-of-pocket expenses for each appraisal of the
Collateral performed by personnel employed by Foothill; and, the
actual charges paid or incurred by Foothill if it elects to employ
the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrower or to appraise
the Collateral; and
(d) SERVICING FEE. On the first day of each month during the term of
this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an
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amount equal to $5,000.00.
2.12 EURODOLLAR RATE LOANS. Any other provisions herein to the
contrary notwithstanding, the following provisions shall govern with respect
to Eurodollar Rate Loans as to the matters covered:
(a) BORROWING; CONVERSION; CONTINUATION. Borrower may from time
to time, on or after the Closing Date, request in a written or telephonic
communication with Foothill: (i) Advances (other than Special Inventory
Advances) to constitute Eurodollar Rate Loans (pursuant to SECTION 2.1(c));
(ii) that Reference Rate Loans (other than Special Inventory Advances) be
converted into Eurodollar Rate Loans; or (iii) that existing Eurodollar
Rate Loans continue for an additional Interest Period. Any such request
shall specify the aggregate amount of the requested Eurodollar Rate Loans,
the proposed funding date therefor (which shall be a Business Day, and with
respect to continued Eurodollar Rate Loans shall be the last day of the
Interest Period of the existing Eurodollar Rate Loans being continued), and
the proposed Interest Period, in each case subject to the limitations set
forth below). Eurodollar Rate Loans may only be made, continued, or
extended if, as of the proposed funding date therefor each of the following
conditions is satisfied:
(v) no Event of Default exists;
(w) no more than five Interest Periods may be in effect at
any one time;
(x) the amount of Eurodollar Rate Loan borrowed,
converted, or continued must be in an amount not less than
$1,000,000 and integral multiples of $500,000 in excess thereof;
(y) Foothill shall have determined that the Interest
Period or Adjusted Eurodollar Rate is available to Foothill and can
be readily determined as of the date of request for such Eurodollar
Rate Loan by Borrower; and
(z) Foothill shall have received such request at least two
Business Days prior to the proposed funding date therefor.
Any request by Borrower to borrow Eurodollar Rate Loans, to
convert Reference Rate Loans to Eurodollar Rate Loans, or to continue any
existing Eurodollar Rate Loans shall be irrevocable, except to the extent
that Foothill shall determine under SECTION 2.13, 2.14 OR 2.15 that such
Eurodollar Rate Loans cannot be made or continued.
(b) DETERMINATION OF INTEREST PERIOD. By giving notice as set
forth in SECTION 2.12(a), Borrower shall have the option of selecting a one,
two or three month Interest Period for such Eurodollar Rate Loan. The
determination of Interest Periods shall be subject to the following
provisions:
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(i) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the day
on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day
which is not a Business Day, the Interest Period shall be extended
to expire on the next succeeding Business Day; PROVIDED, HOWEVER,
that if the next succeeding Business Day occurs in the following
calendar month, then such Interest Period shall expire on the
immediately preceding Business Day;
(iii) if any Interest Period begins on the last Business Day
of a month, or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period, then the Interest Period shall end on the last Business Day
of the calendar month at the end of such Interest Period; and
(iv) Borrower may not select an Interest Period which
expires later than the Renewal Date (or, in the event that the term
of this Agreement is automatically renewed pursuant to SECTION 3.4,
the next anniversary of the Renewal Date).
(c) AUTOMATIC CONVERSION; OPTIONAL CONVERSION BY FOOTHILL.
Any Eurodollar Rate Loan shall automatically convert to a Reference Rate Loan
upon the last day of the applicable Interest Period, unless Foothill has
received a request to continue such Eurodollar Rate Loan at least two
Business Days prior to the end of such Interest Period in accordance with the
terms of SECTION 2.12(a). Any Eurodollar Rate Loan shall, at Foothill's
option, upon notice to Borrower, convert to a Reference Rate Loan in the
event that (i) an Event of Default shall have occurred and be continuing as
of the last day of the Interest Period for such Eurodollar Rate Loan, or (ii)
this Agreement shall terminate, and Borrower shall pay to Foothill any
amounts required by SECTION 2.16 as a result thereof.
2.13 ILLEGALITY. Any other provision herein to the contrary
notwithstanding, if the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof shall make it unlawful for Foothill
to make or maintain Eurodollar Rate Loans as contemplated by this Agreement, (a)
the obligation of Foothill hereunder to make Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such, and convert Reference Rate Loans to Eurodollar
Rate Loans shall forthwith be suspended and (b) Foothill's then outstanding
Eurodollar Rate Loans, if any, shall be converted automatically to Reference
Rate Loans on the respective last days of the then current Interest Periods with
respect thereto or within such earlier period as required by law; PROVIDED,
HOWEVER, that before making any such demand, Foothill agrees to use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be disadvantageous to it, in
its reasonable discretion, in any legal, economic, or regulatory manner) to
designate a different lending office if the making of such a designation would
allow Foothill or its lending office to continue to perform its obligations to
make Eurodollar Rate Loans. If any such conversion of a Eurodollar Rate Loan
occurs on a day which is not the last day of the then current Interest Period
with
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respect thereto, Borrower shall pay to Foothill such amounts, if any, as may
be required pursuant to SECTION 2.16. If circumstances subsequently change
so that Foothill shall determine that it is no longer so affected, Foothill
will promptly notify Borrower, and upon receipt of such notice, the
obligations of Foothill to make or continue Eurodollar Rate Loans or to
convert Reference Loans into Eurodollar Rate Loans shall be reinstated.
2.14 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or
compliance by Foothill with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof
(i) shall subject Foothill to any tax, levy, charge, fee,
reduction, or withholding of any kind whatsoever with respect to
this Agreement or any Advance, or change the basis of taxation of
payments to Foothill in respect thereof (except for taxes covered by
SECTION 2.15 and the establishment of a tax based on the net income
of Foothill or changes in the rate of tax on the net income of
Foothill);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan, or similar requirement against
assets held by, deposits or other liabilities in or for the account
of, Advances or other extensions of credit by, or any other
acquisition of funds by, any office of Foothill; or
(iii) shall impose on Foothill any other condition with
respect to this Agreement or any Advance;
and the result of any of the foregoing is to increase the cost to Foothill,
by an amount which Foothill reasonably deems to be material, of making,
converting into, continuing, or maintaining Advances or to increase the cost
to Foothill, by an amount which Foothill deems to be material, or to reduce
any amount receivable hereunder in respect of Advances, or to forego any
other sum payable thereunder or make any payment on account thereof, then, in
any such case, Borrower shall promptly pay Foothill, upon its demand, any
additional amounts necessary to compensate Foothill for such increased cost
or reduced amount receivable; PROVIDED, HOWEVER, that before making any such
demand, Foothill agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long as such
efforts would not be disadvantageous to it, in its reasonable discretion, in
any legal, economic, or regulatory manner) to designate a different
Eurodollar lending office if the making of such designation would allow
Foothill or its Eurodollar lending office to continue to perform its
obligations to make Eurodollar Rate Loans or to continue to fund or maintain
Eurodollar Rate Loans and avoid the need for, or materially reduce the amount
of, such increased cost. If Foothill becomes entitled to claim any
additional amount pursuant to this SECTION 2.14, Foothill shall promptly
notify Borrower of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this SECTION
2.14 submitted by Foothill to Borrower shall be conclusive in the absence of
manifest error. If Borrower so notifies Foothill within 5 Business Days
after Foothill notifies Borrower of any increased cost pursuant to the
foregoing provisions of this
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SECTION 2.14, Borrower may convert all Eurodollar Rate Loans then outstanding
into Reference Rate Loans in accordance with SECTION 2.12 and, additionally,
reimburse Foothill for any cost in accordance with SECTION 2.16. This
covenant shall survive the termination of this Agreement and the payment of
the Advance and all other amounts payable hereunder for nine months following
such termination and repayment.
(b) If Foothill shall have determined that the adoption of or
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by Foothill or any Person
controlling Foothill with any request or directive regarding capital adequacy
(whether or not having the force of law) from any Governmental Authority made
subsequent to the date hereof does or shall have the effect of increasing the
amount of capital required to be maintained or reducing the rate of return on
Foothill's or such Person's capital as a consequence of its obligations
hereunder to a level below that which Foothill or such Person could have
achieved but for such change or compliance (taking into consideration
Foothill's or such Person's policies with respect to capital adequacy) by an
amount deemed by Foothill to be material, then from time to time, after
submission by Foothill to Borrower of a prompt written request therefor,
Borrower shall pay to Foothill such additional amount or amounts as will
compensate Foothill or such Person for such reduction. This covenant shall
survive the termination of this Agreement and the payment of the Advances and
all other amount payable hereunder for nine months following such termination
and repayment.
2.15 TAXES. (a) Except as provided below in this SECTION 2.15, all
payments made by Borrower under this Agreement and any other Loan Documents
shall be made free and clear of, and without deduction or withholding for or
on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions, or withholdings, now or hereafter
imposed, levied, collected, withheld, or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes imposed in lieu of
net income taxes. If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required
to be withheld from any amounts payable to Foothill hereunder or under any
other Loan Documents, the amounts so payable to Foothill shall be increased
to the extent necessary to yield to Foothill (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement and any other Loan
Documents; PROVIDED, HOWEVER, that Borrower shall be entitled to deduct and
withhold any Non-Excluded Taxes and shall not be required to increase any
such amounts payable to Foothill if Foothill fails or is unable to comply
with the requirements of paragraph (b) of this SECTION 2.15. Whenever any
Non-Excluded Taxes are payable by Borrower, as promptly as possible
thereafter Borrower shall send to Foothill a certified copy of an original
official receipt received by Borrower showing payment thereof. If Borrower
fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to Foothill the required receipts or other
required documentary evidence, Borrower shall indemnify Foothill for any
incremental taxes, interest or penalties that may become payable by Foothill
as a result of any such failure. The agreements in this SECTION 2.15 shall
survive the termination of this Agreement and the payment of the Advances and
all other amounts payable hereunder.
