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 June 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-23024
BROTHERS GOURMET COFFEES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1681708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 GLADES ROAD
SUITE 100E
BOCA RATON, FL 33431
(Address of principal executive offices)
(Zip code)
(407) 995-2600
(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 [ ]
As of August 8, 1996 the Registrant had outstanding (1) 10,362,605 shares of
Common Stock, par value $.0001 per share, and (2) 839,332 shares of Class B
Common Stock, par value $.0001 per share.
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BROTHERS GOURMET COFFEES, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--June 28, 1996 and
December 29, 1995......................................................1
Condensed Consolidated Statements of Operations--Three months
and six months ended June 28, 1996 and June 30, 1995...................2
Condensed Consolidated Statements of Cash Flows--Three months
and six months ended June 28, 1996 and June 30, 1995...................3
Notes to Condensed Consolidated Financial Statements--
June 28, 1996..........................................................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.......................8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.....................................................12
Item 2. Changes in Securities.................................................12
Item 3. Defaults Upon Senior Securities.......................................12
Item 4. Submission of Matters to a Vote of Security Holders...................12
Item 5. Other Information.....................................................12
Item 6. Exhibits and Reports on Form 8-K......................................12
SIGNATURES..............................................................................14
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BROTHERS GOURMET COFFEES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 28, December 29,
1996 1995
------------- -------------
ASSETS (Unaudited)
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Current assets:
Cash $ -- $ --
Trade receivables, net 8,373 14,354
Receivable from the sale of retail operations 4,308 6,271
Inventories 7,607 6,390
Prepaid promotional expenses 2,203 2,398
Prepaid expenses and other current assets 1,052 932
Net assets of discontinued retail operations
at net disposal value -- 1,350
------------ -----------
Total current assets 23,543 31,695
Property, plant and equipment, net 14,725 16,534
Net noncurrent assets of discontinued
retail operations, at estimated disposal value 72 1,122
Other assets:
Excess of cost over net assets acquired, net 53,210 53,950
Noncompete agreements, net 1,795 2,498
Noncurrent promotional expenses 3,011 3,319
Other assets 1,238 842
------------ -----------
$ 97,594 $ 109,960
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,500 $ 19,004
Accounts payable 7,217 6,444
Accrued expenses 5,657 6,680
Accrued losses and other costs of
discontinued retail operations 968 4,378
Accrued restructuring costs 689 1,539
----------- -----------
Total current liabilities 16,031 38,045
Long term debt, less current maturities 12,143 --
Minority interest 44 191
Stockholders' equity:
Preferred Stock--10,000,000 shares authorized: $1.00 par value;
-0- shares issued and outstanding at June 28, 1996
and December 29, 1995 -- --
Common Stock-- 15,000,000 shares authorized:
$.0001 par value; 10,400,105 shares issued and outstanding
at June 28, 1996 and December 29, 1995 1 1
Class B Common Stock--2,000,000 shares authorized:
$.0001 par value; 839,332 shares issued and outstanding
at June 28, 1996 and December 29, 1995 -- --
Additional paid-in capital 142,505 142,505
Accumulated deficit in earnings (72,880) (70,532)
Treasury stock (37,500 shares, at cost) (250) (250)
----------- -----------
Total stockholders' equity 69,376 71,724
----------- -----------
$97,594 $109,960
=========== ============
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See accompanying notes to condensed consolidated financial statements.
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BROTHERS GOURMET COFFEES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE 28, ENDED JUNE 30, ENDED JUNE 28, ENDED JUNE 30,
1996 1995 1996 1995
------------- -------------- ------------- -------------
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Net sales $ 15,413 $ 23,345 $ 34,523 $ 49,246
Cost of goods sold 8,711 14,469 18,719 29,534
-------- -------- -------- --------
Gross profit 6,702 8,876 15,804 19,712
Operating expenses:
Distribution, selling and marketing 5,939 9,283 12,452 19,386
Administrative 1,376 4,417 2,937 6,364
Restructuring 124 1,500 221 500
Amortization of intangibles 672 885 1,446 1,783
-------- -------- -------- --------
Loss from operations (1,409) (7,209) (1,252) (8,321)
Other expenses (income):
Interest expense, net 540 664 1,119 1,084
Other (income) expense (13) 27 (23) (18)
-------- -------- -------- --------
Loss from continuing operations (1,936) (7,900) (2,348) (9,387)
Loss from discontinued retail operations -- (3,324) -- (5,368)
Loss on disposal of discontinued
retail operations -- (35,226) -- (35,226)
-------- -------- -------- --------
Net loss $ (1,936) $(46,450) $ (2,348) $ (49,981)
======== ======== ======== ========
Loss per common share:
Loss per common share
from continuing operations $ (0.17) $ (0.70) $ (0.21) $ (0.84)
Loss per common share
from discontinued retail operations -- (3.44) -- (3.62)
-------- -------- -------- --------
Net loss per common share $ (0.17) $ (4.14) $ (0.21) $ (4.46)
======== ======== ======== ========
Weighted average common shares outstanding 11,202 11,212 11,202 11,205
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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BROTHERS GOURMET COFFEES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS THREE MONTHS THREE MONTHS SIX MONTHS
ENDED JUNE 28, ENDED JUNE 30, ENDED JUNE 28, ENDED JUNE 30,
1996 1995 1996 1995
------------ ------------- ------------- -------------
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Cash flows from operating activities:
Net loss $(1,936) $(46,450) $ (2,348) $(49,981)
Adjustments to reconcile net income to cash
provided by operating activities:
Discontinued retail operations -- 35,876 -- 35,876
Depreciation and amortization 2,998 4,669 6,499 8,980
Current and noncurrent promotional expenses 1,425 (1,097) (869)
(3,007)
Changes in operating assets and liabilities:
Current assets 276 8,266 4,531 13,716
Current liabilities (3,103) (4,604) (1,374) (8,296)
Other noncurrent assets (107) (19) (213) (69)
------- -------- -------- --------
Net cash (used in) provided by operating activities:
Continuing operations (447) (3,359) 6,226 (2,781)
Discontinued retail operations (1,168) 854 (2,928) 1,807
------- -------- -------- --------
(1,615) (2,505) 3,298 (974)
Cash flows from investing activities:
Purchases of property, plant and equipment, net (754) (1,939) (1,174) (5,515)
Proceeds from sale of discontinued retail operations 754 -- 3,937
-------- -------- -------- --------
Net cash (used in) provided by investing activities -- (1,939) 2,763 (5,515)
Cash flows from financing activities:
Net borrowings and repayments under long-term
revolving line of credit (5,885) 4,278 (13,561) 6,233
Proceeds from term loan 7,500 -- 7,500 --
Issuance of common stock -- 166 -- 256
------- -------- -------- --------
Net cash provided by (used in) financing activities 1,615 4,444 (6,061) 6,489
Change in cash -- -- -- --
Cash at the beginning of the period -- -- -- --
------- -------- -------- --------
Cash at the end of the period $ -- $ -- $ -- --
======= ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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BROTHERS GOURMET COFFEES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q pursuant to
the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation
S-X, as amended. Accordingly, they do not include all the financial statements
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and six month periods ended
June 28, 1996 are not necessarily indicative of the results that may be expected
for the year ending December 27, 1996. For further information, refer to the
Brothers Gourmet Coffees, Inc.'s (the "Company") consolidated financial
statements and footnotes included in its Annual Report on Form 10-K for the
fiscal year ended December 29, 1995.
NOTE 2--RECLASSIFICATION AND RESTATEMENTS
Certain amounts in the financial statements for the three month and six month
periods ended June 30, 1995 have been reclassified to conform to presentation
in the financial statements for the three month and six month periods ended June
28, 1996.
NOTE 3--SALES
The Company is an integrated sourcer, roaster and wholesaler of high quality
gourmet coffee products. The Company participates in the wholesale distribution
channel through sales of gourmet coffee to supermarkets, grocery stores and mass
merchandisers. The Company's business is seasonal, with increased sales during
the colder months. As a result, in a typical year, a substantial portion of the
Company's sales and its reported income from operations occur during the fourth
quarter of each year. The Company's results of operations for any particular
quarter may not necessarily be indicative of its results of operations for any
other particular quarter or for the whole year.
NOTE 4--EARNINGS PER SHARE
Shares underlying options and warrants are not included in the computation for
the three months and six months ended June 28, 1996 and June 30, 1995 because
the effect is antidilutive to the net loss per share.
4
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BROTHERS GOURMET COFFEES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
NOTE 5--INVENTORIES
The components of inventories consist of the following:
JUNE 28, DECEMBER 29,
1996 1995
-------- ------------
Green coffee $ 2,881 1,594
Finished goods 4,964 4,428
Packaging and other supplies 1,395 2,001
------- -------
9,240 8,023
Less: LIFO reserve (1,633) (1,633)
------- -------
$ 7,607 $ 6,390
======= =======
An actual valuation of inventory under the last-in, first-out ("LIFO") method
can only be determined at the end of each year based on the inventory levels
and costs at that time. Accordingly, interim LIFO calculations must necessarily
be based on management's estimates of expected year-end inventory levels and
costs. Because inventory levels and costs are subject to many factors beyond
management's control, interim results are subject to the final year-end LIFO
inventory valuation.
NOTE 6--CREDIT ARRANGEMENTS
On May 29, 1996 (the "Closing Date"), the Company and Sanwa Business Credit
Corporation, in its capacity as agent and sole initial lender (the "Lender"),
entered into a $25,000, long term credit facility (the "New Credit Facility").
The New Credit Facility consists of (1) up to a $15,000 borrowing based,
revolving credit facility (the "Revolving Facility"), (2) up to a $10,000 term
loan facility ("Term Facility"), consisting of two components, (a) a term loan
in the amount of $7,500 ("Term Loan A") and (b) a second term loan in the amount
of $2,500 ("Term Loan B"), which will become available when the Company meets
certain financial targets, and (3) certain guaranty and letter of credit
facilities.
The Revolving Facility bears interest at the rate of prime plus 1.0% (with an
interest rate option at LIBOR plus 2.5%). The Term Facility bears interest at
the rate of prime plus 1.5% (with an interest rate option at LIBOR plus 3.0%).
The Revolving Facility will mature on May 28, 1999. Term Loan A is payable in
60 equal monthly principal payments of $125 each, plus interest. The unused
commitment fee on the Revolving Facility is .5% on the average daily unused
balance thereof. At June 28, 1996, the Company had $3,800 of unused borrowing
availability under its Revolving Facility.
The New Credit Facility, which is a full recourse obligation of the Company, is
secured by substantially all the Company's assets. The New Credit Facility
agreement contains standard and customary (1) affirmative and negative
covenants, including restrictions on (a) the incurrence by the Company of
additional indebtedness, (b) the payment by the Company of dividends, (c) the
guaranty by the Company of any other indebtedness and (d) the acquisition or
disposition of Company assets without the Lender's prior approval, and (2)
financial covenants.
On the Closing Date, the Company drew down the full amount of Term Loan A (ie.
$7,500) and approximately $5,000 of the Revolving Facility. The Company used
these funds to repay the entire amount due to its prior lender, (the "Bank
Debt"), First Union National Bank of North Carolina (the "Bank"). Upon repayment
of the Bank Debt, the Bank's warrant to acquire
5
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BROTHERS GOURMET COFFEES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1996
(IN THOUSANDS. EXCEPT SHARE AMOUNTS)
(UNAUDITED)
286,770 shares of the Company's Class B Common Stock, which was scheduled to
vest in full on May 31, 1996, expired, and the Bank Debt facility was
terminated.
In connection with the closing of the New Credit Facility, the Company, J.H.
Whitney & Co. ("Whitney") and J.P. Bolduc ("Bolduc") (Whitney and Bolduc are
referred to herein as the "Providers") entered into a Credit Support Agreement,
whereby the Providers agreed to provide $2,000 of credit support ("Credit
Support"), in the form of letters of credit (the "Letters of Credit"), for the
Company's obligations under the New Credit Facility. Providing the Credit
Support to the Lender was a condition to closing the New Credit Facility. Each
Provider also entered into a Participation Agreement (the two Participation
Agreements are substantially similar) with the Lender setting forth the parties'
respective intercreditor rights and obligations in the event the Lender draws on
the Letters of Credit. As payment for the Credit Support, the Company (1) paid
each Provider $20 and (2) issued to each Provider (a) a warrant, dated as of May
29, 1996, to purchase 103,626 shares of Common Stock at an exercise price per
share equal to the average daily trading price of the Common Stock for the
30-day period commencing on April 30, 1996 and ending on May 29, 1996, which
warrant will vest in four equal tranches on May 29, 1996, September 29, 1996,
January 29, 1997 and May 28, 1997, if any obligations remain outstanding on the
part of the Provider to the Lender as of each such vesting date ("Warrant A"),
(b) a second warrant, dated as of May 29, 1996, to purchase 37,488 shares of
Common Stock at an exercise price per share equal to the average daily trading
price of the Common Stock for the 30-day period commencing on April 30, 1999 and
ending on May 29, 1999, which warrant will vest in four equal tranches on May
29, 1999, September 29, 1999, January 29, 2000 and May 28, 2000 if any
obligations remain outstanding on the part of the Provider to the Lender as of
each such vesting date ("Warrant B") and (c) a third warrant, dated as of May
29, 1996, to purchase 37,488 shares of Common Stock at an exercise price per
share equal to the average daily trading price of the Common Stock for the
30-day period commencing on April 30, 2000 and ending on May 29, 2000, which
warrant will vest in four equal tranches on May 29, 2000, September 29, 2000,
January 29, 2001 and May 28, 2001 if any obligations remain outstanding on the
part of the Provider to the Lender as of each such vesting date ("Warrant C").
The term of each (i) Warrant A is five (5) years, (ii) Warrant B is eight (8)
years and (iii) Warrant C is nine (9) years.
NOTE 7--DISCONTINUED OPERATIONS
In June 1995, the Company's Board of Directors (the"Board") adopted a plan (the
"Disposition Plan") to dispose of all of its retail operations, consisting of
the Gloria Jean's specialty retail business ("Gloria Jean's") and the Brothers
Gourmet Coffee Bars (the "Coffee Bars"). Since then, the operating results of
discontinued retail operations, including provisions for estimated losses during
the phase-out period, have been segregated from the operating results of
continuing operations and reported as a separate line item on the statement of
operations. Interest expense has been allocated to discontinued retail
operations based on the ratio of discontinued operations net assets to
consolidated net assets. Due to the subjective nature of estimating future
operating losses and incremental costs of disposal, it is reasonably possible
that these estimates may change in the future. Future changes in estimates will
be included in the statement of operations in the fiscal year determined.
During the first six months of 1996, the Company closed the sale of 29 of its
Coffee Bars located in Colorado, Texas, Washington D.C. and Chicago (including
the assignment of leases on 5 Coffee Bar sites which were never built out) for
$2,400 (subject to certain holdbacks to secure the performance by the Company of
certain of its post-closing obligations). The Company is negotiating to sell two
of its Coffee Bars located in New York and expects to close this sale in the
third quarter of fiscal 1996.
As of June 28, 1996, the Company 's obligations under the noncancelable
operating leases for its Coffee Bars were as follows: fiscal year 1996 -$91;
fiscal year 1997 -$185; fiscal year 1998 - $197; fiscal year 1999 -$200; fiscal
year 2000
6
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BROTHERS GOURMET COFFEES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
$203; and thereafter - $886. The Company is negotiating the settlement of its
lease obligations with respect to its remaining 7 Coffee Bar sites (3 in New
York, 1 in Maryland and 3 in Texas) that were closed or never built out.
Management has accrued for the estimated termination costs associated with these
leases and believes that such accrual is adequate.
NOTE 8--CONTINGENCIES
See "PART II -- Other Information -- Item 1. Legal Proceedings" below for
information concerning (1) certain franchisee litigation filed against Edglo
Enterprises, Inc. ("Edglo") and indemnification issues related thereto and (2)
certain shareholder lawsuits that have been filed against the Company.
NOTE 9--RESTRUCTURING
In connection with the Disposition Plan, the Company accrued $1,500 in
restructuring costs during the second quarter of fiscal 1995. The $1,500 second
quarter accrual was for certain severance costs and facilities consolidation
costs. During the first six months of fiscal 1996, the Company recorded $221 of
additional restructuring costs in connection with severance costs related to the
closing of its Denver, Colorado and Pittsburgh, Pennsylvania roasting and
packaging facilities. The Company anticipates that it will incur additional
restructuring costs, which are not expected to be significant, in connection
with its ongoing effort to streamline its cost structure.
NOTE 10--INCOME TAXES
The Company historically has experienced net operating losses and has
established valuation allowances to offset net deferred tax assets. Accordingly,
the Company has no provision for income taxes for the three month and six month
periods ended June 28, 1996 and June 30, 1995, and expects this trend to
continue for the remainder of fiscal 1996.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is an integrated sourcer, roaster and wholesaler of high
quality gourmet coffee products. The Company is the largest wholesaler of
gourmet coffees in the United States and sells its gourmet coffees to
supermarkets, grocery stores and mass merchandisers.
THREE MONTHS ENDED JUNE 28, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
NET SALES. Net sales decreased $7.9 million, or 34.0%, in the second
quarter of fiscal 1996 as compared to the second quarter of fiscal 1995 due to
a 1.6 million decline in pound volume. This decline resulted primarily from the
loss of certain customers in the Company's grocery channel of distribution.
Competitive pressures to provide unprofitable promotional contracts, principally
in the form of product placement costs, were the primary reason for the loss of
customers. Also, liquidity constraints limited the Company's ability to increase
its marketing and promotional spending on its products.
GROSS PROFIT AND GROSS PROFIT MARGIN. Gross profit decreased $2.2 million,
or 24.5%, in the second quarter of fiscal 1996 as compared to the second quarter
of fiscal 1995. The $2.2 million decrease occurred principally as a result of a
1.6 million decline in pound volume. In addition, gross profit during the second
quarter of fiscal 1995 included $1.3 million of LIFO basis cost of goods sold
reductions due principally to inventory decrements not recurring during the
second quarter of fiscal 1996. The gross profit margin increased as a percentage
of sales from 38.0% in the second quarter of fiscal 1995 to 43.4% in the second
quarter of fiscal 1996 principally due to a decline in green coffee costs by
approximately $.40 per pound and decreases in plant overhead costs of $1.3
million due to plant consolidations.
DISTRIBUTION, SELLING AND MARKETING EXPENSES. Distribution, selling and
marketing expenses decreased $3.3 million, or 36.0%, in the second quarter of
fiscal 1996 as compared to the second quarter of fiscal 1995 principally due to
lower marketing, advertising and promotional expenses, product placement costs,
distribution costs and salaries. Distribution, selling and marketing expenses as
a percentage of sales decreased from 39.8% of sales in the second quarter of
fiscal 1995 to 38.5% of sales in the second quarter of fiscal 1996 principally
due to the same factors.
ADMINISTRATIVE EXPENSES. Administrative expenses decreased $3.0 million, or
68.8%, in the second quarter of fiscal 1996 as compared to the second quarter of
fiscal 1995 principally due to lower professional fees, salaries and bad debt
expense. Administrative expenses decreased from 18.9% of sales in the second
quarter of fiscal 1995 to 8.9% of sales in the second quarter of fiscal 1996.
RESTRUCTURING CHARGES. Restructuring charges decreased $1.4 million in the
second quarter of fiscal 1996 as compared to the second quarter of fiscal 1995.
In the second quarter of fiscal 1995, the Board adopted a plan to restructure
the Company in order to align its cost structure with its new wholesale focus
(the "1995 Restructuring Plan"). The principal objectives of the 1995
Restructuring Plan were to (i) reduce the number of Company sales, management
and administrative personnel and (ii) consolidate the Company's roasting,
packaging and warehouse facilities. In the second quarter of fiscal 1996, the
Company incurred $0.1 million of severance costs related to the closing of its
Pittsburgh, Pennsylvania roasting and packaging facility. The Company does not
anticipate that it will incur significant additional restructuring costs during
the remainder of fiscal 1996.
INTEREST EXPENSE. Interest expense decreased $0.1 million, or 18.6%, in the
second quarter of fiscal 1996 as compared to the second quarter of fiscal 1995
due to lower outstanding borrowings.
LOSS FROM CONTINUING OPERATIONS. As result of above mentioned factors, the
loss from continuing operations decreased $6.0 million, or 75.4%, in the second
quarter of fiscal 1996 as compared to the second quarter of fiscal 1995.
8
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LOSS FROM DISCONTINUED RETAIL OPERATIONS AND LOSS ON DISPOSAL OF
DISCONTINUED RETAIL OPERATIONS. Loss from discontinued retail operations and
loss on disposal of discontinued retail operations decreased $38.6 million in
the second quarter of fiscal 1996 as compared to the second quarter of fiscal
1995. In the second quarter of fiscal 1995, the Board adopted the Disposition
Plan. See Note 9--Restructuring to the Brothers Gourmet Coffees, Inc., Notes to
Condensed Consolidated Financial Statements, June 28, 1996, for a discussion of
the Disposition Plan. Accordingly, the operating results of discontinued retail
operations, including provisions for estimated losses during the phase-out
period, have been segregated from continuing operations and reported as a
separate component of loss.
NET LOSS. Net loss decreased $44.5 million in the second quarter of fiscal
1996 as compared to the second quarter of fiscal 1995 principally because of
decreases in cost of goods sold, lower operating expenses and decreased losses
from discontinued retail operations.
SIX MONTHS ENDED JUNE 28, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
NET SALES. Net sales decreased $14.7 million, or 29.8%, in the six months
ended June 28, 1996 as compared to the six months ended June 30, 1995 because of
a 3.0 million decline in pound volume. This decline resulted primarily from the
loss of certain customers in the Company's grocery channel of distribution.
Competitive pressures to provide unprofitable promotional contracts, principally
in the form of product placement costs, was the primary reason for the loss of
customers. Also, liquidity constraints limited the Company's ability to increase
its marketing and promotional spending on its products.
GROSS PROFIT AND GROSS PROFIT MARGIN. Gross profit decreased $3.9 million,
or 19.8%, in the six months ended June 28, 1996 as compared to the six months
ended June 30, 1995. The $3.9 million decrease occurred principally as a result
of a 3.0 million decline in pound volume. In addition, gross profit during the
first quarter of fiscal 1995 included $1.8 million of LIFO basis cost of goods
sold reductions due principally to inventory decrements not recurring during the
six months ended June 28, 1996. The gross profit margin increased as a
percentage of sales from 40.0% in the six months ended June 30, 1995 to 45.8% in
the six months ended June 28, 1996 principally due to a decline in green coffee
costs by approximately $.40 per pound and lower plant overhead costs of $1.3
million due to plant consolidations.
DISTRIBUTION, SELLING AND MARKETING EXPENSES. Distribution, selling and
marketing expenses decreased $6.9 million, or 35.7%, in the six months ended
June 28, 1996 as compared to the six months ended June 30, 1995 principally due
to lower marketing, advertising and promotional expenses, product placement
costs, distribution costs and salaries. Distribution, selling and marketing
expenses as a percentage of sales decreased from 39.3% of sales in the six
months ended June 30, 1995 to 36.0% of sales in the six months ended June 28,
1996 principally due to the same factors.
ADMINISTRATIVE EXPENSES. Administrative expenses decreased $3.4 million, or
53.8%, in the six months ended June 28, 1996 as compared to the six months ended
June 30, 1995 principally due to lower professional fees, salaries and bad debt
expense. Administrative expenses decreased from 12.9% of sales in the six months
ended June 30, 1995 to 8.5% of sales in the six months ended June 28, 1996.
RESTRUCTURING CHARGES. Restructuring charges decreased $.3 million in the
six months ended June 28, 1996 as compared to six months ended June 30, 1995 due
to the Company's implementation of its 1995 Restructuring Plan, the closing of
its Pittsburgh, Pennsylvania roasting and packaging facility, the payment of
certain severance costs and the payment of other related restructuring costs The
Company does not anticipate that it will incur significant additional
restructuring costs during the remainder of fiscal 1996.
LOSS FROM CONTINUING OPERATIONS. As a result of the above-mentioned
factors, the loss from continuing operations decreased $7.0 million in the six
months ended June 28, 1996 as compared to the six months ended June 30, 1995.
LOSS FROM DISCONTINUED RETAIL OPERATIONS AND LOSS ON DISPOSAL OF
DISCONTINUED RETAIL OPERATIONS. Loss from discontinued retail operations and
loss on disposal of discontinued retail operations decreased $40.6 million in
the six months ended June 28, 1996 as compared to the six months ended June 30,
1995. In the second quarter of fiscal 1995, the Board adopted the Disposition
Plan. Accordingly, the operating results of the discontinued retail operations,
including provisions for estimated losses during the phase-out period, have been
segregated from continuing operations and reported as a separate component of
loss.
9
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NET LOSS. Net loss decreased $47.6 million in the six months ended June 28,
1996 as compared to the six months ended June 30, 1995 because of decreases in
cost of goods sold, lower operating expense and decreased losses from
discontinued retail operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operations for the six months ended June 28,
1996 and June 30, 1995 were $3.3 million and ($1.0) million, respectively. Net
cash provided by (used in) investing activities for the six months ended June
28, 1996 and June 30, 1995 were $2.8 million and ($5.5) million, respectively.
Net cash (used in) provided by financing activities for the six months ended
June 28, 1996 and June 30, 1995 were ($6.1) million and $6.5 million,
respectively. During the six months ended June 28, 1996, cash from operating
activities and the liquidation of accounts receivable were partially offset by
increases in inventories and promotional costs and payments related to
discontinued retail operations. Net cash from operating activities and proceeds
from the sale of discontinued retail operations were used to fund capital
expenditures and to paydown the revolving line of credit.
Management expects capital expenditures in fiscal 1996 to be no more than
$4 million. Such costs will relate primarily to the acquisition of customer
display and plant equipment. Management expects to fund these expenditures from
operations and borrowings under the Company's existing revolving line of credit
to the extent required. At June 28, 1996, the Company had approximately $3.8
million of unused borrowing availability under its revolving line of credit
facility.
See Note 6--Credit Arrangements to the Brothers Gourmet Coffees, Inc.,
Notes to Condensed Consolidated Financial Statements, June 28, 1996, for a
discussion of the Company's New Credit Facility and the repayment and
termination of its prior Bank Debt.
SUPPLY OF COFFEE AND GENERAL RISK CONDITIONS
Coffee is the world's second largest traded commodity. Supply and price can
be and have been volatile. While most coffee trades in the commodities market,
coffee of the quality level sought by the Company has a tendency to trade on a
negotiated basis at a substantial premium above commodity coffee pricing,
depending upon the supply and demand at the time of purchase. The supply and
price can be affected by multiple factors, such as weather, politics and
economics in the coffee producing countries, many of which are lesser developed
nations.
The International Coffee Organization, through the imposition of export
quotas agreed upon by consumer and producer member nations, has in the past
attempted to maintain the commodity prices of green coffees. In July 1989, the
refusal of certain countries to participate in the quota system resulted in the
dissolution of the agreement and a drop in the prices of coffees. In August
1993, 21 coffee-producing countries formed a new cartel, the Association of
Coffee Producing Countries ("ACPC"), and announced plans to cut the supply of
coffee by 20% beginning October 1, 1993 in an attempt to raise world coffee
prices. The effect of the ACPC on coffee prices is difficult to determine in
light of the dramatic price increases resulting from the frosts in Brazil
discussed below. Nonetheless, the ACPC met in November 1994 and resolved to
withhold 20% of its exportable green coffee bean crop in an effort to raise and
sustain green coffee bean prices. In January 1996, the ACPC agreed to extend its
current limitations on the supply of green coffee upon their expiration in June
1996 through the 1996/1997 green coffee year. The Company is unable to predict
whether the ACPC will be successful in achieving its goals; however, the
supplies of green coffees held by consumers (roasters and buyers) are currently
at historical low levels.
Brazil experienced frosts on June 26, 1994 and July 10, 1994 which
reportedly damaged approximately 40% of its green coffee bean crop. The
announcement of the Brazilian frost damage caused a substantial increase in
green coffee bean prices and other coffee-product related prices worldwide. The
Company purchases a modest amount of its green coffee beans from Brazil.
Nonetheless, in the third and fourth quarters of fiscal 1994 the Company
experienced a significant increase in the price of green coffee beans which
carried over into the first three quarters of fiscal 1995. Subsequent to the
third quarter of fiscal 1995, the Company's green coffee purchases and
commitments returned to pricing levels closer to those that existed prior to the
June and July 1994 Brazilian frosts.
10
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The Company is unable to predict weather events that may adversely affect
coffee supplies in particular countries. In the past, when green coffee bean
prices have increased, the Company has been able to pass those price increases
through to its customers, thereby maintaining its gross profit margins. The
Company was not able to immediately pass through to customers all of the price
increases in the third and fourth quarters of fiscal 1994 following the
significant increase in green coffee bean prices that resulted from the
Brazilian frosts. In the third and fourth quarter of fiscal 1994 and the first
quarter of fiscal 1995, the Company experienced customer resistance to price
increases. In light of the events in the third and fourth quarters of fiscal
1994 and first quarter of fiscal 1995, the Company cannot predict whether it
will be able to pass inventory price increases through to its customers in full
in the future.
A significant portion of the Company's green coffee supply is contracted
for future delivery, generally between three and twelve months forward (with
declining percentages of the supply being subject to future contracts in the
latter portions of each year), to ensure both an adequate supply and reduced
risk of short-term price fluctuations. Green coffee is a large market with
well-established brokers, importers and warehousemen through which the Company
manages its requirements. In addition to forward purchases, the Company keeps
physical inventory in each of its production facility(ies) and third-party
warehouses representing anywhere from four to ten weeks of supply requirements.
All coffee purchase transactions are in U.S. dollars, the industry's standard
currency. The Company believes that it is not dependent upon any one importer or
broker for its supply of green coffee beans from any particular country.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
The Company's business is seasonal, with increased sales during the colder
months. As a result, in a typical year, a substantial portion of the Company's
sales and its reported income from operations occur during the fourth quarter of
each fiscal year, while the Company's working capital requirements fluctuate
during the year with its greatest needs during the third and fourth quarters of
each year. The Company's income from operations thus fluctuates somewhat from
quarter to quarter. The timing of slotting fee payments, other similar payments
and product introduction costs in connection with wholesale accounts and the
amount of revenue contributed by such new wholesale accounts may cause the
Company's quarterly results of operations to fluctuate in the future. The
Company may experience quarterly losses and its results of operations for any
particular quarter may not necessarily be indicative of net income or loss that
may be expected for any other particular quarter or for the whole year.
11
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. GLORIA JEAN'S FRANCHISE LITIGATION. See the discussion of the Gloria
Jean's Franchise Litigation, current through May 8, 1996, in Part II, Other
Information, Item 1. , Legal Proceedings, Section 1., of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 29, 1996 (the "1996 First
Quarter 10-Q). The court has set a trial date of April 14, 1997, for this
matter. Settlement negotiations are ongoing. There have been no other material
developments with respect to the Gloria Jean's Franchise Litigation since May 8,
1996.
2. SHAREHOLDER CLASS ACTION. See the discussion of the Shareholder Class
Action, current through May 8, 1996, in Part II, Other Information, Item 1.,
Legal Proceedings, Section 2., of the 1996 First Quarter 10-Q. The court has
rescheduled oral argument on the defendants' Motions to Dismiss for October 4,
1996. Settlement negotiations are ongoing. There have been no other material
developments with respect to the Shareholder Class Action since May 8, 1996.
3. SHAREHOLDER DERIVATIVE ACTION. See the discussion of the Shareholder
Derivative Action, current through May 8, 1996, in Part II, Other Information,
Item 1. , Legal Proceedings, Section 3., of the 1996 First Quarter 10-Q. There
have been no material developments with respect to the Shareholder Derivative
Action since May 8, 1996.
4. OTHER LITIGATION. The Company is also involved in routine legal
proceedings incidental to the conduct of its business.
Management believes that none of these routine legal proceedings will have a
material adverse effect on the financial condition or
operations of the Company.
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.
10.3 The Loan and Security Agreement by and among Brothers Gourmet
Coffees, Inc., as Borrower, the Lenders named therein and
Sanwa Business Credit Corporation, as Agent and Lender, dated
as of May 29, 1996.
10.4 Credit Support Agreement, by and among Brothers Gourmet
Coffees, Inc., J.H. Whitney & Co. and J.P. Bolduc, dated as of
May 29, 1996.
12
<PAGE>
(B) REPORTS ON FORM 8-K.
On June 5, 1996, the Company filed a Current Report on Form 8-K with
a press release dated May 30, 1996 as an exhibit announcing that the
Company had entered into a long term financing agreement with Sanwa
Business Credit Corporation.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROTHERS GOURMET COFFEES, INC.
