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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15 (d) OR THE SECURTIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OR EARLIEST EVENT REPORTED): OCTOBER 15, 1997
COMMISSION FILE NUMBER: 0-25790
CREATIVE COMPUTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4518700
(STATE OR OTHER JURISDICTION (I.R.S. Employer
OF INCORPORATION) Identification No.)
2645 MARICOPA STREET, TORRANCE, CALIFORNIA 90503
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 787-4500
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Item 2. Acquisition or Disposition of Assets
(a) On October 15, 1997, Creative Computers, Inc., a Delaware corporation,
acquired substantially all of the assets of Elek-Tek, Inc., a Delaware
corporation, located at 7350 North Linder Avenue, Skokie, Illinois 60077,
for a purchase price of $29.0 million pursuant to an Asset Purchase
Agreement dated September 17, 1997, as amended. Such assets consisted
primarily of accounts receivable, inventory, property, plant and equipment,
general intangibles and customer lists and the businesses associated with
mail order, direct sales and retail activities.
(b) The acquisition will be accounted for as a purchase. The Company borrowed
$20.7 million of the purchase price from Deutsche Financial Services
Corporation, and the remaining $8.3 million was paid in cash. Elek-Tek,
Inc. will operate as a wholly-owned subsidiary of Creative Computers, Inc.
The description of the acquisition is qualified by reference to the Asset
Purchase Agreement dated as of September 17, 1997 as amended by the
Bankruptcy Court Order dated October 9,1997and press release dated October
15, 1997.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements for Elek-Tek, Inc. listed below have been
previously filed with the Commission by Elek-Tek, Inc. under file number
000-22064 and are incorporated herein by reference.
Fiscal Year
Report of Independent Accountants.
Balance Sheets as of December 31, 1996 and December 31, 1995.
Statements of Operations for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994.
Statements of Stockholders' Equity for the years ended December 31,
1996, December 31, 1995 and December 31, 1994.
Statements of Cash Flows for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994.
Notes to Financial Statements.
Interim
Unaudited Condensed Balance Sheets as of March 31, 1997 and June 30,
1997.
Unaudited Condensed Statements of Operations for the three and six
months ended March 31, 1997 and June 30, 1997.
Unaudited Condensed Statements of Cash flows for the three and six
months ended March 31, 1997 and June 30, 1997.
Unaudited notes to Condensed Financial Statements.
(b) Pro forma financial information.
(1) As of the date of this Form 8-K, it is impractical for the Registrant
to provide the pro forma financial information required pursuant to
Article 11 of Regulation S-X. In accordance with Item 7 (b) of Form 8-
K, such financial statements shall be filed by amendment to this Form
8-K on or before December 28, 1997.
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(c) Other
Exhibits
10.1 Asset Purchase Agreement dated September 17, 1997 between Creative
Computers, Inc. and Elek-Tek, Inc.
10.2 Business Credit and Security Agreement dated October 14, 1997 between
Deutsche Financial Services Corporation and Elek-Tek Acquisition
Corp.
10.3 Business Credit and Security Agreement dated October 14, 1997 between
Deutsche Financial Services Corporation and Creative Computers, Inc.
99.1 Press release dated October 15, 1997.
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
CREATIVE COMPUTERS, INC.
Date: October 27, 1997 By /s/ Richard Finkbeiner
Richard Finkbeiner
Chief Financial Officer
(Duly Authorized Officer of the
Registrant and Principal Financial Officer)
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Exhibit 10.1
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
ELEK-TEK, INC.
AND
CREATIVE COMPUTERS, INC.
SEPTEMBER 17, 1997
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PRELIMINARY RECITALS................................................................................ 1
ARTICLE 1 DEFINITIONS.................................................................... 1
Section 1.1 Defined Terms.................................................................. 1
Section 1.2 Other Definitional Provisions.................................................. 3
ARTICLE 2 Purchase and Sale of Assets; Assumption of Liabilities; Purchase Price......... 3
Section 2.1 Purchase and Sale of Assets.................................................... 3
Section 2.2 Excluded Assets................................................................ 4
Section 2.3 Excluded Liabilities........................................................... 4
Section 2.4 Purchase Price................................................................. 4
Section 2.5 Instruments of Conveyance and Transfer, Assumption, etc........................ 6
Section 2.6 DISCLAIMER..................................................................... 7
Section 2.7 Further Assurances............................................................. 7
ARTICLE 3 Representations, Warranties and Covenants...................................... 7
Section 3.1 Representations and Warranties of Seller....................................... 7
Section 3.2 Representations and Warranties of Purchaser.................................... 8
Section 3.3 Covenants of Seller............................................................ 9
ARTICLE 4 Conditions to Purchaser's Obligations.......................................... 10
Section 4.1 Court Order.................................................................... 10
Section 4.2 Representations and Warranties True............................................ 10
Section 4.3 Performance.................................................................... 11
Section 4.4 Services Agreement............................................................. 11
Section 4.5 Successful Bidder.............................................................. 11
Section 4.6 Finding of Good Faith Purchaser................................................ 11
Section 4.7 Employment Matters............................................................. 11
Section 4.8 Financing...................................................................... 11
Section 4.9 Consents....................................................................... 11
ARTICLE 5 Conditions to Seller's Obligations............................................. 11
Section 5.1 Representations and Warranties True............................................ 12
Section 5.2 Performance.................................................................... 12
Section 5.3 Services Agreement............................................................. 12
Section 5.4 Consents....................................................................... 12
Section 5.5 Court Order.................................................................... 12
Section 5.6 Successful Bidder.............................................................. 12
ARTICLE 6 Closing........................................................................ 12
ARTICLE 7 Amendment, Termination and Waiver.............................................. 13
Section 7.1 Amendment and Modification..................................................... 13
Section 7.2 Termination.................................................................... 13
Section 7.3 Extension Waiver............................................................... 13
ARTICLE 8 Auction........................................................................ 14
Section 8.1 Competitive Process............................................................ 14
Section 8.2 Plan of Reorganization......................................................... 14
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 9 Miscellaneous Provisions....................................................... 14
Section 9.1 Fees and Expenses.............................................................. 14
Section 9.2 Transfer Taxes................................................................. 14
Section 9.3 Notices........................................................................ 14
Section 9.4 Public Announcements........................................................... 15
Section 9.5 Confidentiality................................................................ 16
Section 9.6 Assignment..................................................................... 16
Section 9.7 Governing Law.................................................................. 16
Section 9.8 Counterparts................................................................... 16
Section 9.9 Interpretation................................................................. 16
Section 9.10 Entire Agreement............................................................... 16
Section 9.11 Severability................................................................... 16
Section 9.12 No Third Party Beneficiaries................................................... 17
Section 9.13 Exhibits....................................................................... 17
</TABLE>
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ASSET PURCHASE AGREEMENT
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ASSET PURCHASE AGREEMENT dated as of September__, 1997 ("Agreement")
between ELEK-TEK, INC., a Delaware corporation (the "Seller") and CREATIVE
COMPUTERS, INC., a Delaware corporation, or its assigns (the "Purchaser").
PRELIMINARY RECITALS
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Seller intends to file a case under Chapter 11 of the Bankruptcy Code
before the Federal Bankruptcy Court (the "Court"), such case to be captioned In
re Elek-Tek, Inc. (the "Bankruptcy Case").
Seller is a full line, national marketer of microcomputer hardware,
software and related accessories and supplies. Seller sells products through
retail stores, a mail order operation, and a corporate sales force to
individuals, businesses, institutions and government agencies.
Seller and Purchaser desire to enter into this Agreement to set forth
their agreement, understanding and undertaking regarding the terms and
conditions of the sale to, and the assumption of and assignment to, Purchaser
of certain assets of the Seller as specifically set forth herein.
Accordingly, in consideration of the premises and of the mutual
obligations, undertakings, representations, warranties and covenants set forth
herein, Seller and Purchaser agree as follows:
ARTICLE 1
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DEFINITIONS
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SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following
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terms shall have the following meanings:
"ACCOUNTS RECEIVABLE" means all accounts and other rights to payment
arising out of contracts to which Seller is a party, and on account of which
Seller has issued a written invoice that is actually received by the obligor(s)
or on account of advertising notices or price protection notices as of the
Effective Time.
"ACQUISITION DOCUMENTS" shall mean this Agreement, all Exhibits
hereto and all agreements contemplated hereby.
"AFFILIATE" shall mean, with respect to any Person, any person that
controls, is controlled by or is under common control with such Person.
"BANKRUPTCY CODE" shall mean Title 11 and applicable provisions of
Title 28 of the United States Code, as amended from time to time.
"BUSINESS" shall mean all sales and marketing activities as well as
all other business operations as currently conducted by the Seller, including
without limitation the assets, rights and business of the Seller relating
thereto.
"CASH" shall mean all cash, cash equivalents, certificates of deposit,
money market and similar accounts.
"CLOSING DATE" or "CLOSING" shall have the meaning set forth in
Article 6.
"CURRENT ASSET VALUE" shall mean the sum of all Accounts Receivable
and Inventory, not reduced by the amount of Reserves. The foregoing accounting
categories shall be presented in all cases in
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accordance with Seller's historical accounting practices, the Seller's audited
financial statements and in accordance with generally accepted accounting
principles, consistently applied.
"EFFECTIVE TIME" shall mean 12:01 a.m., Chicago, Illinois time the day
of the Closing.
"ESCROW" shall mean the escrow established pursuant to Section 2.4
pursuant to which a portion of the Purchase Price payable in relation to the
Transaction will be retained. One million dollars of the escrow will provide
the sole source of recovery for post-closing adjustments to the Purchase Price
based on the Review pursuant to Section 2.4(e)(ii).
"FINAL ORDER" shall mean (a) a judgment, order or other decree issued
and entered by the Court or by any state or other federal court or other
tribunal location in one of the states, territories or possessions of the United
States or the District of Columbia, which judgment, order or other decree is
enforceable in accordance with applicable provisions of the Bankruptcy Code,
Federal Rules of Bankruptcy Procedure and the Federal Rules of Civil Procedure
and which has not been reversed or stayed and as to which the time to appeal has
expired and as to which no appeal or petition for review, rehearing or
certiorari is pending, or with respect to which any appeal has been finally
decided and no further appeal or petition for certiorari can be taken or
granted, or (b) a stipulation or other agreement entered into which has the
effect of any such judgment, order or other decree.
"INVENTORY" shall mean all of Seller's inventory, whether now owned or
hereafter acquired and wherever located, including but not limited to, all
goods intended for sale by Seller in the ordinary course of the Business.
"RESERVES" shall mean the amount reserved on the Seller's books and
records for Accounts Receivable and Inventory, respectively.
"LIEN" shall mean any encumbrance, obligation, liability, contractual
commitment, claim, including, without limitation, any theory of successor
liability, de facto merger, or substantial continuity, whether based in law or
equity, employee benefit obligations (including, without limitation, under the
Employee Retirement Income Security Act and the comprehensive Omnibus Budget
Reconciliation Act), any security interest, mortgage, lien, charge against or
interest in property, adverse claim, claim of possession, right of way, license,
easement or restriction of any kind, including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership or any option to purchase, option, charge, retention
agreement which is intended as security or other matters of any person or
entity.
"PERSON" shall mean any individual, partnership, corporation,
association, business trust, joint venture, governmental entity or other entity
of any nature.
"TRANSACTION" shall mean the transactions described in and
contemplated by this Agreement.
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS.
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All capitalized terms not otherwise defined in Section
1.1 shall have the meaning ascribed to them as provided in this Agreement.
ARTICLE 2
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PURCHASE AND SALE OF ASSETS;
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ASSUMPTION OF LIABILITIES; PURCHASE PRICE
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SECTION 2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
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conditions of this Agreement and except as specifically set forth in this
Agreement, on the Closing Date, Seller shall sell, transfer, convey, quitclaim,
assign without recourse, representation or warranty of any kind and deliver to
the extent same are capable of transfer by Seller ("Transfer") to Purchaser,
free and clear of
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any and all Liens, and, subject to the terms and conditions of this Agreement,
Purchaser shall purchase, acquire and accept from Seller, all of the assets and
property of the Seller, but specifically excluding the Excluded Assets (as
defined below), including, without limitation, the following assets and property
of Seller (collectively, the "Transferred Assets"):
(a) Tangible Personal Property. All Seller's customer lists, data
bases, catalog inventory, books, records, computer hardware, computer
software, equipment, office furniture, fixtures, office supplies and other
tangible personal property owned, used or useful in connection with the
Business, wherever located and whether owned or leased,
(b) Intangible Personal Property. All Seller's intangible personal
property owned, used or maintained by the Seller, including, without
limitation, all trade marks (including specifically the names "Elek-Tek"
and "The Computer Wonderland"), trade names, trade secrets, goodwill,
copyrights, uncopyrighted work, proprietary information, intellectual
property, software, licenses, permits and databases,
(c) Accounts Receivable. All Seller's trade accounts receivable,
vendor accounts receivable and other rights to payment arising out of
contracts to which Seller is a party,
(d) Inventory. All Seller's Inventory.
(e) Real Property. All Seller's real estate owned in connection with
the Business,
(f) Other Assets. All other monies, payments or benefits arising from
or relating to Seller's contract for commitments, oral or written, known or
unknown.
SECTION 2.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary
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contained in Section 2.1, Seller shall retain all right, title and interest in
and to, and shall not transfer or assign to Purchaser, any of the following
assets, property, rights, claims and causes of action of the Seller
(collectively, the Excluded Assets"):
(a) Any Federal, state, local or foreign tax benefits and attributes
with respect to any period ending on or before the Closing Date, including
net operating loss carryovers, refunds paid or due to be paid in connection
with the income or operations of the Seller and all Federal and state
withholding tax deposits paid by Seller;
(b) The minute and stock books and similar corporate records and any
documents which the Seller is required by law to retain or as a matter of
good business practice should retain in its possession;
(c) All Cash of the Seller;
(d) All contracts and leases with other parties to which the Seller
is a party; (other than Accounts Receivable); and
(e) All other rights, claims, counterclaims or causes of action
vested in the Seller including without limitation, causes of action
relating to fraudulent conveyance, preference or other avoidance powers
under the Bankruptcy Code and any other causes of action.
SECTION 2.3 EXCLUDED LIABILITIES. Notwithstanding anything to the
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contrary contained or implied in this Agreement, Purchaser shall not assume, and
shall have no liability for, any debts, liabilities, obligations, taxes,
contracts or commitments of any kind, nature, manner or degree including but not
limited to obligations of any kind whatsoever owing to employees (e.g., taxes,
pensions, severance payments, vacations, etc.) (collectively, the "Excluded
Liabilities") in connection with the Business presently existing or hereafter
arising, known or unknown, contingent or liquidated.
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SECTION 2.4 PURCHASE PRICE.
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(a) The Purchase Price payable by Purchaser to Seller (the "Purchase
Price") for the Transferred Assets shall be $43,000,000 plus or minus (as
the case may be) the Adjustment (as defined below).
(b) Purchaser shall pay the Purchase Price to Seller as follows:
(i) The sum of $42,000,000 (less (i) any assumptions of debt
owed by Seller to Deutsche Financial Services Corporation
("Deutsche Financial") and (ii) any stay bonuses payable to
the key employees identified on Schedule 4.7 in the amounts
approved by the Bankruptcy Court, which liabilities for
such stay bonuses shall be assumed by Purchaser on the
Closing Date), in current funds shall be paid on the Closing
Date by the Purchaser to the Seller, adjusted as provided in
subsection (d) below;
(ii) The sum of $1,000,000 shall be placed into Escrow with an
institutional escrow agent mutually acceptable to the
parties pursuant to an Escrow Agreement substantially in the
form of Exhibit 3 attached hereto. Such escrowed funds
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shall be held for a period of ninety (90) days following the
Closing Date.
(c) The Purchase Price shall be paid by wire transfer of immediately
available funds (unless otherwise assumed pursuant to assumption agreements
with Deutsche Financial) to Seller's account(s) in accordance with written
instructions to be given by Seller to Purchaser prior to the Closing.
(d) The Purchase Price shall be increased or decreased on a dollar-
for-dollar basis by the amount that the Current Asset Value is respectively
greater or less than $47,900,000 on the Closing Date (the "Adjustment").
The amount of such increase or decrease in Current Asset Value shall be an
adjustment to the Purchase Price on the Closing Date. It is understood and
agreed by the parties that the adjustment will reflect the Current Asset
Value as presented on a "Current Asset Value Statement" prepared by the
Seller and delivered on the Closing Date. The Current Asset Value Statement
shall be subject to audit pursuant to subsection (e) below and the Purchase
Price adjusted if the audit so dictates.
(e) (i) A pre-closing audit (the "Audit") shall be conducted by a
big six accounting firm mutually satisfactory to the parties on behalf of
Purchaser and at Purchaser's expense, to determine any necessary accounting
adjustments to the Current Asset Value Statement. Seller agrees that the
Audit may be provided to Purchaser's lender. Purchaser will allow one or
more members of Seller's internal accountants or other representatives, at
Seller's expense, to review and fully participate in the Audit so that
Seller can identify and confirm any adjustments to Current Asset Value on
the Current Asset Value Statement. Purchaser and Seller shall agree on the
methodology for the Audit, which methodology shall be consistent with
Seller's past practices, which practices should reflect generally accepted
accounting principles, consistently applied. The methodology shall include,
but is not limited to, those matters addressed on Schedule 2.4(e). If the
Audit uncovers any unrecorded assets, the Purchase Price will not be
adjusted by such unrecorded assets.
(ii) Within ninety (90) days of Closing, a post-closing review
(the "Review") shall be completed and the results reported by the Buyer to
determine any necessary adjustments to the Current Asset Value Statement as
a result of any breach of Section 3.1 (c), (d) or (e). In addition to these
adjustments further adjustments will be made based on collectability of
Accounts Receivable and the realizable value of the Inventory (taking into
consideration the Reserves). Based upon the results of the Review and
subject to subsection (e)(iii) below, the escrow agent shall disburse the
funds from the Escrow. In no event shall such post-closing adjustment
exceed $1,000,000.
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(iii) The written results of the Audit and the Review,
respectively, shall be provided to the parties as soon as available but, in
the case of the Audit, no later than one day prior to the day of the
hearing for the motion seeking the Entry of the Approval Order. Buyer and
Seller shall each be deemed to have accepted such results unless either
party gives written notice to the other of such party's objection to any
item in the Audit or the Review within three (3) business days of receipt
of the Audit or the Review. In the event the parties are unable to resolve
such objection within two (2) business days after delivery of notice of
such rejection, either party may request that the Bankruptcy Court resolve
the dispute on an expedited basis. Both parties submit to and consent to
the jurisdiction of the Bankruptcy Court for the expedited resolution of
any disputes that arise in connection with the Audit or the Review. The
parties agree that the decision of the Bankruptcy Court shall be final and
binding on the parties and both parties waive any rights of appeal. The
amount of any dispute arising from the Audit shall be deducted from the
Purchase Price and settled immediately upon resolution of the Audit
dispute.
SECTION 2.5 INSTRUMENTS OF CONVEYANCE AND TRANSFER, ASSUMPTION,
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ETC.
- ---
(a) At the Closing, Seller will deliver to Purchaser:
(i) quitclaim deeds and bills of sale, in form and substance
reasonably satisfactory to Purchaser transferring to
Purchaser the Transferred Assets;
(ii) such other quitclaim deeds, bills of sale, endorsements,
assignments and other good and sufficient instruments of
conveyance and transfer, in form and substance reasonably
satisfactory to Purchaser, as shall be effective to
transfer to Purchaser all of Seller's right, title and
interest in and to the Transferred Assets; and
(iii) executed originals (to the extent available to Seller) or
legible copies (to the event available to Seller) of all
assigned contracts, leases and commitments, books, records
and other data except as described in Section 2.2 (which
Purchaser shall have the option of copying), relating to
the assets and operations of the Business.
(iv) such other documents and certificates as Purchaser or its
counsel shall reasonably request.
Simultaneously with such deliveries, Seller will take such steps as may be
necessary to put Purchaser in immediate actual possession and operating
control of the Transferred Assets.
(b) At the Closing, Purchaser will deliver to Seller (i) the Purchase
Price (to the extent and as provided in Section 2.4 hereof), (ii) such
undertakings as Seller may reasonably request, and (iii) such other
documents and certificates as Seller or its counsel shall reasonably
request.
SECTION 2.6 DISCLAIMER. EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN
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SECTION 3.1, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND BY ANY ONE OR
MORE OF THE OTHER ACQUISITION DOCUMENTS ARE AND SHALL BE WITHOUT REPRESENTATION
OR WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, BY, OR RECOURSE AGAINST,
PURCHASER OR SELLER.
SECTION 2.7 FURTHER ASSURANCES. From time to time during the pendency
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of the Bankruptcy Case and after the Closing and subject to any restrictions per
court order in the Bankruptcy Case, at Purchaser's expense but without further
consideration to Seller, each party will execute and deliver to the other party
such instruments of conveyance, assignment, transfer and delivery and take such
other action as the other party reasonably may request, but without
representation, warranty, undertaking, or covenant of or by recourse against
Seller of any kind whatsoever, to consummate the transactions contemplated
hereby.
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ARTICLE 3
---------
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Notwithstanding
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the terms of any instruments delivered at Closing, Seller hereby represents and
warrants to Purchaser as follows:
(a) Organization, Etc. Seller is a corporation duly incorporated and
-----------------
validly existing under the law of the state of its incorporation.
(b) Authorization, Etc. Subject to Entry of the Approval Order (as
------------------
defined in Section 4.1), Seller has full power and authority to enter into
this Agreement and the other Acquisition Documents, to perform its
obligations hereunder and thereunder, to Transfer the Transferred Assets
and to carry out the transactions contemplated hereby and thereby. Subject
to Entry of the Approval Order, this Agreement and the other Acquisition
Documents to which Seller is a party are valid and binding agreements of
Seller, enforceable against Seller in accordance with their respective
terms, except that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses as
recognized by the Bankruptcy Court.
(c) Title to Assets. As of the Closing Date, Seller has marketable
---------------
title to all of the Transferred Assets, and, subject to the Entry of the
Approval Order, shall have full power and authority to transfer title to
such assets to the Purchaser free and clear of all Liens.
(d) Inventory. Seller has provided Purchaser with a complete list,
---------
as of the date hereof, of all of the Inventory for the Business at August
31, 1997, and such Inventory (less Reserves) is merchantable and saleable
at customary prices in the ordinary course of business.
(e) Accounts Receivable. Seller has provided Purchaser with a
-------------------
complete list, as of the date hereof, of all of the Accounts Receivable for
the Business at August 31, 1997, and all Accounts Receivable of the
Business are valid and enforceable claims, and the goods sold and delivered
that gave rise to such Accounts Receivable were sold and delivered in arms-
length transactions in conformity with the Business' standard purchase
orders, agreements and specifications.
(f) Personnel. Seller has provided Buyer with a complete list, as of
---------
the date hereof, of all sales persons engaged in the corporate, mail order
(inbound and outbound), government and education sales for the Business or
who are instrumental in managing, supervising or supporting the Seller's
sales force as of August 31, 1997 and the sales each such person was
responsible for since January 1, 1997.
(g) Insurance. Seller will maintain until the Closing Date all
---------
insurance policies, including insurance on the Business' tangible real and
personal property and assets against loss or damage by fire or other
casualty, in amounts equal to or in excess of one hundred percent (100%) of
the replacement value thereof, subject to normal deductibles. All such
insurance is in full force on the date of this Agreement and is carried
with reputable insurers.
(h) No Broker. There are no claims for brokerage or other commissions
---------
or finder's or other similar fees payable in connection with the
Transaction, other than ABN AMRO Chicago Corporation, whose costs will be
borne solely by Seller.
(i) SEC Filings. The Seller's public filings with the Securities and
-----------
Exchange Commission are true, comply with rules and regulations for such
securities filings and are accurate in all material respects as of the date
of such filings.
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(j) Income Statements. The Seller's income statements for the year
-----------------
ended December 31, 1996 and the six months ended June 30, 1997 are true,
complete and accurate in all material respects as of such date.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
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hereby represents and warrants to Seller as follows:
(a) Organization, Etc. Purchaser is a corporation duly incorporated
------------------
and validly existing under the law of the state of its incorporation.
(b) Authorization, Etc. Purchaser has full power and authority to
-------------------
enter into this Agreement and the other Acquisition Documents, to perform
its obligations hereunder and thereunder, to carry out the transactions
contemplated hereby and thereby and to acquire and own the Transferred
Assets. All necessary actions required to authorize and ratify the
execution and delivery by Purchaser of its obligations hereunder and
thereunder and the consideration of the transactions contemplated hereby
and thereby have been duly taken. This Agreement and the other Acquisition
Documents are valid and binding agreements of Purchaser, enforceable
against Purchaser in accordance with their terms.
(c) No Violation. To the knowledge of Purchaser, neither the
------------
execution and delivery of this Agreement or the other Acquisition Documents
to which Purchaser is a party, the performance by Purchaser of its
obligations hereunder and thereunder nor the consummation of the
transactions contemplated hereby and thereby will (i) violate any provision
of the corporate governance documents of Purchaser, (ii) violate, be in
conflict with, permit the termination of, constitute a default under or
cause the acceleration of the maturity of any debt or obligation of
Purchaser, or (iii) require the consent of any other party to or constitute
a breach under any agreement or commitment to which Purchaser is a party or
by which Purchaser is bound or violate any statute or law or any judgment,
decree, order regulation or rule of any court or governmental authority to
which Purchaser is subject or by which Purchaser or any of its assets is or
at Closing will be bound.
(d) Litigation. There is no action, proceeding or investigation
----------
pending or, to the knowledge of Purchaser, threatened against Purchaser
before any court, arbitrator or administrative or governmental body which
challenges the validity of this Agreement or the other Acquisition
Documents, any action taken or to be taken by Purchaser pursuant to this
Agreement or the other Acquisition Documents or the Transaction, and
Purchaser does not know of any such action, proceeding or investigation
which is probable of assertion.
(e) No Broker. There are no claims for brokerage or other commissions
---------
or finder's or other similar fees payable in connection with the
Transaction.
(f) Financing. Deutsche Financial has provided Purchaser with the
---------
letter attached hereto as Schedule 3.2(f) with respect to the Transaction,
and such financing is subject to the conditions referenced in the letter.
SECTION 3.3 COVENANTS OF SELLER. Seller hereby covenants to the
------- -------------------
Purchaser as follows:
(a) Ordinary Course of Business. Seller will operate the Business and
---------------------------
its affairs in the ordinary course of business as debtor and debtor-in-
possession subject to the Bankruptcy Code, Federal Rules of Bankruptcy
Procedure, orders of the Bankruptcy Court and rules and regulations of the
U.S. Trustee during the period between the commencement of the Bankruptcy
Case and the Closing, including but not limited to, maintaining all
insurance policies presently in effect, and except as otherwise provided
for in the Services Agreement.
(b) Notification of Certain Activities. From the date hereof to the
----------------------------------
Closing Date, Seller shall not enter into any purchase or sales commitments
relating to the Business in excess of $200,000 without
7
<PAGE>
first providing notice to the Purchaser. If Purchaser does not consent to
such purchase or sales commitments, the Inventory acquired or Accounts
Receivable generated shall not be acquired by the Purchaser and the Current
Asset Value reduced accordingly.
(c) Full Access. Prior to Closing, Purchaser and its authorized
-----------
representatives shall have full access to all properties, books, records,
contracts and documents of Seller, and Seller shall furnish to Purchaser
and its authorized representatives all information with respect to the
affairs of Seller as Purchaser and its authorized representatives may
reasonably request.
(d) Personnel. Seller will use its best efforts (without making any
---------
commitments on behalf of Purchaser) to preserve its corporate sales staff
and to preserve its present relationships with its customers and others
having business relations with the Seller.
SECTION 3.4 COVENANTS OF PURCHASER. Purchaser shall have prepared
------- ----------------------
and filed a notice in accordance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 within five days after commencement of the Bankruptcy
Case.
ARTICLE 4
---------
CONDITIONS TO PURCHASER'S OBLIGATIONS
-------------------------------------
The obligation of Purchaser to consummate the Transaction in
accordance with the terms of this Agreement is subject to the satisfaction, on
or before the Closing Date, of each of the following conditions, any of which
may be waived in writing by Purchaser by notice to the Seller, without the
necessity for further order of the Court or notice to any other party.
SECTION 4.1 COURT ORDER. On or before October 24, 1997 (as such date
------- -----------
may be extended from time to time by the Purchaser), the Court in the Bankruptcy
Case shall have entered, and the clerk of such Court shall have entered on the
docket (collectively, the "Entry") an order pursuant to Section 363 of the
Bankruptcy Code (the "Approval Order"), in form and substance substantially
similar to Exhibit 1 hereto, confirming that Purchaser constitutes a good faith
---------
purchaser within the meaning of Section 363 of the Bankruptcy Code, confirming
that notice provided by Seller to all Persons entitled to receive such notice
under the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure and to
all other known claimants against the Seller was adequate, and approving this
Agreement, the Transaction and the Interim Services Agreement of even date.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES TRUE. The representations
------- -----------------------------------
and warranties of Seller contained herein, in the other Acquisition Documents
and in all certificates and other documents delivered by Seller to Purchaser
pursuant hereto and thereto or in connection with the Transaction shall be true
and accurate in all material respects as of the Closing Date as if made on the
Closing Date.
SECTION 4.3 PERFORMANCE. Seller shall have performed and complied in
------- -----------
all material respects with all agreements and obligations required by this
Agreement to be performed or complied with by Seller on or prior to the Closing
Date.
SECTION 4.4 SERVICES AGREEMENT. Seller and Purchaser shall have
------- ------------------
entered into that certain Services Agreement dated of even date herewith
substantially in the form of Exhibit 4 attached hereto, and Seller shall have
obtained all necessary authorization from the Court, if any, to perform under
such agreement.
SECTION 4.5 SUCCESSFUL BIDDER. Purchaser shall be the successful
------- -----------------
bidder in the auction pursuant to Article 8.
8
<PAGE>
SECTION 4.6 FINDING OF GOOD FAITH PURCHASER. On the date of the
------- -------------------------------
auction held pursuant to Article 8, the Court shall have entered a finding of
fact that Purchaser constitutes a good faith purchaser within the meaning of
Section 363(m) of the Bankruptcy Code.
SECTION 4.7 EMPLOYMENT MATTERS. On the Closing Date, the following
------- ------------------
persons shall be employed by the Seller: (i) eighty percent (80%) of the persons
identified on the schedule referenced in Section 3.1 (the "Sales Employee
Schedule"), (ii) such persons who are responsible for at least eighty percent
(80%) of the corporate sales listed on the Sales Employee Schedule and (iii)
those persons identified on a Key Employee Schedule attached hereto as Schedule
4.7 as key employees. Purchaser shall have no obligation to hire or retain any
of Seller's employees.
SECTION 4.8 FINANCING. Purchaser shall have received the approval of
------- ---------
Deutsche Financial to assume (or otherwise finance) the outstanding debt owed by
Seller to Deutsche Financial as of the Closing on terms acceptable to the
Purchaser.
SECTION 4.9 CONSENTS. (a) All required governmental authorizations,
------- --------
approvals, exemptions, notices and filings (including, without limitation, the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976) relating to the Transaction shall have
become effective and (b) no administrative or judicial order or decision shall
contain or impose on Purchaser (i) any material conditions or provisions for
labor or environmental protection applicable to Purchaser which conditions or
provisions would not be imposed on Purchaser but for this Agreement and the
Transaction of (ii) a material financial obligations beyond those contemplated
by this Agreement which conditions or provisions would not be imposed on
Purchaser but for this Agreement and the Transaction.
ARTICLE 5
---------
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligation of Seller to consummate the Transaction on the Closing
Date shall be subject to the satisfaction, on or before the Closing Date, of
each of the following conditions, any of which may be waived in writing by
Seller by notice to the Purchaser, without the necessity for further order of
the Court or notice to any other party.
SECTION 5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations
------- -----------------------------------
and warranties of Purchaser contained herein, in the other Acquisition Documents
and in all certificates and other documents delivered by Purchaser to Seller
pursuant hereto and thereto or in connection with the Transaction shall be true
and accurate in all material respects as of the Closing Date as if made on the
Closing Date.
SECTION 5.2 PERFORMANCE. Purchaser shall have performed and complied
------- -----------
in all material respects with all agreements and obligations required by this
Agreement to be performed or complied with by Purchaser on or prior to the
Closing Date.
SECTION 5.3 SERVICES AGREEMENT. Seller and Purchaser shall have
------- ------------------
entered into that certain Services Agreement dated of even date herewith
substantially in the form of Exhibit 4 attached hereto, and Seller shall have
---------
obtained all necessary authorization from the Court, if any, to perform under
such agreement.
SECTION 5.4 CONSENTS. (a) All required governmental authorizations,
------- --------
approvals, exemptions, notices and filings (including, without limitation, the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976) relating to the Transaction shall have
become effective and (b) no administrative or judicial order or decision shall
contain or impose on Seller (i) any material conditions or provisions for labor
or environmental protection applicable to Seller which conditions or provisions
would not be imposed on Seller but for this Agreement and the Transaction of
(ii) an material financial
9
<PAGE>
obligations beyond those contemplated by this Agreement which conditions or
provisions would not be imposed on Seller but for this Agreement and the
Transaction.
SECTION 5.5 COURT ORDER. Entry of the Approval Order shall have
------- -----------
occurred and there shall be no stay in effect precluding the consummation of the
Transaction and the Approval Order shall have become a Final Order.
SECTION 5.6 SUCCESSFUL BIDDER. Purchaser shall be the successful
------- -----------------
bidder in the auction pursuant to Article 8.
ARTICLE 6
---------
CLOSING
-------
Subject to the satisfaction or waiver of the conditions specified in
Articles 4 and 5, the parties hereto covenant and agree to consummate the
closing (the "Closing" or "Closing Date") of the Transaction within three (3)
days of the Entry of the Approval Order, or as otherwise agreed by the parties,
without the necessity for Court approval or notice to any other party. The
Closing shall occur at such offices as the parties shall mutually agree. At the
Closing, the documents and other items referred to in this Agreement will be
delivered by the parties and Purchaser will pay to Seller the cash portion of
Purchase Price and fully fund the Escrow.