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(b) Any Participant or assignee of Foothill that is not
incorporated under the laws of the United States of America or a state
thereof (any such Person, a "Foreign Lender") shall:
(i) (x) on or before the date of any payment by
Borrower under this Agreement to such Foreign Lender, deliver to
Borrower and Foothill (A) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, or successor applicable
form, as the case may be, certifying that it is entitled to receive
payments under this Agreement without any deduction or withholding
of any United States federal income taxes and (B) a duly completed
Internal Revenue Service Form W-8 or W-9, or successor applicable
form, as the case may be, certifying that it is entitled to an
exemption from United States backup withholding tax;
(y) deliver to Borrower and Foothill two further
copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent
form previously delivered by it to Borrower, and
(z) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be requested
by Borrower or Foothill;
or
(ii) in the case of any such Foreign Lender that is not a
"bank" within the meaning of Section 881(c)(3)(A) of the IRC and
that does not comply with subparagraph (i) of this paragraph (b),
(x) represent to Borrower (for the benefit of
Borrower and Foothill) that it is not a bank within the meaning of
Section 881(c)(3)(A) of the IRC,
(y) deliver to Borrower on or before the date of
any payment by Borrower, with a copy to Foothill: (1) a certificate
stating that such Foreign Lender (A) is not a "bank" under Section
881(c)(3)(A) of the IRC, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, and has not been treated
as a bank for purposes of any tax, securities law, or other filing
or submission made to any Governmental Authority, any application
made to a rating agency or qualification for any exemption from tax,
securities law or other legal requirements, (B) is not a 10-percent
shareholder within the meaning of Section 881(c)(3)(B) and (C) is
not a controlled foreign corporation receiving interest from a
related person within the meaning of Section 881(c)(3)(C) of the IRC
(any such certificate a "U.S. TAX COMPLIANCE CERTIFICATE"); and (2)
two duly completed copies of Internal Revenue Service Form W-8, or
successor applicable
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form, certifying to such Foreign Lender's legal entitlement at
the date of such certificate to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the IRC
with respect to payments to be made under this Agreement (and to
deliver to Borrower and Foothill two further copies of Form W-8
on or before the date it expires or becomes obsolete and after
the occurrence of any event requiring a change in the most
recently provided form and, if necessary, obtain any extensions
of time reasonably requested by Borrower or Foothill for filing
and completing such forms), and
(z) agree, to the extent legally entitled to do so,
upon reasonable request by Borrower, to provide to Borrower (for the
benefit of Borrower and Foothill) such other forms as may be
reasonably required in order to establish the legal entitlement of
such Foreign Lender to an exemption from withholding with respect to
payments under this Agreement;
(c) Foothill and each Foreign Lender shall, upon the reasonable
request by Borrower, deliver to Borrower or the applicable Governmental
Authority, as the case may be, any form or certificate required in order that
any payment by Borrower under this Agreement may be made free and clear of,
and without deduction or withholding for or on Non-Excluded Taxes (or to
allow any such deduction or withholding to be at a reduced rate) imposed on
such payment under the laws of any jurisdiction, PROVIDED that Foothill or
such Foreign Lender, as the case may be, is legally entitled to complete,
execute and deliver such form or certificate and such completion, execution
or submission would not materially prejudice the legal position of Foothill
or such Foreign Lender, as the case may be, unless in any such case any
change in treaty, law, or regulation has occurred after the date such Person
becomes a Foreign Lender hereunder which renders all such forms and
certificates inapplicable or which would prevent such Foreign Lender from
duly completing and delivering any such form or certificate with respect to
it and such Foreign Lender so advises Borrower and Foothill. Each Person that
shall become an assignee or a Participant shall, upon the effectiveness of
the related transfer, be required to provide all of the forms,
certifications, and statements required pursuant to this SECTION 2.15;
PROVIDED, HOWEVER, that in the case of a Participant the obligations of such
Participant pursuant to this paragraph (c) shall be determined as if such
Participant were an assignee except that such Participant shall furnish all
such required forms, certifications, and statements to Foothill.
2.16 INDEMNITY. Borrower agrees to indemnify Foothill and to hold
Foothill harmless from any loss or expense which Foothill may sustain or
incur as a consequence of (a) default by Borrower in payment when due of the
principal amount of or interest on any Eurodollar Rate Loan, (b) default by
Borrower in making a borrowing of, conversion into, or continuation of
Eurodollar Rate Loans after Borrower has given a notice requesting the same
in accordance with the provisions of this Agreement, (c) default by Borrower
in making any prepayment after Borrower has given a notice thereof in
accordance with the provisions of this Agreement, or (d) the making of a
prepayment of Eurodollar Rate Loans on a day which is not the last day of an
Interest Period with respect thereto (whether due to the termination of this
Agreement upon an Event of Default or otherwise), including, in each case,
any such loss or expense (but excluding loss of margin) arising from the
reemployment of funds obtained by it or from fees payable to
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terminate the deposits from which such funds were obtained. Calculation of
all amounts payable to Foothill under this SECTION 2.16 shall be made as
though Foothill had actually funded the relevant Eurodollar Rate Loan through
the purchase of a deposit bearing interest at the Eurodollar Rate in an
amount equal to the amount of such Eurodollar Rate Loan and having a maturity
comparable to the relevant Interest Period; PROVIDED, HOWEVER, that Foothill
may fund each of the Eurodollar Rate Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this SECTION 2.16. This covenant shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder for a period of nine months thereafter.
2.17 JOINT AND SEVERAL LIABILITY; RIGHTS OF CONTRIBUTION.
(a) Each Borrower states and acknowledges that: (i) pursuant
to this Agreement, Borrowers desire to utilize their borrowing potential on a
consolidated basis to the same extent possible if they were merged into a
single corporate entity; (ii) it has determined that it will benefit
specifically and materially from the advances of credit contemplated by this
Agreement; (iii) it is both a condition precedent to the obligations of
Foothill and a desire of the Borrowers that each Borrower execute and deliver
to Foothill this Agreement; and (iv) Borrowers have requested and bargained
for the structure and terms of and security for the advances contemplated by
this Agreement.
(b) Each Borrower hereby irrevocably and unconditionally: (i)
agrees that it is jointly and severally liable to Foothill for the full and
prompt payment of the Obligations and the performance by each Borrower of its
obligations hereunder in accordance with the terms hereof; (ii) agrees to
fully and promptly perform all of its obligations hereunder with respect to
each advance of credit hereunder as if such advance had been made directly to
it; and (iii) agrees as a primary obligation to indemnify Foothill on demand
for and against any loss incurred by Foothill as a result of any of the
obligations of any Borrower being or becoming void, voidable, unenforceable
or ineffective for any reason whatsoever, whether or not known to Foothill or
any Person, the amount of such loss being the amount which Foothill would
otherwise have been entitled to recover from Borrower.
(c) It is the intent of each Borrower that the indebtedness,
obligations and liability hereunder of no one of them be subject to challenge on
any basis. Accordingly, as of the date hereof, the liability of each Borrower
under this SECTION 2.17, together with all of its other liabilities to all
Persons as of the date hereof and as of any other date on which a transfer is
deemed to occur by virtue of this Agreement, calculated in amount sufficient to
pay its probable net liabilities on its existing Indebtedness as the same become
absolute and matured ("DATED LIABILITIES") is, and is to be, less than the
amount of the aggregate of a fair valuation of its property as of such
corresponding date ("DATED ASSETS"). To this end, each Borrower under this
SECTION 2.17 (i) grants to and recognizes in each other Borrower, ratably,
rights of subrogation and contribution in the amount, if any,
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by which the Dated Assets of such Borrower, but for the aggregate of
subrogation and contribution in its favor recognized herein, would exceed the
Dated Liabilities of such Borrower or, as the case may be, (ii) acknowledges
receipt of and recognizes its right to subrogation and contribution ratably
from each other Borrower in the amount, if any by which the Dated Liabilities
of such Borrower, but for the aggregate of subrogation and contribution in
its favor recognized herein, would exceed the Dated Assets of such Borrower
under this SECTION 2.17. In recognizing the value of the Dated Assets and
the Dated Liabilities, it is understood that Borrowers will recognize, to at
least the same extent of their aggregate recognition of liabilities
hereunder, their rights to subrogation and contribution hereunder. It is a
material objective of this SECTION 2.17 that each Borrower recognizes rights
to subrogation and contribution rather than be deemed to be insolvent (or in
contemplation thereof) by reason of any arbitrary interpretation of its joint
and several obligations hereunder.
