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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND AMONG
LEAPFROG ENTERPRISES, INC.,
AS BORROWER,
THE LENDERS THAT ARE SIGNATORIES HERETO
AS THE LENDERS,
AND
FOOTHILL CAPITAL CORPORATION
AS THE ARRANGER AND ADMINISTRATIVE AGENT
DATED AS OF JULY 10, 2001
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
1. DEFINITIONS AND CONSTRUCTION. ................................................................. 1
1.1 Definitions .......................................................................... 1
1.2 Accounting Terms ..................................................................... 23
1.3 Code ................................................................................. 23
1.4 Construction ......................................................................... 23
1.5 Schedules and Exhibits ............................................................... 24
2. LOAN AND TERMS OF PAYMENT. .................................................................... 24
2.1 Revolver Advances .................................................................... 24
2.2 Intentionally Omitted. ............................................................... 25
2.3 Borrowing Procedures and Settlements ................................................. 25
2.4 Payments ............................................................................. 33
2.5 Overadvances ......................................................................... 35
2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations .......... 35
2.7 Cash Management ...................................................................... 37
2.8 Crediting Payments; Float Charge ..................................................... 38
2.9 Designated Account ................................................................... 38
2.10 Maintenance of Loan Account; Statements of Obligations ............................... 38
2.11 Fees ................................................................................. 39
2.12 Letters of Credit .................................................................... 39
2.13 LIBOR Option ......................................................................... 43
2.14 Capital Requirements ................................................................. 45
3. CONDITIONS; TERM OF AGREEMENT. ................................................................ 46
3.1 Conditions Precedent to the Initial Extension of Credit .............................. 46
3.2 Conditions Subsequent to the Initial Extension of Credit ............................. 48
3.3 Conditions Precedent to all Extensions of Credit ..................................... 48
3.4 Term ................................................................................. 49
3.5 Effect of Termination ................................................................ 49
3.6 Early Termination by Borrower ........................................................ 49
4. CREATION OF SECURITY INTEREST. ................................................................ 50
4.1 Grant of Security Interest ........................................................... 50
4.2 Negotiable Collateral ................................................................ 50
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral ............... 50
4.4 Delivery of Additional Documentation Required ........................................ 51
4.5 Power of Attorney .................................................................... 51
4.6 Right to Inspect ..................................................................... 52
4.7 Control Agreements ................................................................... 52
5. REPRESENTATIONS AND WARRANTIES. ............................................................... 52
5.1 No Encumbrances ...................................................................... 52
</TABLE>
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<TABLE>
<S> <C> <C> <C>
5.2 Eligible Accounts .................................................................... 52
5.3 Eligible Inventory ................................................................... 53
5.4 Equipment ............................................................................ 54
5.5 Location of Inventory and Equipment .................................................. 54
5.6 Inventory Records .................................................................... 54
5.7 Location of Chief Executive Office; FEIN ............................................. 54
5.8 Due Organization and Qualification; Subsidiaries ..................................... 54
5.9 Due Authorization; No Conflict ....................................................... 55
5.10 Litigation ........................................................................... 56
5.11 No Material Adverse Change ........................................................... 56
5.12 Fraudulent Transfer .................................................................. 56
5.13 Employee Benefits .................................................................... 56
5.14 Environmental Condition .............................................................. 56
5.15 Brokerage Fees ....................................................................... 56
5.16 Intellectual Property ................................................................ 57
5.17 Leases ............................................................................... 57
5.18 DDAs ................................................................................. 57
5.19 Complete Disclosure .................................................................. 57
5.20 Indebtedness ......................................................................... 57
6. AFFIRMATIVE COVENANTS. ........................................................................ 57
6.1 Accounting System .................................................................... 58
6.2 Collateral Reporting ................................................................. 58
6.3 Financial Statements, Reports, Certificates .......................................... 59
6.4 Intentionally Omitted. ............................................................... 61
6.5 Return ............................................................................... 61
6.6 Maintenance of Properties ............................................................ 61
6.7 Taxes ................................................................................ 62
6.8 Insurance ............................................................................ 62
6.9 Location of Inventory and Equipment .................................................. 63
6.10 Compliance with Laws ................................................................. 63
6.11 Leases ............................................................................... 63
6.12 Brokerage Commissions ................................................................ 63
6.13 Existence. ........................................................................... 63
6.14 Environmental ........................................................................ 63
6.15 Disclosure Updates ................................................................... 64
7. NEGATIVE COVENANTS. ........................................................................... 64
7.1 Indebtedness ......................................................................... 64
7.2 Liens ................................................................................ 65
7.3 Restrictions on Fundamental Changes .................................................. 65
7.4 Disposal of Assets ................................................................... 65
7.5 Change Name .......................................................................... 65
7.6 Guarantee ............................................................................ 65
7.7 Nature of Business ................................................................... 65
</TABLE>
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<TABLE>
<S> <C> <C> <C>
7.8 Prepayments and Amendments ........................................................... 66
7.9 Change of Control .................................................................... 66
7.10 Consignments ......................................................................... 66
7.11 Distributions ........................................................................ 66
7.12 Accounting Methods ................................................................... 66
7.13 Investments .......................................................................... 66