ARTICLE 7
---------
AMENDMENT, TERMINATION AND WAIVER
---------------------------------
SECTION 7.1 AMENDMENT AND MODIFICATION. This Agreement may be
------- --------------------------
amended, modified and supplemented only by written agreement signed by both
parties hereto, subject to Court approval to the extent necessary.
SECTION 7.2 TERMINATION.
------- -----------
(a) This Agreement may be terminated at any time prior to the Closing
Date by mutual written consent of Purchaser and Seller.
(b) This Agreement may be terminated by either Seller or Purchaser if
the Transaction has not been consummated by October 24, 1997, provided
that neither Seller nor Purchaser will be entitled to terminate this
Agreement pursuant to this clause if such party's material breach of this
Agreement has prevented the consummation of the Transaction.
(c) This Agreement shall automatically terminate if Purchaser is not
the successful bidder in the auction held pursuant to Article 8.
(d) This Agreement shall automatically terminate upon the Entry of an
order by the Court appointing a trustee in the Bankruptcy Case prior to the
Closing.
(e) If this Agreement is terminated because the Seller, in accordance
with the auction procedures described in Exhibit 2 attached hereto, sells
---------
substantially all of the Transferred Assets or the Business, in whole or in
part, whether directly or indirectly, through purchase, merger,
consolidation or otherwise, then immediately upon the closing of such
transaction, the Seller will pay to the Purchaser the sum of $1,500,000;
provided Purchaser shall be ready, willing and able to perform under this
Agreement.
SECTION 7.3 EXTENSION WAIVER. At any time prior to the Closing Date,
------- ----------------
each party hereto may, without notice to any other party (a) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in any Schedule or Exhibit hereto
10
<PAGE>
or in the other party's representations and warranties contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party and if by Seller, shall
also have been made or given pursuant to any necessary approval of the Court.
The waiver by any party hereto of a breach of this Agreement shall not operate
or be construed as a waiver of any subsequent breach.
ARTICLE 8
---------
AUCTION
-------
SECTION 8.1 COMPETITIVE PROCESS. Seller and Purchaser agree that
------- -------------------
Seller shall make available to other prospective purchasers of the Business or
the Transferred Assets the opportunity to acquire the Transferred Assets only
through the procedures set forth in Exhibit 2 or as the Court may otherwise
order.
SECTION 8.2 PLAN OF REORGANIZATION. Nothing herein shall be
------- ----------------------
construed to limit the right of any party in interest in the Bankruptcy Case to
file a plan of reorganization and to initiate proceedings to obtain confirmation
thereof.
ARTICLE 9
---------
MISCELLANEOUS PROVISIONS
------------------------
SECTION 9.1 FEES AND EXPENSES. Except as otherwise expressly
------- -----------------
provided in this Agreement, each of the parties hereto will pay its own fees and
expenses (including attorneys', accountants' and investment bankers' fees and
expenses) incurred in connection with the Transaction.
SECTION 9.2 TRANSFER TAXES.
------- --------------
(a) Seller shall be responsible for liabilities for all state or
local sales, transfer, recording, filing or documentary stamp taxes or
similar taxes (not including income or gains taxes of Seller), fees or
governmental charges imposed on the sale or transfer of any personal
property included in the Transferred Assets.
SECTION 9.3 NOTICES.
------- -------
(a) All notices, requests, demands and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, by facsimile or deposited with a same day or
overnight courier service:
If to Seller:
Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, Illinois 60077
Tel. (847) 677-7660
Fax (847) 677-4597
Attn: Richard Rodriguez
11
<PAGE>
with a copy to:
Lord, Bissell & Brook
115 South LaSalle Street
Chicago, Illinois 60603
Tel. (312) 443-0700
Fax (312) 443-0336
Attn: Margaret M. Anderson
If to Purchaser:
Creative Computers, Inc.
2645 Maricopa Street
Torrance, California 90503
Tel. (310) 222-5806
Fax (310) 222-5821
Attn: Frank F. Khulusi
with a copy to:
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Avenue
Minneapolis, Minnesota 55402
Tel. (612) 349-8500
Fax (612) 339-4181
Attn: Kevin L. Crudden
Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no such
change shall be deemed to have been given until it is actually received by the
party sought to be charged with its contents.
(b) All notices and other communications required or permitted under
this Agreement which are addressed as provided in this Section, shall be
effective upon delivery if delivered personally or by facsimile and one
day after delivery by overnight courier.
SECTION 9.4 PUBLIC ANNOUNCEMENTS. Subject to any order of the Court,
------- --------------------
all press releases and other public announcement and all announcements to
Seller's creditors, customers, suppliers or employees relating to the
Transaction will be prepared jointly by Purchaser and Seller, unless such
disclosure is required by applicable law or governmental regulations, in which
case, to the extent reasonably practicable, prior to making such disclosure, the
party shall give written notice to the other party describing in reasonable
detail the proposed content of such disclosure and shall permit the other party
to review and comment upon the form and substance of such disclosure.
SECTION 9.5 CONFIDENTIALITY. Except for such documents, reports,
------- ---------------
information and data (including financial statements) which are of a public
nature, pending the Closing (and, if this Agreement is terminated, at all times
after the date hereof), Purchaser shall treat as confidential and, except as
otherwise required by law or in connection with the consummation of the
Transaction (including seeking approval for the financing of the Transaction),
will not use, submit or disclose to, or file with, others, or permit any person,
firm, corporation or entity under its respective control to use, submit or
disclose to, or file with others, any documents, reports, information or data
(including financial statements) concerning Seller or the Business which
Purchaser may obtain or have obtained from Seller, and, except for such
documents, reports and other written materials (including financial statements)
concerning the Business as the Seller may reasonably request. This Section shall
be cumulative of, and not abrogated or subsumed by, any other confidentiality
agreements of the parties hereto.
SECTION 9.6 ASSIGNMENT. Purchaser shall have the right to assign
------- ----------
this Agreement to a wholly-owned subsidiary provided that Purchaser funds the
subsidiary in an amount sufficient to satisfy its obligations hereunder and
remains liable for its obligations under this Agreement.
<PAGE>
SECTION 9.7 GOVERNING LAW. This Agreement shall be governed by and
------- -------------
construed in accordance with the internal laws of the State of Delaware, without
regard to conflicts of laws, rules and principles.
SECTION 9.8 COUNTERPARTS. This Agreement may be executed
------- ------------
simultaneously in two or more counterparts, each of which shall be deemed an
original (including executed copies sent via facsimile), and all of which
together shall constitute one and the same instrument.
SECTION 9.9 INTERPRETATION. The headings contained in this Agreement
------- --------------
are inserted for convenience only and shall not constitute a part hereof. The
language used in this Agreement is language developed and chosen by both parties
to express their mutual intent and no rule of strict construction shall be
applied against either party hereto. The use of the masculine, feminine or
neuter gender and the use of the singular and plural shall not be given the
effect of any exclusion or limitation herein.
SECTION 9.10 ENTIRE AGREEMENT. This Agreement, together with Interim
------- ----------------
Services Agreement of even date and the documents referred to herein which form
a part hereof, embody the entire agreement and understanding of the parties
hereto in respect of the subject matter hereof and supersede all prior
agreements and understandings between the parties with respect to such subject
matter. The parties agree the confidentiality agreements previously executed in
connection with this Transaction shall remain in full force and effect.
SECTION 9.11 SEVERABILITY. Each term and provision of this Agreement
------- ------------
constitutes a separate and distinct undertaking, covenant, term and/or
provision. In the event that any term or provision of this Agreement shall be
determined to be unenforceable, invalid or illegal in any respect, such
unenforceability, invalidity or illegality shall not affect any other term or
provision of this Agreement, but this Agreement shall be construed as if such
unenforceable, invalid or illegal term or provision had never been contained
herein.
SECTION 9.12 NO THIRD PARTY BENEFICIARIES. It is not intended that
------- ----------------------------
this Agreement benefit, and it shall not be construed that the provisions hereof
benefit or are enforceable by any third parties.
SECTION 9.13 EXHIBITS. Except as otherwise provided in this
------- --------
Agreement, all Exhibits not attached hereto upon execution hereof shall be
attached no later than the hearing or such later date as Purchaser and Seller
may agree; provided, however, that such Exhibits as are attached hereto as of
the date hereof may be amended from time to time, if at Purchaser's request, at
Seller's reasonable discretion, and if at Seller's request, at Purchaser's
reasonable discretion; provided, further, that to the extent such amendments are
material, the party requesting such amendment shall bear all costs, if any,
relating to notification of interested partes, and all such amendments shall be
available for inspection by interested parties at any time prior to the date of
the auction.
SECTION 9.14 NAME CHANGE. Seller agrees that as soon as practical
------- -----------
after Closing, Seller will change its corporate name to a name approved by the
Buyer which shall not be similar to, or subject to confusion with, Seller's
corporate name.
SECTION 9.15 ACCESS. After the Closing, so long as Purchaser has
------------ -------
possession of Seller's headquarters, Seller and its authorized representatives
shall have access to the headquarters as Seller and its authorized
representatives may reasonably request for the purpose of removing or reviewing
the items relating to Section 2.2(b) of this Agreement.
SECTION 9.16 SURVIVAL. The representations and warranties made
------------ ---------
herein by the parties to this Agreement shall not survive the Closing Date;
provided however, the representations and warranties made in Section 3.1(d) and
(e) shall survive until ninety (90) days from the Closing Date.
2
<PAGE>
* * * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first above stated.
"SELLER"
ELEK-TEK, INC.
By:_______________________________________
Richard L. Rodriguez
President and Chief Executive Officer
"PURCHASER"
CREATIVE COMPUTERS, INC.
By:_______________________________________
Frank F. Khulusi
President and Chief Executive Officer
EXHIBITS
--------
Exhibit 1 Approval Order
Exhibit 2 Auction Procedures
Exhibit 3 Escrow Agreement
Exhibit 4 Services Agreement
------------------ COMPARISON OF FOOTERS ------------------
-FOOTER 1-
3
<PAGE>
Exhibit 10.2
BUSINESS CREDIT AND SECURITY AGREEMENT
Dated as of October 14, 1997
BETWEEN
ELEK-TEK ACQUISITION CORP.
AND
DEUTSCHE FINANCIAL SERVICES CORPORATION
4
<PAGE>
BUSINESS CREDIT AND SECURITY AGREEMENT
BETWEEN: Deutsche Financial Services Corporation, a Nevada corporation
("DFS")
AND: Elek-Tek Acquisition Corporation, a Delaware corporation
("Borrower").
EFFECTIVE DATE: October 14, 1997
1. RECITALS
Borrower has advised DFS that it intends to purchase
substantially all of the assets of Elek-Tek, Inc., a Delaware corporation,
debtor and debtor-in-possession ("Elek-Tek") which filed its voluntary petition
with the United States Bankruptcy Court, District of Delaware, on September 17,
1997, Case No. 97-1946. Such transaction is to be consummated in accordance with
the terms of that certain Asset Purchase Agreement between Creative (defined
herein) and Elek-Tek dated as of September 17, 1997 (as amended from time to
time, the "Purchase Agreement"), and subject to the terms of an order of such
Bankruptcy Court under Section 363 of the Federal Bankruptcy Code (the "Order")
(said transaction being referred to herein as the "Asset Acquisition"). Borrower
has requested that DFS provide Borrower with a credit facility for (i) working
capital purposes, (ii) inventory acquisition purposes, and (iii) the purpose of
financing a portion of the purchase price of the Asset Acquisition.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital
letters. Those terms are defined below, in this Section 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in Section 14.2.
"Account Debtor" shall mean any Person who is or who may become
obligated to Borrower under, with respect to, or on account of an Account,
general intangible or other Collateral.
"Accounts" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all accounts, leases, contract
rights, chattel paper, general intangibles, choses in action and instruments,
including any Lien or other security interest that secures or may secure any of
the foregoing, plus all books, invoices, documents and other records in any
form evidencing or relating to any of the foregoing, now owned or hereafter
acquired by Borrower.
"Affiliates" shall mean: (i) any individual who is an officer or
director of a Person; and (ii) any Person who directly or indirectly controls,
is controlled by, or is under common control or ownership with, another Person.
For the purposes of this definition, the term "control" shall mean the ownership
of or the ability to direct or control 10% or more of the beneficial interest in
the applicable entity.
"Agreement" shall mean this Business Credit and Security Agreement, and
any amendments hereto.
"Average Daily Balance" shall have the meaning set forth in Section 3.5.
5
<PAGE>
"Borrower-Creative Guaranty" shall mean that certain guaranty of even
date given by Borrower in favor of DFS, unconditionally guaranteeing all
obligations of Creative to DFS.
"Borrowing Base" shall mean, as of any date of determination, an amount
equal to: (A) the sum of the Eligible Account Availability plus the Eligible
Inventory Availability, minus (B) Borrower's from time to time outstanding
Obligations to DFS under the Floorplan Inventory Loan Facility.
"Borrowing Base Certificate" shall have the meaning set forth in Section
3.3(a).
"Business" shall mean the sale, marketing, distribution and service of
computer and related products, office and related products and other
miscellaneous products.
"Business Day" shall mean any day other than Saturdays, Sundays, legal
holidays designated by Federal law, and any other day on which DFS' office is
closed.
"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the consolidated balance sheet of Borrower and the Subsidiaries in
respect of (a) the acquisition (including, without limitation, acquisition by
entry into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other fixed
assets or leaseholds, and (b) to the extent related to and not included in
clause (a), materials, contract labor and direct labor (excluding expenditures
properly chargeable to repairs or maintenance in accordance with GAAP).
"Collateral" shall mean all items described in Section 6.1.
"Creative" shall mean Creative Computers, Inc., a Delaware corporation,
and owner of 100% of the issued and outstanding capital stock of Borrower.
"Credit Facility" shall have the meaning set forth in Section 3.1.
"Daily Charge" shall have the meaning set forth in Section 3.5.
"Daily Contract Balance" shall have the meaning set forth in Section
3.5.
"Daily Rate" shall have the meaning set forth in Section 3.5.
"Debt" shall have the meaning set forth in Section 9.3.
"Default" shall have the meaning set forth in Section 10.
"Default Interest Rate" shall have the meaning set forth in Section 3.8.
"DFS Companies" shall have the meaning set forth in Section 14.1.
"Disputes" shall have the meaning set forth in Section 14.1.
"Effective Date" shall mean the date set forth in the heading on page 1
of this Agreement.
"Electronic Transfers" shall have the meaning set forth in Section
3.5(b)(ii).
6
<PAGE>
"Eligible Accounts" shall mean all Accounts that are not Ineligible
Accounts.
"Eligible Account Availability" shall have the meaning set forth in
Section 3.3(a).
"Eligible Inventory" means Borrower's finished goods Inventory
(excluding parts and supplies) that is owned by Borrower free and clear of all
Liens, security interests and encumbrances of any third parties, except for the
Permitted Liens, that is not obsolete or unmerchantable, that is in good, new
and salable condition that conforms to the representations and warranties of
Section 8.26 of this Agreement, and which DFS deems, in its sole discretion, to
be acceptable for financing.
"Eligible Inventory Availability" shall have the meaning set forth in
Section 3.3(b).
"Environmental Laws" shall mean the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Solid
Waste Disposal Act, as amended, the Water Pollution Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, and any successor or
comparable federal or state statutes, now existing or later enacted, or any
regulation promulgated under any of such federal or state statutes relating to
the protection of the environment.
"Environmental Lien" shall mean a Lien in favor of any governmental
entity for (a) any liability under any Environmental Law, or (b) damages arising
from or costs incurred by such governmental entity in response to a spillage,
disposal, or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance.
"Equipment" shall have the meaning as given to that term in the UCC,
and, to the extent not included therein, shall also mean all equipment,
machinery, trade fixtures, furnishings, furniture, supplies, materials, tools,
machine tools, office equipment, appliances, apparatus, parts and all
attachments, replacements, substitutions, accessions, additions and improvements
to any of the foregoing.
"Excess Advances" shall have the meaning given in Section 5.2.
"FAA" shall have the meaning set forth in Section 14.5.
"Floorplan Inventory Loan" shall have the meaning set forth in Section
3.2.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Guarantor" shall mean Creative and any other guarantor of any of the
Obligations.
"Hazardous Material" shall mean any and all hazardous or toxic
substances, materials or wastes as defined or listed under the Environmental
Laws.
"Indebtedness" shall mean any sum for borrowed money owed by Borrower or
any Subsidiary to a Person and shall include any debt guaranteed by Borrower or
any Subsidiary, any debt as to which the Borrower has granted or
7
<PAGE>
permitted to exist a Lien on any asset even if non-recourse, letter of credit
reimbursement obligations, and capitalized lease obligations.
"Indemnified Liabilities" shall have the meaning set forth in Section
12.1.
"Indemnitees" shall have the meaning set forth in Section 12.1.
"Ineligible Accounts" shall mean: (a) Accounts created from the sale of
goods and services on non-standard terms and/or that allow for payment to be
made more than thirty (30) days from date of sale; (b) Accounts unpaid more
than ninety (90) days from date of invoice; (c) all Accounts of any Account
Debtor if fifty percent (50%) or more of the outstanding balance of such
Accounts are unpaid more than ninety (90) days from the date of invoice; (d)
Accounts for which the Account Debtor is an officer, director, shareholder,
partner, member, owner, employee, agent, parent, Subsidiary, or Affiliate of,
or is related to, Borrower or has common shareholders, officers, directors,
owners, partners or members with Borrower; (e) consignment sales; (f) Accounts
for which the payment is or may be conditional; (g) Accounts for which the
Account Debtor is not a commercial or institutional entity or is not a resident
of the United States or Canada; (h) Accounts with respect to which any warranty
or representation provided in Section 8.19 is not true and correct; (i)
Accounts which represent goods or services purchased for a personal, family or
household purpose; (j) Accounts which represent goods used for demonstration
purposes or loaned by Borrower to another party; (k) Accounts which are
progress payment, barter, or contra accounts; and (l) any and all other
Accounts which DFS deems to be ineligible.
"Intangibles" shall have the meaning set forth in Section 9.3.
"Inventory" shall have the meaning given to that term in the UCC, and,
to the extent not included therein, shall also mean all of Borrower's
merchandise, materials, finished goods, work-in-process, component materials,
packaging, shipping materials, parts and other tangible personal property, now
owned or hereafter acquired and held for sale or which contribute to the
finished products or the sale, promotion, storage and shipment thereof, whether
located at facilities owned or leased by Borrower, or in the course of transport
to or from facilities owned or leased by Borrower.
"Lien" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of lessors under capitalized leases and the interest
of a vendor under any conditional sale or other title retention agreement),
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting any of Borrower's property.
"Loan" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement, including but not limited to any Floorplan Inventory
Loan and any Working Capital Loan.
"Loan Documents" shall mean all documents executed by Borrower pursuant
to any financial accommodation between Borrower and DFS and all documents
entered into in connection with the transaction herein contemplated. The term
"Loan Documents" includes, but is not limited to, this Agreement, all financing
statements, all pledges, mortgages, deeds of trust, leasehold mortgages,
security agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings
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executed under the terms of this Agreement or any amendments or modifications
hereto.
"Monthly Reports" shall have the meaning given in Section 3.11(b).
"Obligations" shall mean all liabilities and Indebtedness of any kind
and nature whatsoever now or hereafter arising, owing, due or payable from
Borrower (and/or any of its Subsidiaries and Affiliates) to DFS, whether primary
or secondary, joint or several, direct, contingent, fixed or otherwise, secured
or unsecured, or whether arising under this Agreement, any other Loan Document,
the Borrower-Creative Guaranty, or any other agreement now or hereafter executed
by Borrower (or any of its Subsidiaries or Affiliates) and delivered to DFS.
Obligations will include, without limitation, any third party claims against
Borrower (or any of its Subsidiaries or Affiliates) satisfied or acquired by
DFS. Obligations will also include all obligations of Borrower to pay to DFS:
(a) any and all sums reasonably advanced by DFS to preserve or protect the
Collateral or the value of the Collateral or to preserve, protect, or perfect
DFS' security interests in the Collateral; (b) in the event of any proceeding to
enforce the collection of the Obligations after a Default, the reasonable
expenses of retaking, holding, preparing for sale, selling or otherwise
disposing of or realizing on the Collateral, or expenses of any exercise by DFS
of its rights, together with reasonable attorneys' fees, expenses of collection
and court costs, as provided in the Loan Documents; and (c) any other
indebtedness or liability of Borrower to DFS, whether direct or indirect,
absolute or contingent, now or hereafter arising.
"OSHA Law" shall mean the Occupational Safety and Health Act of 1970,
any successor thereto, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"Other Reports" shall have the meaning set forth in Section 3.11(c).
"Permitted Liens" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall have
been set aside in conformity with GAAP and which are, in addition, satisfactory
to DFS in its reasonable discretion; (b) Liens of mechanics, materialmen,
landlords, warehousemen, carriers and similar Liens arising in the future in the
ordinary course of business for sums not yet delinquent, or being contested in
good faith if a reserve or other appropriate provision in accordance with GAAP
shall have been made therefor and which are, in addition, satisfactory to DFS in
its reasonable discretion; (c) statutory Liens incurred in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
social security, and similar items for sums not yet delinquent or being
contested in good faith, if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor and which are, in addition,
satisfactory to DFS in its reasonable discretion; (d) lessor's Liens arising
from operating leases entered into in the ordinary course of business; (e) Liens
arising from legal proceedings, so long as such proceedings are being contested
in good faith by appropriate proceedings, appropriate reserves have been
established therefor in accordance with GAAP and which are, in addition,
satisfactory to DFS in its reasonable discretion, and so long as execution is
stayed and bonded on appeal on all judgments resulting from any such
proceedings; and (f) Liens in favor of DFS granted hereunder.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
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"Prime Rate" shall mean a fluctuating interest rate per annum equal to
the highest of the prime, base or reference rates of interest announced publicly
from time to time (whether or not charged in each instance) by The Chase
Manhattan Bank (or any reference rate, provided, however, that for purposes of
this Agreement, the interest rate charged to Borrower will at no time be
computed on a Prime Rate of less than six percent (6.0%) per annum. Each change
in the Prime Rate shall become effective on the day such bank announces a change
in its prime or reference rate. If the bank listed above discontinues the
practice of announcing or publishing a prime, base or reference rate during the
term of this Agreement, then DFS may, in its reasonable judgment, designate a
comparable bank and/or publicly announced rate to be thereafter used as a basis
for determining Prime Rate. Borrower acknowledges that the bank listed above may
extend credit at rates of interest less than its announced prime, base or
reference rate.
"SPP" shall have the meaning set forth in Section 3.2(b).
"Solvent" as to any Person, shall mean that such Person: (a) owns
assets, the present fair salable value of which is greater than the amount
required to pay all of such Person's liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities); (b) is able to pay all of
its liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) as they become absolute and matured; and (c) has capital sufficient
capital to carry on its Business and transactions.
"Statement of Transaction" shall have the meaning set forth in Section
3.2(a).
"Subordinated Debt" shall have the meaning set forth in Section 9.3.
"Subsidiaries" shall mean any corporation in which a Person owns or
controls greater than 50% of the voting securities, or any partnership or joint
venture in which a Person owns or controls greater than 50% of the aggregate
equitable interest. The term "Subsidiary" means any one of the Subsidiaries.
"Tangible Net Worth" shall have the meaning set forth in Section 9.3.
"Total Credit Limit" shall have the meaning set forth in Section 3.1.
"Total Working Capital Credit Limit" shall have the meaning set forth in
Section 3.3.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of California and any successor statute, together with any regulations
thereunder, in each case as in effect from time to time. References to sections
of the UCC shall be construed to also refer to any successor sections.
"Unmatured Default" shall mean any event which, but for the passage of
time or notice, or both, would be a Default.
"Value" means the cost to Borrower of Borrower's Eligible Inventory
(exclusive of discounts, rebates, credits (including, without limitation price
protection credits), incentive payments and all other general intangibles
relating to such Eligible Inventory), as determined in accordance with GAAP.
"Weekly Report" shall have the meaning set forth in Section 3.11(a).
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"Working Capital Loan" shall have the meaning set forth in Section 3.3.
"Working Capital Loan Availability" shall mean the lesser of (i) the
Borrowing Base or (ii) the Total Working Capital Credit Limit.
3. CREDIT FACILITY
3.1 Total Credit Facility. In consideration of Borrower's
payment and performance of its Obligations and subject to the terms and
conditions contained in this Agreement, DFS agrees to provide, and Borrower
agrees to accept, an aggregate credit facility (the "Credit Facility") of up to
Twenty Million Dollars ($20,000,000) (the "Total Credit Limit"). The Credit
Facility shall be available in the form of Floorplan Inventory Loans and Working
Capital Loans. No Loans need be made by DFS if Borrower is in Default or if
there exists any Unmatured Default. This is an agreement regarding the extension
of credit, and not the provision of goods or services.
3.2 Floorplan Inventory Loans. Subject to the terms of this
Agreement, DFS may provide to Borrower floorplan financing for the acquisition
of Inventory from vendors approved by DFS in DFS' sole discretion (each advance
being a "Floorplan Inventory Loan"), up to an aggregate unpaid principal amount
at any time not to exceed Five Million Dollars ($5,000,000); provided, however,
that in no event shall the principal amount of the Floorplan Inventory Loans and
the Working Capital Loans exceed at any time in the aggregate, the Total Credit
Limit. DFS may, however, at any time and without notice to Borrower, elect not
to finance any Inventory sold by particular vendors who are in default of their
obligations to DFS. DFS may at any time suspend or terminate the relationship or
approval of any vendor. DFS will use reasonable efforts to give Borrower prior
notice of such suspension or termination.
(a) Financing Terms and Statements of Transaction.
Borrower and DFS agree that certain financial terms of any advance made by DFS
as a Floorplan Inventory Loan under this Agreement, whether regarding finance
charges, other fees, maturities, curtailments or other financial terms, are not
set forth herein because such terms depend, in part, upon the availability of
vendor discounts, payment terms or other incentives, prevailing economic
conditions, DFS' floorplanning volume with Borrower and with Borrower's vendors,
and other economic factors which may vary over time. Borrower and DFS further
agree that it is therefore in their mutual best interest to set forth in this
Agreement only the general terms of Borrower's Floorplan Inventory Loans. Upon
agreeing to finance a particular item of Inventory for Borrower, DFS will send
Borrower a Statement of Transaction identifying such inventory and the
applicable financial terms ("Statement of Transaction"). Unless Borrower
notifies DFS in writing of any objection within fifteen (15) days after a
Statement of Transaction is mailed to Borrower: (a) the amount shown on such
Statement of Transaction will be an amount stated; (b) Borrower will have
agreed to all rates, charges and other terms shown on such Statement of
Transaction; (c) Borrower will have agreed that the items of Inventory
referenced in such Statement of Transaction are being financed by DFS at
Borrower's request; and (d) such Statement of Transaction will be incorporated
herein by reference, will be made a part hereof as if originally set forth
herein, and will constitute an addendum hereto. If Borrower objects to the terms
of any Statement of Transaction, Borrower agrees to pay DFS for such Inventory
in accordance with the most recent terms for similar Inventory to which Borrower
has not objected (or, if there are no prior terms, at the lesser of 16% per
annum or at the maximum lawful contract rate of interest permitted under
applicable law). The Statement of Transaction may specify a "Minimum Prime",
which shall mean a minimum rate per annum designated as a floor below which the
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Prime Rate shall be deemed not to fall for purposes of calculating Borrower's
Floorplan Inventory Loan finance charges, notwithstanding that the "Prime Rate"
as defined herein might otherwise be a lower rate per annum.
(b) Payment Terms. Borrower will immediately pay DFS
the principal indebtedness owed DFS on each item of Inventory financed by DFS
(as shown on the Statement of Transaction identifying such Inventory) on the
earliest occurrence of any of the following events: (a) when such Inventory is
lost, stolen or damaged to the extent that such loss, theft or damage is not
adequately insured under an insurance policy which names DFS as loss payee; (b)
for Inventory financed under Scheduled Payment Program ("SPP") terms (as shown
on the Statement of Transaction identifying such Inventory), in strict
accordance with the installment payment schedule; and (c) when otherwise
required under the terms of any financing program agreed to in writing by the
parties. Regardless of the SPP terms pertaining to any Inventory financed by
DFS, if DFS determines that the current outstanding debt which Borrower owes to
DFS exceeds the aggregate wholesale invoice price of such Inventory in
Borrower's possession, Borrower will immediately upon demand pay DFS the
difference between such outstanding debt and the aggregate wholesale invoice
price of such Inventory. If Borrower from time to time is required to make
immediate payment to DFS of any past due obligation discovered during any
Inventory review, or at any other time, Borrower agrees that acceptance of such
payment by DFS shall not be construed to have waived or amended the terms of its
financing program. The proceeds of any Inventory received by Borrower will be
held by Borrower in trust for DFS' benefit, for application as provided
Agreement. DFS may apply: (i) payments to reduce finance charges first and then
principal, regardless of Borrower's instructions; and (ii) principal payments to
the oldest (earliest) invoice for Inventory financed by DFS, but, in any event,
all principal payments will first be applied to such Inventory which is sold,
rented, leased, or otherwise disposed of or unaccounted for, or lost, stolen or
damaged to the extent that such loss, theft or damage is not adequately insured
under an insurance policy which names DFS as a loss payee. Any third party
discount, rebate, bonus or credit granted to Borrower for any Inventory will not
reduce the debt Borrower owes DFS until DFS has received payment therefor in
cash. Borrower will: (1) pay DFS even if any Inventory is defective or fails to
conform to any warranties extended by any third party; (2) not assert against
DFS any claim or defense Borrower has against any third party; and (3) indemnify
and hold DFS harmless against all claims and defenses asserted by any buyer of
the Inventory relating to the condition of, or any representations regarding,
any of the Inventory. Borrower waives all rights of offset Borrower may have
against DFS.
3.3 Working Capital Loans. Subject to the terms of this
Agreement, DFS agrees, for so long as no Default exists, to provide to Borrower,
and Borrower agrees to accept, working capital financing (each advance being a
"Working Capital Loan") on Eligible Accounts and Eligible Inventory in the
maximum aggregate unpaid principal amount at any time equal to the lesser of (i)
the Borrowing Base or (ii) Twenty Million Dollars ($20,000,000); provided,
however, that in no event shall the principal amount of the Floorplan Inventory
Loans and the Working Capital Loans exceed at any time in the aggregate, the
Total Credit Limit ("Total Working Capital Credit Limit"). A request for a
Working Capital Loan shall be made, or shall be deemed to be made, as provided
in Section 5.1 hereof.
(a) Eligible Accounts. On receipt of each Borrowing Base
Certificate initially in the form set forth on Exhibit 3.3, and, thereafter, in
such form as DFS may require from time to time, together with such supporting
information as DFS may require from time to time (the "Borrowing Base
Certificate"), DFS will credit Borrower with such amount as DFS may deem
advisable up to the lesser of (i) eighty-five percent (85%) of the net
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amount of the Eligible Accounts which are, absent error or other discrepancy,
listed in such Borrowing Base Certificate, or (ii) Fifteen Million Dollars
($15,000,000) ("Eligible Account Availability"). For purposes hereof, the net
amount of Eligible Accounts at any time shall be the face amount of such
Eligible Accounts less any and all returns, discounts (which may, at DFS'
option, be calculated on shortest terms), credits, rebates, allowances, or
excise taxes of any nature at any time issued, owing, claimed by Account
Debtors, granted, outstanding, or payable in connection with such Accounts at
such time.
(b) Eligible Inventory. On receipt of each Borrowing Base
Certificate, DFS will credit Borrower with the lesser of (a) fifty percent (50%)
of the Value of Eligible Inventory which is, absent error or other discrepancy
listed in such Borrowing Base Certificate, or (b) Seven Million Five Hundred
Thousand Dollars ($7,500,000) (such lesser amount being called the "Eligible
Inventory Availability").
3.4 Mandatory Prepayment. If at any time and for any reason
the aggregate amount of outstanding Loans exceeds the Borrowing Base, Borrower
will, immediately upon demand, repay an amount of the Loans made to it by DFS
hereunder equal to such excess. In addition, Borrower shall immediately pay DFS
whatever sums may be necessary from time to time to remain in compliance with
the Total Credit Limit and the Total Working Capital Credit Limit, as such
limits may change from time to time, including, without limitation, as a result
of any Collateral no longer being deemed an Eligible Account or Eligible
Inventory, or as a result of any change in the Value of any Eligible Inventory,
or in the amount of any Eligible Account.
3.5 Interest; Calculation of Charges; Fees.
(a) Floorplan Inventory Loans. Borrower will pay DFS finance
charges on the outstanding principal debt Borrower owes DFS for each item of
Inventory financed by DFS under a Floorplan Inventory Loan at the rate(s) shown
on the Statement of Transaction identifying such Inventory, unless Borrower
objects thereto as provided in Section 3.2(a). The finance charges attributable
to such rates will: (i) be computed based on a 360 day year; (ii) be calculated
by multiplying the Daily Charge (as defined below) by the actual number of days
in the applicable billing period; and (iii) accrue from the invoice date of the
Inventory identified on such Statement of Transaction, until DFS receives full
payment of the principal debt Borrower owes DFS in good funds in accordance with
DFS' payment recognition policy and DFS applies such payment to Borrower's
principal debt in accordance with the terms of this Agreement. The annual
percentage rate of the finance charges will be calculated from the invoice date
of any item of Inventory financed by DFS, regardless of any period during which
any finance charge subsidy shall be paid or payable by any third party.
(b) Working Capital Loans.
(i) Interest; Calculation. Borrower will pay DFS
finance charges on the Daily Contract Balance (as defined below) at a per annum
rate that is equal to the Prime Rate. The finance charges attributable to such
rate will: (i) be computed based on a 360 day year; (ii) be calculated with
respect to each day by multiplying the Daily Rate (as defined below) by the
Daily Contract Balance; and (iii) accrue from the date DFS authorizes any
Electronic Transfer (as defined in Section 3.5(b)(ii) below) or otherwise
advances a Working Capital Loan to or for the benefit of Borrower, until DFS
receives full payment of the principal debt Borrower owes DFS in good funds in
accordance with DFS' payment recognition policy and DFS applies such payment to
Borrower's principal debt in accordance with the terms of this Agreement.
