SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 1-13710
AID AUTO STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 11-2254654
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
275 Grand Boulevard, Westbury, New York 11590
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (516) 338 - 7889
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 ninety days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, par value of $.001 per share: 3,957,596 shares as of
November 1, 1996.
AID AUTO STORES, INC.
CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1 Consolidated Condensed Financial Statements:
Balance Sheets as of September 30, 1996 and
December 31, 1995 3
Statements of Operations for the Nine Months Ended
September 30, 1996 and 1995 4
Statements of Operations for the Three Months Ended
September 30, 1996 and 1995 5
Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
AID AUTO STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
Sept. 30, 1996 Dec. 31, 1995
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 410,987 $4,766,893
Accounts receivable-trade, net of
allowances for doubtful accounts of
$662,000 and $612,000 at September
30, 1996 and December 31, 1995,
respectively 1,647,050 2,991,012
Inventories 11,927,636 9,372,480
Prepaid expenses and other current assets 1,778,790 1,400,703
Notes receivable, net of allowances for
doubtful accounts of $190,000 at Sept.
30, 1996 and Dec. 31, 1995 303,310 245,014
Deferred income taxes 268,000 268,000
Total current assets 16,335,773 19,044,102
FIXED ASSETS, NET 2,750,783 1,754,124
COSTS IN EXCESS OF NET ASSETS ACQUIRED, NET 3,675,005 3,929,376
OTHER ASSETS:
Intangible assets 13,171 36,863
Notes receivable - net of current portion 111,476 218,824
Deferred income taxes 175,000 175,000
Security deposits & other assets 159,221 143,433
TOTAL ASSETS: $ 23,220,429 $ 25,301,722
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $5,856,751 $5,011,200
Accounts payable 3,589,307 4,315,842
Accrued expenses 230,140 487,386
Current portion of long-term debt 250,025 2,208,225
Note payable - officer 660,000 468,750
Total current liabilities 10,586,223 12,491,403
LONG-TERM DEBT 1,842,133 1,582,373
DEFERRED OCCUPANCY COSTS 126,164 157,995
NOTE PAYABLE - OFFICER 1,527,500 2,031,250
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized
2,000,000 shares; none issued - -
Common stock, $.001 par value; authorized,
15,000,000 shares; 3,957,596 shares issued
and outstanding 3,958 3,958
Additional paid-in capital 9,006,809 9,006,809
Retained earnings 127,642 27,934
9,138,409 9,038,701
Total liabilities and shareholders'
equity $ 23,220,429 $ 25,301,722
See Notes to Consolidated Condensed Financial Statements
AID AUTO STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Sept. 30,
Revenues 1996 1995
Net Sales $20,399,673 $ 14,502,597
Franchise Fees 145,619 202,930
20,545,292 14,705,527
Costs and expenses:
Cost of sales 12,233,099 10,195,781
Selling and shipping 4,131,492 2,172,971
General and administrative 3,641,072 2,355,342
$ 20,005,663 $ 14,724,094
Income from operations 539,629 (18,567)
Interest Expense (603,712) (520,660)
Interest and other income 196,870 232,242
Income (loss) before income taxes 132,787 (306,985)
Provision for income taxes 33,079 141,000
NET INCOME (LOSS) $ 99,708 $ (447,985)
Income (loss) per common share
Income (loss) before income taxes $ .03 $(.10)
Net Income (loss) per common share $ .03 $(.14)
Weighted average common shares outstanding 3,957,596 3,147,253
See Notes to Consolidated Condensed Financial Statements
AID AUTO STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Sept. 30,
Revenues 1996 1995
Net Sales $6,890,311 $ 5,012,920
Franchise Fees 45,300 67,400
6,935,611 5,080,320
Costs and expenses:
Cost of sales 4,139,947 3,381,135
Selling and shipping 1,313,686 824,236
General and administrative 1,287,464 893,543
$ 6,741,097 $ 5,098,914
Income from operations 194,514 (18,594)
Interest Expense (207,766) (164,196)
Interest and other income 21,837 120,080
Income (loss) before income taxes 8,585 (62,710)
Provision for income taxes 1,464 55,000
NET INCOME (LOSS) $ 7,121 $ (117,710)
Income (loss) per common share
Income (loss) before income taxes $ - $ (.02)
Net Income (loss) per common share $ - $ (.03)
Weighted average common shares outstanding 3,957,596 3,800,000
See Notes to Consolidated Condensed Financial Statements
AID AUTO STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sept. 30,
1996 1995
Cash flows from operating activities
Net income (loss) $ 99,708 $(447,987)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation and amortization 537,645 313,424
Provision for losses on accounts receivable 50,000 109,000
Deferred occupancy costs (31,831) 11,524
(Increase) decrease in operating assets
Accounts Receivable 1,293,962 251,590
Notes Receivable 49,052 116,552
Inventories (2,555,156) (2,686,717)
Prepaid expenses & other current assets (378,087) (273,715)
Security deposits (15,788) (6,990)
Deferred income taxes - 126,320
Increase (decrease) in operating liabilities
Accounts payable (726,533) 744,764
Accrued expenses (257,246) 298
Income taxes payable - (111,214)
Net cash used in operating activities (1,934,274) (1,853,151)
Cash flows from investing activities
Capital expenditures $(1,256,243) $ (411,811)
Net cash used in investing activities $(1,256,243) $ (411,811)
Cash flows from financing activities
Net borrowings under revolving credit line 845,551 587,063
Principal payments of long-term debt (1,698,440) (31,438)
Repayment of officers' loans (312,500) (551,951)
Net proceeds from issuance of common stock - 7,296,873
Net cash (used in) provided by financing
activities (1,165,389) 7,300,547
Net (decrease) increase in cash and cash
equivalents (4,355,906) 5,035,585
Cash and cash equivalents, at beginning of year 4,766,893 359,584
Cash and cash equivalents, at end of year $ 410,987 $ 5,395,169
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest 572,775 446,198
Income taxes 126,956 161,999
See Notes to Consolidated Condensed Financial Statements
AID AUTO STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of September 30, 1996 and the consolidated
statements of operations for the three and nine month periods ended September
30, 1996 and September 30, 1995 and statement of cash flows for the nine
month period ended September 30, 1996 and 1995 have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
included only normal recurring adjustments) necessary to present fairly the
financial position at September 30, 1996, and the results of operations and
cash flows for the periods presented have been made. Results of operations for
the three and nine month periods ended September 30, 1996 are not necessarily
indicative of the operating results to be expected for the full year.
For information concerning the Company's significant accounting policies,
reference is made to the Company's audited financial statements for the year
ended December 31, 1995 contained in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission. While the Company
believes that the disclosures presented are adequate to make the information
contained herein not misleading, it is suggested that these statements be
read in conjunction with the consolidated financial statements and notes
included in the Form 10-K.
B. INVENTORIES
Inventories consist primarily of merchandise purchased for resale.
AID AUTO STORES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General:
Aid Auto Stores, Inc. (the "Company"), formed in 1953, is a retailer,
wholesaler and franchisor of automotive parts and accessories. As of September
30, 1996, the Company supplied products to 60 Aid Auto Stores, including 18
Company-owned stores and 42 franchised stores, and, through its wholly-owned
subsidiary, Ames Automotive Warehouse, Inc. ("Ames"), to hundreds of non-
automotive chain stores and independent jobbers and installers in New York,
New Jersey and Connecticut. The Aid Auto stores sell an extensive variety of
name-brand automotive parts, accessories and chemicals, as well as an
assortment of products marketed under the "Aid" and "Perfect Choice(tm)"
brands to both do-it-yourself and commercial customers. In 1994,
in anticipation of commencing its Company-owned mini-warehouse Superstore
growth strategy, the Company curtailed the granting of new franchises, so as
to preserve favorable locations for Company-owned Superstores. In April
1995, the Company consummated its Initial Public Offering, the net proceeds
of which were approximately $7,300,000 (the "Initial Public Offering").
As of September 30, 1996, the Company had opened four new Superstores and had
acquired (in December 1995) ten franchised Aid Auto Stores located in Long
Island, New York, of which it currently intends to convert nine to
Superstores. The Company currently anticipates the opening of up to 48 to
60 Superstores in the five-year period following the April 1995 Initial
Public Offering. The number of stores to be opened during this period is
subject to substantial variation depending upon, among other factors, the
availability of adequate financing to fund the cost of adding the additional
stores, the level of success of the initial Superstores, the avaif new stores.
The anticipated favorable financial performance of the Company is tied, to a
large extent, to the transition of the Company to the Superstore program and
the strong future potential of that program. The Company's operating
expenses have increased significantly, and are expected to continue to
increase, in connection with the Superstore growth program. Accordingly, the
Company's future profitability will depend upon corresponding increases in
revenue from Superstore operations, of which there can be no assurance.
On July 22, 1995, the Company held the Grand Opening of its first new
Company-owned Superstore. The store is located in Long Island City, in the
New York City Borough of Queens. As of September 30, 1996, the Company
opened Superstore locations on main thoroughfares in Brooklyn and Queens,
New York and in a major shopping mall in Staten Island, New York.
The Company has also sought to grow its operations by means of acquiring
other companies, including Aid franchisees, having parts and accessories
retail stores. On December 15, 1995, the Company acquired ten franchised
Aid Auto stores located in Long Island, New York. Following the
acquisition, the Company commenced converting up to nine of the ten stores
into Aid Auto Superstores.
Results of Operations:
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995. Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995.
The Company's operating revenues are primarily derived from net sales
consisting of both retail and wholesale sales. Retail sales are made from the
Company-owned Aid Auto Stores of which 18 existed at September 30, 1996 and
four existed at September 30, 1995. Wholesale sales include sales to the
Company's franchised Aid Auto Stores, of which 42 existed at September 30, 1996
and 62 existed at September 30, 1995, and through Ames, to hundreds of other
customers. Revenues increased by $5,839,000 or 39.7% from $14,706,000 for the
nine months ended September 30, 1995 to $20,545,000 for the nine months ended
September 30, 1996 and by $1,856,000 or 36.5% from %5,080,000 for the three
months ended September 30, 1995 to $6,936,000 for the three months ended
September 30, 1996. The increase in revenues in 1996 was primarily due to the
increase in the number of Company-owned stores. (Retail sales increased by
$9,707,000 or 403.4% from $2,406,000 for the nine months ended September 30,
1995 to $12,113,000 for the nine months ended September 30, 1996 and by
$3,168,000 or 271.5% from $1,167,000 for the three months ended September 30,
1995 to $4,335,000 for the three months ended September 30, 1996. Wholesale
sales decreased by $4,498,000 or 37.9% from $12,440,000 for the nine months
ended September 30, 1995 to $7,942,000 for the nine months ended September 30,
1996 and by $1,457,000 or 43.0% from $3,846,000 for the three months ended
September 30, 1995 to $2,389,000 for the three months ended September 30, 1996.)
Subsequent to the third quarter of 1995, the Company acquired ten franchised Aid
Auto Stores located in Long Island, New York, and opened four new Superstores.
Revenue increases were offset in part by a decrease in sales to franchisees,
reflecting the Company's decision consistent with its Superstore growth strategy
to generally not grant new franchises (which results in a loss of sales to new
franchisees). Six franchised stores were terminated during the nine months
ended September 30, 1996.
Cost of sales increased by $2,037,000 or 20.0%, and $759,000 or 22.4% from
$10,196,000 to $12,233,000 for the nine months ended September 30, 1995 and
1996, respectively, and from $3,381,000 to $4,140,000 for the three months
ended September 30, 1995 and 1996, respectively. The increase in cost of sales
in absolute dollars was attributable to the increased volume of sales in 1996.
As a percentage of net sales, cost of sales declined from 70.3% and 67.5% for
the nine and three month periods ended September 30, 1995, respectively, to
60.0% and 60.1% for the comparable periods in 1996, reflecting the significantly
higher margins on retail sales from the new Superstores (as compared to lower
margin on wholesale sales).
Selling and shipping expneses increased by $1,959,000 or 90.1% from $2,173,000
or 15.0% of net sales for the nine months ended September 30, 1995 to $4,131,000
or 20.3% of net sales for the nine months ended September 30, 1996. Selling
and shipping expenses increased by $490,000 or 59.4% from $824,000 or 16.5% of
net sales for the third quarter of 1995 to $1,314,000 or 19.1% of net sales
for the third quarter of 1996. The increase as an absolute amount and as a
percentage of net sales for the three and nine month periods was due primarily
to a substantial increase of selling expense, reflecting a greater Company
infrastructure due to a significant increase in the Company's retail operations.
Selling expense is higher for a retail operation than for a wholesale
operation, reflecting the nature of these operations. As a result of the
company's strong efforts to control costs, the shipping expense dollars
remained essentially constant despite the large increase in sales volume.
General and administrative expenses increased by $1286,000 or 54.6%, from
$2,355,000 or 16.2% of net sales for the nine months ended September 30, 1995
to $3,641,000 or 17.9% of net sales for the nine months ended September 30,
1996. General and administrative expenses increased by $393,000 or 44.1%
from $894,000 or 17.8% of net saels for the thrid quarter of 1995 to
$1,287,000 or 18.7% of net sales for the thrid quarter of 1996. The increase
as an absolute amount and as a percentage of net sales for the three and nine
month periods was due to the additional infrastructure needed in connection
with the increased volume of business for the additional Company-owned stores.
Interest expense increased $83,000, from $521,000 for the nine months ended
September 30, 1995 to $604,000 for the comparable period of 1996. Interest
expense increased $44,000 from $164,000 for the third quarter ended September
30, 1995 to $208,000 for the third quarter ended September 30, 1996. This
increase was due to increased borrowings from the Company's bank as well as
interest incurred in connection with the acquisition of the ten stores and
capital expenditures associated with the opening of four new Superstores.
The increase in income from operations and net income for the three and nine
month periods ended September 30, 1996 as compared to comparable periods in
1995 is a result of the above aforementioned factors.
Liquidity and Capital Resources:
The Company had working capital of $5,750,000 at September 30, 1996, as
compared to $6,553,000 at December 31, 1995, reflecting primarily the increase
in capital expenditures in connection with the implementation of its
Superstore growth program. Through September 30, 1996, the Company had
financed its capital requirements predominantly through a bank loan and
credit facility, through loans from one of its officers, and through the
Company's Initial Public Offering, the net proceeds of which were approximately
$7,300,000.
Net cash used in operating activities was $1,853,000 for the first nine
months of 1995 and $1,934,000 for the first nine months of 1996. The
increase in 1996 was attributable primarily to increases in inventories, as a
result of the increase in the number of retail stores, and decreases in
accounts payable, offset by a decrease in accounts receivable, as well as the
generation of net income in 1996 as compared to a loss in the same period of
1995. Net cash utilized in investing activities was $412,000 and $1,256,000
in the first nine months of 1995 and 1996, respectively, the increase
refelecting increase expenditure on fixed assets in connection with the
Superstore expansion program. Net cash of $7,301,000 was provided by financing
activities in the first nine months of 1995 compared to $1,165,000 used in
financing activities in the first nine months of 1996. The shift was primarily
attributable to the receipt of the net proceeds of the Initial Public Offering
in 1995 and to repayment in 1996 of long-term debt in connection with the
acquisition of the ten franchised Aid Auto stores locations and repayments of
it's officer's loan.
On October 22, 1996, the Company entered into a revolving credit facility with
GE Capital Corp. ("GE Capital") providing for maximum borrowings of $10,000,000.
This facility replaces the existing bank facility which provided for maximum
borrowings of $6,000,000. This new facility allows the Company to borrow at the
index rate plus 3%. (The index rate is the latest rate for 30-day dealer placed
commercial paper published in the "Money Rates" section of the Wall Street
Journal). At October 31, 1996 the index rate was 5.35%. Maximum borrowings
under the revolving credit facility are based upon the sum of 65% of eligible
inventory and 70% of eligible accounts receivable. The agreement expires on
September 30, 1999.
Substantially all of the Company's assets are pledged under this new facility
as collateral, and the Company is prohibited from granting a security interest
to any party other than GE Capital, which could limit the Company's ability to
obtain debt financing to implement its proposed expansion. In addition, the
Company's agreement with GE Capital limits or prohibits the Company, subject to
certain exceptions, from merging or consolidating with another corporation or
selling or substantially all of its assets. In the event that the Company is
unable to make payment on its line of credit when due on September 30, 1999, the
Bank could foreclose on the collateral, which would have a material adverse
effect on the Company.
At September 30, 1996, the Company was indebted to the Chief Executive Officer,
President and majority shareholder in the aggregate amount of $2,187,500. The
$2,187,500 loan was evidenced by two promissory notes. In connection with the
new facility with GE Capital, these notes were consolidated into one promissory
note. The new note bears interest monthly at the same rate as the revolving
credit facility with principal payable in quarterly installments commencing
November 1, 1996 through February 1, 2000. The new revolving credit facility
allows the Company to make quarterly principal payments and scheduled monthly
interest payments so long as prior to and after giving affect to such payments
no default has occurred and is continuing or would occur on the GE Capital
indebtedness as a result thereof. The note provides for immediate payment
thereof upon, among other things, a change in a majority of the continuing
directors of the Company (as defined in the note) or a demand by the Bank of
payment in full of outstanding Bank indebtedness.
The Company's accounts receivable, less allowances for doubtful accounts, at
September 30, 1996, were $1,647,000, as compared to $2,991,000 at December
31, 1995. The decrease was due to a decrease in the amount of wholesale
sales on credit terms in 1996 as compared to 1995. At September 30, 1996,
the Company's allowance for doubtful accounts was $662,000, which the Company
believes is currently adequate for the size and nature of its receivables.
At September 30, 1996, notes receivable, less allowance for doubtful accounts,
were $415,000, as compared to $464,000 at December 31, 1995. The decrease in
notes receivable primarily reflects collections on the promissory notes.
Currently, eight franchisees are obligated under notes. Their inability to
pay for purchases under standard payment terms is due primarily to a downturn
in their business during the recessionary economy of 1991 to 1993 (in some
cases exacerbated by road construction making access to the stores
difficult). It is the Company's policy to convert accounts receiv
n a franchisee has demonstrated an inability to pay its account on a timely
basis. Delays in collection or uncollectability of accounts and notes
receivable could have an adverse effect on the Company's liquidity and
working capital position.
At September 30, 1996, the Company had deferred tax assets of $443,000. The
Company, after considering its previous pattern of profitability and its
anticipated future taxable income, believes that it is more likely than not
that the deferred tax assets will be realized. In this respect, the Company
estimates that $1,100,000 of future taxable income will be required to
realize the deferred tax assets, with the majority of such assets anticipated
to be recovered over the next five years.
As of the date hereof, other than in connection with the implementation of
the Superstore growth program, the Company has no material commitments for
capital expenditures. In connection with the acquisition of the ten stores
described above, the Company was obligated to expend $2,000,000 in cash on
January 2, 1996 in repayment of short term notes. In addition, as part of the
purchase price of the acquisition, the Company assumed $1,000,000 of trade
payables, as well as issued 157,596 shares of common stock of the Company and
a promissory note in the amount of $1,507,396.
The Company has used a substantial portion of the net proceeds of the Initial
Public Offering to implement its proposed Superstore growth program. The
Company will need to seek additional debt or equity financing, as the Company
does not anticipate that its current resources and cash flow from operations
will be sufficient to fund the continuing cost of its growth program to open
48 to 60 Superstores. To the extent that the Company seeks financing through
the issuance of equity securities, any such issuance of equity securites would
result in dilution to the interests of the Company's stockholders.
Additionally, to the extent that the Company incurs indebtedness to finance
the acquisition of capital equipment or issues debt securities to fund the
Superstore growth program, the Company will be subject to risks associated with
icurring substantial indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on
any such indebtedness. Other than the Company's existing line of credit with
GE Capital, the Company has no current arrangements with respect to, or
sources of, additional financing and it is not anticipated that the existing
majority stockholder will provide any portion of the Company's future financing
requirements or personal guarantees. There can be no assurance that additional
financing will be available to the Company on acceptable terms, or at all.
Seasonality:
The Company's business is seasonal to some extent primarily as a result of
the impact of weather conditions on store sales. Store sales and profits
have historically been higher in the second and third quarters (April through
September) of each year than in the first and fourth quarters, for which the
Company generally achieves only nominal profits or incurs net losses.
Weather extremes tend to enhance sales by causing a higher incidence of parts
failure and increasing sales of seasonal products. However, extremely severe
winter weather or rainy conditions tend to reduce sales by causing deferral of
elective maintenance.
Impact of Inflation:
Inflation has not had a material effect on the Company's operations.
AID AUTO STORES, INC.
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On October 1, 1996 the Company held its Annual Meeting of Stockholders.
The Stockholders voted on and approved the following:
1. The election of the following individuals to serve as Directors
until the next annual meeting and until their successors are duly
elected and qualified:
Philip L. Stephen
Greg M. Stephen
Leonard Genovese
Lewis R. Cowan
Ira Scott Greenspan
Werner Neuburger
2. The ratification of the selection by the Board of Directors of
Grant Thornton LLP to serve as Independent Auditors for the year
ended December 31, 1996. In this connection, 3,931,713 shares
were voted for ratification, 4,500 shares were voted against
ratification, and 10,000 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(1) General Electric Capital Corporation revolving loan and
credit agreement with exhibits.
(b) Reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AID AUTO STORES, INC.
(Registrant)
Date: November 14, 1996 /s/ Philip L. Stephen
Philip L. Stephen, Chairman, Chief
Executive Officer and President
Date: November 14, 1996 /s/ Frank Mangano
Frank Mangano
Chief Financial Officer
(principal financial officer)
EXHIBIT A
GE Capital Commercial Finance Notice of Revolving Credit Advance
Previously Faxed: Yes No (Circle One)
Company Name: Aid Auto Stores, Inc. Date: / / Certificate Number:
1. ACCOUNTS RECEIVABLE (Line 5 of previous Notice
of Revolving Credit Advance dated / / ) $
2. Additions to Accounts Receivable since last
Notice of Revolving Credit Advance $
(A) New sales dated / / to / / $
(B) Other additions (Explain: ) $
(C) TOTAL ADDITIONS $
3. Reductions to Accounts Receivable since last Notice
of Revolving Credit Advance
(A) Cash collections dated / / to / / $
(B) Discounts issued since last Notice of Revolving
Credit Advance $
(C) Credit memos issued since last Notice of
Revolving Credit Advance $
(D) Other reductions/additions since last Notice of
Revolving Credit Advance $
(E) TOTAL REDUCTIONS $
4. Other adjustments to Accounts Receivable
(Explain: ) $
5. NEW ACCOUNTS RECEIVABLE BALANCE (Total of Lines 1,
2C, 3E, and 4) $
6. Total ineligible Accounts Receivable (Line 2 of
Borrowing Base Certificate dated / / ) $
7. Eligible Accounts Receivable (Line 5 minus Line 6) $
8. Eligible Accounts Receivable Availability ( % of Line 7) $
9. Eligible Inventory Availability (Line 6 of Borrowing
Base Certificate dated / / ) $
10. Reserves against availability $
11. Total Borrowing Availability (The lesser of the
total of Lines 8 and 9 minus line 10 or the
Maximum Amount of $ ) $
12. BEGINNING REVOLVING CREDIT LOAN BALANCE
(Line 16 of previous Notice of Revolving Credit
Advance dated / / ) $
13. Plus Revolving Credit Advance requested $
14. Less TOTAL cash collections against Revolving
Credit Loan since last Notice of Revolving
Credit Advance
(A) Date Amt. $
(B) Date Amt. $
(C) Date Amt. $
(D) Date Amt. $
(E) TOTAL CASH REMITTED $
15. New Revolving Credit Loan Balance
(Line 12 plus Line 13 minus Line 14E) $
16. NET BORROWING AVAILABILITY (Line 11 minus Line 15) $
The undersigned hereby certifies that the statements contained in Section 2.2
of the Loan and Security Agreement dated as of October 1, 1996 between Aid
Auto Stores, Inc., General Electric Capital Corporation and the other parties
thereto, if any (as from time to time amended, supplemented, restated to
otherwise modified, the "Loan Agreement") are true and correct on the date
hereof, and will be true and correct on the date of the requested Revolving
Credit Advance, before and after giving effect thereto and the application of
the proceeds therefrom.
By:
Title:
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-77009.2 Type: NOT
EXHIBIT B
FORM OF REVOLVING CREDIT NOTE
$10,000,000 New York, New York
October , 1996
For value received, the receipt and sufficiency of which are hereby
acknowledged, Aid Auto Stores, Inc., a Delaware corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation ("Lender"), the sum of $10,000,000 (the "Maximum
Amount") or such greater or lesser amount as shall be advanced by Lender from
time to time, together with interest on the unpaid balance of such amount
from the date of the initial Revolving Credit Advance. This Note is the
Revolving Credit Note issued under the Loan and Security Agreement among
Borrower, the Subsidiary Guarantors (as defined therein) party thereto and
Lender of even date herewith (said agreement, as the same may be amended,
restated or supplemented from time to time, being herein called the "Agreement")
to which a reference is made for a statement of all of the terms and conditions
of the Loan evidenced hereby. Capitalized terms not defined in this Note
shall have the respective meanings assigned to them in the Agreement. This
Note is secured by the Agreement, the other Loan Documents and the
Collateral, and is entitled to the benefit of the rights and security
provided thereby.