7.14 Transactions with Affiliates ......................................................... 67
7.15 Suspension ........................................................................... 67
7.16 Intentionally Omitted. ............................................................... 67
7.17 Use of Proceeds ...................................................................... 67
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees ... 67
7.19 Securities Accounts .................................................................. 67
7.20 Financial Covenants .................................................................. 68
8. EVENTS OF DEFAULT. ............................................................................ 68
9. THE LENDER GROUP'S RIGHTS AND REMEDIES. ....................................................... 70
9.1 Rights and Remedies .................................................................. 70
9.2 Remedies Cumulative .................................................................. 72
10. TAXES AND EXPENSES. ........................................................................... 73
11. WAIVERS; INDEMNIFICATION. ..................................................................... 73
11.1 Demand; Protest; etc. ................................................................ 73
11.2 The Lender Group's Liability for Collateral .......................................... 73
11.3 Indemnification ...................................................................... 73
12. NOTICES. ...................................................................................... 74
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. ................................................... 75
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. ................................................... 76
14.1 Assignments and Participations ....................................................... 76
14.2 Successors ........................................................................... 79
15. AMENDMENTS; WAIVERS. .......................................................................... 79
15.1 Amendments and Waivers ............................................................... 79
15.2 Replacement of Holdout Lender. ....................................................... 80
15.3 No Waivers; Cumulative Remedies ...................................................... 81
16. AGENT; THE LENDER GROUP. ...................................................................... 81
16.1 Appointment and Authorization of Agent ............................................... 81
16.2 Delegation of Duties ................................................................. 82
16.3 Liability of Agent ................................................................... 82
16.4 Reliance by Agent .................................................................... 83
</TABLE>
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<TABLE>
<S> <C> <C> <C>
16.5 Notice of Default or Event of Default ................................................ 83
16.6 Credit Decision ...................................................................... 83
16.7 Costs and Expenses; Indemnification .................................................. 84
16.8 Agent in Individual Capacity ......................................................... 85
16.9 Successor Agent ...................................................................... 85
16.10 Lender in Individual Capacity ........................................................ 85
16.11 Withholding Taxes .................................................................... 86
16.12 Collateral Matters ................................................................... 88
16.13 Restrictions on Actions by Lenders; Sharing of Payments .............................. 89
16.14 Agency for Perfection ................................................................ 89
16.15 Payments by Agent to the Lenders ..................................................... 89
16.16 Concerning the Collateral and Related Loan Documents ................................. 90
16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other
Reports and Information .............................................................. 90
16.18 Several Obligations; No Liability .................................................... 91
16.19 Legal Representation of Agent ........................................................ 92
17. GENERAL PROVISIONS. ........................................................................... 92
17.1 Effectiveness ........................................................................ 92
17.2 Section Headings ..................................................................... 92
17.3 Interpretation ....................................................................... 92
17.4 Severability of Provisions ........................................................... 92
17.5 Amendments in Writing ................................................................ 92
17.6 Counterparts; Telefacsimile Execution ................................................ 92
17.7 Revival and Reinstatement of Obligations ............................................. 93
17.8 Amendment and Restatement. ........................................................... 93
17.9 Integration .......................................................................... 93
17.10 Confidentiality. ..................................................................... 93
</TABLE>
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EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A-1 Form of Assignment and Acceptance
Exhibit B-1 Form of Borrowing Base Certificate
Exhibit C-1 Form of Compliance Certificate
Exhibit L-1 Form of LIBOR Notice
Schedule C-1 Commitments
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Investments
Schedule P-2 Permitted Liens
Schedule 2.7(a) Cash Management Banks
Schedule 5.5 Locations of Inventory and Equipment
Schedule 5.7 Chief Executive Office; FEIN
Schedule 5.8(b) Capitalization of Borrower
Schedule 5.8(c) Capitalization of Borrower's Subsidiaries
Schedule 5.9 Conflicts and Violations
Schedule 5.10 Litigation
Schedule 5.14 Environmental Matters
Schedule 5.16 Intellectual Property
Schedule 5.18 Demand Deposit Accounts
Schedule 5.20 Permitted Indebtedness
</TABLE>
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<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement"), is entered into as of July 10, 2001, between and among, on the one
hand, the lenders identified on the signature pages hereof (such lenders,
together with their respective successors and assigns, are referred to
hereinafter each individually as a "Lender" and collectively as the "Lenders"),
FOOTHILL CAPITAL CORPORATION, a California corporation, as the arranger and
administrative agent for the Lenders ("Agent"), and, on the other hand, LEAPFROG
ENTERPRISES, INC., a Delaware corporation ("Borrower").
RECITALS
A. Borrower and Foothill are parties to that certain Loan and Security
Agreement, dated as of November 8, 2000, as amended (the "Existing Agreement").
B. Borrower and Foothill are entering into this Agreement for the
purpose of amending and restating the Existing Agreement in its entirety, and
providing for Foothill to be both the Agent and a Lender under the Agreement.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account, chattel paper, or a
General Intangible.
"Accounts" means all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to "accounts" (as that term is defined
in the Code), and any and all supporting obligations in respect thereof.
"Additional Documents" has the meaning set forth in Section 4.4.
"Advances" has the meaning set forth in Section 2.1.
"Affiliate" means, as applied to any Person, any other Person who,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of Stock, by contract, or
otherwise; provided, however, that, in any event: (a) any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the
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election of directors or other members of the governing body of a Person or 10%
or more of the partnership or other ownership interests of a Person (other than
as a limited partner of such Person) shall be deemed to control such Person, (b)
each director (or comparable manager) of a Person shall be deemed to be an
Affiliate of such Person, and (c) each partnership or joint venture in which a
Person is a partner or joint venturer shall be deemed to be an Affiliate of such
Person.
"Agent" means Foothill, solely in its capacity as agent for the
Lenders hereunder, and any successor thereto.