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(ii) Method of Transfer. Working Capital Loans will be
made by DFS, at Borrower's direction, by paper check, electronic transfer by
Automated Clearing House ("ACH"), Fed Wire Funds Transfer ("Fed Wire") or such
other electronic means as DFS may announce from time to time (ACH, Fed Wire and
such other electronic transfer are collectively referred to as "Electronic
Transfers"). If Borrower does not request a Working Capital Loan be made in a
specific method of transfer, DFS may determine from time to time in its sole
discretion what method of transfer to use.
(c) Definitions. The "Daily Charge" is the product of the
Daily Rate multiplied by the Average Daily Balance. The "Daily Rate" is the
quotient of the applicable annual rate provided herein or in any Statement of
Transaction divided by 360. The "Daily Contract Balance" is the amount of
outstanding principal debt which Borrower owes DFS on the Working Capital Loans
at the end of each day (including the amount of all Electronic Transfers
authorized) after DFS has credited payments which it has received on the Working
Capital Loans. The "Average Daily Balance" is the quotient of: (i) the sum of
the outstanding principal debt owed DFS on each day of a billing period for each
item of Inventory identified on the Statement of Transaction, divided by (ii)
the actual number of days in such billing period.
(d) Fees.
(i) Certain Charges. Borrower will (A) reimburse DFS
for all charges made by banks, including charges for collection of checks and
other items of payment and (B) pay DFS all fees and charges in effect from time
to time for transfers of funds to or from the Borrower. DFS may, from time to
time, announce its fees and charges for transfers of funds to or from Borrower,
including the issuance of Electronic Transfers, provided, however, that DFS and
Borrower hereby agree to a $5.00 fee for each ACH transfer and a $25.00 fee for
each Fed Wire transfer.
(ii) Creative's Closing Fee. Creative shall pay the
closing fee described in its agreement of even date with DFS.
3.6 Billing Statement. DFS will send Borrower a monthly
billing statement identifying all charges due on Borrower's account with DFS.
The charges specified on each billing statement will be: (a) due and payable in
full immediately on receipt; and (b) an account stated, absent manifest error.
DFS may adjust the billing statement at any time to conform to applicable law
and this Agreement.
3.7 Loan Proceeds. The parties intend that all indebtedness
incurred hereunder shall be governed exclusively by the terms of this Agreement
and the other Loan Documents, and shall not, unless requested by DFS, be
evidenced by notes or other evidences of indebtedness. Upon any such request,
Borrower will immediately execute and deliver any such note or other evidence
reasonably requested by DFS. Any fees, charges or expenses charged to DFS by any
bank for payments made by DFS at Borrower's request shall be immediately payable
by Borrower. All advances and other obligations of Borrower made hereunder will
constitute a single obligation.
3.8 Default Interest Rate. If a Default occurs, and unless
and until cured, DFS may without prior demand, raise the rate of interest
accruing on the disbursed unpaid principal balance of any Loan by three
percentage points (3%) above the rate of interest otherwise applicable (the
"Default Interest Rate"), whether or not DFS elects to accelerate the unpaid
principal balances as a result of a Default. DFS will use reasonable efforts to
notify Borrower before imposing the Default Interest Rate permitted by this
Section.
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3.9 Interest Rate After Certain Events. If a judgment is
entered against Borrower for sums due under any of the Obligations, as
applicable, the amount of the judgment entered (which may include principal,
interest, reasonable attorneys' fees and costs) shall bear interest at the
judgment rate as permitted under applicable law as of the date of entry of the
judgment. All Obligations of Borrower described in clauses (a) and (b) of the
definition thereof shall bear interest at the Default Interest Rate.
3.10 Verification Rights of DFS. DFS may, without notice to
Borrower and at any time or times hereafter verify the validity, amount or any
other matter which in DFS' reasonable credit judgment relates to any Account, by
mail, telephone or other means, in the name of Borrower or DFS.
3.11 Reports.
(a) Weekly Reports. Borrower agrees to provide DFS with
a report each week, or more frequently if requested by DFS, in such form as is
satisfactory to DFS, including supporting information regarding, but not limited
to (i) a Borrowing Base Certificate; (ii) an Inventory aging report; (iii) a
statement of the current Inventory status, showing the lower of cost (determined
on a "first-in, first-out" basis) or market value thereof; and (iv) an aging of
Accounts (the "Weekly Report"). The Weekly Report will be received by DFS each
Monday after the date of the Agreement by noon (in the event that DFS is not
open for business on a Monday then the Weekly Report will be due by noon of the
next business day that DFS is open for business), or more frequently if so
requested by DFS.
(b) Monthly Reports. Borrower agrees to provide to
DFS by the 10th day of each month, or more frequently if requested by DFS, in
each case as of the last day of the immediately prior month, each of the
following: (i) Inventory aging report; (ii) aging of Accounts; and (iii) aging
of Borrower's accounts payable (the "Monthly Reports").
(c) Other Reports. Borrower agrees to provide DFS
within five (5) Business Days after each request by DFS any other report or
information requested by DFS (the "Other Reports").
(d) Accuracy of Reports. The Weekly Report, Monthly
Reports and the Other Reports will be true and correct in all respects. Borrower
acknowledges DFS' reliance on the truthfulness and accuracy of each Weekly
Report, Monthly Report and the Other Reports.
3.12 Establishment of Reserves; Appraisals. Notwithstanding
the foregoing provisions of Section 3.3, DFS shall have the right to establish
reserves in such amounts, and with respect to such matters, as DFS shall deem
necessary or appropriate, against the amount of Working Capital Loans which
Borrower may otherwise request under Section 3.3, including, without limitation,
with respect to (a) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the ordinary
course of Borrower's business; (b) shrinkage, spoilage and obsolescence of
Inventory; (c) slow moving Inventory; (d) other sums chargeable against Borrower
as Working Capital Loans under any section of this Agreement; and (e) such other
matters, events, conditions or contingencies as to which DFS, in its sole credit
judgment determines reserves should be established from time to time hereunder.
Borrower acknowledges that DFS may from time to time, but no
less frequently than quarterly, obtain from an independent third party appraiser
selected by DFS, an appraisal of the value of the Eligible Inventory. Borrower
further acknowledges and agrees that DFS will have the right to decrease the
advance rate set forth in Section 3.3(b) to reflect
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the value of the Eligible Inventory, as determined by any such appraisal.
Borrower further acknowledges and agrees, however, that no increase in the
advance rate set forth in Section 3.3(b) will be made as a result of any such
appraisal.
3.13 Capital Adequacy.
(a) In the event that DFS shall have determined that
the adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
DFS with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority, does
or shall have the effect of reducing the rate of return on DFS' capital as a
consequence of its obligations hereunder to a level below that which DFS could
have achieved but for such adoption, change or compliance (taking into
consideration DFS' policies with respect to capital adequacy) by an amount
deemed by DFS, in its sole discretion, to be material, then DFS shall promptly
notify Borrower of such event and from time to time, after submission by DFS to
Borrower of a written demand therefor, Borrower shall pay to DFS such additional
amount or amounts as will compensate DFS for such reduction.
(b) A certificate of DFS claiming entitlement to
payment as set forth in Section 3.13(a) above shall be conclusive in the absence
of manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such payment, the additional amount or amounts to be paid to DFS,
and the method by which such amounts were determined. In determining such
amount, DFS may use any reasonable averaging and attribution method.
3.14 Collections. Unless otherwise directed by DFS, to
expedite collection of Accounts for the benefit of DFS, Borrower shall notify
all of its Account Debtors to make payment of the Accounts to one or more lock-
boxes under the sole control of DFS. The lock-box, and all accounts into which
the proceeds of any such lock-box(es) are deposited, shall be established at
banks selected by the Borrower and satisfactory to DFS in its sole discretion.
Borrower shall issue to any such banks an irrevocable letter of instruction, in
form and substance acceptable to DFS, directing such banks to deposit all
payments or other remittances received in the lock-box to such account or
accounts as DFS shall direct, for application against the outstanding balance of
the Obligations. All funds deposited in the lock-box or any such account
immediately shall become the property of DFS, and any disbursements of the
proceeds in the lock-box or any such account will only be made to DFS. Borrower
shall obtain the agreement of such banks to waive any offset rights against the
funds so deposited. DFS assumes no responsibility for such lock-box arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits which any banks accept thereunder. All remittances
which Borrower receives in payment of any Accounts, and the proceeds of any of
the other Collateral, shall be: (i) kept separate and apart from Borrower's own
funds so that they are capable of identification as DFS' property; (ii) held by
Borrower as trustee of an express trust for DFS' benefit; and (iii) shall be
immediately deposited in such accounts designated by DFS. All proceeds received
or collected by DFS with respect to Accounts, and reserves and other property of
Borrower in possession of DFS at any time or times hereafter, may be held by DFS
without interest to Borrower until all Obligations are paid in full or applied
by DFS on account of the Obligations. DFS may release to Borrower such portions
of such reserves and proceeds as DFS may determine. Upon the occurrence and
during the continuance of a Default, DFS may notify the Account Debtors that the
Accounts have been assigned to DFS, collect the Accounts directly in its own
name and charge the collection costs and expenses, including attorneys'
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fees, to Borrower. DFS has no duty to protect, insure, collect or realize upon
the Accounts to preserve rights in them.
3.15 Advancements. If Borrower fails to (a) perform any of
the affirmative covenants contained herein, (b) protect or preserve the
Collateral or (c) protect or preserve the status and priority of the Liens and
security interest of DFS in the Collateral, DFS may make advances to perform
those obligations. DFS will use reasonable efforts to give Borrower notice prior
to making such advancement. All sums so advanced will be due and payable upon
demand and will immediately upon advancement become secured by the security
interests created by this Agreement and will be subject to the terms and
provisions of this Agreement and all of the Loan Documents. DFS may add all sums
so advanced, plus any expenses or costs incurred by DFS, including reasonable
attorney's fees, as outstanding Loans as DFS may designate in its sole
discretion. The provisions of this Section will not be construed to prevent the
institution of rights and remedies of DFS upon the occurrence of a Default. Any
provisions in this Agreement to the contrary notwithstanding, the authorizations
contained in this Section will impose no duty or obligation on DFS to perform
any action or make any advancement on behalf of Borrower and are for the sole
benefit and protection of DFS.
3.16 Continuing Requirements - Accounts. Borrower will: (a)
if from time to time required by DFS, immediately upon their creation, deliver
to DFS copies of all invoices, delivery evidences and other such documents
relating to each Account; (b) not permit or agree to any extension, compromise
or settlement or make any change to any Account except in the ordinary course of
business; (c) affix appropriate endorsements or assignments upon all such items
of payment and proceeds so that the same may be properly deposited by DFS to
DFS' account; (d) immediately notify DFS in writing which Accounts may be deemed
Ineligible Accounts; and (e) mark all chattel paper and instruments now owned or
hereafter acquired by it to show that the same are subject to DFS' security
interest and immediately thereafter deliver such chattel paper and instruments
to DFS with appropriate endorsements and assignments to DFS.
3.17 Floorplan Paydown. In the event (i) Borrower's
outstanding indebtedness to DFS under the Floorplan Inventory Loan Facility
exceeds at any time (ii)(a) the Working Capital Loan Availability, minus (b) the
outstanding Working Capital Loans, Borrower will immediately pay to DFS, as a
reduction of Borrower's total current outstanding indebtedness to DFS under the
Floorplan Inventory Loan Facility, the difference between (i) Borrower's
outstanding indebtedness to DFS under the Floorplan Inventory Loan Facility, and
(ii)(a) the Working Capital Loan Availability, minus (b) the outstanding Working
Capital Loans.
4. TERM OF AGREEMENT
4.1 Termination. This Agreement will continue in full force
and effect and be non-cancellable by Borrower (except that it may be terminated
by DFS upon ninety (90) days written notice to Borrower or in the exercise of
its rights and remedies upon Default by Borrower) for a period commencing on the
Effective Date and ending on the later of: (i) that date which is one (1) year
from the Effective Date, or (ii) December 31, 1998 (the "Original Term"), and
for successive one (1) year periods thereafter, subject to termination as to
future transactions at the end of any such period after Borrower shall have
given DFS the applicable Termination Notice (as defined below) and the
applicable period relating thereto shall have expired. Such Termination Notice
will be ineffective unless Borrower pays to DFS all Obligations and the sum
described in Section 4.2 below on or before the termination date. Any
termination of this Agreement by Borrower or DFS will have the effect of
accelerating the maturity of all Obligations
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not then otherwise due. The "Termination Notice" shall mean Borrower's written
notice to DFS indicating Borrower's intent to terminate this Agreement in
accordance with the terms hereof either: (I) within one (1) day after DFS'
receipt of such notice, or (II) within one-hundred fifty (150) days after DFS'
receipt of such notice.
4.2 Termination Privilege. Despite anything to the contrary
in Section 4.1 of this Agreement, this Agreement may be terminated by Borrower
at any time upon having given the applicable Termination Notice and, if
terminated in accordance with the terms hereof during the Original Term, payment
to DFS of the following sum (in addition to payment of all Obligations, whether
or not by their terms then due) which sum represents liquidated damages for the
loss of the bargain and not as a penalty, and the same is hereby acknowledged by
Borrower: the product of (a) (i) Six Thousand Dollars ($6,000) if Borrower shall
have given DFS the Termination Notice described in Section 4.1(I) above, or (ii)
One Thousand Five Hundred Dollars ($1,500) if Borrower shall have given DFS the
Termination Notice described in Section 4.1(II) above, multiplied by (b) the
number of months remaining in the Original Term. This sum will also be paid by
Borrower if the Agreement is terminated on account of Borrower's Default.
Termination on any date other than the anniversary date will not
entitle Borrower to a refund of any fee. DFS shall be entitled to payment of all
fees upon Default by Borrower which would have been payable during the original
term of this Agreement, or any extension thereof, but for such early
termination. These accelerated fees represent liquidated damages are not a
penalty. Any such written notice of termination delivered by Borrower to DFS
shall be irrevocable. It is understood that Borrower may elect to terminate this
Agreement in its entirety only, no section or lending facility may be terminated
singly.
4.3 Effect of Termination. Borrower will not be relieved
from any Obligations to DFS arising out of DFS' advances or commitments made
before the effective termination date of this Agreement. DFS will retain all of
its rights, interests and remedies hereunder until Borrower has paid all of
Borrower's Obligations to DFS. All waivers set forth within this Agreement will
survive any termination of this Agreement.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. Borrowing Procedures.
(a) Generally. A request for a Working Capital Loan shall be
made, or shall be deemed to be made, in the following manner: (i) Borrower may
give DFS written notice of its intention to borrow, in which notice Borrower
shall specify the amount of the proposed borrowing and the proposed borrowing
date; (ii) the becoming due of any amount required to be paid under this
Agreement as interest shall be deemed irrevocably to be a request for a Working
Capital Loan on the due date in the amount required to pay such interest; and
(iii) the becoming due of any other Obligations shall be deemed irrevocably to
be a request for a Working Capital Loan on the due date in the amount then so
due.
For purposes of subpart (i) above, Borrower agrees that DFS may rely and act
upon any request for a Working Capital Loan from any individual who DFS, absent
gross negligence or willful misconduct, reasonably believes to be a
representative of Borrower.
(b) Conditions Precedent to Each Working Capital Loan. Without
limiting the applicability of the conditions precedent set forth in Section 7
below to DFS' obligation to make any Working Capital Loan, the obligation of DFS
to make any Working Capital Loan shall be subject to the
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further conditions precedent that, on the date of each such Working Capital
Loan:
(i) The following statements shall be true: (A) the
representations and warranties contained in Section 8 hereof are correct on and
as of the date of such Working Capital Loan as though made on and as of such
date, and (B) there exists no Default or Unmatured Default, nor would any
Default or any Unmatured Default result from the making of the Working Capital
Loan requested by Borrower;
(ii) Borrower shall have signed and sent to DFS, if DFS so
requests, a request for advance, setting forth in writing the amount of the
Working Capital Loan requested; provided, however, that the foregoing condition
precedent shall not prevent DFS, if it so elects in its sole discretion, from
making a Working Capital Loan pursuant to Borrower's non-written request
therefor;
(iii) DFS shall have received a completed Borrowing Base
Certificate, signed by the Borrower, and dated not more than one (1) day prior
to the date of Borrower's request for such Working Capital Loan; and
(iv) DFS shall have received such other approvals, opinions
or documents as it may reasonably request.
Borrower agrees that the making of a request by Borrower for a Working Capital
Loan, shall constitute a certification by Borrower and the Person(s) executing
or giving the same that all representations and warranties of Borrower herein
are true as of the date thereof and that all required conditions to the making
of the Working Capital Loan have been met.
5.2 Excess Advances. DFS, in its sole and absolute
discretion, may elect to permit the total unpaid balance of Loans to exceed the
Total Credit Limit (the "Excess Advances"), and no such event or occurrence
shall cause or constitute a waiver by DFS of its right to demand payment of all
or any part of the Loans at any time within the terms of this Agreement or to
refuse, in its sole and absolute discretion, to make such further Loans. Any
such Excess Advances shall be payable immediately upon demand therefor, unless
otherwise specifically agreed to by DFS, and shall bear interest at the Default
Interest Rate.
5.3 All Loans One Obligation. All Obligations of Borrower to
DFS under this Agreement and all other agreements between Borrower and DFS shall
constitute one obligation to DFS secured by the security interest granted in
this Agreement, and by all other Liens heretofore, now, or at any time or times
hereafter granted by Borrower. All of the rights of DFS set forth in this
Agreement shall apply to any modification of or supplement to this Agreement, or
Exhibits hereto, unless otherwise agreed in writing.
5.4 Payments of Principal and Interest. All payments and
amounts due hereunder by Borrower shall be made or be payable without set-off or
counterclaim and shall be made to DFS on the date due at its office(s)
responsible for Borrower's account, or at such other place which DFS may
designate to Borrower in writing. Any payments received after such time shall be
deemed received on the next Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a date other than a Business Day, such
payment may be made on the next succeeding Business Day, and such extension of
time shall be included in the computation of payment of interest or any fees.
5.5 Collection Days. All payments and all amounts received
hereunder will be credited by DFS to Borrower's account two (2) Business
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Days after good funds have been deposited into DFS' general operating account.
6. SECURITY FOR THE OBLIGATIONS
6.1 Grant of Security Interest. To secure payment of all of
Borrower's current and future Obligations and to secure Borrower's performance
of all of the provisions under this Agreement and the other Loan Documents,
Borrower grants DFS a security interest in all of Borrower's inventory,
equipment, fixtures, accounts, contract rights, chattel paper, security
agreements, instruments, deposit accounts, reserves, documents and general
intangibles; and all judgments, claims, insurance policies, and payments owed or
made to Borrower thereon; all whether now owned or hereafter acquired, all
attachments, accessories, accessions, returns, repossessions, exchanges,
substitutions and replacements thereto, and all proceeds thereof. All such
assets are collectively referred to herein as the "Collateral." All such terms
for which meanings are provided in the Uniform Commercial Code are used herein
with such meanings. All Collateral financed by DFS, and all proceeds thereof,
will be held in trust by Borrower for DFS, with such proceeds being payable in
accordance with this Agreement. Borrower covenants with DFS that DFS may realize
upon all or part of any Collateral in any order it desires and any realization
by any means upon any Collateral will not bar realization upon any other
Collateral. Borrower's liability under this Agreement is direct and
unconditional and will not be affected by the release or nonperfection of any
security interest granted hereunder.
6.2 Future Advances. DFS' security interests shall secure
all current and all future advances to Borrower made by DFS under the Loan
Documents.
6.3 Financing Statements. Borrower shall execute and deliver
to DFS for the benefit of DFS such original documents as may be required by DFS
with respect to DFS' security interests.
6.4 Guaranties. Borrower shall cause any and all
Subsidiaries, whether now existing or hereafter acquired, to execute and deliver
collateralized guaranties of the Obligations secured by a first priority,
perfected security interest in the assets described therein.
6.5 Further Assurances. Borrower will execute and deliver to
DFS, at such time or times as DFS may request, all financing statements,
security agreements, assignments, certificates, affidavits, reports, schedules,
and other documents and instruments that DFS may deem necessary to perfect and
maintain perfected DFS' security interests in the Collateral and to fully
consummate the transactions contemplated under all Loan Documents. All filing,
recording or registration fees shall be payable by Borrower.
7. CONDITIONS PRECEDENT
All duties and obligations of DFS under the Loan Documents on the
Effective Date, and at all times during the term of this Agreement, are
specifically subject to the full and continued satisfaction by Borrower of the
conditions precedent set forth below.
7.1 Conditions Precedent. The following conditions must be
satisfied as of the date of the initial Loan made hereunder;
(a) DFS' Counsel. DFS' counsel must approve of all matters pertaining to
(i) title to the Collateral; (ii) the form, substance and due execution of
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all Loan Documents; (iii) Borrower's organizational documents; and (iv) all
other legal matters, including the application of any laws relating to usury.
(b) Material Change. There must not have been any material adverse change,
between Borrower's date of organization and the Effective Date, in the condition
of Borrower, the condition of the Business, the value and condition of the
Collateral, the structure of Borrower other than as contemplated herein, or in
the financial information, audits and the like obtained by DFS.
(c) Perfected Liens. DFS shall have a perfected first priority Lien and
security interest in the Collateral, subject only to the Permitted Liens.
(d) Insurance. Borrower shall provide DFS with certificates of insurance
evidencing that Borrower has obtained the insurance as required in Section
9.1.2.
(e) Laws. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited to, all
Environmental Laws, the failure to comply with which would have a material
adverse effect on Borrower, its Subsidiaries or the Business.
(f) Certificate of Good Standing. A certificate of good standing for Borrower
(or other similar certificate) must be delivered to DFS, from the appropriate
governmental authority of Borrower's state of incorporation and other
jurisdictions in which Borrower does business, dated not earlier than 30 days
prior to the Effective Date.
(g) Opinion of Borrower's Counsel. DFS must receive a written opinion from
counsel for Borrower, dated the Effective Date, and addressed to and for the
benefit of DFS, in form and substance satisfactory to DFS.
(h) UCC Searches. DFS must receive a certificate from a provider of financing
statement searches acceptable to DFS which identifies all financing statements
of public record not more than 5 days before the Effective Date, that pertain to
the Collateral.
(i) Other Documents. Such other documents, certificates, submissions, insurance
policies and other matters as reasonably requested by DFS relating to the
transaction herein contemplated.
(j) President's Certificate. In the form attached hereto as Exhibit 7.1(j)
compliance with all of the terms and conditions in the Loan Documents.
(k) Articles of Incorporation. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement.
(l) Secretary's Certificate of Resolution and Incumbency. In the form attached
hereto as Exhibit 7.1(l).
(m) Pre-closing Expenses. Borrower shall pay to DFS all fees and expenses
required under this Agreement that are due on or before the Effective Date.
(n) Pre-closing Reviews. DFS must complete reviews with satisfactory results of
Borrower's Inventory and Accounts. All costs and expenses for such pre-closing
reviews will be included within the pre-closing expenses.
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(o) Payoff Letter. A lien release and payoff letter executed by any and all
lienholders on any of the Collateral, other than with respect to the Permitted
Liens.
(p) Collection Documentation. The lockbox and related documentation required
pursuant to the provisions of Section 3.14 hereof.
(q) Order. The issuance of the Order in a form and upon such terms and
conditions as are acceptable to DFS.
(r) Asset Acquisition. DFS' satisfactory review of all of the documents,
instruments and agreements pursuant to which the Asset Acquisition is to be
consummated, including but not limited to the Purchase Agreement.
(s) Absence of Legal Proceedings. DFS shall have determined that no action,
proceeding, investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency 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 the Purchase Agreement or the
consummation of the transactions contemplated hereby or thereby or which, in
DFS' sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement, any of the other Loan Documents or the Purchase
Agreement.
(t) Solvency. DFS shall have received such certificates and documents
reflecting the Solvency of Borrower, after giving effect to the transactions
contemplated by this Agreement and the Purchase Agreement, as DFS shall find
acceptable, including without limitation, pro-forma balance sheets, forecasted
financial statements consisting of balance sheets, income statements and cash
flow statements for Borrower covering at least the three-year period commencing
on the Effective Date, prepared by Borrower and a fair valuation balance sheet
for Borrower showing that Borrower is Solvent.
(u) Guaranty. The guaranty of each Guarantor.
8. REPRESENTATIONS AND WARRANTIES
To induce DFS to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true in
all material respects during the term of this Agreement. Borrower acknowledges
DFS' justifiable right to rely upon the representations and warranties set forth
below.
8.1 Financial Statements. Creative's audited consolidated
financial statements as of December 31, 1996 and Borrower's unaudited
consolidated financial statement as of June 30, 1997, copies of which have been
previously submitted to DFS, have been prepared in conformity with GAAP and
present fairly the financial condition of Creative and its consolidated
Subsidiaries as at such dates and the results of their operations for the
periods then ended. Borrower warrants and represents to DFS that all financial
statements and information relating to Borrower or any Guarantor which have been
or may hereafter be delivered by Borrower or any Guarantor are true and correct
and have been and will be prepared in accordance with GAAP and, with respect to
such previously delivered statements or information, there has been no material
adverse change in the financial or business condition of Borrower or any
Guarantor since the submission to DFS, either as of the date of delivery, or, if
different, the date specified therein, and Borrower acknowledges DFS' reliance
thereon.
8.2 Non-Existence of Defaults. Neither Borrower nor any of
its Subsidiaries is in default with respect to any material amount of its
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existing Indebtedness. The making and performance of this Agreement and all
other Loan Documents, will not immediately, or with the passage of time, the
giving of notice, or both: (a) violate the provisions of the bylaws or any other
corporate document of Borrower; (b) violate any laws to the best of Borrower's
knowledge after diligent inquiry; (c) result in a material default under any
contract, agreement, or instrument to which Borrower is a party or by which
Borrower or its properties are bound; or (d) result in the creation or
imposition of any security interest in, or Lien or encumbrance upon, any of the
Collateral except the Permitted Liens.
8.3 Litigation. Set forth on Exhibit 8.3 is a list of all
actions, suits, investigations or proceedings pending or, in the knowledge of
Borrower, threatened against Borrower or any of its Subsidiaries, as of the date
hereof in which there is a reasonable probability of an adverse decision which
would materially and adversely affect Borrower, the Business, or the Collateral.
8.4 Material Adverse Changes. Borrower does not know of any
material adverse change in the Business, or in Borrower's or any of the
Subsidiaries' assets, liabilities, properties, or condition, financial or
otherwise.
8.5 Title to Collateral. Except as set forth on Exhibit 8.5,
Borrower has good and marketable title to all of the Collateral, free and clear
of any and all Liens, claims and encumbrances, other than the Permitted Liens.
8.6 Corporate Status. Borrower and each of the Subsidiaries
is a corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective jurisdictions
of formation. Borrower and its Subsidiaries have the corporate power and
authority to own their properties and to transact the Business in which they are
engaged and presently propose to engage. Borrower and each Subsidiary is duly
qualified as a foreign corporation and in good standing in all states where the
nature of their Business or the ownership or use of their property requires such
qualification, and where failure to so qualify would have a material adverse
effect on its Business, operations or financial condition.
8.7 Subsidiaries. Exhibit 8.7 hereto lists the Subsidiaries
as of the Effective Date.
8.8 Power and Authority. Borrower has the corporate power to
borrow and to execute, deliver and carry out the terms and provisions of the
Loan Documents. Borrower has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement
and all other Loan Documents and the borrowing thereunder.
8.9 Place of Business. Borrower's chief executive office and
the principal place of business is located at 2645 Maricopa Street, Torrance
California 90503. Borrower's records concerning the Collateral are kept at such
chief executive office, or will be kept at such other place that Borrower
informs DFS of not less than 30 days in advance of relocation.
8.10 Enforceability of the Loan Documents. The Loan Documents
executed by Borrower are the valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their terms, except as limited
by bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights.
8.11 Taxes. Borrower's federal tax identification number is
33-0775244. Borrower has: (a) filed all federal, state and local tax
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returns and other reports that it is required by law to file, (b) paid or caused
to be paid all taxes, assessments and other governmental charges that are due
and payable, the failure of which to pay would have a material adverse effect on
the Business, except those contested in good faith and in accordance with
accepted procedures, and for which adequate reserves have been established in
accordance with GAAP, and (c) made adequate provision for the payment of such
taxes, assessments or other charges accruing but not yet payable. Borrower has
no knowledge of any deficiency or additional assessment in a material amount in
connection with any taxes, assessments or charges.
8.12 Compliance with Laws. Borrower, to the best of its
knowledge after diligent inquiry, has complied, and shall cause each Subsidiary
to comply, in all material respects with all applicable laws, including any
Environmental Laws and any zoning laws, the failure to comply with which would
have a material adverse effect on Borrower individually, or Borrower and its
Subsidiaries on a consolidated basis.
8.13 Consents. Borrower and the Subsidiaries have obtained
all material consents, permits, licenses, approvals or authorization of, or
effected the filing, registration or qualification with, any governmental entity
which is required to be obtained or effected by Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement and
the other Loan Documents the failure of which to obtain or effect would have a
material adverse effect on Borrower individually, or on Borrower and its
Subsidiaries on a consolidated basis.
8.14 Purpose. Borrower will use the advances which DFS makes
under the Credit Facility solely for lawful purposes and to the extent not
inconsistent with the terms of this Agreement.
8.15 [INTENTIONALLY DELETED]
8.16 Capital. All issued shares and all outstanding shares in
the Subsidiaries as reflected in Borrower's financial statements are validly
issued pursuant to proper authorization of the board of directors of such
Subsidiary, and are fully paid, and non-assessable. There are no outstanding
subscriptions, warrants, options, calls or commitments, obligations or
securities convertible or exchangeable for shares of any stock of Borrower or
the Subsidiaries. All Borrower's and Subsidiary's issued shares and outstanding
capital stock are fully paid and non-assessable, and each such Person's capital
structure is as set forth on Exhibit 8.16.
8.17 Location of Collateral. Exhibit 8.17 describes the
locations where any of the Collateral is located or stored as of the date
hereof.
8.18 Real Property. Neither Borrower nor any Subsidiary own
or lease any real property, except as set forth on Exhibit 8.18 attached hereto.
8.19 Warranties and Representations-Accounts. For each
Account listed by Borrower on any Borrowing Base Certificate, Borrower warrants
and represents to DFS that at all times, unless specified in writing by Borrower
to DFS (which specification Borrower hereby acknowledges may, as DFS shall
determine, reduce Borrower's availability for Loans hereunder): (a) such Account
is genuine; (b) such Account is not evidenced by a judgment or promissory note
or similar instrument or agreement; (c) it represents an undisputed bona fide
transaction completed in accordance with the terms of the invoices and purchase
orders relating thereto; (d) the goods sold or services rendered which resulted
in the creation of such Account have been delivered or rendered to and accepted
by the Account Debtor; (e) the amounts
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shown on the Borrowing Base Certificate, Borrower's books and records and all
invoices and statements delivered to DFS with respect thereto are owing to
Borrower and are not contingent; (f) no payments have been or will be made
thereon except payments turned over to DFS; (g) there are no known
offsets, counterclaims or disputes existing or aserted with respect for any and
Borrower has not made any agreement with the Account Debtor for any deduction or
discount of the sum payable thereunder except regular discounts allowed by
Borrower in the ordinary course of its business for prompt payment; (h) there
are no known facts or events which in any way impair the validity or
enforceability thereof or reduce the amount payable thereunder from the amount
shown on the Borrowing Base Certificate, Borrower's books and records and the
invoices and statements delivered to DFS with respect thereto; (i) all persons
acting on behalf of the Account Debtor thereon have the authority to bind the
Account Debtor; (j) the goods sold or transferred giving rise thereto are not
subject to any Lien, claim, encumbrance or security interest which is superior
to that of DFS; (k) such Account is subject to DFS' perfected, first priority
security interest and no other Lien other than a Permitted Lien; and (l) there
are no proceedings or actions known to Borrower which are threatened or pending
against the Account Debtor thereon which might result in any material adverse
change in such Account Debtor's financial condition.
8.20 Environmental, Health and Safety Matters. Except as
disclosed on Exhibit 8.20: (a) the operations of Borrower and each of the
Subsidiaries complies in all respects with (i) all applicable Environmental
Laws, and (ii) all applicable OSHA Laws; (b) none of the operations of Borrower
or any Subsidiary are subject to any judicial or administrative proceeding
alleging the Violation of any Environmental Law or OSHA Law; (c) none of the
operations of Borrower or any Subsidiary is the subject of federal or state
investigation evaluating whether any remedial action is needed to respond to (i)
a spillage, disposal or release into the environment of any Hazardous Material
or other hazardous, toxic or dangerous waste, substance or constituent, or other
substance, or (ii) any unsafe or unhealthful condition at any premises of
Borrower or any Subsidiary; (d) neither Borrower nor any Subsidiary has filed
any notice under any Environmental Law or OSHA Law indicating or reporting (i)
any past or present spillage, disposal or release into the environment of, or
treatment, storage or disposal of, any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance or (ii)
any unsafe or unhealthful condition at any premises of Borrower or any
Subsidiary; and (e) neither Borrower nor any Subsidiary has any known contingent
liability in connection with (i) any spillage, disposal or release into the
environment of, or otherwise with respect to, any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance or (ii) any unsafe or unhealthful condition at any premises of
Borrower or any Subsidiary.
8.21 Patents, Copyrights, Trademarks, Etc. The Borrower and
each of the Subsidiaries possesses or has the right to use all of the patents,
trademarks, trade names, service marks and copyrights, and applications
therefor, and all technology, know-how, processes, methods and designs used in
or necessary for the conduct of its business, without known conflict with the
rights of others. All such licenses, patents, trademarks, trade names, service
marks and copyrights, and applications therefor existing on the date hereof are
listed on Exhibit 8.21.