Dated: August 8, 1996 By: /S/ BARRY BILMES
----------------
Barry Bilmes
Vice President Finance
Administration
Signing on behalf of the registrant
and as principal accounting officer of
the registrant
14
EXHIBIT 10.3
LOAN AND SECURITY AGREEMENT
BY AND AMONG
BROTHERS GOURMET COFFEES, INC.
as Borrower,
THE LENDERS NAMED HEREIN
as Lenders,
AND
SANWA BUSINESS CREDIT CORPORATION,
as Agent and Lender
Dated as of
May 29, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS........................................................1
1.1 General Terms...........................................1
1.2 Accounting Terms.......................................26
1.3 Other Terms Defined in Illinois Uniform Commercial
Code...................................................26
1.4 Effective Date.........................................26
1.5 References.............................................26
2. CREDIT............................................................28
2.1 Revolving Credit Facility, Revolving Loan and
Lender Guaranties......................................28
2.2 Maximum Principal Balance of Revolving Loan............32
2.3 Evidence of Revolving Loan Indebtedness................32
2.4 Term Loan A............................................32
2.5 Term Loan B............................................33
2.6 Interest...............................................33
2.7 Method of Borrowing; Manner and Method of
Making Interest and Other Payments.....................36
2.8 Term of this Agreement.................................38
2.9 Prepayments and Reduction of Commitments...............39
2.10 Closing Fee............................................41
2.11 Term Loan B Closing Fee................................41
2.12 Revolving Loan Unused Line Fee.........................41
2.13 Term Loan B Commitment Fee.............................41
2.14 Notification of Advances, Interest Rates,
Prepayment and Revolving Loan Commitment
Reduction..............................................42
2.15 Other Fees, Costs and Expenses.........................42
2.16 Loan Account...........................................43
2.17 Statements.............................................43
2.18 Payment Dates..........................................44
2.19 Lender Guaranty Fees...................................44
2.20 Other Lender Guaranty Provisions.......................44
2.21 Taxes; Changes in Law..................................46
2.22 Special Provisions Governing LIBOR Rate Loans..........48
3. REPORTING AND ELIGIBILITY REQUIREMENTS............................49
3.1 Reports Regarding Collateral...........................49
3.2 Eligible Accounts......................................50
3.3 Account Warranties.....................................52
3.4 Verification of Accounts...............................53
3.5 Collection of Accounts and Payments....................53
3.6 Appointment of the Agent as Borrower's
Attorney-in-Fact.......................................54
3.7 Account Records........................................55
3.8 Instruments and Chattel Paper..........................55
3.9 Notice to Account Debtors..............................56
3.10 Eligible Inventory.....................................56
3.11 Inventory Warranties...................................56
3.12 Inventory Records......................................57
i
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3.13 Safekeeping of Inventory and Inventory Covenants.......57
3.14 Equipment Warranties...................................58
3.15 Equipment Records......................................58
3.16 Maintenance of Equipment...............................58
3.17 Real Estate............................................58
3.18 Maintenance of Real Estate.............................59
3.19 Intellectual Property and General Intangibles..........59
4. CONDITIONS TO ADVANCES............................................59
4.1 Conditions to All Advances.............................59
4.2 Conditions to Initial Advance..........................60
4.3 Conditions to Term Loan B Advance......................64
5. COLLATERAL........................................................65
5.1 Security Interest......................................65
5.2 Preservation of Collateral and Perfection of
Liens Thereon..........................................65
5.3 Consigned Inventory....................................66
6. REPRESENTATIONS AND WARRANTIES....................................66
6.1 Existence..............................................66
6.2 Authority..............................................67
6.3 Binding Effect.........................................67
6.4 Financial Data.........................................67
6.5 Collateral.............................................69
6.6 Solvency...............................................69
6.7 Places of Business.....................................69
6.8 Other Names............................................69
6.9 Tax Obligations........................................69
6.10 Indebtedness and Liabilities...........................70
6.11 Use of Proceeds and Margin Security....................70
6.12 Government Contracts...................................71
6.13 Investments............................................71
6.14 Litigation and Proceedings.............................71
6.15 Other Agreements and Deliveries........................71
6.16 Labor Matters..........................................72
6.17 Compliance with Laws and Regulations...................72
6.18 Patents, Trademarks and Licenses.......................73
6.19 ERISA..................................................73
6.20 Property...............................................74
6.21 Adverse Contracts......................................74
6.22 Purchase or Other Commitments and Outstanding
Bids...................................................74
6.23 Investment Company Act; Public Utility Holding
Company Act............................................74
6.24 Broker's Fees..........................................75
6.25 Licenses and Permits...................................75
6.26 Environmental Compliance...............................75
6.27 Full Disclosure........................................77
6.28 Insurance Policies.....................................77
6.29 Customer and Trade Relations...........................77
6.30 Survival of Warranties.................................78
6.31 Corporate and Contractual Restrictions.................78
ii
<PAGE>
6.32 Subsidiaries...........................................78
6.33 Deposit and Disbursement Accounts......................78
7. AFFIRMATIVE COVENANTS.............................................78
7.1 Financial Statements...................................78
7.2 Inspections and Audits.................................82
7.3 Conduct of Business; Compliance With Laws..............82
7.4 Claims and Taxes.......................................82
7.5 Borrower's Liability Insurance.........................83
7.6 Borrower's Property Insurance..........................84
7.7 Pension Plans..........................................84
7.8 Notice of Certain Matters..............................86
7.9 Landlord and Warehouseman Agreements...................86
7.10 Indemnity..............................................86
7.11 Cash Flow Coverage.....................................87
8. NEGATIVE COVENANTS................................................88
8.1 Encumbrances...........................................88
8.2 Indebtedness and Liabilities...........................88
8.3 Consolidations, Acquisitions...........................89
8.4 Investments............................................89
8.5 Guaranties.............................................89
8.6 Collateral Locations...................................90
8.7 Disposal of Property...................................90
8.8 Employee Loans.........................................91
8.9 Plans..................................................91
8.10 Restricted Payments....................................91
8.11 Securities.............................................92
8.12 Changes in Charter, Bylaws or Fiscal Year..............92
8.13 Transactions with Affiliates...........................92
8.14 Capital Structure; Other Business......................92
8.15 Sale and Leaseback.....................................92
8.16 Impairment Agreements..................................92
8.17 Corporate Accounts.....................................93
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE
LENDERS...........................................................93
9.1 Obligations............................................93
9.2 Rights and Remedies Generally..........................93
9.3 Entry Upon Premises and Access to Information..........94
9.4 Sale or Other Disposition of Collateral by the
Agent..................................................94
9.5 Waiver of Demand.......................................95
9.6 Waiver of Notice.......................................95
10. OTHER RIGHTS AND OBLIGATIONS......................................95
10.1 Waiver.................................................95
10.2 Costs and Attorneys' Fees..............................96
10.3 Expenditures by the Agent and the Lenders..............96
10.4 Custody and Preservation of Collateral.................97
10.5 Reliance by the Agent and Lenders......................97
10.6 Parties and Assignment.................................97
10.7 Applicable Law; Severability...........................97
iii
<PAGE>
10.8 Submission to Jurisdiction; Waiver of Jury and
Bond...................................................98
10.9 Marshalling............................................99
10.10 Section Titles..............................................99
10.11 Continuing Effect...........................................99
10.12 Incorporation by Reference..................................99
10.13 Notices.....................................................99
10.14 Waivers With Respect to Other Instruments..................100
10.15 Retention of the Borrower's Documents......................100
10.16 Entire Agreement...........................................101
10.17 Equitable Relief...........................................101
10.18 Lenders' First Right of Refusal............................101
10.19 Counterparts...............................................101
10.20 No Fiduciary Relationship..................................101
10.21 Exceptions to Covenants....................................101
10.22 Construction...............................................102
11. ASSIGNMENT AND PARTICIPATION.....................................102
11.1 Assignments...........................................102
11.2 Participations........................................102
12. AGENT............................................................102
12.1 Appointment...........................................102
12.2 Powers................................................102
12.3 General Immunity......................................103
12.4 No Responsibility for Loans, Recitals, etc............103
12.5 Action on Instructions of Lenders.....................103
12.6 Employment of Agents and Counsel......................103
12.7 Reliance on Documents; Counsel........................103
12.8 Agent's Reimbursement and Indemnification.............104
12.9 Rights as a Lender....................................104
12.10 Lender Credit Decision.....................................104
12.11 Successor Agent............................................104
12.12 Notice of Default..........................................105
13. AMENDMENTS AND WAIVERS...........................................105
14. SET OFF AND SHARING OF PAYMENTS..................................107
14.1 Setoff................................................107
14.2 Ratable Payments......................................107
iv
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A "Class Action Lawsuits"
Exhibit B "DSD Warehouses"
Exhibit C "Retail Stores"
Exhibit D "Term Loan B Availability Date"
(EBITDA Certificate)
Exhibit 2.1 Form of Letter of Credit Application
Exhibit 2.3 Form of Revolving Loan Note
Exhibit 2.4 Form of Term Loan A Note
Exhibit 2.5 Form of Term Loan B Note
Exhibit 2.6-1 Form of Borrowing Notice
Exhibit 2.6-2 Form of Conversion/Continuation Notice
Exhibit 3.1 Form of Weekly Report Certificate
Exhibit 3.14 Equipment Locations and Leased Equipment
Exhibit 3.17 Real Estate
Exhibit 3.19 Intellectual Property
Exhibit 6.1-1 Jurisdictions of Qualification
Exhibit 6.1-2 Options, Warrants, Rights to Call or
Commitment
Exhibit 6.4 Projections
Exhibit 6.5 Prior Liens
Exhibit 6.7 Places of Business
Exhibit 6.8 Trade Names
Exhibit 6.11 Sources and Uses
Exhibit 6.12 Government Contracts
Exhibit 6.14 Pending or Threatened Litigation
Exhibit 6.15 Other Agreements
Exhibit 6.16 Labor Matters
Exhibit 6.18 Patents, Trademarks and Licenses
Exhibit 6.19 ERISA Obligations
Exhibit 6.20 Property
Exhibit 6.25 Licenses and Permits
Exhibit 6.26 Environmental Matters Pending
Exhibit 6.32 Subsidiaries
Exhibit 6.33 Bank Accounts
Exhibit 7.5 Insurance
Exhibit 7.6 Form of Insurance Endorsement
Exhibit 8.1 Permitted Liens
Exhibit 8.2 Indebtedness
Exhibit 8.3 Mergers
Exhibit 8.4 Investments
Exhibit 8.5 Guaranties
Exhibit 8.6 Collateral Locations
Exhibit 8.7 Retail Stores Sale Program
Exhibit 8.13 Transactions with Affiliates
Exhibit 8.16 Impairment Agreements
SCHEDULES
Schedule 1 Commitments of Lenders
v
<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of May 29, 1996
by and between BROTHERS GOURMET COFFEES, INC., each of the Lenders and SANWA
BUSINESS CREDIT CORPORATION, individually and as Agent for the Lenders.
W I T N E S S E T H:
WHEREAS, in connection with the repayment of certain
pre-existing indebtedness of the Borrower and the continued working capital
needs of the Borrower subsequent to such repayment, the Borrower desires to
borrow up to Twenty-Five Million Dollars ($25,000,000) from the Lenders, and the
Lenders are willing to make certain loans to the Borrower of up to such amount,
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions
contained herein, and of any loans or extensions of credit heretofore, now or
hereafter made to or for the benefit of the Borrower by the Agent and the
Lenders, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 GENERAL TERMS. When used herein, the following
terms shall have the following meanings:
"ACCOUNT DEBTOR" shall mean any Person who is or may
become obligated on or under an Account.
"ACCOUNTING PERIOD" shall mean any of the twelve
(12) consecutive accounting periods collectively forming a Fiscal
Year.
"ACCOUNTS" shall mean all of the Borrower's
presently existing and hereafter arising or acquired accounts, accounts
receivable, margin accounts, futures positions, book debts, instruments,
documents, contracts, notes, drafts, acceptances, chattel paper, and other forms
of obligations now or hereafter owned or held by or payable to the Borrower
relating in any way to Inventory or arising from the sale of Inventory or the
rendering of services by the Borrower or howsoever otherwise arising, including
the right to payment of any interest or finance charges with respect thereto,
together with all merchandise represented by any of the Accounts; all such
merchandise that may be reclaimed or repossessed or returned to the Borrower;
all of the Borrower's rights as an unpaid vendor, including, without limitation,
stoppage in transit, reclamation, replevin, and sequestration; all pledged
assets and all letters of credit, guaranty claims, Liens held by or granted to
the Borrower to secure payment of any Accounts; all proceeds and products of all
of the foregoing described properties and interests in properties; and all
proceeds of insurance with respect thereto, including, without
1
<PAGE>
limitation, the proceeds of any applicable casualty or credit insurance or
fidelity bond, whether payable in cash or in kind; and all customer lists,
ledgers, books of account, records, computer programs, computer disks or tape
files (including, without limitation, all microfilm), computer printouts,
computer runs, and other computer prepared information relating to any of the
foregoing.
"ACCOUNTS TRIAL BALANCE" shall have the meaning
ascribed thereto in SUBSECTION 7.1(III)(B).
"ACQUISITION" shall mean any transaction, or any
series of related transactions, consummated after the Closing Date by which the
Borrower or any Subsidiary (a) acquires, directly or indirectly, any business or
all or substantially all of the assets of any Person or portion thereof, whether
through purchase of assets, merger or otherwise or (b) directly or indirectly
acquires at least (i) a majority (in number of votes of the securities (or
warrants, options or other rights to acquire such securities) of a Person which
have ordinary voting power for the election of directors or (ii) a majority (by
percentage of voting power) of the outstanding partnership or other interests of
a Person or (c) makes any Person a Subsidiary, or causes any assets of such
Person to be merged into the Borrower or such Subsidiary pursuant to a merger,
purchase of assets or other reorganization providing for the delivery or
issuance to the holders of such Person's then outstanding securities or capital
interests, in exchange for such securities, of cash or securities of the
Borrower or such Subsidiary, or any combination thereof.
"AFFILIATE" shall mean any Person (including any
member of the immediate family of any such natural person) (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with the Borrower or any Subsidiary, including, without
limitation, the officers and directors of the Borrower or such Subsidiary, (b)
that directly or beneficially owns or holds five percent (5%) or more of any
equity interest in the Borrower or any Subsidiary, or (c) five percent (5%) or
more of whose voting stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of any equity interest) is owned directly
or beneficially or held by the Borrower or any Subsidiary. Affiliate shall not
be deemed to include the Agent or any Lender. As used herein, the term "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct the management or policies of a Person, whether through
ownership of securities, by contract or otherwise.
"AGENT" shall mean Sanwa Business Credit
Corporation, a Delaware corporation, in its capacity as agent for the Lenders
and not in its individual capacity as a Lender, and any successor in such
capacity appointed pursuant to SUBSECTION 12.11.
2
<PAGE>
"AGREEMENT" shall mean this Loan and Security
Agreement, as the same may hereafter be restated, amended, modified or
supplemented from time to time.
"APPLICABLE MARGIN" shall mean, for any day, with
respect to any Loan or Lender Guaranty Fees, as the case may be (i) during the
first Loan Year (v) one percent (1%) with respect to Base Rate Revolving Loans,
(w) one and one-half percent (1.5%) with respect to Base Rate Term Loans, (x)
two and one-half percent (2.5%) with respect to LIBOR Rate Revolving Loans, (y)
three percent (3.0%) with respect to LIBOR Rate Term Loans, and (z) three and
one-half percent (3.5%) with respect to Lender Guaranty Fees and (ii)
thereafter, the applicable margin set forth below, based upon the Cash Flow
Coverage Ratio as of the most recent date of determination (determined as
provided below):
LENDER
BASE RATE GUARANTY
RATIO MARGIN LIBOR MARGIN FEES
- ----- --------- ------------ --------
Less Revolving Loan: 1.0% Revolving Loan: 2.5% 3.5%
than or Term Loans: 1.5% Term Loans: 3.0%
equal to
2.0 to
1.0
Greater Revolving Loan: 0.5% Revolving Loan: 2.0% 3.0%
than 2.0 Term Loans: 1.0% Term Loans: 2.5%
to 1.0
For purposes of determining the Applicable Margin, the Cash Flow Coverage Ratio
shall be determined as of, and any change in the Applicable Margin as a result
of such determination shall be effective on and after, the fifth Business Day
after the date of delivery to the Agent of the (x) financial statements required
by SUBSECTION 7.1(I) and (y) a certificate of an Authorized Officer certifying
the Cash Flow Coverage Ratio for the twelve (12) Accounting Periods ended on the
date of such financial statements for purposes of determining the Applicable
Margin, such Applicable Margin to remain in effect until the date immediately
preceding the fifth Business Day after the next date of delivery of such
financial statements and related certificates indicating another Cash Flow
Coverage Ratio. Notwithstanding the foregoing (i) at any time during which the
Borrower has failed to deliver the financial statements required by SUBSECTION
7.1(I) and the certificate required herein, or (ii) at any time after the
occurrence and during the continuance of a Default or an Event of Default, the
Cash Flow Coverage Ratio shall be deemed to be less than 2.0 to 1.0 for purposes
of determining the Applicable Margin.
3
<PAGE>
"APPRAISAL (EQUIPMENT)" shall mean that certain
equipment valuation report dated as of March 18, 1996 and prepared by MB
Valuation Services, Inc., in form and substance satisfactory to the Agent, a
copy of which has been provided to the Agent and the Lenders.
"APPRAISED (REAL ESTATE)" shall mean that certain
real estate appraisal dated as of ______, 19__ prepared by MB Valuation
Services, Inc. as to the real estate located in Houston, Texas, in form and
substance satisfactory to the Agent, a copy of which has been provided to the
Agent and the Lenders.
"AUTHORIZED OFFICER" shall mean any one of the Chief
Executive Officer, Chief Financial Officer, Treasurer, Vice President Finance
and Administration or any other officer of the Borrower designated to the Agent
in writing as an "Authorized Officer" under this Agreement by the Chief
Executive Officer or the Vice President Finance and Administration of the
Borrower.
"BASE RATE" shall mean the fluctuating interest rate
equal to (a) the Prime Rate from time to time in effect, PLUS (b) the Applicable
Margin.
"BASE RATE LOANS" shall mean Loans bearing interest
at the Base Rate.
"BLOCKED ACCOUNT AGREEMENTS" shall have the meaning
ascribed thereto in SUBSECTION 3.5.
"BLOCKED ACCOUNTS" shall have the meaning ascribed
thereto in SUBSECTION 3.5.
"BORROWER" shall mean Brothers Gourmet Coffees,
Inc., a Delaware corporation.
"BORROWING AVAILABILITY" shall have the meaning
ascribed thereto in SUBSECTION 2.1(A).
"BUSINESS DAY" shall mean (i) for all purposes other
than as described in clause (ii) below, any day other than a Saturday, Sunday or
other day on which banks in Chicago, Illinois are authorized or required to be
closed and (ii) with respect to all notices, determinations, borrowings, rate
selections and payments in connection with LIBOR Rate Loans, any day that is a
Business Day described in clause (i) above and that is also a day on which
dealings in U.S. dollar deposits are carried on in the applicable interbank
LIBOR market.
"CAPITAL EXPENDITURES" shall mean, for any fiscal
period, without duplication, all expenditures (whether made in the form of cash
or other Property) by the Borrower or any Subsidiary during such period for, or
contracts for expenditures with respect to, any fixed assets or improvements, or
for renewals,
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replacements, substitutions or additions thereto, which have a useful life of
more than one (1) year including, without limitation, the direct or indirect
acquisition of such assets by way of increased product or service charges,
offset items or otherwise, and shall include capitalized lease payments.
"CASH EQUIVALENTS" shall mean (i) bank certificates
of deposit, bankers' acceptances or time deposits (but only with banks organized
under the laws of the United States or of any State thereof (x) which do not
have set-off rights against the foregoing, other than set-offs for nominal
service charges and similar fees incurred in the ordinary course, and (y) which
have combined capital and surplus in excess of Fifty Million Dollars
($50,000,000)), (ii) commercial paper maturing within one (1) year from the date
issued and rated at least A-1 or the equivalent thereof by Standard & Poors
Corporation, or P-1 or the equivalent thereof by Moody's Investors Service,
Inc., and (iii) obligations maturing within one (1) year from the date of
acquisition issued or directly and fully guaranteed by the United States
government or any agency thereof.
"CASH FLOW COVERAGE RATIO" shall mean, for any
fiscal period, the ratio of (a) EBITDA for such period, PLUS Slotting Fees
amortization during such period, MINUS Slotting Fee Payments during such period,
MINUS Capital Expenditures during such period, MINUS income and franchise taxes
paid during such period to (b) the aggregate of all interest paid in cash during
such period, PLUS current maturities of long-term debt during such period.
"CHANGE OF CONTROL" shall mean any event,
transaction or occurrence as a result of which any person or group (within the
meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the
Closing Date) shall own, directly or indirectly, forty percent (40%) or more of
the aggregate economic and voting rights associated with the ownership of the
issued and outstanding Stock of all classes of the Borrower on a fully diluted
basis.
"CHARGES" shall mean all federal, state, county,
city, municipal, local, foreign or other governmental taxes (including, without
limitation, taxes owed to the PBGC at the time due and payable), duties, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) the
Collateral, (ii) the Obligations, (iii) the employees, payroll, income or gross
receipts of the Borrower, (iv) the ownership or use of any Property of the
Borrower, or (v) any other aspect of the Borrower's business.
"CLASS ACTION LAWSUITS" shall mean those certain
shareholders lawsuits listed on EXHIBIT A.
"CLOSING DATE" shall mean the date of this
Agreement.
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"CLOSING FEE" shall have the meaning ascribed
thereto in SUBSECTION 2.10.
"CODE" shall have the meaning ascribed thereto in
SUBSECTION 1.3.
"COLLATERAL" shall mean all property and interests
in property now owned or hereafter acquired by the Borrower in or upon which a
Lien is granted to the Agent, for the benefit of the Lenders, by the Borrower,
whether under this Agreement or the other Financing Agreements or under any
other documents, instruments or writings executed by the Borrower and delivered
to the Agent, including, without limitation, Accounts, General Intangibles,
Fixtures, Inventory, Intellectual Property, Equipment, Real Estate and leased
real property.
"COLLECTING BANKS" shall have the meaning ascribed
thereto in SUBSECTION 3.5.
"COMMITMENT" shall mean, with respect to each
Lender, the commitment of each Lender to make Loans to the Borrower with respect
to the Revolving Loan and each Term Loan as of the Closing Date in the amounts
set forth on SCHEDULE 1; SCHEDULE 1 shall be amended and Lenders' Pro Rata
Shares shall be adjusted from time to time to give effect to the addition of any
new Lenders pursuant to SUBSECTION 11.1.
"CONTINGENT RETAIL STORE OBLIGATIONS" shall mean,
collectively (a) contingent obligations of the Borrower or any of its
Subsidiaries with respect to contracts entered into by such Person for the
leasing, operation, financing and/or sale or other disposition of the Retail
Stores and (b) shutdown costs associated with the closing of Retail Stores, in
each case including, without limitation, all leasehold obligations.
"CURRENT ASSET BASE" shall have the meaning ascribed
thereto in SUBSECTION 2.1.
"DEFAULT" shall mean an event which through the
passage of time or the service of notice, or both, would mature into an Event of
Default.
"DEFAULT RATE" shall mean a fluctuating interest
rate per annum equal to (a) in the case of principal or interest on any Loan,
the sum of (i) the Base Rate or LIBOR Rate from time to time in effect, as
applicable, PLUS (ii) two percent (2%) and (b) in the case of all other
Obligations, the sum of (i) the Base Rate from time to time in effect, PLUS (ii)
two percent (2%). With respect to Base Rate Loans, such interest rate shall be a
fluctuating rate and each change in such interest rate shall take effect
simultaneously with the corresponding change in the Base Rate.
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"DEPOSITORY ACCOUNT" shall have the meaning ascribed
thereto in SUBSECTION 3.5.
"DSD WAREHOUSES" shall mean the regional warehouses
set forth on EXHIBIT B at which the Borrower stores Inventory for direct
delivery to customers.
"EBITDA" shall mean, for any applicable fiscal
period, determined for the Borrower and its Subsidiaries on a consolidated
basis, Net Income (exclusive of discontinued operations for Retail Stores) for
such period, PLUS to the extent deducted in determining Net Income, interest
expense and taxes paid, PLUS to the extent deducted in determining Net Income,
amortization (other than amortization of Slotting Fees), depreciation and other
similar non-cash charges, PLUS to the extent deducted in determining Net Income,
extraordinary losses, MINUS to the extent added in determining Net Income,
extraordinary gains, all as determined in accordance with GAAP consistently
applied.
"ELIGIBLE ACCOUNTS" shall have the meaning ascribed
thereto in SUBSECTION 3.2.
"ELIGIBLE INVENTORY" shall have the meaning ascribed
thereto in SUBSECTION 3.10.
"ENVIRONMENTAL LAWS" shall mean and includes the
following as now in effect or hereafter amended: the Comprehensive Environmental
Response Compensation and Liability Act, ("CERCLA"), 42 U.S.C. ss.9601 ET. SEQ.;
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. ss.6901 ET. SEQ.; the Toxic Substances Control
Act ("TSCA"), 15 U.S.C. ss.2601, ET. SEQ.; the Clean Air Act, 42 U.S.C. ss.7401
ET. SEQ.; the Federal Water Pollution Control Act ("Clean Water Act"), 33 U.S.C.
ss.1251 ET. SEQ.; the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. ss.11001 ET. SEQ.; the Hazardous Materials Transportation Act, 49 U.S.C.
ss.1801 ET. SEQ.; the Atomic Energy Act, 42 U.S.C. ss.2011 ET. SEQ.; the Safe
Drinking Water Act, 42 U.S.C. ss.300f ET. SEQ. and the state law equivalents;
any so- called "Superfund" or "Superlien" law; and any statute, ordinance, code,
rule, regulation, order, decree or requirement under international, federal,
state, regional, provincial or local law (including, without limitation,
administrative orders and consent decrees) in effect and as amended regulating,
relating to or imposing liability or standards of conduct concerning public
health and safety, protection of the environment, or any pollutant or
contaminant or hazardous, toxic or dangerous substance, waste, chemical or
material, as now or any time hereafter may be existing.
"ENVIRONMENTAL MATTERS" shall have the meaning
ascribed thereto in SUBSECTION 6.26.
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"EQUIPMENT" shall mean all of the Borrower's
machinery and equipment, including, without limitation, processing equipment,
conveyors, machine tools, data processing and computer equipment with software
and peripheral equipment (other than software constituting part of the
Accounts), and all engineering, processing and manufacturing equipment, office
machinery, furniture, materials handling equipment, tools, attachments,
accessories, automotive equipment, trailers, trucks, ships, vessels, airplanes,
forklifts, molds, dies, stamps, motor vehicles, rolling stock and other
equipment of every kind and nature, trade fixtures and fixtures not forming a
part of real property, all whether now owned or hereafter acquired, and wherever
situated, together with all appurtenances, additions and accessions thereto,
replacements therefor, all parts therefor, all substitutes for any of the
foregoing, fuel therefor, and all manuals, drawings, instructions, warranties
and rights with respect thereto, and all products and proceeds thereof and
condemnation awards and insurance proceeds with respect thereto, and including,
without limitation, the items of equipment described in the Appraisal
(Equipment), which description is incorporated herein by reference.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time, and all rules and
regulations promulgated thereunder.
"ERISA AFFILIATE" shall mean any Person, trade or
business that is, or was at any time during the previous six (6) years, along
with the Borrower, in the same controlled group of corporations, under common
control, or otherwise, treated as a single employer for any purpose under
Section 414 of the IRC.
"EVENT OF DEFAULT" shall mean the occurrence or
existence of any one or more of the following conditions or events:
(a) the Borrower fails to pay any of its
Obligations hereunder when the Obligations are due or are
declared due or fails to deliver any Weekly Report or Monthly
Report as required by SUBSECTION 3.1;
(b) the Borrower fails or neglects to perform, keep
or observe any of the covenants, conditions or agreements contained in
any of the subsections of this Agreement or in any of the other
Financing Agreements (other than occurrences referred to or embodied in
other provisions of this definition constituting immediate Events of
Default) for a period of ten (10) days after the earlier of (i) the
Borrower's receipt of notice from the Agent or (ii) actual knowledge of
such breach by the Borrower;
(c) any warranty or representation now or hereafter
made by the Borrower or any Subsidiary in connection with this
Agreement or any of the other Financing Agreements is untrue or
incorrect in any material respect, or any schedule,
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certificate, statement, report, financial data, notice or other writing
furnished at any time by the Borrower or any Subsidiary to the Agent or
any Lender is untrue or incorrect in any material respect, as of the
date on which the warranty, representation or the facts set forth
therein are stated, certified or deemed made;
(d) any Lien, levy or assessment is filed or recorded
with respect to or otherwise imposed upon all or any part of the
Collateral or the Property of the Borrower or any Subsidiary by the
United States, or any department, agency or instrumentality thereof, or
by any state, county, municipality or other governmental agency and
that either (i) is in excess of Two Hundred Fifty Thousand Dollars
($250,000), or (ii) is superior to the Liens granted to the Agent, for
the benefit of the Lenders;
(e) all or any part of the Collateral or the Property
of the Borrower or any Subsidiary is attached, seized, subjected to a
writ or distress warrant, or levied upon, or come within the possession
or control of any judgment creditor and on or before the thirtieth
(30th) day period thereafter such Collateral or Property is not
returned to the Borrower or such Subsidiary or such writ, distress
warrant or levy is not dismissed, stayed or lifted;
(f) the Borrower or any Subsidiary makes an
assignment for the benefit of creditors; convenes a meeting of its
creditors, or any class thereof, for purposes of effecting a moratorium
upon or extension or composition of its debts; applies for, seeks,
consents to, or acquiesces in the appointment of a receiver, trustee or
custodian to take possession of all or any substantial portion of the
Property of the Borrower or any Subsidiary; commences any bankruptcy,
reorganization or insolvency case or proceeding or other proceeding
under any federal, state or other law for relief of debtors; or the
Borrower or such Subsidiary proposes, authorizes or consents to the
taking of any of the foregoing actions;
(g) the Borrower or any Subsidiary fails to obtain
the dismissal, within sixty (60) days after the commencement thereof,
of any bankruptcy, reorganization or insolvency proceeding, or other
proceeding under any law for the relief of debtors instituted against
it; fails actively to oppose any such proceeding; or in any such
proceeding, defaults or files an answer admitting the material
allegations upon which the proceeding was based or states in any filing
in such proceeding its willingness to have an order for relief entered
or its desire to seek liquidation, reorganization or adjustment of any
of its debts;
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(h) without the application, approval or consent of
the Borrower or any Subsidiary, any receiver, trustee, examiner,
liquidator, custodian or similar official is appointed to take
possession of all or any substantial portion of the Property of the
Borrower or such Subsidiary, or any committee of the Borrower's or such
Subsidiary's creditors or any class thereof, is formed for the purpose
of monitoring or investigating the financial affairs of the Borrower or
such Subsidiary or enforcing such creditors' rights, or the filing of
any motion, complaint or other pleading in any bankruptcy,
reorganization or insolvency case or proceeding of any Person other
than the Borrower or such Subsidiary that seeks the consolidation the
Borrower's or such Subsidiary's assets and liabilities with the assets
and liabilities of such Person;
(i) the Borrower or any Subsidiary voluntarily
or involuntarily dissolves or is dissolved, liquidates or is
liquidated;
(j) the Borrower or any Subsidiary ceases to be
Solvent or admits in writing that it is not Solvent or fails to pay all
or any material portion (measured in numbers of debts or dollar
amounts) of its debts as they become due or admits in writing its
present or prospective inability to pay its debts as they become due;
(k) the Borrower or any Subsidiary is enjoined,
restrained, or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material
part of its business representing ten percent (10%) or more of the
Borrower's and its Subsidiaries' business taken as a whole (based upon
gross revenues for the most recent twelve months ending on the date of
such occurrence);
(l) any default or breach under any agreement(s)
evidencing Indebtedness of the Borrower or any Subsidiary in an
aggregate amount in excess of Two Hundred Fifty Thousand ($250,000)
shall occur and shall continue after any applicable grace period
specified in any such document if the effect of such default or breach
is to accelerate, or to permit the acceleration of, the maturity of all
or any part of any such Indebtedness, whether or not such default or
breach shall be waived by the holders or trustees (if any) for such
Indebtedness, or any such Indebtedness shall be declared to be due and
payable, or be required to be prepaid (other than by a regularly
scheduled required prepayment), prior to the stated maturity thereof;
(m) a breach by the Borrower or any Subsidiary occurs
under any agreement, document or instrument (other than an agreement,
document or instrument evidencing Indebtedness), whether heretofore,
now or hereafter existing between the Borrower or such Subsidiary and
any other Person, and such
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breach continues for more than thirty (30) days after such breach first
occurs; PROVIDED that such grace period shall not apply, and such
breach shall constitute an Event of Default, if such breach may not, in
the determination of the Required Lenders, be cured by the Borrower or
such Subsidiary during such thirty (30) day grace period, and the
failure to have cured such breach might have a Material Adverse Effect;
' (n) in the sole judgment of the Agent a material adverse change occurs
in the business, operations or condition (financial or other) of the
Borrower, or of the Borrower and its Subsidiaries taken as a whole, or
in the value of the Collateral;
(o) any material damage to, or loss, theft, or
destruction of, any of the Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty which results in or causes cessation or
substantial curtailment of production or other revenue producing
activities at any Facility;
(p) entry of a judgment or judgments in an aggregate
amount in excess of Two Hundred Fifty Thousand Dollars ($250,000)
against the Borrower or any Subsidiary which are not stayed, bonded,
vacated, paid or discharged within thirty (30) days after entry;
(q) any Termination Event which the Required Lenders,
in good faith, determine might have a Material Adverse Effect and which
is not cured within thirty (30) days after the occurrence of such
Termination Event;
(r) the loss, suspension, revocation or failure to
obtain or renew any license or permit now held or hereafter acquired by
the Borrower, which loss, suspension, revocation or failure to renew
might have a Material Adverse Effect;
(s) the Borrower fails to perform, keep or
observe any of the covenants contained in SUBSECTIONS 3.5, 7.5, 7.6,
7.11 or in Section 8;
(t) any civil or criminal action, suit or proceeding
is initiated against the Borrower or any Subsidiary under any federal
or state racketeering statute (including, without limitation, the
Racketeer Influenced and Corrupt Organization Act of 1970, as amended);
(u) a Change in Control occurs;
(v) the Agent does not have or ceases to have a
legal, valid and perfected first priority Lien on the Collateral
(subject to Permitted Liens) for any reason other
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than the failure of the Agent to take any action within its
total control;
(w) any of the Financing Agreements shall cease for
any reason to be in full force and effect or is declared null and void
or the Borrower, any Subsidiary or any other Person (other than the
Agent or any Lender) shall disavow its respective obligations
thereunder or shall deny that it has any further obligations thereunder
or shall contest or challenge the validity or enforceability of any
thereof, the legality or enforceability of any of the Obligations or
the perfection or priority of any Lien granted to the Agent, or gives
notice to such effect;
(x) Any Support Letter of Credit shall at any time
prior to its expiry date cease for any reason to be in full force and
effect or be declared null and void or the issuer thereof shall disavow
its obligations thereunder or shall contest or challenge the validity
or enforceability thereof; or
(y) any Subsidiary fails or neglects to perform, keep
or observe any of the covenants, conditions or agreements contained in
any Financing Agreement to which it is a party, which breach continues
after any applicable grace period specified in such Financing
Agreement.
The occurrence or existence of any of the foregoing
events shall constitute an immediate Event of Default unless notice by the Agent
or a cure period is specifically required by the description of such event
before such event matures into an Event of Default.
"FACILITY" shall mean each of the Borrower's
facilities located at ____________________________ and any other facility
established by the Borrower hereafter in accordance with the terms of this
Agreement.
"FEDERAL FUNDS RATE" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System only arranged by Federal Funds brokers as
published as of such day by the Federal Reserve Bank of New York, or if such
rate is not so published, the rate then used by first class banks in extending
overnight loans to other first class banks.
"FINANCIAL STATEMENTS" shall have the meaning
ascribed thereto in SUBSECTION 6.4.
"FINANCING AGREEMENTS" shall mean, collectively,
this Agreement, the Revolving Loan Notes, the Term Loan Notes, the
Intellectual Property Security Agreement, the Mortgages, the Pledge
and Security Agreement, the Maryland Club Foods Guaranty, the Stock
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Pledge Agreement, the Participation Agreements and all other agreements,
instruments and documents, including, without limitation, security agreements,
loan agreements, notes, guaranties, mortgages, deeds of trust, agreements,
documents, instruments, pledges, powers of attorney, consents, assignments,
contracts, notices, leases, financing statements and all other written matter
whether heretofore, now, or hereafter executed by or on behalf of the Borrower
or any other Person and delivered to the Agent or any Lender in connection with
this Agreement, together with all agreements and documents between the Borrower
and the Agent or any Lender referred to therein or contemplated thereby, as the
same may hereafter be restated, amended, modified or supplemented from time to
time.
"FISCAL QUARTER" shall mean any of the quarterly
Accounting Periods of the Borrower.
"FISCAL YEAR" shall mean the twelve (12) Accounting
Periods of the Borrower ending on the Friday closest to December 31 of each
calendar year.
"FIXTURES" shall mean all "fixtures" as such term is
defined in the Code, now owned or hereafter acquired by the
Borrower, wherever located.
"FUNDING DATE" shall mean the date of funding of a
Term Loan or the date of each funding under the Revolving Loan or issuance of a
Lender Guaranty, which date in all cases shall be a Business Day.
"GENERAL INTANGIBLES" shall mean all of the
Borrower's presently owned or hereafter acquired general intangibles, including,
without limitation, goodwill, choses in action, causes of action, franchises,
methods, sales literature, drawings, specifications, descriptions, name plates,
catalogs, dealer contracts, supplier contracts, distributor agreements, customer
lists, contract rights, confidential information, consulting agreements,
employment agreements, engineering contracts, leasehold interests in real and
personal property, insurance policies (including business interruption
insurance), licenses, permits, and such other Property which uniquely reflect
the goodwill of the business of the Borrower; deposit accounts, letters of
credit, and General Intangibles relating to other items of Collateral,
including, without limitation, rights to refunds or indemnification;
reversionary or other rights of the Borrower to excess Plan assets upon
termination or amendment thereof; and proceeds of all of the foregoing,
including without limitation, insurance proceeds, including proceeds of business
interruption insurance, income tax refunds, and claims for tax or other refunds
against any city, county, state, or federal government, or any agency or
authority or other subdivision thereof.
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"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES OR "GAAP""
shall mean, as of the date of any determination with respect thereto, generally
accepted accounting principles as used by the Financial Accounting Standards
Board and/or the American Institute of Certified Public Accountants,
consistently applied and
maintained throughout the periods indicated.
"GOVERNMENTAL AUTHORITY" shall mean any nation or
government or any political subdivision thereof, any state or political
subdivision thereof, and any agency, authority, court, central bank, department
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative functions of or pertaining to government.
"GUARANTY" of a Person shall mean any agreement by
which such Person guarantees, endorses or otherwise in any way becomes or is
responsible for any obligations of any other Person, whether directly or
indirectly, by agreement to purchase the indebtedness of any other Person or
through the purchase of goods, supplies or services, or maintenance of working
capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise
assures any creditor of such other Person against loss.
"HAZARDOUS MATERIALS" shall mean the following:
hazardous substances; hazardous wastes; polychlorinated biphenyls ("PCB"'s") or
any substance or compound containing PCB's; asbestos or any asbestos-containing
materials in any form or condition; radon; any other radioactive materials
including any source, special nuclear or by-product material; petroleum, crude
oil or any fraction thereof which is liquid at standard conditions of
temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch
absolute); and any other pollutant or contaminant or hazardous, toxic or
dangerous chemicals, materials or substances, as all such terms are used in
their broadest sense and defined by Environmental Laws.
"INDEBTEDNESS" shall mean at a particular time (i)
indebtedness for borrowed money or for the deferred purchase price of property
or services (other than current accounts payable arising in the ordinary course
of business on terms customary in the trade) in respect of which the Borrower is
liable, contingently or otherwise, as guarantor, obligor or otherwise or any
commitment by which the Borrower assures a creditor against loss, including
contingent reimbursement obligations with respect to letters of credit, (ii)
indebtedness guaranteed in any manner by the Borrower, including guaranties in
the form of an agreement to repurchase or reimburse; PROVIDED that the amount of
indebtedness represented by any guaranty of limited recourse shall be the lesser
of the amount of indebtedness so guaranteed or the value of the asset to which
the recourse of such indebtedness is limited, (iii) obligations under leases
which shall have been or should be, in accordance with
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Generally Accepted Accounting Principles, recorded as capital leases in respect
of which obligations the Borrower is liable, contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of which obligations the Borrower
assures a creditor against loss, (iv) any unfunded obligation of, or withdrawal
liability incurred but not paid by, the Borrower with respect to a Multiemployer
Plan, and (v) all accounts payable of the Borrower, which are not being
contested in good faith by appropriate proceedings and which are more than
ninety (90) days past due.