"Agent's Account" means an account at a bank designated by Agent from
time to time as the account into which Borrower shall make all payments to Agent
for the benefit of the Lender Group and into which the Lender Group shall make
all payments to Agent under this Agreement and the other Loan Documents; unless
and until Agent notifies Borrower and the Lender Group to the contrary, Agent's
Account shall be that certain deposit account bearing account number 323-266193
and maintained by Agent with The Chase Manhattan Bank, 4 New York Plaza, 15th
Floor, New York, New York 10004, ABA #021000021.
"Agent Advances" has the meaning set forth in Section 2.3(e)(i).
"Agent's Liens" means the Liens granted by Borrower to Agent for the
benefit of the Lender Group under this Agreement or the other Loan Documents.
"Agent-Related Persons" means Agent together with its Affiliates,
officers, directors, employees, and agents.
"Agreement" has the meaning set forth in the preamble hereto.
"Applicable Prepayment Premium" means, as of any date of
determination, an amount equal to (a) during the period of time from and after
the date of the execution and delivery of this Agreement up to the date that is
the first anniversary of the Closing Date, 1.50% times the Maximum Revolver
Amount, (b) during the period of time from and including the date that is the
first anniversary of the Closing Date up to the date that is the second
anniversary of the Closing Date, 1.00% times the Maximum Revolver Amount, and
(c) during the period of time from and including the date that is the second
anniversary of the Closing Date up to the Maturity Date, 0.50% times the Maximum
Revolver Amount.
Notwithstanding anything to the contrary set forth above, Borrower
shall not be required to pay a Prepayment Premium if the Obligations are repaid
in full after one year from the Closing Date from proceeds of: (a) an unsecured
credit facility or (b) an initial public offering of shares of Borrower's common
stock or if Borrower or its shareholders sell, in an arms length transaction,
substantially all of its assets or all of its outstanding shares of common
stock. If Borrower seeks refinancing during the term of the Agreement, Borrower
shall give Wells Fargo or a commercial banking unit thereof a "right of first
refusal" to
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provide such financing so long as Wells Fargo responds to Borrower's written
notice of the "right of first refusal" within 11 Business Days of Wells Fargo's
receipt of such notice.
After one year from the Closing Date, if Borrower requests an increase
of the Maximum Revolver Amount from Agent and Lenders, and Agent and Lenders
refuse such request even though Borrower has provided Lenders with realistic
projections that would reasonably support such request, then Borrower shall have
the right to obtain other secured financing, and the Applicable Payment Premium
shall be an amount equal to 0.50% times the Maximum Revolver Amount.
"Assignee" has the meaning set forth in Section 14.1.
"Assignment and Acceptance" means an Assignment and Acceptance in the
form of Exhibit A-1.
"Authorized Person" means the Chief Executive Officer, President,
Chief Financial Officer, Controller, General Ledger Manager or Cash Manager of
Borrower.
"Availability" means, as of any date of determination, if such date is
a Business Day, and determined at the close of business on the immediately
preceding Business Day, if such date of determination is not a Business Day, the
amount that Borrower is entitled to borrow as Advances under Section 2.1 (after
giving effect to all then outstanding Obligations and all sublimits and reserves
applicable hereunder).
"Bankruptcy Code" means the United States Bankruptcy Code, as in
effect from time to time.
"Base LIBOR Rate" means the rate per annum, determined by Agent in
accordance with its customary procedures, and utilizing such electronic or other
quotation sources as it considers appropriate (rounded upwards, if necessary, to
the next 1/16%), on the basis of the rates at which Dollar deposits are offered
to major banks in the London interbank market on or about 11:00 a.m. (California
time) 2 Business Days prior to the commencement of the applicable Interest
Period, for a term and in amounts comparable to the Interest Period and amount
of the LIBOR Rate Loan requested by Borrower in accordance with this Agreement,
which determination shall be conclusive in the absence of manifest error.
"Base Rate" means, the rate of interest announced within Wells Fargo
at its principal office in San Francisco as its "prime rate", with the
understanding that the "prime rate" is one of Wells Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publication or publications as Wells Fargo may designate.
"Base Rate Loan" means each portion of an Advance that bears interest
at a rate determined by reference to the Base Rate.
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"Base Rate Margin" means the applicable amount set forth in the table
below.
Advances outstanding under the Revolver would initially bear interest,
at Borrower's option, at the Base Rate plus 0.25 percentage points. Commencing
January 1, 2002 and on the first day of each subsequent calendar quarter, the
margin for Base Rate shall be determined based upon Borrower's trailing 12-month
EBITDA for the immediately prior period as follows:
<TABLE>
<CAPTION>
12-month EBITDA Base Rate Margin
--------------- ----------------
<S> <C> <C>
Greater than or equal to $20,000,000 .00%
Less than $20,000,000 0.25%
</TABLE>
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of
Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the
past six years.
"Board of Directors" means the board of directors (or comparable
managers) of Borrower or any committee thereof duly authorized to act on behalf
of the board.
"Books" means Borrower's now owned or hereafter acquired books and
records (including all of its Records indicating, summarizing, or evidencing its
assets (including the Collateral) or liabilities, all of its Records relating to
its business operations or financial condition, and all of its goods or General
Intangibles related to such information).
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrowing" means a borrowing hereunder consisting of Advances made on
the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in
the case of a Swing Loan, or by Agent in the case of an Agent Advance.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit B-1.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close, except that, if
a determination of a Business Day shall relate to a LIBOR Rate Loan, the term
"Business Day" also shall exclude any day on which banks are closed for dealings
in Dollar deposits in the London interbank market.
"Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
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"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or Moody's,
(c) commercial paper maturing no more than 1 year from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or Moody's, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or
Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"Cash Management Bank" has the meaning set forth in Section 2.7(a).
"Cash Management Account" has the meaning set forth in Section 2.7(a).