3. CONDITIONS; TERM OF AGREEMENT.
3.1. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND LETTER OF CREDIT
PURSUANT TO THE SEPTEMBER 30, 1998 LOAN AGREEMENT. The obligation of
Foothill to make the initial Advance or to issue the initial Letter of Credit
pursuant to the September 30, 1998 Loan Agreement is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before September 30,
1998;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(c) Foothill shall have received such appraisals as to the
property of Ultimate as shall be required by Foothill, including, without
limitation, an appraisal of the Net Recovery Value of the Eligible Inventory,
each such appraisal to be in form and substance satisfactory to Foothill;
(d) Foothill shall have received such financial statements and
other financial information as to Borrower as shall be required by Foothill,
which financial statements and other financial information shall be in form
and substance satisfactory to Foothill;
(e) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(i) the Blocked Account Agreements;
(ii) depository account bank notifications;
(iii) [INTENTIONALLY OMITTED];
(iv) the Disbursement Letter;
(v) the Pay-Off Letter, together with UCC termination
statements or UCC assignment statements and other
documentation evidencing the termination or assignment
by Existing Lender of its Liens in
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and to the properties and assets of Borrower;
(vi) Trademark Security Agreement;
(vii) Assignment of Rights under Computer Program and
Software Agreement, executed by Ultimate, relating to
the Hardware Purchase and Tyler Management Information
System License Agreement between Ultimate and Tyler
Business Systems, Inc., now known as Tyler Retail
Systems, Inc., together with an Estoppel Certificate
and Agreement relating thereto executed by Tyler
Retail Systems, Inc., each in form and substance
acceptable to Foothill;
(viii) Subordination and Consent Agreement, executed by
Colorado National Bank as Trustee, in form and
substance satisfactory to Foothill; and
(ix) Such other documents as shall be required by Foothill.
(f) Foothill shall have received a certificate from the
Secretary of Ultimate attesting to the resolutions of Ultimate's Board of
Directors authorizing its execution, delivery, and performance of the
September 30, 1998 Loan Agreement and the other Loan Documents to which
Ultimate is a party and authorizing specific officers of Ultimate to execute
the same;
(g) Foothill shall have received copies of Ultimate's
Governing Documents, as amended, modified, or supplemented to the Closing
Date, certified by the Secretary of Ultimate;
(h) Foothill shall have received a certificate of status with
respect to Ultimate, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of Ultimate, which certificate shall indicate that Ultimate is
in good standing in such jurisdiction;
(i) Foothill shall have received certificates of status with
respect to Ultimate, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a
Material Adverse Change, which certificates shall indicate that Ultimate is
in good standing in such jurisdictions;
(j) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by SECTION 6.10, the
form and substance of which shall be satisfactory to Foothill and its counsel;
(k) [INTENTIONALLY OMITTED]
(l) Foothill shall have received such Collateral Access
Agreements (or
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assignments of the same to Foothill in form and substance acceptable to
Foothill) from lessors, warehousemen, bailees, and other third persons as
Foothill may require;
(m) Foothill shall have received an opinion of Ultimate's
counsel in form and substance satisfactory to Foothill in its sole discretion;
(n) Foothill shall have received satisfactory evidence that
all tax returns required to be filed by Borrower have been timely filed and
all taxes upon Borrower or its properties, assets, income, and franchises
(including real property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest;
(o) Foothill shall have received satisfactory reference checks
of the key officers and employees of Borrower;
(p) On the Closing Date, Borrower shall have not less than
$3,000,000 of Excess Availability after making the payments described in
SECTION 7.17(a)(i), the $100,000 due on the Closing Date pursuant to SECTION
2.11(a), and the $16,666.66 due on the Closing Date pursuant to SECTION
2.11(b);
(q) Foothill shall have received from Borrower (i) a list of
all Material Inventory Suppliers and (ii) true and correct copies of all
agreements in effect as of the Closing Date between Borrower and each
Material Inventory Supplier; and
(r) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.1A CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The
effectiveness of this Agreement is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions
unless Foothill shall have waived such conditions:
(a) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect and in form and substance satisfactory to Foothill:
(i) the Stock Pledge Agreements;
(ii) all the original stock certificates evidencing all the
issued and outstanding capital stock of Fast Trak,
accompanied by stock powers duly executed in blank by
Akquisition;
(iii) all the original stock certificates evidencing all
the issued and outstanding capital stock of
Akquisition, accompanied by stock powers duly executed
in blank by Ultimate;
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(iv) UCC-1 financing statements in favor of Foothill
covering the Collateral and duly executed respectively
by Akquisition and Fast Trak; and
(v) Such other documents as shall be required by Foothill.
(b) Foothill shall have received a certificate from the
Secretary of each Borrower attesting to the resolutions of such Borrower's
Board of Directors authorizing its execution, delivery, and performance of
this Agreement and the other Loan Documents to which such Borrower is a party
and authorizing specific officers of such Borrower to execute the same;
(c) Foothill shall have received copies of the Governing
Documents of each of Akquisition and Fast Trak, as amended, modified, or
supplemented to the date hereof, certified respectively by the Secretary of
Akquisition and the Secretary of Fast Trak;
(d) Foothill shall have received a certificate of status with
respect to each of Akquisition and Fast Trak, dated within 10 days of the
date hereof, such certificate to be issued by the appropriate officer of the
jurisdiction of organization of Akquisition or Fast Trak, as the case may be,
which certificate shall indicate that Akquisition or Fast Trak, as the case
may be, is in good standing in such jurisdiction;
(e) Foothill shall have received certificates of status with
respect to Akquisition (Borrower hereby representing and warranting that Fast
Trak does not need to be duly qualified or licensed in any jurisdiction other
than Minnesota), each dated within 15 days of the date hereof, such
certificates to be issued by the appropriate officer of the jurisdictions in
which the failure of Akquisition to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall indicate that
Akquisition is in good standing in such jurisdictions;
(f) Foothill shall have received an opinion of Ultimate's
counsel in form and substance satisfactory to Foothill in its sole
discretion; and
(g) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
Ultimate hereby represents and warrants to Foothill that:
(x) there have been no changes to the Certificate of
Incorporation, Bylaws or other Governing Documents of Ultimate previously
delivered to Foothill;
(y) Nothing has happened since the Closing Date which would
cause Ultimate not to be in good standing in the State of Delaware and that
as of the date hereof the Secretary of State of Delaware would issue a good
standing certificate to Ultimate if such a certificate was required to be
supplied by Foothill; and
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(z) Nothing has happened since the Closing Date which would
cause Ultimate not to be in good standing in any of the States of Colorado,
Idaho, Iowa, Minnesota, Nevada, New Mexico, Oklahoma, South Dakota and Utah,
and that as of the date hereof the appropriate officer of each such state
would issue a good standing certificate to Ultimate if such certificate was
required to be supplied by Foothill.
3.2. CONDITIONS PRECEDENT TO ALL ADVANCES AND ALL LETTERS OF CREDIT.
The following shall be conditions precedent to all Advances and all Letters
of Credit hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result
from the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates.
3.3. CONDITIONS SUBSEQUENT. As a condition subsequent to the initial
closing of the September 30, 1998 Loan Agreement and to the execution of this
Agreement, Ultimate shall perform or cause to be performed the following (the
failure by Ultimate to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill
the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by SECTION 6.10, the form and substance
of which shall be satisfactory to Foothill and its counsel.
(b) within 30 days of the Closing Date, deliver to Foothill
the Credit Card Processor notifications.
(c) by December 1, 1998, deliver to Foothill UCC-1 Fixture
Filings in favor of Foothill, duly executed by Borrower, and covering each
location of Borrower, each of which UCC-1 Fixture Filing shall be in form and
substance satisfactory to Foothill; PROVIDED, HOWEVER, Borrower shall not be
responsible for paying more than $15,000.00 in connection with the
preparation and filing of such UCC-1 Fixture Filings.
3.4. TERM; AUTOMATIC RENEWAL. This Agreement shall become effective upon
the execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on the date (the "Renewal Date") that is
three years from the Closing Date and automatically shall be renewed for
successive one year periods thereafter, unless sooner terminated pursuant to the
terms hereof. Either party may terminate this Agreement effective on
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the Renewal Date or on any one year anniversary of the Renewal Date by giving
the other party at least 90 days prior written notice. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.5. EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated. If Borrower has sent a notice of
termination pursuant to the provisions of SECTION 3.4, but fails to pay the
Obligations in full on the date set forth in said notice, then Foothill may,
but shall not be required to, renew this Agreement for an additional term of
one year.
3.6. EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.4
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option,
at any time upon 90 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations (including an
amount equal to 110% of the undrawn amount of the Letters of Credit), in
full, together with the relevant Early Termination Premium. For the purposes
of this Agreement, the term "Early Termination Premium" means the respective
amount set forth below:
(a) if termination IS NOT DUE TO A SALE OF CONTROL and occurs at
any time during the period beginning on the Closing Date and
continuing through the day immediately preceding the first
anniversary of the Closing Date, the amount of the Early Termination
Premium shall be THREE PERCENT (3%) of the Maximum Revolving Amount.
(b) if termination IS DUE TO A SALE OF CONTROL and occurs at any
time during the period beginning on the Closing Date and continuing
through the day immediately preceding the first anniversary of the
Closing Date, the amount of the Early Termination Premium shall be
ONE PERCENT (1%) of the Maximum Revolving Amount.
(c) if termination IS NOT DUE TO A SALE OF CONTROL and occurs at
any time during the period beginning on the first anniversary of the
Closing Date and continuing through the day immediately preceding
the second anniversary of the Closing Date, the amount of the Early
Termination Premium shall be TWO PERCENT (2%) of the Maximum
Revolving Amount.
(d) if termination IS DUE TO A SALE OF CONTROL and occurs at any
time during the period beginning on the first anniversary of the
Closing Date and continuing through the day immediately preceding
the second anniversary of the Closing
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Date, the amount of the Early Termination Premium shall be THREE-
FOURTHS OF ONE PERCENT (0.75%) of the Maximum Revolving Amount.