"INITIAL TERM" shall have the meaning ascribed
thereto in SUBSECTION 2.8.
"INTELLECTUAL PROPERTY" shall mean all of the
Borrower's present and future designs, patents, patent rights and applications
therefor, technology, trademarks and registrations or applications therefor,
trade names, inventions, copyrights and all applications and registrations
therefor, advertising matter, software or computer programs, license rights,
trade secrets, methods, processes, knowhow, drawings, specifications,
descriptions, and all memoranda, notes, and records with respect to any research
and development, whether now owned or hereafter acquired by the Borrower, and
proceeds of all of the foregoing, including, without limitation, proceeds of
insurance policies thereon.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" shall
mean that certain Continuing Security Interest and Conditional Assignment of
Patents, Trademarks, Copyrights and Licenses, dated as of the Closing Date, duly
executed and delivered by the Borrower in favor of the Agent, for the benefit of
the Lenders, with respect to Intellectual Property, as the same may hereafter be
amended, modified or supplemented from time to time.
"INTEREST PERIOD" shall mean, with respect to a
LIBOR Rate Loan, a period of one, two or three months, as available, commencing
on a Business Day, selected by Borrower pursuant to SUBSECTION 2.6. Such
Interest Period shall end on the day in the relevant succeeding calendar month
which corresponds numerically to the beginning day of such Interest Period;
PROVIDED that if there is no such numerically corresponding day in such next,
second or third succeeding month, such Interest Period shall end on the last
Business Day of such next, second or third succeeding month. If an Interest
Period would otherwise end on a day which is not a Business Day, such Interest
Period shall end on the next succeeding Business Day; PROVIDED that if such next
succeeding Business Day falls in a new month, such Interest Period shall end on
the immediately preceding Business Day. In the case of immediately succeeding
Interest Periods, each successive Interest Period shall commence on the day on
which the immediately preceding Interest Period expires. Notwithstanding any of
the foregoing, no Interest Period shall extend beyond the Revolving Loan
Maturity Date.
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"INVENTORY" shall mean all of the inventory of the
Borrower of every kind and description, now or at any time hereafter owned by or
in the custody or possession, actual or constructive, of the Borrower, wherever
located, including, without limitation, all merchandise, raw materials, parts,
supplies, work-in-process and finished goods intended for sale, together with
all the containers, packing, packaging, shipping and similar materials related
thereto, and including such inventory as is temporarily out of the Borrower's
custody or possession, including inventory on the premises of other Persons and
items in transit, and including any goods reclaimed, returned or repossessed
upon any accounts, documents, instruments or chattel paper relating to or
arising from the sale of inventory, and all substitutions and replacements
therefor, and all additions and accessions thereto, and all ledgers, books of
account, records, computer printouts, computer runs, microfilm, microfiche and
other computer-prepared information relating to any of the foregoing, and any
and all proceeds of any of the foregoing, including, without limitation,
proceeds of insurance policies thereon.
"INVESTMENT" of a Person shall mean any loan,
advance, extension of credit (other than accounts receivable arising in the
ordinary course of business on terms customary in the trade), deposit account or
contribution of capital by such Person to any other Person or any investment in,
or purchase or other acquisition of, the stock, partnership interests, notes,
debentures or other securities of any other Person made by such Person.
"IRC" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and all rules and regulations
promulgated thereunder.
"ISSUING BANK" shall mean any bank or financial
institution which is approved by the Borrower and the Agent and which issues
Letters of Credit for the account of the Borrower pursuant to SUBSECTION 2.1.
"LENDERS" shall mean the financial institutions
signatory hereto and, subject to the terms and conditions hereof, their
respective successors and assigns.
"LENDER GUARANTIES" and "LENDER GUARANTY" shall have
the respective meanings ascribed thereto in SUBSECTION 2.1(C).
"LENDER GUARANTY FEES" shall have the meaning
ascribed thereto in SUBSECTION 2.19.
"LENDER GUARANTY LIABILITY" means, as to each Lender
Guaranty, all liabilities of the Lenders with respect to the transaction for
which such Lender Guaranty was issued, whether contingent or otherwise,
including with respect to a letter of credit: (a) the amount available to be
drawn or which may become
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available to be drawn; (b) all amounts which have been paid or made available by
the Issuing Bank or the Lenders to the extent not reimbursed by the Borrower;
and (c) all unpaid interest, fees and expenses with respect thereto.
"LENDER GUARANTY RESERVE" means, at any date of
determination, a reserve deducted from the Total Revolving Loan Facility, in an
amount equal to (a) the aggregate amount of Lender Guaranty Liability with
respect to Lender Guaranties outstanding at such time, PLUS (b) the aggregate
amount theretofore paid by the Lenders under the Lender Guaranties for which the
Lenders have not been reimbursed by the Borrower or which has not been debited
to the Loan Account pursuant to SUBSECTION 2.1(C)(I).
"LETTER OF CREDIT" shall mean a standby or
documentary letter of credit or bankers acceptance issued by an Issuing Bank at
the request and for the account of the Borrower and for which the Lenders incur
Lender Guaranties.
"LIABILITIES" shall mean liabilities of the Borrower
and each Subsidiary which are or should be reflected on a balance sheet of the
Borrower and each Subsidiary in accordance with Generally Accepted Accounting
Principles, and shall include
Indebtedness.
"LIBOR RATE" shall mean, for each Interest Period,
a rate of interest equal to the sum of:
(a) the quotient of (i) the rate of interest
determined by Agent to be the rate at which deposits in U.S.
Dollars for the relevant Interest Period are offered based on
information presented on the Telerate Screen as of 11:00 a.m.
(London time) on the applicable LIBOR Rate Determination Date
in the approximate amount of the LIBOR Rate Loan and having a
maturity approximately equal to such Interest Period; PROVIDED
that if at least two such offered rates appear on the Telerate
Screen in respect of such Interest Period, the arithmetic mean
of all such rates (as determined by Agent) will be the rate
used; PROVIDED FURTHER, that if the Telerate System ceases to
provide LIBOR quotations, such rate shall be the average rate
of interest determined by Agent at which deposits in U.S.
Dollars are offered for the relevant Interest Period by The
Sanwa Bank, Limited (or its successor) to banks with combined
capital and surplus in excess of $500,000,000 in the London
interbank market as of 11:00 a.m. (London time) on the
applicable LIBOR Rate Determination Date in the approximate
amount of the LIBOR Rate Loan and having a maturity
approximately equal to such Interest Period, DIVIDED BY
(ii) one MINUS the rate (expressed as a decimal) of
reserve requirements in effect on the LIBOR Rate
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Determination Date (including, without limitation, all basic,
supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction
with respect thereto, as now and from time to time in effect)
for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D) which are required
to be maintained by a member bank of the Federal Reserve
System;
PLUS, (b) the Applicable Margin. The LIBOR Rate shall be
adjusted to the nearest one-sixteenth percent (1/16%) or, if
there is no nearest one-sixteenth percent (1/16%), to the next
higher one-sixteenth percent (1/16%).
"LIBOR RATE DETERMINATION DATE" shall mean each date
for calculating the LIBOR Rate for purposes of determining the interest rate
applicable to any LIBOR Rate Loan made pursuant to SUBSECTION 2.6. The LIBOR
Rate Determination Date shall be the second Business Day prior to the first day
of the related Interest Period for a LIBOR Rate Loan.
"LIBOR RATE LOANS" shall mean Loans bearing interest
at the LIBOR Rate.
"LIEN" shall mean, with respect to the Property of
any Person, any statutory or contractual lien, security interest, mortgage,
pledge, claim, encumbrance, charge, hypothecation, assignment, deposit
arrangement, filing of, or agreement to give, a financing statement, encumbrance
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever, whether voluntary or involuntary (including,
without limitation, the interest of a vendor or lessor under any conditional
sale, capitalized lease or other title retention agreement), in, of or on any of
the Property of such Person in favor of any other Person.
"LITIGATION" shall have the meaning ascribed thereto
in SUBSECTION 6.14.
"LOAN" shall mean either the Revolving Loan, Term
Loan A or Term Loan B, and "LOANS" shall mean all such loans collectively.
"LOAN ACCOUNT" shall have the meaning ascribed
thereto in SUBSECTION 2.16.
"LOAN YEAR" shall mean the period of twelve (12)
consecutive months commencing on the Closing Date and each succeeding period of
twelve (12) consecutive months commencing on each anniversary of the Closing
Date during the Initial Term and any Renewal Term.
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"MARYLAND CLUB FOODS" shall mean Maryland Club
Foods, Inc., a Florida corporation.
"MARYLAND CLUB FOODS GUARANTY" shall mean the
Guaranty, dated as of the Closing Date, executed by Maryland Club Foods in favor
of the Agent, on behalf of itself and the Lenders, guarantying the Obligations,
as the same may be restated, extended, amended, modified or supplemented from
time to time.
"MATERIAL ADVERSE EFFECT" shall mean, as determined
by the Required Lenders in their reasonable business judgment, a material
adverse effect upon (a) the Agent's Lien priority in, or the value of, the
Collateral, or (b) the business, properties, operations or condition (financial
or otherwise) or business prospects of the Borrower or of the Borrower and its
Subsidiaries taken as a whole as a result of the occurrence or existence of any
single event or condition or series of events or conditions in the aggregate, or
(c) the ability of the Borrower or any Subsidiary to perform its obligations
under any of the Financing Agreements, or (d) the validity or enforceability of
any of the Financing Agreements or the rights, powers and remedies of the Agent
or any Lender to enforce or collect the Obligations. In determining whether any
individual event would result in a Material Adverse Effect, notwithstanding that
such event does not of itself have such effect, a Material Adverse Effect shall
be deemed to have occurred if the cumulative effect of such event and all other
then existing events would result in a Material Adverse Effect.
"MONTHLY REPORT" shall have the meaning ascribed
thereto in SUBSECTION 3.1.
"MORTGAGES" shall mean the first mortgages, deeds of
trust, leasehold mortgages, collateral assignment of leases or other real estate
security documents with respect to the Real Estate, all in form and substance
satisfactory to the Agent, duly executed and delivered by the Borrower or any
Subsidiary in favor of the Agent, for the benefit of the Lenders, as security
for the Obligations, as the same may hereafter be restated, amended, modified or
supplemented from time to time.
"MULTIEMPLOYER PLAN" shall mean any multiemployer
plan within the meaning of Section 4001(a)(3) of ERISA to which the Borrower or
any ERISA Affiliate contributes, is obligated to contribute or was required to
contribute within the immediately preceding six (6) years.
"NET INCOME" shall mean, for any applicable fiscal
period, determined for the Borrower and its Subsidiaries on a consolidated
basis, the audited consolidated net income after income and franchise taxes and
shall have the meaning given such term by Generally Accepted Accounting
Principles; PROVIDED that there shall be specifically excluded therefrom
tax-adjusted (i) gains or losses from the sale of capital assets, (ii) net
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income of any Person in which the Borrower or any Subsidiary has an ownership
interest, unless received by the Borrower in a cash distribution, and (iii) any
gains arising from extraordinary items.
"NOTE" or "NOTES" shall mean one or more of the
Revolving Loan Notes or the Term Loan Notes, or a combination thereof.
"OBLIGATIONS" shall mean all of the Borrower's
obligations, liabilities and indebtedness to the Agent and the Lenders and/or to
any affiliate of the Agent or the Lenders of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired, or owing, whether primary,
secondary, direct, indirect, contingent, fixed or otherwise (including, without
limitation, obligations of performance) and whether arising or existing under
written agreement, oral agreement or operation of law including, without
limitation, all of the Borrower's indebtedness, liabilities and obligations to
the Agent and the Lenders or any Participant under this Agreement and the other
Financing Agreements.
"PARTICIPANT" shall mean any Person now or from time
to time hereafter participating with any Lender in the Loans made by such Lender
to the Borrower pursuant to this Agreement.
"PARTICIPATION AGREEMENTS" shall mean those certain
Participation Agreements, dated as of the Closing Date, between the Agent, on
behalf of the Lenders, and the Support Letter of Credit Obligors, respectively,
as the same may hereafter be restated, amended, modified or supplemented from
time to time.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.
"PENSION PLAN" shall mean any Plan that is a defined
benefit plan (other than a Multiemployer Plan) defined in Section 3(35) of
ERISA.
"PERMITTED INVESTMENTS" shall have the meaning
ascribed thereto in SUBSECTION 8.4.
"PERMITTED LIENS" shall have the meaning ascribed
thereto in SUBSECTION 8.1.
"PERSON" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, limited liability company,
limited liability partnership, unincorporated organization, association,
corporation, institution, entity, party, or government (whether national,
federal, state, provincial, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
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"PLAN" shall mean any employee benefit plan within
the meaning of Section 3(3) of ERISA (other than any Multiemployer Plan) under
which the Borrower or any ERISA Affiliate is, or was at any time within the
previous six (6) years, an "employer" within the meaning of Section 3(5) of
ERISA.
"PLEDGE AND SECURITY AGREEMENT" shall mean the
Pledge and Security Agreement, dated as of the Closing Date, executed by the
Borrower in favor of the Agent, on behalf of itself and the Lenders, as the same
may be restated, amended, modified or supplemented from time to time.
"PRIME RATE" shall mean the "prime rate" of interest
reported, from time to time, by THE WALL STREET JOURNAL in its money rates
column currently reported in Section C; PROVIDED, HOWEVER, that in the event
that THE WALL STREET JOURNAL ceases reporting a "prime rate", "Prime Rate" shall
mean the per annum rate of interest reported as the "Bank Prime Loan" rate for
the most recent weekday for which such rate is reported in Statistical Release
H.15 (519) published from time to time by the Board of Governors of the Federal
Reserve System; PROVIDED FURTHER that in the event that both of the aforesaid
indices cease to be published or to report rates of the aforesaid types, the
"Prime Rate" shall be determined from a comparable index mutually chosen by the
Agent and the Borrower in good faith. The "Prime Rate" shall change effective on
the date of the publication of any change in the applicable index by which such
"Prime Rate" is determined.
"PRO RATA SHARE" shall mean the percentage obtained
by dividing (a) the Commitments of a Lender by (b) the aggregate Commitments of
all Lenders, as such percentage may be adjusted by assignments permitted
pursuant to SUBSECTION 11.1. The sum of the Pro Rata Shares of all Lenders at
any date of determination shall equal one hundred percent (100%).
"PROJECTIONS" shall mean the projected balance
sheets, profit and loss statements, and cash flow statements of the Borrower and
its Subsidiaries on a consolidated basis, prepared in accordance with Generally
Accepted Accounting Principles, together with appropriate supporting details and
a statement of underlying assumptions, which have been and will be delivered to
the Agent and the Lenders in accordance with the terms hereof by the Borrower, a
copy of the first of which is attached as EXHIBIT 6.4.
"PROPERTY" of a Person shall mean any and all assets
or property, whether real, personal, tangible, intangible, or mixed, of such
Person, or other assets or property leased or operated by such Person.
"RATE OPTION" shall mean the Base Rate or the LIBOR
Rate, as applicable.
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"REAL ESTATE" shall mean the real property, mineral
rights, leasehold or other interests in real property together with any purchase
options and other rights related to such leaseholds or other interests owned,
leased, used or operated now or hereafter by the Borrower, all Fixtures and
personal property used in conjunction therewith and the Borrower's rights to
leases, rents and profits with respect thereto.
"REDIRECTION NOTICE" shall have the meaning ascribed
thereto in SUBSECTION 3.4.
"RENEWAL TERM" shall have the meaning ascribed
thereto in SUBSECTION 2.8.
"REQUIRED LENDERS" shall mean (i) Lenders having in
the aggregate at least fifty-one percent (51%) of the Total Revolving Loan
Facility, or (ii) if the Revolving Credit Facility has been terminated, Lenders
having in the aggregate at least fifty-one percent (51%) of the aggregate
outstanding amount of the Loans.
"RESTRICTED PAYMENT" shall mean: (a) any dividend or
other distribution, direct or indirect, on account of any shares of any class of
Stock of the Borrower now or hereafter outstanding, except a dividend payable
solely in shares of that class of Stock to the holders of that class; (b) any
redemption, conversion, exchange, retirement, sinking fund or similar payment,
purchase or other acquisition for value direct or indirect of any shares of any
class of Stock of the Borrower now or hereafter outstanding; (c) any payment or
prepayment of principal or premium, if any, or interest on, fees with respect
to, redemption, conversion, exchange, purchase, retirement, defeasance, sinking
fund or similar payment with respect to Subordinated Debt of the Borrower; (d)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Stock of the
Borrower now or hereafter outstanding; or (e) any payment by the Borrower of any
management fees, advisor fees or similar fees whether pursuant to a management
agreement or otherwise to any Affiliate of the Borrower.
"RETAIL STORES" shall mean those Brothers Coffee Bar
and Gloria Jean retail locations set forth on EXHIBIT C.
"RETAIL STORES SALE PROGRAM" shall mean the planned
sale by the Borrower of the Retail Stores subject to the terms and conditions
set forth on EXHIBIT 8.7, which terms and conditions shall be satisfactory to
the Agent.
"REVOLVING LOAN" shall have the meaning ascribed
thereto in SUBSECTION 2.1.
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"REVOLVING LOAN MATURITY DATE" shall mean May 29,
1999, subject to SUBSECTION 2.8.
"REVOLVING LOAN NOTES" shall have the meaning
ascribed thereto in SUBSECTION 2.3.
"SBCC" shall mean Sanwa Business Credit Corporation,
a Delaware corporation, in its individual capacity, and its
successors.
"SECURITIES ACT" shall mean the Securities Act of
1933, as amended.
"SERVICE" shall mean the Internal Revenue Service
and any successor thereof.
"SLOTTING FEE PAYMENTS" shall mean, for any
applicable fiscal period, any cash payments made by the Borrower during such
period with respect to Slotting Fees.
"SLOTTING FEES" shall mean all fees payable by the
Borrower or its Subsidiaries under a contract with a customer for a designated
amount of shelf space of such customer for a designated length of time.
"SOLVENCY AFFIDAVIT" shall mean the Affidavit of
Solvency of even date herewith executed and delivered by the chief executive
officer of the Borrower in favor of the Agent, for the benefit of the Lenders.
"SOLVENT" shall mean, when used with respect to any
Person, that (i) the fair saleable value of its Property is in excess of the
total amount of its Liabilities (including for purposes of this definition all
liabilities, whether or not reflected on a balance sheet prepared in accordance
with Generally Accepted Accounting Principles, and whether direct or indirect,
fixed or contingent, secured or unsecured, disputed or undisputed), (ii) it is
able to pay its debts or obligations in the ordinary course as they mature, and
(iii) that Person has capital sufficient to carry on its business and all
businesses in which it is about to engage. "SOLVENCY" shall have a correlative
meaning.
"STOCK" shall mean all shares, options, general or
limited partnership interests or other equivalents (regardless of how
designated), participation or other equivalents (however designated) of or in a
corporation, partnership or equivalent entity, whether voting or non-voting,
including, without limitation, common stock, warrants, preferred stock,
convertible debentures or any other debt or equity security, and all agreements,
instruments and documents convertible, in whole or in part, into any one or more
of all of the foregoing.
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"STOCK PLEDGE AGREEMENT" shall mean the Stock Pledge
Agreement, dated as of the Closing Date, executed by the Borrower in favor of
the Agent, on behalf of itself and the Lenders, as the same may be restated,
amended, modified or supplemented from time to time.
"SUBSIDIARY" of a Person shall mean (i) any
corporation of which more than fifty percent (50%) of the outstanding securities
having ordinary voting power to elect a majority of the board of directors or
other Persons performing similar functions is at any time of determination,
directly or indirectly, owned or controlled by such Person or by one or more of
its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii)
any partnership, association, trust, grantor trust, joint venture or similar
business organization more than 50% of the equity or partnership interests
having ordinary voting power or power of direction of which shall at any time of
determination be so owned or controlled. Unless otherwise expressly provided or
the context requires otherwise, all references herein to a "Subsidiary" shall
mean a Subsidiary of the Borrower.
"SUPPORT LETTERS OF CREDIT" shall mean, collectively
those certain letters of credit, in form and substance satisfactory to the
Agent, issued in favor of the Agent, as beneficiary for the benefit of the
Lenders, by Morgan Guaranty Trust Company and First Union National Bank of North
Carolina, respectively, each in the face amount of One Million Dollars
($1,000,000), as the same may be restated, amended, modified or supplemented
from time to time.
"SUPPORT LETTER OF CREDIT OBLIGORS" shall mean J.H.
Whitney & Co. and J.P. Bolduc who are, respectively, liable to the
issuers of the Support Letters of Credit.
"TAXES" shall mean taxes, liens, imposts,
deductions, Charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on or measured by the net income of any Lender by the
jurisdictions under the laws of which such Lender is organized or any transfer
taxes imposed as a results of the transfer of any Notes.
"TELERATE SCREEN" shall mean the display designated
as Screen 3750 on the Telerate System or such other screen on the Telerate
System as shall display the London interbank offered rates for deposits in U.S.
dollars quoted by selected banks.
"TERM LOAN A" shall have the meaning ascribed
thereto in SUBSECTION 2.4.
"TERM LOAN A NOTES" shall have the meaning ascribed
thereto in SUBSECTION 2.4.
"TERM LOAN B" shall have the meaning ascribed
thereto in SUBSECTION 2.5.
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"TERM LOAN B AVAILABILITY DATE" shall mean the date,
if any, prior to the Termination Date which is five (5) Business Days following
the Agent's receipt of the Borrower's unaudited financial statements as of the
end of an Accounting Period, together with a certificate in the form attached
hereto as EXHIBIT C, demonstrating that as of such date, as measured at the end
of an Accounting Period for the trailing twelve Accounting Periods then ended,
the Borrower's EBITDA has exceeded $13,000,000 as so measured for three
consecutive Accounting Periods, as determined on the basis of such financial
statements.
"TERM LOAN B AVAILABILITY PERIOD" shall mean a
period of 90 days beginning on the Term Loan B Availability Date.
"TERM LOAN B CLOSING FEE" shall have the meaning
ascribed thereto in SUBSECTION 2.11.
"TERM LOAN B COMMITMENT FEE" shall have the meaning
ascribed thereto in SUBSECTION 2.13.
"TERM LOAN B FUNDING DATE" shall mean the date
during the Term Loan B Availability Period on which all of the conditions
precedent set forth in SUBSECTION 4.3 have been satisfied or otherwise waived by
the Agent.
"TERM LOAN B NOTES" shall have the meaning ascribed
thereto in SUBSECTION 2.5.
"TERM LOAN NOTES" shall mean the Term Loan A Notes
and the Term Loan B Notes.
"TERM LOANS" shall mean Term Loan A and Term Loan B,
collectively.
"TERMINATION DATE" shall mean the earlier of (i) the
Revolving Loan Maturity Date then in effect and (ii) the date of termination of
the Lenders' obligation to make advances under the Revolving Loan pursuant to
SUBSECTION 9.2.
"TERMINATION EVENT" shall mean: (a) the tax
disqualification of a Plan under Section 401(a) of the IRC; (b) a "Reportable
Event" described in Section 4043 of ERISA and the regulations issued thereunder
unless the thirty (30) day notice to the PBGC has been waived for the event; (c)
the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during
a plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) or 4068(f) of ERISA or was deemed such under Section 4062(e) of
ERISA; (d) the termination of a Pension Plan, the filing of a notice of intent
to terminate a Pension Plan or the treatment of a Pension Plan amendment as a
termination under Section 4041(e) of ERISA; (e) the institution of proceedings
to terminate a Pension Plan by the PBGC; (f) any other event or condition which
would constitute grounds under Section 4042(a) of ERISA for the
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termination of, or the appointment of a trustee to administer, any Pension Plan;
(g) the partial or complete withdrawal of the Borrower or any ERISA Affiliate
from a Multiemployer Plan; (h) the imposition of a Lien pursuant to Section 412
of the IRC or Section 302 of ERISA; (i) any event or condition which results in
the reorganization or insolvency of a Multiemployer Plan under Section 4241 or
Section 4245 of ERISA, respectively; or (j) any event or condition which results
in the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by the PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"TOTAL REVOLVING LOAN FACILITY" shall mean Fifteen
Million Dollars ($15,000,000), as such amount may be reduced, if at all, from
time to time in accordance with the terms of this Agreement.
"UNUSED LINE FEE" shall have the meaning ascribed
thereto in SUBSECTION 2.12.
"WEEKLY REPORT" shall have the meaning ascribed
thereto in SUBSECTION 3.1.
1.2 ACCOUNTING TERMS. Any accounting terms used in this
Agreement which are not specifically defined herein shall have the meanings
customarily given them in accordance with Generally Accepted Accounting
Principles. All determinations of the book value of Inventory contemplated
hereby shall be at the lower of cost (on a first-in, first-out basis) or market.
1.3 OTHER TERMS DEFINED IN ILLINOIS UNIFORM COMMERCIAL CODE.
All other terms contained in this Agreement (and which are not otherwise
specifically defined herein) shall have the meanings provided in the Uniform
Commercial Code of the State of Illinois or the laws of any other state which
are required to be applied in connection with the issue of perfection or
non-perfection of Liens on the Collateral (the "Code") to the extent the same
are used or defined therein.
1.4 EFFECTIVE DATE. All references to "the date hereof," "the
date of this Agreement," "the effective date hereof," "effective as of the date
hereof" or "of even date herewith" contained herein or in the other Financing
Agreements shall be deemed to refer to the Closing Date of this Agreement.
1.5 REFERENCES. The foregoing definitions shall be equally
applicable to both the singular and plural forms of the defined terms. Unless
otherwise expressly provided or unless the context requires otherwise, all
references in this Agreement to Sections, subsections, Schedules and Exhibits
shall mean and refer to Sections, subsections, Schedules and Exhibits of this
Agreement. References to Persons include their respective permitted successors
and assigns or, in the case of a governmental authority, Persons
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succeeding to the relevant functions of such Persons. All references to statutes
shall include all related regulations and shall include all amendments of same
and any successor or replacement statutes and regulations.
2. CREDIT.
2.1 REVOLVING CREDIT FACILITY, REVOLVING LOAN AND LENDER
GUARANTIES.
(a) REVOLVING LOAN. Provided there does not then exist a
Default or an Event of Default, and subject to the terms and conditions herein
set forth, each Lender agrees severally (and not jointly) to make its Pro Rata
Share of advances to the Borrower, on a revolving credit basis (the "Revolving
Loan"), in an aggregate amount not in excess of the lesser of (i) the Total
Revolving Loan Facility less the Lender Guaranty Reserve, or (ii) the Current
Asset Base ("Borrowing Availability"). As used herein, the "Current Asset Base"
shall mean an amount equal to:
(1) Eighty percent (80%) of the face amount (less maximum
discounts, credits and allowances which may be taken by or granted to Account
Debtors in connection therewith) then outstanding of existing Eligible Accounts,
less such reserves as the Agent in its sole and reasonable discretion elects to
establish; PROVIDED that, so long as no Default or Event of Default has occurred
and is continuing, the Agent shall give the Borrower ten (10) Business Days'
prior written notice before implementing any such reserve, PLUS
(2) Sixty-five percent (65%) of the book value of the
Borrower's then existing Eligible Inventory; PROVIDED that with respect to that
portion of the Current Asset Base consisting of Eligible Inventory as derived
from the foregoing formula, the principal balance of the Revolving Loan plus the
outstanding Lender Guaranty Reserve attributable thereto at any one time shall
not exceed Nine Million Dollars ($9,000,000). The book value of Eligible
Inventory shall be determined at the lower of cost (determined on a
first-in-first-out ("FIFO") basis) or market, less such reserves as the Agent in
its sole and reasonable discretion elects to establish; PROVIDED that, so long
as no Default or Event of Default has occurred and is continuing, the Agent
shall give the Borrower ten (10) Business Days' prior written notice before
implementing any such reserve, and MINUS
(3) the Lender Guaranty Reserve.
(b) ADVANCES. Until all amounts outstanding in respect of the
Revolving Loan shall become due and payable on the Termination Date, within the
foregoing limits and subject to the terms, provisions and limitations set forth
herein, the Borrower may from time to time borrow, repay and reborrow under this
SUBSECTION 2.1. Each Advance of the Revolving Loan shall be made
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on notice by an Authorized Officer. The Agent shall be entitled to rely upon,
and shall be fully protected under this Agreement from any liability to any
Person in relying upon, any such notice believed by the Agent to be genuine and
to assume that each Person executing and delivering the same was duly authorized
by the Borrower. Each advance to the Borrower shall, on the day of such advance,
be deposited, in immediately available funds, in such account as the Borrower
may, from time to time, designate, unless otherwise requested by the Borrower in
writing.
(c) LENDER GUARANTY. Subject to the terms and conditions of
this Agreement, as part of the Total Revolving Loan Facility and in addition to
advances under the Revolving Loan, upon the request of the Borrower, SBCC, on
behalf of each Lender according to such Lender's Pro Rata Share, may issue or
arrange for the issuance of Letters of Credit for the account of the Borrower
and/or guaranty payment to the Issuing Banks which issue Letters of Credit for
the account of the Borrower or to guaranty other obligations of the Borrower
under written contracts (all such guaranties and Letters of Credit issued by
SBCC are collectively referred to herein as "Lender Guaranties" and individually
as a "Lender Guaranty"); PROVIDED that SBCC shall not be under any obligation to
issue any Lender Guaranty if (i) any order, judgment or decree of any government
authority or other regulatory body shall purport by its terms to enjoin or
restrain SBCC or any Lender from issuing such Lender Guaranty, or any law or
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) from any governmental authority or other regulatory
body with jurisdiction over SBCC or any Lender shall prohibit, or request that
SBCC or such Lender refrain from, the issuance of Lender Guaranties in
particular or shall impose upon SBCC or any Lender with respect to such Lender
Guaranties any restriction or reserve or capital requirement (for which SBCC or
such Lender is not otherwise compensated) or any unreimbursed loss, cost or
expense which SBCC or any Lender in good faith deems material to it or (ii) the
issuance thereof would violate any established credit policy of any Lender or
would be otherwise unacceptable as determined by the Agent. In no event shall
SBCC issue or otherwise become obligated with respect to a Letter of Credit
(including, without limitation, Letters of Credit issued with an automatic
"evergreen" provision) having an expiration date, or a date for payment of any
draft presented thereunder, later than the earlier of (i) twelve (12) months
from the date of issuance or (ii) thirty (30) days prior to the Revolving Loan
Maturity Date. Such issuance and obligations with respect to a Letter of Credit
pursuant to this SUBSECTION 2.1(C) shall be deemed to be a Revolving Loan for
purposes of requiring the satisfaction of the applicable conditions set forth in
SECTION 4. Additions to the Lender Guaranty Reserve shall be established
concurrently with the issuance of each Lender Guaranty. Immediately upon the
issuance of any Lender Guaranty in accordance with this SUBSECTION 2.1(C), each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received from SBCC, without recourse, representation
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or warranty, an individual participation interest equal to its Pro Rata Share of
the principal amount of such Lender Guaranty and each draw paid by the Issuing
Bank under the Letter of Credit issued in connection therewith. Each Lender's
obligation to pay its Pro Rata Share of all draws under the Letters of Credit
issued in connection with such Lender Guaranties shall be absolute,
unconditional and irrevocable and in each case shall be made without
counterclaim or set-off by such Lender.
(i) MAXIMUM AMOUNT. The aggregate amount of Lender
Guaranty Liability with respect to Lender Guaranties
outstanding at any one time shall not exceed One Million
Dollars ($1,000,000).
(ii) REIMBURSEMENT. The Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand,
protest or other formalities of any kind, to reimburse the Agent, on
behalf of the Lenders, for any amounts paid by the Lenders with respect
to each Lender Guaranty including, without limitation, all amounts paid
by the Lenders upon any draw with respect to a Letter of Credit, any
guaranty or reimbursement obligation paid by the Lenders to any Person
upon any draw upon a Letter of Credit and all fees, costs and expenses
paid by the Lenders to any Issuing Bank. All such reimbursement
obligations shall be due and payable on demand. If not paid within one
(1) Business Day following demand, or, if an Event of Default shall
have occurred and be continuing, on the date such reimbursement
obligations arise, the Borrower hereby authorizes and directs the
Agent, at the Agent's option, to debit the Loan Account (by increasing
the principal balance of the Revolving Loan), in the amount of any
payment made by the Lenders with respect to any Lender Guaranty and, in
connection therewith, the Lender Guaranty Reserve then in effect shall
be reduced by the amount of such debit. All amounts paid by the Lenders
with respect to any Lender Guaranty that are not immediately repaid by
the Borrower with the proceeds of the Revolving Loan or otherwise shall
bear interest at the interest rate applicable to the Revolving Loan. If
SBCC makes a payment on account of any Lender Guaranty and is not
concurrently reimbursed therefor by the Borrower and if for any reason
an advance under the Revolving Loan may not be made as stated in this
SUBSECTION 2.1(C), then as promptly as practical during normal banking
hours on the date of its receipt of such notice or, if not practicable
on such date, not later than 12:00 noon (Chicago time) on the Business
Day immediately succeeding such date of notification, each Lender shall
deliver to the Agent for the account of the Issuing Bank, in
immediately available funds, the purchase price for such Lender's
interest in such unreimbursed Lender Guaranty, which shall be an amount
equal to such Lender's Pro Rata Share of such payment. Each Lender
acknowledges and agrees that its obligation to reimburse the Agent
pursuant to this SUBSECTION 2.1(C)(II) with respect to Lender Guaranty
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Liabilities is absolute and unconditional and shall not be affected by
any circumstance whatsoever including, without limitation, the
occurrence or continuance of a Default or an Event of Default, and
further acknowledges and agrees that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(iii) CONDITIONS OF ISSUANCE OF LENDER GUARANTIES. In addition to
all other terms and conditions set forth in this Agreement, the
issuance by the Lenders of any Lender Guaranty shall be subject to the
conditions precedent that the Issuing Bank be satisfactory to the Agent
and that the Letter of Credit or written contract for which the
Borrower requests a Lender Guaranty be in such form, be in such amount,
contain such terms and support such transactions as are reasonably
satisfactory to the Agent. The Borrower shall comply with all such
terms and conditions imposed on the Borrower by any Issuing Bank or by
the Agent with respect to the issuance of any Letter of Credit, whether
such terms and conditions are imposed in the application for such
Letter of Credit, the Lenders' guaranty of such letter of credit or
otherwise. The Agent's standard form of application for a letter of
credit as currently in effect is attached as EXHIBIT 2.1. Each Lender
Guaranty shall be in form and substance satisfactory to the Agent and
shall provide that the guaranty terminates and all demands or claims
for payment must be presented by a date certain, which date will be at
least thirty (30) days before the Revolving Loan Maturity Date.
Notwithstanding the recitation in this Agreement of terms and
conditions with respect to the issuance of Lender Guaranties, the
Borrower hereby acknowledges and agrees that the issuance of any Lender
Guaranty shall be in the Agent's reasonable discretion.
(iv) REQUEST FOR LENDER GUARANTY. Prior to the issuance of a Lender
Guaranty, and as a condition to such issuance, the Borrower shall give
the Agent prior written notice specifying the date a Lender Guaranty is
to be issued, identifying the beneficiary of the guaranty and
describing the nature of the transactions proposed to be supported
thereby. The notice shall be accompanied by the form of the Letter of
Credit or other written contract to be guarantied. Subject to the terms
hereof, the Agent shall issue the requested Lender Guaranty as soon as
practicable and not more than fifteen (15) Business Days following the
date of the applicable notice; PROVIDED that the Lender Guaranty shall
not be issued until the Agent and the Issuing Bank have mutually agreed
upon the form of such Lender Guaranty.
(v) INDEMNIFICATION. The Borrower hereby agrees to indemnify,
pay and hold the Agent and each Lender harmless from and against any
and all pending or threatened claims, litigation, damages, losses and
liabilities incurred by the Agent or any Lender (or which may be
claimed against the Agent
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or any Lender by any Person whatsoever) and costs and expenses incurred
in defending or responding to pending or threatened claims or
litigation by reason of or in connection with the execution, delivery
or transfer of, or payment or failure to pay under, any Lender Guaranty
including, without limitation, any action taken or omitted by any
Issuing Bank in accordance with the provisions of SUBSECTION 7.10. The
Borrower's unconditional obligations to the Agent and the Lenders
hereunder shall not be modified or diminished for any reason or in any
manner whatsoever. The Borrower agrees that any charges made to the
Agent or the Lenders for the Borrower's account by any Issuing Bank
shall be conclusive as between such Persons and the Borrower and may be
charged to the Borrower's Loan Account hereunder.