Interest on the outstanding principal balance under this Note is payable at
the Revolving Credit Rate, or, under the circumstances contemplated by the
Agreement, at the Default Rate, in immediately available United States
Dollars at the time and in the manner specified in the Agreement. The
outstanding principal and interest under this Note shall be immediately
due and payable on the Commitment Maturity Date. Payments received by Lender
shall be applied against principal and interest as provided for in the
Agreement. Borrower acknowledges that (a) Lender is authorized under the
Agreement to charge to the Revolving Credit Loan unpaid Obligations of
Borrower to Lender, (b) the principal amount of the Revolving Credit Loan will
be increased by such amounts, and (c) the principal, as so increased, will
bear interest as provided for herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives:
(a) presentment, demand and protest, and notice of presentment, dishonor,
intent to accelerate, acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all Loan
Documents or this Note; (b) all rights to notice and a hearing prior to
Lender's taking possession or control of, or to Lender's replevy, attachment
or levy upon, the Collateral or any bond or security that might be required
by any court prior to allowing Lender to exercise any of its remedies; and
(c) the benefit of all valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any
personal or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in Schedule
E to the Agreement.
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
AID AUTO STORES, INC.
("Borrower")
By:_________________________
Title: _____________________
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-76961.3 Type: NTE
EXHIBIT C
GE Capital Commercial Finance Borrowing Base Certificate
Previously Faxed: Yes No (Circle One)
Company Name: Aid Auto Stores, Inc. Date: / / B.B.C.#
Aid Auto Ames
1. Period end accounts receivable as of: / / $ $
2. Ineligible Accounts as of: / /
Accounts over days from due/invoice Date $
(circle one) $ $
Intercompany accounts $ $
Government accounts $ $
Contra accounts $ $
Foreign accounts $ $
% Cross aging exclusion $ $
Other - dilution reserve $ $
Other $ $
TOTAL INELIGIBLES $ $
3. Eligible Accounts (Line 1 minus Line 2) $ $
4. Eligible Accounts advance rate % %
4A. Outstanding principal of Ames Note $
5. Eligible Accounts availability
(Line 3 multiplied by $ $
Line 4; for Ames, but no greater than line 4A) $ $
6. Eligible Inventory as of / /
Source:
Type Gross Amount (-) Ineligible (x) Adv Rate (=) Available or Cap
Total Inventory availability $
7. Reserves against availability $
8. Borrowing Availability(The lesser of the
total of Lines 5 and 6, minus Line 7
or the Maximum Amount of $10,000,000) $
9. Revolving Credit Loan Balance $
10. Net Borrowing Availability (Line 8 minus
the total of Lines 9 and 10) $
The undersigned certifies that (a) all of the foregoing information regarding
Eligible Accounts is true and correct on the date hereof and relates solely
to Eligible Accounts within the meaning given such term in the Loan and
Security Agreement dated as of October 1, 1996 between Aid Auto Stores, Inc.,
General Electric Capital Corporation and the other parties thereto, if any
(as from time to time amended, supplemented, restated or otherwise modified,
the "Loan Agreement"), and (b) all of the foregoing information regarding
Eligible Inventory is true and correct on the date hereof and relates solely
to Eligible Inventory within the meaning given such term in the Loan Agreement.
Prepared by: By:
Title:
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-77011.2 Type: CER
EXHIBIT D
GE Capital Commercial Finance Accounts Receivable Reconciliation
Previously Faxed: Yes No (Circle One)
Company Name: Aid Auto Stores, Inc. and
Ames Automotive Warehouse, Inc. Date: / /
A: Activity for the period dated / /
B: Notice of Revolving Credit Advances for the period numbered # to #
Accounts Receivable Reconciliation:
Aid Auto Ames
1. Ending Accounts Receivable Balance (Line 5 of
the last Notice of Revolving Credit Advance of
the period): $ $
2. Correcting entries or items in-transit, explain
and indicate which Notice of Revolving Credit
Advance the correction or in-transit item will be
posted on (see instructions):
Description $ Amount (Additions) Advance #
Description $ Amount (Subtractions) Advance #
TOTAL increase (decrease) to Accounts Receivable
balance from subsequent activity $ $
3. Adjusted period end accounts receivable balance
(Line 1 plus/minus Line 2): $ $
4. End of period accounts receivable balance per
Accounts Receivable aging (attach aging): $ $
5. Variance between Line 3 and Line 4:
Explain: $ $
6. End of period accounts receivable balance per
general ledger $ $
7. Variance between line 4 and line 6:
Explain: $ $
8. End of period accounts receivable balance per
financial statements $ $
9. Variance between line 6 and line 8:
Explain: $ $
The undersigned certifies that all of the foregoing information regarding the
Accounts of Aid Auto Stores, Inc. and Ames Automotive Warehouse, Inc. is true
and correct on the date hereof.
By:
Title:
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-77015.3 Type: MISC
EXHIBIT E - SECRETARIAL CERTIFICATE
The undersigned hereby certifies that he or she is the duly elected and
acting Secretary or Assistant Secretary of _______, a __________ corporation
("Credit Party"), and as such is the custodian of Credit Party's Books and
Records and is authorized to execute and deliver this Certificate in
connection with the Revolving Credit Advances being made to Aid Auto
Stores, Inc. by General Electric Capital Corporation, as Lender under the
Loan and Security Agreement ("Agreement") dated as of October 1, 1996.
Capitalized terms not defined in this Certificate shall have the meanings
ascribed to them in the Agreement. In order to induce General Electric
Capital Corporation to execute the Agreement and make the Revolving Credit
Advances, the undersigned certifies (in his or her secretarial capacity, and
on behalf of Credit Party) as follows:
1. Attached as Attachment 1 hereto is a full, complete, and correct copy of
Credit Party's articles or certificate of incorporation or other creating
instrument ("Charter") as filed and recorded with the Secretary of State of
________, which Charter has not been rescinded or amended and remains in full
force and effect in its entirety.
2. Attached as Attachment 2 is a copy of a written confirmation from the
Secretary of State of ________, dated __________1996, confirming that the
Charter of Credit Party in the form of Attachment 1 remains on file and that
Credit Party is a corporation in good standing in the State of ________.
3. Attached as Attachment 3 is a copy of the By-Laws of Credit Party, and as
of the Closing Date the By-Laws are in full force and effect and have not
been amended or rescinded.
4. Attached as Attachment 4 are copies of good standing certificates dated
not more than 30 days prior to the Closing Date for each state or
jurisdiction in which Credit Party does business confirming that Credit Party
is qualified to engage in business in such jurisdiction and such
qualification is in good standing.
5. Attached as Attachment 5 are copies of the Resolutions of the Board of
Directors of Credit Party duly adopted by Credit Party's Board of Directors
in a meeting duly called upon proper notice, or by written consent in
conformity with the corporate and other laws of the State of ________ and
with Credit Party's Charter and By-Laws, which Resolutions authorize (a) Credit
Party to execute and deliver the Loan Documents [and to borrow the funds
intended to be borrowed thereunder]1, and (b) the officers of Credit Party to
execute and deliver the Loan Documents. There is no provision of Credit
Party's Charter or By-Laws limiting or contravening the Resolutions attached
as Attachment 5, which Resolutions are fully in conformity with Credit
Party's Charter and By-Laws and the proper proceedings of its Board of
Directors.
7. The undersigned officers and employees of Credit Party have been elected
to the positions set opposite their respective names below, are qualified to
act in such capacities and to execute and deliver the Loan Documents on
behalf of Credit Party, and the signature set opposite each name is the
authentic signature of such officer or employee:
NAME OFFICE SIGNATURE
[The individual identified by Borrower as Borrower's Representative in
Schedule 1.1 is _______________, whose signature appears above.]1
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this _________ day of _____________, 1996.
__________________________________
Secretary of [___________________]
The Undersigned, the Chief Executive Officer of Credit Party, hereby
certifies that ________________________________ is the Secretary of
Credit Party and is authorized to execute and deliver this Certificate.
__________________________________
Date:_____________________________
1 Insert for Borrower's Certificate only.
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-76962.3 Type: CER
EXHIBIT F
POWER OF ATTORNEY
This Power of Attorney is executed and delivered by _____________ ("Company")
to General Electric Capital Corporation (hereinafter referred to as
"Attorney"), as Lender, under a Loan and Security Agreement (the "Agreement")
dated as of October 1, 1996 among Aid Auto Stores, Inc., the Subsidiary
Guarantors (as defined in the Agreement) party thereto and Lender, and other
documents (the "Loan Documents"). No person to whom this Power of Attorney
is presented, as authority for Attorney to take any action or actions
contemplated hereby, shall inquire into or seek confirmation from Company as to
the authority of Attorney to take any action described below, or as to the
existence of or fulfillment of any condition to this Power of Attorney, which
is intended to grant to Attorney unconditionally the authority to take and
perform the actions contemplated herein, and Company irrevocably waives any
right to commence any suit or action, in law or equity, against any person or
entity which acts in reliance upon or acknowledges the authority granted
under this Power of Attorney. The power of attorney granted hereby is
coupled with an interest, and may not be revoked or canceled by Company
without Attorney's written consent upon payment in full of all Obligations
due to Attorney under the Loan Documents.
Company hereby irrevocably constitutes and appoints Attorney (and all
officers, employees or agents designated by Attorney), with full power of
substitution, as Company's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Company and in the
name of Company or in its own name, from time to time in Attorney's
discretion, to take any and all appropriate action and to execute and deliver
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of the Loan Documents and, without limiting the
generality of the foregoing, Company hereby grants to Attorney the power and
right, on behalf of Company, without notice to or assent by Company, and at any
time, to do the following: (a) open mail for Company, and ask, demand,
collect, give acquittances and receipts for, take possession of, endorse and
receive payment of, any checks, drafts, notes, acceptances, or other
instruments for the payment of moneys due, and sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications, and notices in connection
with any property of Company; (b) effect any repairs to any asset of Company,
or continue or obtain any insurance and pay all or any part of the premiums
therefor and costs thereof, and make, settle and adjust all claims under such
policies of insurance, and make all determinations and decisions with respect
to such policies; (c) pay or discharge any taxes, liens, security interests,
or other encumbrances levied or placed on or threatened against Company or
its property; (d) defend any suit, action or proceeding brought against
Company if Company does not defend such suit, action or proceeding or if
Attorney believes that Company is not pursuing such defense in a manner that
will maximize the recovery to Attorney, and settle, compromise or adjust any
suit, action, or proceeding described above and, in connection therewith,
give such discharges or releases as Attorney may deem appropriate; (e) file or
prosecute any claim, litigation, suit or proceeding in any court of competent
jurisdiction or before any arbitrator, or take any other action otherwise
deemed appropriate by Attorney for the purpose of collecting any and all such
moneys due to Company whenever payable and to enforce any other right in
respect of Companys property; (f) sell, transfer, pledge, make any agreement
with respect to, or otherwise deal with any property of Company, and execute,
in connection with such sale or action, any endorsements, assignments or
other instruments of conveyance or transfer in connection therewith; (g)
cause the certified public accountants then engaged by Company to prepare and
deliver to Attorney at any time and from time to time, promptly upon
Attorney's request, the following reports: (1) a reconciliation of all
accounts; (2) an aging of all accounts; (3) trial balances; (4) test
verifications of such accounts as Attorney may request, and (5) the results
of each physical verification of inventory, all as though Attorney were the
absolute owner of the property of Company for all purposes; and (h) license
or, to the extent permitted by an applicable license, sublicense whether
general, specific or otherwise, and whether on an exclusive or non-exclusive
basis, any patent or trademark throughout the world on such terms and
conditions and in such manner as Attorney shall, in its discretion,
determine; and to do, at Attorney's option and Company's expense, at any time
or from time to time, all acts and other things that Attorney reasonably
deems necessary to perfect, preserve, or realize upon Companys property or
assets and Attorney's Liens thereon, all as fully and effectively as Company
might do. Company hereby ratifies, to the extent permitted by law, all that
said attorneys shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney is executed by Company, and
Company has caused its seal to be affixed pursuant to the authority of its
board of directors this __________ day of______________, 1996.
ATTEST:_________________________
By:______________________________ (SEAL)
Title:___________________________
Notarization in appropriate form for the state of execution is required.
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-76963.3 Type: EXH
GE Capital Commercial Finance
This LOAN AND SECURITY AGREEMENT is dated as of October 1, 1996, and agreed
to by and between AID AUTO STORES, INC., a Delaware corporation ("Borrower"),
the Subsidiary Guarantors listed on the signature pages hereof and any other
Credit Party executing this Agreement, and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender").
RECITALS
A. The purpose of this Agreement is to provide to Borrower a revolving credit
loan having the following general description:
TRANSACTION SUMMARY
REVOLVING CREDIT LOAN
Maximum Amount: $10,000,000
Term: Three (3) years
Revolving Credit Rate: Index Rate plus 3.0%
Borrowing Base: The sum of (A) 65% (or such lesser percentage
as may be specified by Lender from time to
time by written notice to Borrower) of the
value (as determined by Lender) of Borrower's
Eligible Inventory, valued on a first-in,
first-out basis (at the lower of cost or
market) provided that, so long as, at any time
after December 31, 1996, a retail location of
the Borrower or any of its Subsidiaries is not
on the TOMEX Inventory System with respect to
its sales information, the foregoing advance
rate shall be reduced to fifty percent (50%)
with respect to Borrower's Eligible Inventory
at such location; plus (B) the lesser of (i)
$500,000 or (ii) 70% (or such lesser
percentage as may be specified by Lender from
time to time by written notice to Borrower) of
the value of Borrower's Eligible Accounts;
plus (C) the lesser of (i) the then
outstanding principal amount of the Ames Note
and (ii) 70% (or such lesser percentage as may
be specified by Lender from time to time by
written notice to Borrower) of the value of
Ames' Eligible Accounts.
FEES
Closing Fee: $25,000
Collateral Monitoring Fee: $5,000 annually
Unused Line Fee: 0.25%
Prepayment Fee: 3% in year one; 2% in year two; and 1% in
year three
The Revolving Credit Loan described generally here is established and
governed by the terms and conditions set forth below in this Agreement and the
other Loan Documents, and if there is any conflict between this general
description and the express terms and conditions below or elsewhere in the Loan
Documents, such other express terms and conditions shall control.
B. Borrower desires to obtain the Revolving Credit Loan and other financial
accommodations from Lender and Lender is willing to provide the Revolving
Credit Loan and accommodations all in accordance with the terms of this
Agreement.
C. Capitalized terms used herein shall have the meanings assigned to them in
Schedule A and, for purposes of this Agreement and the other Loan Documents,
the rules of construction set forth in Schedule A shall govern. All
Schedules, Disclosure Schedules, Attachments, Addenda and Exhibits
(collectively, "Appendices") hereto, or expressly identified to this
Agreement, are incorporated herein by reference, and taken together,
constitute but a single agreement. Unless otherwise expressly set forth
herein, or in a written amendment referring to such Appendices, all
Appendices referred to herein shall mean the Appendices as in effect on the
Closing Date. These Recitals shall be construed as part of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Revolving Credit Loan. (a) Subject to the terms and conditions of
this Agreement, from the Closing Date and until the Commitment Termination
Date (i) Lender agrees to make available advances (each, a "Revolving Credit
Advance") in an aggregate outstanding amount not to exceed the Borrowing
Availability, and (ii) Borrower may at its request from time to time borrow,
repay and reborrow Revolving Credit Advances under this Section 1.1.
(b) Borrower shall request each Revolving Credit Advance by notice given
in writing (by telecopy, hand delivery, or United States mail) to Lender's
representative responsible for Borrower's account as identified in Schedule
1.1 given no later than 11:00 a.m. (New York time) on the Business Day of the
proposed Revolving Credit Advance. Each such notice (a "Notice of Revolving
Credit Advance") shall be substantially in the form of Exhibit A. Lender
shall be fully protected under this Agreement in relying upon, and shall be
entitled to rely upon, (i) any Notice of Revolving Credit Advance believed by
Lender to be genuine, and (ii) the assumption that the Persons making
electronic requests or executing and delivering a Notice of Revolving Credit
Advance were duly authorized, unless the responsible individual acting
thereon for Lender shall have actual knowledge to the contrary.
(c) To evidence the Revolving Credit Loan Borrower shall execute and
deliver to Lender the Revolving Credit Note, which shall represent the
Obligation of Borrower to pay the Revolving Credit Loan. The date and amount
of each Revolving Credit Advance and each payment of principal with respect
thereto shall be recorded on the books of Lender, which books shall be
presumed to correctly and accurately record the transactions between Borrower
and Lender and shall, absent manifest error, be conclusive and binding upon
Borrower. The entire unpaid balance of the Revolving Credit Loan, together
with all other outstanding and non-contingent Obligations shall be
immediately due and payable on the Commitment Maturity Date.
(d) Borrower agrees that Lender, in making any Revolving Credit Advance or
incurring any other Obligation hereunder, shall be entitled to rely upon the
most recent Borrowing Base Certificate delivered to Lender by Borrower and
other information available to Lender. Borrower further agrees that Lender
shall be under no obligation to make any further Revolving Credit Advance or
incur any other Obligation if Borrower shall have failed to deliver a
Borrowing Base Certificate to Lender by the time specified in Section 4.1(b).
1.2 Term and Prepayment. The obligation of Lender to make Revolving
Credit Advances shall be in effect from the Closing Date until the Commitment
Termination Date. Upon the Commitment Maturity Date Borrower shall pay to
Lender in full, in cash: (i) all outstanding Revolving Credit Advances and
all interest earned, but unpaid, thereon; and (ii) all other non-contingent
Obligations due to or incurred by Lender. Upon payment of the amounts
specified in the immediately preceding sentence, Borrower's obligation to pay
the Unused Line Fee shall simultaneously terminate. Prior to repayment of
all Obligations to Lender in full, in cash on the Commitment Maturity Date:
(a) If the Revolving Credit Loan shall at any time exceed the Borrowing
Availability, then Borrower shall immediately repay the Revolving Credit Loan
in the amount of such excess; such excess balance shall nevertheless
constitute Obligations that are evidenced by the Revolving Credit Note,
secured by the Collateral and entitled to all of the benefits of the Loan
Documents.
(b) Borrower shall have the right, at any time upon 30 days prior written
notice to Lender and payment of the applicable Prepayment Fee, (i) to
terminate voluntarily Borrower's right to receive and Lender's obligation to
make Revolving Credit Advances, and (ii) to prepay all of the Obligations.
The effective date of termination of the Revolving Credit Loan specified in
such notice shall be the Commitment Maturity Date.
1.3 Use of Proceeds. Borrower shall use the proceeds of the Revolving
Credit Loan as follows: (a) to refinance on the Closing Date certain
outstanding Indebtedness as provided in Section 2.1(b) and (b) for working
capital and general corporate purposes.
1.4 Single Loan. The Revolving Credit Loan and all of the other
Obligations of Borrower to Lender shall constitute one general obligation of
Borrower secured by all of the Collateral.
1.5 Interest. (a) Borrower shall pay interest to Lender on the aggregate
outstanding Revolving Credit Advances at a floating rate equal to the Index
Rate plus three percent (3%) per annum (the "Revolving Credit Rate").
(b) Interest shall be payable on the outstanding Revolving Credit
Advances (i) in arrears for the preceding calendar month on the first day of
each calendar month, commencing on November 1, 1996, (ii) on the Commitment
Maturity Date, and (iii) if any interest accrues or remains payable after the
Commitment Maturity Date, upon demand by Lender.
(c) All computations of interest shall be made by Lender on the basis of
a three hundred and sixty (360) day year, in each case for the actual number
of days occurring in the period for which such interest or fee is payable.
The Index Rate shall be determined (i) on the first Business Day immediately
prior to the Closing Date and (ii) thereafter, on the last Business Day of
each calendar month for calculation of interest for the following month.
Each determination by Lender of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(d) Effective upon the occurrence of any Event of Default and for so long
as such Event of Default shall be continuing, the Revolving Credit Rate
shall, upon notice by Lender to Borrower, be increased by two percentage
points (2%) per annum (the "Default Rate"), and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest from the date of
such Event of Default at the Default Rate applicable to such Obligations.
(e) If any interest or other payment to Lender under this Agreement
becomes due and payable on a day other than a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, with respect
to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(f) In no event will Lender charge interest at a rate that exceeds the
highest rate of interest permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable. Amounts paid or
to be collected by Lender in excess of interest calculated at the highest rate
permitted by law will be applied by Lender as provided for in Section 1.11.
1.6 Eligible Accounts. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Lender and on other information
available to Lender, Lender shall determine in its sole judgment which
Accounts shall be deemed to be "Eligible Accounts" for purposes of
determining the credit to be extended to Borrower. In determining whether
any particular Account constitutes an Eligible Account (and without limiting
Lender's right to determine eligibility or ineligibility of any item of
Collateral or its inclusion in the Borrowing Base), Lender shall not include
any Account that meets any of the criteria set forth in Schedule 1.6.
1.7 Eligible Inventory. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Lender and on other information
available to Lender, Lender shall determine in its sole judgment which
Inventory shall be deemed to be "Eligible Inventory" for purposes of
determining the credit to be extended to Borrower. In determining whether
any particular Inventory constitutes Eligible Inventory (and without limiting
Lender's right to determine eligibility or ineligibility of any item of
Collateral or its inclusion in the Borrowing Base), Lender shall not include
Inventory that meets any of the criteria set forth in Schedule 1.7.
1.8 Cash Management System. On or prior to the Closing Date and until
the Termination Date, Borrower will establish and maintain the cash
management system described in Schedule D.
1.9 Fees. As compensation for Lender's costs, skills and efforts
incurred and expended in entering into this Agreement and in consideration of
Lender's making the Revolving Credit Loan available to Borrower, Borrower
agrees to pay to Lender the Fees set forth in Schedule E. pursuant to Section
1.11) not later than 2:00 p.m. (New York time) on the day when due in lawful
money of the United States of America in immediately available funds to the
Collection Account. For purposes of computing interest and fees, all
payments shall be deemed received by Lender upon receipt of good funds in the
Collection Account. For purposes of determining the Borrowing Availability,
payments shall be deemed received by Lender upon receipt of good funds in the
Collection Account.
1.10 Application and Allocation of Payments. Borrower irrevocably agrees
that Lender shall have the continuing and exclusive right to apply any and
all payments against the then due and payable Obligations, as Lender may deem
advisable. In the absence of a specific determination by Lender with respect
thereto, the same shall be applied in the following order: (a) then due and
payable Fees and expenses; (b) then due and payable interest payments;
(c) then due and payable Obligations other than Fees, expenses and interest
and principal payments; and (d) then due and payable principal payments on
the Revolving Credit Loan. Lender is authorized to, and at its option may
(without notice or precondition and at any time or times), but shall not be
obligated to, make or cause to be made Revolving Credit Advances on behalf of
Borrower for: (x) payment of all Fees, expenses, indemnities, charges,
costs, principal, interest, or other Obligations owing by Borrower under this
Agreement or any of the other Loan Documents, (y) the payment, performance or
satisfaction of any of Borrower's obligations with respect to preservation of
the Collateral or otherwise under this Agreement, or (z) any premium in whole
or in part required in respect of any of the policies of insurance required
by this Agreement, even if the making of any such Revolving Credit Advance
causes the outstanding balance of the Revolving Credit Loan to exceed the
Borrowing Availability, and Borrower agrees to repay immediately, in cash,
any amount by which the Revolving Credit Loan exceeds the Borrowing
Availability.
1.11 Accounting. Lender will provide a monthly accounting of transactions
under the Revolving Credit Loan to Borrower. Borrower shall, within 60 days
after the date any such accounting is rendered, notify Lender in writing of
any objection that Borrower may have to any such accounting, describing the
basis for such objection with specificity. Unless so objected to, each and
every such accounting shall (absent manifest error) be deemed final, binding
and conclusive upon Borrower in all respects. Only those items expressly
objected to in such notice shall be deemed to be disputed by Borrower.
Lender shall review any item objected to within 30 days following Borrower's
timely objection, and Lender's determination, based upon the facts available,
of any item so objected to in such notice shall (absent manifest error)
likewise be final, binding and conclusive on Borrower.
1.12 Indemnity. (a) Borrower and each other Credit Party executing this
Agreement shall jointly and severally indemnify and hold Lender and Lender's
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any Claim which may be
instituted or asserted against or incurred by any such Indemnified Person as
the result of credit having been extended or not extended under this Agreement
and the other Loan Documents or otherwise in connection with or arising out
of the transactions contemplated hereunder or thereunder, including any Claim
for Environmental Liabilities and Costs and legal costs and expenses of
disputes between the parties to this Agreement; provided, that Borrower and
such other Credit Party shall not be liable for indemnification of an
Indemnified Person to the extent that any such Claim is finally determined by
a court of competent jurisdiction to have resulted solely from such
Indemnified Person's gross negligence or willful misconduct. NO INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN
DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT
OF CREDIT HAVING BEEN EXTENDED OR NOT EXTENDED UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED
HEREUNDER OR THEREUNDER.