"Cash Management Agreements" means those certain cash management
service agreements, in form and substance satisfactory to Agent, each of which
is among Borrower, Agent, and one of the Cash Management Banks.
"Change of Control" means (a) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Knowledge
Universe and its Subsidiaries becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 35%, or more, of the
Stock of Borrower having the right to vote for the election of members of the
Board of Directors, or (b) Knowledge Universe and its Subsidiaries cease to be
the beneficial owners of more than 50% of the Stock of Borrower having the right
to vote for the election of members of the Board of Directors.
"Closing Date" means the date of the making of the initial Advance (or
other extension of credit) hereunder.
"Closing Date Business Plan" means the set of Projections of Borrower
for Borrower's current fiscal year and for the first 6 months of the subsequent
fiscal year on a month by month basis, in form and substance (including as to
scope and underlying assumptions) satisfactory to Agent.
"Code" means the California Uniform Commercial Code, as in effect from
time to time.
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"Collateral" means all of Borrower's now owned or hereafter acquired
right, title, and interest in and to each of the following:
(a) Accounts,
(b) Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Investment Property; provided that the Collateral shall
include only two-thirds of Borrower's ownership interest in any Subsidiary which
is a "controlled foreign corporation" (as defined under the IRC),
(g) Negotiable Collateral,
(h) money or other assets of Borrower that now or hereafter come
into the possession, custody, or control of any member of the Lender Group, and
(i) the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Equipment, General Intangibles,
Inventory, Investment Property, Negotiable Collateral, Real Property, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, bailee letter,
or acknowledgement agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in the Equipment or Inventory, in each case, in form and substance
satisfactory to Agent.
"Collections" means all cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) of Borrower.
"Commitment" means, with respect to each Lender, its Revolver
Commitment, and, with respect to all Lenders, their Revolver Commitments, in
each case as such Dollar amounts are set forth beside such Lender's name under
the applicable heading on Schedule C-1 or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 14.1.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent.
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"Continuing Director" means (a) any member of the Board of Directors
who was a director (or comparable manager) of Borrower on the Closing Date, and
(b) any individual who becomes a member of the Board of Directors after the
Closing Date if such individual was appointed or nominated for election to the
Board of Directors by a majority of the Continuing Directors, but excluding any
such individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower (as such terms are used in Rule 14a-11 under the Exchange Act) and
whose initial assumption of office resulted from such contest or the settlement
thereof.
"Control Agreement" means a control agreement, in form and substance
satisfactory to Agent, executed and delivered by Borrower, Agent, and the
applicable securities intermediary with respect to a Securities Account or bank
with respect to a deposit account.
"Daily Balance" means, with respect to each day during the term of
this Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand deposit account maintained by
Borrower.
"Default" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
"Defaulting Lender" means any Lender that fails to make any Advance
(or other extension of credit) that it is required to make hereunder on the date
that it is required to do so hereunder.
"Defaulting Lender Rate" means (a) the Base Rate for the first 3 days
from and after the date the relevant payment is due, and (b) thereafter, at the
interest rate then applicable to Advances that are Base Rate Loans (inclusive of
the Base Rate Margin applicable thereto).
"Designated Account" means account number 4311412803 of Borrower
maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located within the United States) that has been designated
as such, in writing, by Borrower to Lender.
"Designated Account Bank" means Wells Fargo, whose office is located
at 1 Kaiser Plaza, Suite 850, Oakland, CA 94612 and whose ABA number is
121-000-248.
"Dilution" means, as of any date of determination, a percentage, based
upon the experience of the immediately prior 180 days, that is the result of
dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising
allowances, credits, or other dilutive items with respect to the Accounts during
such period, by (b) Borrower's Collections
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with respect to Accounts during such period (excluding extraordinary items) plus
the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce the advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of
5.00%.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrower to Agent regarding the extensions of credit to be made on
the Closing Date, the form and substance of which is satisfactory to Agent.
"Dollars" or "$" means United States dollars.
"Due Diligence Letter" means the due diligence letter sent by Agent's
counsel to Borrower, together with Borrower's completed responses to the
inquiries set forth therein, the form and substance of such responses to be
satisfactory to Agent.
"EBITDA" means, with respect to any fiscal period, Borrower's and its
Subsidiaries consolidated net earnings (or loss), minus extraordinary gains,
plus extraordinary losses, interest expense, income taxes, and depreciation and
amortization for such period, as determined in accordance with GAAP.
"Eligible Accounts" means those Accounts created by Borrower in the
ordinary course of its business, that arise out of Borrower's sale of goods or
rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made by Borrower in the Loan Documents,
and that are not excluded as ineligible by virtue of one or more of the criteria
set forth below; provided, however, that such criteria may be fixed and revised
from time to time by Agent in Agent's Permitted Discretion to address the
results of any audit performed by Agent from time to time after the Closing
Date. In determining the amount to be included, Eligible Accounts shall be
calculated net of customer deposits and unapplied cash remitted to Borrower.
Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within 120
days of original invoice date or more than 60 days from due date,
(b) Accounts owed by an Account Debtor (or its Affiliates) where
50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above,
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower,
(d) Accounts arising in a transaction wherein goods are placed on
consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, a
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bill and hold, or any other terms by reason of which the payment by the Account
Debtor may be conditional,
(e) Accounts that are not payable in Dollars or Canadian Dollars,
(f) Accounts with respect to which the Account Debtor either (i)
does not maintain its chief executive office in the United States or Canada, or
(ii) is not organized under the laws of the United States or any state thereof
or Canada or any province thereof, or (iii) is the government of any foreign
country (other than Canada) or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof, unless (x) the
Account is supported by an irrevocable letter of credit satisfactory to Agent
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Agent and is directly drawable by Agent, (y) the Account is covered
by credit insurance in form, substance, and amount, and by an insurer,
satisfactory to Agent, or (z) at Agent's sole and absolute discretion, those
Accounts, reviewed on a case-by-case basis, deemed to be a reasonable credit
risk by Agent,
(g) Accounts with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which Borrower
has complied, to the reasonable satisfaction of Agent, with the Assignment of
Claims Act, 31 USC Section 3727), or (ii) any state of the United States
(exclusive, however, of (y) Accounts owed by any state that does not have a
statutory counterpart to the Assignment of Claims Act, or (z) Accounts owed by
any state that does have a statutory counterpart to the Assignment of Claims Act
as to which Borrower has complied to Agent's satisfaction),
(h) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to its obligation to pay the
Account, to the extent of such claim, right of setoff, or dispute,
(i) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts (or in the
case of each of Toys' R Us, K-Mart, Wal-Mart and Target 40% of all Eligible
Accounts), to the extent of the obligations owing by such Account Debtor in
excess of such percentage; provided, however, that Agent shall have the right to
change these concentration limits in its Permitted Discretion,
(j) Accounts with respect to which the Account Debtor is subject
to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to
which Borrower has received notice of an imminent Insolvency Proceeding or a
material impairment of the financial condition of such Account Debtor,
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<PAGE>
(k) Accounts with respect to which the Account Debtor is located
in the states of New Jersey, Minnesota, or West Virginia (or any other state
that requires a creditor to file a business activity report or similar document
in order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless
Borrower has qualified to do business in New Jersey, Minnesota, West Virginia,
or such other states, or has filed a business activities report with the
applicable division of taxation, the department of revenue, or with such other
state offices, as appropriate, for the then-current year, or is exempt from such
filing requirement,
(l) Accounts, the collection of which, Agent, in its Permitted
Discretion, believes to be doubtful by reason of the Account Debtor's financial
condition,
(m) Accounts that are not subject to a valid and perfected first
priority Agent's Lien,
(n) Accounts with respect to which (i) the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, or (ii) the
services giving rise to such Account have not been performed and billed to the
Account Debtor, or
(o) Accounts that represent the right to receive progress
payments or other advance billings that are due prior to the completion of
performance by Borrower of the subject contract for goods or services.
"Eligible Inventory" means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business
located at one of Borrower's business locations set forth on Schedule E-1 (or
in-transit between any such locations), that complies with each of the
representations and warranties respecting Eligible Inventory made by Borrower in
the Loan Documents, and that is not excluded as ineligible by virtue of the one
or more of the criteria set forth below; provided, however, that (a) up to
$5,000,000 of Advances may be based upon Eligible Inventory that is in-transit
to one of Borrower's warehouses in the United States and (b) such criteria may
be fixed and revised from time to time by Agent in Agent's Permitted Discretion
to address the results of any audit or appraisal performed by Agent from time to
time after the Closing Date. In determining the amount to be so included,
Inventory shall be valued at the lower of cost or market on a basis consistent
with Borrower's historical accounting practices. An item of Inventory shall not
be included in Eligible Inventory if:
(a) Borrower does not have good, valid, and marketable title thereto,
(b) it is not located at one of the locations in the United States set
forth on Schedule E-1 or in transit from one such location to another such
location,
(c) it is located on real property leased by Borrower or in a contract
warehouse, in each case, unless it is subject to a Collateral Access Agreement
executed by
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<PAGE>
the lessor, warehouseman, or other third party, as the case may be, and unless
it is segregated or otherwise separately identifiable from goods of others, if
any, stored on the premises,
(d) it is not subject to a valid and perfected first priority
Agent's Lien,
(e) it consists of goods returned (unless such goods have been
added to Borrower's Inventory for sale and Borrower has issued a credit
memorandum for the Account related to such goods) or rejected by Borrower's
customers, or
(f) it consists of goods that are obsolete or slow moving,
restrictive or custom items, work-in-process, raw materials, or goods that
constitute spare parts, packaging and shipping materials, supplies used or
consumed in Borrower's business, bill and hold goods, defective goods,
"seconds," or Inventory acquired on consignment.
"Eligible Transferee" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having total assets in
excess of $250,000,000, (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country and which has total
assets in excess of $250,000,000, provided that such bank is acting through a
branch or agency located in the United States, (c) a finance company, insurance
company, or other financial institution or fund that is engaged in making,
purchasing, or otherwise investing in commercial loans in the ordinary course of
its business and having (together with its Affiliates) total assets in excess of
$250,000,000, (d) any Affiliate (other than individuals) of a Lender that was
party hereto as of the Closing Date, (e) so long as no Event of Default has
occurred and is continuing, any other Person approved by Agent and Borrower, and
(f) during the continuation of an Event of Default, any other Person approved by
Agent.
"Environmental Actions" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or releases of Hazardous Materials from (a) any assets, properties, or
businesses of Borrower or any predecessor in interest, (b) from adjoining
properties or businesses, or (c) from or onto any facilities which received
Hazardous Materials generated by Borrower or any predecessor in interest.
"Environmental Law" means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Borrower, relating
to the environment, employee health and safety, or Hazardous Materials,
including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC Section
1251 et seq; the Toxic Substances Control Act, 15 USC, Section 2601 et seq; the
Clean Air Act, 42 USC Section 7401
11
<PAGE>
et seq.; the Safe Drinking Water Act, 42 USC. Section 3803 et seq.; the Oil
Pollution Act of 1990, 33 USC. Section 2701 et seq.; the Emergency Planning and
the Community Right-to-Know Act of 1986, 42 USC. Section 11001 et seq.; the
Hazardous Material Transportation Act, 49 USC Section 1801 et seq.; and the
Occupational Safety and Health Act, 29 USC. Section 651 et seq. (to the extent
it regulates occupational exposure to Hazardous Materials); any state and local
or foreign counterparts or equivalents, in each case as amended from time to
time.
"Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.
"Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.
"Equipment" means all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to equipment, machinery, machine tools,
motors, furniture, furnishings, fixtures, vehicles (including motor vehicles),
tools, parts, goods (other than consumer goods, farm products, or Inventory),
wherever located, including all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any Person subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"Event of Default" has the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
"Existing Agreement" has the meaning set forth in the Recitals.
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<PAGE>
"Fee Letter" means that certain fee letter, dated as of even date
herewith, between Borrower and Agent, in form and substance satisfactory to
Agent.
"FEIN" means Federal Employer Identification Number.
"Foothill" means Foothill Capital Corporation, a California
corporation.
"Funding Date" means the date on which a Borrowing occurs.
"Funding Losses" has the meaning set forth in Section 2.13(b)(ii).
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to general intangibles
(including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, software, literature, reports,
catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims), and any and all supporting obligations in respect thereof,
and any other personal property other than goods, Accounts, Investment Property,
and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.
"Governmental Authority" means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.
"Hazardous Materials" means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
13
<PAGE>
"Indebtedness" means (a) all obligations of Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under Capital Leases,
(d) all obligations or liabilities of others secured by a Lien on any asset of
Borrower, irrespective of whether such obligation or liability is assumed, (e)
all obligations of Borrower for the deferred purchase price of assets (other
than trade debt incurred in the ordinary course of Borrower's business and
repayable in accordance with customary trade practices), and (f) any obligation
of Borrower guaranteeing or intended to guarantee (whether directly or
indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to
Borrower) any obligation of any other Person.
"Indemnified Liabilities" has the meaning set forth in Section 11.3.
"Indemnified Person" has the meaning set forth in Section 11.3.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
"Intangible Assets" means, with respect to any Person, that portion of
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Intellectual Property Security Agreement" means an intellectual
property security agreement executed and delivered by Borrower and Agent, the
form and substance of which is satisfactory to Agent.
"Interest Period" means, with respect to each LIBOR Rate Loan, a
period commencing on the date of the making of such LIBOR Rate Loan and ending
1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period
would end on a day that is not a Business Day, such Interest Period shall be
extended (subject to clauses (c)-(e) below) to the next succeeding Business Day,
(b) interest shall accrue at the applicable rate based upon the LIBOR Rate from
and including the first day of each Interest Period to, but excluding, the day
on which any Interest Period expires, (c) any Interest Period that would end on
a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (d) with
respect to an Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period), the Interest Period shall
end on the last Business Day of the calendar month that is 1, 2, or 3 months
after the date on which the Interest Period began, as applicable, and (e)
Borrower may not elect an Interest Period which will end after the Maturity
Date.
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<PAGE>
"Inventory" means all Borrower's now owned or hereafter
acquired right, title, and interest with respect to inventory, including goods
held for sale or lease or to be furnished under a contract of service, goods
that are leased by Borrower as lessor, goods that are furnished by Borrower
under a contract of service, and raw materials, work in process, or materials
used or consumed in Borrower's business.
"Investment" means, with respect to any Person, any investment
by such Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts arising from the
sale of goods or rendition of services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness or Stock, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Investment Property" means all of Borrower's now owned or
hereafter acquired right, title, and interest with respect to "investment
property" as that term is defined in the Code, and any and all supporting
obligations in respect thereof.
"IRC" means the Internal Revenue Code of 1986, as in effect
from time to time.
"Issuing Lender" means Foothill or any other Lender that, at
the request of Borrower and with the consent of Agent agrees, in such Lender's
sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or
L/C Undertakings pursuant to Section 2.12.
"L/C" has the meaning set forth in Section 2.12(a).
"L/C Disbursement" means a payment made by the Issuing Lender
pursuant to a Letter of Credit.
"L/C Undertaking" has the meaning set forth in Section
2.12(a).
"Lender" and "Lenders" have the respective meanings set forth
in the preamble to this Agreement, and shall include any other Person made a
party to this Agreement in accordance with the provisions of Section 14.1.
"Lender Group" means, individually and collectively, each of
the Lenders (including the Issuing Lender) and Agent.
"Lender Group Expenses" means all (a) costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrower under
any of the Loan Documents that are paid or incurred by the Lender Group, (b)
reasonable fees or charges paid or incurred by Agent in connection with the
Lender Group's transactions with Borrower, including, fees
15
<PAGE>
or charges for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien, litigation, and
UCC searches and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Collateral appraisals or business
valuations to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement) and environmental audits, (c)
reasonable costs and expenses incurred by Agent in the disbursement of funds to
Borrower (by wire transfer or otherwise), (d) reasonable charges paid or
incurred by Agent resulting from the dishonor of checks, (e) reasonable costs
and expenses paid or incurred by the Lender Group to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated, (f) reasonable audit fees and
expenses of Agent related to audit examinations of the Books to the extent of
the fees and charges (and up to the amount of any limitation) contained in this
Agreement, (g) reasonable costs and expenses of third party claims or any other
suit paid or incurred by the Lender Group in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or the Lender Group's relationship with Borrower or any guarantor of
the Obligations, (h) Agent's and each Lender's reasonable fees and expenses
(including attorneys fees) incurred in advising, structuring, drafting,
reviewing, administering, or amending the Loan Documents, and (i) Agent's and
each Lender's reasonable fees and expenses (including attorneys fees) incurred
in terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or in exercising rights or remedies under the Loan
Documents), or defending the Loan Documents, irrespective of whether suit is
brought, or in taking any Remedial Action concerning the Collateral.