8.22 Solvency. The Borrower and each of the Subsidiaries is
now and after giving effect to the initial Loans made hereunder, at all times,
will be, Solvent.
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8.23 Leases. Exhibit 8.23(a) attached hereto is a complete
listing of all capitalized leases of Borrower and Exhibit 8.23(b) attached
hereto is a complete listing of all operating leases of Borrower.
8.24 Labor Relations. Except as described on Exhibit 8.24
attached hereto and made a part hereof, neither Borrower nor any of its
Subsidiaries is a party to any collective bargaining agreement, and there are no
material grievances, disputes or controversies with any union or any other
organization of Borrower's employees, or threats of strikes, work stoppages or
any asserted pending demands for collective bargaining by any union or
organization.
8.25 Business Locations; Agent for Process. During the
preceding seven (7) year period, Borrower has had no office, place of business
or agent for service of process located in any state or county other than as
shown Exhibit 8.17.
8.26 Warranties and Representations-Inventory. For each item of
Inventory listed by Borrower on any Borrowing Base Certificate, Borrower
covenants, warrants and represents to DFS that at all times: (a) Inventory will
be kept only at the locations indicated on Exhibit 8.17; (b) [INTENTIONALLY
DELETED]; (c) Borrower now keeps and will keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory,
Borrower's cost therefor and the selling price thereof, the daily withdrawals
therefrom and the additions thereto; (d) Inventory is not and will not be stored
with a bailee, repairman, warehouseman or similar party without DFS' prior
written consent, and Borrower will, concurrently with delivery to such party,
cause any such party to issue and deliver to DFS, in form acceptable to DFS,
warehouse receipts, in DFS' name evidencing the storage of such Inventory, and
waivers of warehouseman's liens in favor of DFS; (e) Borrower will pay all
taxes, rents, business taxes, and the like on the premises where the Inventory
is located; and (f) Borrower will not rent, lease, lend, demonstrate, pledge,
consign, transfer or secrete any of the Inventory or use any of the Inventory
for any purpose other than exhibition and sale to buyers in the ordinary course
of business, without DFS' prior written consent.
8.27 Warranties and Representations-Purchase Agreement. Each
and every representation, Agreement is accurate and correct as of the date
hereof, and is hereby deemed made to DFS as of the date hereof as if fully set
forth herein.
8.28 Reaffirmation. Each request for a Loan made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall constitute
(a) an automatic representation and warranty by Borrower to DFS that there does
not then exist any Default or any Unmatured Default, and (b) a reaffirmation as
of the date of said request of all of the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents.
8.29 Survival of Representations and Warranties. Borrower
covenants, warrants and represents to DFS that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance thereof by DFS and the parties thereto and the closing of the
transactions described therein or related thereto until three (3) years after
all Obligations of any kind and any nature have been indefeasibly satisfied in
full by Borrower or until otherwise agreed to in writing by DFS.
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9. BORROWER'S COVENANTS
9.1 Affirmative Covenants. During the term of this Agreement
and thereafter for so long as any Obligations are outstanding and unpaid,
Borrower covenants that unless otherwise consented to by DFS in writing, it
shall perform all the acts and promises required by this Agreement and all the
acts and promises set forth below.
9.1.1 Payment and Performance. Borrower will pay and
perform all Obligations in full when and as due hereunder.
9.1.2 Insurance.
(a) Type of Insurance. Borrower will at all times cause the Business and
the Collateral to be insured by insurers of reasonable financial soundness and
having an A. M. Best rating of A or better, with such policies, against such
risks and in such amounts as are appropriate for reasonably prudent businesses
in Borrower's industry and of Borrower's size and financial strength.
(b) Requirements as to Insurance Policies. The policies of insurance which
Borrower is required to carry shall comply with the requirements listed below:
(i) Each such policy shall provide that it may not be canceled or allowed to
lapse at the end of a policy period without at least 30 days' prior written
notice to DFS;
(ii) Each liability and hazard insurance policy shall name DFS as an
additional insured; and
(iii) Each property insurance policy required hereunder shall contain a
standard lender's loss payable clause in favor of DFS. Such insurance policies
shall also contain lender's loss payable endorsements satisfactory to DFS
providing, among other things, that any loss shall be payable in accordance
with the terms of such policy notwithstanding any act of Borrower which might
otherwise result in forfeiture of such insurance;
(c) Collection of Claims. Borrower will promptly advise DFS of any insured
casualty and Borrower agrees that DFS may direct all insurance proceeds
therefrom to be paid directly to DFS to the extent that such loss is not
adequately insured under an insurance policy which names DFS as a loss payee,
and hereby appoints DFS its attorney-in-fact for such purpose.
(d) Blanket Policies. Any insurance required hereunder may be supplied by
means of a blanket or umbrella insurance policy.
(e) Delivery of Policies or Certificates of Insurance. Borrower shall
deliver to DFS certificates of insurance issued by insurers to evidence that
the insurance maintained by Borrower complies with the requirements hereunder.
9.1.3 Collection of Receivables; Sale of Inventory.
Borrower will collect its Accounts and sell its Inventory only in the ordinary
course of business, unless written permission to the contrary is obtained from
DFS.
9.1.4 Notice of Litigation and Proceedings. Borrower
will give prompt notice to DFS of: (a) any litigation or proceeding (including
fines and penalties of any public authority) in which it, or any of the
Subsidiaries is a party in which there is a reasonable probability of an adverse
decision which might materially and adversely affect its or any
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of its Subsidiary's operations, financial condition, property or the Business,
whether or not the claim is considered to be covered by insurance; (b) any class
action litigation against it, regardless of size; and (c) the institution of any
other suit or proceeding that might materially and adversely affect its or any
of its Subsidiary's operations, financial condition, property or the Business.
9.1.5 Payment of Indebtedness to Third Persons. Borrower
will, and will cause each Subsidiary to, pay, when due, all Indebtedness and any
other liability due third persons, except when the amount thereof is being
contested in good faith by appropriate proceedings and with adequate reserves
therefor satisfactory to DFS in accordance with GAAP being set aside by Borrower
or such Subsidiary. DFS will use reasonable efforts to attempt to give Borrower
notice before DFS requires Borrower to set aside additional reserves.
9.1.6 Notice of Change of Business Location. Borrower
will notify DFS 30 days in advance of: (a) any change in or discontinuation of
the location of the Collateral, Borrower's principal place of business, or any
of the Subsidiaries' existing offices or places of business, (b) the
establishment of any new places of business relating to the Business, and (c)
any change in or addition to the locations where Borrower's Inventory or records
are kept.
9.1.7 Payment of Taxes. Borrower will, and will cause
each Subsidiary to, pay or cause to be paid, when and as due, all taxes,
assessments and charges or levies imposed upon it or on any of its property or
that it is required to withhold and pay over to the taxing authority or that it
must pay on its income, the failure of which to pay would have a material
adverse effect on Borrower individually, or on Borrower and the Subsidiaries on
a consolidated basis, except where contested in good faith by appropriate
proceedings with adequate reserves therefor satisfactory to DFS, in accordance
with GAAP, having been set aside by Borrower or such Subsidiary. DFS will use
reasonable efforts to give Borrower notice before DFS requires additional
reserves. However, Borrower will and will cause each Subsidiary to, pay or cause
to be paid all such taxes, assessments, charges or levies immediately whenever
foreclosure of any Lien that attaches on the Collateral appears imminent.
9.1.8 Further Assurances. Borrower agrees to, and will
cause each Subsidiary to, execute such other and further documents, including,
without limitation, deeds of trust, promissory notes, security agreements,
financing statements, continuation statements, certificates of title, and the
like as may from time to time in the reasonable opinion of DFS be necessary to
perfect, confirm, establish, re-establish, continue, or complete the security
interests, collateral assignments and Liens in the Collateral, and the purposes
and intentions of this Agreement.
9.1.9 Maintenance of Status. Borrower will take all
necessary steps to (a) preserve its, and each Subsidiary's, existence as a
corporation, (b) preserve Borrower's and the Subsidiaries' franchises and
permits, and (c) comply with all present and future material agreements to which
Borrower, or any of the Subsidiaries, is subject, and (d) maintain, and cause
each Subsidiary to maintain, its qualification and good standing in all states
in which such qualification is necessary or in which the failure to be so
qualified might have a material adverse effect on the financial condition or
properties of Borrower or the Business. Borrower will not change the nature of
the Business during the term of this Agreement without DFS' prior written
consent, which consent shall not be unreasonably withheld.
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9.1.10 Financial Statements; Reporting Requirements;
Certification as to Events of Defaults. During the term of this Agreement,
Borrower will furnish two copies of the following to DFS:
(a) within 90 days after the end of each fiscal year, annual financial
statements for Creative and its Subsidiaries as of the end of such fiscal year,
consisting of a consolidated and consolidating balance sheet, consolidated and
consolidating statement of operations, consolidated and consolidating statements
of cash flows and consolidated and consolidating statement of stockholder's
equity, in comparative form, together with a narrative description of the
financial condition and results of operations and the liquidity and capital
resources of Creative and setting forth in comparative form the corresponding
figures for the corresponding period of the prior fiscal year and the
corresponding figures from the most recent financial projections of Creative and
its Subsidiaries, discussing the reasons for any significant variations. The
statements and balance sheet will be audited by an independent firm of certified
public accountants selected by Creative and acceptable to DFS, and certified by
that firm of certified public accountants to have been prepared in accordance
with GAAP. The certified public accountants will render an unqualified opinion
as to such statements and balance sheets. DFS will have the absolute and
irrevocable right, from time to time, to discuss the affairs of Creative and its
Subsidiaries directly with the independent certified public accountant after
prior notice to Creative and the reasonable opportunity of Creative to be
present at any such discussions;
(b) by the 45th day of each quarter, a certificate of the President, or Chief
Financial Officer, in the form of Exhibit 9.1.10(b) attached hereto, of Borrower
stating that such Person has reviewed the provisions of the Loan Documents and
that a review of the activities of Borrower during such quarter has been made by
or under such Person's supervision with a view to determining whether Borrower
has observed and performed all of Borrower's obligations under the Loan
Documents, and that, to the best of such Person's knowledge, information and
belief, Borrower has observed and performed each and every undertaking contained
in the Loan Documents and is not at the time in default in the observance or
performance of any of the terms and conditions thereof or, if Borrower will be
so in default, specifying all of such defaults and events of which such Person
may have knowledge;
(c) promptly upon receipt thereof, copies of all final reports and final
management letters submitted to Borrower or any of the Borrower's Subsidiaries
by independent accountants in connection with any annual or interim audit of the
books of Borrower or such Subsidiaries made by such accountants;
(d) copies of any and all reports, filings and other documentation delivered to
the Securities and Exchange Commission or any state securities commission by or
on behalf of Borrower promptly after the delivery thereof, if applicable; and
(e) any other statements, reports and other information as DFS may reasonably
request concerning the financial condition or operations of Borrower and its
properties.
9.1.11 Notice of Existence of Default. Borrower will,
and will cause its Subsidiaries to, promptly notify DFS of: (a) the existence of
any known condition or event, which constitutes a Default or an Unmatured
Default and (b) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted Borrower or for Borrower's benefit and used in the Business, or granted
to any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.
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9.1.12 Compliance with Laws. Borrower will, and will
cause its Subsidiaries to, comply in all material respects with all applicable
laws, rules, regulations and orders.
9.1.13 Maintenance of Collateral. Borrower will maintain
all material Collateral and every part thereof in good condition and repair.
Borrower will not permit the value of the Collateral to be materially impaired.
Borrower will defend the Collateral against all claims and legal proceedings by
persons other than DFS. Borrower will not transfer the Collateral from the
premises where now located (other than Inventory sold in the ordinary course of
business and other Collateral transferred in the ordinary course of business),
or permit the Collateral to become a fixture or accession (unless so affixed on
the Effective Date) to any goods which are not items of Collateral, without the
prior written approval of DFS. Borrower will not permit the Collateral to be
used in violation of any applicable law, regulations, or any policy of
insurance. As to Collateral consisting of instruments and chattel paper,
Borrower will preserve rights in it against prior parties.
9.1.14 Collateral Records and Statements. Borrower will
keep such accurate and complete books and records pertaining to the Collateral
in such detail and form as DFS reasonably requires, including, but not limited
to: schedules of inventory; original orders; invoices; shipping documents;
billing settlements and receivables; sold receivables; Inventory listing
containing model, serial number (if available) and location. Other reporting
will be available upon request by DFS, including, but not be limited to,
accounts payable agings in such form as DFS reasonably requires. The statements
will be in the form and will contain the information as is prescribed by DFS.
9.1.15 Inspection of Collateral. DFS and any third
party appraiser selected by DFS may examine the Collateral at any time, and from
time to time during normal business hours. DFS and any third party appraiser
selected by DFS will have full access to, and the right to: (a) review, inspect
and make abstracts and copies from Borrower's books and records pertaining to
the Collateral, and (b) inspect and examine Inventory and check and test the
same as to quality, quantity, Value and condition, wherever located, at any time
during reasonable business hours, and from time to time. Borrower will assist
DFS and any third party appraiser selected by DFS in so doing. Borrower will pay
a fee to DFS in the amount of $550 per auditor, per day, plus all out-of-pocket
expenses (including but not limited to costs, fees and expenses of any third
party appraiser selected by DFS), incurred in connection with any such
Collateral review and any other reviews performed under the Loan Documents as
frequently as DFS shall reasonably determine, but at least quarterly, and
Borrower agrees that such fee is not interest but rather reimburses DFS for its
out-of-pocket and allocated overhead expenses incurred in conducting such
audits.
9.1.16 Landlord's Agreements. Borrower will provide or
cause to be provided, on the Effective Date, landlord waivers and agreements in
a form acceptable to DFS with respect to leased real property and with respect
to any future leases, prior to entering into them.
9.2 Negative Covenants. During the term of this Agreement and
thereafter, for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to in writing by DFS, Borrower shall
not perform or cause or permit to be performed the following acts:
9.2.1 Change of Name, Etc. Borrower and the
Subsidiaries will not change their name, or begin to trade under any assumed
names or
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trade names without thirty (30) days prior written notice to DFS. Borrower will
not, and will not permit any Subsidiary to, change its manner of organization,
enter into any mergers, consolidations, reorganizations or recapitalizations
without DFS' prior written consent other than as contemplated herein which
consent shall not be unreasonably withheld.
9.2.2 Sale or Transfer of Assets. Except in the ordinary
course of business, or except as consented to in writing by DFS, Borrower and
the Subsidiaries will not sell, transfer, lease (including sale-leaseback) or
otherwise dispose of all or any substantial part of their assets. This provision
will not apply to any sale if the proceeds of such sale pay the Obligations in
full.
9.2.3 Encumbrance of Assets. Borrower will not, and will
not permit a Subsidiary to, mortgage, pledge, grant or permit to exist a
security interest in or Lien upon any of the Collateral, now owned or hereafter
acquired except for the Permitted Liens.
9.2.4 Acquisition of Stock or Assets; New Subsidiaries.
Borrower and the Subsidiaries will not, without using all reasonable efforts to
give 30 days prior written notice to DFS, acquire, or enter into any agreement,
commitment letter or letter of intent to acquire, all or substantially all the
assets of, equity interest or stock in, another business. Borrower will not,
without DFS' prior written consent, hereafter create any new Subsidiaries.
9.2.5 False Certificates or Documents. Borrower has not
and will not, and will not permit any Subsidiary to, furnish DFS with any
certificate or other document that contains any untrue statement of material
fact or that omits to state a material fact necessary to make it not misleading
in light of the circumstances under which it was furnished.
9.2.6 Assignment. Borrower will not assign or attempt to
assign the Loan Documents or any of its interests under the Loan Documents,
except in favor of DFS.
9.2.7 Transactions with Affiliates. Borrower will not
enter into any contracts, leases, sales or other transactions with any Affiliate
on terms less favorable than could be obtained generally by Borrower from a non-
Affiliate.
9.2.8 Dividends. Borrower will not declare or pay any
dividends upon its capital stock without DFS' prior written consent.
9.2.9 [INTENTIONALLY DELETED]
9.2.10 Loans by Borrower. Borrower will not, and will
not permit any Subsidiary to, make any loan to any Person, except for loans in
anticipation of reasonable and normally reimbursable business expenses and trade
credit extended in the ordinary course of Business.
9.2.11 Fiscal Year. Borrower will not, and will not
permit any Subsidiary to, change its fiscal year-end without sixty (60) days
prior written notice to DFS.
9.2.12 Total Indebtedness. Borrower shall not create,
incur, assume, or suffer to exist, or permit any Subsidiary to create, incur or
suffer to exist, any Indebtedness, except:
(a) the Obligations;
(b) Subordinated Debt;
(c) Indebtedness of any Subsidiary to Borrower; and
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(d) Accounts payable to trade creditors and current operating expenses (other
than for money borrowed) incurred in the ordinary course of business which are
aged not more than thirty (30) days past due, unless actively contested in good
faith and by appropriate and lawful proceedings and for which adequate reserves
have been established in accordance with GAAP.
9.2.13 Adverse Transactions. Borrower will not enter
into any transaction, or permit any Subsidiary to enter into any transaction,
which materially and adversely affects or may materially and adversely affect
the Collateral or Borrower's ability to repay the Obligations or permit or agree
to any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any of
the terms relating thereto, other than discounts and allowances in the ordinary
course of business, all of which shall be reflected in the Borrowing Base
Certificate submitted to DFS pursuant to Section 3.3 of this Agreement.
9.2.14 Guaranties. Borrower will not guarantee, assume,
endorse or otherwise, in any way, become directly or contingently liable with
respect to the Indebtedness of any Person, except by endorsement of instruments
or items of payment for deposit or collection.
9.2.15 Bill-and-Hold Sales, Etc. Borrower will not make
a sale to any customer on a bill-and-hold, guaranteed sale, sale and return,
sale on approval or consignment basis, or any sale on a repurchase or return
basis.
9.2.16 Margin Securities. Borrower will not own,
purchase or acquire, or permit any Subsidiary to own, purchase or acquire, (or
enter, or permit any Subsidiary to enter, into any contract to purchase or
acquire) any "margin security" as defined by any regulation of the Federal
Reserve Board as now in effect or as the same may hereafter be in effect unless,
prior to any such purchase or acquisition or entering into any such contract,
DFS shall have received an opinion of counsel satisfactory to DFS to the effect
that such purchase or acquisition will not cause this Agreement to violate
Regulations G or U or any other regulation of the Federal Reserve Board then in
effect.
9.2.17 Tax Consolidation. Borrower will not file or
consent to the filing of any consolidated income tax return with any Person
other than a Subsidiary.
9.2.18 Stock Redemption. Borrower will not redeem or
purchase any of its outstanding capital stock, warrants in favor of anyone other
than DFS, or stock options or convert or permit such stock, warrants or options
to be converted into cash, nor has or shall Borrower guaranty to any of its
shareholders any minimum stock price or valuation.
9.3 FINANCIAL COVENANTS.
9.3.1 Amounts. Borrower agrees that it will at all times
maintain the following:
(a) a Tangible Net Worth plus Subordinated Debt in the combined amount of not
less than Five Million Dollars ($5,000,000).
For purposes of this paragraph: (i) "Tangible Net Worth" means the book value of
Borrower's assets less liabilities (including as liabilities all reserves for
contingencies and other potential liabilities), excluding from such assets all
Intangibles; (ii) "Intangibles" means and includes general intangibles (as that
term is defined in the Uniform Commercial Code); accounts receivable and
advances due from officers, directors, member,
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owner, employees, stockholders and affiliates; leasehold improvements net of
depreciation; licenses; good will; prepaid expenses; escrow deposits; covenants
not to compete; the excess of cost over book value of acquired assets; franchise
fees; organizational costs; finance reserves held for recourse obligations;
capitalized research and development costs; and such other similar items as DFS
may from time to time determine in DFS' sole discretion; (iii) "Debt" means all
of Borrower's liabilities and indebtedness for borrowed money of any kind and
nature whatsoever, whether direct or indirect, absolute or contingent, and
including obligations under capitalized leases, guaranties or with respect to
which Borrower has pledged assets to secure performance, whether or not direct
recourse liability has been assumed by Borrower; and (iv) "Subordinated Debt"
means all of Borrower's Debt which is subordinated to the payment of Borrower's
liabilities to DFS by an agreement in form and substance satisfactory to DFS.
The foregoing terms will be determined in accordance with GAAP consistently
applied, and, if applicable, on a consolidated basis ("Financial Covenants").
9.3.2 Covenant Compliance Certificate. The President or
Chief Financial Officer of Borrower will certify to DFS by the 10th Business day
of each month, or more often if requested by DFS, that Borrower is in compliance
with the Financial Covenants as set forth in a form acceptable to DFS in its
sole discretion.
10. DEFAULT/REMEDIES
Borrower will be in default under this Agreement (each, a
"Default") if: (I) Borrower breaches any of the following terms and conditions
and such breach is not cured to DFS' satisfaction within ten (10) Business Days
after Borrower's receipt of notice of such breach from DFS:
(a) Borrower breaches any terms, covenants, warranties or
representations contained herein, or in any other Loan Document;
(b) any Guarantor breaches any terms, covenants, warranties or
representations contained in any guaranty or other agreement between such
Guarantor and DFS, revokes or attempts to revoke any such guaranty agreement, or
repudiates such Guarantor's liability thereunder;
(c) any representation, statement, report or certificate made or
delivered by Borrower or any Guarantor to DFS is not accurate when made;
(d) [INTENTIONALLY DELETED];
(e) Borrower abandons any material amount of Collateral;
(f) Borrower or any Guarantor is or becomes in default of any
obligation owed to any third party which in the aggregate at any time exceeds
$100,000;
(g) a money judgment issues against Borrower or any Guarantor
which in the aggregate at any time exceeds $100,000;
(h) an attachment, sale or seizure issues or is executed against
any assets of Borrower or against any assets of any Guarantor;
(i) [INTENTIONALLY DELETED];
(j) Borrower ceases existence as a corporation, partnership,
trust or limited liability company;
(k) Borrower ceases or suspends business;
(l) Borrower or any Guarantor makes a general assignment for the
benefit of creditors;
(m) Borrower or any Guarantor becomes insolvent or voluntarily
or involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law;
(n) any receiver is appointed for any of Borrower's or any
Guarantor's assets;
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(o) any guaranty of Borrower's debts to DFS is terminated by a
Guarantor or Borrower;
(p) Borrower loses any material franchise, permission, license
or right to sell or deal in any Collateral;
(q) Borrower or any Guarantor misrepresents Borrower's or such
Guarantor's financial condition or organizational structure;
(r) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien;
(s) Borrower shall be enjoined, restrained or in any way
prevented by court, governmental or administrative order from conducting all or
any material part of its Business; or any material lease or agreement pursuant
to which Borrower leases, uses or occupies any property shall be canceled or
terminated prior to the expiration of its stated term, or any part of the
Collateral shall be taken through condemnation or the value thereof shall be
impaired through condemnation;
(t) (1) Frank Khulusi shall cease to own and control,
beneficially and of record, at least 10% of the issued and outstanding capital
stock of Creative, or (2) Creative shall cease to own and control, beneficially
and of record, all of the issued and outstanding capital stock of Borrower;
(u) there shall occur a material adverse change in the financial
or other condition or business prospects of Borrower or any Guarantor; or
(II) (a) Borrower fails to pay any portion of Borrower's debts to DFS
when due and payable hereunder or under any other agreement between DFS and
Borrower, or (b) there shall occur a default under Creative's agreements with
DFS or under the Borrower-Creative Guaranty.
In the event of a Default:
(i) DFS may at any time at DFS' election, without notice or demand to
Borrower, do any one or more of the following: cease making further Loans and
declare all or any of the Obligations immediately due and payable, together with
all costs and expenses of DFS' collection activity, including, without
limitation, all reasonable attorneys' fees; exercise any or all rights under
applicable law (including, without limitation, the right to possess, transfer
and dispose of the Collateral); and/or cease extending any additional credit to
Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for DFS, and
in good order and repair, and will not sell, rent, lease, consign, otherwise
dispose of or use any Collateral, nor further encumber any Collateral.
(iii) Upon DFS' oral or written demand, Borrower will immediately deliver
the Collateral to DFS, in good order and repair, at a place specified by DFS,
together with all related documents; or DFS may, in DFS' sole discretion and
without notice or demand to Borrower, take immediate possession of the
Collateral together with all related documents.
(iv) DFS may, without notice, apply the Default Interest Rate.
(v) DFS may, without notice to Borrower and at any time or times, enforce
payment and collect, by legal proceedings or otherwise, Accounts in the name of
Borrower or DFS; and take control of any cash or non-cash items of payment or
proceeds of Accounts and of any rejected, returned, repossessed or stopped in
transit goods relating to Accounts. DFS may at its sole election and without
demand enter, with or without process of law, any premises where Collateral
might be and, without charge or liability to DFS therefor do one or more of the
following: (i) take possession of the Collateral and use or store it in said
premises or remove it to such other place or places as DFS may deem convenient;
(ii) take possession of all or part of such premises and the Collateral and
place a custodian in the exclusive control thereof until completion of
enforcement of DFS' security interest in the Collateral or until DFS' removal
of the Collateral and, (iii) remain on such premises and use the same, together
with Borrower's
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materials, supplies, books and records, for the purpose of liquidating or
collecting such Collateral and conducting and preparing for disposition of such
Collateral.
(vi) Upon the occurrence of a Default under Sections 10.1 (l), (m), or (n),
all Obligations shall automatically be accelerated and due and payable and the
Default Interest Rate shall automatically apply as of the date of the first
occurrence of such Default, without any prior notice, demand or action of any
type on the part of DFS.
All of DFS' rights and remedies are cumulative. DFS' failure to exercise
any of DFS' rights or remedies hereunder will not waive any of DFS' rights or
remedies as to any past, current or future Default.
11. SALE OF COLLATERAL
Borrower agrees that if DFS conducts a private sale of any
Collateral by requesting bids from 10 or more dealers or distributors in that
type of Collateral, any sale by DFS of such Collateral in bulk or in parcels
within 120 days of: (a) DFS' taking possession and control of such Collateral;
or (b) when DFS is otherwise authorized to sell such Collateral; whichever
occurs last, to the bidder submitting the highest cash bid therefor, is a
commercially reasonable sale of such Collateral under the Uniform Commercial
Code. Borrower agrees that the purchase of any Collateral by a vendor, as
provided in any agreement between DFS and the vendor, if any, is a commercially
reasonable disposition and private sale of such Collateral under the Uniform
Commercial Code, and no request for bids shall be required. Borrower further
agrees that 10 or more days prior written notice will be commercially reasonable
notice of any public or private sale (including any sale to a vendor). Borrower
irrevocably waives any requirement that DFS retain possession and not dispose of
any Collateral until after an arbitration hearing, arbitration award,
confirmation, trial or final judgment. If DFS disposes of any such Collateral
other than as herein contemplated, the commercial reasonableness of such
disposition will be determined in accordance with the laws of the state
governing this Agreement.
12. INDEMNIFICATIONS
12.1 General Indemnity. In addition to the payment of expenses
and attorneys' fees, if applicable, whether or not the transactions contemplated
hereby shall be consummated, Borrower agrees to indemnify, pay and hold DFS and
the officers, directors, employees, agents, and affiliates of DFS (collectively
called the "Indemnitees") harmless from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by DFS, DFS' agreement to make the Loans or any other payment
hereunder, or the use or intended use of the proceeds of any of the Loans
hereunder. Additionally, Borrower also agrees to (i) indemnify and hold DFS
harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making Loans, except for any
loss or expense arising from DFS' gross negligence or willful misconduct
(provided, however, that reliance alone upon telephonic or other instructions
shall not itself be deemed to constitute gross negligence or willful
misconduct), and (ii) to pay and save DFS harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this
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Agreement or any of the other Loan Documents (the provisions of the preceding
two sentences being referred to collectively as the "Indemnified Liabilities").
However, Borrower shall have no obligation to an Indemnitee hereunder with
respect to Indemnified Liabilities arising from the gross negligence or willful
misconduct of an Indemnitee. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, Borrower shall contribute
the maximum portion that it is permitted to pay and satisfy under applicable
law, to the payment and satisfaction of all Indemnified Liabilities incurred by
the Indemnitees or any of them. The provisions of the undertakings and
indemnification set out in this Section 12.1 shall survive satisfaction and
payment of the Obligations and termination of this Agreement.
12.2 Environmental and Safety and Health Indemnity. Borrower
hereby indemnifies the Indemnitees and agrees to hold the Indemnitees harmless
from and against any and all losses, liabilities, damages, injuries, costs,
expenses and claims of any and every kind whatsoever (including, without
limitation, court costs and attorneys' fees) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, an Indemnitee
for, with respect to, or as a direct or indirect result of the violation by
Borrower or any Subsidiary, of any Environmental Law or OSHA Law; or with
respect to, or as a direct or indirect result of (a) the presence on or under,
or the escape, seepage, leakage, spillage, disposal, discharge, emission or
release from, properties utilized by Borrower and/or any Subsidiary in the
conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws) or (b) the existence of any unsafe or unhealthful condition on or at any
premises utilized by Borrower and/or any Subsidiary in the conduct of its
business. The provision of and undertakings and indemnification set out in this
Section 12.2 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
13. OTHER TERMS
13.1 Amendment, Changes and Modification. The Loan Documents
may be amended, changed or modified only as may be agreed upon in writing by
Borrower and DFS from time to time.
13.2 Binding Effect. The Loan Documents will be binding upon
the parties, their successors and assigns, provided, however, that Borrower
shall not assign or attempt to assign this Agreement, any other Loan Document or
any of its interests under the Loan Documents, without the prior written consent
of DFS.
13.3 Broker Fee. Neither party is obligated to pay any premium
or other charge, brokerage fee or commission in connection with the agreements
set forth herein. Each party will indemnify the other and hold it harmless from
any such claim arising out of such party's acts or those of its representatives.
13.4 Entire Agreement. The Loan Documents embody the entire
agreement of the parties relating to the Credit Facility. There are no promises,
terms, conditions, obligations or warranties other than those contained in the
Loan Documents. The Loan Documents supersede all prior communications,
representations or agreements, verbal or written, between the parties relating
to the Credit Facility.
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13.5 Headings. The headings to the sections of this Agreement
are included only for the convenience of the parties and will not have the
effect of defining, diminishing or enlarging the rights of the parties or
affecting the construction or interpretation of any portion of this Agreement.
13.6 Incorporation by Reference. All other Loan Documents are
incorporated herein by this reference and are made a part of this Agreement as
if fully set forth herein. This Agreement, prior to such incorporation, controls
in the event of any conflict with the terms of any other Loan Documents.
13.7 Interpretation. For the purpose of construing this
Agreement, unless the context otherwise requires, words in the singular will be
deemed to include words in the plural, and vice versa.
13.8 Notices. Any notice under the Loan Documents, will be in
writing. Any notice to be given or document to be delivered under the Loan
Documents will be deemed to have been duly given upon delivery, if delivered in
person or by any expedited delivery service which provides proof of delivery,
upon tested telex or facsimile transmission, or on the fifth Business Day after
mailing, if mailed by certified mail, return receipt requested, postage prepaid
mail, addressed to DFS or Borrower at the appropriate addresses. DFS will use
reasonable efforts to deliver any notice DFS is required to give to Borrower;
provided, however, that failure by DFS to actually give any such notice will not
be deemed to be a waiver of any rights or remedies of DFS and will not give rise
to any claims, defenses or damages by Borrower. The addresses for notices are
those set forth below or such other addresses as may be hereafter specified by
written notice by the parties:
to DFS: Deutsche Financial Services Corporation
2401 East Katella Ave., Suite 400
Anaheim, CA 92803-4850
Attention: Regional Vice President
Facsimile No.: (714) 937-0173
with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.:(314) 523-3228
to Borrower: Elek-Tek Acquisition Corporation
2645 Maricopa Street
Torrance, CA 90503
Attention: Mr. Richard Finkbeiner, CFO
Facsimile No.: (310) 222-5807
with a copy to: Robins, Kaplan, Miller & Ciresi
2049 Century Park East, Suite No. 3700
Los Angeles, CA 90067
Attention: J. Kevin Snyder, Esq.
Facsimile No.: (310) 229-5800
13.9 No Third Party Beneficiary Rights and Reliance. No Person
not a party to this Agreement will have any benefit under this Agreement nor
have third-party beneficiary rights as a result of any of the Loan Documents,
nor will any party be entitled to rely on any actions or inactions of DFS or its
agents, all of which are done for the sole benefit and protection of DFS.
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13.10 Protection or Preservation of Collateral. DFS will not
have any contractual duty to protect, insure, collect or realize upon the
Collateral or preserve rights in it against prior parties. DFS will not be
responsible or liable for any shortage, discrepancy, damage, loss or destruction
of any part of the Collateral regardless of the cause.
13.11 Relationship of the Parties. Neither DFS on the one hand
nor Borrower on the other hand will be deemed a partner, joint venturer or
related entity of the other by reason of the Loan Documents.
13.12 Reversal of Payments. To the extent that Borrower makes a
payment or payments to DFS, which payment or payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law, or equitable cause,
then to the extent of such payment or proceeds received, the Credit Facility
will be revived and continue in full force and effect, as if such payment or
proceeds had not been received by DFS.
13.13 Severability. If any provision of this Agreement (either
generally, or as to a specific application to a set of facts) will be held to be
invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement (either
in its entirety, or as to or the application of such provision to any other set
of facts), but this Agreement will be construed as if such invalid, illegal or
unenforceable provision never had been included in this Agreement.
13.14 Maximum Interest. Borrower acknowledges that DFS intends
to strictly conform to the applicable usury laws governing this Agreement.