(e) if termination IS NOT DUE TO A SALE OF CONTROL and occurs on
or after the second anniversary of the Closing Date (unless such
termination is otherwise permitted by the provisions of SECTION
3.4), the amount of the Early Termination Premium shall be ONE
PERCENT (1%) of the Maximum Revolving Amount.
(f) if termination IS DUE TO A SALE OF CONTROL and occurs on or
after the second anniversary of the Closing Date (unless such
termination is otherwise permitted by the provisions in SECTION
3.4), the amount of the Early Termination Premium shall be ONE-HALF
OF ONE PERCENT (0.50%) of the Maximum Revolving Amount.
Notwithstanding anything herein to the contrary, no Early Termination Premium
shall be payable if termination occurs within eighteen (18) months of the
Closing Date and in connection with such termination the Obligations are
refinanced by Norwest Bank Minnesota, National Association or any successor
thereto.
3.7. TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium that would be applicable to a termination of this
Agreement by Borrower at such time that is not due to a Sale of Control and
not in connection with a refinancing of the Obligations by Norwest Bank
Minnesota, National Association or any successor thereto). The Early
Termination Premium shall be presumed to be the amount of damages sustained
by Foothill as the result of the early termination and Borrower agrees that
it is reasonable under the circumstances currently existing. The Early
Termination Premium provided for in this SECTION 3.7 shall be deemed included
in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1. GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired
or arising Personal Property Collateral in order to secure prompt repayment
of any and all Obligations and in order to secure prompt performance by
Borrower of each of its covenants and duties under the Loan Documents.
Foothill's security interests in the Collateral shall attach to all
Collateral without further act on the part of Foothill or Borrower. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in the ordinary
course of business and disposals of furniture and fixtures to the extent
permitted in SECTION 7.4 hereof, Borrower has no authority, express or
implied, to dispose of any item or portion of the Collateral.
As to Ultimate, the security interests granted by Ultimate in the
Collateral are given in
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renewal, extension and modification of the security interests previously
granted in the Collateral to Foothill by Ultimate pursuant to the September
30, 1998 Loan Agreement; such existing security interests granted by Ultimate
to Foothill in the Collateral described above are not extinguished hereby;
and the making, perfection and priority of such existing security interests
in the Collateral described above shall continue in full force and effect.
4.2. NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3. COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time, Foothill or Foothill's designee may (a) notify
customers or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the Accounts,
General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it
will hold in trust for Foothill, as Foothill's trustee, any Collections that
it receives and immediately will deliver said Collections to Foothill in
their original form as received by Borrower.
4.4. DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon
the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill
reasonably may request, in form satisfactory to Foothill, to perfect and
continue perfected Foothill's security interests in the Collateral, and in
order to fully consummate all of the transactions contemplated hereby and
under the other Loan Documents.
4.5. POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as Borrower's true and lawful
attorney, with power to (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents described in SECTION 4.4, sign the
name of Borrower on any of the documents described in SECTION 4.4, (b) at any
time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure, sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors, (c) send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into Foothill's
possession, (e) at any time that an Event of Default has occurred and is
continuing or Foothill deems
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itself insecure, notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Foothill, to receive
and open all mail addressed to Borrower, and to retain all mail relating to
the Collateral and forward all other mail to Borrower, (f) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, settle and
adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as Borrower's attorney, and each and every one of Foothill's rights
and powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid and performed and Foothill's
obligation to extend credit hereunder is terminated.
4.6. RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement,
Borrower makes the following representations and warranties which shall be
true, correct, and complete in all respects as of the date hereof, and shall
be true, correct, and complete in all respects as of the Closing Date and as
of the date of execution of this Agreement, and at and as of the date of the
making of each Advance or Letter of Credit made after the Closing Date, as
though made on and as of the date of such Advance or Letter of Credit (except
to the extent that such representations and warranties relate solely to an
earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1. NO ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2. ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing
obligations created by the sale and delivery of Inventory or the rendition of
services to Account Debtors in the ordinary course of Borrower's business,
unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. The property giving rise
to such Eligible Accounts has been delivered to the Account Debtor, or to the
Account Debtor's agent for immediate shipment to and unconditional acceptance
by the Account Debtor. Borrower has not received notice of actual or
imminent bankruptcy, insolvency, or material impairment of the financial
condition of any Account Debtor regarding any Eligible Account.
5.3. ELIGIBLE INVENTORY. All Eligible Inventory is of good and
merchantable quality, free from defects.
5.4. EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5. LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified on
SCHEDULE 6.12 or otherwise permitted by
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SECTION 6.12.
5.6. INVENTORY RECORDS. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7. LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to
this Agreement . Ultimate's FEIN is 84-0585211; Akquisition's FEIN is
84-1409705; and Fast Trak's FEIN is 41-1550460.
5.8. DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected
to have a Material Adverse Change.
(b) Set forth on SCHEDULE 5.8 is a complete and accurate list
of each Borrower's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each class
of common and preferred stock authorized for each of such Subsidiaries; and
(iii) the number and the percentage of the outstanding shares of each such
class owned directly or indirectly by such Borrower. All of the outstanding
capital stock of each such Subsidiary has been validly issued and is fully
paid and non-assessable.
(c) Except as set forth on SCHEDULE 5.8, no capital stock (or
any securities, instruments, warrants, options, purchase rights, conversion
or exchange rights, calls, commitments or claims of any character convertible
into or exercisable for capital stock) of any direct or indirect Subsidiary
of any Borrower is subject to the issuance of any security, instrument,
warrant, option, purchase right, conversion or exchange right, call,
commitment or claim of any right, title, or interest therein or thereto.
5.9. DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party do not and will
not (i) violate any provision of federal, state, or local law or regulation
(including Regulations T, U, and X of the Federal Reserve Board) applicable
to Borrower, the Governing Documents of Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on Borrower, (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse
of time or both) a default under any material contractual obligation or
material lease of Borrower, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets
of Borrower, other than Permitted Liens, or (iv) require any approval of
stockholders or
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any approval or consent of any Person under any material contractual
obligation of Borrower.
(c) Other than the filing of appropriate financing statements
and fixture filings, the execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which Borrower is a party do not and
will not require any registration with, consent, or approval of, or notice
to, or other action with or by, any federal, state, foreign, or other
Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower is
a party, and all other documents contemplated hereby and thereby, when
executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or
similar laws relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10. LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or any guarantor of the Obligations, except
for: (a) ongoing collection matters in which Borrower is the plaintiff; (b)
matters disclosed on SCHEDULE 5.10; and (c) matters arising after the date
hereof that, if decided adversely to Borrower, would not have a Material
Adverse Change.
5.11. NO MATERIAL ADVERSE CHANGE. All financial statements relating to
Borrower or any guarantor of the Obligations that have been delivered by
Borrower to Foothill have been prepared in accordance with GAAP (except, in
the case of unaudited financial statements, for the lack of footnotes and
being subject to year-end audit adjustments) and fairly present Borrower's
(or such guarantor's, as applicable) financial condition as of the date
thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or
such guarantor, as applicable) since the date of the latest financial
statements submitted to Foothill on or before the Closing Date.
5.12. SOLVENCY. Ultimate is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.13. EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on SCHEDULE 5.13. Borrower, each of its Subsidiaries
and each ERISA Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it
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is obligated to contribute. No ERISA Event has occurred nor has any other
event occurred that may result in an ERISA Event that reasonably could be
expected to result in a Material Adverse Change. None of Borrower or its
Subsidiaries, any ERISA Affiliate, or any fiduciary of any Benefit Plan is
subject to any direct or indirect liability with respect to any Benefit Plan
under any applicable law, treaty, rule, regulation, or agreement. None of
Borrower or its Subsidiaries or any ERISA Affiliate is required to provide
security to any Benefit Plan under Section 401(a)(29) of the IRC.
5.14. ENVIRONMENTAL CONDITION. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge
without any independent investigation, by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any
Hazardous Materials, except that from time to time Borrower has stored and
handled insignificant quantities of epoxy glues that it uses in the
installation of car stereos in automobiles and trucks in a manner which is in
compliance with all applicable laws. None of Borrower's properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials disposal site, or a
candidate for closure pursuant to any environmental protection statute. No
Lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned or operated by Borrower.
Borrower has not received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower resulting in the
releasing or disposing of Hazardous Materials into the environment.
5.15 YEAR 2000 COMPATIBILITY.
(a) On the basis of a comprehensive inventory, review and
assessment currently being undertaken by Borrower of Borrower's computer
applications utilized by Borrower or contained in products produced or sold
by Borrower, and upon inquiry made of each of Borrower's material suppliers
and vendors, Borrower's management is of the considered view that Borrower,
its products and all such suppliers and vendors will be Year 2000 Compliant
before October 1, 1999.
(b) Borrower (i) has undertaken a detailed inventory, review
and assessment of all areas within its business and operations that could be
adversely affected by the failure of Borrower or its products to be Year 2000
Compliant on a timely basis, (ii) has developed the plan and timeline for
becoming Year 2000 Compliant; and (iii) to date, is implementing that plan in
accordance with that timetable in all material respects. Borrower reasonably
anticipates that it will be Year 2000 Compliant on a timely basis.