"Lender-Related Person" means, with respect to any Lender,
such Lender, together with such Lender's Affiliates, and the officers,
directors, employees, and agents of such Lender.
"Letter of Credit" means an L/C or an L/C Undertaking, as the
context requires.
"Letter of Credit Usage" means, as of any date of
determination, the aggregate undrawn amount of all outstanding Letters of Credit
plus 100% of the amount of outstanding time drafts accepted by an Underlying
Issuer as a result of drawings under Underlying Letters of Credit.
"LIBOR Deadline" has the meaning set forth in Section
2.13(b)(i).
"LIBOR Notice" means a written notice in the form of Exhibit
L-1.
"LIBOR Option" has the meaning set forth in Section 2.13(a).
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"LIBOR Rate" means, for each Interest Period for each LIBOR
Rate Loan, the rate per annum determined by Agent (rounded upwards, if
necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such
Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall
be adjusted on and as of the effective day of any change in the Reserve
Percentage.
"LIBOR Rate Loan" means each portion of an Advance that bears
interest at a rate determined by reference to the LIBOR Rate.
"LIBOR Rate Margin" means the applicable amount set forth in
the table below.
Advances outstanding under the Revolver would initially bear
interest, at Borrower's option, at the LIBOR Rate plus 2.50 percentage points.
Commencing January 1, 2002 and on the first day of each subsequent calendar
quarter, the margin for Libor Rate shall be determined based upon Borrower's
trailing 12-month EBITDA for the immediately prior period as follows:
<TABLE>
<CAPTION>
12-month EBITDA Libor Margin
--------------- ------------
<S> <C>
Greater than or equal to $20,000,000 2.25%
Less than $20,000,000 2.50%
</TABLE>
"Lien" means any interest in an asset securing an obligation
owed to, or a claim by, any Person other than the owner of the asset, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Cash Management
Agreements, the Control Agreements, the Intellectual Property Security
Agreement, the Disbursement Letter, the Due Diligence Letter, the Fee Letter,
the Letters of Credit, the Officers' Certificate, the Stock Pledge Agreement,
any note or notes executed by Borrower in connection with this Agreement and
payable to a member of the Lender Group, and any other agreement entered into,
now or in the future, by Borrower and the Lender Group in connection with this
Agreement.
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<PAGE>
"Material Adverse Change" means (a) a material adverse change
in the business, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower and its Subsidiaries as a whole,
(b) a material impairment of Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or of the Lender Group's ability to
enforce the Obligations or realize upon the Collateral, or (c) a material
impairment of the enforceability or priority of the Agent's Liens with respect
to the Collateral as a result of an action or failure to act on the part of
Borrower.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Revolver Amount" means $80,000,000.
"Negotiable Collateral" means all of Borrower's now owned and
hereafter acquired right, title, and interest with respect to letters of credit,
letter of credit rights, instruments, promissory notes, drafts, documents, and
chattel paper (including electronic chattel paper and tangible chattel paper),
and any and all supporting obligations in respect thereof.
"Net Liquidation Percentage" means the percentage of the book
value of Borrower's Inventory that is estimated to be recoverable in an orderly
liquidation of such Inventory, such percentage to be as determined from time to
time by a qualified appraisal company selected by Agent.
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations with respect to
outstanding Letters of Credit, premiums, liabilities (including all amounts
charged to Borrower's Loan Account pursuant hereto), obligations, fees
(including the fees provided for in the Fee Letter), charges, costs, Lender
Group Expenses (including any fees or expenses that, but for the provisions of
the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties of any kind and description owing by Borrower to the Lender Group
pursuant to or evidenced by the Loan Documents and irrespective of whether for
the payment of money, whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising, and including all interest not
paid when due and all Lender Group Expenses that Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise. Any reference in this
Agreement or in the Loan Documents to the Obligations shall include all
amendments, changes, extensions, modifications, renewals replacements,
substitutions, and supplements, thereto and thereof, as applicable, both prior
and subsequent to any Insolvency Proceeding.
"Officers' Certificate" means the representations and
warranties of certain officers of Borrower in the form submitted by Agent to
Borrower, together with Borrower's completed responses to the inquiries set
forth therein, the form and substance of such responses to be satisfactory to
Agent.
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<PAGE>
"Originating Lender" has the meaning set forth in Section
14.1(e).
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" has the meaning set forth in Section 14.1(e).
"Permitted Discretion" means a determination made in good
faith and in the exercise of reasonable (from the perspective of a secured
asset-based lender) business judgment.
"Permitted Dispositions" means (a) sales or other dispositions
by Borrower of Equipment that is substantially worn, damaged, or obsolete in the
ordinary course of Borrower's business, (b) sales by Borrower of Inventory to
buyers in the ordinary course of business, (c) the use or transfer of money or
Cash Equivalents by Borrower in a manner that is not prohibited by the terms of
this Agreement or the other Loan Documents, and (d) other licensing by Borrower,
on a non-exclusive basis, of patents, trademarks, copyrights, and other
intellectual property rights in the ordinary course of Borrower's business.