Regardless of any provision contained herein or in any other document executed
or delivered in connection herewith or therewith, DFS shall never be deemed to
have contracted for, charged or be entitled to receive, collect or apply as
interest on this Agreement (whether termed interest herein or deemed to be
interest by judicial determination or operation of law), any amount in excess of
the maximum amount allowed by applicable law, and, if DFS ever receives,
collects or applies as interest any such excess, such amount which would be
excessive interest will be applied first to the reduction of the unpaid
principal balances of advances under this Agreement, and, second, any remaining
excess will be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds the highest lawful rate,
Borrower and DFS shall, to the maximum extent permitted under applicable law:
(a) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or fee rather
than as interest; (b) exclude voluntary pre-payments and the effect thereof; and
(c) spread the total amount of interest throughout the entire term of this
Agreement so that the interest rate is uniform throughout such term.
13.15 Waivers by DFS. DFS may at any time or from time to time
or any rights under any of the Loan Documents, but any waiver or indulgence at
any time or from time to time will not constitute, unless specifically so
expressed by DFS in writing, a future waiver by DFS of performance by Borrower.
13.16 Survival. The grant of security interest herein
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until all
Obligations have been paid in full and this Agreement has been terminated. The
Agreement to arbitrate all Disputes will survive termination of this Agreement.
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13.17 Participations; Assignments. DFS may, without the consent
of Borrower, grant participations in or assign, at any time and from time to
time hereafter, its interest in this Agreement or any Loan Document, or of any
portion thereof.
13.18 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
13.19 Information. DFS may provide to any third party any
credit, financial or other information on Borrower that DFS may from time to
time possess provided that any such disclosure shall be subject to an
appropriate confidentiality agreement.
13.20 Release. Borrower releases DFS from all claims and causes
of action which Borrower may now or hereafter have for any loss or damage to it
claimed to be caused by or arising from: (a) any failure of DFS to protect,
enforce or collect, in whole or in part, any Account; (b) DFS' notification to
any Account Debtors thereon of DFS' security interest in any of the Accounts;
(c) DFS' directing any Account Debtor to pay any sum owing to Borrower directly
to DFS; and (d) any other act or omission to act on the part of DFS, its
officers, agents or employees, except for willful misconduct or gross
negligence. DFS will have no obligation to preserve rights to Accounts against
prior parties.
13.21 Miscellaneous. Time is of the essence regarding
Borrower's performance of its obligations to DFS notwithstanding any course of
dealing or custom on DFS' part to grant extensions of time. Borrower's liability
under this Agreement is direct and unconditional and will not be affected by the
release or nonperfection of any security interest granted hereunder. DFS will
have the right to refrain from or postpone enforcement of this Agreement or any
other Loan Documents without prejudice and the failure to strictly enforce the
Loan Documents will not be construed as having created a course of dealing
between DFS and Borrower contrary to the specific terms of the Loan Documents or
as having modified, released or waived the same. The express terms of this
Agreement and the other Loan Documents will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the terms
hereof. If Borrower fails to pay any taxes, fees or other obligations which may
impair DFS' interest in the Collateral, or fails to keep the Collateral insured,
DFS may, but shall not be required to, pay such taxes, fees or obligations and
pay the cost to insure the Collateral, and the amounts paid will be: (a) an
additional debt owed by Borrower to DFS, which shall be subject to finance
charges as provided herein; and (b) due and payable immediately in full.
Borrower agrees to pay all of DFS' reasonable attorneys' fees and expenses
incurred by DFS in enforcing DFS' rights hereunder.
13.22 Waivers by Borrower. Borrower irrevocably waives notice
of: DFS' acceptance of this Agreement, presentment, demand, protest, nonpayment,
nonperformance, and dishonor. Borrower and DFS irrevocably waive all rights to
claim any punitive and/or exemplary damages. Borrower waives all rights of
offset Borrower may have against DFS. Borrower waives all notices of default and
non-payment at maturity of any or all of the Accounts.
13.23 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO
LEND MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT
YOU, (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT,
ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
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AGREEMENT BETWEEN US, EXCEPT AS DESCRIBED IN SECTION 13.24 AND AS WE MAY LATER
AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES. DFS may, from time to time, announce in writing to Borrower its
policies and procedures regarding its administration of this facility including,
without limit, DFS' fees and/or charges for transfers of funds to or from
Borrower, including Electronic Transfers; any subsequent use by Borrower of this
facility following any such announcement shall constitute Borrower's acceptance
of such revised policies and procedures.
13.24 Supplement. If Borrower and DFS have heretofore executed
other agreements in connection with all or any part of the Collateral, this
Agreement shall supplement each and every other agreement previously executed by
and between Borrower and DFS, and in that event, this Agreement shall neither be
deemed a novation nor a termination of such previously executed agreement nor
shall execution of this Agreement be deemed a satisfaction of any obligation
secured by such previously executed agreement. In the event of any conflict
between this Agreement and any such other agreement, this Agreement shall govern
and control.
13.25 Use of Counsel and Receipt of Agreement. Borrower
acknowledges that it has received a true and complete copy of this Agreement.
Borrower acknowledges that it has (a) had representation of counsel during
negotiation of this Agreement, and (b) read and understood this Agreement.
13.26 Facsimiles, Etc. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data transmission
or electronic data storage of any statement, Statement of Transaction, financial
statements or other reports, and (b) such facsimile copy, electronic data
transmission or electronic data storage will be deemed an original, and the best
evidence thereof for all purposes, including, without limitation, under this
Agreement or any other Loan Documents, and for all evidentiary purposes before
any arbitrator, court or other adjudicatory authority.
13.27 Power of Attorney. Borrower irrevocably appoints DFS (and
any Person designated by it) as Borrower's true and lawful Attorney with full
power to at any time, in the discretion of DFS (whether or not Default has
occurred) to: (a) endorse the name of Borrower upon any of the items of payment
of proceeds of the Collateral and deposit the same in the account of DFS for
application to the Obligations; (b) sign the name of Borrower to verify the
accuracy of the Accounts; (c) sign the name of Borrower on any document or
instrument that DFS shall deem necessary or appropriate to perfect and maintain
perfected the security interests in the Collateral under this Agreement and
other Loan Documents; (d) [INTENTIONALLY DELETED]; (e) endorse the name of
Borrower upon financing statements, instruments, Certificates of Title and
Statements of Origin pertaining to the Collateral; (f) supply omitted
information and correct errors in any documents between DFS and Borrower; and
(g) do anything to preserve and protect the Collateral and DFS' rights and
interest therein. In the event of a Default, Borrower irrevocably appoints DFS
(and any Person designated by it) as Borrower's true and lawful Attorney with
full power to at any time, in the discretion of DFS to: (i) demand payment,
enforce payment and otherwise exercise all of Borrower's rights, and remedies
with respect to the collection of any Accounts; (ii) settle, adjust, compromise,
legal proceedings brought to collect any Accounts; (iv) sell or assign any
Accounts upon such terms, for such amounts and at such time or times as DFS may
deem advisable; (v) discharge and release any Accounts; (vi) prepare, file and
sign Borrower's name on any Proof of Claim in Bankruptcy or similar document
against any Account Debtor; (vii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or
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agreement relating to any Account or goods pertaining thereto; (viii) initiate
and settle any insurance claim and endorse Borrower's name on any check,
instrument or other item of payment; and (ix) take control in any manner of any
item of payments or proceeds and for such purpose to notify the Postal
Authorities to change the address for delivery of mail addressed to Borrower to
such address as DFS may designate. This power of attorney is for value and
coupled with an interest and is irrevocable so long as any Obligations remain
outstanding and by DFS exercising such right, DFS shall not waive any right
against Borrower until the Obligations are paid in full.
13.28 Expenses. Borrower hereunder, to pay DFS upon demand for
reasonable fees of attorneys for DFS (who may be employees of DFS), incurred by
(a) DFS in connection with the preparation, negotiation, and execution of this
Agreement and any other Loan satisfied by payment of the closing fee described
in Creative's agreements with DFS), (b) DFS in connection with the preparation
of any and all amendments to this Agreement and any other Loan Document, and all
search, recording, filing, and registration expenses, and (c) DFS in connection
with the enforcement of the Borrower's obligations hereunder or under any other
Loan Document. Borrower's obligations under this Section 13.28 shall survive any
termination of this Agreement.
14. BINDING ARBITRATION.
14.1 Arbitrable Claims. Except as otherwise specified below, all
actions, disputes, claims and controversies under common law, statutory law or
in equity of any type or nature whatsoever (including, without limitation, all
torts, whether regarding negligence, breach of fiduciary duty, restraint of
trade, fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Agreement, and whether directly or indirectly relating to: (a) this Agreement
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between DFS and
Borrower; (c) any act committed by DFS or by any parent company, subsidiary or
affiliated company of DFS (the "DFS Companies"), or by any employee, agent,
officer or director of a DFS Company whether or not arising within the scope and
course of employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or dealing
between DFS and Borrower; and/or (d) any other relationship, transaction or
dealing between DFS and Borrower (collectively the "Disputes"), will be subject
to and resolved by binding arbitration.
14.2 Administrative Body. All the American Arbitration Association
("AAA"). If the AAA is dissolved, disbanded or becomes subject to any
proceeding, the parties will be conducted by a mutually agreeable arbitral
forum. The parties agree that all arbitrator(s) selected will be attorneys with
at least five (5) years secured transactions experience. The arbitrator(s) will
decide if any inconsistency exists between the rules of any applicable arbitral
forum and the arbitration provisions contained herein. If such inconsistency
exists, the arbitration provisions contained herein will control and supersede
such rules. The site of all arbitration proceedings will be in Orange County,
California.
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14.3 Discovery. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than thirty (30) days after
the filing of a claim for arbitration, the petitioner shall provide the
respondent with detailed statements setting forth the facts supporting the
claim(s) to be raised during the arbitration, and a list of all exhibits and
witnesses then reasonably contemplated. No later than thirty (30) days after
respondent's receipt of such statements and other information from petitioner,
respondent shall provide the petitioner with detailed statements setting forth
the facts supporting the counterclaim(s) and all defenses to be raised during
the arbitration, and a list of all exhibits and witnesses then reasonably
contemplated. No later than twenty-one (21) days prior to the arbitration
hearing, the parties will exchange a final list of all exhibits and all
witnesses, including any designation of any expert witness(es) together with a
summary of their testimony; a copy of all documents and a detailed description
of any property to be introduced at the hearing. Depositions shall be permitted
but no more than 2 for each party and no single deposition shall extend for more
than 2 days nor more than 7 hours during any one-day period. Requests for the
production of documents shall be responded to (or objected to), within 20 days
of the request. All objections shall be ruled upon by the arbitrator. Requests
for admission shall be permitted but no more than 25 in the aggregate. Under no
circumstances will the use of interrogatories be permitted. However, in the
event of the designation of any expert witness(es), the following will occur:
(a) all information and documents relied upon by the expert witness(es) will be
delivered to the opposing party, (b) the opposing party will be permitted to
depose the expert witness(es), (c) the opposing party will be permitted to
designate rebuttal expert witness(es), and (d) the arbitration hearing will be
continued to the earliest possible date that enables the foregoing limited
discovery to be accomplished. The parties shall be entitled to make additional
discovery requests and the permissibility thereof shall be ruled upon by the
arbitrator.
14.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages and each party hereby
irrevocably waives any right to claim any exemplary or punitive damages.
14.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although any award
or order rendered by the arbitrator(s) pursuant to the terms of this Agreement
may be entered as a judgment or order in any state or federal court and may be
confirmed within the federal judicial district which includes the residence of
the party against whom such award or order was entered. This Agreement concerns
transactions involving commerce among the several states. The Federal
Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA") will
govern all arbitration(s) and confirmation proceedings hereunder.
14.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent DFS' or Borrower's use of bankruptcy, receivership,
injunction, repossession, replevin, claim and delivery, sequestration, seizure,
attachment, foreclosure, dation and/or any other prejudgment or provisional
action or remedy relating to any Collateral for any current or future debt owed
by either party to the other. Any such action or remedy will not waive DFS' or
Borrower's right to compel arbitration of any Dispute.
14.7 Attorneys' Fees. If either Borrower or DFS brings any other action
for judicial relief with respect to any Dispute (other than those set forth in
Section 14.6) the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer such Dispute to
arbitration. If either Borrower or DFS brings or appeals an
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action to vacate or modify an arbitration award and such party does not prevail,
such party will pay all costs and expenses, including attorneys' fees, incurred
by the other party in defending such action. Additionally, if Borrower sues DFS
or institutes any arbitration claim or counterclaim against DFS in which DFS is
the prevailing party, Borrower will pay all costs and expenses (including
attorneys' fees) incurred by DFS in the course of defending such action or
proceeding.
14.8 Limitations. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either party to
the other, within two (2) years after the date the last payment was received by
the instituting party; and (b) with respect to any other Dispute, within two (2)
years after the date the incident giving rise thereto occurred, whether or not
any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such period
will constitute an absolute bar and waiver to the institution of any proceeding,
whether arbitration or a court proceeding, with respect to such Dispute.
14.9 Survival After Termination. The agreement to arbitrate will survive
the termination of this Agreement.
15. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS
AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH
RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. BORROWER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY
SUCH PROCEEDING.
16. GOVERNING LAW. Borrower acknowledges and agrees that this and all
other agreements between Borrower and DFS have been substantially negotiated,
and will be substantially performed, in the state of California. Accordingly,
Borrower agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent with
the provisions of the FAA which shall control and govern all arbitration
proceedings hereunder.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE
DAMAGES WAIVER PROVISIONS
ATTEST: ELEK-TEK ACQUISITION CORPORATION
(Borrower)
By: By:
Secretary Print Name:
Title:
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
Print Name:
Title:
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INDEX OF EXHIBITS
EXHIBIT 3.3 Borrowing Base Certificate
EXHIBIT 7.1(j) President's Certificate
EXHIBIT 7.1(l) Secretary's Certificate of Resolution
and Incumbency
EXHIBIT 8.3 Litigation
EXHIBIT 8.5 Liens
EXHIBIT 8.7 Subsidiaries
EXHIBIT 8.16 Capital Structure
EXHIBIT 8.17 Collateral Locations
EXHIBIT 8.18 Real Property Owned or Leased
EXHIBIT 8.20 Environmental, Health and
Safety Matters
EXHIBIT 8.21 PATENTS, COPYRIGHTS, TRADEMARKS
EXHIBIT 8.23(a) CAPITALIZED LEASES
EXHIBIT 8.23(b) OPERATING LEASES
EXHIBIT 8.24 LABOR RELATIONS
EXHIBIT 9.1.10(b) BUSINESS CREDIT AND SECURITY
AGREEMENT CERTIFICATIONS
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EXHIBIT 3.3
BORROWING BASE CERTIFICATE
[To Be Provided by DFS]
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EXHIBIT 7.1(j)
PRESIDENT'S CERTIFICATE
I, , President of Elek-Tek Acquisition Corporation, a
Delaware corporation ("Borrower"), hereby certify to Deutsche Financial Services
Corporation ("DFS"), in connection with the Business Credit and Security
Agreement dated as of October 14, 1997 between Borrower and DFS (the "Credit
Agreement"; terms defined in the Credit Agreement are used herein as so
defined), that:
1. The representations and warranties of Borrower contained in Section 8
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date;
2. No event has occurred and is continuing, or would result from any Loan
being made to Borrower under the Credit Agreement on the date hereof, which
constitutes a Default; and
3. After the funding of the Loans to be made by DFS to Borrower on the
date hereof, Borrower will be in full compliance with all of the terms and
provisions of the Credit Agreement.
IN WITNESS WHEREOF, I have signed this Certificate this 14th day of
October, 1997.
, President
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EXHIBIT 7.1(l)
SECRETARY'S CERTIFICATE OF RESOLUTION AND INCUMBENCY
I certify that I am the Secretary or Assistant Secretary of the corporation
named below, and that the following completely and accurately sets forth certain
resolutions of the Board of Directors of the corporation adopted at a special
meeting thereof held on due notice (and with shareholder approval, if required
by law), at which meeting there was present a quorum authorized to transact the
business described below, and that the proceedings of the meeting were in
accordance with the certificate of incorporation, charter and by-laws of the
corporation, and that they have not been revoked, annulled or amended in any
manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion:
"RESOLVED, That the several officers, directors, and agents of this
corporation, or any one or more of them, are hereby authorized and empowered on
behalf of this corporation: to obtain financing from Deutsche Financial Services
Corporation ('DFS') in such amounts and on such terms as such officers,
directors or agents deem proper; to enter into financing, security, pledge and
other agreements with DFS relating to the terms upon which such financing may be
obtained and security and/or other credit support is to be furnished by this
corporation therefor; from time to time to supplement or amend any such
agreements; execute and deliver any and all assignments and schedules; and from
time to time to pledge, assign, mortgage, grant security interests, and
otherwise transfer, to DFS as collateral security for any obligations of this
corporation to DFS, whenever and however arising, any assets of this
corporation, whether now owned or hereafter acquired; the Board of Directors
hereby ratifying, approving and confirming all that any of said officers,
directors or agents have done or may do with respect to the foregoing."
I do further certify that the following are the names and specimen
signatures of the officers and agents of said corporation so empowered and
authorized, namely:
President:
(Print Name) (Signature)
Vice-President:
(Print Name) (Signature)
Secretary:
(Print Name) (Signature)
Treasurer:
(Print Name) (Signature)
Agent:
(Print Name) (Signature)
Witness by hand and seal of said corporation this 14th day of October, 1997.
(seal)
Secretary
Elek-Tek Acquisition Corporation
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EXHIBIT 8.3
LITIGATION
[To be provided by Borrower]
49
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EXHIBIT 8.5
LIENS
[To be provided by Borrower]
50
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EXHIBIT 8.7
SUBSIDIARIES
[To be provided by Borrower]
51
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EXHIBIT 8.16
CAPITAL STRUCTURE
[To be provided by Borrower]
[For Borrower and Each Subsidiary]
shares authorized
shares outstanding
par value
treasury shares
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EXHIBIT 8.17
COLLATERAL LOCATIONS
[To be provided by Borrower]
53
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EXHIBIT 8.18
REAL PROPERTY OWNED OR LEASED
[To be provided by Borrower]
54
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EXHIBIT 8.20
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
[To be provided by Borrower]
55
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EXHIBIT 8.21
PATENTS, COPYRIGHTS, TRADEMARKS
[To be provided by Borrower]
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EXHIBIT 8.23(a)
CAPITALIZED LEASES
[To be provided by Borrower]
57
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EXHIBIT 8.23(b)
OPERATING LEASES
[To be provided by Borrower]
58
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EXHIBIT 8.24
LABOR RELATIONS
[To be provided by Borrower]
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EXHIBIT 9.1.10(b)
ELEK-TEK ACQUISITION CORPORATION
BUSINESS CREDIT AND SECURITY AGREEMENT CERTIFICATIONS
AS OF , 19
In accordance with Section 9.1.10(b) of the Business Credit and Security
Agreement dated as of October 14, 1997 ("Credit Agreement"), among Elek-Tek
Acquisition Corporation ("Borrower") and Deutsche Financial Services
Corporation, I certify that:
(i) the enclosed Borrower prepared monthly financial package
(Consolidating Balance Sheet and Consolidating Statement of Operations) as of
and for the period ending , 19 , all unaudited, fairly
present the financial position and results of operations of Borrower and its
Subsidiaries and have been prepared in accordance with generally accepted
accounting principles consistently applied.
(ii) to the best of my knowledge, Borrower has kept, observed,
performed and fulfilled each and every covenant, obligation and agreement
binding upon Borrower under the Credit Agreement and that no Default has
occurred.
ELEK-TEK ACQUISITION CORPORATION
By:
Title:
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Exhibit 10.3
60,000,000
BUSINESS CREDIT AND SECURITY AGREEMENT
Dated as of October 14, 1997
BETWEEN
CREATIVE COMPUTERS, INC.
AND
DEUTSCHE FINANCIAL SERVICES CORPORATION
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BUSINESS CREDIT AND SECURITY AGREEMENT
BETWEEN: Deutsche Financial Services Corporation, a Nevada corporation
("DFS")
AND: Creative Computers, Inc., a Delaware corporation ("Borrower").
EFFECTIVE DATE: October 14, 1997
1. RECITALS
Borrower currently has an inventory acquisition facility with
DFS on and subject to the terms of that certain Agreement for Wholesale
Financing between DFS and Borrower dated as of April 4, 1991 (as amended from
time to time, collectively, the "AWF"). Borrower has advised DFS that by and
through ETA (defined herein), it intends to purchase substantially all of the
assets of Elek-Tek, Inc., a Delaware corporation, debtor and debtor-in-
possession ("Elek-Tek") which filed its voluntary petition with the United
States Bankruptcy Court, District of Delaware, on September 17, 1997, Case No.
97-1946. Such transaction is to be consummated in accordance with the terms of
that certain Asset Purchase Agreement between Borrower and Elek-Tek dated as of
September 17, 1997 (as amended from time to time, the "Purchase Agreement"), and
subject to the terms of an order of such Bankruptcy Court under Section 363 of
the Federal Bankruptcy Code (the "Order") (said transaction being referred to
herein as the "Asset Acquisition"). Borrower has requested that DFS provide
Borrower with a credit facility for (i) working capital purposes, (ii) continued
inventory acquisition purposes (replacing, in its entirety, the AWF), and (iii)
the purpose of financing a portion of the purchase price of the Asset
Acquisition.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital
letters. Those terms are defined below, in this Section 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in Section 14.2.
"Account Debtor" shall mean any Person who is or who may become
obligated to Borrower under, with respect to, or on account of an Account,
general intangible or other Collateral.
"Accounts" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all accounts, leases, contract
rights, chattel paper, general intangibles, choses in action and instruments,
including any Lien or other security interest that secures or may secure any of
the foregoing, plus all books, invoices, documents and other records in any
form evidencing or relating to any of the foregoing, now owned or hereafter
acquired by Borrower.
"Affiliates" shall mean: (i) any individual who is an officer or
director of a Person; and (ii) any Person who directly or indirectly controls,
is controlled by, or is under common control or ownership with, another Person.
For the purposes of this definition, the term "control" shall mean the ownership
of or the ability to direct or control 10% or more of the beneficial interest in
the applicable entity.
"Agreement" shall mean this Business Credit and Security Agreement, and
any amendments hereto.
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"Average Daily Balance" shall have the meaning set forth in Section 3.5.
"Borrower-ETA Guaranty" shall mean that certain guaranty of even date
given by Borrower in favor of DFS, unconditionally guaranteeing all obligations
of ETA to DFS.
"Borrowing Base" shall mean, as of any date of determination, an amount
equal to: (A) the sum of the Eligible Account Availability plus the Eligible
Inventory Availability, minus (B) Borrower's from time to time outstanding
Obligations to DFS under the Floorplan Inventory Loan Facility.
"Borrowing Base Certificate" shall have the meaning set forth in Section
3.3(a).
"Business" shall mean the sale, marketing, distribution and service of
computer and related products, office and related products and other
miscellaneous products.
"Business Day" shall mean any day other than Saturdays, Sundays, legal
holidays designated by Federal law, and any other day on which DFS' office is
closed.
"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the consolidated balance sheet of Borrower and the Subsidiaries in
respect of (a) the acquisition (including, without limitation, acquisition by
entry into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other fixed
assets or leaseholds, and (b) to the extent related to and not included in
clause (a), materials, contract labor and direct labor (excluding expenditures
properly chargeable to repairs or maintenance in accordance with GAAP).
"Collateral" shall mean all items described in Section 6.1.
"Credit Facility" shall have the meaning set forth in Section 3.1.
"Daily Charge" shall have the meaning set forth in Section 3.5.
"Daily Contract Balance" shall have the meaning set forth in Section
3.5.
"Daily Rate" shall have the meaning set forth in Section 3.5.
"Debt" shall have the meaning set forth in Section 9.3.
"Default" shall have the meaning set forth in Section 10.
"Default Interest Rate" shall have the meaning set forth in Section 3.8.
"DFS Companies" shall have the meaning set forth in Section 14.1.
"Disputes" shall have the meaning set forth in Section 14.1.
"EBIT" shall have the meaning set forth in Section 9.3.
"ETA" shall mean Elek-Tek Acquisition Corporation, a Delaware
corporation, a wholly-owned subsidiary of Borrower and the Person which will
acquire the assets subject to the Asset Acquisition.
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"Effective Date" shall mean the date set forth in the heading on page 1
of this Agreement.
"Electronic Transfers" shall have the meaning set forth in Section
3.5(b)(ii).
"Eligible Accounts" shall mean all Accounts that are not Ineligible
Accounts.
"Eligible Account Availability" shall have the meaning set forth in
Section 3.3(a).
"Eligible Inventory" means Borrower's finished goods Inventory
(excluding parts and supplies) that is owned by Borrower free and clear of all
Liens, security interests and encumbrances of any third parties, except for the
Permitted Liens, that is not obsolete or unmerchantable, that is in good, new
and salable condition that conforms to the representations and warranties of
Section 8.26 of this Agreement, and which DFS deems, in its sole discretion, to
be acceptable for financing.
"Eligible Inventory Availability" shall have the meaning set forth in
Section 3.3(b).
"Environmental Laws" shall mean the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Solid
Waste Disposal Act, as amended, the Water Pollution Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, and any successor or
comparable federal or state statutes, now existing or later enacted, or any
regulation promulgated under any of such federal or state statutes relating to
the protection of the environment.
"Environmental Lien" shall mean a Lien in favor of any governmental
entity for (a) any liability under any Environmental Law, or (b) damages arising
from or costs incurred by such governmental entity in response to a spillage,
disposal, or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance.
"Equipment" shall have the meaning as given to that term in the UCC,
and, to the extent not included therein, shall also mean all equipment,
machinery, trade fixtures, furnishings, furniture, supplies, materials, tools,
machine tools, office equipment, appliances, apparatus, parts and all
attachments, replacements, substitutions, accessions, additions and improvements
to any of the foregoing.
"Excess Advances" shall have the meaning given in Section 5.2.
"FAA" shall have the meaning set forth in Section 14.5.
"Floorplan Inventory Loan" shall have the meaning set forth in Section
3.2.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Guarantor" shall mean ETA and any other guarantor of any of the
Obligations.
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"Hazardous Material" shall mean any and all hazardous or toxic
substances, materials or wastes as defined or listed under the Environmental
Laws.
"Indebtedness" shall mean any sum for borrowed money owed by Borrower or
any Subsidiary to a Person and shall include any debt guaranteed by Borrower or
any Subsidiary, any debt as to which the Borrower has granted or permitted to
exist a Lien on any asset even if non-recourse, letter of credit reimbursement
obligations, and capitalized lease obligations.
"Indemnified Liabilities" shall have the meaning set forth in Section
12.1.
"Indemnitees" shall have the meaning set forth in Section 12.1.
"Ineligible Accounts" shall mean: (a) Accounts created from the sale of
goods and services on non-standard terms and/or that allow for payment to be
made more than thirty (30) days from date of sale; (b) Accounts unpaid more
than ninety (90) days from date of invoice; (c) all Accounts of any Account
Debtor if fifty percent (50%) or more of the outstanding balance of such
Accounts are unpaid more than ninety (90) days from the date of invoice; (d)
Accounts for which the Account Debtor is an officer, director, shareholder,
partner, member, owner, employee, agent, parent, Subsidiary, or Affiliate of,
or is related to, Borrower or has common shareholders, officers, directors,
owners, partners or members with Borrower; (e) consignment sales; (f) Accounts
for which the payment is or may be conditional; (g) Accounts for which the
Account Debtor is not a commercial or institutional entity or is not a resident
of the United States or Canada; (h) Accounts with respect to which any warranty
or representation provided in Section 8.19 is not true and correct; (i)
Accounts which represent goods or services purchased for a personal, family or
household purpose; (j) Accounts which represent goods used for demonstration
purposes or loaned by Borrower to another party; (k) Accounts which are
progress payment, barter, or contra accounts; and (l) any and all other
Accounts which DFS deems to be ineligible.
"Intangibles" shall have the meaning set forth in Section 9.3.
"Inventory" shall have the meaning given to that term in the UCC, and,
to the extent not included therein, shall also mean all of Borrower's
merchandise, materials, finished goods, work-in-process, component materials,
packaging, shipping materials, parts and other tangible personal property, now
owned or hereafter acquired and held for sale or which contribute to the
finished products or the sale, promotion, storage and shipment thereof, whether
located at facilities owned or leased by Borrower, or in the course of transport
to or from facilities owned or leased by Borrower.
"Lien" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of lessors under capitalized leases and the interest
of a vendor under any conditional sale or other title retention agreement),
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting any of Borrower's property.
"Loan" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement, including but not limited to any Floorplan
Inventory Loan and any Working Capital Loan.
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"Loan Documents" shall mean all documents executed by Borrower pursuant
to any financial accommodation between Borrower and DFS and all documents
entered into in connection with the transaction herein contemplated. The term
"Loan Documents" includes, but is not limited to, this Agreement, all financing
statements, all pledges, mortgages, deeds of trust, leasehold mortgages,
security agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings executed under the terms of this
Agreement or any amendments or modifications hereto.
"Monthly Reports" shall have the meaning given in Section 3.11(b).
"Obligations" shall mean all liabilities and Indebtedness of any kind
and nature whatsoever now or hereafter arising, owing, due or payable from
Borrower (and/or any of its Subsidiaries and Affiliates) to DFS, whether primary
or secondary, joint or several, direct, contingent, fixed or otherwise, secured
or unsecured, or whether arising under this Agreement, any other Loan Document,
the Borrower-ETA Guaranty, or any other agreement now or hereafter executed by
Borrower (or any of its Subsidiaries or Affiliates) and delivered to DFS.
Obligations will include, without limitation, any third party claims against
Borrower (or any of its Subsidiaries or Affiliates) satisfied or acquired by
DFS. Obligations will also include all obligations of Borrower to pay to DFS:
(a) any and all sums reasonably advanced by DFS to preserve or protect the
Collateral or the value of the Collateral or to preserve, protect, or perfect
DFS' security interests in the Collateral; (b) in the event of any proceeding to
enforce the collection of the Obligations after a Default, the reasonable
expenses of retaking, holding, preparing for sale, selling or otherwise
disposing of or realizing on the Collateral, or expenses of any exercise by DFS
of its rights, together with reasonable attorneys' fees, expenses of collection
and court costs, as provided in the Loan Documents; and (c) any other
indebtedness or liability of Borrower to DFS, whether direct or indirect,
absolute or contingent, now or hereafter arising.
"OSHA Law" shall mean the Occupational Safety and Health Act of 1970,
any successor thereto, and any other federal, state or local statute, law,
ordinance, code, rule, imposing liability or standards of conduct concerning
employee health and/or safety.
"Other Reports" shall have the meaning set forth in Section 3.11(c).
"Permitted Liens" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall
have been set aside in conformity with GAAP and which are, in addition,
satisfactory to DFS in its reasonable discretion; (b) Liens of mechanics,
materialmen, landlords, warehousemen, carriers and similar Liens arising in the
future in the ordinary course of business for sums not yet delinquent, or being
contested in good faith if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor and which are, in addition,
satisfactory to DFS in its reasonable discretion; (c) statutory Liens incurred
in the ordinary course of business in connection with workers' compensation,
unemployment insurance, social security, and similar items for sums not yet
delinquent or being contested in good faith, if a reserve or other appropriate
provision in accordance with GAAP shall have been made therefor and which are,
in addition, satisfactory to DFS in its reasonable discretion; (d) lessor's
Liens arising from operating leases entered into in the ordinary course of
business; (e) Liens arising from legal proceedings, so long as such proceedings
are being contested in good faith by appropriate proceedings, appropriate
reserves have been established therefor in accordance with GAAP and which are,
in
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addition, satisfactory to DFS in its reasonable discretion, and so long as
execution is stayed and bonded on appeal on all judgments resulting from any
such proceedings; and (f) Liens in favor of DFS granted hereunder.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
"Prime Rate" shall mean a fluctuating interest rate per annum equal to
the highest of the prime, base or reference rates of interest announced publicly
from time to time (whether or not charged in each instance) by The Chase
Manhattan Bank (or any successor thereof) as such bank's prime, base, or
reference rate, provided, however, that for purposes of this Agreement, the
interest rate charged to Borrower will at no time be computed on a Prime Rate of
less than six percent (6.0%) per annum. Each change in the Prime Rate shall
become effective on the day such bank announces a change in its prime or
reference rate. If the bank listed above discontinues the practice of announcing
or publishing a prime, base or reference rate during the term of this Agreement,
then DFS may, in its reasonable judgment, designate a comparable bank and/or
publicly announced rate to be thereafter used as a basis for determining Prime
Rate. Borrower acknowledges that the bank listed above may extend credit at
rates of interest less than its announced prime, base or reference rate.
"SPP" shall have the meaning set forth in Section 3.2(b).
"Solvent" as to any Person, shall mean that such Person: (a) owns
assets, the present fair salable value of which is greater than the amount
required to pay all of such Person's liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities); (b) is able to pay all of
its liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) as they become absolute and matured; and (c) has capital sufficient
to carry on its Business and transactions.
"Statement of Transaction" shall have the meaning set forth in Section
3.2(a).
"Subordinated Debt" shall have the meaning set forth in Section 9.3.
"Subsidiaries" shall mean any corporation in which a Person owns or
controls greater than 50% of the voting securities, or any partnership or joint
venture in which a Person owns or controls greater than 50% of the aggregate
equitable interest. The term "Subsidiary" means any one of the Subsidiaries.
"Tangible Net Worth" shall have the meaning set forth in Section 9.3.
"Total Credit Limit" shall have the meaning set forth in Section 3.1.
"Total Working Capital Credit Limit" shall have the meaning set forth in
Section 3.3.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of California and any successor statute, together with any regulations
thereunder, in each case as in effect from time to time. References to sections
of the UCC shall be construed to also refer to any successor sections.
"Unmatured Default" shall mean any event which, but for the passage of
time or notice, or both, would be a Default.
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"Value" means the cost to Borrower of Borrower's Eligible Inventory
(exclusive of discounts, rebates, credits (including, without limitation price
protection credits), incentive payments and all other general intangibles
relating to such Eligible Inventory), as determined in accordance with GAAP.
"Weekly Report" shall have the meaning set forth in Section 3.11(a).
"Working Capital Loan" shall have the meaning set forth in Section 3.3.