(b) In any suit, proceeding or action brought by Lender relating to any
item of Collateral or any sum owing hereunder, or to enforce any provision of
any item of Collateral, Borrower and each other Credit Party executing this
Agreement shall save, indemnify and keep Lender harmless from and against all
expense (including reasonable attorneys' fees), loss or damage suffered by
reason of such action or any defense, setoff, or counterclaim asserted for
any reason by the other party or parties to such litigation and however
arising. All obligations of Borrower or any other Credit Party with respect
to any item of Collateral shall be and remain enforceable against, and only
against, Borrower or such other Credit Party, as the case may be, and shall
not be enforceable against Lender.
1.13 Taxes. (a) All payments to Lender under any Loan Document shall be
made free and clear of, and without deduction for, any Taxes. In order to
protect Lender's economic returns, if Borrower shall be required by law to
deduct any Taxes from any payment to Lender under any Loan Document, then the
amount payable to Lender shall be increased so that, after making all
required deductions (including deductions applicable to additional sums payable
under this Section 1.14), Lender receives an amount equal to that which it
would have received had no such deductions been made. Borrower shall then
make the required deduction, pay the full amount deducted to the relevant
taxing authority, and promptly furnish to Lender tax receipts evidencing such
payment.
(b) Borrower shall indemnify Lender for, and pay within 10 days of demand
therefore, the full amount of Taxes (including any Taxes imposed by any
jurisdiction on amounts payable under Section 1.13) paid by Lender and any
liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes were correctly or legally
asserted.
1.14 Reserves. Without limiting any other rights and remedies of Lender
hereunder or under the other Loan Documents, the Revolving Credit Loan shall
be subject to Lender's continuing right to withhold from Borrowing
Availability reserves, and to increase and decrease such reserves from time
to time, if and to the extent that in Lender's sole judgment such reserves
are necessary, including to protect Lender against possible non-payment of
Accounts for any reason by Account Debtors or possible diminution of the
value of any Inventory or possible non-payment of any of the Obligations or
in respect of any state of facts which could, with notice or passage of time
or both, have a possible adverse effect on any Collateral or constitute a
Default. Lender may, at its option, implement reserves by designating as
ineligible a sufficient amount of Accounts or Inventory which would otherwise
be Eligible Accounts or Eligible Inventory, as the case may be, so as to
reduce the Borrowing Base by the amount of the intended reserves.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Revolving Credit Advance. Lender shall not
be obligated to make any Revolving Credit Advances, or to take, fulfill, or
perform any other action hereunder, until the following conditions have been
satisfied to Lender's complete satisfaction:
(a) the Loan Documents to be delivered on or before the Closing Date shall
have been duly executed and delivered by the appropriate parties, all as set
forth in the Schedule of Documents;
(b) Lender shall have received evidence satisfactory to it that: (i) all
of the obligations of the Credit Parties to Israel Discount Bank of New York
under its loan agreement as in effect immediately prior to the Closing Date
will be performed and paid in full from the proceeds of the initial Revolving
Credit Advance; (ii) all Liens upon any of the property of the Credit Parties
in favor of Israel Discount Bank of New York or otherwise securing such
obligations shall have been terminated immediately upon such payment; and
(iii) all Liens upon the property of the Credit Parties in favor of General
Motors Corporation or any Affiliate thereof shall have been terminated.
(c) Lender shall have received evidence satisfactory to it that each
Credit Party has obtained all consents and acknowledgments of all Persons and
Governmental Authorities whose consents or acknowledgments may be required
pursuant to the terms of, or prior to the execution and delivery of, this
Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby and such consents or
acknowledgements have not been rescinded and remain in full force and effect;
(d) Lender shall have received evidence satisfactory to it that the
insurance policies provided for in Section 3.18 and the Disclosure Schedule
(3.18) are in full force and effect, together with appropriate evidence
showing loss payable or additional insured clauses or endorsements, as
appropriate, in favor of Lender and in form and substance satisfactory to
Lender;
(e) all of the assets supporting the initial Revolving Credit Advance to
be made and the amount, if any, of the reserves to be established on the
Closing Date, shall be sufficient in value, as determined by Lender, to provide
Borrower with Net Borrowing Availability of not less than $1,000,000 (after
giving effect to such initial Revolving Credit Advance), without increase in
Borrower's other current liabilities above the average of those reflected on
Borrower's balance sheet for the three months preceding the Closing Date;
(f) payment by Borrower of the Closing Fee and all other fees, costs, and
expenses of closing (including fees of consultants and counsel to Lender
presented as of the Closing Date);
(g) no action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before any court, Governmental
Authority or legislative body to enjoin, restrain or prohibit, or to obtain
damages in respect of, or which is related to or arises out of, this
Agreement or any other Loan Document or the consummation of the transactions
contemplated hereby or thereby and which, in Lender's sole judgment, would
make it inadvisable to consummate the transactions contemplated by this
Agreement or any other Loan Document;
(h) on the Closing Date all of Borrower's Subsidiaries (other than Ames
and Adelman) and Cambria shall have sold and transferred to Borrower legal
title to all of their Inventory pursuant to the Bill of Sale and otherwise in a
manner satisfactory to Lender;
(i) since the date of Borrower's most recent annual audited financial
statements delivered to Lender prior to the Closing Date, no event has
occurred which has had, or could reasonably be expected to have, a Material
Adverse Effect; and
(j) Lender shall have performed additional test counts of the Borrower's
Inventory that is maintained on its perpetual inventory system and Lender
shall be satisfied, in its sole discretion, in all respects with the results
thereof.
If any other term of any Loan Document should conflict, or appear to
conflict, with this Section 2.1, the terms of this Section 2.1 shall control,
and Borrower shall have no rights under this Agreement or any other Loan
Document until each of the conditions of this section 2.1 has been complied
with to Lender's satisfaction or specifically waived in a writing by Lender
identifying by section number the condition to be waived and the specific
circumstance with respect to which the condition is waived.
2.2 Further Conditions to the Revolving Credit Loan. It shall be a
further condition to the funding of any Revolving Credit Loan that the
following statements shall be true on the date of each such funding, advance
or incurrence, as the case may be:
(a) all of each Credit Party's representations and warranties contained
herein or in any of the other Loan Documents shall have been true and correct
on and as of the Closing Date;
(b) no event shall have occurred and be continuing, or would result from
the funding of any Revolving Credit Advance which constitutes or would
constitute a Default;
(c) after giving effect to such Revolving Credit Advance, the Revolving
Credit Loan shall not exceed the Borrowing Availability; and
(d) each of the conditions set forth in Section 2.1(c), (d), (g) and
(i) shall continue to be satisfied as of such date.
The request and acceptance by Borrower of the proceeds of any Revolving
Credit Advance shall be deemed to constitute, as of the date of such request
and the date of such acceptance, (i) a representation and warranty by
Borrower that the conditions in this Section 2.2 have been satisfied and
(ii) a confirmation by Borrower of the granting and continuance of Lender's
Liens pursuant to the Loan Documents.
3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
To induce Lender to enter into this Agreement and to make the Revolving
Credit Loan, Borrower and each other Credit Party executing this Agreement
represent and warrant to Lender, and promise to and agree with Lender (each
of which representations and warranties shall be true and correct on the
Closing Date and shall survive the execution and delivery of this Agreement,
and each of which covenants and agreements shall continue to be kept, honored
and maintained at all times from the Closing Date until the Termination Date)
as follows:
3.1 Corporate Existence; Compliance with Law. Each Credit Party:
(a) is, as of the Closing Date, and will continue to be (i) a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) duly qualified to do business and in
good standing in each other jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, (iii) in
compliance with its charter and by-laws, and (iv) in compliance in all
material respects with all applicable provisions of law and regulations; and
(b) has and will continue to have (i) the requisite corporate power and
authority and the legal right to own, pledge, mortgage or otherwise encumber
and operate its properties, to lease the property it operates under lease,
and to conduct its business as now, heretofore or proposed to be conducted,
and (ii) all licenses, permits, franchises, rights, powers, consents or
approvals from or by all Persons or Governmental Authorities having
jurisdiction over such Credit Party which are necessary or appropriate for
the conduct of its business. As of the Closing Date, each Credit Party has
made and will continue to make all filings with any Governmental Authority
that are necessary or appropriate for the conduct of its business and has
given and will continue to give all notices to the extent required for the
ownership, operation and conduct of its property and business.
3.2 Executive Offices; Corporate or Other Names; Conduct of Business.
The locations of each Credit Party's executive offices, principal place of
business, corporate offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept are as set forth
in Disclosure Schedule (3.2) and, except as set forth in such Disclosure
Schedule, such locations have not changed during the preceding twelve months.
As of the Closing Date, during the prior five years, except as set forth in
Disclosure Schedule (3.2), no Credit Party has been known as or conducted
business in any other name. No Credit Party shall change its (a) name,
(b) chief executive office, (c) principal place of business, (d) corporate
offices, (e) warehouses or other Collateral locations, or (f) location of its
records concerning the Collateral, or acquire, lease or use any real estate
after the Closing Date without such Person, in each instance, giving thirty
(30) days prior written notice thereof to Lender and taking all actions
deemed necessary or appropriate by Lender to continuously protect and perfect
Lender's Liens upon the Collateral.
3.3 Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan
Documents to which it is a party, and the creation of all Liens provided for
herein and therein: (a) are and will continue to be within such Person's
corporate power; (b) have been and will continue to be duly authorized by all
necessary or proper corporate and shareholder action; (c) are not and will
not be in contravention of any provision of such Person's charter or by-laws;
(d) do not and will not violate any law or regulation, or any order or decree
of any court or Governmental Authority; (e) do not and will not conflict with
or result in the breach or termination of, constitute a default under or
accelerate any performance required by, any indenture, mortgage, deed of
trust, lease, agreement or other instrument to which such Person is a party
or by which such Person or any of its property is bound; (f) do not and will
not result in the creation or imposition of any Lien (other than Permitted
Encumbrances) upon any of the Collateral; and (g) do not and will not require
the consent or approval of any Governmental Authority or any other Person,
except those referred to in Section 2.1(c) (all of which will have been duly
obtained, made or complied with on or before the Closing Date). As of the
Closing Date, each Loan Document shall have been duly executed and delivered
for the benefit of or on behalf of each Credit Party, and each such Loan
Document shall then be and will continue to be a legal, valid and binding
obligation of such Person, to the extent it is a party thereto, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting
creditors' rights and to equitable principles of general applicability.
3.4 Financial Statements and Projections; Books and Records. (a) Borrower
has delivered as of the Closing Date (i) the Financial Statements for its
most recently ended Fiscal Year and Fiscal Month, which Financial Statements
are true, correct and complete and reflect fairly and accurately the
financial condition of Borrower as of the date of each of such Financial
Statement, and (ii) the Projections, which Projections have been prepared in
good faith, with care and diligence and use assumptions that are reasonable
under the circumstances at the time such Projections were prepared and as of
the Closing Date and are disclosed in the Projections.
(b) Borrower promises that Borrower and each other Credit Party shall keep
adequate Books and Records with respect to the Collateral and such Person's
business activities, in which proper entries, reflecting all consolidated
and consolidating financial transactions, and payments received on any and
all credits granted to, and all other dealings with, the Collateral, are made
in accordance with GAAP and on a basis consistent with the Financial
Statements.
3.5 Material Adverse Change. Between the date of Borrower's most recently
audited Financial Statements delivered to Lender and the Closing Date: (a)
no Credit Party has incurred any obligations, contingent or non-contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward
or long-term commitments which are not reflected in the pro forma balance
sheet of Borrower and which could, alone or in the aggregate, reasonably be
expected to have a Material Adverse Effect; (b) there has been no material
deviation from the Projections delivered at or prior to the Closing Date;
(c) no contract, lease, agreement or other instrument to which any Credit
Party has become a party or by which it or any of its properties or assets is
bound or affected, and no provision of applicable law or governmental
regulation has had or could reasonably be expected to have a Material Adverse
Effect; (d) no Credit Party is in default, and to such Credit Party's
knowledge no third party is in default under or with respect to any material
contract, agreement, lease or other instrument to which it is a party, which
alone or in the aggregate could reasonably be expected to have a Material
Adverse Effect; and (e) no event has occurred, and such Credit Party will not
permit or suffer to occur any event or events, which alone or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
3.6 Ownership of Property; Liens. As of the Closing Date, the real estate
listed in Disclosure Schedule (3.6) constitutes all of the real property
owned, leased, or used in its business by each Credit Party, and such Credit
Party will not execute any material agreement or contract in respect of such
real estate after the Closing Date without giving Lender prompt written
notice thereof. Each Credit Party holds and will continue to hold good and
marketable fee simple title to all of its owned real estate, and good and
marketable title to all of its other properties and assets, and valid and
marketable leasehold interests in all of its leases (both as lessor and
lessee, sublessee or assignee), and none of the properties and assets of each
Credit Party are or will be subject to any Liens, except Permitted
Encumbrances. Each Credit Party has received and will continue to obtain all
deeds, agreements, and other documents affecting real estate, and has duly
effected and will duly effect all recordings and filings and take other
actions necessary, in each circumstance to establish, protect and perfect its
and Lender's right, title and interest in and to all real property
constituting Collateral. All permits required to allow the real property owned
or leased by each Credit Party to be lawfully occupied and used, for all of the
purposes for which they are occupied and used on the Closing Date, have been
lawfully issued and are in full force and effect, and that all such permits
will be obtained and maintained. Each Credit Party will obtain a landlord's
or mortgagee's agreement in form acceptable to Lender from the lessor or
mortgagee of any new leased or acquired premises after the Closing Date.
3.7 Labor Matters. As of the Closing Date, there are no strikes or other
labor disputes against any Credit Party that are pending or, to any Credit
Party's knowledge, threatened. All payments due from any Credit Party on
account of employee health and welfare insurance have been and will continue
to be paid or accrued as a liability on the books of such Credit Party.
Disclosure Schedule (3.7) identifies each collective bargaining agreement,
management agreement with an executive officer, or any other material
employment agreement to which any Credit Party is a party in effect as of the
Closing Date, and a copy of each such agreement has been made available to
Lender. Promptly upon the execution of any such agreement or incurrence of
such obligation after the Closing Date and until the Termination Date, each
Credit Party shall provide to Lender prompt written notice of such event and
a copy of such agreement. As of the Closing Date (a) there is no organizing
activity involving any Credit Party pending or, to any Credit Party's
knowledge, threatened by any labor union or group of employees, (b) there are
no representation proceedings pending or, to any Credit Party's knowledge,
threatened with the National Labor Relations Board, and (c) no labor
organization or group of employees of any Credit Party has pending any demand
for recognition, and such Credit Party shall give to Lender prompt written
notice of any of the foregoing occurring after the Closing Date.
3.8 Ventures, Subsidiaries and Affiliates and Outstanding Stock and
Indebtedness. (a) As of the Closing Date, all outstanding Stock and
Indebtedness of each Credit Party, and the holders (including group or
affiliated holders known to any Credit Party) of 10% or more of the Stock of
each Credit Party is as described in Disclosure Schedule (3.8). After the
Closing Date each Credit Party will give Lender prompt notice of (i) each
issuance of Stock or change in ownership representing 10% or more of the
ownership of any of its Stock, (ii) any issuance or transfer of its Stock
that is intended to be an item of Collateral, and (iii) each Change in
Control of such Credit Party.
(b) Borrower currently owns and shall at all times own 100% of the Stock
of each of its Subsidiaries. None of the Borrower's Subsidiaries currently
engage, or shall at any time after the date of this Agreement engage, in
any business or activity or have any employees or incur any Indebtedness,
liability or obligation or enter into any transaction or become a party to or
become bound by (or permit any of its property or assets to become bound by)
any agreement, instrument or other document, except as follows: (i) each
Leasing Subsidiary may lease a single retail store location from Persons
(other than any Affiliate of such Subsidiary) and sublease such location to
Borrower in accordance with current practices but shall not engage in any
other business or activity, including operating any store location or
purchasing or taking possession of any Inventory or other assets; (ii) each
Aid Store Subsidiary may operate a single retail store location and lease
such location from Persons (other than any Affiliate of such Subsidiary) in
accordance with current practices, provided that all Inventory sold in such
store shall be Inventory received on consignment from Borrower pursuant to
the Master Consignment Agreement; (iii) Ames may purchase Inventory only from
Borrower, and in turn immediately resell such Inventory to Ames' customers in
accordance with Section 3.27 and sublease such location to Borrower; and (iv)
Perfect Choice may own the trade name "Perfect Choice Guaranteed Quality and
Design". Flatbush and Adelman are inactive Subsidiaries of Borrower and
currently do not and will not own any property or assets or engage in any
business or activity, have any employees or any Indebtedness, liability or
obligation and are not parties to any transaction or bound by any agreement,
instrument or other document.
(c) No Credit Party will enter into, after the date of this Agreement, any
indenture, agreement, instrument or other arrangement that, directly or
indirectly, prohibits or restrains, or has the effect of prohibiting or
restraining, or imposes materially adverse conditions upon, the incurrence or
payment of Indebtedness, the granting of Liens, the declaration or payment of
dividends or other Restricted Payments, the making of loans, advances or
Investments or the sale, assignment, transfer or other disposition of any
property or assets.
3.9 Government Regulation. No Credit Party is or will be subject to or
be regulated under the Investment Company Act of 1940, the Public Utility
Holding Company Act of 1935, the Federal Power Act or any other Federal or
state statute, rule or regulation that restricts or limits such Person's
ability to incur Indebtedness, pledge its assets, or to perform its
obligations under the Loan Documents. The making of the Revolving Credit
Loan, the application of the proceeds and repayment thereof by Borrower or
any other Credit Party, and the consummation of the transactions contemplated
by the Loan Documents do not and will not violate any provision of any such
statute or any rule, regulation or order issued by the Securities and
Exchange Commission.
3.10 Margin Regulations. No Credit Party owns or will own any "margin
security," as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), and
none of the proceeds of the Revolving Credit Loan will be used directly or
indirectly for (a) purchasing or carrying any margin security, (b) reducing
or retiring any Indebtedness which was originally incurred to purchase or carry
any margin security or (c) any purpose which might cause any of the Revolving
Credit Loan or this Agreement to be considered a "purpose credit" within the
meaning of Regulation G, T, U or X of the Federal Reserve Board. No Credit
Party will take or permit to be taken any action which might cause any Loan
Document to violate any regulation of the Federal Reserve Board.
3.11 Taxes. (a) Except as disclosed in Disclosure Schedule (3.11), all
tax returns, reports and statements required by any Governmental Authority to
be filed by Borrower or any other Credit Party have, as of the Closing Date,
been filed and will, until the Termination Date, be filed with the
appropriate Governmental Authority, and all Charges and other impositions
shown thereon have been and will be paid when due. Proper and accurate
amounts have been and will be withheld by Borrower and each other Credit
Party from their respective employees for all periods in full and complete
compliance with the tax, social security and unemployment withholding
provisions of all applicable law, and such withholdings have and will be
timely paid to the respective Governmental Authorities. Borrower and each
other Credit Party executing this Agreement represents and promises that, except
as disclosed in Disclosure Schedule (3.11), neither Borrower nor any other
Credit Party: (i) has executed or filed, or will execute or file, with any
Governmental Authority, any agreement or other document extending, or having
the effect of extending, the period for assessment or collection of any
Charges; (ii) has agreed or been requested to make any adjustment in
accounting method; (iii) is a party to any tax sharing agreement; or (iv) is
currently being audited by any Governmental Authority. There are no
assessments or threatened assessments outstanding against any Credit Party.
(b) Each Credit Party may contest, by proper legal actions or proceedings,
the validity or amount of any Charges; provided, that at the time of
commencement of any such action or proceeding: (i) no Default or Event of
Default shall have occurred; (ii) adequate reserves with respect thereto are
established on the books of the contesting Person in accordance with GAAP;
(iii) such contest operates to suspend collection of the contested Charges
and is maintained and prosecuted continuously with diligence; (iv) none of
the Collateral would be subject to forfeiture or loss of Lien thereby; (v) no
Lien shall be imposed or be attempted to be imposed by any Governmental
Authority for such Charges or claims during such action or proceeding; (vi)
the contesting Person shall promptly pay or discharge any contested Charge
and shall deliver to Lender evidence acceptable to Lender of such compliance,
payment or discharge, if such contest is terminated or discontinued
adversely; and (vii) Lender has not advised any Credit Party in writing that
Lender reasonably believes that nonpayment or nondischarge thereof could
reasonably be expected to have a Material Adverse Effect.
3.12 ERISA.
(a) Disclosure Schedule (3.12) lists all Plans in effect as of the
Closing Date. Each Credit Party is and will remain in compliance with all
requirements of each Plan, and each Plan complies with and is operated, and will
continue to be operated, in compliance with all applicable provisions of law
in all respects. Each Qualified Plan and each related trust has been
determined by the IRS to qualify and will continue to qualify under, and be
exempt from tax under, the IRC. Nothing has occurred or will be permitted to
occur which would cause the loss of such qualification or tax-exempt status.
All required contributions have been and will be made in accordance with the
provisions of each Plan, and with respect to any Credit Party or any ERISA
Affiliate, there are and will be no Unfunded Pension Liabilities or
Withdrawal Liabilities. No Credit Party has engaged or will engage in a
prohibited transaction, as defined in Section 4975 of the IRC or Section 406
of ERISA.
(b) No ERISA Event has occurred or will be permitted to occur. No Retiree
Welfare Plan exists or will be adopted which is other than Plans disclosed on
Disclosure Schedule (3.12) (except as may be required by law). No liability
under any Title IV Plan has been or will be funded, nor has such obligation
been (nor will it be) satisfied with, the purchase of a contract from an
insurance company that is not rated AAA by Standard & Poor's Corporation and
the equivalent by each other nationally recognized rating agency.
3.13 Litigation. As of the Closing Date, except as disclosed in
Disclosure Schedule (3.13) no Claim is pending or threatened against any
Credit Party which (a) challenges any such Person's right, power, or
competence to enter into or perform any of its obligations under the Loan
Documents, the validity or enforceability of any Loan Document or any action
taken thereunder, or (b) whether or not determined adversely, could
reasonably be expected to have a Material Adverse Effect. Each Credit Party
shall notify Lender in writing promptly upon learning of the existence or
commencement of any Claim commenced or threatened against any Credit Party
that: (x) may involve an amount in excess of $50,000; (y) could reasonably
be expected to have a Material Adverse Effect whether or not determined
adversely; or (z) regardless of amount (i) is asserted or instituted, against
any Plan, its fiduciaries or its assets, or against any Credit Party or any
ERISA Affiliate in connection with any Plan, (ii) includes any demand for
injunctive relief, (iii) alleges criminal misconduct by any Credit Party, or
(iv) alleges the violation of any law regarding, or seeks remedies in
connection with, any Environmental Liabilities and Costs.
3.14 Brokers. No broker or finder acting on behalf of any Credit Party
brought about the obtaining, making or closing of the Revolving Credit Loan
or the transactions contemplated by the Loan Documents, and no Credit Party
has any obligation to any Person in respect of any finder's or brokerage fees
in connection therewith.
3.15 Intellectual Property. As of the Closing Date, each Credit Party
owns or has the right to use and will own or have the right to use all
Intellectual Property necessary to continue to conduct its business as now or
heretofore conducted by it or proposed to be conducted by it in the most
recent Projections delivered to Lender, and each such item (that is
registrable) of Intellectual Property is listed, together with application or
registration numbers, where applicable, in Disclosure Schedule (3.15). Each
Credit Party will give Lender prompt written notice of any change in the
status of any of its Intellectual Property. Each Credit Party conducts and
will continue to conduct its affairs and business without infringement of or
interference with any Intellectual Property of any other Person. Each Credit
Party shall notify Lender immediately if it knows or discovers that any of
any Credit Party's Intellectual Property is or may become infringed upon,
misappropriated or abandoned, or of any other adverse determination or
development.
3.16 Full Disclosure. No information contained in the Loan Documents,
the Financial Statements or any written statement furnished by or on behalf
of any Credit Party under this Agreement, or to induce Lender to execute the
Loan Documents, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which they were
made. As of the Closing Date, each Credit Party has provided Lender and will
continue to provide Lender with a true, complete and correct copy of each
material contract executed by any Credit Party.
3.17 Hazardous Materials. (a) As of the Closing Date, each real property
location owned, leased or occupied by each Credit Party (the "Subject
Property") is and will continue to be maintained free of contamination from any
Hazardous Material. Each Credit Party: (i) shall comply with all applicable
Environmental Laws and Environmental Permits; (ii) shall notify Lender in
writing within seven days if and when it becomes aware of any incident or
ongoing case of non-compliance or Release (regardless of when such Release
may have occurred) upon any Subject Property; and (iii) shall promptly
forward to Lender a copy of any order, notice, permit, application, or any
communication or report received by it or any other Credit Party in
connection with any such Release or any other matter relating to the
Environmental Laws that may affect Borrower or any other Credit Party. As of
the Closing Date, Disclosure Schedule (3.17) discloses existing or, to the
best of each Credit Party's knowledge, potential environmental liabilities of
each Credit Party that could result in Environmental Liabilities and Costs, and
each Credit Party will promptly notify Lender in writing of any such
liabilities arising after the Closing Date. As of the Closing Date, no
Credit Party has caused, permitted or suffered, or will cause, permit or
suffer to occur any Release at, under, above or within any Subject Property,
or the presence, use, generation, manufacture, installation, or storage of
any Hazardous Materials on, under, in or about any Subject Property or the
transportation of any Hazardous Materials to or from any Subject Property
except to the extent such use, generation, manufacture, installation, storage
or transportation is conducted in compliance with all Environmental Laws and
Environmental Permits. Neither Borrower nor any other Credit Party is or
will become involved in operations that could lead to the imposition of
Environmental Liabilities or Costs, and no sub-tenant of any Credit Party is
permitted, or will be permitted, to engage in any such activity.