5.16 LOCATIONS; LEASES.
(a) The Collateral, and the books, records and papers of
Borrower pertaining thereto, are kept and maintained solely at Borrower's
chief executive office set forth in the beginning of this Agreement and at
those locations which are listed on SCHEDULE 5.16 annexed hereto, which
SCHEDULE includes all service bureaus with which any such records are
maintained
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and the names and addresses of each of Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business or (ii) to
utilize such of the Collateral as is removed in the ordinary course of
business (such as motor vehicles), Borrower shall not remove any Collateral
from said executive office or those locations listed on SCHEDULE 5.16.
(b) Borrower will not:
(i) Alter, modify or amend any provisions of any Lease
which pertain to any Lien rights of the lessor thereunder or the waiver or
compromise of the same without the prior written consent of Foothill.
(ii) Except after prior written notice to Foothill,
commit to, or open or close any location at which Borrower maintains, offers
for sale or stores any of the Collateral.
(c) Borrower shall promptly send to Foothill copies of any
amendments, modifications or alterations to any existing Leases and copies of
any newly executed Leases; PROVIDED, HOWEVER, the foregoing shall not limit
the obligations of Borrower under SECTION 5.16(b) above.
(d) Except as otherwise agreed by Foothill, no tangible
personal property of Borrower is in the care or custody of any third party or
stored or entrusted with a bailee or other third party and none shall
hereafter be placed under such care, custody, storage or entrustment.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower shall do all of the following:
6.1. ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in
accordance with GAAP, and maintain records pertaining to the Collateral that
contain information as from time to time may be requested by Foothill.
Borrower also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to the
Inventory.
6.2 COLLATERAL AND FINANCIAL REPORTING. Provide Foothill with the
following documents at the following times in form satisfactory to Foothill:
(a) BORROWING BASE CERTIFICATE. Borrower shall provide
Foothill, weekly, with a Borrowing Base Certificate satisfactory to Foothill
(in the form of EXHIBIT 6.2 annexed hereto, as such form may be revised from
time to time by Foothill). Such Certificate may be sent to Foothill by
facsimile transmission, provided that the original thereof is forwarded to
Foothill on the date of such transmission at their request. No adjustments
to the Borrowing Base Certificate may be made without support documentation
and such other documentation as may be requested by Foothill from time to
time.
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(b) WEEKLY REPORTS. Weekly, not later than Wednesday for the
immediately preceding fiscal week:
(i) sales audit report. to include daily sales report
with a month to date sales by store and geographic region.
(ii) collateral activity summary ("roll forward
inventory report"), to include, without limitation, Borrower's report number
30 or a future report equivalent thereto.
(c) MONTHLY REPORTS.
(i) Monthly, Borrower shall provide Foothill with
original counterparts of (each in such form as Foothill from time to time may
specify):
(A) Within fifteen (15) days of the end of the
previous month
(1) stock ledger (extract) inventory report
by department, to include Borrower's
report number 30 or a future report
equivalent thereto.
(2) stock ledger (extract) inventory report
by store, to include Borrower's report
number 3 or a future report equivalent
thereto.
(3) upon request, open to buy report.
(4) month end daily sales report which
includes comparable same store
information.
(5) purchases and accounts payable aging
report.
(B) Within thirty (30) days of the end of the
previous month:
(1) Statement of gross margin (Foothill
format).
(2) stock ledger inventory report
reconciliation to availability and to
general ledger (Foothill format).
(3) financial statement includes balance
sheet and comparative income statement
(consolidated and by store).
(4) inventory certificate
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(5) officer's compliance certificate.
(ii) Monthly, within thirty (30) days following the end
of each month during each of Borrower's fiscal years, Borrower shall provide
Foothill with an original counterpart of a management prepared financial
statement of Borrowers on a consolidated basis for the period from the
beginning of Borrower's then current fiscal year through the end of the
subject month, with comparative information for the same period of the
previous fiscal year, which statement shall include, at a minimum, a balance
sheet, income statement on a "consolidated" basis and statement of cash
flows.
(d) ANNUAL REPORTS.
(i) Borrower shall deliver to Foothill Ultimate's Form
10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Ultimate with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Ultimate to its shareholders, and any other
report reasonably requested by Foothill relating to the financial condition
of Borrower. In connection therewith, Foothill shall be delivered the annual
management letter comments. Borrower shall direct its independent certified
public accountants to give notice to Foothill of any Default discovered by
such independent certified public accountants during such audit. In
addition, Borrower shall direct its independent certified public accountants
to prepare a quarterly compliance letter as to covenants, if requested to do
so by Foothill.
(ii) Each annual statement shall be accompanied by such
accountant's Certificate indicating that to the best knowledge of such
accountant, no event has occurred which is or which, solely with the passage
of time or the giving of notice (or both) would be, an Event of Default.
(e) OFFICER'S CERTIFICATES. Borrower shall cause either
Ultimate's Chief Executive Officer or Ultimate's Chief Financial Officer to
provide such Person's Certificate with those monthly, quarterly, and annual
statements to be furnished pursuant to this Agreement, which Certificate
shall:
(i) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied, and presents fairly the
consolidated financial condition of Borrower at the close of, and the
consolidated results of Borrower's operations and cash flows for, the
period(s) covered, subject, however (with the exception of the Certificate
which accompanies such annual statement) to usual year end adjustments.
(ii) Indicate either that (i) no Suspension Event,
Default or Event of Default has occurred or (ii) if such an event has
occurred, its nature (in reasonable detail) and the steps (if any) being
taken or contemplated by Borrower to be taken on account thereof.
(iii) Include calculations concerning Borrower's compliance
(or failure to comply) at the date of the subject statement with each of the
financial performance covenants
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included in SECTION 7.20, below.
(iv) Indicate that all taxes have or have not been paid
(and if not been paid, broken down by type and taxing authority).
(v) Indicate that all rent and additional rent due
pursuant to any store lease have or have not been paid (and if not paid,
broken down by store location); PROVIDED, HOWEVER, that Borrower need not
report unpaid additional rent based on year end adjustments for common area
expenses to the extent such additional rent is disputed by Borrower.
(vi) Indicate that premiums for insurance required under
SECTION 6.10 hereof have or have not been paid.
(f) REPORTING AS TO ACCOUNTS. During the period beginning on
the Closing Date and ending on the six month anniversary date of the Closing
Date, Borrower shall provide within fifteen (15) days of the end of the
previous month (or with such greater frequency as Foothill may reasonably
determine is necessary), a detailed aging of the Accounts and such other
documentation as may be reasonably requested by Foothill. From and after the
six month anniversary date of the Closing Date, Borrower shall provide to
Foothill, at such times and with such frequency as is requested by Foothill,
such information and documentation as is determined by Foothill to be
appropriate based upon Foothill's review and analysis of the Accounts and the
information and documentation from time to time available to Foothill. In
addition to the foregoing, Borrower hereby agrees to implement within six
months of the Closing Date such improvements and/or changes in Borrower's
reporting and record keeping as to Accounts as shall be acceptable to
Foothill, in Foothill's sole discretion, Borrower hereby agreeing and
acknowledging that such improvements and/or changes are necessary to make its
present reporting and record keeping adequate for purposes of Foothill's
requirements for the proper monitoring of its Accounts by Foothill. Borrower
further agrees and acknowledges that if such improvements and/or changes are
not implemented to Foothill's satisfaction within such six month period or
collection of Borrower's Accounts during such six month period is otherwise
unacceptable to Foothill, Foothill shall have the right, in its sole
discretion, to terminate the "Eligible Accounts" component of the Borrowing
Base set forth in SECTION 2.1(a)(v) or establish reserves against such
component of the Borrowing Base and/or modify the advance rate against
Eligible Accounts.
(g) INVENTORIES, APPRAISALS, AND AUDITS.
(i) Foothill, at the expense of Borrower, may
participate in and/or observe each physical count and/or inventory of so much
of the Collateral as consists of Inventory which is undertaken on behalf of
Borrower.
(ii) Upon Foothill's request from time to time, Borrower
shall obtain, or shall permit Foothill to obtain financial or SKU based
physical counts and/or inventories of the Collateral, conducted by such
inventory takers as are satisfactory to Foothill and following such
methodology as may be required by Foothill, each of which physical counts
and/or financial
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or SKU based inventories shall be observed by Borrower's accountants;
provided, however, that as long as there has not occurred an Event of
Default, Foothill will not require full on-site appraisal, more than once per
calendar year (but may in addition require "desktop" appraisals up to once
per calendar quarter). For each fiscal year in which this Agreement is in
effect, Borrower shall perform (at its expense) one (1) full physical
inventory as of fiscal year end for all locations. Foothill may require
mid-year physical counts during any fiscal year of Borrower (at Borrower's
expense) if any physical inventory conducted in the prior year reveals
shrinkage equal to or greater than five percent (5.00%) of retail sales.
Foothill shall have the right to increase Reserves Against Availability based
on any variance revealed by any physical inventory counts. The results of
such mid-year counts shall be provided to Foothill within 10 Business Days of
completion of the count. The draft or unaudited results of such required
mid-year inventories or counts shall be furnished to Foothill within five (5)
Business Days of the taking of such inventories or counts.
(iii) Foothill from time to time may request the results
of "mystery shopping" (so-called) visits to all or any of Borrower's business
premises as conducted by or on behalf of Borrower.
(h) ELECTRONIC REPORTING. At Foothill's option all
information and reports required to be submitted to Foothill by Borrower
shall be transmitted electronically pursuant to an electronic transmitting
reporting system and shall be in a record layout format designated by
Foothill from time to time, and, upon request by Foothill, Borrower shall
provide Foothill with access to Borrower's electronic accounting and other
data. It is estimated that the net costs to Borrower to establish such
electronic transmitting reporting system will not exceed $10,000.