"Working Capital Loan Availability" shall mean the lesser of (i) the
Borrowing Base or (ii) the Total Working Capital Credit Limit.
3. CREDIT FACILITY
3.1 Total Credit Facility. In consideration of Borrower's
payment and performance of its Obligations and subject to the terms and
conditions contained in this Agreement, DFS agrees to provide, and Borrower
agrees to accept, an aggregate credit facility (the "Credit Facility") of up to
Sixty Million Dollars ($60,000,000) (the "Total Credit Limit"). The Credit
Facility shall be available in the form of Floorplan Inventory Loans and Working
Capital Loans. No Loans need be made by DFS if Borrower is in Default or if
there exists any Unmatured Default. This is an agreement regarding the extension
of credit, and not the provision of goods or services.
3.2 Floorplan Inventory Loans. Subject to the terms of this
Agreement, DFS may provide to Borrower floorplan financing for the acquisition
of Inventory from vendors approved by DFS in DFS' sole discretion (each advance
being a "Floorplan Inventory Loan"), up to an aggregate unpaid principal amount
at any time not to exceed Forty Five Million Dollars ($45,000,000); provided,
however, that in no event shall the principal amount of the Floorplan Inventory
Loans and the Working Capital Loans exceed at any time in the aggregate, the
Total Credit Limit. DFS may, however, at any time and without notice to
Borrower, elect not to finance any Inventory sold by particular vendors who are
in default of their obligations to DFS. DFS may at any time suspend or terminate
the relationship or approval of any vendor. DFS will use reasonable efforts to
give Borrower prior notice of such suspension or termination.
(a) Financing Terms and Statements of Transaction.
Borrower and DFS agree that certain financial terms of any advance made by DFS
as a Floorplan Inventory Loan under this Agreement, whether regarding finance
charges, other fees, maturities, curtailments or other financial terms, are not
set forth herein because such terms depend, in part, upon the availability of
vendor discounts, payment terms or other incentives, prevailing economic
conditions, DFS' floorplanning volume with Borrower and with Borrower's vendors,
and other economic factors which may vary over time. Borrower and DFS further
agree that it is therefore in their mutual best interest to set forth in this
Agreement only the general terms of Borrower's Floorplan Inventory Loans. Upon
agreeing to finance a particular item of Inventory for Borrower, DFS will send
Borrower a Statement of Transaction identifying such inventory and the
applicable financial terms ("Statement of Transaction"). Unless Borrower
notifies DFS in writing of any objection within fifteen (15) days after a
Statement of Transaction is mailed to Borrower: (a) the amount shown on such
Statement of Transaction will be an account stated; (b) Borrower will have
agreed to all rates, charges and other terms shown on such Statement of
Transaction; (c) Borrower will have agreed that the items of Inventory
referenced in such Statement of Transaction are being financed by DFS at
Borrower's request; and (d) such Statement of Transaction will be incorporated
herein by reference, will be
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made a part hereof as if originally set forth herein, and will constitute an
addendum hereto. If Borrower objects to the terms of any Statement of
Transaction, Borrower agrees to pay DFS for such Inventory in accordance with
the most recent terms for similar Inventory to which Borrower has not objected
(or, if there are no prior terms, at the lesser of 16% per annum or at the
maximum lawful contract rate of interest permitted under applicable law). The
Statement of Transaction may specify a "Minimum Prime", which shall mean a
minimum rate per annum designated as a floor below which the Prime Rate shall be
deemed not to fall for purposes of calculating Borrower's Floorplan Inventory
Loan finance charges, notwithstanding that the "Prime Rate" as defined herein
might otherwise be a lower rate per annum.
(b) Payment Terms. Borrower will immediately pay DFS the
principal indebtedness owed DFS on each item of Inventory financed by DFS (as
shown on the Statement of Transaction identifying such Inventory) on the
earliest occurrence of any of the following events: (a) when such Inventory is
lost, stolen or damaged to the extent that such loss, theft or damage is not
adequately insured under an insurance policy which names DFS as loss payee; (b)
for Inventory financed under Scheduled Payment Program ("SPP") terms (as shown
on the Statement of Transaction identifying such Inventory), in strict
accordance with the installment payment schedule; and (c) when otherwise
required under the terms of any financing program agreed to in writing by the
parties. Regardless of the SPP terms pertaining to any Inventory financed by
DFS, if DFS determines that the current outstanding debt which Borrower owes to
DFS exceeds the aggregate wholesale invoice price of such Inventory in
Borrower's possession, Borrower will immediately upon demand pay DFS the
difference between such outstanding debt and the aggregate wholesale invoice
price of such Inventory. If Borrower from time to time is required to make
immediate payment to DFS of any past due obligation discovered during any
Inventory review, or at any other time, Borrower agrees that acceptance of such
payment by DFS shall not be construed to have waived or amended the terms of
its financing program. The proceeds of any Inventory received by Borrower will
be held by Borrower in trust for DFS' benefit, for application as provided in
this Agreement. DFS may apply: (i) payments to reduce finance charges first
and then principal, regardless of Borrower's instructions; and (ii) principal
payments to the oldest (earliest) invoice for Inventory financed by DFS, but,
in any event, all principal payments will first be applied to such Inventory
which is sold, rented, leased, or otherwise disposed of or unaccounted for, or
lost, stolen or damaged to the extent that such loss, theft or damage is not
adequately insured under an insurance policy which names DFS as a loss payee.
Any third party discount, rebate, bonus or credit granted to Borrower for any
Inventory will not reduce the debt Borrower owes DFS until DFS has received
payment therefor in cash. Borrower will: (1) pay DFS even if any Inventory is
defective or fails to conform to any warranties extended by any third party;
(2) not assert against DFS any claim or defense Borrower has against any third
party; and (3) indemnify and hold DFS harmless against all claims and defenses
asserted by any buyer of the Inventory relating to the condition of, or any
representations regarding, any of the Inventory. Borrower waives all rights of
offset Borrower may have against DFS.
3.3 Working Capital Loans. Subject to the terms of this
Agreement, DFS agrees, for so long as no Default exists, to provide to Borrower,
and Borrower agrees to accept, working capital financing (each advance being a
"Working Capital Loan") on Eligible Accounts and Eligible Inventory in the
maximum aggregate unpaid principal amount at any time equal to the lesser of (i)
the Borrowing Base or (ii) Twenty-Seven Million Five Hundred Thousand Dollars
($27,500,000); provided, however, that in no event shall the principal amount of
the Floorplan Inventory Loans and the Working Capital Loans exceed at any time
in the aggregate, the Total Credit Limit ("Total Working Capital Credit Limit").
A request for a Working Capital
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Loan shall be made, or shall be deemed to be made, as provided in Section 5.1
hereof.
(a) Eligible Accounts. On receipt of each Borrowing Base
Certificate initially in the form set forth on Exhibit 3.3, and, thereafter, in
such form as DFS may require from time to time, together with such supporting
information as DFS may require from time to time (the "Borrowing Base
Certificate"), DFS will credit Borrower with such amount as DFS may deem
advisable up to the lesser of (i) eighty-five percent (85%) of the net amount of
the Eligible Accounts which are, absent error or other discrepancy, listed in
such Borrowing Base Certificate, or (ii) Fifteen Million Dollars ($15,000,000)
("Eligible Account Availability"). For purposes hereof, the net amount of
Eligible Accounts at any time shall be the face amount of such Eligible Accounts
less any and all returns, discounts (which may, at DFS' option, be calculated on
shortest terms), credits, rebates, allowances, or excise taxes of any nature at
any time issued, owing, claimed by Account Debtors, granted, outstanding, or
payable in connection with such Accounts at such time.
(b) Eligible Inventory. On receipt of each Borrowing Base
Certificate, DFS will credit Borrower with the lesser of (a) fifty percent (50%)
of the Value of Eligible Inventory which is, absent error or other discrepancy
listed in such Borrowing Base Certificate, or (b) Twelve Million Five Hundred
Thousand Dollars ($12,500,000) (such lesser amount being called the "Eligible
Inventory Availability").
3.4 Mandatory Prepayment. If at any time and for any reason
the aggregate amount of outstanding Loans exceeds the Borrowing Base, Borrower
will, immediately upon demand, repay an amount of the Loans made to it by DFS
hereunder equal to such excess. In addition, Borrower shall immediately pay DFS
whatever sums may be necessary from time to time to remain in compliance with
the Total Credit Limit and the Total Working Capital Credit Limit, as such
limits may change from time to time, including, without limitation, as a result
of any Collateral no longer being deemed an Eligible Account or Eligible
Inventory, or as a result of any change in the Value of any Eligible Inventory,
or in the amount of any Eligible Account.
3.5 Interest; Calculation of Charges; Fees.
(a) Floorplan Inventory Loans. Borrower will pay DFS finance
charges on the outstanding principal debt Borrower owes DFS for each item of
Inventory financed by DFS under a Floorplan Inventory Loan at the rate(s) shown
on the Statement of Transaction identifying such Inventory, unless Borrower
objects thereto as provided in Section 3.2(a). The finance charges attributable
to such rates will: (i) be computed based on a 360 day year; (ii) be calculated
by multiplying the Daily Charge (as defined below) by the actual number of days
in the applicable billing period; and (iii) accrue from the invoice date of the
Inventory identified on such Statement of Transaction, until DFS receives full
payment of the principal debt Borrower owes DFS in good funds in accordance with
DFS' payment recognition policy and DFS applies such payment to Borrower's
principal debt in accordance with the terms of this Agreement. The annual
percentage rate of the finance charges will be calculated from the invoice date
of any item of Inventory financed by DFS, regardless of any period during which
any finance charge subsidy shall be paid or payable by any third party.
(b) Working Capital Loans.
(i) Interest; Calculation. Borrower will pay DFS finance
charges on the Daily Contract Balance (as defined below) at a per annum rate
that is equal to the Prime Rate. The finance charges attributable to such
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rate will: (i) be computed based on a 360 day year; (ii) be calculated with
respect to each day by multiplying the Daily Rate (as defined below) by the
Daily Contract Balance; and (iii) accrue from the date DFS authorizes any
Electronic Transfer (as defined in Section 3.5(b)(ii) below) or otherwise
advances a Working Capital Loan to or for the benefit of Borrower, until DFS
receives full payment of the principal debt Borrower owes DFS in good funds in
accordance with DFS' payment recognition policy and DFS applies such payment to
Borrower's principal debt in accordance with the terms of this Agreement.
(ii) Method of Transfer. Working Capital Loans will be made by
DFS, at Borrower's direction, by paper check, electronic transfer by Automated
Clearing House ("ACH"), Fed Wire Funds Transfer ("Fed Wire") or such other
electronic means as DFS may announce from time to time (ACH, Fed Wire and such
other electronic transfer are collectively referred to as "Electronic
Transfers"). If Borrower does not request a Working Capital Loan be made in a
specific method of transfer, DFS may determine from time to time in its sole
discretion what method of transfer to use.
(c) Definitions. The "Daily Charge" is the product of the Daily Rate
multiplied by the Average Daily Balance. The "Daily Rate" is the quotient of the
applicable annual rate provided herein or in any Statement of Transaction
divided by 360. The "Daily Contract Balance" is the amount of outstanding
principal debt which Borrower owes DFS on the Working Capital Loans at the end
of each day (including the amount of all Electronic Transfers authorized) after
DFS has credited payments which it has received on the Working Capital Loans.
The "Average Daily Balance" is the quotient of: (i) the sum of the outstanding
principal debt owed DFS on each day of a billing period for each item of
Inventory identified on the Statement of Transaction, divided by (ii) the actual
number of days in such billing period.
(d) Fees.
(i) Certain Charges. Borrower will (A) reimburse DFS for all
charges made by banks, including charges for collection of checks and other
items of payment and (B) pay DFS all fees and charges in effect from time to
time for transfers of funds to or from the Borrower. DFS may, from time to time,
announce its fees and charges for transfers of funds to or from Borrower,
including the issuance of Electronic Transfers, provided, however, that DFS and
Borrower hereby agree to a $5.00 fee for each ACH transfer and a $25.00 fee for
each Fed Wire transfer.
(ii) Creative's Closing Fee. Creative shall pay the closing fee
described in its agreement of even date with DFS.
3.6 Billing Statement. DFS will send Borrower a monthly billing
statement identifying all charges due on Borrower's account with DFS. The
charges specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, absent manifest error. DFS
may adjust the billing statement at any time to conform to applicable law and
this Agreement.
3.7 Loan Proceeds. The parties intend that all indebtedness incurred
hereunder shall be governed exclusively by the terms of this Agreement and the
other Loan Documents, and shall not, unless requested by DFS, be evidenced by
notes or other evidences of indebtedness. Upon any such request, Borrower will
immediately execute and deliver any such note or other evidence reasonably
requested by DFS. Any fees, charges or expenses
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charged to DFS by any bank for payments made by DFS at Borrower's request shall
be immediately payable by Borrower. All advances and other obligations of
Borrower made hereunder will constitute a single obligation.
3.8 Default Interest Rate. If a Default occurs, and unless and until
cured, DFS may without prior demand, raise the rate of interest accruing on the
disbursed unpaid principal balance of any Loan by three percentage points (3%)
above the rate of interest otherwise applicable (the "Default Interest Rate"),
whether or not DFS elects to accelerate the unpaid principal balances as a
result of a Default. DFS will use reasonable efforts to notify Borrower before
imposing the Default Interest Rate permitted by this Section.
3.9 Interest Rate After Certain Events. If a judgment is entered
against Borrower for sums due under any of the Obligations, as applicable, the
amount of the judgment entered (which may include principal, interest,
reasonable attorneys' fees and costs) shall bear interest at the judgment rate
as permitted under applicable law as of the date of entry of the judgment. All
Obligations of Borrower described in clauses (a) and (b) of the definition
thereof shall bear interest at the Default Interest Rate.
3.10 Verification Rights of DFS. DFS may, without notice to Borrower
and at any time or times hereafter verify the validity, amount or any other
matter which in DFS' reasonable credit judgment relates to any Account, by mail,
telephone or other means, in the name of Borrower or DFS.
3.11 Reports.
(a) Weekly Reports. Borrower agrees to provide DFS with a report
each week, or more frequently if requested by DFS, in such form as is
satisfactory to DFS, including supporting information regarding, but not limited
to (i) a Borrowing Base Certificate; (ii) an Inventory aging report; (iii) a
statement of the current Inventory status, showing the lower of cost (determined
on a "first-in, first-out" basis) or market value thereof; and (iv) an aging of
Accounts (the "Weekly Report"). The Weekly Report will be received by DFS each
Monday after the date of the Agreement by noon (in the event that DFS is not
open for business on a Monday then the Weekly Report will be due by noon of the
next business day that DFS is open for business), or more frequently if so
requested by DFS.
(b) Monthly Reports. Borrower agrees to provide to DFS by the
10th day of each month, or more frequently if requested by DFS, in each case as
of the last day of the immediately prior month, each of the following: (i)
Inventory aging report; (ii) aging of Accounts; and (iii) aging of Borrower's
accounts payable (the "Monthly Reports").
(c) Other Reports. Borrower agrees to provide DFS within five (5)
Business Days after each request by DFS any other report or information
requested by DFS (the "Other Reports").
(d) Accuracy of Reports. The Weekly Report, Monthly Reports and
the Other Reports will be true and correct in all respects. Borrower
acknowledges DFS' reliance on the truthfulness and accuracy of each Weekly
Report, Monthly Report and the Other Reports.
3.12 Establishment of Reserves; Appraisals. Notwithstanding the
foregoing provisions of Section 3.3, DFS shall have the right to establish
reserves in such amounts, and with respect to such matters, as DFS shall deem
necessary or appropriate, against the amount of Working Capital Loans which
Borrower may otherwise request under Section 3.3, including, without limitation,
with respect to (a) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are
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issued in the ordinary course of Borrower's business; (b) shrinkage, spoilage
and obsolescence of Inventory; (c) slow moving Inventory; (d) other sums
chargeable against Borrower as Working Capital Loans under any section of this
Agreement; and (e) such other matters, events, conditions or contingencies as to
which DFS, in its sole credit judgment determines reserves should be established
from time to time hereunder.
Borrower acknowledges that DFS may from time to time, but no less
frequently than quarterly, obtain from an independent third party appraiser
selected by DFS, an appraisal of the value of the Eligible Inventory. Borrower
further acknowledges and agrees that DFS will have the right to decrease the
advance rate set forth in Section 3.3(b) to reflect the value of the Eligible
Inventory, as determined by any such appraisal. Borrower further acknowledges
and agrees, however, that no increase in the advance rate set forth in Section
3.3(b) will be made as a result of any such appraisal.
3.13 Capital Adequacy.
(a) In the event that DFS shall have determined that the
adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
DFS with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority, does
or shall have the effect of reducing the rate of return on DFS' capital as a
consequence of its obligations hereunder to a level below that which DFS could
have achieved but for such adoption, change or compliance (taking into
consideration DFS' policies with respect to capital adequacy) by an amount
deemed by DFS, in its sole discretion, to be material, then DFS shall promptly
notify Borrower of such event and from time to time, after submission by DFS to
Borrower of a written demand therefor, Borrower shall pay to DFS such additional
amount or amounts as will compensate DFS for such reduction.
(b) A certificate of DFS claiming entitlement to payment as set
forth in Section 3.13(a) above shall be conclusive in the absence of manifest
error. Such certificate shall set forth the nature of the occurrence giving rise
to such payment, the additional amount or amounts to be paid to DFS, and the
method by which such amounts were determined. In determining such amount, DFS
may use any reasonable averaging and attribution method.
3.14 Collections. Unless otherwise directed by DFS, to expedite
collection of Accounts for the benefit of DFS, Borrower shall notify all of its
Account Debtors to make payment of the Accounts to one or more lock-boxes under
the sole control of DFS. The lock-box, and all accounts into which the proceeds
of any such lock-box(es) are deposited, shall be established at banks selected
by the Borrower and satisfactory to DFS in its sole discretion. Borrower shall
issue to any such banks an irrevocable letter of instruction, in form and
substance acceptable to DFS, directing such banks to deposit all payments or
other remittances received in the lock-box to such account or accounts as DFS
shall direct, for application against the outstanding balance of the
Obligations. All funds deposited in the lock-box or any such account immediately
shall become the property of DFS, and any disbursements of the proceeds in the
lock-box or any such account will only be made to DFS. Borrower shall obtain the
agreement of such banks to waive any offset rights against the funds so
deposited. DFS assumes no responsibility for such lock-box arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits which any banks accept thereunder. All remittances
which Borrower receives in payment of any Accounts, and the proceeds of any of
the other Collateral, shall be: (i) kept separate and apart from Borrower's own
funds
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so that they are capable of identification as DFS' property; (ii) held by
Borrower as trustee of an express trust for DFS' benefit; and (iii) shall be
immediately deposited in such accounts designated by DFS. All proceeds received
or collected by DFS with respect to Accounts, and reserves and other property of
Borrower in possession of DFS at any time or times hereafter, may be held by DFS
without interest to Borrower until all Obligations are paid in full or applied
by DFS on account of the Obligations. DFS may release to Borrower such portions
of such reserves and proceeds as DFS may determine. Upon the occurrence and
during the continuance of a Default, DFS may notify the Account Debtors that the
Accounts have been assigned to DFS, collect the Accounts directly in its own
name and charge the collection costs and expenses, including attorneys' fees, to
Borrower. DFS has no duty to protect, insure, collect or realize upon the
Accounts to preserve rights in them.
3.15 Advancements. If Borrower fails to (a) perform any of the
affirmative covenants contained herein, (b) protect or preserve the Collateral
or (c) protect or preserve the status and priority of the Liens and security
interest of DFS in the Collateral, DFS may make advances to perform those
obligations. DFS will use reasonable efforts to give Borrower notice prior to
making such advancement. All sums so advanced will be due and payable upon
demand and will immediately upon advancement become secured by the security
interests created by this Agreement and will be subject to the terms and
provisions of this Agreement and all of the Loan Documents. DFS may add all sums
so advanced, plus any expenses or costs incurred by DFS, including reasonable
attorney's fees, as outstanding Loans as DFS may designate in its sole
discretion. The provisions of this Section will not be construed to prevent the
institution of rights and remedies of DFS upon the occurrence of a Default. Any
provisions in this Agreement to the contrary notwithstanding, the authorizations
contained in this Section will impose no duty or obligation on DFS to perform
any action or make any advancement on behalf of Borrower and are for the sole
benefit and protection of DFS.
3.16 Continuing Requirements - Accounts. Borrower will: (a) if from
time to time required by DFS, immediately upon their creation, deliver to DFS
copies of all invoices, delivery evidences and other such documents relating to
each Account; (b) not permit or agree to any extension, compromise or settlement
or make any change to any Account except in the ordinary course of business; (c)
affix appropriate endorsements or assignments upon all such items of payment and
proceeds so that the same may be properly deposited by DFS to DFS' account; (d)
immediately notify DFS in writing which Accounts may be deemed Ineligible
Accounts; and (e) mark all chattel paper and instruments now owned or hereafter
acquired by it to show that the same are subject to DFS' security interest and
immediately thereafter deliver such chattel paper and instruments to DFS with
appropriate endorsements and assignments to DFS.
3.17 Floorplan Paydown. In the event (i) Borrower's outstanding
indebtedness to DFS under the Floorplan Inventory Loan Facility exceeds at any
time (ii)(a) the Working Capital Loan Availability, minus (b) the outstanding
Working Capital Loans, Borrower will immediately pay to DFS, as a reduction of
Borrower's total current outstanding indebtedness to DFS under the Floorplan
Inventory Loan Facility, the difference between (i) Borrower's outstanding
indebtedness to DFS under the Floorplan Inventory Loan Facility, and (ii)(a) the
Working Capital Loan Availability, minus (b) the outstanding Working Capital
Loans.
4. TERM OF AGREEMENT
4.1 Termination. This Agreement will continue in full force and
effect and be non-cancellable by Borrower (except that it may be
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terminated by DFS upon ninety (90) days written notice to Borrower or in the
exercise of its rights and remedies upon Default by Borrower) for a period
commencing on the Effective Date and ending on the later of: (i) that date which
is one (1) year from the Effective Date, or (ii) December 31, 1998 (the
"Original Term"), and for successive one (1) year periods thereafter, subject to
termination as to future transactions at the end of any such period after
Borrower shall have given DFS the applicable Termination Notice (as defined
below) and the applicable period relating thereto shall have expired. Such
Termination Notice will be ineffective unless Borrower pays to DFS all
Obligations and the sum described in Section 4.2 below on or before the
termination date. Any termination of this Agreement by Borrower or DFS will have
the effect of accelerating the maturity of all Obligations not then otherwise
due. The "Termination Notice" shall mean Borrower's written notice to DFS
indicating Borrower's intent to terminate this Agreement in accordance with the
terms hereof either: (I) within one (1) day after DFS' receipt of such notice,
or (II) within one-hundred fifty (150) days after DFS' receipt of such notice.
4.2 Termination Privilege. Despite anything to the contrary in
Section 4.1 of this Agreement, this Agreement may be terminated by Borrower at
any time upon having given the applicable Termination Notice and, if terminated
in accordance with the terms hereof during the Original Term, payment to DFS of
the following sum (in addition to payment of all Obligations, whether or not by
their terms then due) which sum represents liquidated damages for the loss of
the bargain and not as a penalty, and the same is hereby acknowledged by
Borrower: the product of (a) (i) Six Thousand Dollars ($6,000) if Borrower shall
have given DFS the Termination Notice described in Section 4.1(I) above, or (ii)
One Thousand Five Hundred Dollars ($1,500) if Borrower shall have given DFS the
Termination Notice described in Section 4.1(II) above, multiplied by (b) the
number of months remaining in the Original Term. This sum will also be paid by
Borrower if the Agreement is terminated on account of Borrower's Default.
Termination on any date other than the anniversary date will not
entitle Borrower to a refund of any fee. DFS shall be entitled to payment of all
fees upon Default by Borrower which would have been payable during the original
term of this Agreement, or any extension thereof, but for such early
termination. These accelerated fees represent liquidated damages are not a
penalty. Any such written notice of termination delivered by Borrower to DFS
shall be irrevocable. It is understood that Borrower may elect to terminate this
Agreement in its entirety only, no section or lending facility may be terminated
singly.
4.3 Effect of Termination. Borrower will not be relieved from any
Obligations to DFS arising out of DFS' advances or commitments made before the
effective termination date of this Agreement. DFS will retain all of its rights,
interests and remedies hereunder until Borrower has paid all of Borrower's
Obligations to DFS. All waivers set forth within this Agreement will survive any
termination of this Agreement.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. Borrowing Procedures.
(a) Generally. A request for a Working Capital Loan shall be made, or
shall be deemed to be made, in the following manner: (i) Borrower may give DFS
written notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date;
(ii) the becoming due of any amount required to be paid
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under this Agreement as interest shall be deemed irrevocably to be a request for
a Working Capital Loan on the due date in the amount required to pay such
interest; and (iii) the becoming due of any other Obligations shall be deemed
irrevocably to be a request for a Working Capital Loan on the due date in the
amount then so due.
For purposes of subpart (i) above, Borrower agrees that DFS may rely and act
upon any request for a Working Capital Loan from any individual who DFS, absent
gross negligence or willful misconduct, reasonably believes to be a
representative of Borrower.
(b) Conditions Precedent to Each Working Capital Loan. Without
limiting the applicability of the conditions precedent set forth in Section 7
below to DFS' obligation to make any Working Capital Loan, the obligation of DFS
to make any Working Capital Loan shall be subject to the further conditions
precedent that, on the date of each such Working Capital Loan:
(i) The following statements shall be true: (A) the representations
and warranties contained in Section 8 hereof are correct on and as of the date
of such Working Capital Loan as though made on and as of such date, and (B)
there exists no Default or Unmatured Default, nor would any Default or any
Unmatured Default result from the making of the Working Capital Loan requested
by Borrower;
(ii) Borrower shall have signed and sent to DFS, if DFS so requests,
a request for advance, setting forth in writing the amount of the Working
Capital Loan requested; provided, however, that the foregoing condition
precedent shall not prevent DFS, if it so elects in its sole discretion, from
making a Working Capital Loan pursuant to Borrower's non-written request
therefor;
(iii) DFS shall have received a completed Borrowing Base Certificate,
signed by the Borrower, and dated not more than one (1) day prior to the date
of Borrower's request for such Working Capital Loan; and
(iv) DFS shall have received such other approvals, opinions or
documents as it may reasonably request.
Borrower agrees that the making of a request by Borrower for a Working Capital
Loan, shall constitute a certification by Borrower and the Person(s) executing
or giving the same that all representations and warranties of Borrower herein
are true as of the date thereof and that all required conditions to the making
of the Working Capital Loan have been met.
5.2 Excess Advances. DFS, in its sole and absolute discretion, may
elect to permit the total unpaid balance of Loans to exceed the Total Credit
Limit (the "Excess Advances"), and no such event or occurrence shall cause or
constitute a waiver by DFS of its right to demand payment of all or any part of
the Loans at any time within the terms of this Agreement or to refuse, in its
sole and absolute discretion, to make such further Loans. Any such Excess
Advances shall be payable immediately upon demand therefor, unless otherwise
specifically agreed to by DFS, and shall bear interest at the Default Interest
Rate.
5.3 All Loans One Obligation. All Obligations of Borrower to DFS
under this Agreement and all other agreements between Borrower and DFS shall
constitute one obligation to DFS secured by the security interest granted in
this Agreement, and by all other Liens heretofore, now, or at any time or
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times hereafter granted by Borrower. All of the rights of DFS set forth in this
Agreement shall apply to any modification of or supplement to this Agreement, or
Exhibits hereto, unless otherwise agreed in writing.
5.4 Payments of Principal and Interest. All payments and amounts due
hereunder by Borrower shall be made or be payable without set-off or
counterclaim and shall be made to DFS on the date due at its office(s)
responsible for Borrower's account, or at such other place which DFS may
designate to Borrower in writing. Any payments received after such time shall be
deemed received on the next Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a date other than a Business Day, such
payment may be made on the next succeeding Business Day, and such extension of
time shall be included in the computation of payment of interest or any fees.
5.5 Collection Days. All payments and all amounts received hereunder
will be credited by DFS to Borrower's account two (2) Business Days after good
funds have been deposited into DFS' general operating account.
6. SECURITY FOR THE OBLIGATIONS
6.1 Grant of Security Interest. To secure payment of all of
Borrower's current and future Obligations and to secure Borrower's performance
of all of the provisions under this Agreement and the other Loan Documents,
Borrower grants DFS a security interest in all of Borrower's inventory,
equipment, fixtures, accounts, contract rights, chattel paper, security
agreements, instruments, deposit accounts, reserves, documents and general
intangibles; and all judgments, claims, insurance policies, and payments owed or
made to Borrower thereon; all whether now owned or hereafter acquired, all
attachments, accessories, accessions, returns, repossessions, exchanges,
substitutions and replacements thereto, and all proceeds thereof. All such
assets are collectively referred to herein as the "Collateral." All such terms
for which meanings are provided in the Uniform Commercial Code are used herein
with such meanings. All Collateral financed by DFS, and all proceeds thereof,
will be held in trust by Borrower for DFS, with such proceeds being payable in
accordance with this Agreement. Borrower covenants with DFS that DFS may realize
upon all or part of any Collateral in any order it desires and any realization
by any means upon any Collateral will not bar realization upon any other
Collateral. Borrower's liability under this Agreement is direct and
unconditional and will not be affected by the release or nonperfection of any
security interest granted hereunder.
6.2 Future Advances. DFS' security interests shall secure all current
and all future advances to Borrower made by DFS under the Loan Documents.
6.3 Financing Statements. Borrower shall execute and deliver to DFS
for the benefit of DFS such original documents as may be required by DFS with
respect to DFS' security interests.
6.4 Guaranties. Borrower shall cause any and all Subsidiaries,
whether now existing or hereafter acquired, to execute and deliver
collateralized guaranties of the Obligations secured by a first priority,
perfected security interest in the assets described therein.
6.5 Further Assurances. Borrower will execute and deliver to DFS, at
such time or times as DFS may request, all financing statements, security
agreements, assignments, certificates, affidavits, reports, schedules, and other
documents and instruments that DFS may deem necessary
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to perfect and maintain perfected DFS' security interests in the Collateral and
to fully consummate the transactions contemplated under all Loan Documents. All
filing, recording or registration fees shall be payable by Borrower.
7. CONDITIONS PRECEDENT
All duties and obligations of DFS under the Loan Documents on the Effective
Date, and at all times during the term of this Agreement, are specifically
subject to the full and continued satisfaction by Borrower of the conditions
precedent set forth below.
7.1 Conditions Precedent. The following conditions must be satisfied
as of the date of the initial Loan made hereunder;
(a) DFS' Counsel. DFS' counsel must approve of all matters pertaining to (i)
title to the Collateral; (ii) the form, substance and due execution of all Loan
Documents; (iii) Borrower's organizational documents; and (iv) all other legal
matters, including the application of any laws relating to usury.
(b) Material Change. There must not have been any material adverse change,
between Borrower's date of organization and the Effective Date, in the condition
of Borrower, the condition of the Business, the value and condition of the
Collateral, the structure of Borrower other than as contemplated herein, or in
the financial information, audits and the like obtained by DFS.
(c) Perfected Liens. DFS shall have a perfected first priority Lien and
security interest in the Collateral, subject only to the Permitted Liens.
(d) Insurance. Borrower shall provide DFS with certificates of insurance
evidencing that Borrower has obtained the insurance as required in Section
9.1.2.
(e) Laws. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited to, all
Environmental Laws, the failure to comply with which would have a material
adverse effect on Borrower, its Subsidiaries or the Business.
(f) Certificate of Good Standing. A certificate of good standing for Borrower
(or other similar certificate) must be delivered to DFS, from the appropriate
governmental authority of Borrower's state of incorporation and other
jurisdictions in which Borrower does business, dated not earlier than 30 days
prior to the Effective Date.
(g) Opinion of Borrower's Counsel. DFS must receive a written opinion from
counsel for Borrower, dated the Effective Date, and addressed to and for the
benefit of DFS, in form and substance satisfactory to DFS.
(h) UCC Searches. DFS must receive a certificate from a provider of financing
statement searches acceptable to DFS which identifies all financing statements
of public record not more than 5 days before the Effective Date, that pertain to
the Collateral.
(i) Other Documents. Such other documents, certificates, submissions, insurance
policies and other matters as reasonably requested by DFS relating to the
transaction herein contemplated.
(j) President's Certificate. In the form attached hereto as Exhibit 7.1(j)
compliance with all of the terms and conditions in the Loan Documents.
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(k) Articles of Incorporation. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement.
(l) Secretary's Certificate of Resolution and Incumbency. In the form attached
hereto as Exhibit 7.1(l).
(m) Pre-closing Expenses. Borrower shall pay to DFS all fees and expenses
required under this Agreement that are due on or before the Effective Date.
(n) Pre-closing Reviews. DFS must complete reviews with satisfactory results of
Borrower's Inventory and Accounts. All costs and expenses for such pre-closing
reviews will be included within the pre-closing expenses.
(o) Payoff Letter. A lien release and payoff letter executed by any and all
lienholders on any of the Collateral, other than with respect to the Permitted
Liens.
(p) Collection Documentation. The lockbox and related documentation required
pursuant to the provisions of Section 3.14 hereof.
(q) Order. The issuance of the Order in a form and upon such terms and
conditions as are acceptable to DFS.
(r) Asset Acquisition. DFS' satisfactory review of all of the documents,
instruments and agreements pursuant to which the Asset Acquisition is to be
consummated, including but not limited to the Purchase Agreement.
(s) Absence of Legal Proceedings. DFS shall have determined that no action,
proceeding, investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency 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 the Purchase Agreement or the
consummation of the transactions contemplated hereby or thereby or which, in
DFS' sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement, any of the other Loan Documents or the Purchase
Agreement.