2.2 MAXIMUM PRINCIPAL BALANCE OF REVOLVING LOAN. The
aggregate outstanding principal balance of the Revolving Loan shall at no time
exceed the Borrowing Availability. If at any time the principal balance of the
Revolving Loan exceeds the Borrowing Availability, the Borrower shall
immediately and without notice or demand of any kind (a) repay the Revolving
Loan to the extent necessary to reduce the principal balance to an amount that
is equal to or less than the Borrowing Availability and (b) if any excess
remains after payment of the outstanding Revolving Loan, cash collateralize the
Lender Guaranty Liabilities to the extent necessary to eliminate such remaining
excess.
2.3 EVIDENCE OF REVOLVING LOAN INDEBTEDNESS. The
advances by each Lender constituting the Revolving Loan shall be evidenced by a
promissory note in favor of each respective Lender (collectively, the "Revolving
Loan Notes") in the amount of its Revolving Loan Commitment dated the Closing
Date in the form attached as EXHIBIT 2.3. All of the Borrower's Revolving Loan
Obligations to the Lenders hereunder shall be payable by the Borrower by
application of the proceeds of all Accounts and other Collateral in accordance
with SUBSECTION 3.5, and shall be payable in full upon the Termination Date, and
the principal amount of such Revolving Loan Obligations shall bear interest as
hereinafter provided. Each advance by the Lenders and each repayment of
principal applicable to such advance shall be reflected in the Borrower's Loan
Account.
2.4 TERM LOAN A. (a) Simultaneously with the initial advance
of the Revolving Loan and subject to the terms and conditions of this Agreement,
each Lender agrees to loan the Borrower its Pro Rata Share of the sum of Seven
Million Five Hundred Thousand Dollars ($7,500,000) ("Term Loan A"), evidenced by
a promissory note dated the Closing Date, executed by the Borrower and payable
to the order of such Lender, in the form attached as EXHIBIT 2.4 (the "Term Loan
A Notes").
(b) The aggregate principal balance of Term Loan A shall
be payable to the Agent, for the benefit of the Lenders, in sixty
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(60) equal, consecutive monthly installments of $125,000 each, payable on the
first day of each calendar month, commencing July 1, 1996.
Notwithstanding the foregoing, the aggregate outstanding
principal balance of Term Loan A shall be due and payable in full on the
Termination Date, if prior to June 1, 2001.
2.5 TERM LOAN B. (a) Subject to the terms of this Agreement
(including, without limitation, SUBSECTION 4.3), during the Term Loan B
Availability Period each Lender agrees to loan the Borrower its Pro Rata Share
of the sum of Two Million Five Hundred Thousand Dollars ($2,500,000) ("Term Loan
B"), evidenced by a promissory note dated as of the Funding Date of Term Loan B,
executed by the Borrower and payable to the order of such Lender, in the form
attached as EXHIBIT 2.5 (the "Term Loan B Notes").
(b) The aggregate principal amount of Term Loan B shall be
payable in fifty-nine (59) equal, consecutive monthly installments of Forty-One
Thousand Six Hundred Sixty-Six Dollars ($41,666), payable on the first day of
each month, commencing with the month immediately following the Funding Date of
Term Loan B, and a final installment payment in the amount of Forty-One Thousand
Seven Hundred Six Dollars ($41,706) payable on the fifth anniversary of the Term
Loan B Funding Date.
Notwithstanding the foregoing, the aggregate outstanding
principal balance of Term Loan B shall be due and payable in full on the
Termination Date, if prior to the scheduled maturity of Term Loan B.
2.6 INTEREST. (a) Subject to the terms and conditions of this
Agreement, the Revolving Loan and the Term Loans may be divided into Base Rate
Loans or LIBOR Rate Loans, or a combination thereof, selected by the Borrower in
accordance with SUBSECTIONS 2.6(E) and 2.6(F); PROVIDED that the Revolving Loan
shall not have more than two (2) Interest Periods outstanding with respect to
such Loan at any one time and each Term Loan shall not have more than one
(1)Interest Period outstanding with respect to such Loan at any one time. So
long as no Event of Default has occurred and is continuing, the Borrower shall
pay to the Agent, for the benefit of the Lenders, interest on the outstanding
principal balance of the Loans at the Base Rate or the LIBOR Rate, as
applicable, in accordance with SUBSECTION 2.18. Interest shall be computed by
multiplying the closing daily balance in the Borrower's Loan Account for each
day during the preceding month by the interest rate determined to be applicable
hereunder on each such day.
(b) Interest and all fees (other than prepayment fees) shall
be computed (on a daily basis) on the basis of a 360-day year for the actual
number of days elapsed. In computing interest on any Loan, the date of funding
of the Loan or the first day of an Interest Period applicable to such Loan or,
with respect to a Base
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Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of such
LIBOR Rate Loan to such Base Rate Loan, shall be included and the date of
payment of such Loan or the expiration date of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted to a LIBOR Rate
Loan, the date of conversion of such Base Rate Loan to such LIBOR Rate Loan,
shall be excluded; PROVIDED that if a Loan is repaid on the same day on which it
is made, one day's interest shall be paid on that Loan. Each determination by
the Agent of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(c) So long as an Event of Default shall have occurred and be
continuing, the Borrower shall pay to the Lenders interest from the date of such
Event of Default to and including the date of cure of such Event of Default on
the outstanding principal balance of the Obligations at the Default Rate
applicable to such Obligations; PROVIDED that in the case of LIBOR Rate Loans,
upon the expiration of the Interest Period in effect at the time any Event of
Default shall have occurred and be continuing, such LIBOR Rate Loans shall
automatically become Base Rate Loans and thereafter bear interest at the Default
Rate applicable to Base Rate Loans.
(d) (i) Interest shall be due at the Base Rate, the LIBOR Rate
or the Default Rate, as provided herein, after as well as before demand, default
and judgment notwithstanding any judgment rate of interest provided for in any
statute. If any interest payment or other charge or fee payable hereunder
exceeds the maximum amount then permitted by applicable law, then to the extent
permitted by law and subject to the provisions of subparagraph (ii) of this
SUBSECTION 2.5(D), the Borrower shall be obligated to pay the maximum amount
then permitted by applicable law and the Borrower shall continue to pay the
maximum amount from time to time permitted by applicable law until all such
interest payments and other charges and fees otherwise due hereunder (in the
absence of such restraint imposed by applicable law) have been paid in full.
(ii) It is the intention of the Agent, the
Lenders and the Borrower to comply with the laws of the State of Illinois, and
notwithstanding any provision to the contrary contained herein or in the other
Financing Agreements, the Borrower shall not be required to pay and the Lenders
shall not be permitted to collect any amount in excess of the maximum amount of
interest permitted by law ("Excess Interest"). If any Excess Interest is
provided for or determined to have been provided for by a court of competent
jurisdiction in this Agreement or in any of the other Financing Agreements, then
in such event: (A) the provisions of this SUBSECTION 2.5(D)(II) shall govern and
control; (B) neither the Borrower nor any guarantor or endorser shall be
obligated to pay any Excess Interest; (C) any Excess Interest that any Lender
may have received hereunder shall be, at such Lender's option (1) applied as a
credit against the outstanding principal balance of the Obligations or accrued
and unpaid interest (not to exceed the
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maximum amount permitted by law), (2) refunded to the payor thereof, or (3) any
combination of the foregoing; (D) the interest rate(s) provided for herein shall
be automatically reduced to the maximum lawful rate allowed under applicable
law, and this Agreement and the other Financing Agreements shall be deemed to
have been, and shall be, reformed and modified to reflect such reduction; and
(E) neither the Borrower nor any guarantor or endorser shall have any action
against any Lender for any damages arising out of the payment or collection of
any Excess Interest.
(e) Subject to the terms of this Agreement, Borrower shall
select the Rate Option and, in the case of LIBOR Rate Loans, the Interest Period
applicable to each LIBOR Rate Loan from time to time by giving the Agent
irrevocable notice in the form of EXHIBIT 2.6-1 hereto (a "Borrowing Notice")
not later than 12:00 noon (Chicago time) (i) on the Funding Date of any Base
Rate Loan, and (ii) three (3) Business Days before the Funding Date for each
LIBOR Rate Loan, specifying:
(i) the Funding Date of each Loan,
(ii) the aggregate amount of such Loan (and, if such
Borrowing Notice refers to more than one Rate Option, the
amount of each Base Rate Loan and LIBOR Rate Loan which will
become part of the Revolving Loan or Term Loan A or Term Loan
B, as the case may be).
(iii) the Rate Option(s) selected for such Loan, and
(iv) in the case of each LIBOR Rate Loan, the
Interest Period applicable thereto;
PROVIDED that no Loan may be made as a LIBOR Rate Loan if any Default or Event
of Default has occurred and is continuing.
The Borrower shall select Interest Periods so that it is not
necessary to repay any portion of a LIBOR Rate Loan prior to the last day of the
applicable Interest Period in order to make a payment or prepayment of principal
on a Term Loan or the Revolving Loan, as the case may be, required by the terms
hereof including, without limitation, prepayments pursuant to SUBSECTION 2.8.
(f) Base Rate Loans shall continue as Base Rate Loans unless
and until such Base Rate Loans are converted by the Borrower into LIBOR Rate
Loans in accordance with this SUBSECTION 2.6(F). Each LIBOR Rate Loan shall
continue as a LIBOR Rate Loan until the end of the then applicable Interest
Period, at which time such LIBOR Rate Loan shall be automatically converted into
a Base Rate Loan unless the Borrower shall have given the Agent an irrevocable
notice in the form of EXHIBIT 2.6-2 (a "Conversion/Continuation Notice")
requesting that, at the end of such Interest Period, such LIBOR Rate Loan
continue as a LIBOR Rate Loan for the same or another Interest Period; PROVIDED
that no outstanding Loan may be
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continued as, or be converted into, a LIBOR Rate Loan if any Default or Event of
Default has occurred and is continuing. Subject to the terms of this Agreement,
the Borrower may elect from time to time to convert all or any part of the
Revolving Loan or any Term Loan of any Rate Option into any other Rate Option;
PROVIDED that any conversion of a LIBOR Rate Loan shall be made on, and only on,
the last day of the Interest Period applicable thereto. The Borrower shall give
the Agent a Conversion/Continuation Notice of each conversion or continuation of
a Base Rate Loan or LIBOR Rate Loan, as the case may be, not later than 12:00
noon (Chicago time) (i) on the Funding Date, in the case of a conversion into a
Base Rate Loan, and (ii) at least three (3) Business Days before the Funding
Date of the requested conversion or continuation of a LIBOR Rate Loan,
specifying:
(i) the Funding Date of such conversion or
continuation;
(ii) the aggregate amount and Rate Option(s) of the
Loan which is to be converted or continued; and
(iii) the amount and Rate Option(s) of the Base Rate Loans
or LIBOR Rate Loans into which such Loan is to be converted or
continued and, in the case of a conversion into or
continuation of a LIBOR Rate Loan, the duration of the
Interest Period applicable thereto.
(g) In lieu of delivering a Notice of Borrowing or a
Conversion/Continuation Notice, the Borrower may give the Agent notice by
telephone or telecopy by the required time of any proposed borrowing or
conversion/continuation under this SUBSECTION 2.6; PROVIDED that such notice
shall be promptly confirmed in writing by delivery of a Notice of Borrowing or a
Conversion/Continuation Notice, as the case may be, to the Agent on or before
the proposed Funding Date. Neither the Agent nor any Lender shall incur any
liability to the Borrower in acting upon any such notice by telephone that the
Agent believes in good faith to have been given by an Authorized Officer or for
otherwise acting in good faith under this SUBSECTION 2.6 and, upon the funding
or conversion/continuation, as the case may be, by the Agent in accordance with
this Agreement pursuant to any such notice, the Borrower shall have effected
such funding, conversion or continuation, as the case may be, hereunder. A
Notice of Borrowing or a Conversion/Continuation Notice for the funding of, or
conversion to, or continuation of, a LIBOR Rate Loan (or notice by telephone or
telecopy in lieu thereof) shall be irrevocable once given, and the Borrower
shall be bound to convert or continue in accordance therewith.
(h) Each LIBOR Rate Loan (whether resulting from a Borrowing
Notice or a Conversion/Continuation Notice) shall be in the minimum amount of
Five Hundred Thousand Dollars ($500,000) and
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in integral multiples of One Hundred Thousand Dollars ($100,000) if
in excess thereof.
2.7 METHOD OF BORROWING; MANNER AND METHOD OF MAKING INTEREST
AND OTHER PAYMENTS. (a) Not later than 1:00 p.m. (Chicago time) on each Funding
Date, each Lender shall make available its Pro Rata Share of the Loan or Loans
(except for Loans made pursuant to a Conversion/Continuation Notice, in which
case each Lender shall be deemed to have made its Loan or Loans) in funds
immediately available in Chicago, Illinois to the Agent at its address specified
pursuant to SUBSECTION 10.13. The Agent will make the funds so received from the
Lenders available to the Borrower in accordance with SUBSECTION 2.1(B).
Notwithstanding the foregoing provisions of this SUBSECTION 2.7(A), to the
extent that a Loan or portion thereof made by a Lender matures or is to be
repaid on the Funding Date of a requested Loan, such Lender shall first apply
the proceeds of the Loan it is then making to the repayment of the maturing Loan
or portion thereof.
(b) All payments by the Borrower of the Obligations shall be
made without deduction, defense, setoff or counterclaim and in same day funds.
In its sole discretion, the Agent may designate interest and other amounts
payable hereunder (other than the principal balance of the Revolving Loan) to be
paid by causing such amounts to be added to the principal balance of the
Revolving Loan, all as set forth on the Agent's books and records. The Borrower
hereby authorizes and directs the Lenders, at the option of the Required
Lenders, to make advances in the Revolving Loan by appropriate debits to the
Loan Account for all payments which the Borrower is required to make to the
Lenders under this Agreement and the other Financing Agreements. Unless
otherwise directed by the Agent, all payments to the Lenders hereunder shall be
made by delivery thereof to the Agent at its address set forth in SUBSECTION
10.13 or by delivery to the Agent for deposit in the Blocked Accounts of all
proceeds of Accounts or other Collateral in accordance with SUBSECTION 3.5. If
the Agent elects to bill the Borrower for any amount due hereunder, such amount
shall be immediately due and payable with interest thereon as provided herein.
Solely for the purpose of calculating interest earned by each Lender with
respect to the Revolving Loan, any check, draft or similar item of payment by or
for the account of the Borrower delivered to the Agent or deposited in a Blocked
Account in accordance with SUBSECTION 3.5 shall be applied by the Agent on
account of the Borrower's Revolving Loan Obligations on the first Business Day
after the Agent has received immediately available funds as a result of the
deposit thereof in accordance with SUBSECTION 3.5. Immediately available funds
received by the Agent after 2:00 p.m. (Chicago time) shall be deemed to have
been received on the following Business Day.
(c) (i) Unless the Borrower or a Lender, as the case
may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (A) in the case of a
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Lender, such Lender's Pro Rata Share of the proceeds of a Loan or (B) in the
case of the Borrower, a payment of principal, interest, fees or other
Obligations to the Agent for the account of the Lenders, that it does not intend
to make such payment, the Agent may assume that such payment has been made. The
Agent may, but shall not be obligated to, make the amount of such payment
available to the intended recipient in reliance upon such assumption. If the
Agent shall have so made such funds available, then if the Borrower or such
Lender, as the case may be, has not in fact made such payment to the Agent, the
recipient of such payment shall, on demand by the Agent, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to (x) in the case of payment by a Lender, the Federal Funds Rate for such
day (as determined by the Agent) or (y) in the case of payment by the Borrower,
the interest rate applicable to the relevant Loan.
(ii) Nothing contained in this SUBSECTION 2.7(C) will
be deemed to relieve a Lender of its obligation to fulfill its
Commitments or to prejudice any rights the Agent or the
Borrower may have against such Lender as a result of any
default by such Lender under this Agreement.
(iii) If the Agent determines at any time that any
amount received by the Agent under this Agreement must be
returned to the Borrower or paid to any other Person pursuant
to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement, the Agent will not
be required to distribute any portion thereof to any Lender.
In addition, each Lender will repay to the Agent on demand any
portion of such amount that the Agent has distributed to such
Lender.
(iv) Without limiting the generality of the
foregoing, each Lender shall be obligated to fund its Pro Rata
Share of any Revolving Loan made after any acceleration of the
Loans with respect to any draw on a Letter of Credit or Lender
Guaranty therefor.
2.8 TERM OF THIS AGREEMENT. This Agreement shall be effective
from the Closing Date until the Revolving Loan Maturity Date (the "Initial
Term"), subject to annual renewals thereafter of the Revolving Loan Maturity
Date as hereinafter provided (each such renewal being referred to as a "Renewal
Term"); PROVIDED, HOWEVER, that all of the Agent's and each Lender's rights and
remedies under this Agreement shall survive such termination until all of the
Obligations have been finally paid in full in cash. Not less than one hundred
twenty (120) days prior to the end of the Initial Term or any Renewal Term, the
Borrower shall notify the Agent in writing
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if it elects to renew this Agreement for a Renewal Term, and not less than
ninety (90) days prior to the end of the Initial Term or such Renewal Term, as
applicable, the Agent shall notify the Borrower in writing if the Lenders elect
to accept such renewal. Notwithstanding the foregoing, unless the Borrower and
each Lender shall agree in writing to extend this Agreement in accordance with
the preceding sentence, this Agreement shall terminate upon the earlier to occur
of the expiration of the Initial Term or any Renewal Term, as applicable, or the
final payment in full of all of the Obligations. In addition, this Agreement may
be terminated as set forth in SECTION 9. Upon the effective date of termination,
all of the Obligations shall become immediately due and payable without notice
or demand, notwithstanding any terms contained herein or in any Note to the
contrary. Notwithstanding any termination, until all of the Obligations shall
have been paid in full in cash and the Lender Guaranties shall have been
terminated or payment thereof shall have been secured in accordance with
SUBSECTION 2.9(A) on terms satisfactory to the Lenders, all of the Agents' and
the Lenders' rights and remedies under the Financing Agreements shall survive
such termination and, notwithstanding such payment, for so long as any pending
or threatened action which could result in a claim by the Agent or any Lender
under SUBSECTION 6.26 or 7.10 exists hereunder, the Agent, on behalf of the
Lenders, shall be entitled to retain Liens upon all existing and future
Collateral, and the Borrower shall continue to remit collections of Accounts and
proceeds as provided herein.
2.9 PREPAYMENTS AND REDUCTION OF COMMITMENTS.
(a) PREPAYMENT OF ALL OBLIGATIONS. Subject to the prepayment
fee as set forth in SUBSECTION 2.9(B) and the provisions of SUBSECTION 2.22,
upon not less than thirty (30) days prior written notice to the Agent specifying
the date of prepayment, the Borrower may prepay in full, but not in part, all of
the Obligations arising hereunder. Upon prepayment in full, the Borrower shall
cause the Agent and each Lender to be released from all liability under any
Lender Guaranties or the Borrower shall (i) cause to be issued to and for the
benefit of the Agent and the Lenders a letter of credit in form and substance
acceptable to the Agent issued by a bank or other financial institution
acceptable to the Agent, or (ii) deposit cash collateral with the Agent, for the
benefit of the Agent and the Lenders, in either case, in an amount equal to the
aggregate Lender Guaranty Liability with respect to the Lender Guaranties that
will remain outstanding after prepayment in full of all other Obligations.
(b) TERM LOAN PREPAYMENT. Subject to the prepayment fee as set
forth in SUBSECTION 2.9(B) and the provisions of SUBSECTION 2.22, upon not less
than thirty (30) days prior written notice to the Agent specifying the date of
prepayment, the Borrower may prepay the entire principal amount of the Term
Loans or, in a minimum amount of Five Hundred Thousand Dollars ($500,000) or any
integral multiple of One Hundred Thousand Dollars ($100,000) if in
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excess thereof, any portion of the Term Loans by paying the principal amount to
be prepaid, together with all unpaid accrued interest thereon to the date of
prepayment. All prepayments made by the Borrower under this subsection 2.9(b)
shall be made and applied to scheduled installments of principal due on the Term
Loans in the inverse order of the maturities thereof in the following priority:
(i) so long as Term Loan B shall be outstanding, to Term Loan B until paid in
full and (ii) prior to the Term Loan B Funding Date or after Term Loan B has
been paid in full, to Term Loan A.
(c) REDUCTION OF TOTAL REVOLVING LOAN FACILITY. Subject
to the prepayment fee as set forth in SUBSECTION 2.9(D) and the
provisions of SUBSECTION 2.22, after payment in full of the Term
Loans, upon not less than thirty (30) days prior written notice to
the Agent, which notice shall be irrevocable and shall specify the
amount of any such reduction, the Borrower may permanently reduce
pro rata among the Lenders the Total Revolving Loan Facility in
whole or in part in integral multiples of One Million Dollars
($1,000,000); PROVIDED that the amount of the Total Revolving Loan
may not be reduced below the aggregate principal amount of the
outstanding Revolving Loan and the Lender Guaranty Liability. Any
reduction in the Total Revolving Loan Facility shall automatically
and without further action by the Borrower, the Agent or any Lender
reduce the Revolving Loan Commitments by the amount of such
reduction.
(d) PREPAYMENT FEE. If the Borrower shall prepay all or any
portion of the Obligations or permanently reduce the Total Revolving Loan
Facility prior to the end of the Initial Term or any Renewal Term. the Borrower
shall pay to the Agent, for the ratable benefit of the Lenders, as liquidated
damages and compensation for the costs of being prepared to make funds available
to the Borrower hereunder an amount determined as follows: (i) if payment in
full of all Obligations, three percent (3%) of the Total Revolving Loan Facility
PLUS three percent (3%) of the aggregate outstanding principal balance of the
Term Loans as of the prepayment date for a prepayment during the first Loan
Year; two percent (2%) of the Total Revolving Loan Facility PLUS two percent
(2%) of the aggregate outstanding principal balance of the Term Loans as of the
prepayment date for a prepayment during the second Loan Year; and one percent
(1%) of the Total Revolving Loan Facility PLUS one percent (1%) of the aggregate
outstanding principal balance of the Term Loans as of the prepayment date for a
prepayment during the third Loan Year, (ii) if a partial prepayment of a Term
Loan, an amount equal to the principal amount so prepaid MULTIPLIED by three
percent (3%) for a prepayment during the first Loan Year; two percent (2%) for a
prepayment during the second Loan Year; and one percent (1%) for a prepayment
during the third Loan Year and (iii) if a reduction of the Total Revolving Loan
Facility, an amount equal to the amount of such reduction MULTIPLIED by three
percent (3%) for a reduction during the first Loan Year; two percent (2%)
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for a reduction during the second Loan Year; and one percent (1%) for a
reduction during the third Loan Year.
(e) PRO RATA REDUCTION. Any prepayment of the Loans or
reduction of the Total Revolving Loan Facility pursuant to this subsection 2.9
shall ratably reduce the amounts outstanding under the applicable Notes of each
Lender or each Lender's Pro Rata Share of the Total Revolving Loan Facility, as
the case may be.
2.10 CLOSING FEE. On the Closing Date, the Borrower
shall pay to the Agent, for the ratable benefit of the Lenders, a
closing fee (the "Closing Fee") in the amount of Two Hundred
Twenty-Five Thousand Dollars ($225,000).
2.11 TERM LOAN B CLOSING FEE. On the Term Loan B Funding Date,
the Borrower shall pay to the Agent, for the benefit of the Lenders, a closing
fee (the "Term Loan B Closing Fee") in the amount of Twenty-Five Thousand
Dollars ($25,000).
2.12 REVOLVING LOAN UNUSED LINE FEE. From and after the
Closing Date, the Borrower shall pay to the Agent, for the ratable benefit of
the Lenders, a fee (the "Unused Line Fee") in an amount equal to the Total
Revolving Loan Facility LESS the average daily closing balance of the Revolving
Loan advanced to the Borrower during the preceding month (or shorter period with
respect to the period commencing with the Closing Date or the period ending with
the Termination Date) MULTIPLIED by one-half of one percent (.50%) per annum.
The Unused Line Fee shall be payable in arrears on the first day of each
calendar month following the Closing Date and at maturity, whether on the
termination of this Agreement or earlier.
2.13 TERM LOAN B COMMITMENT FEE. During the Term Loan B
Availability Period, the Borrower shall pay to the Agent, for the ratable
benefit of the Lenders, an additional fee (the "Term Loan B Commitment Fee")
accrued from the Term Loan B Availability Date through and including the Term
Loan B Funding Date in an amount equal to the aggregate Term Loan B Commitments
MULTIPLIED by (i) one-half of one percent (.50%) per annum for the first thirty
(30) days of the Term Loan B Availability Period, and (ii) one and one-half
percent (1.50%) per annum for the remaining Term Loan B Availability Period. The
Term Loan B Commitment Fee shall be payable in arrears on the first day of each
calendar month following the Term Loan B Availability Date and at the earlier of
(a) the end of the Term Loan B Availability Period, or (b) the Term Loan B
Funding Date. In the event that Term Loan B is not funded during the Term Loan B
Availability Period, the Borrower shall pay to the Agent, for the ratable
benefit of the Lenders, as liquidated damages and compensation for the costs of
being prepared to make funds available to the Borrower under Term Loan B, an
amount equal to the aggregate Term Loan B Commitments MULTIPLIED by (i) three
percent (3%) if the Term Loan B Availability Period ends during the first Loan
year, (ii) two percent (2%) if the Term Loan B Availability Period ends during
the second Loan Year, and (iii) one
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percent (1%) if the Term Loan B Availability Period ends during the third Loan
Year. Notwithstanding the foregoing, no fees with respect to Term Loan B shall
be payable by the Borrower if the Term Loan B Availability Date does not occur.
2.14 NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENT AND
REVOLVING LOAN COMMITMENT REDUCTION. The Agent will notify each Lender of the
contents of each Revolving Loan Commitment reduction notice, Borrowing Notice
and prepayment notice received by it hereunder. The Agent will notify each
Lender of the interest rate applicable to each LIBOR Rate Loan promptly upon
determination of such interest rate and will give each Lender prompt notice of
each change in the Base Rate.
2.15 OTHER FEES, COSTS AND EXPENSES. The Borrower shall pay to
the Agent on demand all fees, costs and expenses incurred by the Agent in
connection with any matters contemplated by or arising out of this Agreement or
any other Financing Agreement (which fees, costs and expenses shall be part of
the Obligations and secured by the Collateral) including, without limitation:
(i) following the occurrence of an Event of Default in verifying or inspecting
the Accounts or the Inventory or the Borrower's records with respect thereto;
(ii) in connection with opening and maintaining the Blocked Accounts and
depositing for collection any check or item of payment received by and/or
delivered to any Collecting Bank or the Agent or any Lender on account of the
Obligations; (iii) arising out of the Agent's indemnification of any Collecting
Bank against damages incurred by such Collecting Bank in the operation of a
Blocked Account; (iv) in connection with the Agent's forwarding to the Borrower
the proceeds of loans or advances hereunder including, without limitation,
transfer fees; (v) in connection with the negotiation, preparation, review,
execution, delivery and ongoing administration of the Financing Agreements and
all amendments, modifications and waivers with respect hereto or with respect to
the other Financing Agreements including, without limitation, search fees,
appraisal fees and expenses, title insurance policy fees, costs and expenses;
filing and recording fees; fees, costs and expenses of the Agent's attorneys and
paralegals and all Taxes payable in connection with this Agreement or the other
Financing Agreements, whether such fees, costs and expenses are incurred prior
to, on or after the Closing Date; (vi) in connection with any documentation,
negotiation, review or closing with respect to any subordinated indebtedness,
including, without limitation, the fees, costs and expenses of the Agent's
attorneys and paralegals; and (vii) arising from the Agent's employment of
counsel or otherwise in connection with protecting, perfecting or preserving the
Agent's Liens in the Collateral in accordance with SUBSECTION 10.2 or in
connection with any refinancing or restructuring of the credit arrangements
provided under the Financing Agreements, whether in the nature of a "workout" or
in connection with any insolvency or bankruptcy proceedings, or in connection
with any other matters contemplated by or arising out of this Agreement or the
other Financing Agreements. Any portion of the foregoing fees, costs and
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expenses which remains unpaid ten (10) days following the Agent's statement and
request for payment thereof shall bear interest from the date of such statement
and request for payment at the Default Rate.
2.16 LOAN ACCOUNT. The Agent shall maintain a loan account
("Loan Account") on its books in which shall be recorded (i) all Loans and
advances made to the Borrower pursuant to this Agreement, (ii) the issuance of
all Lender Guaranties, (iii) all payments made by the Borrower on all such Loans
and advances and (iv) all other appropriate debits and credits as provided in
this Agreement including, without limitation, all fees, charges, expenses and
interest. All entries in the Loan Account shall be made in accordance with the
Agent's customary accounting practices as in effect from time to time. The
Borrower shall pay the Obligations reflected as owing by it under the Loan
Account and all other Obligations hereunder as such amounts become due or are
declared due pursuant to the terms of this Agreement. So long as a Default or an
Event of Default shall have occurred and be continuing, the Borrower irrevocably
waives the right to direct the application of any and all payments at any time
or times thereafter received by the Agent or any Lender from or on behalf of the
Borrower, and the Borrower does hereby irrevocably agree that each Lender shall
have the continuing exclusive right to apply and to reapply any and all payments
received at any time or times hereafter against the Obligations in such manner
as such Lender may deem advisable notwithstanding any previous entry by the
Agent upon the Loan Account or by the Agent or such Lender on any other books
and records.
Notwithstanding a termination of this Agreement in accordance
with SUBSECTION 2.8 or 9.1, the Borrower expressly agrees that to the extent the
Borrower makes a payment or payments and such payment or payments, or any part
thereof, are subsequently invalidated, declared to be fraudulent or
preferential, set aside or are required to be repaid to a trustee, receiver, or
any other Person under any bankruptcy law, other state or federal law, common
law or equitable cause, then to the extent of such payment or repayment, the
Obligations or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment or payments had not been
made.
2.17 STATEMENTS. All advances to the Borrower, and all other
debits and credits provided for in this Agreement, shall be evidenced by entries
made by the Agent in the Loan Account and in the Agent's books and records
showing the date, amount and reason for each such debit or credit. Until such
time as the Agent shall have rendered to the Borrower written statements of
account as provided herein, the balance in the Borrower's Loan Account, as set
forth on the Agent's most recent printout or other written statement, shall be
rebuttably presumptive evidence of the amounts due and owing to each Lender by
the Borrower; PROVIDED that any failure to so record or any error in so
recording shall not limit
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or otherwise affect the Borrower's obligations to pay the Obligations. Not more
than twenty (20) days after the last day of each calendar month, the Agent shall
render to the Borrower a statement setting forth the principal balance of the
Borrower's Loan Account and the calculation of interest due thereon. Each such
statement shall be subject to subsequent adjustment by the Agent but shall,
absent manifest errors or omissions, be presumed correct and binding upon the
Borrower, and shall constitute an account stated unless, within thirty (30) days
after receipt of any statement from the Agent, the Borrower shall deliver to the
Agent by registered or certified mail written objection thereto specifying the
error or errors, if any, contained in such statement. In the absence of a
written objection delivered to the Agent as set forth in this SUBSECTION 2.17,
the Agent's statement of the Borrower's Loan Account shall be conclusive
evidence of the amount of the Obligations.
2.18 PAYMENT DATES. Interest shall be payable on Base Rate
Loans in arrears on the first day of each calendar month for all periods ending
prior to such month for which such Loans are or, in the case of a Base Rate Loan
converted to a LIBOR Rate Loan during the prior month, were outstanding.
Interest shall be payable on LIBOR Rate Loans at the end of each Interest
Period. Any payment due hereunder on any day other than a Business Day shall be
due on the next succeeding Business Day, and if such payment shall bear interest
in accordance herewith, interest shall accrue to the date of payment.
2.19 LENDER GUARANTY FEES. The Borrower shall pay to the
Agent, for the benefit of the Lenders, fees for any Lender Guaranty ("Lender
Guaranty Fees") for the period from and including the date of issuance of such
Lender Guaranty to and excluding the date of expiration or termination of such
Lender Guaranty, equal to the daily average amount of the Lender Guaranty
Liability MULTIPLIED by the Applicable Margin from time to time in effect per
annum, payable monthly in arrears on the first day of the month following the
date of issuance of any such Lender Guaranty and the first day of each month
thereafter. The Borrower shall also reimburse the Agent and each Lender for any
and all fees and expenses paid to the Issuing Bank.
2.20 OTHER LENDER GUARANTY PROVISIONS.
(a) OBLIGATIONS ABSOLUTE. The obligation of the Borrower to
reimburse the Agent and each Lender for payments made under any Lender Guaranty
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances including the following
circumstances:
(i) any lack of validity or enforceability of
any Lender Guaranty or any other agreement;
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(ii) the existence of any claim, set-off, defense or other
right which the Borrower, any of its Affiliates or the Agent or any
Lender may have at any time against a beneficiary or any transferee of
any Lender Guaranty (or any Persons for whom any such transferee may be
acting), the Agent, any Lender or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or
any unrelated transaction (including, without limitation, any
underlying transaction between the Borrower or any of their Affiliates
and the beneficiary for which such Lender Guaranty was procured);
(iii) any draft, demand, certificate or any other document
presented under any Lender Guaranty proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) payment by the Agent or any Lender under any Lender
Guaranty against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such Lender
Guaranty; PROVIDED that, in the case of any payment by the Agent or any
Lender under such Lender Guaranty, such Person has not acted with gross
negligence or willful misconduct as determined by a final judgment, not
subject to review on appeal, of a court of competent jurisdiction in
determining that the demand for payment under any Lender Guaranty
complies on its face with any applicable requirements for a demand for
payment under such Lender Guaranty;
(v) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or
(vi) the fact that a Default or an Event of
Default shall have occurred and be continuing.
(b) INDEMNIFICATION; NATURE OF THE AGENT'S DUTIES. In
addition to amounts payable as elsewhere provided in this Agreement, the
Borrower hereby agrees to protect, indemnify, pay and hold the Agent and each
Lender harmless from and against any and all claims, suits, demands,
liabilities, damages, losses, costs, charges and expenses (including, without
limitation, reasonable attorneys' fees and allocated costs of internal counsel)
which the Agent or any Lender may incur or be subject to as a consequence,
direct or indirect, of (1) the issuance of any Lender Guaranty other than as a
result of the gross negligence or willful misconduct of such Person as
determined by a final order, not subject to review on appeal, of a court of
competent jurisdiction, or (2) the failure of the Agent or any Lender to honor a
demand for payment under any Lender Guaranty as a result of any act or omission,
whether rightful or wrongful, of any Governmental Authority.
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As among the Agent, the Lenders and the Borrower, the Borrower
assumes all risks of the acts and omissions of, or misuse of any Lender Guaranty
by, beneficiaries thereof. In furtherance and not in limitation of the
foregoing, neither the Agent nor any Lender shall be responsible: (i) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document by any Person in connection with the application for and issuance of
any Lender Guaranty, even if it should in fact prove to be in any and all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Lender Guaranty or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any Lender Guaranty to comply fully with conditions required in order to demand
payment under such Lender Guaranty; PROVIDED that, in the case of any payment by
the Agent or any Lender under any Lender Guaranty, such Person has not acted
with gross negligence or willful misconduct, as determined by a final judgment,
not subject to review on appeal, of a court of competent jurisdiction, in
determining that the demand for payment under any Lender Guaranty complies on
its face with any applicable requirements for a demand for payment under such
Lender Guaranty; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph or
otherwise; (v) for errors in interpretation of technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a payment under any Lender Guaranty or of the proceeds thereof; (vii)
for the credit of the proceeds of any drawing under any Lender Guaranty; and
(viii) for any consequences arising from causes beyond the control of the Agent
or the Lenders, including, without limitation, any act or omission, whether
rightful or wrongful, of any Governmental Authority. None of the above shall
affect, impair, or prevent the vesting of any of the Agent's or any Lender's
rights or powers hereunder.
In furtherance and extension of, and not in limitation of, the
specific provisions hereinabove set forth, the Borrower hereby agrees that any
action taken or omitted by the Agent or any Lender under or in connection with
any Lender Guaranty, or the Collateral relating thereto, if taken or omitted in
good faith, or any action taken by any Issuing Bank, shall be binding on the
Borrower and shall not impose any resulting liability on the Agent or any
Lender.
2.21 TAXES; CHANGES IN LAW.
(a) Any and all payments or reimbursements made hereunder or
under the Notes shall be made free and clear of and without deduction for any
and all present and future Taxes. If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to the Agent or
any Lender, then (i) the sum payable hereunder shall be increased as may be
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necessary so that, after making all required deductions, the Agent or such
Lender receives an amount equal to the sum it would have received had no such
deductions been made and (ii) the Borrower shall pay the full amount deducted to
the relevant taxing or other authority in accordance with applicable law. The
Borrower hereby indemnifies and agrees to hold the Agent and each Lender
harmless from and against all Taxes.