(b) Each Credit Party executing this Agreement acknowledges and agrees
that Lender (i) is not now, and has not ever been, in control of any of the
Subject Property or the affairs of Borrower or any other Credit Party, and
(ii) does not have the capacity through the provisions of the Loan Documents
to influence Borrower's or any other Credit Party's conduct with respect to
the ownership, operation or management of any of the Subject Property.
3.18 Insurance. As of the Closing Date, Disclosure Schedule (3.18) lists
all insurance of any nature maintained for current occurrences by Borrower
and each other Credit Party, as well as a summary of the terms of such
insurance. Each Credit Party executing this Agreement shall deliver to
Lender endorsements to all of its and those of its Subsidiaries' (i) "All
Risk" and business interruption insurance policies naming Lender loss payee,
and (ii) general liability and other liability policies naming Lender as an
additional insured. All policies of insurance on real and personal property
will contain an endorsement, in form and substance acceptable to Lender, showing
loss payable to Lender (Form 438 BFU or equivalent) and extra expense and
business interruption endorsements. Such endorsement, or an independent
instrument furnished to Lender, will provide that the insurance companies will
give Lender at least 30 days prior written notice before any such policy or
policies of insurance shall be altered or cancelled and that no act or
default of Borrower or any other Person shall affect the right of Lender to
recover under such policy or policies of insurance in case of loss or damage.
Each Credit Party executing this Agreement hereby directs all present and future
insurers under its "All Risk" policies of insurance to pay all proceeds payable
thereunder directly to Lender. Lender reserves the right at any time, upon
review of each Credit Party's risk profile, to require additional forms and
limits of insurance to adequately protect Lender's interests in accordance
with Lender's normal practice for similarly situated borrowers, and if the
circumstances are unusual, in Lender's sole opinion. Each Credit Party
executing this Agreement shall, on each anniversary of the Closing Date and from
time to time at Lender's request, deliver to Lender a report by a reputable
insurance broker, satisfactory to Lender, with respect to such Person's
insurance policies.
3.19 Deposit and Disbursement Accounts. Attachment I to Schedule D lists
all banks and other financial institutions at which Borrower or any Credit
Party maintains deposits and/or other accounts, including the Disbursement
Accounts, and such Attachment correctly identifies the name, address and
telephone number of each such depository, the name in which the account is
held, a description of the purpose of the account, and the complete account
number. All payments to Borrower shall be made to or paid into the accounts
specified by Lender in Schedule D.
3.20 Accounts. Borrower and each Subsidiary Guarantor promises to
perform and comply with all obligations in respect of each item of
Collateral. Borrower and each Subsidiary Guarantor represents and promises
that, as of the date of each Borrowing Base Certificate delivered to Lender,
each Account shown on such Borrowing Base Certificate is an Eligible Account.
Neither Borrower nor any Subsidiary Guarantor executing this Agreement has
agreed and none of them will agree: (w) with any Account Debtor for any
deduction from any Account except a discount or allowance allowed by Borrower
in the ordinary course of its business for prompt payment; (x) to any
extension of the time of payment of any Eligible Account; (y) to compromise
or settle any Eligible Account for less than the full amount thereof; or (z)
to release, in whole or in part, any Person liable for the payment of any
Account; provided, that Borrower and each Subsidiary Guarantor may permit
deductions, extensions, compromises, settlements and releases of the Eligible
Accounts described in clauses (x) and (y) and the Accounts described in
clause (z) which, in the aggregate during any Fiscal Quarter will not exceed
$25,000.
3.21 Inventory. (a) Borrower represents and promises that, as of the
date of each Borrowing Base Certificate delivered to Lender, each item of I
nventory shown on such Borrowing Base Certificate is Eligible Inventory.
(b) Within seven months of the Closing Date all retail locations of
Borrower and its Subsidiaries that operate with point of sale terminals shall
be connected to a perpetual inventory control system satisfactory to Lender.
(c) Borrower will not relinquish possession of any Inventory or goods to
any of its Subsidiaries or Cambria except on consignment to the Aid Store
Subsidiaries pursuant to the Master Consignment Agreement and sales thereof
to Ames in accordance with the terms hereof.
3.22 Payment of Obligations. Each Credit Party: (a) will pay and
discharge or cause to be paid and discharged all Obligations in a timely
manner; and (b) prior to an Event of Default, (i) will pay and discharge, or
cause to be paid and discharged, its Indebtedness (other than the
Obligations) in the ordinary course of business, (ii) subject to Section
3.11(b), will pay and discharge, or cause to be paid and discharged promptly,
all Charges, and (iii) will pay all lawful claims for labor, materials,
supplies and services or otherwise, before any thereof shall become in default.
3.23 Confidentiality and Press Releases. Lender and each Credit Party
executing this Agreement agree that the terms and conditions of this
Agreement are confidential. No Credit Party executing this Agreement shall
use the name of or refer to General Electric Capital Corporation (or any
Affiliate thereof) or "GE Capital," or issue any press release regarding or
make other public disclosure of the existence of this Agreement or its terms,
without the prior written consent of Lender, except as may be required by
law; provided, that to the extent required by law, Borrower or any other
Credit Party may make such disclosures, but only if Borrower shall first have
afforded Lender a reasonable opportunity to review and comment upon any such
legally required disclosure, press release, or use of such name.
3.24 Conduct of Business. Each Credit Party (a) shall conduct its
business substantially as now conducted or as otherwise permitted hereunder,
and (b) shall at all times maintain, preserve and protect all of the
Collateral and such Credit Party's other property, in use or useful in the
conduct of its business and keep the same in good repair, working order and
condition (taking into consideration ordinary wear and tear) and from time to
time make, or cause to be made, all necessary or appropriate repairs,
replacements and improvements thereto consistent with industry practices, so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
3.25 Further Assurances; Disclosure Schedule Supplements. At any time and
from time to time, upon the written request of Lender and at the sole expense
of Borrower, Borrower and each other Credit Party shall promptly and duly
execute and deliver any and all such further instruments and documents and
take such further action as Lender may reasonably deem desirable (a) to
obtain the full benefits of this Agreement, (b) to protect, preserve and
maintain Lender's rights in the Collateral, or any of it, and under this
Agreement, including any action required under Section 3.26 with respect to
the Master Consignment Agreement, or (c) to enable Lender to exercise all or
any of the rights and powers herein granted. On each anniversary of the
Closing Date (or as often as Lender may require upon the occurrence and
continuation of a Default or Event of Default), Borrower will supplement each
Disclosure Schedule with respect to any matter hereafter arising that, if
existing or occurring as of the Closing Date, would have been required to be
set forth or described in such Disclosure Schedule; provided, that such
supplement shall not be deemed to be an amendment thereof unless expressly
consented to in writing by Lender.
3.26 Master Consignment Agreement. Each of Borrower's Subsidiaries (other
than Ames and Adelman) and Cambria shall at all times be a party to the
Master Consignment Agreement and fully perform all of its obligations under
the Master Consignment Agreement and shall enforce all of its rights and
remedies under the Master Consignment Agreement in accordance with the terms
thereof; provided that (i) the Leasing Subsidiaries shall not purchase, hold
title to or otherwise hold or possess any Inventory or goods pursuant to the
Master Consignment Agreement or otherwise, and (ii) the Aid Store
Subsidiaries shall take possession of Inventory and goods exclusively
pursuant to the Master Consignment Agreement and shall not purchase, hold
title to or otherwise hold or possess any Inventory or goods. No Credit
Party shall, without Lender's prior written consent, modify, amend, supplement,
compromise, satisfy, release, or discharge any provision of the Master
Consignment Agreement. If any Credit Party shall fail after Lender's demand
to diligently pursue any right under the Master Consignment Agreement, or
if a Default has occurred and is continuing, then Lender may directly enforce
such right in its own or any Credit Party's name and may enter into such
settlements or other agreements with respect thereto as Lender determines.
All such obligations of each Credit Party shall be and remain enforceable
only against such Credit Party and such Credit Party shall at all times
remain liable to observe and perform all of its duties and obligations under
the Master Consignment Agreement, and Lender's exercise of any of its rights
with respect to the Master Consignment Agreement shall not release any Credit
Party from any of such duties and obligations. Lender shall not be obligated
to perform or fulfill any Credit Party's duties or obligations under the
Master Consignment Agreement or to make any payment thereunder or to make any
inquiry as to the nature or sufficiency of any payment or property received
by it thereunder. Each Credit Party acknowledges that all merchandise
consigned under the terms of the Master Consignment Agreement is not "on sale
or return" for purposes of Section 2-326 of the Code. Each Credit Party
shall file the financing statements required by Section 9-114 and 9-408 of
the Code for purposes of ensuring Borrower's prior perfected rights to such
merchandise and the proceeds thereof and assignment thereof to Lender and
Lender's first priority Lien with respect thereto and agrees to execute and
deliver to Lender such other and further instruments as may be reasonably
requested by Lender to ensure such perfection and priority.
3.27 Purchase of Inventory by Ames. Ames shall purchase all of its
Inventory and goods exclusively from Borrower for a purchase price no less
than Borrower's actual cost therefor, including delivery charges and a
reasonable allocation of overhead expenses and upon terms no less favorable
to Borrower than would be obtained in a comparable arms-length transaction
with a Person which is not an Affiliate. Borrower shall make intercompany
advances to Ames to fund payment by Borrower of the purchase price for any
purchases by Ames of Inventory or goods from Borrower which advances shall be
evidenced and secured by the Ames Note. Borrower and Ames shall properly
reflect on their respective books and records each such purchase by Ames and
advance by Borrower. Neither Borrower nor Ames shall, without Lender's prior
written consent, modify, amend, supplement, compromise, satisfy, release, or
discharge any provision of the Ames Note. If a Default has occurred and is
continuing, then Lender may directly enforce payment of the Ames Note in its
own or Borrower's name and may enter into such settlements or other
agreements with respect thereto as Lender determines.
3.28 Franchise Documents. Lender has received a complete and correct
copy of all franchise agreements to which any Credit Party is a party and any
other agreements or documents between any Credit Party and a Franchisee
(including all exhibits and schedules thereto) and all documents and
instruments referred to therein or delivered pursuant thereto and all
amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof (collectively, the "Franchise
Documents"). A true, correct and complete list of the Franchise Documents
and of all Franchisee locations is attached hereto as Disclosure Schedule
(3.28). Each of the Franchise Documents to which any Credit Party is a party
has been duly executed and delivered by such Credit Party and is in full
force and effect and, except as disclosed in Disclosure Schedule (3.28), no
Credit Party has defaulted on any of its obligations thereunder or received
notice from any Franchisee of a default thereunder or of such Franchisee's
intention to terminate any such Franchise Document. To the best of each
Credit Party's knowledge, except as disclosed in Disclosure Schedule (3.28),
each of the Franchise Documents is a valid and enforceable obligation of the
Franchisee party thereto and no Franchisee is in default of its obligations
under any Franchise Document.
4. FINANCIAL MATTERS; REPORTS
4.1 Reports and Notices. Borrower represents, agrees and promises that
from and after the Closing Date until the Termination Date, Borrower shall
deliver to Lender:
(a) within 15 days following the end of each Fiscal Month, (i) an aged
trial balance by Account Debtor and a reconciliation in the form of Exhibit D
of such aged trial balance to the accounts receivable balance of each of
Borrower and Ames as shown on the most recently submitted Notice of Revolving
Credit Advance, (ii) an accounts payable aging report for Borrower, and (iii)
a perpetual inventory report for all warehouse locations of the Credit
Parties; as soon as available but in no event later than 30 days following
the end of each Fiscal Month, a continuation of such reconciliation to
Borrower's general ledger and from the general ledger to the Financial
Statements for such Fiscal Month, accompanied by supporting detail and
documentation as Lender may request; and within 15 days following the end of
each Fiscal Month with respect to each retail location of Borrower and its
Subsidiaries and Cambria not operating under a perpetual inventory control
system in accordance with Section 3.21 hereof, a gross profit estimate for
Inventory located at such location;
(b) as frequently as Lender may request and in any event no later than 15
days following the end of each Fiscal Month, a Borrowing Base Certificate in
the form of Exhibit C as of the last day of the previous Fiscal Month
detailing ineligible Accounts and Inventory for adjustment to the Borrowing
Base;
(c) within 45 days following the end of each Fiscal Month, the Financial
Statements for such Fiscal Month, which Financial Statements shall provide
comparisons to budget and actual results for the corresponding period during
the prior Fiscal Year, both on a monthly and year-to-date basis, and
accompanied by a certification by the Chief Executive Officer or Chief
Financial Officer of Borrower that such Financial Statements are complete and
correct, that there was no Default or Event of Default (or specifying those
Defaults or Events of Default that he or she was aware), and showing in
reasonable detail the calculations used in determining compliance with the
financial covenants hereunder;
(d) within 90 days following the close of each Fiscal Year, the Financial
Statements for such Fiscal Year certified without qualification by an
independent certified accounting firm acceptable to Lender, together with
comparisons prepared by Borrower to budget and actual results for the prior
Fiscal Year, both on a monthly and annual basis, and shall be accompanied by
(i) a statement in reasonable detail showing the calculations used in
determining compliance with the financial covenants hereunder, (ii) a report
from Borrower's accountants to the effect that in connection with their audit
examination nothing has come to their attention to cause them to believe
that a Default or Event of Default has occurred or specifying those Defaults
or Events of Default of which they are aware, and (iii) any management letter
that may be issued;
(e) not less than 30 days prior to the close of each Fiscal Year, the
Projections, which Projections will be prepared by Borrower in good faith,
with care and diligence, and using assumptions which are reasonable under
the circumstances at the time such Projections are prepared and at the time
such Projections are delivered to Lender and disclosed in the Projections
when delivered; and
(f) such other information respecting the business, financial condition,
prospects or projections of Borrower or any Affiliate thereof as Lender may
request from time to time.
4.2 Financial Covenants. Borrower shall not breach any of the financial
covenants set forth in Schedule G.
4.3 Other Reports. Borrower shall notify Lender promptly of any
occurrence causing a material loss or decline in value of any Collateral and
the estimated (or actual, if available) amount of such loss or decline.
Borrower shall, upon the request of Lender, furnish to Lender such other
reports in connection with the affairs, business, financial condition,
operations, prospects or management of Borrower or any other Credit Party or
the Collateral as Lender may request, all in reasonable detail, and Borrower
shall advise Lender promptly, in reasonable detail, of: (a) any Lien, other
than Permitted Encumbrances, attaching to or asserted against any of the
Collateral; (b) any material change in the composition of the Collateral;
and (c) the occurrence of any other event which could reasonably be
expected to have a Material Adverse Effect.
5. NEGATIVE COVENANTS
Borrower and each Credit Party executing this Agreement covenants and agrees
(for itself and each other Credit Party) that, without Lender's prior written
consent, from the Closing Date until the Termination Date, neither Borrower
nor any other Credit Party shall, directly or indirectly, by operation of law
or otherwise:
(a) merge with, consolidate with, acquire all or substantially all of the
assets or capital stock of, or otherwise combine with, any Person or form any
Subsidiary, except that, so long as no Default shall have occurred and be
continuing or would occur as a result thereof, Borrower may form new
Subsidiaries which are "Leasing Subsidiaries" for all purposes of this
Agreement and the other Loan Documents, including the provisions of Section
3.8(b); provided that (i) Borrower shall have provided no less than ten (10)
Business Days prior notice to Lender of its intention to form a new Leasing
Subsidiary together with such information with respect to such Leasing
Subsidiary and any real property lease or other document proposed to be
entered into by any Credit Party in connection therewith, and (ii) within one
Business Day of forming such Leasing Subsidiary, (A) such Leasing Subsidiary
shall execute and deliver to Lender a joinder agreement and such other
documents as Lender may request pursuant to which such Leasing Subsidiary
becomes a Subsidiary Guarantor party to this Agreement and a consignee
party to the Master Consignment Agreement, (B) Lender shall be granted a
first priority perfected Lien in all assets of such Leasing Subsidiary and
shall have executed such documents (including financing statements and
consignment financing statements) as may be required by Lender in connection
therewith, and (C) the requirements of Schedule D with respect to such
Leasing Subsidiary shall have been complied with;
(b) except as otherwise permitted in this Section 5 below, make any
investment in, or make or accrue loans or advances of money to, any Person;
(c) create, incur, assume or permit to exist any Indebtedness, except:
(i) the Obligations; (ii) Indebtedness other than the Obligations in an
aggregate outstanding amount not exceeding $200,000; (iii) deferred taxes; and
(iv) other Indebtedness set forth in Disclosure Schedule (5(c));
(d) enter into any lending, borrowing or other commercial transaction with
any of its employees, directors, Affiliates or any other Credit Party
(including upstreaming and downstreaming of cash and intercompany advances),
other than (i) loans to employees in the ordinary course of business in an
aggregate outstanding amount not exceeding $50,000; (ii) the Master
Consignment Agreement and the Bill of Sale executed and delivered by the
Credit Parties in connection therewith on the Closing Date and, subject to
Section 3.26, the intercompany transactions contemplated thereby; (iii) sales
of Inventory by Borrower to Ames in accordance with Section 3.27 and upon
terms no less favorable to Borrower than would be obtained in a comparable
arms-length transaction with a Person which is not an Affiliate and the Ames
Note; and (iv) the Seller Subordinated Notes and the PS Subordinated Note;
(e) make any changes in any of its business objectives, purposes, or
operations which could have or reasonably be expected to have a Material
Adverse Effect;
(f) amend its charter or by-laws or other organizational documents;
(g) incur any Guaranteed Indebtedness except (i) by endorsement of
instruments or items of payment for deposit to the general account of
Borrower, and (ii) for Guaranteed Indebtedness incurred for the benefit of
Borrower if the primary obligation is permitted by this Agreement;
(h) create or permit any Lien on any of its properties or assets, except
for Permitted Encumbrances;
(i) sell, transfer, convey, assign or otherwise dispose of any of its
assets or properties, including its Accounts (provided, that the foregoing
shall not prohibit the sale of Inventory or obsolete or unnecessary Equipment
or real estate in the ordinary course of its business, the sale of Common
Stock at Fair Market Value for cash consideration or the grant of stock
options under the Borrower's 1995 Stock Option Plan (as amended July 1, 1996));
(j take any action or omit to take any action, which act or omission
would constitute a material default or an event of default pursuant to, or
noncompliance with, any contract, lease, mortgage, deed of trust or
instrument to which it is a party or by which it or any of its property is
bound, or any document creating a Lien;
(k) cancel any debt owing to it, except for reasonable consideration and in
the ordinary course of its business or as otherwise permitted in Section 3.20;
(l) make or permit any Restricted Payment, except Borrower may (i) make
scheduled quarterly principal payments and scheduled monthly interest
payments on the PS Subordinated Note so long as prior to and after giving
effect to such payment (x) no Default has occurred and is continuing or would
occur as a result thereof, (y) Borrower's Fixed Charge Coverage Ratio (as
defined in Schedule G) for the Fiscal Quarter immediately preceding such
payment on a pro forma basis (giving effect to such payment and all Revolving
Credit Advances funded in connection therewith as if made on the first day
of, and remained outstanding during, such Fiscal Quarter) is at least 1:1,
and (z) Borrower shall have delivered to Lender, in form and substance
satisfactory to Lender, the Financial Statements for the Fiscal Quarter
immediately preceding such payment together with calculations on a pro forma
basis demonstrating compliance with the foregoing clause (y), and (ii) make
payments on the Seller Subordinated Notes to the extent permitted under the
Seller Subordination Agreements; or
(m) engage in any business other than that presently engaged in or proposed
to be engaged in the Projections delivered to Lender on the Closing Date.
6. SECURITY INTEREST
6.1 Grant of Security Interest. (a) To secure the prompt and complete
payment, performance and observance of all of the Obligations, and to induce
Lender to enter into the Loan Documents and to make the Revolving Credit
Loan provided for herein, Borrower and each Subsidiary Guarantor hereby
assigns and transfers to Lender, and grants to Lender a security interest in
and Lien upon, all of its right, title and interest in the Collateral.
(b) Borrower and each Subsidiary Guarantor and Lender agree that this
Agreement creates, and is intended to create, valid and continuing Liens upon
the Collateral in favor of Lender. Borrower and each Subsidiary Guarantor
represents, warrants and promises to Lender that: (i) upon and as a result
of the filing of appropriate financing statements in the jurisdictions listed
in Disclosure Schedule (6.1), such Liens are and will be fully perfected
Liens on and in all Collateral, which Liens are and will, until the
Termination Date, be enforceable as first priority, fully perfected Liens as
against all other creditors of, and purchasers from, Borrower and each
Subsidiary Guarantor (other than purchasers of Inventory in the ordinary
course of business); (ii) all action necessary or desirable to protect and
perfect such Liens in favor of Lender in all of the Collateral has been duly
taken; (iii) except for Permitted Encumbrances, Borrower and each Subsidiary
Guarantor is and will be the sole owner of each such item of the Collateral
in which a Lien is granted under the Loan Documents (other than consigned goods
specifically identified in Disclosure Schedule (6.1)), and has and will have
good and marketable title to such Collateral free and clear of any and all
other Liens, and (iv) no effective security agreement, financing statement,
equivalent security or Lien instrument or continuation statement covering all
or any part of the Collateral is or will be on file or of record in any
public office, except those filed by Borrower and each Subsidiary Guarantor
in favor of Lender pursuant to the Loan Documents, and those relating to
other Permitted Encumbrances. Borrower and each Subsidiary Guarantor promise
to defend the right, title and interest of Lender in and to the Collateral
against the claims and demands of all Persons whomsoever, and shall take such
actions, including (1) the prompt delivery of all original Instruments,
Chattel Paper and certificated Stock owned by Borrower or any Subsidiary
Guarantor to Lender, (2) notification of Lender's interest in Collateral at
Lender's request, or (3) the institution of litigation against third parties
as shall be prudent in order to protect and preserve Borrower's and Lender's
respective and several interests in the Collateral. Borrower and each
Subsidiary Guarantor shall mark its Books and Records pertaining to the
Collateral to evidence the Loan Documents and the Liens granted under the
Loan Documents. All Chattel Paper shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to
the security interest of General Electric Capital Corporation."
6.2 Lender's Rights. (a) Lender may, (i) at any time in Lender's own name
or in the name of Borrower or any Subsidiary Guarantor, communicate with
Account Debtors, parties to Contracts, and obligors in respect of
Instruments, Chattel Paper or other Collateral to verify to Lender's
satisfaction, the existence, amount and terms of any such Accounts,
Contracts, Instruments or Chattel Paper or other Collateral, and (ii) at any
time after the occurrence of a Default, and without prior notice to Borrower,
any Subsidiary Guarantor or any other Credit Party, notify Account Debtors,
parties to Contracts, and obligors in respect of Chattel Paper, Instruments,
or other Collateral that the Collateral has been assigned to Lender and that
payments shall be made directly to Lender. Upon the request of Lender,
Borrower and each Subsidiary Guarantor shall so notify such Account Debtors,
parties to Contracts, and obligors in respect of Instruments, Chattel Paper
or other Collateral.
(b) Each Credit Party hereby consents to the assignment, transfer and
granting of Liens in the Collateral pursuant to this Section 6, including all
Contracts (including the Master Consignment Agreement), Instruments
(including the Ames Note), Chattel Paper and Licenses under which such Credit
Party is a party or obligor. It is expressly agreed by Borrower and each
Subsidiary Guarantor that, notwithstanding anything herein to the contrary,
Borrower and each Subsidiary Guarantor shall remain liable under each
Contract and License to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, and Lender shall have
no obligation or liability whatsoever to any Person under any Contract or
License (between Borrower or any Subsidiary Guarantor and any Person other
than Lender) by reason of or arising out of the execution, delivery or
performance of this Agreement, and Lender shall not be required or obligated
in any manner (i) to perform or fulfill any of the obligations of Borrower or
any Credit Party, (ii) to make any payment or inquiry, or (iii) to take any
action of any kind to collect or enforce any performance or the payment of
any amounts which may have been assigned to it or to which it may be entitled
at any time or times under or pursuant to any Contract or License.
(c) Borrower and each Subsidiary Guarantor shall, with respect to each
owned, leased, or controlled property or facility, during normal business
hours and upon reasonable advance notice (unless a Default shall have occurred
and be continuing, in which event no notice shall be required and Lender
shall have access at any and all times): (i) provide access to such facility
or property to Lender and any of its officers, employees and agents, as
frequently as Lender determines to be appropriate; (ii) permit Lender and any
of its officers, employees and agents to inspect, audit and make extracts
from all of Borrower's and each Subsidiary Guarantor's Books and Records; and
(iii) permit Lender to inspect, review, evaluate and make physical
verifications and appraisals of the Inventory and other Collateral in any
manner and through any medium that Lender considers advisable, and Borrower
and each Subsidiary Guarantor agree to render to Lender, at Borrower's and
such Subsidiary Guarantor's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. Borrower and
each Subsidiary Guarantor shall make available to Lender and its counsel, as
quickly as practicable under the circumstances, originals or copies of all
Borrower's and each Subsidiary Guarantor's Books and Records and any
other instruments and documents which Lender may request. Borrower shall
deliver any document or instrument reasonably necessary for Lender, as it may
from time to time request, to obtain records from any service bureau or other
Person which maintains records for Borrower or any Subsidiary Guarantor.