(t) Solvency. DFS shall have received such certificates and documents
reflecting the Solvency of Borrower, after giving effect to the transactions
contemplated by this Agreement and the Purchase Agreement, as DFS shall find
acceptable, including without limitation, pro-forma balance sheets, forecasted
financial statements consisting of balance sheets, income statements and cash
flow statements for Borrower covering at least the three-year period commencing
on the Effective Date, prepared by Borrower and a fair valuation balance sheet
for Borrower showing that Borrower is Solvent.
(u) Guaranty. The guaranty of each Guarantor.
8. REPRESENTATIONS AND WARRANTIES
To induce DFS to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true in
all material respects during the term of this Agreement. Borrower acknowledges
DFS' justifiable right to rely upon the representations and warranties set forth
below.
8.1 Financial Statements. Creative's audited consolidated
financial statements as of December 31, 1996 and Borrower's unaudited
consolidated financial statement as of June 30, 1997, copies of which have been
previously submitted to DFS, have been prepared in conformity with GAAP
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and present fairly the financial condition of Creative and its consolidated
Subsidiaries as at such dates and the results of their operations for the
periods then ended. Borrower warrants and represents to DFS that all financial
statements and information relating to Borrower or any Guarantor which have been
or may hereafter be delivered by Borrower or any Guarantor are true and correct
and have been and will be prepared in accordance with GAAP and, with respect to
such previously delivered statements or information, there has been no material
adverse change in the financial or business condition of Borrower or any
Guarantor since the submission to DFS, either as of the date of delivery, or, if
different, the date specified therein, and Borrower acknowledges DFS' reliance
thereon.
8.2 Non-Existence of Defaults. Neither Borrower nor any of its
Subsidiaries is in default with respect to any material amount of its existing
Indebtedness. The making and performance of this Agreement and all other Loan
Documents, will not immediately, or with the passage of time, the giving of
notice, or both: (a) violate the provisions of the bylaws or any other corporate
document of Borrower; (b) violate any laws to the best of Borrower's knowledge
after diligent inquiry; (c) result in a material default under any contract,
agreement, or instrument to which Borrower is a party or by which Borrower or
its properties are bound; or (d) result in the creation or imposition of any
security interest in, or Lien or encumbrance upon, any of the Collateral except
the Permitted Liens.
8.3 Litigation. Set forth on Exhibit 8.3 is a list of all actions,
suits, investigations or proceedings pending or, in the knowledge of Borrower,
threatened against Borrower or any of its Subsidiaries, as of the date hereof in
which there is a reasonable probability of an adverse decision which would
materially and adversely affect Borrower, the Business, or the Collateral.
8.4 Material Adverse Changes. Borrower does not know of any material
adverse change in the Business, or in Borrower's or any of the Subsidiaries'
assets, liabilities, properties, or condition, financial or otherwise.
8.5 Title to Collateral. Except as set forth on Exhibit 8.5, Borrower
has good and marketable title to all of the Collateral, free and clear of any
and all Liens, claims and encumbrances, other than the Permitted Liens.
8.6 Corporate Status. Borrower and each of the Subsidiaries is a
corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective jurisdictions
of formation. Borrower and its Subsidiaries have the corporate power and
authority to own their properties and to transact the Business in which they are
engaged and presently propose to engage. Borrower and each Subsidiary is duly
qualified as a foreign corporation and in good standing in all states where the
nature of their Business or the ownership or use of their property requires such
qualification, and where failure to so qualify would have a material adverse
effect on its Business, operations or financial condition.
8.7 Subsidiaries. Exhibit 8.7 hereto lists the Subsidiaries as of the
Effective Date.
8.8 Power and Authority. Borrower has the corporate power to borrow
and to execute, deliver and carry out the terms and provisions of the Loan
Documents. Borrower has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement
and all other Loan Documents and the borrowing thereunder.
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8.9 Place of Business. Borrower's chief executive office and
the principal place of business is located at 2645 Maricopa Street, Torrance
California 90503. Borrower's records concerning the Collateral are kept at such
chief executive office, or will be kept at such other place that Borrower
informs DFS of not less than 30 days in advance of relocation.
8.10 Enforceability of the Loan Documents. The Loan Documents
executed by Borrower are the valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their terms, except as limited
by bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights.
8.11 Taxes. Borrower's federal tax identification number is
95-8636021 Borrower has: (a) filed all federal, state and local tax returns and
other reports that it is required by law to file, (b) paid or caused to be paid
all taxes, assessments and other governmental charges that are due and payable,
the failure of which to pay would have a material adverse effect on the
Business, except those contested in good faith and in accordance with accepted
procedures, and for which adequate reserves have been established in accordance
with GAAP, and (c) made adequate provision for the payment of such taxes,
assessments or other charges accruing but not yet payable. Borrower has no
knowledge of any deficiency or additional assessment in a material amount in
connection with any taxes, assessments or charges.
8.12 Compliance with Laws. Borrower, to the best of its
knowledge after diligent inquiry, has complied, and shall cause each Subsidiary
to comply, in all material respects with all applicable laws, including any
Environmental Laws and any zoning laws, the failure to comply with which would
have a material adverse effect on Borrower individually, or Borrower and its
Subsidiaries on a consolidated basis.
8.13 Consents. Borrower and the Subsidiaries have obtained all
material consents, permits, licenses, approvals or authorization of, or effected
the filing, registration or qualification with, any governmental entity which is
required to be obtained or effected by Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement and
the other Loan Documents the failure of which to obtain or effect would have a
material adverse effect on Borrower individually, or on Borrower and its
Subsidiaries on a consolidated basis.
8.14 Purpose. Borrower will use the advances which DFS makes
under the Credit Facility solely for lawful purposes and to the extent not
inconsistent with the terms of this Agreement.
8.15 [INTENTIONALLY DELETED]
8.16 Capital. All issued shares and all outstanding shares in
the Subsidiaries as reflected in Borrower's financial statements are validly
issued pursuant to proper authorization of the board of directors of such
Subsidiary, and are fully paid, and non-assessable. There are no outstanding
subscriptions, warrants, options, calls or commitments, obligations or
securities convertible or exchangeable for shares of any stock of Borrower or
the Subsidiaries. All Borrower's and Subsidiary's issued shares and outstanding
capital stock are fully paid and non-assessable, and each such Person's capital
structure is as set forth on Exhibit 8.16.
8.17 Location of Collateral. Exhibit 8.17 describes the
locations where any of the Collateral is located or stored as of the date
hereof.
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8.18 Real Property. Neither Borrower nor any Subsidiary own or
lease any real property, except as set forth on Exhibit 8.18 attached hereto.
8.19 Warranties and Representations-Accounts. For each Account
listed by Borrower on any Borrowing Base Certificate, Borrower warrants and
represents to DFS that at all times, unless specified in writing by Borrower to
DFS (which specification Borrower hereby acknowledges may, as DFS shall
determine, reduce Borrower's availability for Loans hereunder): (a) such Account
is genuine; (b) such Account is not evidenced by a judgment or promissory note
or similar instrument or agreement; (c) it represents an undisputed bona fide
transaction completed in accordance with the terms of the invoices and purchase
orders relating thereto; (d) the goods sold or services rendered which resulted
in the creation of such Account have been delivered or rendered to and accepted
by the Account Debtor; (e) the amounts shown on the Borrowing Base Certificate,
Borrower's books and records and all invoices and statements delivered to DFS
with respect thereto are owing to Borrower and are not contingent; (f) no
payments have been or will be made thereon except payments turned over to DFS;
(g) there are no known offsets, with respect thereto and Borrower has not made
any agreement with the Account Debtor for any deduction on or discount of the
sum payable thereunder except regular discounts allowed by Borrower in the
ordinary course of its business for prompt payment; (h) there are no known facts
or events which in any way impair the validity or enforceability thereof or
reduce the amount payable thereunder from the amount shown on the Borrowing Base
Certificate, Borrower's books and records and the invoices and statements
delivered to DFS with respect thereto; (i) all persons acting on behalf of the
Account Debtor thereon have the authority to bind the Account Debtor; (j) the
goods sold or transferred giving rise thereto are not subject to any Lien,
claim, encumbrance or security interest which is superior to that of DFS; (k)
such Account is subject to DFS' perfected, first priority security interest and
no other Lien other than a Permitted Lien; and (l) there are no proceedings or
actions known to Borrower which are threatened or pending against the Account
Debtor thereon which might result in any material adverse change in such Account
Debtor's financial condition.
8.20 Environmental, Health Exhibit 8.20: (a) the operations
complies in all respects with (i) all applicable Environmental Laws, and (ii)
all applicable OSHA Laws; (b) none of the operations of Borrower or any
Subsidiary are subject to any judicial or administrative proceeding alleging the
Violation of any Environmental Law or OSHA Law; (c) none of the operations of
Borrower or any Subsidiary is the subject of federal or state investigation
evaluating whether any remedial action is needed to respond to (i) a spillage,
disposal or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance, or (ii) any unsafe or unhealthful condition at any premises of
Borrower or any Subsidiary; (d) neither Borrower nor any Subsidiary has filed
any notice under any Environmental Law or OSHA Law indicating or reporting (i)
any past or present spillage, disposal or release into the environment of, or
treatment, storage or disposal of, any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance or (ii)
any unsafe or unhealthful condition at any premises of Borrower or any
Subsidiary; and (e) neither Borrower nor any Subsidiary has any known contingent
liability in connection with (i) any spillage, disposal or release into the
environment of, or otherwise with respect to, any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance or (ii) any unsafe or unhealthful condition at any premises of
Borrower or any Subsidiary.
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8.21 Patents, Copyrights, Trademarks, Etc. The Borrower and
each of the Subsidiaries possesses or has the right to use all of the patents,
trademarks, trade names, service marks and copyrights, and applications
therefor, and all technology, know-how, processes, methods and designs used in
or necessary for the conduct of its business, without known conflict with the
rights of others. All such licenses, patents, trademarks, trade names, service
marks and copyrights, and applications therefor existing on the date hereof are
listed on Exhibit 8.21.
8.22 Solvency. The Borrower and each of the Subsidiaries is now
and after giving effect to the initial Loans made hereunder, at all times, will
be, Solvent.
8.23 Leases. Exhibit 8.23(a) attached hereto is a complete
listing of all capitalized leases of Borrower and Exhibit 8.23(b) attached
hereto is a complete listing of all operating leases of Borrower.
8.24 Labor Relations. Except as described on Exhibit 8.24
attached hereto and made a part hereof, neither Borrower nor any of its
Subsidiaries is a party to any collective bargaining agreement, and there are no
material grievances, disputes or controversies with any union or any other
organization of Borrower's employees, or threats of strikes, work stoppages or
any asserted pending demands for collective bargaining by any union or
organization.
8.25 Business Locations; Agent for Process. During the
preceding seven (7) year period, Borrower has had no office, place of business
or agent for service of process located in any state or county other than as
shown Exhibit 8.17.
8.26 Warranties and Representations-Inventory. For each item of
Inventory listed by Borrower on any Borrowing Base Certificate, Borrower
covenants, warrants and represents to DFS that at all times: (a) Inventory will
be kept only at the locations indicated on Exhibit 8.17; (b) [INTENTIONALLY
DELETED]; (c) Borrower now keeps and will keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory,
Borrower's cost therefor and the selling price thereof, the daily withdrawals
therefrom and the additions thereto; (d) Inventory is not and will not be stored
with a bailee, repairman, warehouseman or similar party without DFS' prior
written consent, and Borrower will, concurrently with delivery to such party,
cause any such party to issue and deliver to DFS, in form acceptable to DFS,
warehouse receipts, in DFS' name evidencing the storage of such Inventory, and
waivers of warehouseman's liens in favor of DFS; (e) Borrower will pay all
taxes, rents, business taxes, and the like on the premises where the Inventory
is located; and (f) Borrower will not rent, lease, lend, demonstrate, pledge,
consign, transfer or secrete any of the Inventory or use any of the Inventory
for any purpose other than exhibition and sale to buyers in the ordinary course
of business, without DFS' prior written consent.
8.27 Warranties and Representations-Purchase Agreement. Each
and every representation, Agreement is accurate and correct as of the date
hereof, and is hereby deemed made to DFS as of the date hereof as if fully set
forth herein.
8.28 Reaffirmation. Each request for a Loan made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall constitute
(a) an automatic representation and warranty by Borrower to DFS that there does
not then exist any Default or any Unmatured Default, and (b) a reaffirmation as
of the date of said request of all of the representations
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and warranties of Borrower contained in this Agreement and the other Loan
Documents.
8.29 Survival of Representations and Warranties. Borrower
covenants, warrants and represents to DFS that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance thereof by DFS and the parties thereto and the closing of the
transactions described therein or related thereto until three (3) years after
all Obligations of any kind and any nature have been indefeasibly satisfied in
full by Borrower or until otherwise agreed to in writing by DFS.
9. BORROWER'S COVENANTS
9.1 Affirmative Covenants. During the term of this Agreement
and thereafter for so long as any Obligations are outstanding and unpaid,
Borrower covenants that unless otherwise consented to by DFS in writing, it
shall perform all the acts and promises required by this Agreement and all the
acts and promises set forth below.
9.1.1 Payment and Performance. Borrower will pay and
perform all Obligations in full when and as due hereunder.
9.1.2 Insurance.
(a) Type of Insurance. Borrower will at all times cause the Business and the
Collateral to be insured by insurers of reasonable financial soundness and
having an A. M. Best rating of A or better, with such policies, against such
risks and in such amounts as are appropriate for reasonably prudent businesses
in Borrower's industry and of Borrower's size and financial strength.
(b) Requirements as to Insurance Policies. The policies of insurance which
Borrower is required to carry shall comply with the requirements listed below:
(i) Each such policy shall provide that it may not be canceled or allowed to
lapse at the end of a policy period without at least 30 days' prior written
notice to DFS;
(ii) Each liability and hazard insurance policy shall name DFS as an
additional insured; and
(iii) Each property insurance policy required hereunder shall contain a
standard lender's loss payable clause in favor of DFS. Such insurance policies
shall also contain lender's loss payable endorsements satisfactory to DFS
providing, among other things, that any loss shall be payable in accordance with
the terms of such policy notwithstanding any act of Borrower which might
otherwise result in forfeiture of such insurance;
(c) Collection of Claims. Borrower will promptly advise DFS of any insured
casualty and Borrower agrees that DFS may direct all insurance proceeds
therefrom to be paid directly to DFS to the extent that such loss is not
adequately insured under an insurance policy which names DFS as a loss payee,
and hereby appoints DFS its attorney-in-fact for such purpose.
(d) Blanket Policies. Any insurance required hereunder may be supplied by
means of a blanket or umbrella insurance policy.
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(e) Delivery of Policies or Certificates of Insurance. Borrower shall deliver
to DFS certificates of insurance issued by insurers to evidence that the
insurance maintained by Borrower complies with the requirements hereunder.
9.1.3 Collection of Receivables; Sale of Inventory.
Borrower will collect its Accounts and sell its Inventory only in the ordinary
course of business, unless written permission to the contrary is obtained from
DFS.
9.1.4 Notice of Litigation and Proceedings. Borrower
will give prompt notice to DFS of: (a) any litigation or proceeding (including
fines and penalties of any public authority) in which it, or any of the
Subsidiaries is a party in which there is a reasonable probability of an adverse
decision which might materially and adversely affect its or any of its
Subsidiary's operations, financial condition, property or the Business, whether
or not the claim is considered to be covered by insurance; (b) any class action
litigation against it, regardless of size; and (c) the institution of any other
suit or proceeding that might materially and adversely affect its or any of its
Subsidiary's operations, financial condition, property or the Business.
9.1.5 Payment of Indebtedness to Third Persons.
Borrower will, and will cause each Subsidiary to, pay, when due, all
Indebtedness and any other liability due third persons, except when the amount
thereof is being contested in good faith by appropriate proceedings and with
adequate reserves therefor satisfactory to DFS in accordance with GAAP being set
aside by Borrower or such Subsidiary. DFS will use reasonable efforts to attempt
to give Borrower notice before DFS requires Borrower to set aside additional
reserves.
9.1.6 Notice of Change of Business Location. Borrower
will notify DFS 30 days in advance of: (a) any change in or discontinuation of
the location of the Collateral, Borrower's principal place of business, or any
of the Subsidiaries' existing offices or places of business, (b) the
establishment of any new places of business relating to the Business, and (c)
any change in or addition to the locations where Borrower's Inventory or records
are kept.
9.1.7 Payment of Taxes. Borrower will, and will cause
each Subsidiary to, pay or cause to be paid, when and as due, all taxes,
assessments and charges or levies imposed upon it or on any of its property or
that it is required to withhold and pay over to the taxing authority or that it
must pay on its income, the failure of which to pay would have a material
adverse effect on Borrower individually, or on Borrower and the Subsidiaries on
a consolidated basis, except where contested in good faith by appropriate
proceedings with adequate reserves therefor satisfactory to DFS, in accordance
with GAAP, having been set aside by Borrower or such Subsidiary. DFS will use
reasonable efforts to give Borrower notice before DFS requires additional
reserves. However, Borrower will and will cause each Subsidiary to, pay or cause
to be paid all such taxes, assessments, charges or levies immediately whenever
foreclosure of any Lien that attaches on the Collateral appears imminent.
9.1.8 Further Assurances. Borrower agrees to, and will
cause each Subsidiary to, execute such other and further documents, including,
without limitation, deeds of trust, promissory notes, security agreements,
financing statements, continuation statements, certificates of title, and the
like as may from time to time in the reasonable opinion of DFS be necessary to
perfect, confirm, establish, re-establish, continue, or complete the security
interests, collateral assignments and Liens in the Collateral, and the purposes
and intentions of this Agreement.
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9.1.9 Maintenance of Status. Borrower will take all
necessary steps to (a) preserve its, and each Subsidiary's, existence as a
corporation, (b) preserve Borrower's and the Subsidiaries' franchises and
permits, and (c) comply with all present and future material agreements to which
Borrower, or any of the Subsidiaries, is subject, and (d) maintain, and cause
each Subsidiary to maintain, its qualification and good standing in all states
in which such qualification is necessary or in which the failure to be so
qualified might have a material adverse effect on the financial condition or
properties of Borrower or the Business. Borrower will not change the nature of
the Business during the term of this Agreement without DFS' prior written
consent, which consent shall not be unreasonably withheld.
9.1.10 Financial Statements; Reporting Requirements;
Certification as to Events of Defaults. During the term of this Agreement,
Borrower will furnish two copies of the following to DFS:
(a) within 90 days after the end of each fiscal year, annual financial
statements for Creative and its Subsidiaries as of the end of such fiscal year,
consisting of a consolidated and consolidating balance sheet, consolidated and
consolidating statement of operations, consolidated and consolidating statements
of cash flows and consolidated and consolidating statement of stockholder's
equity, in comparative form, together with a narrative description of the
financial condition and results of operations and the liquidity and capital
resources of Creative and setting forth in comparative form the corresponding
figures for the corresponding period of the prior fiscal year and the
corresponding figures from the most recent financial projections of Creative and
its Subsidiaries, discussing the reasons for any significant variations. The
statements and balance sheet will be audited by an independent firm of certified
public accountants selected by Creative and acceptable to DFS, and certified by
that firm of certified public accountants to have been prepared in accordance
with GAAP. The certified public accountants will render an unqualified opinion
as to such statements and balance sheets. DFS will have the absolute and
irrevocable right, from time to time, to discuss the affairs of Creative and its
Subsidiaries directly with the independent certified public accountant after
prior notice to Creative and the reasonable opportunity of Creative to be
present at any such discussions;
(b) by the 45th day of each quarter, a certificate of the President, or Chief
Financial Officer, in the form of Exhibit 9.1.10(b) attached hereto, of Borrower
stating that such Person has reviewed the provisions of the Loan Documents and
that a review of the activities of Borrower during such quarter has been made by
or under such Person's supervision with a view to determining whether Borrower
has observed and performed all of Borrower's obligations under the Loan
Documents, and that, to the best of such Person's knowledge, information and
belief, Borrower has observed and performed each and every undertaking contained
in the Loan Documents and is not at the time in default in the observance or
performance of any of the terms and conditions thereof or, if Borrower will be
so in default, specifying all of such defaults and events of which such Person
may have knowledge;
(c) promptly upon receipt thereof, copies of all final reports and final
management letters submitted to Borrower or any of the Borrower's Subsidiaries
by independent accountants in connection with any annual or interim audit of the
books of Borrower or such Subsidiaries made by such accountants;
(d) copies of any and all reports, filings and other documentation delivered to
the Securities and Exchange Commission or any state securities
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commission by or on behalf of Borrower promptly after the delivery thereof, if
applicable; and
(e) any other statements, reports and other information as DFS may reasonably
request concerning the financial condition or operations of Borrower and its
properties.
9.1.11 Notice of Existence of Default. Borrower will,
and will cause its Subsidiaries to, promptly notify DFS of: (a) the existence of
any known condition or event, which constitutes a Default or an Unmatured
Default and (b) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted Borrower or for Borrower's benefit and used in the Business, or granted
to any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.
9.1.12 Compliance with Laws. Borrower will, and will
cause its Subsidiaries to, comply in all material respects with all applicable
laws, rules, regulations and orders.
9.1.13 Maintenance of Collateral. Borrower will
maintain all material Collateral and every part thereof in good condition and
repair. Borrower will not permit the value of the Collateral to be materially
impaired. Borrower will defend the Collateral against all claims and legal
proceedings by persons other than DFS. Borrower will not transfer the Collateral
from the premises where now located (other than Inventory sold in the ordinary
course of business and other Collateral transferred in the ordinary course of
business), or permit the Collateral to become a fixture or accession (unless so
affixed on the Effective Date) to any goods which are not items of Collateral,
without the prior written approval of DFS. Borrower will not permit the
Collateral to be used in violation of any applicable law, regulations, or any
policy of insurance. As to Collateral consisting of instruments and chattel
paper, Borrower will preserve rights in it against prior parties.
9.1.14 Collateral Records and Statements. Borrower will
keep such accurate and complete books and records pertaining to the Collateral
in such detail and form as DFS reasonably requires, including, but not limited
to: schedules of inventory; original orders; invoices; shipping documents;
billing settlements and receivables; sold receivables; Inventory listing
containing model, serial number (if available) and location. Other reporting
will be available upon request by DFS, including, but not be limited to,
accounts payable agings in such form as DFS reasonably requires. The statements
will be in the form and will contain the information as is prescribed by DFS.
9.1.15 Inspection of Collateral. DFS and any third
party appraiser selected by DFS may examine the Collateral at any time, and from
time to time during normal business hours. DFS and any third party appraiser
selected by DFS will have full access to, and the right to: (a) review, inspect
and make abstracts and copies from Borrower's books and records pertaining to
the Collateral, and (b) inspect and examine Inventory and check and test the
same as to quality, quantity, Value and condition, wherever located, at any time
during reasonable business hours, and from time to time. Borrower will assist
DFS and any third party appraiser selected by DFS in so doing. Borrower will pay
a fee to DFS in the amount of $550 per auditor, per day, plus all out-of-pocket
expenses (including but not limited to costs, fees and expenses of any third
party appraiser selected by DFS), incurred in connection with any such
Collateral review and any other reviews performed under the Loan Documents as
frequently as DFS shall reasonably determine, but at least quarterly, and
Borrower agrees that
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such fee is not interest but rather reimburses DFS for its out-of-pocket and
allocated overhead expenses incurred in conducting such audits.
9.1.16 Landlord's Agreements. Borrower will provide or
cause to be provided, on the Effective Date, landlord waivers and agreements in
a form acceptable to DFS with respect to leased real property and with respect
to any future leases, prior to entering into them.
9.2 Negative Covenants. During the term of this
Agreement and thereafter, for so long as any Obligations are outstanding and
unpaid, Borrower covenants that unless otherwise consented to in writing by DFS,
Borrower shall not perform or cause or permit to be performed the following
acts:
9.2.1 Change of Name, Etc. Borrower and the
Subsidiaries will not change their name, or begin to trade under any assumed
names or trade names without thirty (30) days prior written notice to DFS.
Borrower will not, and will not permit any Subsidiary to, change its manner of
organization, enter into any mergers, consolidations, reorganizations or
recapitalizations without DFS' prior written consent other than as contemplated
herein which consent shall not be unreasonably withheld.
9.2.2 Sale or Transfer of Assets. Except in the
ordinary course of business, or except as consented to in writing by DFS,
Borrower and the Subsidiaries will not sell, transfer, lease (including sale-
leaseback) or otherwise dispose of all or any substantial part of their assets.
This provision will not apply to any sale if the proceeds of such sale pay the
Obligations in full.
9.2.3 Encumbrance of Assets. Borrower will not, and
will not permit a Subsidiary to, mortgage, pledge, grant or permit to exist a
security interest in or Lien upon any of the Collateral, now owned or hereafter
acquired except for the Permitted Liens.
9.2.4 Acquisition of Stock or Assets; New
Subsidiaries. Borrower and the Subsidiaries will not, without using all
reasonable efforts to give 30 days prior written notice to DFS, acquire, or
enter into any agreement, commitment letter or letter of intent to acquire, all
or substantially all the assets of, equity interest or stock in, another
business. Borrower will not, without DFS' prior written consent, hereafter
create any new Subsidiaries.
9.2.5 False Certificates or Documents. Borrower has
not and will not, and will not permit any Subsidiary to, furnish DFS with any
certificate or other document that contains any untrue statement of material
fact or that omits to state a material fact necessary to make it not misleading
in light of the circumstances under which it was furnished.
9.2.6 Assignment. Borrower will not assign or attempt
to assign the Loan Documents or any of its interests under the Loan Documents,
except in favor of DFS.
9.2.7 Transactions with Affiliates. Borrower will not
enter into any contracts, leases, sales or other transactions with any Affiliate
on terms less favorable than could be obtained generally by Borrower from a non-
Affiliate.
9.2.8 Dividends. Borrower will not declare or pay any
dividends upon its capital stock without DFS' prior written consent.
9.2.9 [INTENTIONALLY DELETED]
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9.2.10 Loans by Borrower. Borrower will not, and will
not permit any Subsidiary to, make any loan to any Person, except for loans in
anticipation of reasonable and normally reimbursable business expenses and trade
credit extended in the ordinary course of Business.
9.2.11 Fiscal Year. Borrower will not, and will not
permit any Subsidiary to, change its fiscal year-end without sixty (60) days
prior written notice to DFS.
9.2.12 Total Indebtedness. Borrower shall not create,
incur, assume, or suffer to exist, or permit any Subsidiary to create, incur or
suffer to exist, any Indebtedness, except:
(a) the Obligations;
(b) Subordinated Debt;
(c) Indebtedness of any Subsidiary to Borrower; and
(d) Accounts payable to trade creditors and current operating expenses (other
than for money borrowed) incurred in the ordinary course of business which are
aged not more than thirty (30) days past due, unless actively contested in good
faith and by appropriate and lawful proceedings and for which adequate reserves
have been established in accordance with GAAP.
9.2.13 Adverse Transactions. Borrower will not enter
into any transaction, or permit any Subsidiary to enter into any transaction,
which materially and adversely affects or may materially and adversely affect
the Collateral or Borrower's ability to repay the Obligations or permit or agree
to any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any of
the terms relating thereto, other than discounts and allowances in the ordinary
course of business, all of which shall be reflected in the Borrowing Base
Certificate submitted to DFS pursuant to Section 3.3 of this Agreement.
9.2.14 Guaranties. Borrower will not guarantee, assume,
endorse or otherwise, in any way, become directly or contingently liable with
respect to the Indebtedness of any Person, except by endorsement of instruments
or items of payment for deposit or collection.
9.2.15 Bill-and-Hold Sales, Etc. Borrower will not make
a sale to any customer on a bill-and-hold, guaranteed sale, sale and return,
sale on approval or consignment basis, or any sale on a repurchase or return
basis.
9.2.16 Margin Securities. Borrower will not own,
purchase or acquire, or permit any Subsidiary to own, purchase or acquire, (or
enter, or permit any Subsidiary to enter, into any contract to purchase or
acquire) any "margin security" as defined by any regulation of the Federal
Reserve Board as now in effect or as the same may hereafter be in effect unless,
prior to any such purchase or acquisition or entering into any such contract,
DFS shall have received an opinion of counsel satisfactory to DFS to the effect
that such purchase or acquisition will not cause this Agreement to violate
Regulations G or U or any other regulation of the Federal Reserve Board then in
effect.
9.2.17 Tax Consolidation. Borrower will not file or
consent to the filing of any consolidated income tax return with any Person
other than a Subsidiary.
9.2.18 Stock Redemption. Borrower will not redeem or
purchase any of its outstanding capital stock, warrants in favor of anyone other
than DFS, or stock options or convert or permit such stock, warrants or options
to be converted into cash, nor has or shall Borrower guaranty to
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any of its shareholders any minimum stock price or valuation other than in
connection with the option plan and the stock redemption plan described on
Exhibit 8.16.
9.3 FINANCIAL COVENANTS.
9.3.1 Amounts. Borrower agrees that it will at all
times maintain the following:
(a) a Tangible Net Worth plus Subordinated Debt in the combined amount of not
less than Five Million Dollars ($5,000,000).
For purposes of this paragraph: (i) "Tangible Net Worth" means the book value of
Borrower's assets less liabilities (including as liabilities all reserves for
contingencies and other potential liabilities), excluding from such assets all
Intangibles; (ii) "Intangibles" means and includes general intangibles (as that
term is defined in the Uniform Commercial Code); accounts receivable and
advances due from officers, directors, member, owner, employees, stockholders
and affiliates; leasehold improvements net of depreciation; licenses; good will;
prepaid expenses; escrow deposits; covenants not to compete; the excess of cost
over book value of acquired assets; franchise fees; organizational costs;
finance reserves held for recourse obligations; capitalized research and
development costs; and such other similar items as DFS may from time to time
determine in DFS' sole discretion; (iii) "Debt" means all of Borrower's
liabilities and indebtedness for borrowed money of any kind and nature
whatsoever, whether direct or indirect, absolute or contingent, and including
obligations under capitalized leases, guaranties or with respect to which
Borrower has pledged assets to secure performance, whether or not direct
recourse liability has been assumed by Borrower; and (iv) "Subordinated Debt"
means all of Borrower's Debt which is subordinated to the payment of Borrower's
liabilities to DFS by an agreement in form and substance satisfactory to DFS.
The foregoing terms will be determined in accordance with GAAP consistently
applied, and, if applicable, on a consolidated basis ("Financial Covenants").
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9.3.2 Covenant Compliance Certificate. The President or Chief
Financial Officer of Borrower will certify to DFS by the 10th Business day of
each month, or more often if requested by DFS, that Borrower is in compliance
with the Financial Covenants as set forth in a form acceptable to DFS in its
sole discretion.
10. DEFAULT/REMEDIES
Borrower will be in default under this Agreement (each, a "Default")
if:
(I) Borrower breaches any of the following terms and conditions and such
breach is not cured to DFS' satisfaction within ten (10) Business Days after
Borrower's receipt of notice of such breach from DFS:
(a) Borrower breaches any terms, covenants, warranties or
representations contained herein, or in any other Loan Document;
(b) any Guarantor breaches any terms, covenants, warranties or
representations contained in any guaranty or other agreement between such
Guarantor and DFS, revokes or attempts to revoke any such guaranty agreement, or
repudiates such Guarantor's liability thereunder;
(c) any representation, statement, report or certificate made or
delivered by Borrower or any Guarantor to DFS is not accurate when made;
(d) [INTENTIONALLY DELETED];
(e) Borrower abandons any material amount of Collateral;
(f) Borrower or any Guarantor is or becomes in default of any
obligation owed to any third party which in the aggregate at any time exceeds
$100,000;
(g) a money judgment issues against Borrower or any Guarantor which
in the aggregate at any time exceeds $100,000;
(h) an attachment, sale or seizure issues or is executed against any
assets of Borrower or against any assets of any Guarantor;
(i) [INTENTIONALLY DELETED];
(j) Borrower ceases existence as a corporation, partnership, trust or
limited liability company;
(k) Borrower ceases or suspends business;
(l) Borrower or any Guarantor makes a general assignment for the
benefit of creditors;
(m) Borrower or any Guarantor becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law;
(n) any receiver is appointed for any of Borrower's or any
Guarantor's assets;
(o) any guaranty of Borrower's debts to DFS is terminated by a
Guarantor or Borrower;
(p) Borrower loses any material franchise, permission, license or
right to sell or deal in any Collateral;
(q) Borrower or any Guarantor misrepresents Borrower's or such
Guarantor's financial condition or organizational structure;
(r) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien;
(s) Borrower shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any material
part of its Business; or any material lease or agreement pursuant to which
Borrower leases, uses or occupies any property shall be canceled or terminated
prior to the expiration of its stated term, or any part of the Collateral shall
be taken through condemnation or the value thereof shall be impaired through
condemnation;
(t) Frank Khulusi shall cease to own and control, beneficially and of
record, at least 10% of the issued and outstanding capital stock of Creative, or
(2) Creative shall cease to own and control, beneficially and of record, all of
the issued and outstanding capital stock of Borrower; or
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(u) there shall occur a material adverse change in the financial or
other condition or business prospects of Borrower or any Guarantor; or
(II) (a) Borrower fails to pay any portion of Borrower's debts to DFS when
due and payable hereunder or under any other agreement between DFS and Borrower,
or (b) there shall occur a default under Creative's agreements with DFS or under
the Borrower-Creative Guaranty.
In the event of a Default:
(i) DFS may at any time at DFS' election, without notice or demand to
Borrower, do any one or more of the following: cease making further Loans and
declare all or any of the Obligations immediately due and payable, together with
all costs and expenses of DFS' collection activity, including, without
limitation, all reasonable attorneys' fees; exercise any or all rights under
applicable law (including, without limitation, the right to possess, transfer
and dispose of the Collateral); and/or cease extending any additional credit to
Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for DFS, and in
good order and repair, and will not sell, rent, lease, consign, otherwise
dispose of or use any Collateral, nor further encumber any Collateral.
(iii) Upon DFS' oral or written demand, Borrower will immediately deliver the
Collateral to DFS, in good order and repair, at a place specified by DFS,
together with all related documents; or DFS may, in DFS' sole discretion and
without notice or demand to Borrower, take immediate possession of the
Collateral together with all related documents.