(b) In the event that, subsequent to the Closing Date, or, in
the case of a Participant assigned an interest in or sold a participation in the
Loans pursuant to SUBSECTION 11.1, subsequent to the date of such assignment or
sale, (a) any change in any existing law, regulation, rule, guideline, treaty or
directive or in the interpretation or application thereof (including, without
limitation, any change resulting from the implementation of risk based capital
guidelines), (b) any new law, regulation, rule, guideline, treaty or directive
enacted or any interpretation or application thereof or (c) compliance by any
Lender with any request or directive (whether or not having the force of law and
including by way of withdrawal or termination of any previously available
exemption) from any central bank, governmental authority, agency or
instrumentality (including, without limitation, any request or directive
regarding capital adequacy)
(i) does or shall subject any Lender or such
Participant to any Taxes with respect to this Agreement, the
other Financing Agreements or any Loans made hereunder, or
change the basis of taxation of payments to any Lender or such
Participant of principal, commitment, fees, interest or any
other amount payable hereunder (except for changes in the rate
of tax on the overall net income of such Lender or such
Participant); or
(ii) does or shall impose on any Lender or such
Participant any other condition or increased cost in
connection with the transactions contemplated hereby or
participation herein; or
(iii) affects the amount of any reserve, special deposit,
capital adequacy, assessment or similar charge (other than
reserves and assessments taken into account in determining the
LIBOR Rate) required or expected to be maintained by any
Lender or such Participant or any corporation controlling such
Lender or such Participant and such Lender or such Participant
determines that such amount required or expected is increased
by or based upon the existence of this Agreement or its Loans
hereunder,
and the result of any of the foregoing is to increase the cost to such Lender or
such Participant of making or continuing any Loan hereunder or selling any
participation therein or assigning any of its Commitments to make Loans
hereunder, as the case may be, or to reduce any amount receivable thereunder,
then, in any such case,
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the Borrower shall within fifteen (15) days after written demand pay to such
Lender or such Participant any additional amounts which are necessary to
compensate such Lender or such Participant for such additional cost or reduced
amount receivable which such Lender or such Participant reasonably deems to be
material as determined by such Lender or such Participant with respect to this
Agreement, the other Financing Agreements or the Loans made hereunder. If such
Lender or Participant becomes entitled to claim any additional amounts pursuant
to this SUBSECTION 2.21, it shall promptly notify the Borrower in writing of the
event by reason of which such Lender or Participant has become so entitled. A
certificate as to any additional amounts payable pursuant to this SUBSECTION
2.21 submitted by such Lender or Participant to the Borrower shall be presumed
correct in the absence of manifest error.
2.22 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to LIBOR Rate Loans as to the
matters covered:
(a) As soon as practicable after 11:00 a.m. (Chicago time) on
each LIBOR Rate Determination Date, the Agent shall determine (which
determination shall, absent manifest error, be final, conclusive and binding
upon all parties) the interest rate that shall apply to the LIBOR Rate Loans for
which an interest rate is then being determined for the applicable Interest
Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to the Borrower and each Lender.
(b) If on any LIBOR Rate Determination Date any Lender shall
have determined (which determination shall be final and conclusive and binding
upon all parties) that:
(i) adequate and fair means do not exist for
ascertaining the applicable interest rate by reference to the
LIBOR Rate with respect to the LIBOR Rate Loans as to which an
interest rate determination is then being made; or
(ii) the LIBOR Rate does not accurately or fairly
represent the effective pricing to such Lender for dollar
deposits of comparable amounts for the relevant period; or
(iii) deposits of a type and maturity appropriate to
match fund LIBOR Rate Loans are not available; or
(iv) maintenance of LIBOR Rate Loans would
violate any applicable law, rule, regulation or directive,
whether or not having the force of law;
then, and in any such event, such Lender shall, promptly after being notified of
a borrowing, conversion or continuation, give
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notice (by telephone confirmed in writing) to the Borrower and the Agent (which
notice the Agent shall promptly transmit to each other Lender) of such
determination, and the Agent shall suspend the availability of LIBOR Rate Loans
and require any LIBOR Rate Loans to be repaid and Borrower shall repay or prepay
the LIBOR Rate Loans, together with all interest accrued thereon.
(c) The Borrower shall indemnify the Agent and each Lender,
upon written request (which request shall set forth in reasonable detail the
basis for requesting such amounts and which shall, absent manifest error, be
presumed correct and binding upon all parties hereto), for losses, expenses and
liabilities (including, without limitation, any loss (including interest paid)
sustained by it in connection with the liquidation or re-employment of funds
acquired to fund or maintain LIBOR Rate Loans), that such Person may sustain:
(i) if for any reason (other than a default by the Lenders) a borrowing of any
LIBOR Rate Loan does not occur on a date specified therefor in a Borrowing
Notice, a Conversion/Continuation Notice or a request by telephone or telecopy
for borrowing or conversion/continuation or a successive Interest Period does
not commence after notice therefor is given pursuant to SUBSECTION 2.6(E) OR
2.6(F); (ii) if any prepayment of any of its LIBOR Rate Loans occurs on a date
that is not the last day of the Interest Period applicable to that Loan whether
because of acceleration, prepayment or otherwise (unless such prepayment is
required pursuant to the provisions of SUBSECTION 2.22(B)); (iii) if any of its
LIBOR Rate Loans are not paid on any date specified in a notice of prepayment
given by the Borrower; or (iv) as a consequence of any other default by the
Borrower to repay its LIBOR Rate Loans when required by the terms of this
Agreement; PROVIDED that during the period while any such amounts have not been
paid, the Lenders shall reserve an equal amount from amounts otherwise available
to be borrowed under the Revolving Loan. The provisions of this SUBSECTION
2.22(C) shall survive the termination of this Agreement, the repayment of the
Loans and the discharge of the Borrower's other Obligations hereunder.
(d) Any Lender may make, carry or transfer LIBOR Rate Loans
at, to, or for the account of, any of its domestic or foreign branch offices or
the office of an affiliate of such Lender.
(e) Calculation of all amounts payable to a Lender under
SUBSECTION 2.22(B) or 2.22(C) shall be made as though each Lender had actually
funded its relevant LIBOR Rate Loan through the purchase of a LIBOR deposit
bearing interest at the LIBOR Rate in an amount equal to the amount of such
LIBOR Rate Loan and having a maturity comparable to the relevant Interest Period
and through the transfer of such LIBOR deposit from an offshore office to a
domestic office in the United States of America; PROVIDED that each Lender may
fund each of its LIBOR Rate Loans in any manner it sees fit and the foregoing
assumption shall be utilized only for the calculation of amounts payable under
this SUBSECTION 2.22.
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3. REPORTING AND ELIGIBILITY REQUIREMENTS.
3.1 REPORTS REGARDING COLLATERAL. The Borrower shall submit to
the Agent and each Lender, not later than the fourth (4th) day of each week, a
weekly report ("Weekly Report"), accompanied by a certificate in the form
attached as EXHIBIT 3.1, which shall be signed by an Authorized Officer. The
Weekly Report (including the initial Weekly Report) shall be in form and
substance satisfactory to the Required Lenders and shall include, as of the last
Business Day of the preceding week (i) an Accounts Trial Balance, (ii) a
payables report in a form satisfactory to the Agent, and (iii) a written report
reflecting activity for the period since the date of the preceding Weekly Report
describing, in form and substance satisfactory to the Agent, all Eligible
Accounts and ineligible Accounts created or acquired by the Borrower subsequent
to the immediately preceding Weekly Report. In addition, the Borrower shall
provide the Agent and each Lender, not later than the twentieth (20th) day of
each month, a monthly report ("Monthly Report"), accompanied by a certificate in
the form attached as EXHIBIT 3.1, which shall be signed by an Authorized
Officer. The Monthly Report shall be in form and substance satisfactory to the
Agent and shall include, as of the last Business Day of the preceding month (and
with respect to the initial Monthly Report as of a Date not more than two (2)
Business Days prior to the Closing Date) a schedule of Inventory owned by the
Borrower and in the Borrower's possession valued at the lower of cost or market
on a FIFO basis. The Borrower shall also provide in all Monthly Reports a
written report regarding the Borrower's most recent monthly physical inventory
count in form and substance satisfactory to the Agent including, without
limitation, all back-up materials related thereto; PROVIDED that, upon the
establishment by the Borrower of a perpetual inventory system, the Lenders
reserve the right to require the Borrower to provide more detailed information
on the Inventory. The Borrower shall furnish copies of any other reports or
information, in a form and with such specificity as is satisfactory to the
Required Lenders, concerning Accounts included, described or referred to in the
Monthly Reports and any other documents in connection therewith requested by the
Required Lenders including, without limitation, but only if specifically
requested by the Required Lenders, copies of all invoices prepared in connection
with such Accounts. The Monthly Reports shall also include, in form satisfactory
to the Agent all credit memoranda issued by the Borrower (the Borrower shall
issue such credit memoranda in accordance with its current practice and without
delay, but in any event within three (3) Business Days of receipt of notice of a
dispute with respect to an Account) and information on all amounts collected by
the Borrower on Accounts subsequent to the immediately preceding Monthly Report.
The Monthly Reports shall contain such additional information as the Agent may
require.
3.2 ELIGIBLE ACCOUNTS. "Eligible Accounts" shall mean
all Accounts other than the following: (i) Accounts which remain
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unpaid as of ninety (90) days after the date of the original invoice with
respect thereto; (ii) all Accounts owing by a single Account Debtor, including a
currently scheduled Account, if fifty percent (50%) or more of the balance owing
by such Account Debtor is ineligible by reason of the criterion set forth in
clause (i) of this SUBSECTION 3.2; (iii) Accounts with respect to which the
Account Debtor is an Affiliate of the Borrower or a director, officer or
employee of the Borrower or its Affiliates; (iv) Accounts with respect to which
the Account Debtor is the United States of America or any department, agency or
instrumentality or prime contractor thereof (other than military commissaries)
unless the Borrower has complied in a manner satisfactory to the Agent with the
Federal Assignment of Claims Act of 1940, as amended, relative to the assignment
of such Accounts; (v) Accounts with respect to which the Account Debtor is not a
resident of the United States unless the Account Debtor has (A) supplied the
Borrower with an irrevocable letter of credit, issued by a financial institution
satisfactory to the Required Lenders, or (B) obtained foreign credit insurance,
in each case in an amount sufficient to cover such Account in form and substance
satisfactory to the Agent and without right of setoff and the Account is payable
in full in United States dollars; (vi) Accounts arising with respect to goods
which have not been shipped and delivered to and accepted as satisfactory by the
Account Debtor or arising with respect to services which have not been fully
performed and accepted as satisfactory by the Account Debtor; (vii) Accounts for
which the prospect of payment in full or performance in a timely manner by the
Account Debtor is or is likely to become impaired as determined by the Agent in
the exercise of its discretion; (viii) Accounts which are not invoiced (and
dated as of the date of such invoice) and sent to the Account Debtor within five
(5) days after delivery of the underlying goods to or performance of the
underlying services for the Account Debtor; (ix) Accounts with respect to which
the Agent, on behalf of the Lenders, does not have a first and valid fully
perfected Lien free and clear of any other Lien whatsoever; (x) Accounts with
respect to which the Account Debtor is the subject of bankruptcy or a similar
insolvency proceeding or has made an assignment for the benefit of creditors or
whose assets have been conveyed to a receiver or trustee; (xi) Accounts with
respect to which the Account Debtor's obligation to pay the Account is
conditional upon the Account Debtor's approval or is otherwise subject to any
repurchase obligation or return right, as with sales made on a guaranteed sale,
bill-and-hold, sale-or-return, sale on approval (except with respect to Accounts
in connection with which Account Debtors are entitled to return Inventory solely
on the basis of the quality of such Inventory) or consignment basis; (xii)
Accounts to the extent that the Account Debtor's indebtedness to the Borrower
exceeds a credit limit determined by the Agent in the Agent's discretion
following ten (10) Business Days' prior written notice of such credit limit from
the Agent to the Borrower; (xiii) Accounts with respect to which any disclosure
is required in accordance with SUBSECTION 3.3; (xv) contra Accounts to the
extent of the amount of the accounts
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payable (including, without limitation, accrued Slotting Fee Payments) owed by
the Borrower to the Account Debtor; (xvi) Accounts with respect to which the
Account Debtor is located in any state denying creditors access to its courts in
the absence of a Notice of Business Activities Report or other similar filing
unless the Borrower has either qualified as a foreign corporation authorized to
transact business in such state or has filed a Notice of Business Activities
Report or similar filing with the applicable state agency in such state for the
then current year; (xvii) Accounts evidenced by chattel paper or any instrument
of any kind, to the extent possession of such chattel paper or instrument is not
granted to the Agent, for the benefit of the Lenders; and (xviii) Accounts which
the Agent determines in good faith to be unacceptable. In the event that a
previously scheduled Eligible Account ceases to be an Eligible Account under the
above described criteria, the Borrower shall notify the Agent thereof.
3.3 ACCOUNT WARRANTIES. With respect to Accounts scheduled,
listed or referred to on the initial Accounts Trial Balance (included in the
initial Weekly Report in form and substance satisfactory to the Agent) or on any
subsequent Accounts Trial Balance or Monthly Report, the Borrower represents and
warrants to the Agent and each Lender that, except as disclosed in the
applicable Accounts Trial Balance or Monthly Report: (i) the Accounts represent
bona fide sales of Inventory or the provision of services to customers in the
ordinary course of business completed in accordance with the terms and
provisions contained in the documents available to the Agent and each Lender
with respect thereto and are not evidenced by a judgment, instrument or chattel
paper; (ii) the amounts shown on the applicable Accounts Trial Balance and on
the Borrower's books and records and all invoices and statements which may be
delivered to the Agent or any Lender with respect thereto are actually and
absolutely owing to the Borrower and are not in any way contingent; (iii) no
payments have been or shall be made thereon except payments immediately
delivered to a Blocked Account pursuant to this Agreement; (iv) there are no
setoffs, claims or disputes existing or asserted with respect thereto and the
Borrower has not made any agreement with any Account Debtor for any deduction
therefrom except a discount or allowance allowed by the Borrower in the ordinary
course of its business for prompt payment and which discount and allowance is
reflected in the calculation of the face amount of each invoice related to such
account; (v) to the best of the Borrower's knowledge, there are no facts, events
or occurrences which in any way impair the validity or enforcement thereof or
tend to reduce the amount payable thereunder as shown on the respective Accounts
Trial Balances or Monthly Reports, the Borrower's books and records and all
invoices and statements delivered to the Agent or any Lender with respect
thereto; (vi) to the best of the Borrower's knowledge, all Account Debtors have
the capacity to contract and are solvent; (vii) the Borrower has received no
notice of proceedings or actions which are threatened or pending against any
Account Debtor which might result in any material adverse change in
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such Account Debtor's financial condition; (viii) the Borrower has no knowledge
that any Account Debtor is unable generally to pay its debts as they become due;
(ix) the Accounts do not arise from the sale of Inventory produced in violation
of the Fair Labor Standards Act so as to be subject to the so-called "hot goods"
provision contained in Title 29 U.S.C., Section 215(a)(1); (x) the services
furnished and/or goods sold giving rise thereto are not subject to any Lien
except that of the Agent; (xi) the goods, the sale of which gave rise to the
Account, are not, and will not at the time of sale thereof, subject to any Lien
except that of the Agent, for the benefit of the Lenders; (xii) the Accounts
have not been pledged or sold to any Person or otherwise encumbered and the
Borrower is the owner of the Accounts free and clear of any Lien except that of
the Agent, for the benefit of the Lenders; and (xiii) with respect to Accounts
for which the Account Debtor is located in any state denying creditors access to
its courts in the absence of a Notice of Business Activities Report or other
similar filing, the Borrower has either qualified as a foreign corporation
authorized to transact business in such state or has filed all required Notice
of Business Activities Reports or comparable filings with the applicable
governmental agency or authority.
3.4 VERIFICATION OF ACCOUNTS. The Agent shall have the right,
at any time or times hereafter, in the name of the Borrower or a nominee of the
Agent, or during the pendency of an Event of Default, in the Agent's name, to
verify the validity, amount or any other matter relating to any Account, by
mail, telephone, or in person.
3.5 COLLECTION OF ACCOUNTS AND PAYMENTS. On or prior to the
Closing Date, the Borrower shall establish lock box accounts (the "Blocked
Accounts") in the Borrower's name with such banks as are acceptable to the Agent
("Collecting Banks") and enter into blocked account agreements among the
Borrower, the Agent and each Collecting Bank (the "Blocked Account Agreements").
All Account Debtors shall directly remit all payments on Accounts into a Blocked
Account and the Borrower will immediately deposit all cash payments made for
Inventory or other cash payments constituting proceeds of Collateral into a
Blocked Account in the identical form in which such payment was made, whether by
cash or check. On or prior to the Closing Date, the Borrower shall notify in
writing each of the existing Account Debtors of the name and address of the
Blocked Account to which each such Account Debtor shall be directed to remit all
payments on its Accounts. In addition, the Agent shall, on or prior to the
Closing Date, establish a depository account at each Collecting Bank or at a
centrally located bank (the "Depository Account"). Each Blocked Account
Agreement shall provide, among other things, that (i) all items of payment
deposited in each Blocked Account are held by such Collecting Bank as agent and
bailee-in-possession for the Agent, (ii) the Collecting Bank has no rights of
setoff or recoupment or any other claim against such Blocked Account, other than
for payment of its service fees or other charges directly related to the
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administration of such Blocked Account and for returned checks or other items of
payment, (iii) unless and until the Agent shall have given such Collecting Bank
a Redirection Notice (as such term is defined below), such Collecting Bank
agrees to forward all amounts received in such Blocked Account to such accounts
or for such uses as the Borrower may from time to time instruct, and (iv) at all
times following delivery of notice by the Agent to such Collecting Bank to do so
(a "Redirection Notice"), such Collecting Bank agrees to immediately forward all
amounts received in such Blocked Account to the Depository Account through daily
sweeps from the Blocked Account into the Depository Account in accordance with
the terms of the applicable Blocked Account Agreement. The Agent shall not be
entitled to deliver a Redirection Notice to any Collecting Bank until the
occurrence of a Default or an Event of Default. The Borrower hereby agrees that
all payments received by the Agent, whether by cash, check, wire transfer or any
other instrument, made to such Blocked Accounts or otherwise received by the
Agent and whether on the Accounts or as proceeds of other Collateral or
otherwise will be the sole and exclusive property of the Agent, for the benefit
of the Lenders. The Borrower shall irrevocably instruct each Collecting Bank
that, upon receipt of a Redirection Notice, each Collecting Bank shall promptly
transfer all payments or deposits to the Blocked Accounts into the Agent's
Depository Account in accordance with the terms of the applicable Blocked
Account Agreement. The Borrower, and any of its Affiliates, employees, agents or
other Persons acting for or in concert with the Borrower, shall, acting as
trustee for the Agent, receive, as the sole and exclusive property of the Agent,
for the benefit of the Lenders, any monies, checks, notes, drafts or any other
payments relating to and/or proceeds of Accounts or other Collateral which come
into the possession or under the control of the Borrower or any Affiliates,
employees, agents or other Persons acting for or in concert with the Borrower,
and immediately upon receipt thereof, the Borrower or such Persons shall remit
the same or cause the same to be deposited, in kind, into a Blocked Account or,
at the direction of the Agent, shall remit the same, or cause the same to be
remitted, in kind, to the Agent at the Agent's address set forth in SUBSECTION
10.13.
3.6 APPOINTMENT OF THE AGENT AS BORROWER'S ATTORNEY-IN-FACT.
The Borrower hereby irrevocably designates, makes, constitutes and appoints the
Agent (and all Persons designated by the Agent) the Borrower's true and lawful
agent and attorney-in-fact (which appointment shall for all purposes be deemed
to be coupled with an interest and shall be irrevocable for so long as any
Obligations are outstanding), and authorizes the Agent, in the Borrower's or the
Agent's name, without notice to the Borrower, to: (A) following the occurrence
of an Event of Default (i) demand payment of Accounts, (ii) enforce payment of
Accounts by legal proceedings or otherwise, (iii) exercise all of the Borrower's
rights and remedies with respect to the collection of the Collateral or any
legal proceedings brought to collect an Account, (iv) sell or assign any
Collateral upon such terms, for such amount
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and at such time or times as the Agent deems advisable, (v) settle, adjust,
compromise, extend or renew any Collateral, (vi) discharge and release any
Account, (vii) prepare, file and sign the Borrower's name on any proof of claim
in bankruptcy or other similar document against an Account Debtor or on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral, (viii) notify the postal authorities of
any change of the address for delivery of the Borrower's mail to an address
designated by the Agent, and receive, open and dispose of all mail addressed to
the Borrower, (ix) take control in any manner of any item of payment or proceeds
of any Account, (x) have access to any lockbox or postal box into which the
Borrower's mail is deposited, (xi) endorse the Borrower's name upon any items of
payment or proceeds thereof and deposit the same in the Agent's account on
account of the Borrower's Obligations, (xii) endorse the Borrower's name upon
any chattel paper, document, instrument, invoice, freight bill, bill of lading
or similar document or agreement relating to any Account or any goods pertaining
thereto, and (xiii) do all acts and things which are necessary, in the Agent's
sole discretion, to fulfill the Borrower's Obligations under the Financing
Agreements; and (B) at any time, to (i) execute in the Borrower's name and on
the Borrower's behalf any financing statements or amendments thereto, (ii)
endorse the Borrower's name on any verification of Accounts and notices thereof
to Account Debtors, (iii) use the information recorded or contained in any data
processing equipment and computer hardware and software relating to the Accounts
and any other Collateral, and (iv) communicate with the Borrower's independent
certified public accountants.
3.7 ACCOUNT RECORDS. The Borrower shall at all times hereafter
maintain a record of Accounts, keeping correct and accurate records itemizing
and describing the names and addresses of Account Debtors, relevant invoice
numbers, shipping dates and due dates, collection histories, and Accounts
agings, all of which records shall be available during the Borrower's usual
business hours at the request of any of the Agent's officers, employees or
agents. The Borrower shall cooperate fully with the Agent and its agents who
shall have the right at any time or times to inspect the Accounts and the
records with respect thereto. The Borrower shall conduct a review of its bad
debt reserves and collection histories at least once each year and promptly
following such review shall supply the Agent with a report in a form and with
such specificity as may be satisfactory to the Agent concerning such review of
the Accounts.
3.8 INSTRUMENTS AND CHATTEL PAPER. Upon the request of the
Required Lenders and at all times after the occurrence of a Default or Event of
Default, the Borrower shall immediately upon the receipt thereof deliver or
cause to be delivered to the Agent, with appropriate endorsement and assignment
to vest title, with full recourse to the Borrower, and possession in the Agent,
on
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behalf of the Lenders, all instruments and chattel paper which the Borrower now
owns or may at any time or times hereafter acquire.
3.9 NOTICE TO ACCOUNT DEBTORS. The Agent may, in its sole
discretion, at any time or times, after the occurrence of an Event of Default
and without prior notice to the Borrower, notify any or all Account Debtors that
the Accounts have been assigned to the Agent, for the benefit of the Lenders,
and that the Agent has a Lien therein. After the occurrence of an Event of
Default, the Agent may direct or, at the request of the Agent, the Borrower
shall direct, any or all Account Debtors to make all payments upon the Accounts
directly to the Agent. The Agent shall furnish the Borrower with a copy of any
such notice.
3.10 ELIGIBLE INVENTORY. "Eligible Inventory" shall consist of
all of the Inventory, except the following: (i) Inventory which is damaged,
obsolete, not in good condition, or not either currently usable or currently
saleable in the ordinary course of the Borrower's business as determined by the
Agent; (ii) Inventory which the Agent determines, or which in accordance with
the Borrower's customary business practices, is unacceptable due to age, type,
category and/or quantity, including, without limitation, any Inventory which is
in excess of a one (1) year's supply or is otherwise slow-moving; (iii)
Inventory with respect to which the Agent does not have a first and valid, fully
perfected Lien; (iv) Inventory consisting of cream, film, boxes, packaging or
supplies or rework coffee; (v) Inventory in the possession of the Borrower but
not owned by the Borrower; (vi) Inventory produced in violation of the Fair
Labor Standards Act and subject to the so-called "hot goods" provision contained
in Title 29 U.S.C. ss.215(a)(1); (vii) Inventory with respect to which any
disclosure is required in the applicable Monthly Report in accordance with
SUBSECTION 3.11; (viii) Inventory which is located at a place other than the
collateral locations of the Borrower listed on EXHIBIT 8.6; provided that,
subject to SUBSECTION 7.9, in the case of leased locations listed on EXHIBIT
8.6, no Inventory located at any such location shall be "Eligible Inventory"
until the applicable landlord has executed a lien waiver in form and substance
satisfactory to the Agent) including, without limitation, Inventory in transit;
(ix) Inventory consisting of finished goods which do not meet the specifications
of the purchase order for which such Inventory was produced; and (x) Inventory
which fails to meet the standards imposed by any governmental agency, or
department or division thereof, having regulatory authority over such goods, its
use and/or sale. In the event that Inventory previously scheduled in a Monthly
Report ceases to be Eligible Inventory, the Borrower shall notify the Agent
thereof immediately.
3.11 INVENTORY WARRANTIES. With respect to Inventory
scheduled, listed or referred to in any Monthly Report, the
Borrower represents and warrants that, except as disclosed in such
Monthly Reports (i) such Inventory is located at one of the
Facilities or warehouses set forth on EXHIBIT 8.6, (ii) the
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Borrower has good, indefeasible and merchantable title to such Inventory and
such Inventory is not subject to any Lien or document whatsoever except for the
prior, first perfected Lien granted to the Agent hereunder, (iii) such Inventory
is of good and merchantable quality, free from any defects and is not goods
returned to the Borrower by or repossessed from an Account Debtor or goods taken
in trade, (iv) such Inventory is not subject to any licensing, patent, royalty,
trademark, tradename or copyright agreements with any third parties, (v) the
completion of manufacture, sale or other disposition of such Inventory by the
Agent following an Event of Default shall not require the consent of any Person
and shall not constitute a breach or default under any contract or agreement to
which the Borrower is a party or to which the Inventory is subject, and (vi) no
Inventory has been produced in violation of the Fair Labor Standards Act so as
to be subject to the so-called "hot goods" provision contained in Title 29
U.S.C., Section 215(a)(1).
3.12 INVENTORY RECORDS. The Borrower shall at all times
hereafter maintain correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory and of Eligible Inventory, the
Borrower's cost therefor and daily withdrawals therefrom and additions thereto,
and the locations of all Inventory in the possession of bailees, all of which
records shall be available during the Borrower's usual business hours at the
request of any of the Agent's officers, employees or agents. The Borrower shall
cooperate fully with the Agent and its agents who shall have the right at any
time or times to inspect the Inventory and the records with respect thereto. On
or before June 30, 1997, the Borrower shall establish a perpetual inventory
system. Until the establishment of the perpetual inventory system, the Borrower
shall conduct a physical count of the Inventory at least once each month. After
the Borrower has established a perpetual inventory system, the Borrower shall
conduct a physical count of the Inventory at least once each year and promptly
following such physical inventory shall supply the Agent with a report in form
and substance satisfactory to the Agent concerning such physical count of the
Inventory, and shall furnish to the Agent, at the Agent's request, such other
documents and reports with respect to the Inventory.
3.13 SAFEKEEPING OF INVENTORY AND INVENTORY COVENANTS. Neither
the Agent nor any Lender shall be responsible for any act or default of any
carrier, warehouseman, bailee, forwarding agency or any other Person. Subject to
SUBSECTION 10.4, as between the Borrower and the Agent and each Lender, all
responsibility for the safekeeping of the Inventory and all risk of loss,
spoilage, damage, destruction or diminution in value of the Inventory shall be
borne by the Borrower. No Inventory is or shall be at any time or times
hereafter kept on the premises of or stored with a bailee, warehouseman,
consignee or similar third party without the Agent's prior written consent and
unless the Agent shall have received warehouse receipts or bailee letters or
such other documents,
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agreements and financing statements satisfactory to the Agent prior to the
commencement of such Person's possession or storage. The Borrower shall not sell
any Inventory to any customer on approval or on any other basis which entitles
the customer to return, or which may obligate the Borrower to repurchase, such
Inventory.
3.14 EQUIPMENT WARRANTIES. With respect to the Equipment, the
Borrower represents and warrants to the Agent and the Lenders that: (i) the
Borrower has good, indefeasible and merchantable title to the Equipment; (ii)
the Equipment is located only on the premises listed on EXHIBIT 3.14; (iii) the
Equipment is not subject to any Lien whatsoever except for the Lien granted to
the Agent, for the benefit of the Lenders, hereunder and except as disclosed in
EXHIBIT 6.5; (iv) the Equipment is in good condition and repair (ordinary wear
and tear excepted) and is currently used or usable in the Borrower's business;
and (v) except as described in EXHIBIT 3.14, none of the Equipment used in the
conduct of the Borrower's business is leased.
3.15 EQUIPMENT RECORDS. The Borrower shall at all times
hereafter keep complete and accurate records itemizing and
describing the kind, type and age of Equipment, and the Borrower's
cost therefor and accumulated depreciation thereon and acquisitions,
retirements, sales, or other dispositions thereof, all of which records shall be
available during the Borrower's usual business hours on demand to any of the
Agent's officers, employees or agents.
3.16 MAINTENANCE OF EQUIPMENT. The Borrower shall keep and
maintain the Equipment in good operating condition and repair (ordinary wear and
tear excepted) and shall make all necessary replacements thereof and renewals
thereto so that the value and operating efficiency thereof shall at all times be
maintained and preserved. The Borrower shall not permit any item of Equipment to
become a fixture to real property or an accession to other personal property.
The Borrower shall not permit the Equipment to be operated or maintained in
violation of any applicable law, statute, rule or regulation. In addition, with
respect to all items of leased equipment, the Borrower shall keep, maintain,
repair, replace and operate such leased equipment in accordance with the terms
of the applicable lease.
3.17 REAL ESTATE. EXHIBIT 3.17 describes all Real Estate or
interests in Real Estate owned or leased by the Borrower. Except as disclosed on
EXHIBIT 3.17, the Borrower represents and warrants to the Agent and the Lenders
that the Borrower has good, indefeasible and merchantable title to and ownership
of, or a valid leasehold interest in, each parcel of Real Estate described in
EXHIBIT 3.17, free and clear of all Liens, except Liens in favor of the Agent,
for the benefit of the Lenders, and the Permitted Liens. Except as disclosed on
EXHIBIT 3.17, the Borrower further represents and warrants to the Agent and the
Lenders that no parcel of Real Estate is subject to any boundary or encroachment
dispute,
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special assessment, condemnation or eminent domain proceeding, restrictive
covenant, zoning or building code violation or any other dispute, assessment,
claim or violation of law which might restrict or interfere with the Borrower's
use of such parcel of Real Estate in the ordinary course of the Borrower's
business or which might have a Material Adverse Effect. Except as disclosed on
EXHIBIT 3.17, the Borrower does not own any other real property or use or occupy
any real property that it leases from any other Person.
3.18 MAINTENANCE OF REAL ESTATE. The Borrower shall keep and
maintain the Real Estate and all improvements thereon in good condition and
repair and shall maintain the value and utility thereof and shall maintain such
Real Estate in conformity with all applicable building and zoning codes and
other applicable laws, statutes, rules and regulations. The Borrower shall
maintain its leased real property in the same manner as its owned Real Estate,
and comply with the terms of its leases of such real property, in accordance
with the applicable leases.
3.19 INTELLECTUAL PROPERTY AND GENERAL INTANGIBLES. Except as
disclosed on EXHIBIT 3.19, the Borrower is the owner of all the Intellectual
Property and General Intangibles free and clear of all Liens other than Liens in
favor of the Agent, for the benefit of the Lenders and (ii) Permitted Liens. The
Borrower shall maintain complete and accurate records with respect to its
Intellectual Property and General Intangibles and shall defend such Intellectual
Property and General Intangibles against infringement, interference, opposition
or similar actions or challenges and shall maintain and preserve all of its
rights with respect thereto.
4. CONDITIONS TO ADVANCES.
4.1 CONDITIONS TO ALL ADVANCES. In addition to those
conditions set forth in SUBSECTIONS 4.2 and 4.3, the issuance of a Lender
Guaranty under the Revolving Loan and the funding of the other Loans shall be
conditioned upon the matters set forth in this SUBSECTION 4.1:
(a) REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Borrower contained herein or in any other Financing
Agreement shall be true and correct in all material respects on and as of the
date of such advance as if made on such date, except to the extent that any such
representation or warranty expressly relates to an earlier date.
(b) BORROWER'S REQUEST. The Agent shall receive (i) a Notice
of Borrowing or a Conversion/Continuation Notice on or prior to the date
required by the terms of the Agreement with respect to any Loan, (ii) at least
fifteen (15) Business Days' prior notice of the issuance of a Lender Guaranty,
(iii) a Weekly Report or Monthly Report, as applicable, from the Borrower in
accordance with the
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terms of this Agreement and (iv) all other documents required to have been
delivered to the Agent hereunder prior to such date.
(c) FINANCIAL CONDITION. As determined by the Required Lenders
in their reasonable discretion, no Material Adverse Effect shall have occurred
at any time or times subsequent to the most recent annual financial statements
provided pursuant to SUBSECTION 7.1(II).
(d) NO DEFAULT. As determined by the Required Lenders,
neither a Default nor an Event of Default shall have occurred and
be continuing or will result from such advance.
(e) NO LITIGATION. (i) No Litigation shall be pending or
threatened against the Borrower or any officer, director, or executive of the
Borrower (A) in connection with this Agreement or the other Financing Agreements
or (B) other than as disclosed on EXHIBIT 6.14, which, if adversely determined,
would have a Material Adverse Effect; and (ii) no injunction, writ, restraining
order or other order of any nature materially adverse to the Borrower shall have
been issued or threatened by any Governmental Authority.
(f) OTHER REQUIREMENTS. The Agent shall have received, in form
and substance satisfactory to the Agent, all certificates, orders,
authorizations, consents, affidavits, schedules, instruments, security
agreements, financing statements, mortgages and other documents which are
provided for hereunder, or which the Agent may at any time reasonably request.
All legal matters incident to the making of the advance of funds or the issuance
of the Lender Guaranty shall be satisfactory to the Agent and its counsel.
Each request and acceptance by the Borrower of the proceeds of
any advance under the Revolving Loan and the request by the Borrower for the
incurrence by the Lenders of any Lender Guaranty Liability shall constitute a
representation and warranty by the Borrower that the conditions contained in
SUBSECTIONS 4.1(A), 4.1(D), and 4.1(E) have been satisfied.
4.2 CONDITIONS TO INITIAL ADVANCE. In addition to those
conditions set forth in SUBSECTION 4.1 with respect to all advances or issuances
of Lender Guaranties hereunder, the making of the initial advance of funds under
the Revolving Loan and the funding of Term Loan A shall be conditioned upon the
satisfaction on or before the Closing Date of the conditions set forth in this
subsection 4.2 and the delivery on or before the Closing Date of the following
documents to each Lender, in form and substance satisfactory to each Lender, and
consummation of all of the transactions or the satisfaction of each condition
contemplated by each such document in a manner satisfactory to each Lender and
its counsel.
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(a) AGREEMENT; NOTES. Duly executed copies of this Agreement,
the other Financing Agreements and one (1) duly executed copy of each of the
Revolving Loan Notes and the Term Loan A Notes conforming to the requirements
hereof, together with all Schedules, Exhibits, certificates, instruments,
documents and financial statements required to be delivered pursuant hereto and
thereto.
(b) LEGAL OPINION. The legal opinion of the Borrower's counsel
and such local counsel deemed necessary by the Lenders in form and substance
satisfactory to the Lenders and their counsel.
(c) UCC. Evidence of the proper filing of UCC financing
statements perfecting Liens in favor of the Agent in the Collateral and copies
of searches of financing statements filed under the Code, together with tax lien
and judgment searches with respect to the Property of the Borrower, in such
jurisdictions as the Agent may request.
(d) OFFICER'S CERTIFICATE. A certificate executed by an
Authorized Officer stating that (i) no Default or Event of Default has occurred
and is continuing, (ii) since March 31, 1996, no material and adverse change has
occurred in the business, prospects, assets, liabilities, operations or
condition (financial or other) of the Borrower or of the Borrower and its
Subsidiaries taken as a whole (iii) no litigation, investigation or proceeding,
or injunction, writ or restraining order of the type described in SUBSECTION
4.1(E) is pending or threatened, (iv) each of the conditions precedent to the
consummation of the Loans contemplated hereby has been met or satisfied, and (v)
the representations and warranties of the Borrower contained in the Financing
Agreements are correct and complete in all material respects on and as of the
Closing Date.