6.3. [INTENTIONALLY OMITTED]
6.4. TAX RETURNS. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days
of the filing thereof with the Internal Revenue Service.
6.5. GUARANTOR REPORTS. Cause any guarantor of any of the Obligations to
deliver its annual financial statements at the time when Borrower provides its
audited financial statements to Foothill and copies of all federal income tax
returns as soon as the same are available and in any event no later than 30 days
after the same are required to be filed by law.
6.6. RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the time of
the execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any
Inventory to Borrower, if Borrower accepts such return, Borrower shall issue
a credit memorandum in the appropriate amount to such Account Debtor. If, at
a time when an Event of Default has occurred and is continuing, any Account
Debtor returns any Inventory to Borrower, Borrower shall determine the reason
for such return and issue a credit memorandum in the
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appropriate amount to such Account Debtor.
6.7. TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of, certificates of title, or applications for title
to any items of Equipment.
6.8. MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make
all necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those
items of Equipment that constitute fixtures on the Closing Date, Borrower
shall not permit any item of Equipment to become a fixture to real estate or
an accession to other property, and such Equipment shall at all times remain
personal property.
6.9. TAXES. Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property to be paid in full, before delinquency or
before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a Permitted
Protest. Borrower shall make due and timely payment or deposit of all such
federal, state, and local taxes, assessments, or contributions required of it
by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect
thereto. Borrower will make timely payment or deposit of all tax payments
and withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and
federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that Borrower has made such payments or
deposits.
6.10. INSURANCE.
(a) At its expense, keep the Collateral insured against loss
or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners
in similar businesses. Borrower also shall maintain business interruption,
public liability, product liability, and property damage insurance relating
to Borrower's ownership and use of the Personal Property Collateral, as well
as insurance against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which are
authorized to do insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof. Every
policy of insurance referred to in this SECTION 6.10 shall contain an agreement
by the insurer that it will not cancel such policy for any reason (other than
non-payment of premium), except after 30 days prior written notice to Foothill
(and in the case of cancellation because of non-payment of premium except after
10 days prior written notice to Foothill) and that any loss payable thereunder
shall be payable notwithstanding any act or negligence of Borrower or Foothill
which might, absent such
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agreement, result in a forfeiture of all or a part of such insurance payment.
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.
(c) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least 30
days prior to the expiration of the existing or preceding policies. Borrower
shall give Foothill prompt notice of any loss covered by such insurance, and
Foothill shall have the right to adjust any loss. Foothill shall have the
exclusive right to adjust all losses payable under any such insurance
policies without any liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over
to Foothill to be applied at the option of Foothill either to the prepayment
of the Obligations without premium, in such order or manner as Foothill may
elect, or shall be disbursed to Borrower under stage payment terms
satisfactory to Foothill for application to the cost of repairs,
replacements, or restorations. All repairs, replacements, or restorations
shall be effected with reasonable promptness and shall be of a value at least
equal to the value of the items or property destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, Foothill shall have
the right to apply all prepaid premiums to the payment of the Obligations in
such order or form as Foothill shall determine. Notwithstanding the preceding
provisions of this SECTION 6.10(c), in any situation involving a loss under
an insurance policy where each of the following statements is true and
accurate, Borrower shall have the exclusive right to adjust the loss payable
under the insurance policy and to determine whether the insurance proceeds
shall be applied to the Obligations or applied to the cost of repairs,
replacements or restorations: (i) no Event of Default exists under the
Agreement or is caused by such loss, and (ii) giving effect to such loss,
Borrower shall have not less than $3,000,000 of Excess Availability.
(d) Borrower shall not take out separate insurance concurrent
in form or contributing in the event of loss with that required to be
maintained under this SECTION 6.10, unless Foothill is included thereon as
named insured with the loss payable to Foothill under a standard California
438BFU (NS) Mortgagee endorsement, or its local equivalent. Borrower
immediately shall notify Foothill whenever such separate insurance is taken
out, specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and originals of such policies immediately
shall be provided to Foothill.
6.11. NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and under
the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for
or on account of, any federal, state, or local taxes.
6.12. LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on SCHEDULE 6.12; PROVIDED, HOWEVER,
that Borrower may amend SCHEDULE 6.12 so long as such amendment occurs by
written notice to Foothill prior to the date on which the Inventory or Equipment
is moved to such new location, so long as such new location is within the
continental United States, and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests in
such assets and also provides to Foothill a
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Collateral Access Agreement.
6.13. COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have
and could not reasonably be expected to have a Material Adverse Change.
6.14. EMPLOYEE BENEFITS.
(a) Promptly, and in any event within 10 Business Days after
Borrower or any of its Subsidiaries knows or has reason to know that an ERISA
Event has occurred that reasonably could be expected to result in a Material
Adverse Change, a written statement of the chief financial officer of
Borrower describing such ERISA Event and any action that is being taking with
respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC.
Borrower or such Subsidiary, as applicable, shall (i) be deemed to know all
facts known by the administrator of any Benefit Plan of which it is the plan
sponsor, (ii) promptly, and in any event within 3 Business Days after the
filing thereof with the IRS, deliver, or cause to be delivered, to Foothill a
copy of each funding waiver request filed with respect to any Benefit Plan
and all communications received by Borrower, any of its Subsidiaries or, to
the knowledge of Borrower, any ERISA Affiliate with respect to such request,
and (iii) promptly, and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate, of notice of the PBGC's intention to terminate a Benefit Plan or
to have a trustee appointed to administer a Benefit Plan, deliver, or cause
to be delivered, to Foothill copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or, where any such
plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of Borrower or
its Subsidiaries; (ii) the most recent determination letter issued by the IRS
with respect to each Benefit Plan; (iii) for the three most recent plan
years, annual reports on Form 5500 Series required to be filed with any
governmental agency for each Benefit Plan; (iv) all actuarial reports
prepared for the last three plan years for each Benefit Plan; (v) a listing
of all Multiemployer Plans, with the aggregate amount of the most recent
annual contributions required to be made by Borrower or any ERISA Affiliate
to each such plan and copies of the collective bargaining agreements
requiring such contributions; (vi) any information that has been provided to
Borrower or any ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15. LEASES. Pay when due all rents and other amounts payable under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such
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payments are the subject of a Permitted Protest. To the extent that Borrower
fails timely to make payment of such rents and other amounts payable when due
under its leases, Foothill shall be entitled, in its discretion, to reserve
an amount equal to such unpaid amounts against the Borrowing Base.
6.16. LANDLORD WAIVERS AND CONSENTS. Use its best efforts (i) to
promptly obtain and deliver to Foothill within 90 days following the Closing
Date a consent, waiver and subordination (satisfactory to Foothill) by the
landlord for existing locations of Borrower (except for the County Line Store
and Colorado Boulevard Store), and (ii) hereafter to obtain and deliver to
Foothill a consent, waiver and subordination (satisfactory to Foothill) by
the landlord for any new location prior to Borrower taking possession of such
new location.
6.17. 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, provide Foothill with a copy
of such agreement or amendment (other than oral agreements and amendments).
6.18 YEAR 2000 COMPATIBILITY. Borrower shall take all actions
reasonably necessary to assure that Borrower's computer based systems are
Year 2000 Compliant. At the request of Foothill, Borrower shall provide
evidence reasonably satisfactory to Foothill that the foregoing actions are
being or have been taken.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's
prior written consent:
7.1. INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in the latest consolidated
financial statements of Borrowers submitted to Foothill on or prior to the
Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) Manufacturer Payables; and
(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this SECTION 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower,
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(ii) the net cash proceeds of such refinancings, renewals, or extensions do
not result in an increase in the aggregate principal amount of the
Indebtedness so refinanced, renewed, or extended, (iii) such refinancings,
renewals, refundings, or extensions do not result in a shortening of the
average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to Foothill as those applicable to the refinanced Indebtedness.
7.2. LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements
of Permitted Liens to the extent that the original Indebtedness is refinanced
under SECTION 7.1(d) and so long as the replacement Liens only encumber those
assets or property that secured the original Indebtedness).
7.3. RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, assign, lease, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its property or assets, other than (i) a merger,
consolidation, or similar transaction between Akquisition and Ultimate in
which Ultimate is the surviving entity, (ii) a liquidation or dissolution of
Akquisition or transfer or dissolution of all or any substantial part of
Akquisition's property or assets in which Ultimate becomes the owner of such
property or assets, (iii) a merger, consolidation or similar transaction
involving Fast Trak and Akquisition in which Akquisition is the surviving
entity or if Ultimate is involved, Ultimate is the surviving entity, or (iv)
a liquidation or dissolution of Fast Trak or transfer or dissolution of all
or any substantial part of Fast Trak's property or assets in which Ultimate
or Akquisition becomes the owner of such property or assets.
7.4. DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or otherwise
dispose of any of any Borrower's properties or assets other than sales of
Inventory to buyers in the ordinary course of such Borrower's business as
currently conducted; provided, however, that as long as no Default or Event
of Default has occurred or would result therefrom, Borrowers may dispose of
furniture and fixtures in an aggregate for all Borrowers which does not
exceed a net book value of $300,000 during any fiscal year of Borrowers.
Notwithstanding the foregoing, a transaction permitted pursuant to SECTION
7.3(ii) or SECTION 7.3(iv) hereof shall also be a transaction permitted by
this SECTION 7.4.
7.5. CHANGE NAME. Change any Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity,
or add any new fictitious name.