(d) After the occurrence and during the continuance of a Default, Borrower,
at its own expense, shall cause the certified public accountant then engaged
by Borrower to prepare and deliver to Lender at any time and from time to
time, promptly upon Lender's request, the following reports: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) test verifications of such Accounts as Lender may request.
Borrower, at its own expense, shall cause its certified independent public
accountants to deliver to Lender the results of any physical verifications of
all or any portion of the Inventory made or observed by such accountants when
and if such verification is conducted. Lender shall be permitted to observe
and consult with Borrower's accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date
Borrower and each Subsidiary Guarantor shall execute and deliver a Power of
Attorney in the form attached as Exhibit F. The power of attorney granted
pursuant to each Power of Attorney is a power coupled with an interest and
shall be irrevocable until the Termination Date. The powers conferred on
Lender under each Power of Attorney are solely to protect Lender's interests
in the Collateral and shall not impose any duty upon it to exercise any such
powers. Lender agrees and promises that (a) it shall not exercise any power
or authority granted under the Power of Attorney unless an Event of Default
has occurred and is continuing, (b) Lender shall only exercise the powers
granted under the Power of Attorney in respect of Collateral, and (c) upon
request of Borrower or Subsidiary Guarantor, Lender shall account for any
moneys received by Lender in respect of any foreclosure on or disposition of
Collateral pursuant to use of any Power of Attorney; provided, that, except
as otherwise required by applicable law, Lender shall not have any other duty
as to any Collateral, and Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers. NONE OF
LENDER OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL
BE RESPONSIBLE TO BORROWER OR ANY SUBSIDIARY GUARANTOR FOR ANY ACT OR FAILURE
TO ACT PURSUANT TO THE POWERS GRANTED UNDER THE POWER OF ATTORNEY OR
OTHERWISE, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL
DAMAGES. Borrower and each Subsidiary Guarantor also hereby authorizes
Lender to file any financing or continuation statement without its signature
to the extent permitted by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. For the
purpose of enabling Lender to exercise its rights and remedies under the Loan
Documents, Borrower and each Subsidiary Guarantor executing this Agreement
hereby grants to Lender an irrevocable, non-exclusive license (exercisable
upon the occurrence and during the continuance of an Event of Default without
payment of royalty or other compensation) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by Borrower or any such Subsidiary Guarantor, and wherever the same
may be located, and including in such license access to all media in which
any of the licensed items may be recorded or stored and to all computer and
automatic machinery software and programs used for the compilation or
printout thereof, and represents, promises and agrees that any such license
or sublicense is not and will not be in conflict with the contractual or
commercial rights of any third person; provided, that such license will
terminate on the Termination Date.
6.5 Reinstatement. The provisions of this Section 6 shall remain in full
force and effect and continue to be effective even if: (a) any petition is
filed by or against any Credit Party for liquidation or reorganization; (b) any
Credit Party becomes insolvent or makes an assignment for the benefit of
creditors; (c) a receiver or trustee is appointed for all or any significant
part of any Credit Party's assets; or (d) at any time payment and performance
of the Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by
any obligee of the Obligations, whether as a "voidable preference," "fraudulent
transfer" or otherwise, all as though such payment or performance had not been
made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, the Obligations and Lender's Liens in the
Collateral shall be reinstated and deemed reduced only by any amount paid and
not so rescinded, reduced, restored or returned.
7. GUARANTY
7.1 Guaranty. (a) To induce Lender to enter into the Loan Documents and
to make the Revolving Credit Loan provided for herein each Subsidiary
Guarantor hereby unconditionally and irrevocably, jointly and severally,
guarantees to Lender, as primary obligor and not merely as a surety, the
prompt and complete payment and performance by Borrower and each other Credit
Party when due (whether at the stated maturity, by acceleration or otherwise)
of the Obligations. Each Subsidiary Guarantor further agrees to, jointly and
severally, pay any and all reasonable expenses (including, without
limitation, all reasonable fees and disbursements of counsel) which may
be paid or incurred by Lender in enforcing, or obtaining advice of counsel in
respect of, any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting
against, each Subsidiary Guarantor under this Section 7. This Section 7
shall remain in full force and effect until the Termination Date.
(b) No payment or payments made by Borrower, any other Credit Party or any
other Person or received or collected by Lender from Borrower, any other
Credit Party or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application, at any time or from time to time, in
reduction of or in payment of the Obligations shall be deemed to modify,
reduce, release or otherwise affect the liability of the Subsidiary
Guarantors under this Section 7 which shall, notwithstanding any such payment
or payments, remain in full force and effect until the Termination Date.
Each Subsidiary Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to Lender on account of its liability under
this Section 7, it will notify Lender in writing that such payment is made
under this Section 7 for such purpose.
7.2 Nature of Liability. The liability of each Subsidiary Guarantor
hereunder is exclusive and independent of any security for or other guaranty
of the Obligations whether executed by such Subsidiary Guarantor, any other
Subsidiary Guarantor or by any other Person, and a separate action or actions
may brought and prosecuted against each Subsidiary Guarantor whether or not
action is brought against any other Subsidiary Guarantor, any other
guarantor, the Borrower, any other Credit Party or any other Person and
whether or not any other Subsidiary Guarantor, any other guarantor, the
Borrower, any other Credit Party or any other Person be joined in any such
action or actions. Each Subsidiary Guarantor waives, to the fullest extent
permitted by law, the benefit of any statute of limitations affecting its
liability hereunder or the enforcement thereof. Any payment by the Borrower or
other circumstance which operates to toll any statute of limitations as to
the Borrower shall operate to toll the statute of limitations as to any
Subsidiary Guarantor.
7.3 No Subrogation, Contribution, Reimbursement or Indemnity.
Notwithstanding anything to the contrary in this Section 7, no Subsidiary
Guarantor shall be entitled to be subrogated to any of the rights of Lender
against Borrower or any other Credit Party or any security interest in and
Lien upon any collateral security or guaranty therefor or right of offset
held by Lender for the payment of the Obligations, nor shall any Subsidiary
Guarantor seek or be entitled to seek any contribution or reimbursement from
Borrower or any other Credit Party in respect of payments made by such
Subsidiary Guarantor hereunder, until the Termination Date. If any amount
shall be paid to any Subsidiary Guarantor on account of such subrogation
rights at any time prior to the Termination Date, such amount shall be held
by such Subsidiary Guarantor, in trust for Lender, segregated from other
funds of such Subsidiary Guarantor, and shall, forthwith upon receipt by such
Subsidiary Guarantor, be turned over to Lender in the exact form received by
Lender (duly indorsed by such Subsidiary Guarantor to Lender, if required),
to be applied against the Obligations, whether matured or unmatured, in such
order as Lender may determine. The provisions of this paragraph shall
survive the termination of this Section 7 and the Termination Date.
7.4 Amendments, etc. with respect to the Obligations; Waiver of Rights.
Each Subsidiary Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against any Subsidiary Guarantor,
and without notice to or further assent by any Subsidiary Guarantor, any
demand for payment of any of the Obligations made by Lender may be rescinded
by Lender, and any of the Obligations continued, and the Obligations, or the
liability of any other party upon or for any part thereof, or any security
interest in and Lien upon any collateral security or guarantee therefor or
right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised,
waived, surrendered or released by Lender, and this Agreement, the other Loan
Documents and any other documents executed and delivered in connection
herewith or therewith may be amended, modified, supplemented or terminated,
in whole or in part, as Lender may deem advisable from time to time, and any
security interest in and Lien upon any collateral security or guaranty for
the Obligations or right of offset at any time held by Lender for the payment
of the Obligations may be sold, exchanged, waived, surrendered or released.
Lender shall have no obligation to protect, secure, perfect or insure any
Lien at any time held by it as security for the Obligations or for this
Section 7 or any property subject thereto. When making any demand hereunder
against any Subsidiary Guarantor, Lender may, but shall be under no
obligation to, make a similar demand on Borrower or any other Credit Party,
and any failure by Lender to make any such demand or to collect any payments
from Borrower or any such other Credit Party or any release of Borrower or
such other Credit Party shall not relieve any other Subsidiary Guarantor of
its obligations or liabilities under this Guaranty, and shall not impair or
affect the rights and remedies, express or implied, or as a matter of law, of
Lender against any Subsidiary Guarantor. For the purposes hereof "demand"
shall include the commencement and continuance of any legal proceedings.
7.5 Guaranty Absolute and Unconditional. Each Subsidiary Guarantor
waives, to the fullest extent permitted by applicable law, any and all notice
of the creation, renewal, extension or accrual of any of the Obligations and
notice of or proof of reliance by Lender upon the guaranty contained in this
Section 7 or acceptance of the guaranty contained in this Section 7; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Section 7; and all dealings between Borrower or any Subsidiary
Guarantor, on the one hand, and Lender, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Section 7. Each Subsidiary Guarantor waives, to the fullest extent permitted
by applicable law, diligence, presentment, protest, demand for payment and
notice of default or nonpayment to or upon Borrower or any Subsidiary
Guarantor with respect to the Obligations. This Section 7 shall be construed
as a continuing, absolute and unconditional guaranty of payment without
regard to (a) the validity, regularity or enforceability of this Agreement,
the Revolving Credit Note or any other Loan Document entered into by any
Credit Party with Lender, any of the Obligations or any other security
interest in and Lien upon the any collateral security or guarantee therefore
or right of offset with respect thereto at any time or from time to time held
by Lender, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted
by any Credit Party against Lender or (c) any other circumstance whatsoever
(with or without notice to or knowledge of any Credit Party) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of any Credit Party for the Obligations, or of any Subsidiary
Guarantor under this Section 7, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against any Subsidiary Guarantor,
Lender may, but shall be under no obligation to, pursue such rights and
remedies as it may have against any other Credit Party or any other Person
or against any security interest in and Lien upon the any collateral security
or guarantee for the Obligations or any right of offset with respect thereto,
and any failure by Lender to pursue such other rights or remedies or to collect
any payments from any other Credit Party or any such other Person or to
realize upon any such security interest in and Lien upon any such collateral
security or guarantee or to exercise any such right of offset, or any release
of any other Credit Party or any such other Person or of any such security
interest in and Lien upon such collateral security or any such guaranty or
right of offset, shall not relieve any Subsidiary Guarantor of any liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of Lender against any
Subsidiary Guarantor. This Section 7 shall remain in full force and effect
and be binding in accordance with and to the extent of its terms upon each
Subsidiary Guarantor and each of its successors, and shall inure to the
benefit of Lender until the Termination Date.
7.6 Subordination. Any indebtedness of any Credit Party now or hereafter
held by a Subsidiary Guarantor is hereby subordinated to the Obligations; and
such indebtedness of any Credit Party to a Subsidiary Guarantor, if Lender,
after a Default has occurred, so requests, shall be collected, enforced and
received by such Subsidiary Guarantor as trustee for the Lender and be paid
over to the Lender on account of the Obligations, but without affecting or
impairing in any manner the liability of such Subsidiary Guarantor under the
other provisions of this Section 7. Prior to the transfer by a Subsidiary
Guarantor of any note or negotiable instrument evidencing any indebtedness of
any Credit Party to a Subsidiary Guarantor, such Subsidiary Guarantor shall
mark such note or negotiable instrument with a legend that the same is
subject to this subordination. The word "indebtedness" is used in this
Section 7 in its most comprehensive sense and includes any and all advances,
debts, obligations and liabilities of any Credit Party heretofore, now, or
hereafter made, incurred or created, whether voluntarily or involuntarily,
absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether or not such indebtedness is from time to time reduced,
or extinguished and thereafter increased or incurred, whether such Credit
Party may be or hereafter become barred by any statute of limitations, and
whether or not such indebtedness may be or hereafter become otherwise
unenforceable.
7.7 Reinstatement. This Section 7 shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or returned
by Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Credit Party or upon or as a result of the appointment
of a receiver, intervenor or conservator of, or trustee or similar officer
for, any Credit Party or any substantial part of its property, or otherwise,
all as though such payments had not been made.
7.8 Maximum Guaranteed Amount. Notwithstanding any other provision of
this Section 7 to the contrary, if the obligations of any Subsidiary
Guarantor hereunder would otherwise be held or determined by a court of
competent jurisdiction in any action or proceeding involving any state
corporate law or any state or Federal bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other law affecting the rights of
creditors generally, to be void, invalid or unenforceable to any extent on
account of the amount of such Subsidiary Guarantor's liability under this
Section 7, then notwithstanding any other provision of this Section 7 to the
contrary, the amount of such liability of such Subsidiary Guarantor shall,
without any further action by such Subsidiary Guarantor or any other Person,
be automatically limited and reduced to the highest amount which is valid and
enforceable as determine in such action or proceeding.
7.9 Payments. Each Subsidiary Guarantor hereby agrees that the
Obligations will be paid to Lender without set-off or counterclaim in dollars
at the office of Lender as set forth in Section 10.7.
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the following
events (regardless of the reason therefore) shall constitute an "Event of
Default" hereunder which shall be deemed to be continuing until waived by
Lender in accordance with Section 10.3:
(a) Borrower shall fail to make any payment in respect of any Obligations
when due and payable or declared due and payable; or
(b) Borrower or any other Credit Party shall fail or neglect to perform,
keep or observe any of the covenants, promises, agreements, requirements,
conditions or other terms or provisions contained in this Agreement or any
of the other Loan Documents, regardless of whether such breach involves a
covenant, promise, agreement, condition, requirement, term or provision with
respect to a Credit Party that has not signed this Agreement; or
(c) an event of default shall occur under any agreement, document or
instrument to which Borrower or any other Credit Party is a party, or by
which any such Person or its property is bound, and such event of default (i)
involves the failure to make any payment, whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment,
acceleration, demand or otherwise, in respect of any Indebtedness (other than
the Obligations) of such Person in an aggregate amount exceeding the Minimum
Actionable Amount, or (ii) causes (or permits any holder of such Indebtedness
or a trustee to cause) such Indebtedness, or a portion thereof in an
aggregate amount exceeding the Minimum Actionable Amount to become due prior
to its stated maturity or prior to its regularly scheduled dates of payment; or
(d) any representation or warranty in this Agreement or any other Loan
Document, or in any written statement pursuant hereto or thereto, or in any
report, financial statement or certificate made or delivered to Lender by
Borrower or any other Credit Party shall be untrue or incorrect as of the
date when made, regardless of whether such breach involves a representation
or warranty with respect to a Credit Party that has not signed this Agreement;
or
(e) any of the assets of Borrower or any other Credit Party shall be
attached, seized, levied upon or subjected to a writ or distress warrant or
come within the possession of any receiver, trustee, custodian or assignee
for the benefit of creditors of such Person, for a period of sixty (60)
consecutive days; or any Person other than Borrower shall apply for the
appointment of a receiver, trustee or custodian for any of Borrower's assets
(or those of any other Credit Party) and shall remain unstayed or undismissed
for sixty (60) consecutive days; or Borrower or any other Credit Party shall
have concealed, removed or permitted to be concealed or removed, any part of
its property with intent to hinder, delay or defraud its creditors or any of
them or made or suffered a transfer of any of its property or the incurring
of an obligation which may be fraudulent under any bankruptcy, fraudulent
transfer or other similar law; or
(f) a case or proceeding shall have been commenced involuntarily against
Borrower or any other Credit Party in a court having competent jurisdiction
seeking a decree or order: (i) under the United States Bankruptcy Code or
any other applicable Federal, state or foreign bankruptcy or other similar
law, and seeking either (a) the appointment of a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of such
Person or of any substantial part of its properties, or (b) the
reorganization or winding up or liquidation of the affairs of any such Person
and such case or proceeding shall remain undismissed or unstayed for sixty
(60) consecutive days or such court shall enter a decree or order granting
the relief sought in such case or proceeding; or (ii) invalidating or denying
(a) any Person's right, power, or competence to enter into or perform any of
its obligations under any Loan Document, or (b) the validity or
enforceability of this Agreement or any other Loan Document or any action
taken hereunder or thereunder; or
(g) Borrower or any other Credit Party shall (i) file a petition under the
United States Bankruptcy Code or any other applicable Federal, state or
foreign bankruptcy or other similar law, (ii) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of any such Person or
of any substantial part of its properties, (iii) fail generally to pay (or
admit in writing its inability to pay) its debts as such debts become due, or
(iv) take any corporate action in furtherance of any such action; or
(h) final judgment or judgments (after the expiration of all times to
appeal therefrom) for the payment of money in excess of the Minimum
Actionable Amount in the aggregate shall be rendered against Borrower or any
other Credit Party, unless the same shall be (i) fully covered by insurance
and the issuer(s) of the applicable policies shall have acknowledged full
coverage in writing within fifteen (15) days of judgment, or (ii) vacated,
stayed, bonded, paid or discharged within a period of fifteen (15) days from
the date of such judgment; or
(i) any other event shall have occurred which could have or reasonably be
expected to have a Material Adverse Effect and Lender shall have given
Borrower notice thereof; or
(j) any Lien or any provision of any Loan Document shall for any reason
cease to be valid, binding and enforceable in accordance with its terms, or
any Lien granted, or intended by the Loan Documents to be granted, to Lender
shall cease to be a valid and perfected Lien having the first priority (or a
lesser priority if expressly permitted in the Loan Documents) in any of the
Collateral covered or purported to be covered thereby to the extent
contemplated by Section 6.1.
8.2 Remedies. (a) If any Default shall have occurred and be continuing,
then Lender may exercise one or more of the following remedies: (i) upon
notice to Borrower from Lender, increase the rate of interest applicable to the
Loans to the Default Rate, as provided in Section 1.5(d), effective as of the
date of the initial Default; or (ii) terminate or suspend its obligation to
make further Revolving Credit Advances. In addition, if any Event of Default
shall have occurred and be continuing, Lender may, without notice, take any
one or more of the following actions: (1) declare all or any portion of the
Obligations to be forthwith due and payable whereupon such Obligations shall
become and be due and payable; or (2) exercise any rights and remedies
provided to Lender under the Loan Documents or at law or equity, including
all remedies provided under the Code; provided, that upon the occurrence of
an Event of Default specified in Sections 8.1 (e), (f) or (g), the
Obligations shall become immediately due and payable (and any obligation of
Lender to make further Revolving Credit Advances, if not previously
terminated, shall immediately be terminated) without declaration, notice or
demand by Lender.
(b) Without limiting the generality of the foregoing, Borrower expressly
agrees that upon the occurrence and during the continuance of any Event of
Default, Lender may collect, receive, assemble, process, appropriate and
realize upon the Collateral, or any part thereof, and may forthwith sell,
lease, assign, give an option or options to purchase or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange at
such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. Lender shall have the right upon any
such public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase for the benefit of Lender the whole or any
part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption Borrower hereby releases. Such sales may be
adjourned, or continued from time to time with or without notice. Lender
shall have the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's premises without rent or
other charge for such sales or other action with respect to the Collateral
for such time or times as Lender deems necessary or advisable.
(c) Borrower further agrees, upon the occurrence and during the
continuance of an Event of Default and at Lender's request, to assemble the
Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at Borrower's premises or elsewhere. Until Lender
is able to effect a sale, lease, or other disposition of the Collateral,
Lender shall have the right to complete, assemble, use or operate the
Collateral or any part thereof, to the extent that Lender deems appropriate,
for the purpose of preserving such Collateral or its value or for any other
purpose. Lender shall have no obligation to Borrower to maintain or preserve
the rights of Borrower as against third parties with respect to any
Collateral while such Collateral is in the possession of Lender.
Lender may, if it so elects, seek the appointment of a receiver or keeper to
take possession of any Collateral and to enforce any of Lender's remedies
with respect to such appointment without prior notice or hearing. To the
maximum extent permitted by applicable law, Borrower waives all claims,
damages, and demands against Lender, its Affiliates, agents, and the officers
and employees of any of them arising out of the repossession, retention or
sale of any Collateral except such as are determined in a final judgment by a
court of competent jurisdiction to have arisen solely out of the gross
negligence or willful misconduct of such Person. Borrower agrees that ten
(10) days prior notice by Lender to Borrower of the time and place of any
public sale or of the time after which a private sale
may take place is reasonable notification of such matters. Borrower shall
remain liable for any deficiency if the proceeds of any sale or disposition
of the Collateral are insufficient to pay all amounts to which Lender is
entitled.
(d) Lender's rights and remedies under this Agreement shall be cumulative and
nonexclusive of any other rights and remedies which Lender may have under any
Loan Document or at law or in equity. Recourse to the Collateral
shall not be required. All rights, remedies and powers provided in this
Agreement may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all provisions of this Agreement
are intended to be subject to all applicable mandatory provisions of law that
may be controlling and to be limited, to the extent necessary, so that they
do not render this Agreement invalid, unenforceable, in whole or in part.
8.3 Waivers by Borrower. Except as otherwise provided for in this Agreement
and to the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent
to accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all Loan Documents,
the Revolving Credit Note or any other notes, commercial paper, Accounts,
Contracts, Documents, Instruments, Chattel Paper and guaranties at any time
held by Lender on which Borrower may in any way be liable, and hereby
ratifies and confirms whatever Lender may do in this regard; (b) all rights
to notice and a hearing prior to Lender's taking possession or control of, or
to Lender's replevy, attachment or levy upon, any Collateral or any bond or
security which might be required by any court prior to allowing Lender to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Borrower acknowledges that it has been advised by
counsel of its choices and decisions with respect to this Agreement, the
other Loan Documents and the transactions evidenced hereby and thereby.
8.4 Proceeds. The Proceeds of any sale, disposition or other realization
upon any Collateral shall be applied by Lender upon receipt, in the following
order of priorities: first, to reimburse or pay in full the actual and
reasonable expenses of Lender incurred in connection with such sale,
disposition or other realization, including all other expenses, liabilities
and advances incurred or made by Lender in connection therewith; second, to
Lender as specified in Section 1.11; and finally, after payment and
satisfaction in full in cash of all of the Obligations, and after the payment
by Lender of any other amount required by any provision of law, including
Section 9-504(1)(c) of the Code (but only after Lender has received what
Lender considers reasonable proof of a subordinate party's security
interest), the surplus, if any, to Borrower or its representatives or to
whomsoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct.
9. SUCCESSORS AND ASSIGNS
Each Loan Document shall be binding on and shall inure to the benefit of
Borrower and each other Credit Party executing such Loan Document, Lender,
and their respective successors and assigns, except as otherwise provided
herein or therein. Neither Borrower nor any other Credit Party may assign,
transfer, hypothecate, delegate or otherwise convey its rights, benefits,
obligations or duties under any Loan Document without the prior express
written consent of Lender. Any such purported assignment, transfer,
hypothecation, delegation or other conveyance by Borrower or such Credit
Party without the prior express written consent of Lender shall be void. The
terms and provisions of this Agreement and the other Loan Documents are for
the purpose of defining the relative rights and obligations of Borrower, the
other Credit Parties and Lender with respect to the transactions contemplated
hereby and thereby, and there shall be no third party beneficiaries of any of
the terms and provisions of any of the Loan Documents. Lender reserves the
right at any time to create and sell participations in the Revolving Credit Loan
and the Loan Documents and to sell, transfer or assign any or all of its
rights in the Revolving Credit Loan and under the Loan Documents.
10. MISCELLANEOUS
10.1 Complete Agreement; Modification of Agreement. The Loan Documents
constitute the complete agreement between the parties with respect to the
subject matter hereof and thereof, supersede all prior agreements,
commitments, understandings or inducements (oral or written, expressed or
implied), and may not be modified, altered or amended except by a written
agreement signed by Lender, Borrower and any other Credit Party executing
this Agreement or any other Loan Document. Borrower and each other Credit
Party executing this Agreement or any other Loan Document shall have all
duties and obligations under this Agreement and such other Loan Documents
from the date of its execution and delivery, regardless of whether the
initial Revolving Credit Loan has been funded at that time.
10.2 Expenses. Borrower shall reimburse Lender for all reasonable
out-of-pocket expenses as set forth in Schedule E.
10.3 No Waiver. Neither Lender's failure, at any time or times, to
require strict performance by Borrower or any other Credit Party of any
provision of any Loan Document, nor Lender's failure to exercise, nor any
delay in exercising, any right, power or privilege hereunder, (a) shall
waive, affect or diminish any right of Lender thereafter to demand strict
compliance and performance therewith, or (b) shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or future exercise thereof or the exercise
of any other right, power or privilege. Any suspension or waiver of a
Default, or other provision under the Loan Documents shall not suspend,
waive or affect any other Default or under any Loan Document, whether the
same is prior or subsequent thereto and whether of the same or of a different
type, and shall not be construed as a bar to any right or remedy which Lender
would otherwise have had on any future occasion. None of the undertakings,
indemnities, agreements, warranties, covenants and representations of
Borrower or any other Credit Party to Lender contained in any Loan Document
and no Default by Borrower or any other Credit Party under any Loan Document
shall be deemed to have been suspended or waived by Lender, unless such
waiver or suspension is by an instrument in writing signed by an officer or
other authorized employee of Lender and directed to Borrower specifying such
suspension or waiver (and then such waiver shall be effective only to the
extent therein set forth), and Lender shall not, by any act (other than
execution of a formal written waiver), delay, omission or otherwise,
be deemed to have waived any of its rights or remedies hereunder.