(e) INSURANCE POLICIES AND ENDORSEMENTS. Copies of policies of
insurance required hereby together with loss payable endorsements on the Agent's
standard form, duly executed, and evidence of the payment of the current premium
therefor.
(f) INITIAL REPORTS AND OTHER EXHIBITS. Copies the
initial Weekly Report, Monthly Report, the Solvency Affidavit, the
initial Projections, and all financial statements and other
Exhibits and Schedules required hereby.
(g) FEES. The Closing Fee payable pursuant to
SUBSECTION 10 has been paid.
(h) CHARTER AND BYLAWS. A copy of the Borrower's Certificate
of Incorporation, certified by the Secretary of State of Delaware as of a date
not more than twenty (20) days prior to the Closing Date and a copy of the
Borrower's bylaws and any amendments thereto certified by the Secretary of the
Borrower.
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(i) GOOD STANDING CERTIFICATES. Good Standing Certificate for
the Borrower from the State of Delaware and a certificate of good standing as a
foreign corporation from each other state set forth on EXHIBIT 6.1-1.
(j) BOARD RESOLUTIONS. Certified copies of resolutions of the
board of directors of the Borrower authorizing the execution and delivery of and
the consummation of the transactions contemplated by this Agreement, the other
Financing Agreements and all other documents or instruments to be executed and
delivered in conjunction herewith and therewith. Such resolutions shall also
designate which Authorized Officers of the Borrower shall be authorized to make
a request for an advance of the Revolving Loan and Term Loan A hereunder.
(k) INCUMBENCY CERTIFICATES. Incumbency certificates
with respect to the officers of the Borrower executing the documents referred to
in item (j) above, certified as of the Closing Date by the Borrower's secretary
as being true and correct.
(l) WAIVERS. Landlord waivers, bailee letters and mortgagee
agreements in form and substance satisfactory to Agent, in each case as required
pursuant to SUBSECTION 7.9. In the event the Borrower is unable to obtain a
landlord waiver, bailee letter and/or mortgage agreement acceptable to Agent as
to any such location on or before the Closing Date, the eligibility of such
Inventory at that location shall be determined in accordance with SUBSECTION
7.9.
(m) ACCOUNTANTS' LETTER. A letter authorizing Borrower's
independent certified public accountants to communicate with the Agent and the
Lenders in accordance with SUBSECTION 7.1 and acknowledging the Agent's and each
Lender's reliance on future financial statements.
(n) POWER OF ATTORNEY. A power of attorney in favor of the
Agent with respect to the matters set forth in SUBSECTIONS 3.6, 5.2 and 7.6 in
form and substance satisfactory to the Agent.
(o) AGENT FOR SERVICE. An acknowledgment by CT
Corporation System that it has been appointed as the Borrower's agent to accept
service of process for the Borrower.
(p) LETTER OF DIRECTION. A letter of direction from the
Borrower with respect to the disbursement of the proceeds of the
initial advances of the Loans hereunder.
(q) SUPPORT LETTERS OF CREDIT. The Support Letters of
Credit duly issued and in full force and effect on the Closing
Date.
(r) NO MATERIAL ADVERSE CHANGE. No material and adverse
change in the business, operations or condition (financial or
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other) or prospects of the Borrower or of the Borrower and its Subsidiaries
taken as a whole shall have occurred since March 31, 1996.
(s) NO ACCOUNTING CHANGES. The Borrower shall not have
made any material change in its accounting methods or principles
since March 31, 1996.
(t) BLOCKED ACCOUNT AGREEMENTS. Executed copies of each
of the Blocked Account Agreements.
(u) NO TERMINATION OF CONTRACTS. No materially
advantageous agreement now in effect between the Borrower and any other Person
shall have been terminated, modified or declared to be in default since March
31, 1996.
(v) MORTGAGES. Duly executed copies of the Mortgages.
(w) MORTGAGEE'S TITLE INSURANCE. An ALTA Loan Policy- 1992,
dated the date of the initial advance under the Revolving Loan and funding of
Term Loan A, for each parcel of Real Estate subject to a Mortgage, from a title
insurance company acceptable to the Agent, in the fair market value of such
parcel and subject only to such exceptions and exclusions as are acceptable to
the Agent and containing such information and endorsements as may be required by
the Agent, including, without limitation, usury, zoning, comprehensive and
revolving credit endorsements.
(x) SURVEYS. A survey for each parcel of Real Estate subject
to a Mortgage prepared in accordance with the minimum standard detail
requirement for land title surveys as adopted by the American Title Association
and by the American Congress on Surveying and Mapping, dated within thirty (30)
days of the Closing Date and certified by a licensed surveyor.
(y) REAL ESTATE TAXES AND FEES. Evidence of payment of
all taxes on each parcel of Real Estate due prior to the Closing
Date and all recording and mortgage filing fees or taxes.
(z) PAYOFF LETTER; TERMINATION STATEMENTS; RELEASES. A letter
from First Union National Bank in form and substance satisfactory to the Agent
itemizing amounts of principal, interest, fees and expenses or other amounts
payable to it; UCC-3 termination statements, mortgage releases and all other
instruments and documents necessary to terminate all Liens except the Permitted
Liens; and all releases and other instruments necessary to terminate all Liens
on the Borrower's and its Subsidiaries' Intellectual Property except the Lien of
the Agent, for the benefit of the Lenders, and the Permitted Liens.
(aa) APPRAISALS. The Agent shall have received the
Appraisal (Equipment) and the Appraisal (Real Estate).
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(bb) ENVIRONMENTAL MATTERS. The Agent shall have received such
environmental review and audit reports with respect to the properties of the
Borrower and its Subsidiaries as the Agent shall have requested and the Agent
shall be satisfied, in its sole discretion, with the contents of all such
environmental reports.
(cc) FORM W-9. A copy of IRS Form W-9, Taxpayer
Identification Number and Certification.
(dd) OTHER DOCUMENTS. All corporate and legal proceedings and
all agreements in connection with the transactions contemplated by this
Agreement and the other Financing Agreements shall be satisfactory to the Agent,
and the Agent shall have received all information and copies of all documents
including, without limitation, records of corporate existence, authority and
proceedings and governmental approvals, if any, which the Agent reasonably may
have requested in connection therewith, and such documents, where appropriate,
shall be certified by proper corporate or governmental authorities.
4.3 CONDITIONS TO TERM LOAN B ADVANCE. In addition to those
conditions set forth in SUBSECTION 4.1 with respect to all advances hereunder,
the funding of Term Loan B shall be conditioned upon satisfaction on or before
the Term Loan B Funding Date of the conditions set forth in this SUBSECTION 4.3
and the delivery on before the Term Loan B Funding Date of the following
documents to the Agent, in form and substance satisfactory to the Agent, and
consummation of all of the transactions or the satisfaction of each condition
contemplated by each such document in a manner satisfactory to the Agent and its
counsel.
(a) NOTES. Duly executed copies of the Term Loan B
Notes conforming to the requirements hereof.
(b) OFFICER'S CERTIFICATE. A certificate executed by an
Authorized Officer stating that (i) no Default or Event of Default has occurred
and is continuing, (ii) no Material Adverse Effect has occurred since the
Closing Date, (iii) each of the conditions precedent to the consummation of Term
Loan B contemplated hereby has been met or satisfied, and (iv) the
representations and warranties of the Borrower contained in the Financing
Agreements are correct and complete in all material respects on and as of the
Term Loan B Funding Date.
(c) DATE DOWN ENDORSEMENT. A "date down endorsement"
covering the ALTA Loan Policy delivered pursuant to
SUBSECTION 4.2(W) in form and substance satisfactory to the Agent.
(d) FEES. The Term Loan B Closing Fee pursuant to SUBSECTION
2.11 and the Term Loan B Commitment Fee pursuant to SUBSECTION 2.13 have been
paid.
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5. COLLATERAL.
5.1 SECURITY INTEREST. All of the Borrower's Obligations
constitute one (1) loan secured by the Agent's Liens on the Collateral now or
from time to time hereafter granted by the Borrower to the Agent. To secure
timely payment and performance in full of the Obligations, the Borrower hereby
sells, assigns, conveys, mortgages, pledges, hypothecates and transfers and
hereby grants to the Agent, for the benefit of the Lenders, a right of setoff
against and a continuing Lien upon all of the Borrower's right, title and
interest in and to the following property and interests in property, whether now
owned or hereafter acquired by the Borrower and wheresoever located: (i)
Accounts; (ii) General Intangibles; (iii) Fixtures; (iv) Inventory; (v)
Equipment; (vi) Intellectual Property; (vii) all of the Borrower's deposit
accounts (general or special) with any financial institution with which the
Borrower maintains deposits; (viii) all of the Borrower's now owned or hereafter
acquired monies, and any and all other property and interests in property of the
Borrower now or hereafter coming into the actual possession, custody or control
of the Agent or any Lender or any agent or affiliate of the Agent or any Lender
in any way or for any purpose (whether for safekeeping, deposit, custody,
pledge, transmission, collection or otherwise); (ix) documents, instruments and
chattel paper; (x) all insurance policies relating to any of the foregoing,
including without limitation business interruption insurance; (xi) all of the
Borrower's books and records relating to any of the foregoing; (xii) all
accessions and additions to, substitutions for, and replacements of any of the
foregoing; and (xiii) all cash collections from, and all other cash and non-cash
proceeds of, any of the foregoing including, without limitation, proceeds of and
unearned premiums with respect to insurance policies insuring any of the
Collateral and claims against any Person for loss of, damage to, or destruction
of, any or all of the Collateral. In addition, concurrently with the execution
and delivery hereof the Borrower shall deliver the Mortgages, and concurrently
with the acquisition of any real property after the Closing Date, the Borrower
shall grant and convey to the Agent, for the benefit of the Lenders, as security
for the Obligations, first mortgage Liens on all such real property.
5.2 PRESERVATION OF COLLATERAL AND PERFECTION OF LIENS
THEREON. Prior to the execution of this Agreement, the Borrower shall have
executed and delivered to the Agent, and at any time or times hereafter at the
request of the Agent, the Borrower shall execute and deliver all financing
statements, security agreements, pledge agreements, mortgages, leasehold
mortgages, bailee letters, amendments thereto, or other documents (and pay the
cost of filing or recording the same in all public offices deemed necessary by
the Agent), as the Agent may request, in a form satisfactory to the Agent, to
perfect and maintain the Liens on the Collateral granted by the Borrower to the
Agent or to otherwise protect and preserve the Collateral and the Liens thereon
or to enforce the Agent's
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Liens on the Collateral. Should the Borrower fail to do so, the Agent is
authorized to sign any such financing statements or other documents as the
Borrower's agent. The Borrower further agrees that a carbon, photocopy or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. The Borrower shall make appropriate entries upon its books
and records disclosing the Agent's Liens on the Collateral.
5.3 CONSIGNED INVENTORY. With respect to consigned Inventory,
the Borrower shall perfect its interest in such Inventory by filing and
delivering notice to the creditors of record of the consignee, all as provided
in Section 9-114 of the Code, and in form and substance satisfactory to the
Agent, and the Borrower shall execute and deliver all financing statements,
security agreements, amendments thereto, or other documents (and pay the cost of
filing or recording the same in all public offices deemed necessary by the
Agent), as the Agent may request, in a form satisfactory to the Agent, to
perfect and maintain the Liens on such Collateral granted by the Borrower to the
Agent hereunder. With respect to goods in the hands of bailees, the Borrower
shall deliver notice to such bailees of Agent's interest in such goods and
instructions with respect to the disposition thereof, all in form and substance
satisfactory to the Agent, and Borrower shall execute and deliver all financing
statements, security agreements, amendments thereto, or other documents (and pay
the cost of filing or recording the same in all public offices deemed necessary
by the Agent), as the Agent may request, in a form satisfactory to the Agent, to
perfect and maintain the Liens on such Collateral granted by the Borrower to the
Agent hereunder.
6. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants and covenants and agrees
that (even if there shall be no Obligations outstanding) so long as this
Agreement remains in effect:
6.1 EXISTENCE. (a) The Borrower and each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of incorporation and is qualified to transact
business as a foreign corporation in, and, except as provided on Exhibit 6.1-1,
is in good standing under the laws of, all states in which it is required by
applicable law to maintain such qualification and good standing except where the
failure to so qualify would not have a Material Adverse Effect. All such
jurisdictions in which such Persons are in good standing as of the Closing Date
are listed on EXHIBIT 6.1-1. With respect to those jurisdictions in which the
Borrower and its Subsidiaries are not in good standing on the Closing Date, the
Borrower and the Subsidiaries, as applicable, have filed all of the documents,
paid all taxes and fees and taken all other actions necessary to be in good
standing in such jurisdictions. The Borrower is not aware of any reason why any
such jurisdiction would not issue a good
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standing certificate to the Borrower or a Subsidiary, as
applicable.
(b) STOCK OF THE BORROWER. All shares of capital stock of the
Borrower and each Subsidiary have been duly authorized and validly issued and
are fully paid and non-assessable. Except as disclosed on Exhibit 6.1-2 and as
otherwise permitted by this Agreement (i) no authorized but unissued or treasury
share of capital stock of the Borrower or any Subsidiary is subject to any
option, warrant, right to call or commitment of any kind or character, (ii)
neither the Borrower nor any Subsidiary has any outstanding stock or securities
convertible into or exchangeable for any shares of its capital stock, or any
rights issued to any Person (either preemptive or other) to subscribe for or to
purchase, or any options or warrants for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to any of its capital stock or
any stock or securities convertible into or exchangeable for any of its capital
stock, and (iii) neither the Borrower nor any Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any convertible securities, rights,
warrants or options of the type described in the clause (ii) above.
6.2 AUTHORITY. The Borrower and each Subsidiary has full
power, authority and legal right to enter into this Agreement and the other
Financing Agreements. The execution and delivery by the Borrower and each
Subsidiary of the Financing Agreements to which it is a party: (i) have been
duly authorized by all necessary action on its part; (ii) are not in
contravention of the terms of its Articles of Incorporation or Bylaws or of any
indenture, agreement or undertaking to which it is a party or by which it or any
of its Property is bound; (iii) do not and will not require any registration
with, or approval or the consent or approval of, any Governmental Authority or
of any other Person that has not been obtained; (iv) do not and will not
contravene any contractual or governmental restriction to which it or any of its
Property may be subject; and (v) do not and will not, except as contemplated
herein, result in the imposition of any Lien upon any Property of it under any
existing indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which it is a party or by which it or any of
its Property may be bound or affected. The Borrower and each Subsidiary has the
full corporate power and authority and legal right to own, operate, pledge,
mortgage or otherwise encumber its Property, to lease the Property it now
operates under lease and conduct its business as now, heretofore and proposed to
be conducted, and has all material licenses, permits, consents and approvals
from or by, and has made all material filings with, and has given all notices
to, all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation and conduct.
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6.3 BINDING EFFECT. This Agreement and the other Financing
Agreements to which it is a party have been duly executed and delivered by the
Borrower, are the legal, valid and binding obligations of the Borrower and are
enforceable against the Borrower in accordance with their terms.
6.4 FINANCIAL DATA. (a) The Borrower has furnished to the
Agent and each Lender the consolidated financial statements (the "Financial
Statements") of the Borrower and its Subsidiaries based on financial data as
March 31, 1996. The Financial Statements are complete and accurate and fairly
represents the consolidated assets, liabilities, financial condition and results
of operations of the Borrower in accordance with Generally Accepted Accounting
Principles, consistently applied, as of March 31, 1996 (subject to normal
year-end adjustment) and the consolidated results of its operations for the
respective periods then ended (subject to normal year-end adjustments). There
are no omissions from the Financial Statements or other facts and circumstances
not reflected in the Financial Statements which are or may be material. Except
as contemplated hereby or otherwise permitted by the Financing Agreements, since
the date of the Financial Statements through the Closing Date, neither the
Borrower nor any Subsidiary has: (i) except with respect to Contingent Retail
Store Obligations and Permitted Liens, incurred any debts, obligations, or
liabilities (absolute, accrued, or contingent and whether due or to become due)
except current liabilities incurred in the ordinary course of business which
(individually or in the aggregate) will not have a Material Adverse Effect; (ii)
except with respect to Contingent Retail Store Obligations and Permitted Liens,
paid any obligation or liability other than current liabilities in the ordinary
course of business, or discharged or satisfied any Liens other than those
securing current liabilities, in each case in the ordinary course of business;
(iii) declared or made any Restricted Payment or obligated itself to do so; (iv)
except with respect to Contingent Retail Store Obligations and Permitted Liens,
mortgaged, pledged, or subjected to any Lien on any of its Property; (v) except
with respect to Contingent Retail Store Obligations and Permitted Liens, sold,
transferred, or leased any of its Property except in the usual and ordinary
course of business; (vi) except with respect to Contingent Retail Store
Obligations and Permitted Liens, entered into any transaction other than in the
usual and ordinary course of business; (vii) encountered any labor difficulties
or labor union organizing activities; (viii) except as disclosed on EXHIBIT
6.1-2, issued or sold any shares of capital stock or other securities or granted
any options or similar rights with respect thereto other than pursuant hereto;
or (ix) except with respect to Contingent Retail Store Obligations and Permitted
Liens, agreed to do any of the foregoing other than pursuant hereto.
(b) The Borrower has also furnished to the Agent and each
Lender initial Projections for the Borrower dated as of the Closing Date and
attached as EXHIBIT 6.4, containing the
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information required by clause (v) of SUBSECTION 7.1. The initial Projections
have been prepared, and all Projections hereafter delivered in accordance with
clause (v) of SUBSECTION 7.1 shall be prepared, by an Authorized Officer on the
basis of the assumptions set forth therein and do represent, and in the future
will represent, the best available good faith estimate of the Borrower's
management regarding the course of business of the Borrower and each Subsidiary
for the periods covered thereby. The assumptions set forth in the initial
Projections are, and the assumptions set forth in the future Projections
delivered hereafter shall be, reasonable and realistic based on then current
economic conditions. The Projections represent the good faith belief of the
Borrower as to reasonably achievable results and the Borrower has no knowledge
of any reason (other than unexpected adverse general economic conditions) that
would cause the Projections not to be achieved.
(c) The Borrower has also provided to the Agent and each
Lender audited statements of income and cash flow and balance sheets for the
Borrower and each Subsidiary on a consolidated basis for each of the three (3)
most recent Fiscal Years ending with December 29, 1995 certified by Ernst &
Young L.L.P. and such financial statements fairly present the financial
condition and results of operations of the Borrower and its Subsidiaries for the
periods indicated therein, in accordance with Generally Accepted Accounting
Principles, consistently applied.
6.5 COLLATERAL. Except as disclosed on EXHIBIT 6.5, all of the
Collateral is and will continue to be owned by the Borrower free and clear of
all Liens except those of the Agent, for the benefit of the Lenders, and the
Permitted Liens. From and after the making of the first advance under any of the
Loans and after the making of all necessary filings, the provisions of ARTICLE 5
of this Agreement will be effective to create and will give the Agent, for the
benefit of the Lenders, as security for the repayment of the Obligations, a
legal, valid, perfected and enforceable Lien (which priority is subject only to
Permitted Liens) upon all right, title and interest of the Borrower in any and
all of the Collateral (including, without limitation, the Lien in the items and
amounts deposited in the Blocked Accounts).
6.6 SOLVENCY. The Borrower and each Subsidiary is Solvent and
will continue to be Solvent following the consummation of the transactions
contemplated by this Agreement and the payment of all fees, costs and expenses
payable by the Borrower with respect thereto.
6.7 PLACES OF BUSINESS. As of the Closing Date, the principal
places of business and chief executive office of the Borrower is set forth on
EXHIBIT 6.7 and, except as disclosed on EXHIBIT 6.7, none of such locations have
changed within the past six (6) months. The books and records of the Borrower
and all chattel paper and all records of account are located and hereafter
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shall continue to be located at one of the Facilities of the Borrower.
6.8 OTHER NAMES. The business conducted by the Borrower
has not been conducted under any corporate, trade or fictitious
name other than those names disclosed on EXHIBIT 6.8.
6.9 TAX OBLIGATIONS. The Borrower and each Subsidiary has
filed complete and correct federal, state and local tax reports and returns
required to be filed by it, prepared in accordance with applicable laws or
regulations, and, except for extensions duly obtained, has either duly paid all
Charges owed by it, or made adequate provision for the payment thereof. There
are no material unresolved questions or claims concerning any tax liability of
the Borrower or any Subsidiary except those for which the validity, amount or
imposition of such Charges are being contested in good faith by an appropriate
proceeding promptly initiated and diligently conducted and as to which (i) such
proceeding will prevent the forfeiture or sale of any Property of the Borrower
or such Subsidiary and no Lien which will have priority over the Agent's Liens
granted hereunder with respect to the Collateral is filed of record, (ii)
adequate reserves have been provided in accordance with Generally Accepted
Accounting Principles and (iii) such proceeding does not have a Material Adverse
Effect. No tax Liens have been filed and no claims are being asserted with
respect to any such Charges which might have a Material Adverse Effect. The
charges, accruals and reserves on the books of the Borrower and each Subsidiary
are adequate for all open years and for the current Fiscal Year. Neither the
Borrower nor any Subsidiary has consented to any extension of, or otherwise
waived, any statute of limitation with respect to any such Charges. Neither the
Borrower nor any Subsidiary is a party to any tax indemnity, tax sharing or tax
allocation agreement with any other Person. Proper and accurate amounts have
been withheld by the Borrower from its employees for all periods in full and
complete compliance with the tax, social security and unemployment withholding
provisions of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective Governmental Authorities.
6.10 INDEBTEDNESS AND LIABILITIES. As of the Closing Date, (a)
neither the Borrower nor any Subsidiary has Indebtedness other than Indebtedness
reflected on the Financial Statements, Indebtedness underlying the Permitted
Liens and Indebtedness disclosed on EXHIBIT 8.2 and (b) except for the
Indebtedness referred to above, Liabilities reflected on the Financial
Statements and obligations arising with respect to the Support Letters of
Credit, neither the Borrower nor any Subsidiary has any Liabilities required to
be reflected on a balance sheet prepared in accordance with GAAP.
6.11 USE OF PROCEEDS AND MARGIN SECURITY. The Borrower
shall use the proceeds of the initial advance under the Revolving
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Loan and Term Loan A for the purposes disclosed on EXHIBIT 6.11 and shall use
the proceeds of subsequent advances under the Revolving Loan and Term Loan B
solely for the working capital requirements of the Borrower and shall use all
advances and loans hereunder for proper business purposes, consistent with all
applicable laws, statutes, rules and regulations. The Borrower does not own any
margin security and none of the Loans advanced or funded hereunder will be used
for the purpose of purchasing or carrying any margin securities or for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase any margin securities or for any other purpose not permitted by
Regulation G or U of the Board of Governors of the Federal Reserve System.
6.12 GOVERNMENT CONTRACTS. Except as disclosed on EXHIBIT
6.12, neither the Borrower nor any Subsidiary is a party to or bound by any
supply agreements with the federal government or any state or local government
or any agency thereof.
6.13 INVESTMENTS. Except as disclosed on EXHIBIT 8.4, neither
the Borrower nor any Subsidiary has any Investment in any Person other than
Permitted Investments and is not engaged in any joint venture or partnership
with any other Person.
6.14 LITIGATION AND PROCEEDINGS. No judgments are outstanding
against the Borrower or any Subsidiary or binding upon any of its Property, nor,
except as disclosed on EXHIBIT 6.14, is there now pending or threatened, any
litigation, claim, arbitration, investigation, administrative proceeding or
other governmental proceeding ("Litigation") by or against the Borrower or any
Subsidiary, and to the best of the Borrower's knowledge after diligent inquiry,
there are no presently existing facts or circumstances likely to give rise to
any such Litigation. Except as disclosed on EXHIBIT 6.14, there is no Litigation
pending or threatened against the Borrower or any Subsidiary, which, if
adversely determined, might have a Material Adverse Effect. None of the
Litigation will prevent, enjoin or delay the consummation of the transactions
contemplated by the Financing Agreements.
6.15 OTHER AGREEMENTS AND DELIVERIES. (a) Except as disclosed
on EXHIBIT 6.15, neither the Borrower nor any Subsidiary is in default under any
indenture, loan agreement, mortgage, deed of trust or similar document relating
to the borrowing of monies or any other material contract, lease, or commitment
to which it is a party or by which it is bound. There is no dispute regarding
any contract, lease, or commitment which might have a Material Adverse Effect.
(b) The Borrower has provided to the Agent accurate and
complete copies of all of the following agreements or documents to
which the Borrower or any Subsidiary is subject:
(i) each Plan and other compensation or
nonqualified benefit plan arrangement which the Borrower or any
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ERISA Affiliate sponsors or is committed to contribute to as of the Closing Date
and, where applicable, each Plan's most recent summary plan description,
actuarial report, determination letter from the Service and Forms 5500 for the
previous five (5) years filed in respect of each such Plan;
(ii) Collective bargaining agreements or other
labor contracts;
(iii) leases of real property;
(iv) licenses and permits with respect to
Environmental Matters;
(v) all management and employment agreements
between the Borrower or any Subsidiary and any other Person;
(vi) contracts or agreements between the
Borrower or any Subsidiary and its Affiliates requiring or providing for
payments in excess of Two Hundred Fifty Thousand Dollars ($250,000) per annum;
(vii) all contracts giving rise to Contingent
Retail Store Obligations; and
(viii) all pending contracts for the sale or other
disposition of Retail Stores.
6.16 LABOR MATTERS. Except as disclosed on EXHIBIT 6.16, there
are no strikes, work stoppages, labor disputes, decertification petitions, union
organizing efforts, grievances or other controversies pending or, to the best of
the Borrower's knowledge after diligent inquiry, threatened, between the
Borrower or any Subsidiary and any of its employees, other than employee
grievances arising in the ordinary course of business which, in the aggregate,
would not have a Material Adverse Effect. All collective bargaining agreements,
labor agreements or other contracts with or affecting any employee of the
Borrower or any Subsidiary necessary to continue to conduct the business
operations of the Borrower or such Subsidiary are in full force and effect.
Except as disclosed on EXHIBIT 6.8 and/or EXHIBIT 6.16, neither the Borrower nor
any Subsidiary has any obligation under any collective bargaining agreement or
any employment agreement. To the best of the Borrower's knowledge, there is no
organizing activity pending or threatened by any labor union or group of
employees. Except as disclosed on EXHIBIT 6.16, there are no representation
proceedings pending or threatened with the National Labor Relations Board, and
no labor organization or group of employees has made a pending demand for
recognition. There are no material complaints or charges pending or threatened
to be filed with any local or Governmental Authority based on, arising out of,
in connection with, or otherwise relating to the employment or termination of
employment by the Borrower or any Subsidiary of any individual.
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6.17 COMPLIANCE WITH LAWS AND REGULATIONS. The execution and
delivery by the Borrower of this Agreement, the other Financing Agreements and
the performance of the Borrower's obligations hereunder and thereunder are not
in contravention of any order applicable to the Borrower or, to the Borrower's
best knowledge, any laws, regulations or ordinances. The Borrower and each
Subsidiary are in compliance with all laws, orders, regulations and ordinances
of all federal, foreign, state and local governmental authorities relating to
the business operations and the Property of the Borrower or any Subsidiary
except for laws, orders, regulations and ordinances the non-compliance or
violation of which would not, in the aggregate, have a Material Adverse Effect.
6.18 PATENTS, TRADEMARKS AND LICENSES. Except as disclosed on
EXHIBIT 6.18, the Borrower owns or possesses rights to use all licenses,
patents, patent applications, copyrights, service marks, logos, names,
trademarks and tradenames required to continue to conduct its business as
heretofore conducted; all such licenses, patents, patent applications,
copyrights, service marks, trademarks and tradenames are disclosed on EXHIBIT
6.18; and no such license, patent or trademark has been declared invalid, been
limited by order of any court or by agreement, or is the subject of any
infringement, interference or similar proceeding or challenge.
6.19 ERISA. (a) Neither the Borrower nor any ERISA
Affiliate has sponsored or contributed to, or has had any obligation under, any
Plan or Multiemployer Plan other than those disclosed on EXHIBIT 6.19.
(b) With respect to all Plans, the Borrower and each ERISA
Affiliate is in compliance with the applicable provisions of ERISA and the IRC
in all material respects. Each Plan that is intended to be qualified under
Section 401(a) of the IRC has been determined by the Internal Revenue Service to
be so qualified, and each trust related to such Plans has been determined to be
exempt from federal income tax under Section 501(a) of the IRC. No liability has
been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied
for any taxes or penalties with respect to any Plan or any Multiemployer Plan.
(c) The present value of all benefit liabilities under all
Pension Plans does not exceed the present value of the assets of such Plans. No
Pension Plan has been terminated, nor has any accumulated funding deficiency (as
defined in Section 412 of the IRC) been incurred (without regard to any waiver
granted under Section 412 of the IRC), nor has any funding waiver from the
Internal Revenue Service been received or requested with respect to any Pension
Plan, nor has the Borrower or any ERISA Affiliate failed to make any
contributions or to pay any amounts due and owing as required by Section 412 of
the IRC, Section 302 of ERISA or the terms of any Pension Plan by the applicable
due dates, nor has there been any event requiring any disclosure under Section
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4041(c)(3)(C), or 4062(e) or 4063(a) of ERISA with respect to any Pension Plan.
(d) Neither the Borrower nor any ERISA Affiliate has: (i)
engaged in a nonexempt prohibited transaction described in Section 406 of ERISA
or Section 4975 of the IRC; (ii) incurred any liability to the PBGC which
remains outstanding other than the payment of premiums and there are no premium
payments which are due and unpaid; or (iii) failed to make a required
contribution or payment to a Multiemployer Plan.
(e) No Termination Event has occurred and no Termination Event
is reasonably expected to occur which could result in a liability to the
Borrower or any ERISA Affiliate.
(f) Neither the Borrower nor any ERISA Affiliate has any
contingent liability with respect to any post-retirement benefit under any Plan
which is a welfare plan (as defined in Section 3(1) of ERISA), other than
liability for health plan continuation coverage described in Part 6 of Title I
of ERISA.
6.20 PROPERTY. The Borrower and each Subsidiary owns,
possesses, or has unrestricted rights to use or exercise all Property and rights
necessary for the conduct of the Borrower's business as heretofore conducted.
Except as disclosed on EXHIBIT 6.20, there are no actual, threatened, or alleged
defaults with respect to any agreements relating to, or evidencing, any
Property. Except as disclosed on EXHIBIT 6.20, no consent, approval, license,
authorization or other action in respect of any Person is required, except as
have been obtained, in connection with the right to use any Property. None of
the items disclosed on EXHIBIT 6.20 might have a Material Adverse Effect.
6.21 ADVERSE CONTRACTS. Neither the Borrower nor any
Subsidiary is a party to, nor is the Borrower or any of its Property subject to
or bound by, any long term lease, forward purchase contract or futures contract,
covenant not to compete, or other agreement which restricts its ability to
conduct its business and might have a Material Adverse Effect.
6.22 PURCHASE OR OTHER COMMITMENTS AND OUTSTANDING BIDS. No
material purchase or other commitment of the Borrower or any Subsidiary is in
excess of the normal, ordinary, and usual requirements of its business, or was
made at any price in excess of the then current market price, or contains terms
and conditions more onerous than those usual and customary in the applicable
industry. There is no outstanding bid, sales proposal, contract, or unfilled
order of the Borrower or any Subsidiary which (i) will, or could if accepted,
require the Borrower to supply goods or services at a cost to the Borrower in
excess of the revenues to be received therefor, or (ii) quotes prices which do
not include a mark-up over reasonably estimated costs consistent with past
mark-ups on similar business or market conditions current at that time.
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6.23 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. Neither the Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" or a "holding
company" or an "affiliate" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
6.24 BROKER'S FEES. Neither the Agent or any Lender nor
the Borrower or any Subsidiary is or will become obligated to any Person with
respect to any finder's or brokerage or similar fee or commission in connection
with the transactions contemplated hereby.
6.25 LICENSES AND PERMITS. Except as disclosed on EXHIBIT
6.25, the Borrower and each Subsidiary has been and is current and in good
standing with respect to all governmental approvals, permits, certificates,
licenses, inspections, consents and franchises (collectively, the "Licenses")
necessary to continue to conduct its business and to own or lease and operate,
its properties as heretofore conducted, owned, leased or operated including any
and all Licenses with respect to Environmental Laws. None of the items disclosed
on EXHIBIT 6.25 might have a Material Adverse Effect.
6.26 ENVIRONMENTAL COMPLIANCE.
(a) The operations of the Borrower and each Subsidiary
comply in all material respects with all applicable Environmental Laws.
(b) Except as disclosed on EXHIBIT 6.26, there are no claims,
investigations, litigation, administrative proceedings, whether pending or, to
the knowledge of the Borrower after diligent inquiry, threatened, or judgments
or orders, relating to any Hazardous Materials or alleging the violation of any
Environmental Laws (collectively "Environmental Matters") relating in any way to
any real property leased or otherwise used by the Borrower or any Subsidiary or
to the operations of the Borrower or any Subsidiary.
(c) Except as disclosed on EXHIBIT 6.26, no Hazardous
Materials are presently stored or otherwise located on, in or under any real
property leased, owned, operated or otherwise used by the Borrower or any
Subsidiary except in compliance with all applicable Environmental Laws, and, no
part of any real property leased, owned, operated or otherwise used by the
Borrower or any Subsidiary or, to the Borrower's best knowledge, adjacent
parcels, including the groundwater located thereon, is presently contaminated by
any such Hazardous Material.
(d) Except as disclosed on EXHIBIT 6.26, neither the
Borrower nor any Subsidiary has filed any notice under any international,
federal, state, regional, provincial or local law
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indicating past or present treatment, storage or disposal of a Hazardous
Material or reporting a spill or release of a Hazardous Material into the
environment.
(e) Except as disclosed on EXHIBIT 6.26, neither the Borrower
nor any Subsidiary has any known material liability, contingent or otherwise, in
connection with any release of any Hazardous Material into the environment.
(f) So long as any Obligations are outstanding, no Hazardous
Materials may be used, generated, treated, stored or disposed of by any Person
for any purpose upon any real property leased, owned, operated, or otherwise
used by the Borrower or any Subsidiary except in compliance with all applicable
Environmental Laws.
(g) The Borrower hereby indemnifies the Agent and each Lender
and agrees to hold the Agent and each Lender harmless from and against any and
all losses, liabilities, damages, injuries, costs, expenses and claims of any
and every kind whatsoever (including, without limitation, court costs and
reasonable attorneys' fees and legal expenses) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, the Agent or any
Lender arising directly or indirectly from the violation of any Environmental
Law or the imposition of liability on the Borrower or any Subsidiary under any
Environmental Law or any laws or regulations relating to Hazardous Material,
treatment, storage, disposal, generation and transportation, air, water and
noise pollution, soil or ground or water contamination, the handling, storage or
release into the environment of Hazardous Materials, and the transportation of
Hazardous Materials; or with respect to, or as a direct or indirect result of
the presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission or release from, properties utilized, owned or operated by the Borrower
or any Subsidiary in the conduct of its business into or upon any land, the
atmosphere, or any watercourse, body of water or wetland, of any Hazardous
Material (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws); provided that to the extent that the Borrower or any Subsidiary is
strictly liable under any Environmental Laws, the Borrower's obligations to
indemnify the Agent and each Lender under this SUBSECTION 6.26(G) shall likewise
be without regard to fault on the part of the Borrower or any Subsidiary and
with respect to the violation of law which results in liability to the Borrower
or any Subsidiary. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this SUBSECTION 6.26(G) may be unenforceable because it is
violative of any law or public policy, the Borrower shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all indemnifications set forth in this SUBSECTION
6.26(G). Notwithstanding any other provision of this Agreement to the contrary,
the provisions of, and the undertakings
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and indemnifications set forth in, this SUBSECTION 6.26(G) shall survive the
satisfaction and payment of the Obligations and the termination of this
Agreement, and shall continue to be the liability, obligation and
indemnification of the Borrower.
(h) So long as any Obligations are outstanding, if the Agent
or any Lender, at any time, has a reasonable basis to believe that any real
property leased or otherwise used by the Borrower or any Subsidiary, or real
property adjacent to such real property, has or may become contaminated or
subject to a clean up order or decree by an agency having jurisdiction over the
Borrower or such Subsidiary; then the Borrower agrees, upon request from the
Agent, to provide the Agent and each Lender with such reports, certificates,
engineering studies or other written material or data as the Agent or such
Lender, in its reasonable discretion, may require from it so as to satisfy the
Agent or such Lender that it is in compliance with all applicable Environmental
Laws; PROVIDED that with respect to real property adjacent to real property
owned by or leased to the Borrower or any Subsidiary, such reports,
certificates, studies and other material or data shall not be required to be
provided by the Borrower if (i) they are not otherwise required to be created or
provided pursuant to statute, regulation, order or otherwise, and (ii) such
contamination is not attributable to the acts or omissions of the Borrower or
any Subsidiary or any Affiliate or predecessor of any of them or any previous
owner, lessee, lessor or other user of such real property.