(iv) DFS may, without notice, apply the Default Interest Rate.
(v) DFS may, without notice to Borrower and at any time or times, enforce
payment and collect, by legal proceedings or otherwise, Accounts in the name of
Borrower or DFS; and take control of any cash or non-cash items of payment or
proceeds of Accounts and of any rejected, returned, repossessed or stopped in
transit goods relating to Accounts. DFS may at its sole election and without
demand enter, with or without process of law, any premises where Collateral
might be and, without charge or liability to DFS therefor do one or more of the
following: (i) take possession of the Collateral and use or store it in said
premises or remove it to such other place or places as DFS may deem convenient;
(ii) take possession of all or part of such premises and the Collateral and
place a custodian in the exclusive control thereof until completion of
enforcement of DFS' security interest in the Collateral or until DFS' removal of
the Collateral and, (iii) remain on such premises and use the same, together
with Borrower's materials, supplies, books and records, for the purpose of
liquidating or collecting such Collateral and conducting and preparing for
disposition of such Collateral.
(vi) Upon the occurrence of a Default under Sections 10.1 (l), (m), or (n),
all Obligations shall automatically be accelerated and due and payable and the
Default Interest Rate shall automatically apply as of the date of the first
occurrence of such Default, without any prior notice, demand or action of any
type on the part of DFS.
All of DFS' rights and remedies are cumulative. DFS' failure to exercise any of
DFS' rights or remedies hereunder will not waive any of DFS' rights or remedies
as to any past, current or future Default.
11. SALE OF COLLATERAL
Borrower agrees that if DFS conducts a private sale of any
Collateral by requesting bids from 10 or more dealers or distributors in that
type of Collateral, any sale by DFS of such Collateral in bulk or in parcels
within 120 days of: (a) DFS' taking possession and control of such Collateral;
or (b) when DFS is otherwise authorized to sell such Collateral; whichever
occurs last, to the bidder submitting the highest cash bid
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therefor, is a commercially reasonable sale of such Collateral under the Uniform
Commercial Code. Borrower agrees that the purchase of any Collateral by a
vendor, as provided in any agreement between DFS and the vendor, if any, is a
commercially reasonable disposition and private sale of such Collateral under
the Uniform Commercial Code, and no request for bids shall be required. Borrower
further agrees that 10 or more days prior written notice will be commercially
reasonable notice of any public or private sale (including any sale to a
vendor). Borrower irrevocably waives any requirement that DFS retain possession
and not dispose of any Collateral until after an arbitration hearing,
arbitration award, confirmation, trial or final judgment. If DFS disposes of any
such Collateral other than as herein contemplated, the commercial reasonableness
of such disposition will be determined in accordance with the laws of the state
governing this Agreement.
12. INDEMNIFICATIONS
12.1 General Indemnity. In addition to the payment of expenses and
attorneys' fees, if applicable, whether or not the transactions contemplated
hereby shall be consummated, Borrower agrees to indemnify, pay and hold DFS and
the officers, directors, employees, agents, and affiliates of DFS (collectively
called the "Indemnitees") harmless from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by DFS, DFS' agreement to make the Loans or any other payment
hereunder, or the use or intended use of the proceeds of any of the Loans
hereunder. Additionally, Borrower also agrees to (i) indemnify and hold DFS
harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making Loans, except for any
loss or expense arising from DFS' gross negligence or willful misconduct
(provided, however, that reliance alone upon telephonic or other instructions
shall not itself be deemed to constitute gross negligence or willful
misconduct), and (ii) to pay and save DFS harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Agreement or any of the other Loan Documents (the provisions of
the preceding two sentences being referred to collectively as the "Indemnified
Liabilities"). However, Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of an Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
provisions of the undertakings and indemnification set out in this Section 12.1
shall survive satisfaction and payment of the Obligations and termination of
this Agreement.
12.2 Environmental and Safety and Health Indemnity. Borrower hereby
indemnifies the Indemnitees and agrees to hold the Indemnitees harmless from and
against any and all losses, liabilities, damages, injuries, costs, expenses and
claims of any and every kind whatsoever (including, without limitation, court
costs and attorneys' fees) which at any time or from time to time may be paid,
incurred or suffered by, or asserted against, an Indemnitee for, with respect
to, or as a direct or
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indirect result of the violation by Borrower or any Subsidiary, of any
Environmental Law or OSHA Law; or with respect to, or as a direct or indirect
result of (a) the presence on or under, or the escape, seepage, leakage,
spillage, disposal, discharge, emission or release from, properties utilized by
Borrower and/or any Subsidiary in the conduct of its business into or upon any
land, the atmosphere, or any watercourse, body of water or wetland, of any
Hazardous Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance (including, without limitation, any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or arising
under the Environmental Laws) or (b) the existence of any unsafe or unhealthful
condition on or at any premises utilized by Borrower and/or any Subsidiary in
the conduct of its business. The provision of and undertakings and
indemnification set out in this Section 12.2 shall survive satisfaction and
payment of the Obligations and termination of this Agreement.
13. OTHER TERMS
13.1 Amendment, Changes and Modification. The Loan Documents may be
amended, changed or modified only as may be agreed upon in writing by Borrower
and DFS from time to time.
13.2 Binding Effect. The Loan Documents will be binding upon the
parties, their successors and assigns, provided, however, that Borrower shall
not assign or attempt to assign this Agreement, any other Loan Document or any
of its interests under the Loan Documents, without the prior written consent of
DFS.
13.3 Broker Fee. Neither party is obligated to pay any premium or
other charge, brokerage fee or commission in connection with the agreements set
forth herein. Each party will indemnify the other and hold it harmless from any
such claim arising out of such party's acts or those of its representatives.
13.4 Entire Agreement. The Loan Documents embody the entire agreement
of the parties relating to the Credit Facility. There are no promises, terms,
conditions, obligations or warranties other than those contained in the Loan
Documents. The Loan Documents supersede all prior communications,
representations or agreements, verbal or written, between the parties relating
to the Credit Facility.
13.5 Headings. The headings to the sections of this Agreement are
included only for the convenience of the parties and will not have the effect of
defining, diminishing or enlarging the rights of the parties or affecting the
construction or interpretation of any portion of this Agreement.
13.6 Incorporation by Reference. All other Loan Documents are
incorporated herein by this reference and are made a part of this Agreement as
if fully set forth herein. This Agreement, prior to such incorporation, controls
in the event of any conflict with the terms of any other Loan Documents.
13.7 Interpretation. For the purpose of construing this Agreement,
unless the context otherwise requires, words in the singular will be deemed to
include words in the plural, and vice versa.
13.8 Notices. Any notice under the Loan Documents, will be in
writing. Any notice to be given or document to be delivered under the Loan
Documents will be deemed to have been duly given upon delivery, if delivered in
person or by any expedited delivery service which provides proof of delivery,
upon tested telex or facsimile transmission, or on the fifth
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Business Day after mailing, if mailed by certified mail, return receipt
requested, postage prepaid mail, addressed to DFS or Borrower at the appropriate
addresses. DFS will use reasonable efforts to deliver any notice DFS is required
to give to Borrower; provided, however, that failure by DFS to actually give any
such notice will not be deemed to be a waiver of any rights or remedies of DFS
and will not give rise to any claims, defenses or damages by Borrower. The
addresses for notices are those set forth below or such other addresses as may
be hereafter specified by written notice by the parties:
to DFS: Deutsche Financial Services Corporation
2401 East Katella Ave., Suite 400
Anaheim, CA 92803-4850
Attention: Regional Vice President
Facsimile No.: (714) 937-0173
with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.:(314) 523-3228
to Borrower: Elek-Tek Acquisition Corporation
2645 Maricopa Street
Torrance, CA 90503
Attention: Mr. Richard Finkbeiner, CFO
Facsimile No.: (310) 222-5807
with a copy to: Robins, Kaplan, Miller & Ciresi
2049 Century Park East, Suite No. 3700
Los Angeles, CA 90067
Attention: J. Kevin Snyder, Esq.
Facsimile No.: (310) 229-5800
13.9 No Third Party Beneficiary Rights and Reliance. No Person not a
party to this Agreement will have any benefit under this Agreement nor have
third-party beneficiary rights as a result of any of the Loan Documents, nor
will any party be entitled to rely on any actions or inactions of DFS or its
agents, all of which are done for the sole benefit and protection of DFS.
13.10 Protection or Preservation of Collateral. DFS will not have any
contractual duty to protect, insure, collect or realize upon the Collateral or
preserve rights in it against prior parties. DFS will not be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral regardless of the cause.
13.11 Relationship of the Parties. Neither DFS on the one hand nor
Borrower on the other hand will be deemed a partner, joint venturer or related
entity of the other by reason of the Loan Documents.
13.12 Reversal of Payments. To the extent that Borrower makes a
payment or payments to DFS, which payment or payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law, or equitable cause,
then to the extent of such payment or proceeds received, the Credit Facility
will be revived and continue in full force and effect, as if such payment or
proceeds had not been received by DFS.
13.13 Severability. If any provision of this Agreement (either
generally, or as to a specific application to a set of facts) will be held
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to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement (either
in its entirety, or as to or the application of such provision to any other set
of facts), but this Agreement will be construed as if such invalid, illegal or
unenforceable provision never had been included in this Agreement.
13.14 Maximum Interest. Borrower acknowledges that DFS intends to
strictly conform to the applicable usury laws governing this Agreement.
Regardless of any provision contained herein or in any other document executed
or delivered in connection herewith or therewith, DFS shall never be deemed to
have contracted for, charged or be entitled to receive, collect or apply as
interest on this Agreement (whether termed interest herein or deemed to be
interest by judicial determination or operation of law), any amount in excess of
the maximum amount allowed by applicable law, and, if DFS ever receives,
collects or applies as interest any such excess, such amount which would be
excessive interest will be applied first to the reduction of the unpaid
principal balances of advances under this Agreement, and, second, any remaining
excess will be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds the highest lawful rate,
Borrower and DFS shall, to the maximum extent permitted under applicable law:
(a) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or fee rather
than as interest; (b) exclude voluntary pre-payments and the effect thereof; and
(c) spread the total amount of interest throughout the entire term of this
Agreement so that the interest rate is uniform throughout such term.
13.15 Waivers by DFS. DFS may at any time or from time to time waive
all or any rights under any of the Loan Documents, but any waiver or indulgence
at any time or from time to time will not constitute, unless specifically so
expressed by DFS in writing, a future waiver by DFS of performance by Borrower.
13.16 Survival. The grant of security interest herein to secure all
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until all
Obligations have been paid in full and this Agreement has been terminated. The
Agreement to arbitrate all Disputes will survive termination of this Agreement.
13.17 Participations; Assignments. DFS may, without the consent of
Borrower, grant participations in or assign, at any time and from time to time
hereafter, its interest in this Agreement or any Loan Document, or of any
portion thereof.
13.18 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
13.19 Information. DFS may provide to any third party any credit,
financial or other information on Borrower that DFS may from time to time
possess provided that any such disclosure shall be subject to an appropriate
confidentiality agreement.
13.20 Release. Borrower releases DFS from all claims and causes of
action which Borrower may now or hereafter have for any loss or damage to it
claimed to be caused by or arising from: (a) any failure of DFS to protect,
enforce or collect, in whole or in part, any Account; (b) DFS' notification to
any Account Debtors thereon of DFS' security interest in any of the Accounts;
(c) DFS' directing any Account Debtor to pay any sum owing
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to Borrower directly to DFS; and (d) any other act or omission to act on the
part of DFS, its officers, agents or employees, except for willful misconduct or
gross negligence. DFS will have no obligation to preserve rights to Accounts
against prior parties.
13.21 Miscellaneous. Time is of the essence regarding Borrower's
performance of its obligations to DFS notwithstanding any course of dealing or
custom on DFS' part to grant extensions of time. Borrower's liability under this
Agreement is direct and unconditional and will not be affected by the release or
nonperfection of any security interest granted hereunder. DFS will have the
right to refrain from or postpone enforcement of this Agreement or any other
Loan Documents without prejudice and the failure to strictly enforce the Loan
Documents will not be construed as having created a course of dealing between
DFS and Borrower contrary to the specific terms of the Loan Documents or as
having modified, released or waived the same. The express terms of this
Agreement and the other Loan Documents will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the terms
hereof. If Borrower fails to pay any taxes, fees or other obligations which may
impair DFS' interest in the Collateral, or fails to keep the Collateral insured,
DFS may, but shall not be required to, pay such taxes, fees or obligations and
pay the cost to insure the Collateral, and the amounts paid will be: (a) an
additional debt owed by Borrower to DFS, which shall be subject to finance
charges as provided herein; and (b) due and payable immediately in full.
Borrower agrees to pay all of DFS' reasonable attorneys' fees and expenses
incurred by DFS in enforcing DFS' rights hereunder.
13.22 Waivers by Borrower. Borrower irrevocably waives notice of:
DFS' acceptance of this Agreement, presentment, demand, protest, nonpayment,
nonperformance, and dishonor. Borrower and DFS irrevocably waive all rights to
claim any punitive and/or exemplary damages. Borrower waives all rights of
offset Borrower may have against DFS. Borrower waives all notices of default and
non-payment at maturity of any or all of the Accounts.
13.23 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LEND
MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU,
(BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
DESCRIBED IN SECTION 13.24 AND AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. DFS may, from time to
time, announce in writing to Borrower its policies and procedures regarding its
administration of this facility including, without limit, DFS' fees and/or
charges for transfers of funds to or from Borrower, including Electronic
Transfers; any subsequent use by Borrower of this facility following any such
announcement shall constitute Borrower's acceptance of such revised policies and
procedures.
13.24 Supplement. If Borrower and DFS have heretofore executed other
agreements in connection with all or any part of the Collateral, this Agreement
shall supplement each and every other agreement previously executed by and
between Borrower and DFS, and in that event, this Agreement shall neither be
deemed a novation nor a termination of such previously executed agreement nor
shall execution of this Agreement be deemed a satisfaction of any obligation
secured by such previously executed agreement. In the event of any conflict
between this Agreement and any such other agreement, this Agreement shall govern
and control. Notwithstanding the foregoing, this Agreement replaces in its
entirety the AWF.
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13.25 Use of Counsel and Receipt of Agreement. Borrower acknowledges
that it has received a true and complete copy of this Agreement. Borrower
acknowledges that it has (a) had representation of counsel during negotiation of
this Agreement, and (b) read and understood this Agreement.
13.26 Facsimiles, Etc. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data transmission
or electronic data storage of any statement, Statement of Transaction, financial
statements or other reports, and (b) such facsimile copy, electronic data
transmission or electronic data storage will be deemed an original, and the best
evidence thereof for all purposes, including, without limitation, under this
Agreement or any other Loan Documents, and for all evidentiary purposes before
any arbitrator, court or other adjudicatory authority.
13.27 Power of Attorney. Borrower irrevocably appoints DFS (and any
Person designated by it) as Borrower's true and lawful Attorney with full power
to at any time, in the discretion of DFS (whether or not Default has occurred)
to: (a) endorse the name of Borrower upon any of the items of payment of
proceeds of the Collateral and deposit the same in the account of DFS for
application to the Obligations; (b) sign the name of Borrower to verify the
accuracy of the Accounts; (c) sign the name of Borrower on any document or
instrument that DFS shall deem necessary or appropriate to perfect and maintain
perfected the security interests in the Collateral under this Agreement and
other Loan Documents; (d) [INTENTIONALLY DELETED]; (e) endorse the name of
Borrower upon financing statements, instruments, Certificates of Title and
Statements of Origin pertaining to the Collateral; (f) supply omitted
information and correct errors in any documents between DFS and Borrower; and
(g) do anything to preserve and protect the Collateral and DFS' rights and
interest therein. In the event of a Default, Borrower irrevocably appoints DFS
(and any Person designated by it) as Borrower's true and lawful Attorney with
full power to at any time, in the discretion of DFS to: (i) demand payment,
enforce payment and otherwise exercise all of Borrower's rights, and remedies
with respect to the collection of any Accounts; (ii) settle, adjust, compromise,
extend or renew any Accounts; (iii) settle, adjust or compromise any legal
proceedings brought to collect any Accounts; (iv) sell or assign any Accounts
upon such terms, for such amounts and at such time or times as DFS may deem
advisable; (v) discharge and release any Accounts; (vi) prepare, file and sign
Borrower's name on any Proof of Claim in Bankruptcy or similar document against
any Account Debtor; (vii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to any Account or goods pertaining thereto; (viii)
initiate and settle any insurance claim and endorse Borrower's name on any
check, instrument or other item of payment; and (ix) take control in any manner
of any item of payments or proceeds and for such purpose to notify the Postal
Authorities to change the address for delivery of mail addressed to Borrower to
such address as DFS may designate. This power of attorney is for value and
coupled with an interest and is irrevocable so long as any Obligations remain
outstanding and by DFS exercising such right, DFS shall not waive any right
against Borrower until the Obligations are paid in full.
13.28 Expenses. Borrower agrees, whether or not any Loan is made
hereunder, to pay DFS upon demand for all reasonable expenses, including
reasonable fees of attorneys for DFS (who may be employees of DFS), incurred by
(a) DFS in connection with the preparation, negotiation, and execution of this
Agreement and any other Loan Document (which DFS acknowledges shall be satisfied
by payment of the closing fee described in Creative's agreements with DFS), (b)
DFS in connection with the preparation of any and all amendments to this
Agreement and any other Loan Document, and all search, recording, filing, and
registration expenses, and (c) DFS in connection with
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the enforcement of the Borrower's obligations hereunder or under any other Loan
Document. Borrower's obligations under this Section 13.28 shall survive any
termination of this Agreement.
14. BINDING ARBITRATION.
14.1 Arbitrable Claims. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Agreement, and whether directly or indirectly relating to: (a) this Agreement
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between DFS and
Borrower; (c) any act committed by DFS or by any parent company, subsidiary or
affiliated company of DFS (the "DFS Companies"), or by any employee, agent,
officer or director of a DFS Company whether or not arising within the scope and
course of employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or dealing
between DFS and Borrower; and/or (d) any other relationship, transaction or
dealing between DFS and Borrower (collectively the "Disputes"), will be subject
to and resolved by binding arbitration.
14.2 Administrative Body. All arbitration hereunder will be conducted by
the American Arbitration Association ("AAA"). If the AAA is dissolved, disbanded
or becomes subject to any state or federal bankruptcy or insolvency proceeding,
the parties will remain subject to binding arbitration which will be conducted
by a mutually agreeable arbitral forum. The parties agree that all arbitrator(s)
selected will be attorneys with at least five (5) years secured transactions
experience. The arbitrator(s) will decide if any inconsistency exists between
the rules of any applicable arbitral forum and the arbitration provisions
contained herein. If such inconsistency exists, the arbitration provisions
contained herein will control and supersede such rules. The site of all
arbitration proceedings will be in Orange County, California.
14.3 Discovery. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than thirty (30) days after
the filing of a claim for arbitration, the petitioner shall provide the
respondent with detailed statements setting forth the facts supporting the
claim(s) to be raised during the arbitration, and a list of all exhibits and
witnesses then reasonably contemplated. No later than thirty (30) days after
respondent's receipt of such statements and other information from petitioner,
respondent shall provide the petitioner with detailed statements setting forth
the facts supporting the counterclaim(s) and all defenses to be raised during
the arbitration, and a list of all exhibits and witnesses then reasonably
contemplated. No later than twenty-one (21) days prior to the arbitration
hearing, the parties will exchange a final list of all exhibits and all
witnesses, including any designation of any expert witness(es) together with a
summary of their testimony; a copy of all documents and a detailed description
of any property to be introduced at the hearing. Depositions shall be permitted
but no more than 2 for each party and no single deposition shall extend for more
than 2 days nor more than 7 hours during any one-day period. Requests for the
production of documents shall be responded to (or objected to), within 20 days
of the request. All
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objections shall be ruled upon by the arbitrator. Requests for admission shall
be permitted but no more than 25 in the aggregate. Under no circumstances will
the use of interrogatories be permitted. However, in the event of the
designation of any expert witness(es), the following will occur: (a) all
information and documents relied upon by the expert witness(es) will be
delivered to the opposing party, (b) the opposing party will be permitted to
depose the expert witness(es), (c) the opposing party will be permitted to
designate rebuttal expert witness(es), and (d) the arbitration hearing will be
continued to the earliest possible date that enables the foregoing limited
discovery to be accomplished. The parties shall be entitled to make additional
discovery requests and the permissibility thereof shall be ruled upon by the
arbitrator.
14.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages and each party hereby
irrevocably waives any right to claim any exemplary or punitive damages.
14.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although any award
or order rendered by the arbitrator(s) pursuant to the terms of this Agreement
may be entered as a judgment or order in any state or federal court and may be
confirmed within the federal judicial district which includes the residence of
the party against whom such award or order was entered. This Agreement concerns
transactions involving commerce among the several states. The Federal
Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA") will
govern all arbitration(s) and confirmation proceedings hereunder.
14.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent DFS' or Borrower's use of bankruptcy, receivership,
injunction, repossession, replevin, claim and delivery, sequestration, seizure,
attachment, foreclosure, dation and/or any other prejudgment or provisional
action or remedy relating to any Collateral for any current or future debt owed
by either party to the other. Any such action or remedy will not waive DFS' or
Borrower's right to compel arbitration of any Dispute.
14.7 Attorneys' Fees. If either Borrower or DFS brings any other action
for judicial relief with respect to any Dispute (other than those set forth in
Section 14.6) the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer such Dispute to
arbitration. If either Borrower or DFS brings or appeals an action to vacate or
modify an arbitration award and such party does not prevail, such party will pay
all costs and expenses, including attorneys' fees, incurred by the other party
in defending such action. Additionally, if Borrower sues DFS or institutes any
arbitration claim or counterclaim against DFS in which DFS is the prevailing
party, Borrower will pay all costs and expenses (including attorneys' fees)
incurred by DFS in the course of defending such action or proceeding.
14.8 Limitations. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either party to
the other, within two (2) years after the date the last payment was received by
the instituting party; and (b) with respect to any other Dispute, within two (2)
years after the date the incident giving rise thereto occurred, whether or not
any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such period
will constitute an absolute bar and waiver to the institution of any proceeding,
whether arbitration or a court proceeding, with respect to such Dispute.
<PAGE>
14.9 Survival After Termination. The agreement to arbitrate will survive
the termination of this Agreement.
15. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT
IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT TO
ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
WITHOUT A JURY. BORROWER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH
PROCEEDING.
16. GOVERNING LAW. Borrower acknowledges and agrees that this and all
other agreements between Borrower and DFS have been substantially negotiated,
and will be substantially performed, in the state of California. Accordingly,
Borrower agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent with
the provisions of the FAA which shall control and govern all arbitration
proceedings hereunder.
IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS
ATTEST: CREATIVE COMPUTERS, INC.
(Borrower)
By: By:
Secretary Print Name:
Title:
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
Print Name:
Title:
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INDEX OF EXHIBITS
EXHIBIT 3.3 Borrowing Base Certificate
EXHIBIT 7.1(j) President's Certificate
EXHIBIT 7.1(l) Secretary's Certificate of Resolution
and Incumbency
EXHIBIT 8.3 Litigation
EXHIBIT 8.5 Liens
EXHIBIT 8.7 Subsidiaries
EXHIBIT 8.16 Capital Structure
EXHIBIT 8.17 Collateral Locations
EXHIBIT 8.18 Real Property Owned or Leased
EXHIBIT 8.20 Environmental, Health and
Safety Matters
EXHIBIT 8.21 PATENTS, COPYRIGHTS, TRADEMARKS
EXHIBIT 8.23(a) CAPITALIZED LEASES
EXHIBIT 8.23(b) OPERATING LEASES
EXHIBIT 8.24 LABOR RELATIONS
EXHIBIT 9.1.10(b) BUSINESS CREDIT AND SECURITY
AGREEMENT CERTIFICATIONS
102
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EXHIBIT 3.3
BORROWING BASE CERTIFICATE
[To Be Provided by DFS]
103
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EXHIBIT 7.1(j)
PRESIDENT'S CERTIFICATE
I, Frank khulusi, President of Creative Computers, Inc. Acquisition
Corporation, a Delaware corporation ("Borrower"), hereby certify to Deutsche
Financial Services Corporation ("DFS"), in connection with the Business Credit
and Security Agreement dated as of October 14, 1997 between Borrower and DFS
(the "Credit Agreement"; terms defined in the Credit Agreement are used herein
as so defined), that:
1. The representations and warranties of Borrower contained in Section 8
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date;
2. No event has occurred and is continuing, or would result from any
Loan being made to Borrower under the Credit Agreement on the date hereof, which
constitutes a Default; and
3. After the funding of the Loans to be made by DFS to Borrower on the
date hereof, Borrower will be in full compliance with all of the terms and
provisions of the Credit Agreement.
IN WITNESS WHEREOF, I have signed this Certificate this 14th day of
October, 1997.
Frank Khulusi, President
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EXHIBIT 7.1(l)
SECRETARY'S CERTIFICATE OF RESOLUTION AND INCUMBENCY
I certify that I am the Secretary or Assistant Secretary of the corporation
named below, and that the following completely and accurately sets forth certain
resolutions of the Board of Directors of the corporation adopted at a special
meeting thereof held on due notice (and with shareholder approval, if required
by law), at which meeting there was present a quorum authorized to transact the
business described below, and that the proceedings of the meeting were in
accordance with the certificate of incorporation, charter and by-laws of the
corporation, and that they have not been revoked, annulled or amended in any
manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion:
"RESOLVED, That the several officers, directors, and agents of this
corporation, or any one or more of them, are hereby authorized and empowered on
behalf of this corporation: to obtain financing from Deutsche Financial
Services Corporation ('DFS') in such amounts and on such terms as such officers,
directors or agents deem proper; to enter into financing, security, pledge and
other agreements with DFS relating to the terms upon which such financing may be
obtained and security and/or other credit support is to be furnished by this
corporation therefor; from time to time to supplement or amend any such
agreements; execute and deliver any and all assignments and schedules; and from
time to time to pledge, assign, mortgage, grant security interests, and
otherwise transfer, to DFS as collateral security for any obligations of this
corporation to DFS, whenever and however arising, any assets of this
corporation, whether now owned or hereafter acquired; the Board of Directors
hereby ratifying, approving and confirming all that any of said officers,
directors or agents have done or may do with respect to the foregoing."
I do further certify that the following are the names and specimen
signatures of the officers and agents of said corporation so empowered and
authorized, namely:
President:
(Print Name) (Signature)
Vice-President:
(Print Name) (Signature)
Secretary:
(Print Name) (Signature)
Treasurer:
(Print Name) (Signature)
Agent:
(Print Name) (Signature)
Witness by hand and seal of said corporation this 14th day of October, 1997.
(seal) Secretary
Creative Computers, Inc.
Name of Corporation
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EXHIBIT 8.3
LITIGATION
[To be provided by Borrower]
106
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EXHIBIT 8.5
LIENS
[To be provided by Borrower]
107
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EXHIBIT 8.7
SUBSIDIARIES
[To be provided by Borrower]
108
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EXHIBIT 8.16
CAPITAL STRUCTURE
[To be provided by Borrower]
[For Borrower and Each Subsidiary]
shares authorized
shares outstanding
par value
treasury shares
Description of stock option plan
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EXHIBIT 8.17
COLLATERAL LOCATIONS
[To be provided by Borrower]
110
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EXHIBIT 8.18
REAL PROPERTY OWNED OR LEASED
[To be provided by Borrower]
111
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EXHIBIT 8.20
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
[To be provided by Borrower]
112
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EXHIBIT 8.21
PATENTS, COPYRIGHTS, TRADEMARKS
[To be provided by Borrower]
113
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EXHIBIT 8.23(a)
CAPITALIZED LEASES
[To be provided by Borrower]
114
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EXHIBIT 8.23(b)
OPERATING LEASES
[To be provided by Borrower]
115
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EXHIBIT 8.24
LABOR RELATIONS
[To be provided by Borrower]
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EXHIBIT 9.1.10(b)
CREATIVE COMPUTERS, INC.
BUSINESS CREDIT AND SECURITY AGREEMENT CERTIFICATIONS
AS OF , 19
In accordance with Section 9.1.10(b) of the Business Credit and Security
Agreement dated as of October 14, 1997 ("Credit Agreement"), among Creative
Computers. Acquisition Corporation ("Borrower") and Deutsche Financial Services
Corporation, I certify that:
(i) the enclosed Borrower prepared monthly financial package
(Consolidating Balance Sheet and Consolidating Statement of Operations) as of
and for the period ending , 19 , all unaudited, fairly present
the financial position and results of operations of Borrower and its
Subsidiaries and have been prepared in accordance with generally accepted
accounting principles consistently applied.
(ii) to the best of my knowledge, Borrower has kept, observed,
performed and fulfilled each and every covenant, obligation and agreement
binding upon Borrower under the Credit Agreement and that no Default has
occurred.
CREATIVE COMPUTERS, INC.
By:
Title:
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Exhibit 99.1
Wednesday October 15 2:59 PM EDT
Company Press Release
Creative Computers, Inc. Completes Acquisition of $48 Million of Elek-Tek's
Assets for $29 Million
TORRANCE, Calif.--(BUSINESS WIRE)--Oct. 15, 1997--
Acquisition Aimed at Expanding Reach Into PC/Wintel Market;
Increases Credit Facility to $80 Million
Creative Computers, Inc. (Nasdaq:MALL) Wednesday announced that it had completed
the acquisition of substantially all of the assets of Skokie, Ill.-based Elek-
Tek Inc., a full-line marketer of major- brand PC/Wintel microcomputer products
and value-added services, for $29 million in cash.
This acquisition was completed as a result of bankruptcy court approval of the
agreement signed by Creative and Elek-Tek in connection with the Sept. 17, 1997
filing by Elek-Tek for protection under Chapter 11 of the U.S. Bankruptcy Code.
For the six months ended June 30, 1997, Elek-Tek reported revenues of $133
million. As a result of this acquisition, Creative is positioned to further
increase its sales in the PC/Wintel market.
"By closing this transaction, we acquired from Elek-Tek approximately $48
million in assets (subject to post-closing adjustments), $36 million of which
are current assets, for only $29 million, and without assuming any of Elek-Tek's
liabilities or leases,'' stated Frank Khulusi, Creative's chairman and chief
executive officer.
"More important, we acquired Elek-Tek's customer list and ongoing business
operations, which are compatible with our business model and provide Creative
with substantial growth opportunities. As part of our overall growth strategy,
we have focused on increasing our PC/Wintel sales, and have successfully
accomplished this through internal measures.
"With this transaction and the recent acquisition of ComputAbility, we further
enhance our model for increasing PC/Wintel sales going forward.
"The terms of this transaction were particularly appealing," explained
Khulusi. "Prior to this transaction, Creative had virtually no long-term debt
on the balance sheet. To consummate the acquisition, we increased our credit
line with Deutsche Financial Services to $80 million and are using $20 million
of this credit line for this transaction.
"Because this acquisition is largely comprised of liquid assets, we expect to
pay back some of the recently incurred debt by 1997 year end."
Creative's plan is to capitalize on the growth opportunities presented by this
transaction by combining Elek-Tek's considerable name recognition, established
sales force and strong customer base with its substantial direct-marketing
expertise. As previously announced, Creative expects to give up certain of Elek-
Tek's revenues to concentrate on profitable sales.
Creative will continue to operate Elek-Tek's sales division, servicing
corporate, educational and government customers from its four locations in
Chicago, Indianapolis, Kansas City and Denver, and its catalog operations.
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In conjunction with the bankruptcy, Elek-Tek has closed four of its eight retail
stores and Creative is currently in the process of evaluating which of Elek-
Tek's four remaining retail stores to continue in operation.
Creative expects significant cost reductions for Elek-Tek's business from
economies of scale by merging administration, operations and other functions
that will be handled from Creative's headquarters in Torrance, Calif., as well
as Creative's distribution facility in Memphis, Tenn.
Additionally, Creative expects to achieve cost savings by renegotiating leases
at Elek-Tek's remaining retail store operations to decrease lease overhead.
Creative Computers, Inc. is a leading direct marketer of personal computers and
related products. The company offers over 45,000 products to its customers. The
company creates demand for its products through its distinctive, full-color
MacMall, PC Mall, DataCom Mall and ComputAbility catalogs, outbound
telemarketing, Internet marketing and its Web site, four retail showrooms and
other promotional materials.
The company's staff of over 300 knowledgeable telemarketing, customer service
and technical support personnel work together to provide high-level customer
service and gain customer loyalty.
Customers may call PC Mall sales at 800/555-MALL, DataCom Mall sales at 800/898-
DATA, MacMall sales at 800/222-2808 and ComputAbility sales at 800/558-0003, or
shop Creative on the Internet at http://www.pcmall.com,
http://www.datacommall.com, http://www.macmall.com or
http://www.computability.com .
Except for historical information, all of the statements, expectations and
assumptions contained in the foregoing are forward-looking statements. The
realization of any or all of these expectations is subject to a number of risks
and uncertainties, and it is possible that the assumptions made by management
may not materialize. There can be no assurance that the company will receive the
expected benefits from the acquisitions of ComputAbility or the assets of Elek-
Tek, or that the company will not experience difficulties integrating these
companies into its operations, or that the company will increase its overall
sales as expected. In addition to the factors set forth above, other important
factors that could cause actual results to differ materially from the company's
expectations include competition from other catalog and retail store resellers
and price pressures related thereto; the company's reliance on Apple Computer,
IBM, Hewlett-Packard, Compaq and other vendors; and risks due to shifts in
market demand and/or price erosion of owned inventory. This list of risk factors
is not intended to be exhaustive. Reference should also be made to the risk
factors set forth from time to time in the company's Securities and Exchange
Commission reports, including but not limited to those set forth in the section
titled "Certain Factors Affecting Future Results'' in its annual report on Form
10-K for 1996.
_____________________________________
Contact:
Creative Computers, Inc., Torrance
Frank Khulusi or Richard M. Finkbeiner, 310/787-4500
or
Seiler Martin Ekman LLC, Los Angeles
Tom J. Ekman, Jody Martin or Steven Seiler, 310/312-7880
119