10.4 Severability. Wherever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of any Loan Document shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement. Except as otherwise expressly provided for in the Loan
Documents, no termination or cancellation (regardless of cause or procedure)
of any financing arrangement under the Loan Documents shall in any way affect
or impair the Obligations, duties, indemnities, and liabilities of Borrower
or any other Credit Party or the rights of Lender relating to any unpaid
Obligation, due or not due, liquidated, contingent or unliquidated, or any
transaction or event occurring prior to such termination, or any transaction
or event, the performance of which is not required until after the Commitment
Maturity Date. Except as otherwise expressly provided herein or in any other
Loan Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon Borrower or any other Credit Party and all
rights of Lender, all as contained in the Loan Documents, shall not terminate
or expire, but rather shall survive such termination or cancellation and
shall continue in full force and effect until the Termination Date; provided,
that the indemnity obligations of the Credit Parties under the Loan Documents
shall survive the Termination Date.
10.5 Conflict of Terms. Except as otherwise provided in any Loan
Document by specific reference to the applicable provisions of this
Agreement, if any provision contained in this Agreement is in conflict with,
or inconsistent with, any provision in any other Loan Document, the provision
contained in this Agreement shall govern and control.
10.6 Authorized Signature. Until Lender shall be notified by Borrower
or any other Credit Party to the contrary, the signature upon any document or
instrument delivered pursuant hereto and believed by Lender or any of
Lender's officers, agents, or employees to be that of an officer of Borrower
or such other Credit Party listed in the Secretarial Certificate in the form
of Exhibit E shall bind Borrower and such other Credit Party and be deemed
to be the act of Borrower or such other Credit Party affixed pursuant to and
in accordance with resolutions duly adopted by Borrower's or such other
Credit Party's Board of Directors, and Lender shall be entitled to assume the
authority of each signature and authority of the person whose signature it is
or appears to be unless the person acting in reliance of such signature shall
have actual knowledge of the fact that such signature is false or the person
whose signature or purported signature is presented is without authority.
10.7 Notices. Except as otherwise provided herein, whenever any notice,
demand, request, consent, approval, declaration or other communication shall
or may be given to or served upon any party by any other party, or
whenever any party desires to give or serve upon any other party any
communication with respect to this Agreement, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and shall be deemed to have been validly served, given or delivered
(a) upon the earlier of actual receipt and three (3) days after deposit in
the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (b) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States Mail as otherwise provided in this Section 10.7), (c) one (1)
Business Day after deposit with a reputable overnight courier with all
charges prepaid or (d) when hand-delivered, all of which shall be addressed
to the party to be notified and sent to the address or facsimile number
indicated in Schedule 1.1 or to such other address (or facsimile number)
as may be substituted by notice given as herein provided. The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower or Lender) designated in Schedule 1.1 to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
10.8 Section Titles. The Section titles and Table of Contents contained
in any Loan Document are and shall be without substantive meaning or content
of any kind whatsoever and are not a part of the agreement between the
parties hereto.
10.9 Counterparts. Any Loan Document may be executed in any number of
identical counterparts, which shall constitute an original and collectively
and separately constitute a single instrument or agreement.
10.10 Time of the Essence. Time is of the essence for performance of
the Obligations under the Loan Documents.
10.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING
UNDER THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT
HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN BORROWER AND SUCH CREDIT PARTY AND LENDER PERTAINING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED,
THAT LENDER, BORROWER AND SUCH CREDIT PARTY ACKNOWLEDGE THAT ANY APPEALS
FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON
THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER AND EACH OTHER
CREDIT PARTY EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT AND CONSENT IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWER AND SUCH CREDIT PARTY HEREBY WAIVE ANY OBJECTION WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT
HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS,
COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER OR SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN SCHEDULE
1.1 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF BORROWER'S OR SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR FIVE
(5) DAYS AFTER DEPOSIT IN THE U.S. MAILS IN THE MANNER DESCRIBED ABOVE, PROPER
POSTAGE PREPAID.
10.12 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT PARTY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO.
10.13 DATING. Although this Agreement is dated as of the date first
written above for convenience, this Agreement shall be effective on October
22, 1996.
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed
as of the date first written above.
BORROWER:
AID AUTO STORES, INC.
By:__________________________
Name:________________________
Title:_______________________
LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION
By:__________________________
Name:________________________
Title:_________________________
SUBSIDIARY GUARANTORS:
AMES AUTOMOTIVE WAREHOUSE, INC.
By:___________________________
Title:__________________________
PERFECT CHOICE AUTOMOTIVE PRODUCTS, INC.
By:___________________________
Title:__________________________
AID FLATLANDS AVENUE, INC.
By:___________________________
Title:__________________________
WHITE PLAINS AID, INC.
By:___________________________
Title:__________________________
BELLMORE AID, INC.
By:___________________________
Title:__________________________
BETHPAGE SUPERSTORE AID AUTO, INC.
By:___________________________
Title:__________________________
NORTH BABYLON SUPERSTORE AID AUTO, INC.
By:___________________________
Title:__________________________
OCEANSIDE SUPER STORE AID AUTO, INC.
By:___________________________
Title:__________________________
JERSEY CITY AID AUTO, INC.
By:___________________________
Title:__________________________
HILLSIDE AVENUE AID, INC.
By:___________________________
Title:__________________________
GLEN COVE SUPERSTORE AID AUTO, INC.
By:___________________________
Title:__________________________
AID 1715 FLATBUSH, INC.
By:___________________________
Title:__________________________
AID ADELMAN, INC.
By:___________________________
Title:__________________________
CAMBRIA HEIGHTS AID, INC.
By:___________________________
Title:__________________________
INDEX OF EXHIBITS AND SCHEDULES
Schedule A - Definitions
Schedule B - Disclosure Schedules
Schedule C - Supplemental Description of Collateral
Schedule D - Cash Management System
Schedule E - Fees and Expenses
Schedule F - Schedule of Documents
Schedule G - Financial Covenants
Schedule 1.1 - Lender's and Borrower's Representatives for
Notices; Addresses
Schedule 1.6 - Eligible Accounts
Schedule 1.7 - Eligible Inventory
Schedule 6.1 - Excluded Collateral
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Accounts Receivable Reconciliation
Exhibit E - Form of Secretarial Certificate
Exhibit F - Form of Power of Attorney
SCHEDULE A - DEFINITIONS
Capitalized terms used in the Agreement and the other Loan Documents shall
have (unless otherwise provided elsewhere in the Agreement or in the other
Loan Documents) the following respective meanings:
"Account Debtor" shall mean any Person who may become obligated with respect
to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the Code,
now owned or hereafter acquired by any Person, including: (i) all accounts
receivable, other receivables, book debts and other forms of obligations
(other than forms of obligations evidenced by Chattel Paper, Documents or
Instruments), whether arising out of goods sold or services rendered or from
any other transaction (including any such obligations which may be
characterized as an account or contract right under the Code); (ii) all of
such Person's rights in, to and under all purchase orders or receipts for
goods or services; (iii) all of such Person's rights to any goods represented by
any of the foregoing (including unpaid sellers' rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned,
reclaimed or repossessed goods); (iv) all moneys due or to become due to such
Person under all purchase orders and contracts for the sale of goods or the
performance of services or both by such Person or in connection with any
other transaction (whether or not yet earned by performance on the part of
such Person), including the right to receive the proceeds of said purchase
orders and contracts; and (v) all collateral security and guarantees of any
kind given by any other Person with respect to any of the foregoing.
"Adelman" shall mean Aid Adelman, Inc., a New York corporation.
"Affiliate" shall mean, with respect to any Person: (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, five percent (5%) or more of the Stock
having ordinary voting power in the election of directors of such Person;
(ii) each Person that controls, is controlled by or is under common control
with such Person or any Affiliate of such Person; or (iii) each of such Person's
officers, directors, joint venturers and partners. For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" shall mean the Loan and Security Agreement to which this Schedule
A is attached or otherwise identified, including all Appendices attached or
otherwise identified thereto, restatements and modifications and supplements
thereto, and any appendices, exhibits or schedules to any of the foregoing,
and shall refer to the Agreement as the same may be in effect at the time
such reference becomes operative; provided, that except as specifically set
forth in the Agreement, any reference to the Disclosure Schedules to the
Agreement shall be deemed a reference to the Disclosure Schedules as in
effect on the Closing Date or in a written amendment thereto executed by
Borrower and Lender in accordance with Section 3.25.
"Aid Store Subsidiaries" shall mean a collective reference to Aid Flatlands
Avenue, Inc., a New York corporation, and White Plains Aid, Inc., a New York
corporation.
"Ames" shall mean Ames Automotive Warehouse, Inc., a New York corporation.
"Ames Note" shall mean the Demand Promissory Note and Security Agreement,
dated the Closing Date, of Ames issued for the benefit of Borrower, and
assigned to Lender as Collateral for the Obligations.
"Appendices" shall have the meaning assigned to it in the Recitals of the
Agreement.
"Bill of Sale" shall mean the bill of sale dated the Closing Date executed by
Borrower and its Subsidiaries (other than Ames and Adelman) and Cambria
pursuant to which each such Subsidiary and Cambria sells to Borrower any
Inventory owned by such Subsidiary and Cambria on the Closing Date in form
and substance satisfactory to Lender.
"Books and Records" shall mean all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
accounting books and records, financial statements (actual and pro forma),
and filings with Governmental Authorities.
"Borrower" shall mean the Person identified in the Recitals of the Agreement.
"Borrowing Availability" shall mean, at any time, the lesser of (i) the
Maximum Amount or (ii) the Borrowing Base, in each case less (a) the Lease
Payment Reserve and (b) the amount of any other reserves established by
Lender from time to time. Without limiting the foregoing, such reserves may
include reserves in such amounts as Lender may deem necessary or appropriate
from time to time in its discretion for those Accounts resulting from
Franchisees that have not executed a letter pursuant to which such
Franchisees agree to, among other things, make payments on their Accounts
without setoff.
"Borrowing Base" shall mean at any time an amount equal to the sum at such
time of:
(a) sixty-five percent (65%) (or such lesser percentage as may be specified
by Lender from time to time by written notice to Borrower, of the value
(as determined by Lender) of Borrower's Eligible Inventory, valued on a
first-in, first-out basis (at the lower of cost or market); provided
that, so long as, at any time after December 31, 1996, a retail location
of the Borrower or any of its Subsidiaries is not on the TOMEX Inventory
System with respect to its sales information, the foregoing advance rate
shall be reduced to fifty percent (50%) with respect to Borrower's
Eligible Inventory at such location; plus
(b) the lesser of (i) $500,000 or (ii) seventy percent (70%) (or such lesser
percentage as may be specified by Lender from time to time by written
notice to Borrower) of the value of Borrower's Eligible Accounts; plus
(c) the lesser of (i) the then outstanding amount of the Ames Note and (ii)
seventy percent (70%) (or such lesser percentage as may be specified by
Lender from time to time by written notice to Borrower) of the value of
Eligible Accounts of Ames.
"Borrowing Base Certificate" shall mean a certificate in the form of
Exhibit C and shall include the Schedule of Accounts and Schedule of Inventory.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Cambria" shall mean Cambria Heights Aid, Inc., a New York corporation.
"Capital Expenditures" shall mean all payments or accruals (including Capital
Lease Obligations) for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more
than one year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise would
be disclosed as such in a note to such balance sheet, other than, in the case
of Borrower, any such lease under which Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease, the
amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of
such Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Change of Control" means any transaction or event as a direct or indirect
result of which (i) the Permitted Holders shall own shares representing less
than 25% of the outstanding shares of voting capital stock of Borrower; (ii)
if at any time any Person (other than one or more Permitted Holders) is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, of a
greater percentage of the outstanding shares of voting capital stock of
Borrower than the percentage of the outstanding shares of voting capital
stock of Borrower then held by the Permitted Holders; (iii) the replacement
of a majority of the Board of Directors of Borrower, over a two-year period,
from the directors who constituted the Board of Directors at the beginning of
such period, which replacement shall nothave been approved by a vote of at
least a majority of the Board of Directors of Borrower then still in office
who were either members of the Board of Directors at the beginning of such
period or whose appointment as a member of the Board of Directors was
previously so approved; or (iv) if at any time Philip L. Stephen ceases to
be a member of Borrower's senior management having substantially the same
duties and responsibilities as on the Closing Date other than due to his
death or permanent disability. For the purposes of this definition,
"Permitted Holders" shall mean Philip L. Stephen, members of his immediate
family, any trust established for the benefit of any such individuals
controlled by Philip L. Stephen and any executor for the estate thereof.
"Charges" shall mean all Federal, state, county, city, municipal, local,
foreign or other governmental taxes (including taxes owed to PBGC at the time
due and payable), levies, assessments, charges, liens, and all additional
charges, interest, penalties, expenses, claims or encumbrances upon or
relating to (i) the Collateral, (ii) the Obligations, (iii) the employees,
payroll, income or gross receipts of any Credit Party, (iv) the ownership or
use of any assets by any Credit Party, or (v) any other aspect of any Credit
Party's business.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in
the Code, now owned or hereafter acquired by any Person, wherever located.
"Claim" shall mean any and all: suits, actions, or proceedings in any court
or forum, at law, in equity or otherwise; any costs, fines, deficiencies, or
penalties; any asserted claims or demands by any Person; any arbitration
demands, proceedings or awards; any damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other costs of
collection, defense or appeal); any enforcement of rights and remedies; or
any criminal, civil or regulatory investigations.
"Closing Date" shall mean the Business Day on which the conditions precedent
set forth in Section 2 have been satisfied or specifically waived in writing
by Lender, and the initial Revolving Credit Advance has been made.
"Closing Fee" shall have the meaning assigned to it in Schedule E.
"Code" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, that in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
of the Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
"Collateral" shall mean the property, now existing or hereafter acquired,
real or personal, tangible or intangible, and whether owned by, consigned to,
or held by, or under the care, custody or control of Borrower or any other
Credit Party, that may at any time be or become lawfully subject to a pledge,
security interest or Lien in favor of Lender to secure the Obligations,
including all cash, cash equivalents, Accounts, bank and deposit accounts and
deposits, investment property, commodity contracts, Inventory, Equipment,
Goods, Chattel Paper, Documents, Instruments, Books and Records, real
property interests, General Intangibles (including all Intellectual Property,
Stock, Claims, contract rights, and choses in action), and all of Borrower's
or such Credit Party's other interests in property of every kind and
description, and the products, profits, rents of, dividends or distributions
on, accessions to, and all Proceeds (including insurance proceeds) of any of
the foregoing, regardless of whether the Collateral, or any of it, is
property as to which the Code provides for the perfection of a security
interest, and all rights and remedies applicable to such property, and
including all other property described in Schedule C, but excluding in all
events Hazardous Materials and the Excluded Collateral.
"Collection Account" shall mean that certain account of Lender, account
number 50-232-854 in the name of GECC-CAF Depository at Bankers Trust
Company, 1 Bankers Trust Plaza, New York, New York, ABA number 021-001-033.
"Commitment Maturity Date" shall mean the earliest of (i) October 22, 1999,
(ii) the date Lender's obligation to advance funds is terminated and the
Obligations are declared to be due and payable pursuant to Section 8.2, and
(iii) the date of prepayment in full by Borrower of the Obligations in
accordance with the provisions of Section 1.2(b).
"Commitment Termination Date" shall mean the earliest of (i) October 22, 1999
(ii) the date of termination of Lender's obligation to advance funds pursuant
to Section 8.2, and (iii) the date of prepayment in full by Borrower of the
Obligations in accordance with the provisions of Section 1.2(b).
"Common Stock" shall mean Borrower's common stock, par value $.001 per share.
"Concentration Account" shall have the meaning assigned to it in Schedule D.
"Contracts" shall mean all the contracts, undertakings, or agreements (other
than rights evidenced by Chattel Paper, Documents or Instruments) in or under
which any Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
"Copyright License" shall mean rights under any written agreement now owned
or hereafter acquired by any Person granting the right to use any Copyright
or Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter acquired
by any Person: (i) all copyrights in any original work of authorship fixed
in any tangible medium of expression, now known or later developed, all
registrations and applications for registration of any such copyrights in the
United States or any other country, including registrations, recordings and
applications, and supplemental registrations, recordings, and applications in
the United States Copyright Office; and (ii) all Proceeds of the foregoing,
including license royalties and proceeds of infringement suits, the right to
sue for past, present and future infringements, all rights corresponding
thereto throughout the world and all renewals and extensions thereof.
"Credit Party" shall mean Borrower and each of its Subsidiaries, each
Subsidiary Guarantor, and each other Guarantor who has incurred obligations
under or in respect of the Agreement or granted Lender a Lien on Collateral
in support of the Obligations with or without direct liability, and each
other Person, other than Lender, who has executed the Agreement or any other
Loan Document.
"Default" shall mean any Event of Default or any event which, with the
passage of time or notice or both, would, unless cured or waived, become an
Event of Default.
"Default Rate" shall have the meaning assigned to it in Section 1.5(d).
"Disbursement Accounts" shall have the meaning assigned to it in Schedule D.
"DOL" shall mean the United States Department of Labor or any successor thereto.
"Documents" shall mean all "documents," as such term is defined in the Code,
now owned or hereafter acquired by any Person, wherever located, including
all bills of lading, dock warrants, dock receipts, warehouse receipts, and
other documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" shall have the meaning assigned to it in Schedule 1.6.
"Eligible Inventory" shall have the meaning assigned to it in Schedule 1.7.
"Environmental Laws" shall mean all Federal, state and local laws, statutes,
ordinances and regulations, now or hereafter in effect, and in each case as
amended or supplemented from time to time, and any applicable judicial or
administrative interpretation thereof relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental
Laws include the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. 9601 et seq.) ("CERCLA"); the Hazardous
Material Transportation Act (49 U.S.C. 1801 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 136 et seq.); the
Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.) ("RCRA");
the Toxic Substance Control Act (15 U.S.C. 2601 et seq.); the Clean Air
Act (42 U.S.C. 740 et seq.); the Federal Water Pollution Control Act
(33 U.S.C. 1251 et seq.); the Occupational Safety and Health Act (29
U.S.C. 651 et seq.) ("OSHA"); and the Safe Drinking Water Act (42 U.S.C.
300(f) et seq.), and any and all regulations promulgated thereunder, and
all analogous state and local counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities,
obligations, responsibilities, remedial actions, removal costs, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable fees, disbursements and expenses of
counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of
any claim, suit, action or demand by any Person, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil
statute or common law (including any thereof arising under any Environmental
Law, permit, order or agreement with any Governmental Authority) and which
relate to any health or safety condition regulated under any Environmental
Law or in connection with any other environmental matter or Release,
threatened Release, or the presence of a Hazardous Material.
"Environmental Permits" shall mean all permits, licenses, administrative
orders, consent orders, consent decrees, governmental agency agreements or
other written documents detailing required environmental performance expected
of Borrower or any other Credit Party by any Governmental Authority.
"Equipment" shall mean all "equipment" as such term is defined in the Code,
now owned or hereafter acquired by any Person, wherever located, including
any and all machinery, apparatus, equipment, fittings, furniture, fixtures,
motor vehicles and other tangible personal property (other than Inventory) of
every kind and description which may be now or hereafter used in such
Person's operations or which are owned by such Person or in which such Person
may have an interest, and all parts, accessories and accessions thereto and
substitutions and replacements therefore.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is a member of a "controlled group of corporations," a
group of trades or businesses under "common control," or an "affiliated
service group," which includes Borrower or any Credit Party, within the
meaning of Sections 414(b), (c), (m) or (o) of the IRC.
"ERISA Event" shall mean: (i) any of the events described in Section 4043(c)
of ERISA with respect to a Title IV Plan or a Multiemployer Plan with respect
to which the 30-day notice requirement has not been waived by regulation;
(ii) the withdrawal of Borrower, any other Credit Party or any ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan
year in which it was a "substantial employer," as defined in Section 4001(a)
(2) of ERISA; (iii) the complete or partial withdrawal of Borrower, any other
Credit Party or any ERISA Affiliate from any Multiemployer Plan; (iv) the
filing of a notice of intent to terminate a Title IV Plan or the treatment of
a plan amendment as a termination under Section 4041 of ERISA; (v) the
institution of proceedings to terminate a Title IV Plan or Multiemployer Plan
by PBGC; (vi) a transfer, within the preceding five years which resulted or
will result in a Title IV Plan with Unfunded Liabilities being transferred
outside of the "controlled group" (within the meaning of Section 4001(a)(14)
of ERISA) of Borrower or any other Credit Party; or (vii) any other event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Title IV Plan or Multiemployer Plan, or which results in
the reorganization of or insolvency of a Multiemployer Plan under Section
4241 or 4245 of ERISA, or the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA.
"Event of Default" shall have the meaning assigned to it in Section 8.1.
"Excluded Collateral" shall mean (i) any property or assets subject to a
Purchase Money Lien securing Purchase Money Indebtedness (or rent) to the
extent permitted under Section 5(c)(ii) or 5(c)(iv), and (ii) any other
property or assets listed in Schedule 6.1.
"Fair Market Value" shall mean the average of the means between the high and
low trading prices of the Common Stock, as reported on the National
Association of Securities Dealers Automated Quotation System or, if the
Common Stock is listed on a stock exchange, the principal stock exchange on
which the Common Stock is listed, for the five trading days ended prior to
the date of determination for which such trading prices are available. If
the Common Stock is not reported on the National Association of Securities
Dealers Automated Quotation System or listed on any stock exchange, then the
"fair market value" shall be determined in good faith by Borrower's Board of
Directors.
"Federal Reserve Board" shall have the meaning assigned to it in Section 3.10.
"Fees" shall mean the fees due to Lender as set forth in Schedule E.
"Financial Statements" shall mean the consolidated and consolidating income
statement, balance sheet and statement of cash flows of Borrower and its
Subsidiaries, internally prepared for each Fiscal Month, and audited
for each Fiscal Year, prepared in accordance with GAAP.
"Fiscal Month" shall mean any of the monthly accounting periods of Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrower.
"Fiscal Year" shall mean the 12-month period of Borrower ending December 31
of each year. Subsequent changes of the fiscal year of Borrower shall not
change the term "Fiscal Year" unless Lender shall consent in writing to such
change.
"Flatbush" shall mean Aid 1715 Flatbush, Inc., a New York corporation.
"Franchise Documents" shall have the meaning assigned to it in Section 3.28.
"Franchisees" shall mean all of Borrower's franchisees existing on the
Closing Date and set forth on Disclosure Schedule (3.28) and all future
franchisees of Borrower.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, consistently applied.
"GE Capital" shall mean General Electric Capital Corporation, a New York
corporation, and its successors and assigns.
"General Intangibles" shall mean all "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by any Person, including
all right, title and interest which such Person may now or hereafter have in
or under any Contract, Intellectual Property, interests in partnerships,
joint ventures and other business associations, permits, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software,
data bases, data, skill, expertise, experience, processes, models, drawings,
materials, Books and Records, Goodwill (including the Goodwill associated
with any Intellectual Property), all rights and claims in or under insurance
policies (including insurance for fire, damage, loss, and casualty, whether
covering personal property, real property, tangible rights or intangible
rights, all liability, life, key-person, and business interruption insurance,
and all unearned premiums), uncertificated securities, choses in action,
deposit accounts, rights to receive tax refunds and other
payments and rights of indemnification.
"Goods" shall mean all "goods," as such term is defined in the Code, now
owned or hereafter acquired by any Person, wherever located, including
movables, fixtures, equipment, inventory, or other tangible personal
property.
"Goodwill" shall mean all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae,
quality control standards, designs, operating and training manuals, customer
lists, and distribution agreements now owned or hereafter acquired by any
Person.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department or other
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
such Person guaranteeing any indebtedness, lease, dividend, or other
obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner, including any obligation or arrangement of such
Person: (i) to purchase or repurchase any such primary obligation; (ii) to
advance or supply funds (a) for the purchase or payment of any such primary
obligation or (b) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor; (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment
of such primary obligation; or (iv) to indemnify the owner of such primary
obligation against loss in respect thereof.
"Guarantor" shall mean each Subsidiary Guarantor and each other Person which
executes a guaranty or a support, put or other similar agreement in favor of
Lender in connection with the transactions contemplated by the Agreement.
"Guaranty" shall mean the provisions of Section 7 and any other agreement to
perform all or any portion of the Obligations on behalf of Borrower or any
other Credit Party, in favor of, and in form and substance satisfactory to,
Lender, together with all amendments, modifications and supplements thereto,
and shall refer to such Guaranty as the same may be in effect at the time
such reference becomes operative.