(i) The materiality standard used in this SUBSECTION 6.26
shall be exceeded if the facts giving rise to a breach or breaches of the
representations or warranties contained herein might result in liability or
potential liability in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate.
(j) None of the items disclosed on EXHIBIT 6.26 might
have a Material Adverse Effect.
6.27 FULL DISCLOSURE. This Agreement, the other Financing
Agreements, the financial statements delivered in connection herewith, the
representations and warranties of the Borrower contained in this Agreement, the
other Financing Agreements or in any other document, certificate or written
statement by or on behalf of the Borrower delivered or to be delivered to the
Agent or any Lender, do not and will not contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein or herein, in light of the circumstances under which they were made, not
misleading. There is no material fact which the Borrower has not disclosed to
the Agent in writing which has had or, so far as the Borrower can now foresee,
might have a Material Adverse Effect.
6.28 INSURANCE POLICIES. EXHIBIT 7.5 lists all insurance
of any nature maintained for current occurrences by the Borrower, as well as a
summary of the terms of such insurance.
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6.29 CUSTOMER AND TRADE RELATIONS. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in (a) the business relationship of the Borrower or any Subsidiary with
any customer or group of customers whose purchases individually or in the
aggregate are material to the operations of the Borrower or such Subsidiary, or
(b) the business relationship of the Borrower or any Subsidiary with any
material supplier.
6.30 SURVIVAL OF WARRANTIES. All representations and
warranties of the Borrower contained in this Agreement or any of the other
Financing Agreements shall survive the execution and delivery of this Agreement
and the termination hereof. The Borrower shall supplement in writing and deliver
to the Agent all EXHIBITS required in accordance with this Agreement so that the
representations and warranties subject to such supplemental disclosure shall
continue to be true and accurate in all material respects; PROVIDED that the
furnishing of such supplemental disclosure shall not constitute a cure or waiver
of any Default or Event of Default resulting from the matters disclosed therein
or otherwise then existing.
6.31 CORPORATE AND CONTRACTUAL RESTRICTIONS. Neither the
Borrower nor any Subsidiary is a party or subject to any contract, agreement or
charter or other corporate restriction, which materially and adversely affects
its business or the use or ownership of any of its Property. The Borrower has
not agreed or consented to cause or permit in the future (upon the happening of
a contingency or otherwise) any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien that is not a Permitted Lien. The Borrower is
not a party to or bound by any indenture, contract, instrument or other
agreement which prohibits the creation, incurrence or sufferance to exist of any
Lien upon its Property except the Financing Documents.
6.32 SUBSIDIARIES. Except as set forth on EXHIBIT 6.32, the
Borrower has no Subsidiaries. EXHIBIT 6.32 contains an accurate list of all
Subsidiaries of the Borrower, setting forth their respective jurisdictions of
incorporation and the percentages of their capital stock owned by the Borrower
or other Subsidiaries.
6.33 DEPOSIT AND DISBURSEMENT ACCOUNTS. As of the Closing
Date, EXHIBIT 6.33 lists all banks and other financial institutions at which the
Borrower maintains deposits and/or other accounts, including any disbursement
accounts, and such Exhibit correctly identifies the name, address and telephone
number of each depository, the name in which the account is held, a description
of the purpose of the account, and the complete account number.
7. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that, so long as any
Obligations remain outstanding, and (even if there shall be no
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Obligations outstanding) so long as this Agreement remains in effect:
7.1 FINANCIAL STATEMENTS. The Borrower shall keep proper books
of record and account in which full and true entries will be made of all
dealings or transactions in respect of or in relation to the business and
affairs of the Borrower, in accordance with Generally Accepted Accounting
Principles consistently applied, and the Borrower shall furnish or cause to be
furnished to the Agent and each Lender: (i) as soon as practicable and in any
event within thirty (30) days after the end of each Accounting Period,
statements of net income and cash flow of the Borrower and its Subsidiaries on a
consolidated basis for such Accounting Period and for the period from the
beginning of the then current Fiscal Year to the end of such Accounting Period
and a balance sheet of the Borrower and its Subsidiaries on a consolidated basis
as of the end of such Accounting Period, setting forth in each case, in
comparative form, figures for the corresponding periods in the preceding Fiscal
Year and as of a date one (1) year earlier, all in reasonable detail and
certified as accurate by the chief financial officer or treasurer of the
Borrower, subject to changes resulting from normal year-end adjustments but
excluding footnotes; (ii) as soon as practicable and in any event within ninety
(90) days after the end of each Fiscal Year, statements of net income and cash
flow of the Borrower and its Subsidiaries on a consolidated basis for such year,
and a balance sheet of the Borrower and its Subsidiaries on a consolidated basis
as of the end of such year, setting forth in each case, in comparative form,
corresponding figures for the period covered by the preceding annual audit and
as of the end of the preceding Fiscal Year, all in reasonable detail and
satisfactory in scope to the Required Lenders and examined and certified by
Ernst & Young LLP or any other independent public accountants of recognized
national standing selected by the Borrower and acceptable to the Required
Lenders, whose opinion shall be unqualified and shall be in scope and substance
satisfactory to the Required Lenders; (iii) as part of the Monthly Report, an
aged trial balance of Accounts ("Accounts Trial Balance") (excluding all Gloria
Jean's activity) indicating which Accounts are current, up to 30, 30 to 60, 60
to 90 and 90 days or more past the original invoice date and listing the names
and addresses of all applicable Account Debtors, and (c) a summary of accounts
payable showing which accounts payable are current, up to 30, 30 to 60, 60 to 90
and 90 days or more past due and listing the names and addresses of applicable
creditors; (iv) concurrently with the preparation of the financial statements,
the Borrower shall send a letter to such accountants with a copy to the Agent
and each Lender, notifying such accountants that one of the primary purposes for
retaining such accountants' services and having audited financial statements
prepared by them is for use by the Agent and the Lenders and such accountants
shall deliver a letter addressed to the Agent and the Lenders acknowledging the
Agent's and the Lenders' reliance thereon in form and substance satisfactory to
the Required Lenders; (v) within thirty (30) days after the end of each
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Fiscal Year Projections prepared in the same manner as the Projections attached
as EXHIBIT 6.4, including projected balance sheets for the forthcoming Fiscal
Year, Accounting Period-by-Accounting Period; projected cash flow statements
(including proposed Capital Expenditures) for the forthcoming Fiscal Year,
Accounting Period-by-Accounting Period; projected profit and loss statements for
the forthcoming Fiscal Year, Accounting Period-by-Accounting Period, together
with appropriate supporting details as requested by the Required Lenders, all
for the Borrower and its Subsidiaries on a consolidated basis and within
forty-five (45) days after the close of each Accounting Period, a statement in
which the actual results of such Accounting Period are compared with the most
recent Projections for such Accounting Period; (vi) as soon as practicable and
in any event within ten (10) days of delivery to the Borrower, a copy of any
letter issued by the Borrower's independent public accountants or other
management consultants with respect to the Borrower's financial or accounting
systems or controls, including all so-called "management letters"; (vii) not
later than the fourth (4th) day of each week, a Weekly Report for the Borrower
computed as of the last Business Day of the preceding week, signed by an
Authorized Officer; (viii) not later than the twentieth (20th) day of each
month, a Monthly Report for the Borrower computed as of the last Business Day of
the preceding month, signed by an Authorized Officer; (ix) promptly following
the filing or furnishing thereof, copies of all regular and periodic reports,
proxy statements, financial statements, registration statements prospectuses and
other material filed by the Borrower or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any other
governmental or private regulatory authority or distributed to the stockholders
of any such Person; and (x) with reasonable promptness, such other business or
financial data as the Required Lenders may reasonably request.
All financial statements delivered to the Agent or any Lender
pursuant to the requirements of this subsection (except where otherwise
expressly indicated) shall be prepared in accordance with Generally Accepted
Accounting Principles consistently applied on a consolidated basis for the
Borrower and its Subsidiaries. All financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain items or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. In the event that any "Accounting Changes" (as defined below)
occur and such changes result in a change in the calculation of the financial
covenants, standards, advance rates or terms used in this Agreement or any other
Financing Agreement, then the Borrower, the Agent and the Lenders agree to enter
into negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's and its Subsidiaries' financial condition
shall be the same after such Accounting Changes as if
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such Accounting Changes had not been made; PROVIDED that the agreement of the
Required Lenders to any required amendments of such provisions shall be
sufficient to bind all Lenders. "ACCOUNTING CHANGES" means (a) changes in
accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successor thereto or any
agency with similar functions) or (b) changes in accounting principles concurred
in by the Borrower's certified public accountants. In the event that the Agent,
the Borrower and the Required Lenders shall have agreed upon the required
amendments, then after such agreement has been evidenced in writing and the
underlying Accounting Changes with respect thereto has been implemented, any
reference to GAAP contained in this Agreement or in any other Financing
Agreement shall, only to the extent of such Accounting Changes, refer to GAAP,
consistently applied after giving effect to the implementation of such
Accounting Changes. If the Agent, the Borrower and the Required Lenders cannot
agree upon the required amendments within thirty (30) days following the date of
implementation of any Accounting Change, then all financial statements delivered
and all calculations of financial covenants and other standards, advance rates
and terms in accordance with this Agreement and the other Financing Agreements
shall be prepared, delivered and made without regard to any underlying
Accounting Change. Together with each delivery of financial statements required
by SUBSECTIONS 7.1(I) and 7.1(II), the Borrower shall deliver to the Agent and
the Lenders a certificate of an Authorized Officer (i) certifying that no
Default or Event of Default exists, or, if any Default or Event of Default
exists, specifying the nature thereof, the period of existence thereof and what
action the Borrower proposes to take with respect thereto and (ii) for the last
Accounting Period of each Fiscal Quarter, setting forth computations in
reasonable detail satisfactory to the Agent demonstrating compliance with the
covenant contained in SUBSECTION 7.11. Together with each delivery of financial
statements required by SUBSECTION 7.1(II), the Borrower shall deliver to the
Agent and the Lenders a certificate of the accountants who performed the audit
in connection with such statements stating that in making the audit necessary to
the issuance of a report on such financial statements, they have obtained no
knowledge of any Default or Event of Default, or, if such accountants have
obtained knowledge of a Default or Event of Default, specifying the nature and
period of existence thereof. Such accountants shall not be liable by reason of
any failure to obtain knowledge of any Default or Event of Default which would
not be disclosed in the ordinary course of an audit. The Agent and each Lender
shall exercise reasonable efforts to keep such information, and all information
acquired as a result of any inspection conducted in accordance with SUBSECTION
7.2, confidential; PROVIDED that the Agent or any Lender may communicate such
information (a) to any other Person in accordance with the customary practices
of commercial lenders relating to routine trade inquiries, (b) to any regulatory
authority having jurisdiction over the Agent or such Lender, (c) subject to the
restrictions of
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Section 11, to any other Person in connection with the Agent's or such Lender's
sale of any participations in the Obligations, or (d) to any other Person in
connection with the exercise of the Agent's or such Lender's rights hereunder or
under any of the other Financing Agreements. The Borrower authorizes the Agent
to discuss the financial condition of the Borrower with the Borrower's
independent public accountants and agrees that such discussion or communication
shall be without liability to either the Agent or the Borrower's independent
public accountants. The Borrower shall deliver a letter addressed to such
accountants authorizing them to comply with the provisions of this subsection
7.1.
7.2 INSPECTIONS AND AUDITS. The Agent, or any Person
designated by the Agent in writing, shall have the right, from time to time
hereafter, to call at the Borrower's place or places of business (or any other
place where the Collateral or any information relating thereto is kept or
located) during normal business hours, and, without hindrance or delay (i) to
inspect, audit, check and make copies of and extracts from the Borrower's books,
records, journals, orders, receipts and any correspondence and other data
relating to the Borrower's or any Subsidiary's business or to any transactions
between the parties hereto, (ii) to make such verification concerning the
Collateral as the Agent may consider reasonable under the circumstances, and
(iii) to discuss the affairs, finances and business of the Borrower with any
officers, employees or directors of the Borrower. All out-of-pocket costs and
expenses incurred by the Agent in connection with the Agent's field audits
permitted under this subsection 7.2 shall be reimbursed by the Borrower;
PROVIDED that so long as no Default or Event of Default shall have occurred and
be continuing, the Borrower shall not be liable for reimbursing the Agent for
the costs and expenses of more than one (1) field audit in any Fiscal Year.
7.3 CONDUCT OF BUSINESS; COMPLIANCE WITH LAWS. The
Borrower shall, and shall cause each Subsidiary to, maintain its corporate
existence and good standing in its respective state of incorporation and qualify
and remain qualified as a foreign corporation in each jurisdiction in which such
qualification is required, and shall maintain in full force and effect all
licenses, bonds, franchises, leases, patents, contracts and other rights
necessary or desirable to the profitable conduct of its business and shall
comply with all applicable laws, rules, regulations and orders of any federal,
state or local governmental authority, except for such laws, rules and
regulations the violation of which would not, in the aggregate, have a Material
Adverse Effect. The Borrower shall conduct its business only under those
corporate, trade or fictitious names duly registered with the appropriate
Governmental Authorities or within thirty (30) days of the Closing Date the
Borrower shall provide the Agent with good standing certificates for each of the
jurisdictions listed on EXHIBIT 6.1-1 for which the Borrower or a Subsidiary is
not in good standing as of the Closing Date or disclosed on EXHIBIT 6.8.
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7.4 CLAIMS AND TAXES. (a) The Borrower agrees to indemnify and
hold the Agent and each Lender harmless from and against any and all claims,
demands, obligations, losses, damages, penalties, costs, and expenses (including
reasonable attorneys' fees) asserted by any Person (other than the Borrower) in
connection with this Agreement or the other Financing Agreements or asserted by
any Person and relating to or in any way arising out of the possession, use,
operation or control of any of the Borrower's or any Subsidiary's Property by
any Person. The Borrower shall, and shall cause each Subsidiary to, file all tax
and information returns and reports required by and prepared in accordance with
applicable law and shall pay or cause to be paid all license fees, bonding
premiums and related taxes and charges, and shall pay or cause to be paid all
real and personal property taxes, assessments and charges and franchise, income,
unemployment, use, excise, old age benefit, withholding, sales and other taxes
and other governmental charges assessed against, or payable by, the Borrower or
any Subsidiary, at such times and in such manner as to prevent any penalty from
accruing or any Lien from attaching to Property of the Borrower or any
Subsidiary, provided that the Borrower and each Subsidiary shall have the right
to contest in good faith, by an appropriate lawful proceeding promptly initiated
and diligently conducted, the validity, amount or imposition of any such tax,
assessment or charge, and upon such good faith contest to delay or refuse
payment thereof so long as (i) no Lien which will have priority over the Agent's
Lien granted hereunder with respect to any Collateral is filed or recorded with
respect thereto, (ii) the execution or other enforcement of such subordinate
Lien is and continues to be effectively stayed, (iii) such proceeding will
prevent the forfeiture or sale of any Property of the Borrower or such
Subsidiary, (iv) adequate reserves have been provided therefor in accordance
with GAAP, (v) such contest does not have a Material Adverse Effect and (vi) if
such contest is abandoned or determined adversely to the Borrower or such
Subsidiary, the Borrower pays, or causes to be paid, all such taxes and other
charges and any penalties and interest payable in connection therewith.
(b) The Borrower shall notify the Agent and each Lender
promptly (and in no event later than ten (10) days) after becoming aware of the
intent of the Service to assert a deficiency with respect to the Borrower or any
Subsidiary, and shall promptly (and in no event later than five (5) days after
receipt) send the Agent and each Lender copies of any notices of proposed
deficiency and any notices of deficiency received from the Service. If the
Required Lenders so request, the Borrower shall take all reasonable actions
necessary to contest such claimed deficiency and shall appoint outside tax
counsel acceptable to the Required Lenders to contest such claims of deficiency
and shall direct such counsel to consult with the Lenders and to provide the
Agent and the Lenders with periodic status reports and assessments of the legal
merits of the contest. At the Required Lenders' request, such contest shall
continue through the appropriate administrative and court procedures including
appeals therefrom until such outside tax
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counsel informs the Agent that it is of the opinion that further contest would
be inadvisable taking into account all factors (including any proposed
settlement or compromise by the Service).
7.5 BORROWER'S LIABILITY INSURANCE. The Borrower shall
maintain, at its expense, such product liability insurance, general public
liability and third party property damage insurance with financially sound and
reputable insurance companies reasonably satisfactory to the Agent in such
amounts and covering such risks and with such deductibles as are acceptable to
the Required Lenders naming the Agent as an additional insured. The policy or
policies shall further provide for thirty (30) days' written notice to the Agent
prior to cancellation or any material change in coverage.
7.6 BORROWER'S PROPERTY INSURANCE. The Borrower shall, and
shall cause each Subsidiary to, at its expense, keep and maintain its assets
insured against loss or damage by fire, theft, explosion, spoilage and all other
hazards and risks ordinarily insured against by other owners or users of such
properties in similar businesses in an amount at least equal to the full
insurable value thereof (including at least six (6) months business interruption
insurance in an amount not less than $__________). All such policies of
insurance shall contain a breach or violation of warranties, declarations or
conditions endorsement in favor of the Agent, shall provide that the Agent shall
receive 30 days' written notice prior to cancellation or any material change in
coverage and shall otherwise be in form and substance satisfactory to the
Required Lenders. The Borrower shall deliver to each Lender the original (or a
certified) copy of each policy of insurance and, upon the renewal thereof, a
binder evidencing such renewal, and evidence of payment of all premiums
therefor. Such policies of insurance shall contain an endorsement, substantially
in the form of EXHIBIT 7.6, naming the Agent, on behalf of the Lenders, as the
lender loss payee and additional insured. The Borrower hereby directs all
insurers under such policies of insurance to pay all proceeds of such insurance
policies directly to the Agent. The Borrower irrevocably makes, constitutes and
appoints the Agent (and all officers, employees or agents designated by the
Agent) as the Borrower's true and lawful attorney-in-fact for the purpose of
making, settling and adjusting claims under all such policies of insurance,
endorsing the name of the Borrower on any check, draft, instrument or other item
of payment received by the Borrower or the Agent pursuant to any such policies
of insurance and for making all determinations and decisions with respect to
such policies of insurance. If the Borrower or any Subsidiary, at any time or
times hereafter, shall fail to obtain or maintain any of the policies of
insurance required above or to pay any premium in whole or in part relating
thereto, then the Agent, without waiving or releasing any Obligation, Default or
Event of Default by the Borrower hereunder, may at any time or times thereafter
(but shall be under no obligation to do so) obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
which the Agent deems advisable.
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7.7 PENSION PLANS. (a) The Borrower shall (i) maintain all
Plans which are presently in existence or may, from time to time, come into
existence, in compliance with ERISA, the IRC and all other applicable laws in
all material respects unless such Plans can be terminated or merged without
material liability to the Borrower in connection with such termination or merger
(as distinguished from any continuing funding obligation), (ii) make
contributions to all of the Borrower's Pension Plans in a timely manner and in a
sufficient amount to comply with the requirements of ERISA, (iii) comply with
all material requirements of ERISA and the IRC which relate to such Plans so as
to preclude the occurrence of any Termination Event, prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the IRC) or
material "accumulated funding deficiency" as such term is defined in ERISA, and
(iv) not permit any Plan to provide post-retirement medical benefits, nor shall
the Borrower or any ERISA Affiliate undertake any new or increased obligation
with respect to any Pension Plan or Multiemployer Plan which might result in a
Material Adverse Effect.
(b) The Borrower shall promptly deliver written notice of any
of the following to the Agent and each Lender, but in no event later than thirty
(30) days after such event or occurrence:
(1) the Borrower or any ERISA Affiliate knows or has
reason to know that a Termination Event has occurred,
with such notice setting forth the details of such
event;
(2) the filing of a request for a funding waiver by the
Borrower or any ERISA Affiliate with respect to any
Pension Plan, a copy of such request and all
correspondence received by Borrower or any ERISA
Affiliate with respect to such request;
(3) the Borrower or any ERISA Affiliate fails to make a
required installment or payment under Section 302 of
ERISA or Section 412 of the IRC by the applicable due
date;
(4) the Borrower or any ERISA Affiliate knows or has
reason to know that a prohibited transaction (as
defined in Section 406 of ERISA or Section 4975 of
the IRC) has occurred with respect to any Plan with a
statement describing such transaction and the action
or response taken with respect thereto;
(5) any increase in the benefits of any existing Plan or
contribution rate to a Multiemployer Plan or the
establishment of any new Plan or the commencement of
contributions to any Plan or Multiemployer Plan to
which the Borrower or any ERISA Affiliate had not
been contributing;
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(6) receipt by the Borrower or any ERISA Affiliate of any
adverse ruling from the Service regarding the
qualification of a Plan under Section 401(a) of the
IRC, with a copy of such ruling; and
(7) any other report such as an annual report on Form
5500 or actuarial report in which any Lender may
request from time to time.
7.8 NOTICE OF CERTAIN MATTERS. The Borrower shall, as soon as
possible, and in any event within five (5) days after the Borrower learns of the
following, give written notice to the Agent and each Lender of (i) any material
Litigation being instituted or threatened to be instituted by or against the
Borrower or any Subsidiary in any federal, state, local or foreign court or
before any commission or other regulatory body (federal, state, local or
foreign) including, without limitation, any and all pending or threatened
proceedings with respect to Environmental Matters, (ii) any labor dispute to
which the Borrower or any Subsidiary may become a party and which has had or
might have a Material Adverse Effect, any strikes or walkouts relating to any of
its plants or Facilities, and the expiration of any labor contract to which it
is a party or by which it is bound, (iii) any Default or Event of Default, (iv)
any judgment rendered against the Borrower or any Subsidiary, and (v) any other
event or occurrence which could have a Material Adverse Effect.
7.9 LANDLORD AND WAREHOUSEMAN AGREEMENTS. The Borrower shall
provide the Agent and each Lender with copies of all agreements between the
Borrower and any landlord or warehouseman which owns any premises at which
Inventory or any other Collateral may, from time to time, be located. The
Borrower shall deliver to the Agent on or before the Closing Date a landlord
waiver with respect to the Houston, Texas Facility in form and substance
satisfactory to the Agent. The Borrower shall deliver to the Agent a landlord's
waiver in form and substance acceptable to the Agent from the lessor of each
other leased property currently being used by the Borrower or any Subsidiary
where Collateral is located. The Borrower shall deliver to the Agent a bailee
letter in form and substance acceptable to the Agent with respect to any
warehouse or other location where Collateral is located. With respect to
locations or warehouse space leased on the Closing Date, if the Borrower is
unable to deliver such a landlord waiver or bailee letter within sixty (60) days
after the Closing Date, the Inventory at that location shall automatically be
deemed ineligible without further action by the Agent or any Lender. In the
event that the Borrower delivers to the Agent such landlord waiver or bailee
letter, as applicable, after such date, subject to the terms and conditions of
this Agreement including, without limitation, SUBSECTION 3.10, Inventory located
at such leased location or warehouse location, as applicable, may be considered
Eligible Inventory. The Borrower shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to
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each leased location or public warehouse where any Collateral is or may be
located. The Borrower shall promptly deliver to the Agent copies of (i) any and
all default notices received under or with respect to any such leased location
or public warehouse, and (ii) such other notices or documents as the Agent may
request in its reasonable discretion.
7.10 INDEMNITY. The Borrower agrees to indemnify, pay and hold
harmless the Agent and each Lender and the officers, directors, employees,
agents, affiliates, representatives and attorneys of the Agent and such Lender
(collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, proceedings,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, all fees and disbursements of
counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
such Indemnitee shall be designated a party thereto) that may be imposed on,
incurred by, or instituted or asserted against any Indemnitee in any manner in
connection with or relating to or arising out of this Agreement or the other
Financing Agreements or any other transaction contemplated hereby or thereby,
the statements contained in the commitment letters delivered by the Agent, the
Agent and the Lenders' agreement to make the Loans hereunder, the direct or
indirect application or proposed application of the proceeds of the Loans or the
exercise of any right, power or remedy hereunder or under any other Financing
Agreement (the "Indemnified Liabilities"); provided that the Borrower shall have
no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities
if a court of competent jurisdiction shall render a judgment, final and not
subject to review on appeal, that such Indemnified Liabilities arise solely from
the gross negligence or willful misconduct of that Indemnitee. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them. The provisions of and undertakings and indemnifications set forth in
this SUBSECTION 7.10 shall survive the satisfaction and payment of the
Obligations and the termination of this Agreement, and shall continue to be the
liability, obligation and indemnification of the Borrower.
7.11 CASH FLOW COVERAGE. The Borrower shall maintain, as of
the end of each of the following Fiscal Quarters, a Cash Flow Coverage Ratio
calculated as of the end of each of the following computation periods (which
after the first Fiscal Quarter of Fiscal Year 1996 shall be a rolling twelve
(12) Accounting Period computation) of not less than the ratio set forth
opposite such period:
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COMPUTATION PERIOD RATIO
- ------------------ -----
From the beginning of the third Fiscal 1.5 to 1.0
Quarter of Fiscal Year 1995 through the
end of the first Fiscal Quarter of Fiscal
Year 1996
Each Fiscal Quarter of each Fiscal Year 1.5 to 1.0
after the first Fiscal Quarter of Fiscal
Year 1996
8. NEGATIVE COVENANTS.
The Borrower covenants and agrees that so long as any of the
Obligations remain outstanding and (even if there shall be no Obligations
outstanding) so long as this Agreement remains in effect (unless the Required
Lenders shall give their prior written consent thereto):
8.1 ENCUMBRANCES. The Borrower shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien of any
nature whatsoever on any of its Property, including, without limitation, the
Collateral, other than the following "Permitted Liens": (i) Liens (other than
Liens relating to Environmental Laws or ERISA) securing the payment of Charges
not yet due and payable, (ii) pledges or deposits under workmen's compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure statutory obligations or surety or appeal bonds, or
to secure indemnity, performance or other similar bonds in the ordinary course
of business, (iii) the Liens in favor of the Agent, for the benefit of the
Lenders, (iv) purchase money Liens (including capitalized leases and other forms
of installment purchase financing) granted to the Person financing a purchase of
Equipment so long as the Lien granted is limited to the specific Equipment so
acquired, the debt secured by the Lien is not more than the lesser of the
acquisition cost or the fair market value of the specific item of Equipment on
which the Lien is granted, the aggregate amount of indebtedness secured by such
Liens as a result of purchases shall not exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000) at any time outstanding during the term hereof,
and the transaction does not violate any other provision of this Agreement
(notification of such purchase money Lien to be provided to the Agent and each
Lender within ten (10) days of acquisition of such Equipment), (v) Liens
permitted in accordance with SUBSECTION 7.4(A), (vi) other Liens on Real Estate,
which do not, in the Agent's sole determination, (a) materially impair the use
of such property, or (b) materially lessen the value of such property for the
purposes for which the same is held by the Borrower or such Subsidiary, and
(vii) Liens existing on the Closing Date and disclosed on EXHIBIT 8.1.
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8.2 INDEBTEDNESS AND LIABILITIES. The Borrower shall not, and
shall not permit any Subsidiary to, incur, create, assume, become or be liable
in any manner with respect to, or suffer to exist, any Indebtedness, except for
(i) the Obligations, (ii) Indebtedness existing on the Closing Date and
disclosed on EXHIBIT 8.2 and/or Indebtedness underlying Permitted Liens, (iii)
Indebtedness secured by purchase money Liens permitted by subsection 8.1(iv),
(iv) Indebtedness permitted by SUBSECTION 8.5, (v) Contingent Retail Store
Obligations and (vi) unsecured Indebtedness in an aggregate principal amount not
to exceed Seven Million Dollars ($7,000,000) outstanding at any one time. Except
for the Indebtedness permitted in the preceding sentence, the Borrower shall
not, and shall not permit any Subsidiary to, incur any Liabilities except for
trade obligations and normal accruals in the ordinary course of business not yet
due and payable, or with respect to which the Borrower or such Subsidiary is
contesting in good faith the amount or validity thereof by appropriate
proceedings, and then only to the extent that the Borrower or such Subsidiary
has set aside on its books adequate reserves therefor, if appropriate under
Generally Accepted Accounting Principles. The Borrower shall not, and shall not
permit any Subsidiary to, voluntarily prepay, defease, purchase, redeem, retire
or otherwise acquire any Indebtedness other than the Obligations; provided that
the Obligations owing to the Support Letter of Credit Obligors shall be paid in
accordance with the terms and conditions of the Participation Agreements.
8.3 CONSOLIDATIONS, ACQUISITIONS. The Borrower shall not, and
shall not permit any Subsidiary to, merge or consolidate with, purchase, lease
or otherwise acquire all or substantially all of the assets or properties of, or
acquire any capital stock, equity interests, debt or other securities of, any
other Person; PROVIDED that any Subsidiary may merge or consolidate with or into
any other Subsidiary or with or into the Borrower (provided that the Borrower is
the surviving entity). Except as disclosed on EXHIBIT 8.3, the Borrower shall
not, and shall not permit any Subsidiary to, dissolve, terminate, enter into any
joint venture or become a partner in any partnership. Except for sales of stock
or assets in connection with the Retail Stores Sale Program, the Borrower shall
not sell, assign, encumber, pledge, transfer or otherwise dispose of any
interest in the Borrower or any Subsidiary or transfer any Property to any
Affiliate except as otherwise expressly permitted hereby.
8.4 INVESTMENTS. The Borrower shall not, and shall not permit
any Subsidiary to, make or permit to exist Investments in, or commitments
therefor, or create any Subsidiary other than the following "Permitted
Investments": (i) loans made in accordance with SUBSECTION 8.9, (ii) Investments
existing on the Closing Date and disclosed on EXHIBIT 8.4, (iii) Investments
arising in connection with the Retail Store Sale Program, and (iv) so long as no
Event of Default shall have occurred and be continuing,
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investments in Cash Equivalents, not to exceed Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate.
8.5 GUARANTIES. The Borrower shall not, and shall not permit
any Subsidiary to, make or suffer to exist any Guaranty, except (i) endorsements
of negotiable instruments or items of payment for collection in the ordinary
course of business, (ii) the Contingent Retail Store Obligations and (iii)
Guaranties existing on the Closing Date and disclosed on EXHIBIT 8.5.
8.6 COLLATERAL LOCATIONS. The Borrower shall not, and shall
not permit any Subsidiary to, sell any of the Inventory on a guaranteed sale,
sale-and-return, sale on approval or consignment basis or any other basis
subject to a repurchase obligation or return right. Neither the location of the
principal place of business and chief executive office of the Borrower as set
forth on EXHIBIT 6.7, the locations of items of Collateral as set forth in
EXHIBIT 8.6 nor the corporate name or mailing address of the Borrower shall be
changed, nor shall there be established additional places of business or
additional locations at which Collateral is stored, kept or processed unless (i)
the Borrower shall have given the Agent not less than 30 days prior written
notice thereof, (ii) the Agent shall have determined that, after giving effect
to any such change of name, address or location, the Agent shall have a first
perfected Lien in the Collateral except for Permitted Liens, (iii) the lessor of
such premises agrees in writing with the Agent to allow the Agent a reasonable
period of time to use the premises without charge(other than regular rent on a
per diem basis), and also agrees not to assert any landlord's, bailee's or other
Lien in respect of the Collateral for unpaid rent or storage charges, and (iv)
all negotiable documents and receipts in respect of any Collateral maintained at
such premises are promptly delivered to the Agent. Prior to making any such
change or establishing such new location, the Borrower shall execute any
additional financing statements or other documents or notices required by the
Agent.
8.7 DISPOSAL OF PROPERTY. The Borrower shall not, and shall
not permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose
of any of its Property, assets and rights to any Person except for (i) bona fide
sales of Inventory to customers for fair value in the ordinary course of
business, (ii) sales of Equipment which is obsolete, worn-out or otherwise not
useable in the Borrower's business (up to Two Hundred Fifty Thousand Dollars
($250,000) in sales proceeds in the aggregate in any Fiscal Year), and (iii)
assets to be sold pursuant to the Retail Stores Sale Program as set forth on
EXHIBIT 8.7. In the event any Equipment of the Borrower or any Subsidiary (other
than Equipment included in the Retail Stores Sale Program) is sold, transferred
or otherwise disposed of as permitted by clause (ii) of this SUBSECTION 8.7 or
with the Required Lenders' consent, and (x) such sale, transfer or disposition
is effected without replacement of the Equipment so sold, transferred or
disposed of or such Equipment is replaced by
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Equipment leased by the Borrower, the Borrower shall promptly (but in any event
within three (3) Business Days of the receipt thereof) deliver all of the cash
proceeds of any such sale, transfer or disposition to the Agent, which proceeds
shall be applied to the Term Loan Obligations (or, if the Term Loan has been
paid in full, the Revolving Loan Obligations, and the Total Revolving Loan
Facility shall be permanently reduced by such amount) without premium or
penalty, except as provided in SUBSECTION 2.7(B), or (y) such sale, transfer or
disposition is made in connection with the purchase by the Borrower of
replacement Equipment, the Borrower shall use the proceeds of such sale,
transfer or disposition to finance the purchase by the Borrower of replacement
Equipment and shall deliver to the Agent written evidence of the use of the
proceeds for such purchase. Except as permitted by SUBSECTION 8.1, all
replacement Equipment purchased by the Borrower shall be free and clear of all
Liens, except for Liens in favor the Agent, for the benefit of the Lenders.
8.8 EMPLOYEE LOANS. Except for (i) advances for travel and
related expenses by the Borrower or any Subsidiary to its employees in the
ordinary course of business in an amount not to exceed from time to time Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate at any one time, (ii)
commission advances by the Borrower or any Subsidiary to its employees in an
amount not to exceed from time to time Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate at any one time and (iii) those employee loans
disclosed on EXHIBIT 8.4, the Borrower shall not, and shall not permit any
Subsidiary to, make any loans or other advances to any Person.
8.9 PLANS. The Borrower shall not, nor will it permit
any ERISA Affiliate to:
(i) assume or incur any Liability under any Plan
other than those Plans disclosed in EXHIBIT 6.19(A);
(ii) permit the amendment, establishment, assumption
or maintenance of any Pension Plan;
(iii) commence participation or permit an ERISA
Affiliate to participate in a Multiemployer Plan;
(iv) permit the termination of any Plan if such
termination might have Material Adverse Effect;
(v) permit the occurrence of an accumulated
funding deficiency (as defined in Section 302 of ERISA or
Section 412 of the IRC) as to any Plan;
(vi) engage, or permit any ERISA Affiliate to
engage, in any prohibited transaction under Section 406
of ERISA or Section 4975 of the IRC; or
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(vii) permit the establishment, adoption, or
assumption of any Plan providing post-retirement welfare
benefits.
8.10 RESTRICTED PAYMENTS. The Borrower shall not, and shall
not permit any Subsidiary to, directly or indirectly declare, pay, order, make
or set apart any Restricted Payment; PROVIDED that any Subsidiary may declare
and pay dividends to any Subsidiary owning its capital stock or to Borrower.
8.11 SECURITIES. The Borrower shall not, and shall not permit
any Subsidiary to, redeem, prepay, repurchase or acquire any capital Stock of
the Borrower of any description for consideration or otherwise.
8.12 CHANGES IN CHARTER, BYLAWS OR FISCAL YEAR. Borrower shall
not, and shall not permit any Subsidiary to, (i) amend its Certificate of
Incorporation or Bylaws or other constitutional documents in a manner which
could have a Material Adverse Effect or (ii) change its Fiscal Year.
8.13 TRANSACTIONS WITH AFFILIATES. Except as set forth on
EXHIBIT 8.13 and as permitted by SUBSECTION 8.8, the Borrower shall not, and
shall not permit any Subsidiary to, enter into any transaction including,
without limitation, the purchase, sale, lease or exchange of property or the
rendering or purchase of any service to or from any Affiliate except in the
ordinary course of and pursuant to the reasonable requirements of the Borrower's
or such Subsidiary's business and upon fair and reasonable terms that are fully
disclosed to the Agent and the Lenders in advance and are no less favorable to
the Borrower than the Borrower would obtain in a comparable arm's length
transaction with an unaffiliated Person.
8.14 CAPITAL STRUCTURE; OTHER BUSINESS. Except for sales
pursuant to the Retail Stores Sale Program, the Borrower shall not, and shall
not permit any Subsidiary to, engage in any business unrelated to its current
businesses, engage in any transaction out of the ordinary course of business, or
engage in any transaction which might have a Material Adverse Effect.