7.6. GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of any Borrower or
which are transmitted or turned over to Foothill or guaranties of obligations of
employees in an amount not to exceed for all Borrowers $20,000 in
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the aggregate at any time outstanding or guaranties by Ultimate of goods
purchased by Fast Trak in the ordinary course of business of Fast Trak or
guaranties by Ultimate of real estate leases entered into by Akquisition in
the ordinary course of Akquisition's business.
7.7. NATURE OF BUSINESS. Make any change in the principal nature of
Borrower's business.
7.8. PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
SECTION 7.1(d) or in prepayment of up to $763,000 in the aggregate of amounts
owing on the date of this Agreement to Colorado National Leasing a/k/a US
Bancorp Leasing as permitted under SECTION 7.17, prepay, redeem, retire,
defease, purchase, or otherwise acquire any Indebtedness owing to any third
Person, other than the Obligations in accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under SECTIONs 7.1(b), (c), or (e).
7.9. CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10. CONSIGNMENTS. Consign any Inventory (except that all Borrowers
in the aggregate may be a consignee of up to $100,000 of Inventory at any
particular time) or sell any Inventory on bill and hold, sale or return, sale
on approval, or other conditional terms of sale.
7.11. DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of Borrower's capital stock, of any
class, whether now or hereafter outstanding; provided, however, that (i) as
long as no Default or Event of Default has occurred or would result therefrom
and, after giving effect thereto, Borrower would have Availability of not
less than $5,000,000, Ultimate may repurchase its outstanding capital stock
from Persons that are not Affiliates, directors or officers of Ultimate
pursuant to Ultimate's stock buy-back program and/or redeem the 10.25% first
mortgage bonds due January 31, 2005 of Ultimate, provided that the aggregate
amount of such repurchase and redemption by Borrower shall not exceed
$1,500,000 during any fiscal year of Ultimate, (ii) Fast Trak may make
distributions and declare and pay dividends to Akquisition, and (iii)
Akquisition may make distributions and declare and pay dividends to Ultimate.
7.12. ACCOUNTING METHODS. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Foothill
information regarding the Collateral or Borrower's financial condition.
Borrower waives the right to assert a confidential relationship, if any, it
may have with any accounting firm or service
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bureau in connection with any information requested by Foothill pursuant to
or in accordance with this Agreement, and agrees that Foothill may contact
directly any such accounting firm or service bureau in order to obtain such
information.
7.13. INVESTMENTS. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a)
the acquisition of the securities (whether debt or equity) of, or other
interests in, a Person, (b) loans, advances, capital contributions, or
transfers of property to a Person (except that Ultimate may make advances to
Akquisition and Fast Trak provided that such advances are short-term in
nature, are reflected as inter-company advances on the financial records of
Borrower, and are made and repaid in the ordinary course of business of
Borrower, and except that as long as no Default or Event of Default has
occurred or would result therefrom, Borrower may make loans and advances to
Persons provided that the aggregate outstanding principal amount of all such
advances and loans may not at any time exceed $150,000), or (c) the
acquisition of all or substantially all of the properties or assets of a
Person. Notwithstanding the foregoing, a transaction permitted pursuant to
SECTION 7.3 hereof shall also be a transaction permitted by this SECTION 7.13.
7.14. TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction between any Borrower with
another Borrower or between any Borrower with any Affiliate of such Borrower
except for transactions that are in the ordinary course of such Borrower's
business, upon fair and reasonable terms, that are fully disclosed to
Foothill, and that are no less favorable to such Borrower than would be
obtained in an arm's length transaction with a non-Affiliate.
7.15. SUSPENSION. Except as permitted by SECTION 7.3 hereof, suspend
or go out of a substantial portion of its business.
7.16. [INTENTIONALLY OMITTED]
7.17. USE OF PROCEEDS. Use the proceeds of the Advances made hereunder
for any purpose other than (a) on the Closing Date, (i) to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing
to Existing Lender, (ii) to pay transactional costs and expenses incurred in
connection with the September 30, 1998 Loan Agreement, (b) within 60 days
after the Closing Date, to prepay up to $763,000 in the aggregate of amounts
owing on the date of this Agreement to Colorado National Leasing, a/k/a US
Bancorp Leasing under certain promissory notes payable thereto, and (c) after
the Closing Date, consistent with the terms and conditions hereof, for its
lawful and permitted corporate purposes.
7.18. CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory
and Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without
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Foothill's prior written consent.
7.19. NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC
for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412
of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay
any required installment or any other payment required under Section 412 of
the IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such
that either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the
IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably
likely to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20. FINANCIAL COVENANTS. Borrowers on a consolidated basis shall
observe and comply with each of the following:
(a) GROSS MARGIN. Tested monthly, Gross Margin Percentage,
measured on a rolling three-month basis, shall not vary negatively from the
Business Plan by more than two (2%) percentage points and on a rolling
twelve-month basis, commencing with January 1999 and measured monthly
thereafter, the Gross Margin Percentage shall not be less than twenty-six and
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one-half percent (26p%).
(b) INVENTORY LEVELS. Borrower shall not permit end of the
month inventory at cost, as measured on a rolling three (3) month basis, to
be below a level of at least ninety percent (90%) of the Business Plan or to
be above a level of more than one hundred fifteen percent (115%) of the
Business Plan, provided that for purposes of computing the amount of
Inventory for this paragraph Inventory shall be exclusive of any
"opportunistic buys" (which are those purchases deemed extraordinary given
trade terms granted which are different than those typically offered to
Borrower which such exclusion is subject to Foothill's sole satisfaction upon
receipt of supporting documentation).
(c) TANGIBLE NET WORTH. Borrower shall not permit, as of the
last day of each October, January, April and July beginning with September
30, 1998, its Tangible Net Worth to be less than $36,000,000.
7.21. CAPITAL EXPENDITURES. Make capital expenditures in any period
set forth below in excess of the corresponding aggregate amount set forth
below (exclusive of capitalized leased financing incurred for financing the
acquisition of real estate in conjunction with the opening of a new store
located on such real estate):
<TABLE>
<CAPTION>
PERIOD AMOUNT
------ ------
<S> <C>
Closing Date through January 31, 1999 $1,000,000
February 1, 1999 through January 31, 2000 $5,000,000
February 1, 2000 through January 31, 2001 $6,000,000
February 1, 2001 through September 30, 2001 $5,000,000
</TABLE>
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8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
(a) If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions of
the Bankruptcy Code, would have accrued on such amounts), fees and charges
due Foothill, reimbursement of Foothill Expenses, or other amounts
constituting Obligations);
(b) (i) If Borrower fails or neglects to perform, keep, or
observe any term, provision, condition, covenant, or agreement contained in
SECTION 6.2 (Collateral and Financial Reporting), SECTION 6.4 (Tax Returns),
SECTION 6.7 (Title to Equipment), the portion of SECTION 6.9 (Taxes) as
pertains to state franchise taxes, SECTION 6.12 (Location of Inventory and
Equipment), SECTION 6.13 (Compliance with Laws), SECTION 6.14 (Employee
Benefits), or SECTION 6.15 (Leases) of this Agreement and such failure
continues for a period of 5 Business Days; (ii) If Borrower fails or neglects
to perform, keep, or observe any term, provision, condition, covenant, or
agreement contained in SECTION 6.1 (Accounting System), SECTION 6.6
(Returns), SECTION 6.8 (Maintenance of Equipment), SECTION 6.17 (Material
Inventory Supplier) or SECTION 6.18 (Year 2000 Compatibility) of this
Agreement and such failure continues for a period of 15 Business Days; or
(iii) If Borrower fails or neglects to perform, keep, or observe any other
term, provision, condition, covenant, or agreement contained in this
Agreement, or in any of the other Loan Documents (giving effect to any grace
periods, cure periods, or required notices, if any, expressly provided for in
such Loan Documents); in each case, other than any such term, provision,
condition, covenant, or agreement that is the subject of another provision of
this SECTION 8, in which event such other provision of this SECTION 8 shall
govern); PROVIDED that, during any period of time that any such failure or
neglect of Borrower referred to in this paragraph exists, even if such
failure or neglect is not yet an Event of Default by virtue of the existence
of a grace or cure period or the pre-condition of the giving of a notice,
Foothill shall be relieved of its obligation to extend credit hereunder;
(c) If there is a Material Adverse Change;
(d) If any material portion of Borrower's properties or assets
considered as a whole is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person;
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(e) If an Insolvency Proceeding is commenced by Borrower;
(f) If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the
institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within 60
calendar days of the date of the filing thereof; PROVIDED, HOWEVER, that,
during the pendency of such period, Foothill shall be relieved of its
obligation to extend credit hereunder; (d) an interim trustee is appointed to
take possession of all or a substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of,
Borrower; or (e) an order for relief shall have been issued or entered
therein;
(g) If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part
of its business affairs;
(h) If a notice of Lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or
if any taxes or debts owing at any time hereafter to any one or more of such
entities becomes a Lien, whether choate or otherwise, upon any of Borrower's
properties or assets;
(i) (i) If one or more notice of Lien, levy, or assessment
with respect to taxes or debts owing is filed of record with respect to any
of Borrower's properties or assets by any state, county, municipal or other
non-federal governmental agency, and the Lien, levy, or assessment is not (A)
fully released, discharged or bonded against before the earlier of 30 days of
the date that it first arises or 5 days of the date when such property or
asset is subject to being forfeited, or (B) the subject of a Permitted
Protest, or (ii) if any taxes or debts owing at any time hereafter to any one
or more of any state, county, municipal or other non-federal governmental
agency becomes a Lien, whether choate or otherwise, upon any of Borrower's
properties or assets and the Lien is not fully (A) fully released, discharged
or bonded against before the due date of such tax or debt or 5 days of the
date when such property or asset is subject to being forfeited or (B) the
subject of a Permitted Protest; or
(j) If a judgment or other claim, in excess of $250,000
individually or in the aggregate for all such judgments or other claims,
becomes a Lien or encumbrance upon any material portion of Borrower's
properties or assets;
(k) If Borrower shall fail to pay when due the principal or
interest on any Indebtedness of Borrower in excess of $250,000 individually
or in the aggregate of all such Indebtedness, or a default by Borrower in the
observance or performance of any term, covenant or agreement of Borrower in
any agreement relating to any indebtedness of Borrower in excess of $250,000
individually or in the aggregate, and the passage of any grace period with
respect thereto, the effect of which default is to permit the holder of such
indebtedness, irrespective of whether exercised, to accelerate the maturity
of Borrower's obligations thereunder;
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(l) If there is a default in any material agreement to which
Ultimate is a party (or to which Akquisition or Fast Trak is a party if such
agreement is material to the Borrowers considered as a whole) with one or
more third Persons (other than as described in subparagraph (k) immediately
above) and such default (a) occurs at the final maturity of the obligations
thereunder, or (b) results in a right by such third Person(s), irrespective
of whether exercised, to accelerate the maturity of Borrower's obligations
thereunder;
(m) If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment
of the Obligations, except to the extent such payment is permitted by the
terms of the subordination provisions applicable to such Indebtedness;
(n) If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made
to Foothill by Borrower or any officer, employee, agent, or director of
Borrower, or if any such warranty or representation is withdrawn; or
(o) If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by
operation of law or by the guarantor or other third Person thereunder, or any
such guarantor or other third Person becomes the subject of an Insolvency
Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES
9.1. RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and
without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
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(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the Collateral.