"Hazardous Material" shall mean any substance, material or waste, the
generation, handling, storage, treatment or disposal of which is regulated by
any Governmental Authority, or forms the bases of liability now or hereafter
under, any Environmental Law in any jurisdiction in which Borrower or any
other Credit Party has owned, leased, or operated real property or disposed
of hazardous materials, including any material or substance which (i) is
defined as a "solid waste," "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste" or "restricted hazardous
waste" or other similar term or phrase under any Environmental Laws, or (ii)
constitutes petroleum or any fraction or by-product thereof, asbestos,
polychlorinated biphenyls, radioactive substances, volatile hydrocarbons or
industrial solvents.
"Indebtedness" of any Person shall mean: (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(including reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured,
but not including obligations to trade creditors incurred in the ordinary
course of business and not more than 60 days past due); (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession or sale of such
property); (iv) all Capital Lease Obligations; (v) all Guaranteed
Indebtedness; (vi) all Indebtedness referred to in clauses (i), (ii), (iii),
(iv) or (v) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the payment of
such Indebtedness; (vii) the Obligations; and (viii) all liabilities
under Title IV of ERISA.
"Indemnified Person" shall have the meaning assigned to it in Section 1.13(a).
"Index Rate" shall mean the latest rate for 30-day dealer placed commercial
paper (which for purposes hereof shall mean high grade unsecured notes sold
through dealers by major corporations in multiples of $1,000) which normally
is published in the "Money Rates" section of The Wall Street Journal (or if
such rate ceases to be so published, as quoted from such other generally
available and recognizable source as Lender may select).
"Instruments" shall mean all "instruments," as such term is defined in the
Code, now owned or hereafter acquired by any Person, wherever located,
including all certificated securities and all notes and other evidences
of indebtedness, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents, Copyrights
and Trademarks.
"Inventory" shall mean all "inventory," as such term is defined in the Code,
now or hereafter owned or acquired by any Person, wherever located, including
all inventory, merchandise, goods and other personal property which are held
by or on behalf of such Person for sale or lease or are furnished or are to
be furnished under a contract of service or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
such Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including other supplies.
"IRC" shall mean the Internal Revenue Code of 1986, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
"Lease Payment Reserve" shall mean a reserve against Borrowing Availability
in an amount determined by Lender in its discretion including an amount equal
to the aggregate amount of two months rent and utility costs payable by any
Credit Party with respect to each lease of real property where Eligible
Inventory is located and with respect to which any Credit Party has failed
to obtain a landlord's waiver from the landlord thereof in form and substance
satisfactory to Lender. The Lease Payment Reserve may, in Lender's
discretion, be in addition to any other reserve against Borrowing
Availability established by Lender.
"Leasing Subsidiaries" shall mean a collective reference to Bellmore Aid,
Inc., a New York corporation, Bethpage Superstore Aid Auto, Inc., a New York
corporation, North Babylon Superstore Aid Auto, Inc., a New York corporation,
Oceanside Super Store Aid Auto, Inc., a New York corporation, Jersey City Aid
Auto, Inc., a New Jersey corporation, Hillside Avenue Aid, Inc., a New York
corporation, Glen Cove Superstore Aid Auto Inc., a New York corporation and
any other Subsidiary of Borrower which becomes a Leasing Subsidiary
hereunder pursuant to Section 5(a).
"Lender" shall mean GE Capital and, if at any time GE Capital shall decide
to assign or syndicate all or any of the Obligations, such term shall include
such assignee or such other members of the syndicate.
"License" shall mean any Copyright License, Patent License, Trademark License
or other license of rights or interests now held or hereafter acquired by any
Person.
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Loan Documents" shall mean the Agreement, the Revolving Credit Note, the
Financial Statements, each Guaranty, each Power of Attorney, the Lock Box
Account Agreements, the Concentration Account Agreement, the Disbursement
Account Agreements, the Seller Subordination Agreements, the PS Subordination
Agreement, the Master Consignment Agreement, the Bill of Sale, the Ames Note,
the patent and trademark assignment, and the other documents and instruments
listed in Schedule F, and all documents, instruments, certificates, and
notices at any time delivered by and between Lender and any Credit Party in
connection with any of the foregoing.
"Lock Box Account" shall have the meaning assigned to it in Schedule D.
"Master Consignment Agreement" shall mean the Master Consignment Agreement
dated as of the Closing Date entered into by Borrower, each of Borrower's
Subsidiaries (except for Ames and Adelman) and Cambria.
"Material Adverse Effect" shall mean: (i) a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition
of Borrower or any other Credit Party or the industry within which Borrower
or any other Credit Party operates, (b) Borrower's or any other Credit
Party's ability to pay or perform the Obligations under the Loan Documents to
which such Credit Party is a party in accordance with the terms thereof, (c)
the Collateral or Lender's Liens on the Collateral or the priority of any
such Lien, or (d) Lender's rights and remedies under the Agreement and the
other Loan Documents; or (ii) the incurrence outside the ordinary course of
business by any Credit Party of any liability, contingent or liquidated,
which has an actual or estimated incurrence of liability, or dollar exposure
or loss, greater than $250,000 to any Credit Party.
"Maximum Amount" shall mean the maximum amount of credit to be provided by
Lender to or for the benefit of Borrower for aggregate Revolving Credit
Advances outstanding at any time, without regard to the Borrowing Base or
reserves, which amount, for purposes of the Agreement, is Ten Million
Dollars ($10,000,000).
"Minimum Actionable Amount" shall mean $200,000.
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in Section
4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to
make, contributions on behalf of participants who are or were employed by any
of them.
"Net Borrowing Availability" shall mean at any time the Borrowing
Availability less the Revolving Credit Loan.
"Notice of Revolving Credit Advance" shall have the meaning assigned to it
in Section 1.1(b).
"Obligations" shall mean all loans, advances, debts, expense reimbursement,
fees, liabilities, and obligations, for the performance of covenants, tasks
or duties or for payment of monetary amounts (whether or not such performance
is then required or contingent, or amounts are liquidated or determinable)
owing by Borrower and any other Credit Party to Lender, of any kind or
nature, present or future, whether or not evidenced by any note, agreement or
other instrument, whether arising under any of the Loan Documents or under
any other agreement between Borrower, such Credit Party and Lender, and all
covenants and duties regarding such amounts. This term includes all
principal, interest (including interest which accrues after the commencement of
any case or proceeding in bankruptcy, or for the reorganization of Borrower),
Fees, Charges, expenses, attorneys' fees and any other sum chargeable to
Borrower under any of the Loan Documents, and all principal and interest due
in respect of the Revolving Credit Loan.
"Patent License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person now holds or
hereafter acquires any interest: (i) all letters patent of the United States
or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State or Territory thereof, or any other country; and (ii) all
reissues, continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Perfect Choice" shall mean Perfect Choice Automotive Products, Inc., a
New York corporation.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens
for taxes or assessments or other governmental Charges or levies, either not
yet due and payable or to the extent that nonpayment thereof is permitted by
the terms of Section 3.11(b); (ii) pledges or deposits securing obligations
under worker's compensation, unemployment insurance, social security or
public liability laws or similar legislation; (iii) pledges or deposits
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which Borrower is a party as lessee made in the ordinary
course of business; (iv) deposits securing public or statutory obligations of
Borrower; (v) inchoate and unperfected workers', mechanics', suppliers' or
similar liens arising in the ordinary course of business; (vi) carriers',
warehousing or other similar possessory liens arising in the ordinary course
of business and securing indebtedness not yet due and payable in an
outstanding aggregate amount not in excess of $50,000 at any time; (vii)
deposits securing, or in lieu of, surety, appeal or customs bonds in
proceedings to which Borrower is a party; (viii) any attachment or judgment
lien, unless the judgment it secures shall not, within 30 days after the
entry thereof, have been discharged or execution thereof stayed pending
appeal, or shall not have been discharged within 30 days after the expiration of
any such stay; (ix) zoning restrictions, easements, licenses, or other
restrictions on the use of real property or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such real property,
leases or leasehold estates, (x) Purchase Money Liens securing Purchase Money
Indebtedness (or rent) to the extent permitted under Section 5(c)(ii); (xi)
Liens disclosed in Disclosure Schedule (5(h)) on the Closing Date and
approved by Lender; and (xii) Liens in favor of Lender securing the Obligations.
"Person" shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether Federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body
or department thereof), and shall include such Person's successors and
assigns.
"Plan" shall mean, with respect to Borrower or any other Credit Party, at any
time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower or any other Credit Party maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were
employed by any of them.
Power of Attorney" shall mean a Power of Attorney of any Credit Party in the
form of Exhibit F.
"Prepayment Fee" shall mean the fee payable for termination by Borrower
pursuant to Section 1.2(b) of Lender's obligation to make Revolving Credit
Advances in the amount(s) specified in Schedule E.
"Proceeds" shall mean "proceeds," as such term is defined in the Code and, in
any event, shall include: (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Borrower or any other Credit
Party from time to time with respect to any Collateral; (ii) any and all
payments (in any form whatsoever) made or due and payable to Borrower or any
other Credit Party from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, authority, bureau or agency (or any person acting under
color of governmental authority); (iii) any claim of Borrower or any other
Credit Party against third parties (a) for past, present or future
infringement of any Intellectual Property or (b) for past, present or future
infringement or dilution of any Trademark or Trademark License or for injury
to the goodwill associated with any Trademark, Trademark registration or
Trademark licensed under any Trademark License; (iv) any recoveries by
Borrower or any other Credit Party against third parties with respect to any
litigation or dispute concerning any Collateral; and (v) any and all other
amounts from time to time paid or payable under or in connection with any
Collateral, upon disposition or otherwise.
"Projections" shall mean as of any date the consolidated and consolidating
balance sheet, statements of income and cash flow for Borrower and its
Subsidiaries (including forecasted Capital Expenditures and Net Borrowing
Availability) (i) by month for the next Fiscal Year, and (ii) by year for the
following three Fiscal Years, in each case prepared in a manner consistent
with GAAP and accompanied by senior management's discussion and analysis of
such plan.
"PS Subordinated Note" shall mean the Borrower's promissory note dated the
Closing Date in the original principal amount of $2,187,500 held by Philip
L. Stephen.
"PS Subordination Agreement" shall mean the Subordination Agreement dated as
of the Closing Date among Philip L. Stephen, the Borrower and the Lender, in
form and substance satisfactory to Lender, relating to the PS Subordinated Note.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for
the payment of all or any part of the purchase price of any fixed asset,
(ii) any Indebtedness incurred for the sole purpose of financing or
refinancing all or any part of the purchase price of any fixed asset, and
(iii) any renewals, extensions or refinancings thereof (but not any increases
in the principal amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean any Lien upon any fixed assets which secures
the Purchase Money Indebtedness related thereto but only if such Lien shall
at all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures such Purchase
Money Indebtedness.
"Qualified Plan" shall mean a Plan which is intended to be tax-qualified
under Section 401(a) of the IRC.
"Release" shall mean, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials in the indoor or outdoor
environment by such Person, including the movement of Hazardous Materials
through or in the air, soil, surface water, ground water or property.
"Restricted Payment" shall mean: (i) the declaration or payment of any
dividend or the occurrence of any liability to make any other payment or
distribution of cash or other property or assets on or in respect of
Borrower's or any other Credit Party's Stock; (ii) any payment on account of
the purchase, redemption,defeasance or other retirement of Borrower's or any
other Credit Party's Stock or Indebtedness other than (a) that arising under
the Agreement or (b) if no Default shall have occurred and be continuing, or
shall be caused thereby, interest and principal, when due, under Indebtedness
described in Disclosure Schedule (3.8) or otherwise permitted under Section
5(c)(ii), without acceleration or modification of the amortization as in effect
on the Closing Date, or any other payment or distribution made in respect
thereof, either directly or indirectly; or (iii) any payment, loan,
contribution, or other transfer of funds or other property to any Stockholder
of such Person which is not expressly and specifically permitted in the
Agreement; provided, that no payment to Lender shall constitute a Restricted
Payment.
"Retiree Welfare Plan" shall refer to any Plan which is a "welfare plan," as
defined in Section 3(1) of ERISA, providing for continuing coverage or
benefits for any participant or any beneficiary of a participant after such
participant's termination of employment, other than continuation coverage
provided pursuant to Section 4980B of the IRC and at the sole expense of the
participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in
Section 1.1(a).
"Revolving Credit Loan" shall mean at any time the sum of (i) the aggregate
amount of Revolving Credit Advances then outstanding, plus (ii) the amount
of accrued, but unpaid, interest thereon.
"Revolving Credit Note" shall mean the promissory note of Borrower dated the
Closing Date, substantially in the form of Exhibit B.
"Revolving Credit Rate" shall have the meaning assigned to it in Section 1.5(a).
"Schedule of Accounts" shall mean a schedule of all Accounts to be delivered
by Borrower to Lender pursuant to Section 1.6.
"Schedule of Documents" shall mean the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to
be delivered in connection with the Loan Documents and the transactions
contemplated thereunder, substantially in the form of Schedule F.
"Schedule of Inventory" shall mean the schedules of inventory to be delivered
by Borrower to Lender pursuant to Section 1.7, including Borrower's internal
reports classifying and valuing Inventory.
"Seller Subordinated Notes" shall mean the Borrower's promissory notes listed
on Disclosure Schedule (5(c)) and identified as the Seller Subordinated Notes.
"Seller Subordination Agreements" shall mean the Subordination Agreements
dated as of the Closing Date among the Borrower, the Lender and each of
Werner S. Neuberger and Nuby's Auto, Inc., in form and substance satisfactory
to Lender, relating to the Seller Subordinated Notes.
"Stock" shall mean all certificated and uncertificated shares, options,
warrants, general or limited partnership interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity whether voting or nonvoting,
including common stock, preferred stock, or any other "equity security" (as
such term is defined in Rule 3a11-1 of the General Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934).
"Stockholder" shall mean each holder of Stock of Borrower or any other
Credit Party.
"Subject Property" shall have the meaning assigned to it in Section 3.17(a).
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shallhave or might have voting power by reason
of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person, or with respect to which any such Person has the
right to vote or designate the vote of 50% or more of such Stock whether by
proxy, agreement, operation of law or otherwise, and (ii) any partnership or
limited liability company in which such Person or one or more Subsidiaries of
such Person has an equity interest (whether in the form of voting or
participation in profits or capital contribution) of more than 50% or of
which any such Person is a general partner or may exercise the powers of a
general partner. The term "Subsidiary" shall include, without limitation,
Ames, Perfect Choice, the Aid Store Subsidiaries, the Leasing Subsidiaries,
Flatbush and Adelman.
"Subsidiary Guarantor" shall mean each Subsidiary of Borrower which is or
becomes a party to the Agreement and Cambria.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income of Lender.
"Termination Date" shall mean the date on which the Revolving Credit Loan and
any other Obligations under the Agreement are indefeasibly paid in full, in
cash, and Borrower shall have no further right to borrow any moneys or obtain
other credit extensions or financial accommodations under the Agreement.
"Title IV Plan" shall mean an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by
Title IV of ERISA, and which Borrower, any other Credit Party or any ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Tomex Inventory System" means the new TOMEX software and hardware point of
sale inventory scanning system for maintaining, among other things, perpetual
inventory control and sales information.
"Trademark License" shall mean rights under any written agreement now owned
or hereafter acquired by any Person granting any right to use any Trademark
or Trademark registration.
"Trademarks" shall mean all of the following now owned or hereafter acquired
by any Person: (i) all trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs andgeneral intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, including all registrations,
recordings and applications in the United States Patent and Trademark Office
or in any similar office or agency of the United States, any State or
Territory thereof, or any other country or any political subdivision thereof,
and (ii) all reissues, extensions or renewals thereof.
"Transaction Summary" shall mean the Transaction Summary set forth in the
Recitals to the Agreement.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount,
if any, of the sum of (i) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of
all assets of such Title IV Plan allocable to such benefits in accordance
with Title IV of ERISA, all determined as of the most recent valuation date
for such Title IV Plan determined on the basis of a shutdown of the employees
thereunder and using the actuarial assumptions in effect for funding purposes
under such Title IV Plan, and (ii) for a period of five (5) years following a
transaction which could be covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by Borrower, any other Credit
Party or any ERISA Affiliate as a result of such transaction.
"Unused Line Fee" shall have the meaning assigned to it in Schedule E.
"Withdrawal Liability" shall mean, at any time, the aggregate amount of the
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
Any accounting term used in the Agreement or the other Loan Documents shall
have, unless otherwise specifically provided therein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
thereunder shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP consistently applied; provided, that all financial
covenants and calculations in the Loan Documents shall be made in accordance
with GAAP as in effect on the Closing Date unless Borrower and Lender shall
otherwise specifically agree in writing. That certain items or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no
way be construed to limit the foregoing. All other undefined terms contained
in the Agreement or the other Loan Documents shall, unless the context indicates
otherwise, have the meanings provided for by the Code. The words "herein,"
"hereof" and "hereunder" or other words of similar import refer to the
Agreement as a whole, including the exhibits and schedules thereto, as the
same may from time to time be amended, modified or supplemented, and not to
any particular section, subsection or clause contained in this Agreement.
For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply, unless specifically indicated
to the contrary: (a) wherever from the context it appears appropriate,
each term stated in either the singular or plural shall include the singular
and the plural, and pronouns stated in the masculine, feminine or neuter
gender shall include the masculine, the feminine and the neuter; (b) the term
"or" is not exclusive; (c) the term "including" (or any form thereof) shall
not be limiting or exclusive; (d) all references to statutes and related
regulations shall include any amendments of same and any successor statutes
and regulations; (e) all references in the Agreement or in the Schedules to
the Agreement to sections, schedules, disclosure schedules, exhibits, and
attachments shall refer to the corresponding sections, schedules, disclosure
schedules, exhibits, and attachments of or to the Agreement; and (f) all
references to any instruments or agreements, including references to any of
the Loan Documents, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
SCHEDULE B - DISCLOSURE SCHEDULES
See attached.
SCHEDULE C - SUPPLEMENTAL DESCRIPTION OF COLLATERAL
A. TRADEMARKS OF AID AUTO STORES, INC.
(a) AID trademark and service mark as registered in the
State of New York:
R-27228 dated March 19, 1993
R-27229 dated March 19, 1993
R-27230 dated March 19, 1993
S-13451 dated March 19, 1993
(b) AID trademark and service mark as registered in the
State of New Jersey:
AID and DESIGN in Class 19
AID and DESIGN in Class 35, No. 12051
AID and DESIGN in Class 23
AID AUTO STORES and DESIGN in Class 101 No. 12052
(c) AID and DESIGN trademark as registered in the United
States Patent and Trademark Office:
R804137 dated November 16, 1993
(d) AID AUTO SUPER STORE service mark as registered in the
United States Patent and Trademark Office:
R1,993,288 dated August 13, 1996
B. TRADEMARKS OF PERFECT CHOICE AUTOMOTIVE PRODUCTS, INC.
(e) PERFECT CHOICE GUARANTEED QUALITY and Design trademark
application, Serial No. 74/649,745 was filed by Perfect
Choice Automotive Products, Inc. with the United States
Patent and Trademark Office on March 21, 1995 in Classes
1, 3, 4 and 17.
SCHEDULE D - CASH MANAGEMENT
Borrower, its Subsidiaries and Cambria agree to establish, and to maintain,
until the Termination Date, the cash management system described below:
1. Borrower and Cambria: (i) shall not (and shall not permit any of its
Subsidiaries to) open or maintain any deposit, checking, operating or other
bank account, or similar money handling account, with any bank or other
financial institution except for (a) those accounts of the Borrower
identified in Attachment I hereto (to include a payroll account not to exceed
an amount equal to one regular payroll at any time) and (b) those checking or
disbursement accounts of Borrower's Subsidiaries and Cambria identified on
Attachment I hereto (the "Subsidiary Disbursement Accounts"); and (ii) shall
not close or permit to be closed any of the accounts listed in Attachment I
hereto, in each case without Lender's prior written consent, and then only
after Borrower and Cambria have (or have caused its Subsidiaries to)
implemented agreements with such bank or financial institution and Lender
acceptable to Lender; provided that (x) any new Leasing Subsidiary formed
after the Closing Date in accordance with Section 5(a) may open a Subsidiary
Disbursement Account with a bank satisfactory to Lender so long as such
bank and such Leasing Subsidiary shall have entered into a Disbursement
Account Agreement satisfactory to Lender with respect to such Account on or
prior to the date such Account is opened and Attachment I to this Schedule D
is amended to reflect such new Account, and (y) Borrower may in connection
with opening any new retail location after the Closing Date open a Lock Box
Account for such location with a bank satisfactory to Lender so long as such
bank and Borrower have entered into a Lock Box Account Agreement satisfactory
to Lender with respect to such Account on or prior to the date such Account
is opened and Attachment I to this Schedule D is amended to reflect such new
Account.
2. Commencing on the Closing Date and until the Termination Date, Borrower
and Cambria shall (and shall cause each of its Subsidiaries to) deposit or,
if directed by Lender, cause to be deposited directly, in either case on the
date of receipt thereof, all cash, checks, notes, drafts or other similar
items relating to or constituting proceeds of or payments made in respect of
any and all Collateral and all other receipts into lock boxes or lock box or
blocked accounts (collectively, the "Lock Box Accounts") and secondary
concentration accounts (the "Secondary Concentration Accounts"), in each
case, in Borrower's, Cambria's or such Subsidiary's name at the banks set
forth in Attachment I hereto. On or before the Closing Date, Borrower shall
have established a concentration account in Borrower's name (the
"Concentration Account") at the bank set forth in Attachment I hereto, under an
agreement in form and substance acceptable to Lender.
3. On or before the Closing Date, each bank at which the Lock Box Accounts
and Secondary Concentration Accounts are held shall have entered into
tri-party lock box agreements (the "Lock Box Account Agreements") with Lender
and Borrower and its Subsidiaries and Cambria, as applicable, in form and
substance acceptable to Lender. Each such Lock Box Account Agreement shall
provide, among other things, that (a) such bank executing such agreement has
no rights of setoff or recoupment or any other claim against such Lock Box
Account or Secondary Concentration Account other than for payment of its
service fees and other charges directly related to the administration of such
account, and (b) such bank agrees to sweep on a daily basis all amounts, as
applicable, in the Lock Box Account to the relevant Secondary Concentration
Account and in the Secondary Concentration Account to the
Concentration Account.
4. On or before the Closing Date, the bank at which the Concentration
Account is held shall have entered into a tri-party concentration account
agreement (the "Concentration Account Agreement") with Lender and Borrower,
in form and substance acceptable to Lender. Such Concentration Account
Agreement shall provide, among other things, that (a) such bank executing
such agreement has no rights of setoff or recoupment or any other claim
against such Concentration Account, other than for payment of its service
fees and other charges directly related to the administration of such
account, and (b) such bank agrees to sweep on a daily basis all amounts
received in the Concentration Account to the Collection Account.
5. On the Closing Date, (a) the lock box and blocked account arrangements
shall immediately become operative at the banks at which the Lock Box
Accounts and the Concentration Account are maintained, and (b) amounts
outstanding under the Revolving Credit Loan (for purposes of the Borrowing
Availability) shall be reduced through daily sweeps of the Lock Box Accounts and
Secondary Concentration Accounts into the Concentration Account, and of the
Concentration Account into the Collection Account. Borrower, each Subsidiary
thereof and Cambria acknowledges that it shall have no right to gain access
to any of the moneys in the Lock Box Accounts, the Secondary Concentration
Accounts or the Concentration Account until after the Termination Date.
6. Borrower, each of its Subsidiaries and Cambria may maintain, in its
name, accounts (together with the Subsidiary Disbursement Accounts the
"Disbursement Accounts") at a bank or banks acceptable to Lender for use
solely in accordance with the provisions of Section 1.3. The Lender shall,
from time to time, deposit proceeds of Revolving Credit Advances pursuant to
Section 1.1 into the Disbursement Accounts of Borrower. Notwithstanding
anything set forth in the Agreement or the other Loan Documents to the
contrary, no Subsidiary Disbursement Account shall at any time have a balance
in excess of $20,000 and no deposits shall be made to any Subsidiary
Disbursement Account except from Borrower's Disbursement Accounts and only as
is necessary to make payments permitted under the Loan Documents which are
then due and payable. All of the Disbursement Accounts as of the Closing
Date are listed in Attachment I hereto. To the extent required by Lender
Borrower shall cause the banks at which the Disbursement Accounts are
maintained to enter into the pledged account agreements (the "Disbursement
Account Agreements") with Lender.
7. All amounts deposited in the Collection Account shall be deemed received
by Lender in accordance with the terms of Section 1.10 and shall be applied
(and allocated) by Lender in accordance with the terms of Section 1.11.
8. Upon the request of Lender, Borrower shall forward to Lender, on a daily
basis, evidence of the deposit of all items of payment received by Borrower
or any Subsidiary thereof into the Lock Box Accounts and copies of all such
checks and other items, together with a statement showing the application of
those items relating to payments on Accounts to outstanding Accounts and a
collection report with regard thereto in form and substance satisfactory to
Lender.