8.15 SALE AND LEASEBACK. The Borrower shall not, and shall not
permit any Subsidiary to, sell or transfer any of its Property (other than
customer display equipment) in order to concurrently or subsequently lease as
lessee such or similar Property unless (i) any such sale is made for the fair
market value of the Property, (ii) the sale consideration received is cash,
(iii) the sale is upon fair and reasonable terms in an arm's length transaction,
and (iv) all proceeds of any sale are used to prepay the Obligations in the
priority set forth in SUBSECTION 8.7.
8.16 IMPAIRMENT AGREEMENTS. Except as disclosed on
EXHIBIT 8.16, the Borrower shall not, and shall not permit any Subsidiary to,
enter into or assume any agreement, instrument,
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indenture or other obligation (other than the Financing Agreements) which (i)
contains a negative pledge provision which would require a sharing of any
interest in the Collateral, (ii) prohibits or limits the creation or assumption
of any Lien upon its Property, whether now owned or hereafter acquired, or (iii)
restricts, prohibits or requires the consent of any Person with respect to the
payment of Restricted Payments.
8.17 CORPORATE ACCOUNTS. The Borrower shall not maintain
corporate deposit accounts jointly with any Affiliate or commingle any of its
funds with funds of any Affiliate.
8.18 CAPITAL EXPENDITURES LIMITATIONS. The Borrower shall not,
and shall not permit any Subsidiary to, make Capital Expenditures aggregating in
excess of Five Million Dollars ($5,000,000) in any Fiscal Year; PROVIDED that if
in any Fiscal Year the aggregate Capital Expenditures of the Borrower and its
Subsidiaries made in such Fiscal Year are less than the maximum amount of
Capital Expenditures permitted for such Fiscal Year (excluding the additional
amount, if any, of Capital Expenditures permitted in such Fiscal Year as a
result of a carryover from the preceding Fiscal Year by reason of this proviso)
then the maximum amount of Capital Expenditures permitted in the next succeeding
Fiscal Year shall be increased by an amount equal to the lesser of (a) such
shortfall or (b) $2,500,000.
8.19 PARTNERSHIP AGREEMENT. The Borrower shall not amend,
modify, terminate or waive, nor suffer the amendment, modification, termination
or waiver of, any of the terms or provisions of the partnership agreement, dated
as of April 28, 1989, between the Borrower and Randall C. Schoonover, Inc., in
any manner that could be inconsistent with or impair the ability of the Borrower
or any Subsidiary to perform its obligations under the Financing Agreements.
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE
LENDERS.
9.1 OBLIGATIONS. If a Default or an Event of Default shall
exist or occur, the Required Lenders (or the Agent with the consent of the
Required Lenders) may elect to do one or more of the following at any time or
times and in any order: (i) reduce the Maximum Revolving Loan Amount, (ii)
restrict the amount of, or suspend its obligations to make, Revolving Loans,
(iii) restrict or suspend the issuance of Lender Guaranties or (iv) demand that
the Borrower immediately deposit with the Agent an amount equal to the Lender
Guaranty Liabilities to enable the Agent to make payments under the Lender
Guaranties when required and such amount shall become immediately due and
payable. If an Event of Default shall exist or occur, in addition to the actions
described in the preceding sentence, the Required Lenders (or the Agent with the
consent of the Required Lenders) may elect to do one or more of the following at
any time or times: (a) terminate its Commitments to
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make Loans and this Agreement, (b) declare any or all Obligations to be
immediately due and payable; PROVIDED that upon the occurrence of any Event of
Default referred to in clauses (f), (g) or (h) within the definition of "Event
of Default," such Commitments shall automatically and immediately terminate and
all Obligations shall automatically become immediately due and payable without
notice, demand or other actions of any kind by any Person, or (c) pursue its
other rights and remedies under the Financing Agreements and applicable law.
9.2 RIGHTS AND REMEDIES GENERALLY. Upon acceleration of the
Obligations, the Agent, on behalf of the Lenders, shall have, in addition to any
other rights and remedies contained in this Agreement or in any of the other
Financing Agreements, all of the rights and remedies of a secured party under
the Code or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law. In addition to all
such rights and remedies, the Agent shall have the right to sell, lease or
otherwise dispose of all or any part of the Collateral and the sale, lease or
other disposition of the Collateral, or any part thereof, by the Agent after an
Event of Default may be for cash, credit or any combination thereof, and the
Agent or any Lender may purchase all or any part of the Collateral at public or,
if permitted by law, private sale, and in lieu of actual payment of such
purchase price, may set-off the amount of such purchase price against the
Obligations then owing. Any sales of the Collateral may be adjourned from time
to time with or without notice. The Agent shall have the right to conduct such
sales on the Borrower's premises, at the Borrower's expense, or elsewhere, on
such occasion or occasions as the Agent may see fit.
9.3 ENTRY UPON PREMISES AND ACCESS TO INFORMATION. Upon
acceleration of the Obligations, the Agent shall have the right (i) to cause the
Collateral to remain on the Borrower's premises, without any obligation to pay
rent, (ii) to enter upon the premises of the Borrower where the Collateral is
located or any other place or places where the Collateral is believed to be
located and kept, without any obligation to pay rent, to render the Collateral
useable or saleable, or to remove the Collateral therefrom to the premises of
the Agent or any agent of the Agent, at the Borrower's expense, for such time as
the Agent may desire in order effectively to collect or liquidate the
Collateral, and (iii) to require the Borrower to assemble the Collateral and
make it available to the Agent at a place or places to be designated by the
Agent. Upon acceleration of the Obligations, the Agent shall have the right to
take possession of the Borrower's original books and records, to obtain access
to Borrower's data processing equipment, computer hardware and software relating
to the Collateral and to use all of the foregoing and the information contained
therein in any manner the Agent deems appropriate; and the Agent shall have the
right to notify postal authorities to change the address for delivery of the
Borrower's mail to an address designated by the Agent and to receive, open and
dispose of all mail addressed to the Borrower and
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to take possession of all checks or other original remittances contained in such
mail.
9.4 SALE OR OTHER DISPOSITION OF COLLATERAL BY THE AGENT. Any
notice required to be given by the Agent of a sale, lease or other disposition
or other intended action by the Agent with respect to any of the Collateral
which is deposited in the United States mails, postage prepaid and duly
addressed to the Borrower at the address specified in SUBSECTION 10.13, at least
ten (10) days prior to such proposed action, shall constitute fair and
reasonable notice to the Borrower of any such action. The net proceeds realized
by the Agent upon any such sale or other disposition, after deduction for the
expenses of retaking, holding, storing, transporting, preparing for sale,
selling or otherwise disposing of the Collateral incurred by the Agent in
connection therewith, shall be applied as provided herein toward satisfaction of
the Obligations including, without limitation, the Obligations described in
SUBSECTIONS 2.15, 2.21, 2.22 and 10.2. The Agent shall account to the Borrower
for any surplus realized upon such sale or other disposition, and the Borrower
shall remain liable for any deficiency. The commencement of any action, legal or
equitable, or the rendering of any judgment or decree for any deficiency shall
not affect the Agent's Liens on the Collateral until the Obligations are fully
paid. The Borrower agrees that the neither the Agent nor any Lender has no
obligation to preserve rights to the Collateral against any other Person. For
the purpose of enabling the Agent to exercise its rights, powers and remedies
under this SECTION 9, in order to take possession of, hold, preserve, process,
assemble, prepare for sale, market for sale, sell or otherwise dispose of the
Collateral, at such time as the Agent shall be entitled to exercise such rights
and remedies, the Agent is hereby granted a license, lease or other right to
use, without charge, the Borrower's General Intangibles, Intellectual Property,
Equipment, Fixtures, Real Estate, whether part of the Collateral or not
including, without limitation, any patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks and advertising
matter, or any other Property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale or lease and
selling or leasing any Inventory or other Collateral and the Borrower's rights
under all licenses, leases and franchise agreements shall inure to the Agent's
benefit until all Obligations are paid in full.
9.5 WAIVER OF DEMAND. DEMAND, PRESENTMENT, PROTEST AND
NOTICE OF DEMAND, PRESENTMENT, PROTEST, NONPAYMENT, INTENT TO ACCELERATE AND
ACCELERATION ARE HEREBY WAIVED BY THE BORROWER. THE BORROWER ALSO WAIVES THE
BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION LAWS.
9.6 WAIVER OF NOTICE. UPON THE OCCURRENCE OF A DEFAULT
OR AN EVENT OF DEFAULT, THE BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND
HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE AGENT
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OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE
BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH
RESPECT TO THIS TRANSACTION AND THIS AGREEMENT.
10. OTHER RIGHTS AND OBLIGATIONS.
10.1 WAIVER. The failure of the Agent or any Lender, at any
time or times hereafter, to require strict performance by the Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of the
any such Person thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by the Lenders or Required Lenders, as
applicable, of a Default or an Event of Default under this Agreement or any of
the other Financing Agreements shall not suspend, waive or affect any other
Default or Event of Default under this Agreement or any of the other Financing
Agreements, whether the same is prior or subsequent thereto and whether of the
same or of a different kind or character. None of the undertakings, agreements,
warranties, covenants and representations of the Borrower contained in this
Agreement or any of the other Financing Agreements and no Default or Event of
Default by the Borrower under this Agreement or any of the other Financing
Agreements shall be deemed to have been suspended or waived by the Lenders or
Required Lenders, as applicable, unless such suspension or waiver is in writing
and signed by an officer of each of the Lenders or Required Lenders, as
applicable, and directed to the Borrower specifying such suspension or waiver.
Neither this Agreement nor the other Financing Agreements may be modified or
amended except in a written agreement signed by the Borrower, the Agent and the
Lenders.
10.2 COSTS AND ATTORNEYS' FEES. All fees, costs and expenses
incurred by the Agent or any Lender in connection with protecting, perfecting or
preserving the Agent's Lien in the Collateral or in connection with any matters
contemplated by or arising out of this Agreement or the other Financing
Agreements, whether (a) to commence, defend, or intervene in any litigation or
to file a petition, complaint, answer, motion or other pleadings, (b) to take
any other action in or with respect to any suit or proceedings (bankruptcy or
otherwise), (c) to consult with officers of the Agent or any Lender or to advise
the Agent or any Lender, (d) to protect, collect, lease, sell, take possession
of, or liquidate any of the Collateral, or (e) to attempt to enforce or to
enforce any Lien on any of the Collateral, or to enforce any rights of the Agent
or any Lender to collect any of the Obligations, including, without limitation,
reasonable fees, costs and expenses of the attorneys and paralegals of the Agent
or any Lender, the usual and customary charges of the internal counsel and the
out-of-pocket costs and the per diem charges for the examiners of such Persons
at their then applicable rates, together with interest thereon at the Default
Rate then applicable to the Revolving Loan,
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shall be part of the Obligations, payable on demand and secured by the
Collateral.
10.3 EXPENDITURES BY THE AGENT AND THE LENDERS. In the
event the Borrower shall fail to pay Charges, insurance, assessments, costs or
expenses which the Borrower is, under any of the terms hereof, required to pay,
or fails to keep the Collateral free from Liens, except Permitted Liens, or
fails to maintain, replace or repair the Collateral as required hereby, the
Agent or any Lender may, in its sole discretion, make expenditures for any or
all of such purposes and acquire or accept an assignment of any Lien against the
Collateral, and the amount so expended (including, without limitation attorneys'
fees and expenses, court costs, filing fees and other charges), together with
interest thereon at the Base Rate or the Default Rate then applicable to the
Revolving Loan shall be part of the Obligations, payable on demand and secured
by the Collateral.
10.4 CUSTODY AND PRESERVATION OF COLLATERAL. Beyond the safe
custody thereof, the Agent shall have no duty with respect to any Collateral in
its possession or control (or in the possession or control of any agent or
bailee) or with respect to any income thereon. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as the
Borrower shall request in writing, but failure by the Agent to comply with any
such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by the Agent to comply with any such request shall of
itself be deemed a failure to exercise reasonable care, and no failure by the
Agent to preserve or protect any right with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by the Borrower, shall of itself be deemed a failure
to exercise reasonable care in the custody or preservation of such Collateral.
The Agent shall not be liable or responsible for any loss or damage to any of
the Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Agent in good faith.
10.5 RELIANCE BY THE AGENT AND LENDERS. All covenants,
agreements, representations and warranties made herein or in any of the other
Financing Agreements by the Borrower shall, notwithstanding any investigation by
the Agent or any Lender, be deemed to be material to and to have been relied
upon by the Agent and each Lender.
10.6 PARTIES AND ASSIGNMENT. This Agreement and the other
Financing Agreements shall be binding upon and inure to the benefit of the
Agent, the Lenders, the Borrower and their respective successors and assigns.
The Borrower's successors and assigns shall include, without limitation, any
trustee, receiver or debtor in possession of or for the Borrower.
Notwithstanding the
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foregoing, the Borrower may not sell, assign or transfer this Agreement, or the
other Financing Agreements or any portion thereof including, without limitation,
its rights, titles, interests, remedies, powers and/or duties hereunder or
thereunder. The Borrower hereby consents to each Lender's sale, assignment,
transfer or other disposition pursuant hereto, at any time and from time to time
hereafter, of this Agreement, or the other Financing Agreements or any portion
thereof, including without limitation all or any part of each Lender's rights,
titles, interests, remedies, powers and/or duties hereunder or thereunder.
10.7 APPLICABLE LAW; SEVERABILITY. This Agreement and the
other Financing Agreements have been submitted to the Agent and each Lender at
its office in Illinois, and this Agreement and the other Financing Agreements,
shall not be binding upon the Agent or any Lender or effective until accepted by
the Agent and each Lender and shall be construed in all respects in accordance
with, and governed by, all of the provisions of the Code and by the other
internal laws (as opposed to conflicts of law provisions) of the State of
Illinois, except for the perfection and enforcement of Liens in other
jurisdictions which shall be governed by the laws of those jurisdictions.
Whenever possible, each provision of this Agreement shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Agreement.
10.8 SUBMISSION TO JURISDICTION; WAIVER OF JURY AND BOND. THE
BORROWER, THE AGENT AND EACH LENDER HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF
ILLINOIS, AND IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS
AGREEMENT OR THE OTHER FINANCING AGREEMENTS SHALL BE LITIGATED IN SUCH COURTS,
AND THE BORROWER, THE AGENT AND EACH LENDER EACH WAIVE ANY OBJECTION WHICH IT
MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL
OR MESSENGER DIRECTED TO IT AT THE ADDRESS SET FORTH IN SUBSECTION 10.13 AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT OF FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THE BORROWER'S
ADDRESS. THE BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 208 SOUTH
LASALLE STREET, CHICAGO, ILLINOIS 60604 AND SUCH OTHER PERSON AS MAY HEREAFTER
BE SELECTED BY THE BORROWER WHICH IRREVOCABLY AGREES IN WRITING TO SO SERVE AS
ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE BORROWER TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO
SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE BORROWER AT ITS ADDRESS
PROVIDED IN SUBSECTION 10.13, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
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APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICES OF PROCESS. IF ANY AGENT APPOINTED BY THE BORROWER REFUSES TO ACCEPT
SERVICE, THE BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL OR OTHERWISE IN
ACCORDANCE WITH SUBSECTION 10.13 SHALL CONSTITUTE SUFFICIENT NOTICE. THE AGENT,
EACH LENDER AND THE BORROWER ACKNOWLEDGE THAT THE TIME AND EXPENSE REQUIRED FOR
TRIAL BY JURY EXCEED THE TIME AND EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY
WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF THE AGENT OR ANY LENDER. NOTHING CONTAINED IN THIS SUBSECTION 10.8 SHALL
AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING
ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF
ANY OTHER JURISDICTION TO THE EXTENT NECESSARY TO ENFORCE ITS LIENS AGAINST
PROPERTY LOCATED IN SUCH JURISDICTIONS. THE BORROWER WAIVES ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO ABOVE ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES.
10.9 MARSHALLING. The Agent shall be under no obligation
to marshall any assets in favor of the Borrower or any other Person or against
or in payment of any or all of the Obligations.
10.10 SECTION TITLES. The section titles contained in this
Agreement shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties.
10.11 CONTINUING EFFECT. This Agreement, the Agent's Liens on
the Collateral, and all of the other Financing Agreements shall continue in full
force and effect so long as any Obligations shall be owed to the Agent or any
Lender, and (even if there shall be no Obligations outstanding) so long as this
Agreement has not been terminated as provided in SUBSECTION 2.7; PROVIDED that
the Borrower's obligations to indemnify the Agent and each Lender under any
Financing Agreement shall continue notwithstanding any termination of this
Agreement.
10.12 INCORPORATION BY REFERENCE. The provisions of the other
Financing Agreements are incorporated in this Agreement by this reference.
Except as otherwise provided in this Agreement and except as otherwise provided
in the other Financing Agreements by specific reference to the applicable
provision of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provisions in the other Financing
Agreements, the provision contained in this Agreement shall govern and control.
10.13 NOTICES. Except as otherwise expressly provided
herein, any notice required or desired to be served, given or delivered
hereunder shall be in writing, and shall be deemed to
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have been validly served, given or delivered three (3) days after deposit in the
United States mails (by certified mail, return receipt requested), with proper
postage prepaid, or upon delivery by courier or upon transmission by telex,
telecopy or similar electronic medium to the following addresses:
(i) If to the Agent, at:
SANWA BUSINESS CREDIT CORPORATION
One South Wacker Drive, 39th Floor
Chicago, Illinois 60606
Attn: Executive Vice President,
Commercial Finance Division
Telecopy No.: (312) 782-6035
With a copy to:
WINSTON & STRAWN
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Jim L. Blanco
Telecopy No.: (312) 558-5700
(ii) If to a Lender, at the address set forth
opposite its name on Schedule 1 hereto
(iii) If to the Borrower, at:
Brothers Gourmet Coffees, Inc.
One Boca Place
2255 Glades Road
Boca Raton, Florida 33431
Attn: President
Telecopy: (407) 241-6690
With a copy to:
Ballard Spahr Andrews & Ingersoll
1225 17th Street
Suite 2300
Denver, Colorado 80202
Attn: John L. Ruppert
Telecopy: (303) 296-3956
or to such other address as each Person designates to the other in the manner
herein prescribed.
10.14 WAIVERS WITH RESPECT TO OTHER INSTRUMENTS. The Borrower
waives presentment, demand and protest and notice of presentment, demand
protest, default, nonpayment, maturity, release, compromise, settlement,
extension, or renewal of any or all commercial paper, Accounts, contract rights,
documents,
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instruments, chattel paper and guaranties at any time held by the Agent on which
the Borrower may in any way be liable and hereby ratifies and confirms whatever
the Agent may do regarding the enforcement, collection, compromise, or release
thereof.
10.15 RETENTION OF THE BORROWER'S DOCUMENTS. The Agent or any
Lender may destroy or otherwise dispose of all documents, schedules, invoices or
other papers (other than Collateral) delivered to such Person in accordance with
its customary practices unless the Borrower requests in writing that same be
returned. Upon the Borrower's request and at the Borrower's expense, such Person
shall return such papers when such Person's actual or anticipated need for same
has terminated.
10.16 ENTIRE AGREEMENT. This Agreement, including all
Exhibits, Schedules and other documents attached hereto or incorporated by
reference herein, constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes all other negotiations,
understandings and representations, oral or written, with respect to the subject
matter hereof including, without limitation, that certain proposal letter dated
February 8, 1996 between SBCC and the Borrower.
10.17 EQUITABLE RELIEF. The Borrower recognizes that, in the
event the Borrower fails to perform, observe or discharge any of its Obligations
under this Agreement, any remedy at law may prove to be inadequate relief to the
Agent or any Lender; therefore, the Borrower agrees that the Agent or any
Lender, if such Person so requests, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
10.18 LENDERS' FIRST RIGHT OF REFUSAL. If at any time during
the term of this Agreement the Borrower enters into, or proposes to enter into,
an agreement or understanding to acquire any Person, or the assets of any
Person, the Lenders shall have the right at their sole discretion (but not an
obligation) upon the mutual agreement of all Lenders to provide the Borrower
with the financing for such acquisition and the Borrower shall not enter into
any agreement or understanding with any other Person to provide such financing
without first offering such financial opportunity to the Lenders and the Lenders
have declined to provide such financing.
10.19 COUNTERPARTS. This Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts
and by different parties in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same agreement.
10.20 NO FIDUCIARY RELATIONSHIP. No provision contained
herein or in any other Financing Agreement and no course of dealing
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between the parties shall be deemed to create any fiduciary relationship between
the Agent or any Lender and the Borrower.
10.21 EXCEPTIONS TO COVENANTS. The Borrower shall not be
deemed to be permitted to take any action or omit to take any action which is
permitted as an exception to any of the terms, provisions or covenants contained
in any of the Financing Agreements if such action or omission would result in a
Default or Event of Default or the breach of any term, provision or covenant
contained in any Financing Agreement.
10.22 CONSTRUCTION. The Borrower acknowledges that it and its
counsel have approved the Financing Agreements and that the usual rule of
construction to the effect that any ambiguities or inconsistencies are to be
resolved against the drafting Person shall not be applicable in the
interpretation of any of the Financing Agreements.
11. ASSIGNMENT AND PARTICIPATION.
11.1 ASSIGNMENTS. Upon ten (10) days prior notice to the
Borrower, each Lender may, in the ordinary course of its business and in
accordance with applicable law, assign all or any part of its rights and
obligations under the Financing Agreements to any Person; PROVIDED that such
Lender shall first obtain the written consent of the Agent prior to any such
assignment becoming effective; PROVIDED FURTHER that so long as no Event of
Default has occurred and is continuing no Lender may make any such assignment to
any Person known to such Lender to be a competitor of the Borrower or any of its
Subsidiaries. The assigning Lender shall be relieved of its obligations
hereunder with respect to its Commitments or assigned portion thereof. The
Borrower hereby acknowledges and agrees that any assignment will give rise to a
direct obligation of the Borrower to the assignee and that the assignee shall be
considered to be a "Lender".
11.2 PARTICIPATIONS. Each Lender shall have the right to sell
or assign to a Participant or Participants participating interests in the
Borrower's Obligations hereunder in such amounts and on such terms and
conditions as such Lender shall determine; PROVIDED that so long as no Event of
Default has occurred and is continuing no Lender may grant any such
participation to any Person known to such Lender to be a competitor of the
Borrower or any of its Subsidiaries.
12. AGENT.
12.1 APPOINTMENT. SBCC is hereby appointed Agent hereunder and
under each other Financing Agreements, and each of the Lenders authorizes the
Agent to act as the Agent of such Lender. The Agent agrees to act as such upon
the express conditions contained in this SECTION 12. The Agent shall not have
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a fiduciary relationship in respect of the Borrower or any Lender by reason of
this Agreement.
12.2 POWERS. The Agent shall have and may exercise such powers
under the Financing Agreements as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably incidental
thereto. The Agent shall have no implied duties to the Lenders, or any
obligation to the Lenders to take any action thereunder, except any action
specifically provided by the Financing Agreements to be taken by the Agent.
12.3 GENERAL IMMUNITY. Neither the Agent nor any of its
directors, officers, Agents or employees shall be liable to the Borrower or any
Lender for any action taken or omitted to be taken by it or them hereunder or
under any other Financing Agreements or in connection herewith or therewith
except for its or their own gross negligence or willful misconduct as determined
by a final order, not subject to review, of a court of competent jurisdiction.
12.4 NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither
the Agent nor any of its directors, officers, Agents or employees shall be
responsible for or have any duty to ascertain, inquire into, or verify (a) any
statement, warranty or representation made in connection with any Financing
Agreements or any borrowing hereunder, (b) the performance or observance of any
of the covenants or agreements of any obligor under any Financing Agreements,
(c) the satisfaction of any condition specified in SECTION 4, except receipt of
items required to be delivered to the Agent and not waived at closing, or (d)
the validity, effectiveness or genuineness of any Financing Agreements or any
other instrument or writing furnished in connection therewith.
12.5 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Financing Agreements in accordance with written instructions
signed by the Required Lenders, and such instructions and any action taken or
failure to act pursuant thereto shall be binding on all of the Lenders and on
all holders of Notes. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Financing Agreements unless it
shall first be indemnified to its satisfaction by the Lenders pro-rata against
any and all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
12.6 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute
any of its duties as Agent hereunder and under any other Financing Agreements by
or through employees, Agents and attorneys-in-fact and shall not be answerable
to the Lenders, except as to money or securities received by it or its
authorized Agents, for the default or misconduct of any such Agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters
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pertaining to the agency hereby created and its duties hereunder and under any
other Financing Agreements.
12.7 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be
entitled to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent by the proper Person or Persons, and, in respect
to legal matters, upon the opinion of counsel selected by the Agent, which
counsel may be employees of the Agent.
12.8 AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The
Lenders agree to reimburse and indemnify the Agent ratably in proportion to
their respective Commitments (a) for any amounts not reimbursed by the Borrower
for which the Agent is entitled to reimbursement by the Borrower under the
Financing Agreements, (b) for any other expenses incurred by the Agent on behalf
of the Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Financing Agreements, and (c) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of the Financing Agreements or any other document delivered in
connection therewith or the transactions contemplated thereby, or the
enforcement of any of the terms thereof or of any such other documents; PROVIDED
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Agent as determined by a
final order, not subject to appeal, of a court of competent jurisdiction. The
obligations of the Lenders under this SUBSECTION 12.8 shall survive payment of
the Obligations and termination of this Agreement.
12.9 RIGHTS AS A LENDER. In the event the Agent is a Lender,
the Agent shall have the same rights and powers hereunder and under any other
Financing Agreements as any Lender and may exercise the same as though it were
not the Agent, and the term "Lender" or "Lenders" shall, at any time when the
Agent is a Lender, unless the context otherwise indicates, include the Agent in
its individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Financing
Agreements, with the Borrower or any of its Subsidiaries in which the Borrower
or such Subsidiary is not restricted hereby from engaging with any other Person.
12.10 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Financing
Agreements. Each Lender also acknowledges that it will, independently and
without
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reliance upon the Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Financing Agreements.
12.11 SUCCESSOR AGENT. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower. The Agent may be
removed at any time for cause by the Required Lenders. Upon any such resignation
or removal, the Required Lenders shall have the right to appoint, on behalf of
the Borrower and the Lenders, a successor Agent. If no successor Agent shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within thirty days after the retiring Agent's giving notice of
resignation or within thirty days after the removal of such Agent, then the
retiring Agent shall use reasonable efforts to appoint, on behalf of the
Borrower and the Lenders, a successor Agent. Such successor Agent shall be a
financial institution having capital and retained earnings of at least One
Hundred Fifty Million Dollars ($150,000,000). Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder and under the other Financing
Agreements. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this SECTION 12 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent hereunder and under the other Financing Agreements.
12.12 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the
Lenders. Subject to the provisions of SUBSECTION 12.5, the Agent shall take any
action of the type specified in this Agreement with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so required by SECTION 13, by all Lenders); PROVIDED that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as the Agent shall determine is in the best
interests of the Lenders.
13. AMENDMENTS AND WAIVERS.
Subject to the provisions of this SECTION 13, the Required
Lenders (or the Agent with the consent in writing of the Required Lenders) and
the Borrower may enter into agreements supplemental hereto for the purpose of
adding, terminating or
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modifying any provisions to the Financing Agreements or changing in any manner
the rights of the Lenders or the Borrower hereunder or waiving any Event of
Default hereunder; PROVIDED that no such supplemental agreement shall, without
the consent of each Lender affected thereby:
(a) extend the final maturity of any Loan or Note or reduce
the principal amount thereof, or reduce the rate or extend the time of payment
of interest or fees thereon;
(b) reduce the percentage specified in the definition of
Required Lenders;
(c) reduce the amount or extend the payment date for the
mandatory payments required hereunder, or increase the amount of the Revolving
Credit Commitment of any Lender hereunder (other than an increase in the
Revolving Credit Commitment of any Lender as a result of an assignment
consummated between such Lender and another Lender pursuant to SUBSECTION 11.1);
(d) extend the Revolving Loan Initial Term or the Revolving
Loan Renewal Term, as applicable (except as contemplated by SUBSECTION 2.8), or
permit any Letter of Credit or Lender Guaranty to have an expiry date beyond the
Revolving Loan Maturity Date;
(e) amend this SECTION 13;
(f) release any Support Letter of Credit or all or any
substantial portion of the Collateral or the real property subject
to the Mortgages;
(g) permit any assignment by the Borrower of its
Obligations or its rights hereunder; or
(h) amend the definition of the term "Commitment"
without the consent of each Lender affected thereby.
No amendment, modification, termination or waiver affecting
the rights or duties of the Agent under any Financing Agreement shall be
effective without the written consent of the Agent.
Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for the Agent to take additional Collateral pursuant to any Financing
Agreement. No notice to or demand on the Borrower not required by the terms
hereof in any case shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this SECTION 13 shall
be binding upon each holder
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of the Notes at the time outstanding, each future holder of the Notes and the
Borrower.
Notwithstanding anything to the contrary contained herein, the
Agent may, at its sole discretion, release or compromise Collateral and the
proceeds thereof to the extent of asset dispositions permitted by the terms
hereof.
14. SET OFF AND SHARING OF PAYMENTS.
14.1 SETOFF. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default, each
Lender is hereby authorized by the Borrower at any time or from time to time,
with reasonably prompt subsequent notice to the Borrower or to any other Person
(any prior or contemporaneous notice being hereby expressly waived) to set off
and to appropriate and to apply any and all (a) balances (including, without
limitation, all account balances, whether provisional or final and whether or
not collected or available) held or owing by such Lender at any of its offices
to or for the credit or account of the Borrower (regardless of whether such
balances are then due to the Borrower) and (b) other property held or owing by
such Lender to or for the credit or the account of the Borrower, toward the
payment of the Obligations owing to such Lender, whether or not the Obligations,
or any part hereof, shall then be due.
14.2 RATABLE PAYMENTS. If any Lender, whether by setoff or
otherwise, has payment made to it upon its Loans (other than payments received
pursuant to SUBSECTIONS 2.21 and 2.22) in a greater proportion than its Pro Rata
Share of such Loans, such Lender agrees, promptly upon demand, to purchase a
portion of the Loans held by the other Lenders so that after such purchase each
Lender will hold its ratable proportion of Loans. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for its Obligations or such amounts
which may be subject to setoff, such Lender agrees, promptly upon demand, to
take such action necessary such that all Lenders share in the benefits of such
collateral ratably in proportion to their Loans. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made. If an amount to be setoff is to be applied to Indebtedness of the
Borrower to a Lender, other than Indebtedness evidenced by any of the Notes held
by such Lender, such amount shall be applied ratably to such other Indebtedness
and to the Indebtedness evidenced by such Notes. The Borrower agrees, to the
fullest extent permitted by law, that (x) any Lender may exercise its right to
set off with respect to amounts in excess of its Pro Rata Share of the
Obligations and may sell participation in such excess to other Lenders, and (y)
any Lender so purchasing a participation in the Loans made or other Obligations
held by other Lenders may exercise all rights of set-off, bankers' lien,
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counterclaim or similar rights with respect to such participation as fully as if
such Lender were a direct holder of Loans and other Obligations in the amount of
such participation.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
BROTHERS GOURMET COFFEES, INC.
By:_______________________________
Title:____________________________
SANWA BUSINESS CREDIT CORPORATION, as
Agent and as a Lender
By:_______________________________
Title:____________________________
THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL
OF ITS CHOICE WITH RESPECT TO THIS LOAN AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY, AND THE BORROWER ACKNOWLEDGES AND AGREES THAT (i) EACH OF
THE WAIVERS SET FORTH HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE WAIVERS SET
FORTH IN SUBSECTIONS 9.5, 9.6 AND 10.8 WERE KNOWINGLY AND VOLUNTARILY MADE, (ii)
THE OBLIGATIONS OF THE AGENT AND EACH LENDER HEREUNDER, INCLUDING THE OBLIGATION
TO ADVANCE AND LEND FUNDS TO THE BORROWER IN ACCORDANCE HEREWITH, SHALL BE
STRICTLY CONSTRUED AND SHALL BE EXPRESSLY SUBJECT TO THE BORROWER'S COMPLIANCE
IN ALL RESPECTS WITH THE TERMS AND CONDITIONS HEREIN SET FORTH, AND (iii) NO
REPRESENTATIVE OF THE AGENT OR ANY LENDER HAS WAIVED OR MODIFIED ANY OF THE
PROVISIONS OF THIS AGREEMENT AS OF THE DATE HEREOF AND NO SUCH WAIVER OR
MODIFICATION FOLLOWING THE DATE HEREOF SHALL BE EFFECTIVE UNLESS MADE IN
ACCORDANCE WITH SUBSECTION 10.1.
108
EXHIBIT 10.4
CREDIT SUPPORT AGREEMENT
This Credit Support Agreement ("Agreement"), dated as of this
29th day of May, 1996, is made by and among (1) Brothers Gourmet Coffees, Inc.
(the "Company"), a Delaware corporation, (2) J.H. Whitney & Co., a New York
limited partnership ("Whitney") and (3) J. P. Bolduc, an individual ("Bolduc")
(Whitney and Bolduc are sometimes collectively referred to herein as the
"Providers").
RECITALS
WHEREAS, the Company and Sanwa Business Credit Corporation
("Sanwa") have entered into that certain Loan and Security Agreement, dated of
even date herewith (the "Closing Date"), as the same may from time to time
hereafter be amended, extended, restated, modified and supplemented (the "Loan
Agreement"), pursuant to which and subject to the terms thereof Sanwa has
committed to the Company to make (1) certain revolving loans in the aggregate
principal amount of $15,000,000, (2) a term loan in the principal amount of
$7,500,000 and (3) if certain conditions are met a second term loan in the
principal amount of $2,500,000 (the loans described in clauses (1), (2) and (3)
above being collectively referred to herein as the "Loans"); and
WHEREAS, Sanwa has requested that the Providers provide
$2,000,000 of credit support for the Company's obligations under the Loan
Agreement as a condition to Sanwa advancing the Loans on the Closing Date or in
the future; and
WHEREAS, Sanwa and Whitney have entered into a Participation
Agreement, dated as of the Closing Date, a copy of which is attached as Exhibit
A hereto (the "Whitney Participation Agreement"); and
WHEREAS, Sanwa and Bolduc have entered into a Participation
Agreement, dated as of the Closing Date, a copy of which is attached as Exhibit
B hereto (the "Bolduc Participation Agreement") (the Whitney Participation
Agreement and the Bolduc Participation Agreement are collectively referred to
herein as the "Participation Agreements"); and
WHEREAS, in addition to the consideration payable to the
Providers as set forth in the Participation Agreements, as a further inducement
to the Providers to provide the credit support set forth in the Participation
Agreements, the Company has agreed to pay certain additional consideration to
the Providers.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the Providers, and
in order to induce the Providers to enter into the Participation Agreements
and to enter into this Agreement, the parties hereby agree as follows:
AGREEMENT
1. COMMITMENT FEE. The Company shall pay to each
Provider a commitment fee equal to the sum of $20,000, which
commitment fee shall be due and payable in full on the Closing
Date.
2. WARRANT. On the Closing Date, the Company shall
execute and deliver to (1) Whitney three (3) Warrants substantially in the forms
of Exhibit C-1, C-2 and C-3, all of which are attached hereto (the "Whitney
Warrants"), and (2) Bolduc three (3) Warrants substantially in the forms of
Exhibit D-1, D-2 and D-3, all of which are attached hereto (the "Bolduc
Warrants"). The Whitney Warrants and the Bolduc Warrants are collectively
referred to herein as the "Warrants".
3. EXPENSES. The Company agrees to pay all reasonable
out-of-pocket expenses incurred by the Providers in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
Warrants, including, without limitation, the fees and expenses of the issuers of
the Support Letters of Credit (in each case, as defined in the applicable
Participation Agreement) and all reasonable attorneys' fees and expenses
incurred by the Providers and the issuers of the Support Letters of Credit.
4. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Florida,
without regard to the conflicts of laws provisions thereof.
5. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute one agreement.
6. HEADINGS. The headings used in this Agreement are
for purposes of reference only and shall not affect the construction of
this Agreement.
7. FINAL AGREEMENT. This Agreement, the Warrants and
the Participation Agreements are the final expression of the agreement of the
parties hereto relating to the subject matter hereof and may not be contradicted
by evidence of any prior contemporaneous oral or written agreement(s) between
the parties with respect to the subject matter hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the date first written above.
BROTHERS GOURMET COFFEES, INC.
By:___________________________
Name (Print): Donald D. Breen
Title: President and Chief
Executive Officer
J.H. WHITNEY & CO.
By:___________________________
Name (Print):_________________
Title: General Partner
J. P. Bolduc
-------------------------------
Name (Print): J.P. Bolduc
3
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