Borrower agrees to assemble the Collateral if Foothill so requires, and to
make the Collateral available to Foothill as Foothill may designate.
Borrower authorizes Foothill to enter the premises where the Collateral is
located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
Lien that in Foothill's determination appears to conflict with its security
interests and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned or leased premises, Borrower hereby grants
Foothill a license to enter into possession of such premises and to occupy
the same, without charge, for up to 120 days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the
Code), set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Foothill (including any amounts received in the
Concentration Accounts), or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the
Concentration Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in completing production of, advertising for sale, and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(i) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the
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time and place of public sale, or, if the sale is a private sale or some
other disposition other than a public sale is to be made of the Collateral,
then the time on or after which the private sale or other disposition is to
be made;
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in SECTION 12, at least 5 days
before the date fixed for the sale, or at least 5 days before the date on or
after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Collateral
that is perishable or threatens to decline speedily in value or that is of a
type customarily sold on a recognized market. Notice to Persons other than
Borrower claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Foothill;
(iii) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at
least 5 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(iv) Foothill may credit bid and purchase at any public
sale; and
(v) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower.
(l) In addition to and not in limitation of any other rights
and remedies of Foothill hereunder and under applicable law, Foothill may
conduct one or more going out of business sales which include the sale or
other disposition of the Collateral.
9.2. REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith
as provided under the Code, by law, or in equity. No exercise by Foothill of
one right or remedy shall be deemed an election, and no waiver by Foothill of
any Event of Default shall be deemed a continuing waiver. No delay by
Foothill shall constitute a waiver, election, or acquiescence by it.
9.3 LICENSE. Effective upon the occurrence of an Event of Default,
Borrower hereby grants to Foothill a royalty fee non-exclusive license to
use, apply and affix any trademark, tradename, logo or the like in which
Borrower now or hereafter has rights, such license being with respect to
Foothill's exercise of the rights hereunder, including, without limitation,
in connection with any completion of the manufacture of Inventory or sale or
other disposition of Inventory.
10. TAXES AND EXPENSES
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of
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payment or deposit, all as required under the terms of this Agreement, then,
to the extent that Foothill determines that such failure by Borrower could
result in a Material Adverse Change, in its discretion and without prior
notice to Borrower, Foothill may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in
Borrower's Loan Account as Foothill deems necessary to protect Foothill from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type described in SECTION 6.10, and take any action with
respect to such policies as Foothill deems prudent. Any such amounts paid by
Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar
payments in the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
11. WAIVERS; INDEMNIFICATION
11.1. DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower may in any way be liable.
11.2. FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or manner be liable or responsible for: (a)
the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other Person. All risk of loss, damage, or
destruction of the Collateral shall be borne by Borrower.
11.3. INDEMNIFICATION. Borrower shall pay, indemnify, defend, and hold
Foothill, each Participant and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this SECTION 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful
65
<PAGE>
misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified
mail (postage prepaid, return receipt requested), overnight courier, or
telefacsimile to Borrower or to Foothill, as the case may be, at its address
set forth below:
<TABLE>
<S> <C>
IF TO BORROWER: Ultimate Electronics, Inc.
321 West 84th Avenue, Suite A
Thornton, Colorado 80221
Attn: Chief Financial Officer
Fax No. (303) 412-2502
WITH COPIES TO: Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Attn: Patricia Peterson, Esq.
Fax No. (303) 892-7400
IF TO FOOTHILL: Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. (310) 478-9788
WITH COPIES TO: Patton Boggs LLP
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attn: Kenneth M. Vesledahl, Esq.
Fax No. (214) 871-2688
</TABLE>
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this SECTION
12, other than notices by Foothill in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the date of actual
receipt or 3 days after the deposit thereof in the mail. Borrower
acknowledges and agrees that notices sent by Foothill in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or personally delivered, or, where permitted by law, transmitted
telefacsimile or other similar method set forth above.
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<PAGE>
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF
LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY
OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.
EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND
FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other
papers and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS
15.1. EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
67
<PAGE>
15.2. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any rights
or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment
by Foothill shall release Borrower from its Obligations. Foothill may assign
this Agreement and its rights and duties hereunder and no consent or approval
by Borrower is required in connection with any such assignment. Foothill
reserves the right to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in Foothill's rights
and benefits hereunder, provided that Foothill shall endeavor to give the
chief financial officer of Borrower telephonic notice of any such assignment
or participation (provided that Foothill shall have no liability to Borrower
if in fact it fails to give such notice to Borrower's chief financial
officer), and each such assignee and participant shall enter into a
confidentiality agreement containing provisions similar to the provisions of
SECTION 15.10 hereof. In connection with any such assignment or
participation, Foothill may disclose all documents and information which
Foothill now or hereafter may have relating to Borrower or Borrower's
business subject to the provisions of SECTION 15.10 hereof. To the extent
that Foothill assigns its rights and obligations hereunder to a third Person,
Foothill thereafter shall be released from such assigned obligations to
Borrower and such assignment shall effect a novation between Borrower and
such third Person.
15.3. SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.4. INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
15.5. SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific provision.
15.6. AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity,
68
<PAGE>
enforceability, and binding effect of this Agreement.
15.8. REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared
to be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money
or transfers of property (collectively, a "Voidable Transfer"), and if
Foothill is required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice of its
counsel, then, as to any such Voidable Transfer, or the amount thereof that
Foothill is required or elects to repay or restore, and as to all reasonable
costs, expenses, and attorneys fees of Foothill related thereto, the
liability of Borrower or such guarantor automatically shall be revived,
reinstated, and restored and shall exist as though such Voidable Transfer had
never been made.
15.9. INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof.
In addition to and not in limitation of the foregoing, this Agreement,
together with the other Loan Documents, constitute a credit agreement under
Colorado Revised Statutes 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.
15.10. CONFIDENTIALITY. Except as otherwise provided in this Agreement,
Foothill shall not disclose any confidential information to any Person
without the consent of Borrower, other than (a) to Foothill's Affiliates and
its officers, directors, employees, agents and advisors and to actual or
prospective assignees and participants, and then only on a confidential
basis; (b) as required by any law, rule or regulation or judicial process;
and (c) as requested or required by any state, federal or foreign authority
or examiner regulating banks or banking. If Foothill is required by any law,
rule or regulation or judicial process to disclose any confidential
information, Foothill will promptly give notice to Borrower so that Borrower
may seek a protective order or other appropriate remedy. If Borrower shall
not obtain such protective order or other remedy, Foothill will endeavor to
furnish only that portion of the confidential information which Foothill
reasonably believes to be legally required.
69
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in Los Angeles, California.
ULTIMATE ELECTRONICS, INC.,
a Delaware corporation
By:
----------------------------------
Name: Alan E. Kessock
Title: Vice President - Finance
FAST TRAK, INC.,
a Minnesota corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ULTIMATE AKQUISITON CORP.,
a Delaware corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
70
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 4,165
<SECURITIES> 0
<RECEIVABLES> 17,921
<ALLOWANCES> 246
<INVENTORY> 52,220
<CURRENT-ASSETS> 74,896
<PP&E> 65,327
<DEPRECIATION> 17,718
<TOTAL-ASSETS> 127,728
<CURRENT-LIABILITIES> 43,796
<BONDS> 39,284
0
0
<COMMON> 82
<OTHER-SE> 43,756
<TOTAL-LIABILITY-AND-EQUITY> 127,728
<SALES> 221,505
<TOTAL-REVENUES> 221,505
<CGS> 156,939
<TOTAL-COSTS> 219,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,176
<INCOME-PRETAX> (1,434)
<INCOME-TAX> (531)
<INCOME-CONTINUING> (1,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (903)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