ATTACHMENT I TO SCHEDULE D
LIST OF LOCK BOX ACCOUNTS, CONCENTRATION ACCOUNT AND DISBURSEMENT ACCOUNTS
1. Lock Box Accounts and Secondary Concentration Accounts of Borrower.
European American Bank
330 Sunrise Highway
Rockville Centre, NY 11570
Attn: Phil Thompson
Accnt #: 36079085
36089480
36090595
36091056
36091072
36091080 (Secondary Concentration Account)
The Chase Manhattan Bank
1055 Old Country Road
Westbury, NY 11590
Attn: William Brahe
CMB Westbury
Accnt #: 211500330065
211500342365
211500340765
211500341565
211500326365
211500325565
211500351165
211500206865
211500200965
211500388865
211500357065
211500386165
904549968 (Secondary Concentration Account)
CMB Carle Place
Accnt #: 3051139685
3051139693
904549968 (Secondary Concentration Account)
2. Lock Box Accounts of Subsidiaries
European American Bank
330 Sunrise Highway
Rockville Centre, NY 11570
Attn: Phil Thompson
Accnt #: 36079101 for Ames Auto Warehouse Inc.
Chase Manhattan Bank
1055 Old Country Road
Westbury, NY 11590
Attn: William Brahe
CMB Westbury
Accnt #: 783500081865 for Aid Flatlands Ave. Inc.
3. Concentration Account.
Bankers Trust Company
New York, New York
Attn: Julianne Morledge
Accnt #: 00-351-580
4. Disbursement Accounts of Borrower.
Israel Discount Bank of New York
511 Fifth Avenue
New York, NY 10017
Attn: Jerry Hertzman
Accnt #: 308670
(Primary Disbursement Account)
European American Bank
330 Sunrise Highway
Rockville Centre, NY 11570
Attn: Phil Thompson
Accnt #: 36074722 (Miscellaneous Disbursement Account)
36089282 (Payroll Account)
Bankers Trust Company
New York, New York
Attn: Julianne Morledge
Accnt #: 00-351-599
5. Disbursement Accounts of Subsidiaries and Cambria.
Israel Discount Bank of New York
511 Fifth Avenue
New York, NY 10017
Attn: Jerry Hertzman
Accnt #: 308689
Accnt Name: Ames Auto Warehouse Inc.
European American Bank
330 Sunrise Highway
Rockville Centre, NY 11570
Attn: Phil Thompson
Accnt #: 38082337
Accnt Name: Cambria Heights Aid Inc.
Accnt #: 36090314
Accnt Name: Bethpage Superstore Aid Auto Inc.
Accnt #: 36090298
Accnt Name: Bellmore Aid Inc.
Accnt #: 36090579
Accnt Name: Oceanside Super Store Aid Auto Inc.
Accnt #: 36090587
Accnt Name: Hillside Avenue Aid Inc.
Accnt #: 36090306
Accnt Name: Glen Cove Superstore Aid Auto Inc.
Accnt #: 36090322
Accnt Name: North Babylon Superstore Aid Auto Inc.
Accnt #: 36090330
Accnt Name: Perfect Choice Automotive Products Inc.
Accnt #: 36091007
Accnt Name: White Plains Aid, Inc.
Accnt #: 36091015
Accnt Name: Aid Flatlands Avenue, Inc.
Bankers Trust Company
New York, New York
Attn: Julianne Morledge
Accnt #: 00531039
Accnt Name: Ames Automotive Warehouse, Inc.
SCHEDULE E - FEES
CLOSING FEE: A closing fee of $25,000 is payable by Borrower to Lender on
the Closing Date against which would be credited any portion of the
underwriting deposit of $60,000 previously paid by Borrower to Lender
remaining after deduction of any transaction expenses incurred by Lender through
the Closing Date. Lender shall provide to Borrower on the Closing Date a
statement setting forth a calculation of the foregoing.
UNUSED LINE FEE: For each day after the Closing Date, and through but
including the Termination Date, an amount equal to (a) the Maximum Amount
less the outstanding amount of the Revolving Credit Loan (exclusive of
accrued, but unpaid, interest, for such day) multiplied by (b) 0.25%, the
product of which is then divided by 360. The Unused Line Fee for each month
(except for the month in which the Termination Date occurs) is payable on the
first Business Day of the immediately following month, beginning on the first
Business Day of the month following the month in which the Closing Date
occurs; the final monthly installment of the Unused Line Fee is payable on the
Termination Date. Notwithstanding the foregoing, any unpaid Unused Line Fee
is immediately due and payable on the Commitment Maturity Date.
COLLATERAL MONITORING FEE: $5,000 for each year or part of a year, payable
in advance on the Closing Date and on the first Business Day of each year
following the Closing Date and prior to the Commitment Maturity Date.
PREPAYMENT FEE:
An amount equal to the Maximum Amount multiplied by:
3% if Lender's obligation to make further Revolving Credit Advances is
terminated for any reason on or after the Closing Date and on or before the
first anniversary of the Closing Date, payable on the Commitment Maturity Date;
2% if Lender's obligation to make further Revolving Credit Advances is
terminated for any reason after the first anniversary of the Closing Date and
on or before the second anniversary of the Closing Date, payable on the
Commitment Maturity Date; or 1% if Lender's obligation to make further
Revolving Credit Advances is terminated for any reason after the second
anniversary of the Closing Date and before the third anniversary of the
Closing Date, payable on the Commitment Maturity Date (it being understood
that no such prepayment fee shall be payable in connection with payment of
the Obligations on the third anniversary of the Closing Date).
Borrower acknowledges and agrees that (i) it would be difficult or
impractical to calculate Lender's actual damages from early termination of
Lender's obligation to make further Revolving Credit Advances for any reason,
including pursuant to Section 1.2(b) or Section 8.2 of the Agreement or
otherwise, (ii) the Prepayment Fee provided above is intended to be a fair
and reasonable approximation of such damages, and (iii) the Prepayment Fee is
not intended to be a penalty.
AUDIT FEES: Borrower will reimburse Lender at the rate of $650 per person
per day, plus out of pocket expenses, for the audit reviews, field
examinations and collateral examinations conducted by Lender's own personnel.
EXPENSES: Borrower will pay to Lender on demand all costs incurred in
connection with: (a) the preparation, negotiation, execution, delivery,
performance and enforcement of the Loan Documents; (b) collection (including
the fees and expenses of all special counsel, advisors, consultants (including
environmental and management consultants) and auditors retained in connection
therewith), including deficiency collections; (c) the forwarding to Borrower
or any other Person on behalf of Borrower by Lender of the proceeds of any
Loan (including by wire transfer); (d) any amendment, extension, modification
or waiver of, or consent with respect to any Loan Document or advice in
connection with the administration of the Revolving Credit Loans or the
rights thereunder; (e) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by or between any combination of Lender, Borrower,
any other Credit Party or any other Person or Persons), and an appeal or
review thereof, in any way relating to the Collateral, any Loan Document, or
any action taken or any other agreements to be executed or delivered in
connection therewith, whether as a party, witness or otherwise; and (f) any
effort (i) to monitor the Revolving Credit Loans, (ii) to evaluate, observe
or assess Borrower or any other Credit Party or the affairs of such Person,
and (iii) to verify, protect, evaluate, assess, appraise, collect, sell,
liquidate or otherwise dispose of the Collateral, including with respect to
all of the foregoing: the fees, costs and expenses of attorneys,
accountants, environmental advisors, appraisers, investment bankers,
management and other consultants, and paralegals; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges; telegram
charges; secretarial overtime charges; and expenses for travel, lodging and
food paid or incurred in connection with the performance of such legal or
other advisory services.
SCHEDULE F - SCHEDULE OF DOCUMENTS
The obligation of Lender to make the initial Revolving Credit Advances is
subject to satisfaction of the condition precedent that Lender shall have
received the following, each, unless otherwise specified below or the context
otherwise requires, dated the Closing Date, in form and substance
satisfactory to Lender and its counsel, unless the context otherwise requires
or as otherwise specified below:
I. PRINCIPAL LOAN DOCUMENTS.
(a) Agreement. The Loan and Security Agreement duly executed by
Borrower and the Subsidiary Guarantors.
(b) Revolving Credit Note. An original Revolving Credit Note duly
executed by a responsible officer of Borrower to the order of Lender.
(c) Borrowing Base Certificate. An original Borrowing Base Certificate
duly executed by a responsible officer of Borrower.
(d) Notice of Revolving Credit Advance. An original Notice of
Revolving Credit Advance duly executed by a responsible officer of Borrower.
(e) Master Consignment Agreement. The Master Consignment Agreement duly
executed by Borrower, Cambria and each of Borrower's Subsidiaries (except
for Ames and Adelman), together with acknowledgement copies of proper
Financing Statements (Form UCC-1)(the "Financing Statements") listing
Borrower as consignor, each Subsidiary (other than Ames and Adelman) and Cambria
as consignee and Lender as assignee duly filed under the Code of all
jurisdictions as may be necessary or, in the opinion of Lender, desirable to
perfect Lender's Lien created on the Collateral which is consigned Inventory.
(f) Bill of Sale. The Bill of Sale duly executed by Borrower and its
Subsidiaries (other than Ames and Adelman) and Cambria.
(g) Ames Note. The original Ames Note duly executed by Ames to the
order of Borrower together with an endorsement in blank duly executed by
Borrower.
(h) Seller Subordination Agreement. The Seller Subordination
Agreements each duly executed by Lender and Borrower and each of
Werner S. Neuberger and Nuby's Auto, Inc.
(i) Seller Subordinated Notes. Copies of the Seller Subordinated Notes.
(j) PS Subordination Agreement. The PS Subordination Agreement duly
executed by Philip L. Stephen, Lender and Borrower.
(k) PS Subordinated Note. A copy of the PS Subordinated Note.
II. COLLATERAL DOCUMENTS.
(a) Acknowledgement Copies of Financing Statements. Acknowledgement
copies of proper Financing Statements duly filed under the Code, or chattel
mortgages duly filed under other applicable law, of all jurisdictions as may
be necessary or, in the opinion of Lender, desirable to perfect Lender's Lien
created on the Collateral.
(b) Other Evidence of Filing and Perfection. Certified copies of
Requests for Information (Form UCC-11), or other evidence satisfactory to
Lender, listing all effective financing statements or chattel mortgages which
name Borrower (under its present name, any previous name or any trade or
doing business name) or its Subsidiaries or Cambria as debtor and which are
filed in the jurisdictions referred to in paragraph (a) above, together with
copies of such other financing statements (none of which shall cover the
Collateral).
(c) Stock Certificates. Certificates or other evidences of ownership
representing all instruments constituting part of the Collateral (including
without limitation the certificates for the Stock of all of Borrower's and
Cambria's Subsidiaries) and appropriate undated stock powers (or the equivalent
thereof) executed in blank.
(d) Intellectual Property Documents. Agreements relating to the
granting to Lender of a security interest in Intellectual Property of
Borrower and its Subsidiaries and Cambria to the extent applicable in a form
suitable for filing with the appropriate Federal or State filing office.
(e) Other Recordings and Filings. Evidence of the completion of all
other recordings and filings (including UCC-3 termination statements and
other Lien release documentation) as may be necessary or, in the opinion of
and at the request of Lender, desirable to perfect Lender's Lien on the
Collateral.
(f) Power of Attorney. The Powers of Attorney duly executed by
Borrower and the Subsidiary Guarantors.
III. THIRD PARTY AGREEMENTS.
(a) Landlord Consents. Unless otherwise agreed to in writing by
Lender, duly executed landlord and bailee waivers and consents from the
landlords of all of Borrower's and its Subsidiaries, and Cambria's leased
locations where Collateral is held, in each case, in form and substance
satisfactory to Lender.
(b) Cash Management System. Duly executed Lock Box Account Agreements,
the Concentration Account Agreement and Disbursement Account Agreements as
contemplated by Schedule D.
IV. DOCUMENTS DELIVERED BY BORROWER AND SUBSIDIARY GUARANTORS.
(a) Secretary Certificate. A Secretary Certificate in the form of
Exhibit E to the Agreement duly completed and executed by the Secretary of
Borrower and of each Subsidiary Guarantor, together with all attachments
thereto.
(b) Environmental Audit. Copies of all existing environmental reviews
and audits and other information pertaining to actual or potential
environmental claims relating to the Collateral as Lender may require.
(c) Financial Statements and Projections. Copies of the Financial
Statements and Projections, which Projections shall include a capital
expenditures budget for Borrower in form and substance satisfactory to Lender.
(d) Insurance Policies. Copies of insurance policies described in
Section 3.18 together with evidence showing loss payable or additional
insured clauses or endorsements in favor of Lender.
(e) Certain Agreements. Copies of (i) any existing real property
leases and equipment leases to which Borrower or any of its Subsidiaries or
Cambria is a party and any other document or instrument evidencing or
relating to existing Indebtedness of Borrower or any of its Subsidiaries or
Cambria, together with all certificates, opinions, instruments, security
documents and other documents relating thereto, (ii) all Franchise Documents
listed on Disclosure Schedule (3.28), and (iii) other Material Contracts, all
of which shall be satisfactory in form and substance to Lender, certified by
an authorized officer of Borrower as true, correct and complete copies thereof.
(f) Franchisee Certificate. A certificate duly completed and executed
by Borrower certifying the names and locations of certain former franchisees
and franchisees against whom certain Liens are filed that reference the
Borrower's or its Subsidiaries' names and certifying such other matters with
respect to such Liens as Lender may require.
V. LEGAL OPINION.
(a) Legal Opinion. An opinion of Cowan, Liebowitz & Latman, counsel to
Borrower, in form and substance satisfactory to Lender.
SCHEDULE G - FINANCIAL COVENANTS
1. Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge Coverage
Ratio of not less than 1:1 for each Fiscal Quarter commencing with the Fiscal
Quarter ending December 31, 1996.
2. Minimum Net Worth. Borrower shall maintain at all times, Net
Worth of Borrower and its Subsidiaries on a consolidated basis of not less
than the amount for such period set forth below:
Period: Minimum Net Worth
Closing Date to and
including December 31, 1996 $8,800,000
From and including January 1, 1997
to and including December 30, 1997 $8,800,000
From and including December 31, 1997
to and including December 30, 1998 $9,100,000
From and including December 31, 1998
to and including June 29, 1999 $9,400,000
From and including June 30, 1999
and thereafter $9,500,000
For purpose of this Schedule G the following terms shall have the meanings
set forth below:
"EBITDA" shall mean, for any period, the Net Income
(Loss) of Borrower and its Subsidiaries on a consolidated basis for such
period, plus interest expense, tax expense, amortization expense,
depreciation expense and extraordinary losses and minus extraordinary gains,
in each case, of Borrower and its Subsidiaries on a consolidated basis for
such period determined in accordance with GAAP to the extent included in the
determination of such Net Income (Loss).
"Fixed Charge Coverage Ratio" shall mean, for any
period, the ratio of the following for Borrower and its Subsidiaries on a
consolidated basis determined in accordance with GAAP: (a) EBITDA for such
period plus non-cash charges for options, warrants and common equity to other
service providers less Capital Expenditures for such period which are not
financed through the incurrence of any Indebtedness (excluding the Revolving
Credit Loan) to (b) the sum of (i) interest expense paid or deemed paid in
respect of any Indebtedness during such period, plus (ii) regularly
scheduled payments of principal paid or deemed paid on Funded Debt (excluding
the Revolving Credit Loan) during such period, plus, (iii) taxes to the
extent accrued or otherwise payable with respect to such period, plus (iv)
dividends paid and/or declared during such period.
"Funded Debt" shall mean, for any Person, all of such
Person's Indebtedness which by the terms of the agreement governing or
instrument evidencing such Indebtedness matures more than one year from, or
is directly or indirectly renewable or extendible at the option of such
Person under a revolving credit or similar agreement obligating the lender
or lenders to extend credit over a period of more than one year from, the
date of creation thereof, including current maturities of long-term debt,
revolving credit, and short-term debt extendible beyond one year at the
option of such Person.
"Net Income (Loss)" shall mean with respect to any
Person and for any period, the aggregate net income (or loss) after taxes of
such Person for such period, determined in accordance with GAAP.
"Net Worth" shall mean, with respect to any Person, at
any date, the total assets (excluding any assets attributable to any
issuances by such Person of any Stock after the Closing Date) minus the total
liabilities, in each case, of such Person at such date determined in
accordance with GAAP.
SCHEDULE 1.1
LENDER'S AND BORROWER'S REPRESENTATIVES
FOR NOTICES; ADDRESSES
If to Lender, at:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927
Attention: Aid Auto Inc. Account Manager
Commercial Finance
Telecopy No.: (203) 708-1005
With copies to:
GE Capital Commercial Finance, Inc.
201 High Ridge Road
Stamford, Connecticut 06927
Attention: Commercial Finance
- Legal Department
Telecopy No.: (203) 316-7822
and
Paul, Hastings, Janofsky & Walker LLP
1055 Washington Boulevard
9th Floor
Stamford, Connecticut 06901
Attention: Mario J. Ippolito, Esq.
Telecopy No.: (203) 359-3031
If to Borrower, at:
Aid Auto Stores, Inc.
275 Grand Boulevard
Westbury, New York 11590
Attention: Philip L. Stephen
Telecopy No.: (516) 338-4643
With a copy to:
Cowan, Liebowitz & Latman
1133 Avenue of the Americas
New York, New York 10036
Attention: Robert Halper, Esq.
Telecopy No.: (212) 790-9300
SCHEDULE 1.6 - ELIGIBLE ACCOUNTS
The Accounts constituting Eligible Accounts shall not include any Account:
(a) that does not arise from the sale of goods or
the performance of services by Borrower or Ames in the ordinary course of
its business;
(b) upon which (i) Borrower's or Ames' right to
receive payment is not absolute or is contingent upon the fulfillment of any
condition whatsoever, including without limitation, by reason of progress
billings, retainage accounts or percentage of completion billings or (ii)
Borrower or Ames is not able to bring suit or otherwise enforce its remedies
against the Account Debtor through judicial process;
(c) (i) against which any defense, counterclaim or
setoff, whether well-founded or otherwise, is asserted against such Account
or (ii) which is a "contra" Account, in each case to the extent of such
defense, counterclaim, setoff or "contra" amount;
(d) that is not a true and correct statement of
a bona fide indebtedness incurred in the amount of the Account for
merchandise sold or services performed and accepted by the Account Debtor
obligated upon such Account;
(e) with respect to which an invoice, acceptable
to Lender in form and substance, has not been sent;
(f) that is not owned by Borrower or Ames or is
subject to any right, claim, or interest of another Person, other than the
Lien in favor of Lender;
(g) that arises from a sale to or performance of
services for an employee, Affiliate, Subsidiary or Stockholder of any Credit
Party, or an entity which has common officers or directors with any Credit
Party;
(h) that is the obligation of an Account Debtor
that is the Federal government or a political subdivision thereof, unless
Lender has agreed to the contrary in writing and Borrower or Ames, as the
case may be, has complied with the Federal Assignment of Claims Act of 1940 with
respect to such obligation;
(i) that is the obligation of an Account Debtor
located in a foreign country unless such Account is supported by a letter of
credit acceptable to Lender;
(j) that is the obligation of an Account Debtor to
whom any Credit Party is or may become liable for goods sold or services
rendered by the Account Debtor to such Credit Party, to the extent of such
Credit Party's liability to such Account Debtor;
(k) that arises with respect to goods which are
delivered on a cash-on-delivery basis or placed on consignment, guaranteed
sale or other terms by reason of which the payment by the Account Debtor may
be conditional;
(l) that is an obligation for which the total
unpaid Accounts of the Account Debtor exceed 25% of the net amount of all
Accounts, to the extent of such excess;
(m) that is in default; provided, that an Account
shall be deemed in default upon the occurrence of any of the following:
(i) the Account is not paid either
within 60 days from its due date or 90 days from its invoice date;
(ii) the Account Debtor obligated on
such Account suspends business, makes a general assignment for the
benefit of creditors, or fails to pay its debts generally as
they come due; or
(iii) a petition is filed by or against any
Account Debtor obligated upon such Account under any bankruptcy
law or any other national, state or provincial receivership,
insolvency relief or other law or laws for the relief of debtors;
(n) that is the obligation of an Account Debtor
that is in default (as defined in subparagraph (m) above) on 50% or more of
the Accounts upon which such Account Debtor is obligated;
(o) that arises from any bill-and-hold or other
sale of goods which remain in any Credit Party's possession or under any
Credit Party's control;
(p) as to which Lender's interest therein is not a
first priority perfected security interest;
(q) to the extent that such Account exceeds any
credit limit established by Lender in Lender's sole discretion;
(r) as to which any representations or warranties
pertaining to Accounts in any Loan Document are untrue;
(s) that represents interest payments or service
charges owing to Borrower or Ames;
(t) that arises from a transaction with a
Franchisee of Borrower other than in connection with the sale of goods to
such Franchisee and provided that either such Franchisee has executed a no
offset letter with respect to payment of such Account in form and substance
satisfactory to Lender or reserves related thereto satisfactory to Lender in
its discretion have not been established against Borrowing Availability;
(u) that is not otherwise acceptable in the sole
discretion of Lender; or
provided, that (i) Lender shall have the right to create and adjust
eligibility standards and related reserves from time to time in its sole
judgment, and (ii) Lender shall establish a reserve against the amount of
Eligible Accounts otherwise used in the Borrowing Base calculation for each
percentage point that the dilution of Borrower's or Ames' Accounts
(calculated as the average dilution over the most recent three months)
exceeds 14%.
SCHEDULE 1.7 - ELIGIBLE INVENTORY
Inventory constituting Eligible Inventory shall not include Inventory that:
(a) is not owned by Borrower free and clear of all
Liens and rights of others, except first priority Liens in favor of Lender;
(b) is not located on premises owned or operated
by Borrower and referenced in Disclosure Schedule (3.2);
(c) is not located on premises where the aggregate
amount of all Inventory (valued at cost) located thereon is greater than
$175,000, except for Inventory located at the Borrower's location at 323
Hempstead Turnpike, West Hempstead, New York 11552, as long as the aggregate
amount of all Inventory (valued at cost) located thereon is greater than
$125,000;
(d) is located on premises with respect to which
Lender has not received a landlord or mortgagee letter acceptable in form and
substance to Lender or reserves (including, without limitation, a Lease
Payment Reserve) related thereto satisfactory to Lender in its discretion
have not been established against Borrowing Availability;
(e) is in transit;
(f) is covered by a negotiable document of title,
unless such document and evidence of acceptable insurance covering such
Inventory has been delivered to Lender;
(g) in Lender's reasonable credit judgment, is
obsolete, unsalable, shopworn, damaged, unfit for further processing, is of
substandard quality or is not of good and merchantable quality, free from
any defects;
(h) does not consist of raw materials or finished
goods;
(i) consists of (i) discontinued items,
(ii) slow-moving or excess items held in inventory, or (iii) used items held
for resale;
(j) does not meet all standards imposed by any
Governmental Authority, including with respect to its production,
acquisition or importation (as the case may be);
(k) is placed by Borrower on consignment or held
by Borrower on consignment from another Person, except Inventory owned by
Borrower and placed on consignment to an Aid Store Subsidiary pursuant to the
Master Consignment Agreement and all financing statements under the Code
contemplated by Section 3.26 shall have been filed and be in effect;
(l) is held for rental or lease by or on behalf
of Borrower;
(m) is produced in violation of the Fair Labor
Standards Act and subject to the "hot goods" provisions contained in 29
U.S.C. 215 or any successor statute or section;
(n) in any way fails to meet or violates any
warranty, representation or covenant contained in this Agreement or any
other Loan Document;
(o) is subject to any licensing, patent, royalty,
trademark, trade name or copyright agreement with any third parties;
(p) requires the consent of any Person for the
completion of manufacture, sale or other disposition of such Inventory by
Lender following an Event of Default and such completion, manufacture or sale
constitutes a breach or default under any contract or agreement to which
Borrower is a party or to which such Inventory is or may become subject; or
(q) is not otherwise acceptable in the sole
discretion of Lender;
provided, that (i) Lender shall have the right to create and adjust
eligibility standards and related reserves from time to time in its sole
judgment.
SCHEDULE 6.1 - EXCLUDED COLLATERAL
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-76843.6 Type: AGR
SCHEDULE 6.1
EXCLUDED COLLATERAL
(a) All collateral of Borrower and its wholly owned subsidiaries
covered by UCC-1 financing statements as described on the Schedule
of Excluded Collateral GECC/Aid Auto Stores, Inc. UCC Search
Results annexed hereto, pledged to the following Persons:
(i) Wasco Funding Corp.
(ii) Active Capital Corp.
(iii) Exide Corporation
(b) All collateral of Borrower and its wholly-owned subsidiaries in
which USL Capital has taken or will take a security interest
pursuant to Master Lease Agreement dated August 2, 1996 as
described on the Equipment Schedule annexed hereto.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 410,987
<SECURITIES> 0
<RECEIVABLES> 1,647,050
<ALLOWANCES> 0
<INVENTORY> 11,927,636
<CURRENT-ASSETS> 16,335,773
<PP&E> 2,750,783
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,220,429
<CURRENT-LIABILITIES> 10,586,223
<BONDS> 0
0
0
<COMMON> 3,958
<OTHER-SE> 9,006,809
<TOTAL-LIABILITY-AND-EQUITY> 23,220,429
<SALES> 20,399,673
<TOTAL-REVENUES> 20,545,292
<CGS> 12,233,099
<TOTAL-COSTS> 7,772,564
<OTHER-EXPENSES> 603,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 132,787
<INCOME-TAX> 33,079
<INCOME-CONTINUING> 99,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,708
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