"Permitted Investments" means (a) investments in Cash
Equivalents, (b) investments in negotiable instruments for collection, (c)
advances made in connection with purchases of goods or services in the ordinary
course of business, (d) investments in Subsidiaries as in effect as of the
Closing Date, (e) investments as in effect and in the amount as of the Closing
Date listed on Schedule P-1, (f) loans to Persons for the purpose of purchasing
Borrower's Stock from Borrower, or other loans (consisting of actual cash
advances or other transfers of property) to employees not to exceed $500,000
outstanding at any time, (g) investments in partnerships with employees for the
purpose of enabling home purchases by such employees not to exceed $1,000,000
outstanding at any time, (h) additional investments in an amount not exceeding
$500,000 outstanding at any time, and (i) additional investments in Subsidiaries
in an amount not to exceed $500,000, in the aggregate, per calendar year so long
as no Event of Default has occurred and is continuing.
"Permitted Liens" means (a) Liens held by Agent for the
benefit of Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are
not yet delinquent, or (ii) do not constitute an Event of Default hereunder and
are the subject of Permitted Protests, (c) Liens set forth on Schedule P-2, (d)
the interests of lessors under operating leases, (e) purchase money Liens or the
interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, (f)
Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business of Borrower and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet delinquent, or (ii) are the subject
of Permitted Protests, (g) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (h) Liens or
deposits to secure performance of bids, tenders, or leases incurred in the
ordinary course of business of Borrower and not in connection with the borrowing
of money, (i) Liens
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<PAGE>
granted as security for surety or appeal bonds in connection with obtaining such
bonds in the ordinary course of business of Borrower, (j) Liens resulting from
any judgment or award that is not an Event of Default hereunder, (k) Liens on
cash collateral securing reimbursement obligations arising with respect to
letters of credit issued by Wells Fargo in an amount not to exceed $1,000,000 or
such higher amount that has been approved by Agent, and (l) with respect to any
Real Property, easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof by Borrower.
"Permitted Protest" means the right of Borrower to protest any
Lien (other than any such Lien that secures the Obligations), taxes (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the Books in such amount as is required under GAAP,
(b) any such protest is instituted promptly and prosecuted diligently by
Borrower in good faith, and (c) Agent is satisfied that, while any such protest
is pending, there will be no impairment of the enforceability, validity, or
priority of any of the Agent's Liens.
"Permitted Purchase Money Indebtedness" means, as of any date
of determination, Purchase Money Indebtedness incurred after the Closing Date in
an aggregate principal amount outstanding at any one time not in excess of
$500,000.
"Person" means natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Projections" means Borrower's forecasted (a) balance sheets,
(b) profit and loss statements, and (c) cash flow statements, all prepared on a
basis consistent with Borrower's historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.
"Pro Rata Share" means:
(a) with respect to a Lender's obligation to make
Advances and receive payments of principal, interest, fees, costs, and expenses
with respect thereto, the percentage obtained by dividing (i) such Lender's
Revolver Commitment, by (ii) the aggregate Revolver Commitments of all Lenders,
(b) with respect to a Lender's obligation to participate
in Letters of Credit, to reimburse the Issuing Lender, and to receive payments
of fees with respect thereto, the percentage obtained by dividing (i) such
Lender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of all
Lenders,
(c) with respect to all other matters (including the
indemnification obligations arising under Section 16.7), the percentage obtained
by dividing (i) such Lender's
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Total Commitment, by (ii) the aggregate amount of Total Commitments of all
Lenders; provided, however, that, in each case, in the event all Commitments
have been terminated, Pro Rata Share shall be determined according to the
Commitments in effect immediately prior to such termination.
"Purchase Money Indebtedness" means Indebtedness (other than
the Obligations, but including Capitalized Lease Obligations), incurred at the
time of, or within 20 days after, the acquisition of any fixed assets for the
purpose of financing all or any part of the acquisition cost thereof.
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by Borrower and the improvements
thereto.
"Record" means information that is inscribed on a tangible
medium or which is stored in an electronic or other medium and is retrievable in
perceivable form.
"Remedial Action" means all actions taken to (a) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate, or in any way
address Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC Section 9601.
"Report" has the meaning set forth in Section 16.17.
"Required Lenders" means, at any time, (a) Agent, and (b)
Lenders whose Pro Rata Shares aggregate 51% of the Total Commitments, or if the
Commitments have been terminated irrevocably, 51% of the Obligations then
outstanding.
"Reserve Percentage" means, on any day, for any Lender, the
maximum percentage prescribed by the Board of Governors of the Federal Reserve
System (or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as "eurocurrency liabilities") of that Lender, but so
long as such Lender is not required or directed under applicable regulations to
maintain such reserves, the Reserve Percentage shall be zero.
"Revolver Commitment" means, with respect to each Lender, its
Revolver Commitment, and, with respect to all Lenders, their Revolver
Commitments, in each case as such Dollar amounts are set forth beside such
Lender's name under the applicable heading on Schedule C-1 or on the signature
page of the Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder in accordance with the provisions of Section 14.1.
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"Revolver Usage" means, as of any date of determination, the
sum of (a) the then extant amount of outstanding Advances, plus (b) the then
outstanding amount of the Letter of Credit Usage.
"Risk Participation Liability" means, as to each Letter of
Credit, all reimbursement obligations of Borrower to the Issuing Lender with
respect to an L/C Undertaking, consisting of (a) the amount available to be
drawn or which may become available to be drawn, (b) all amounts that have been
paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed
by Borrower, whether by the making of an Advance or otherwise, and (c) all
accrued and unpaid interest, fees, and expenses payable with respect thereto.
"Seasonal Dilution Reserve" means, commencing and effective as
of October 1st of each year through March 31st of the following year, 15% of
Borrower's cumulative gross sales during the period from October 1st through
December 15th of each year, which reserve shall reduce, commencing on December
16th of each year, dollar for dollar by the amount of credits issued by Borrower
and reported to Agent, and shall reduce to zero on March 31st of each year.
"SEC" means the United States Securities and Exchange
Commission and any successor thereto.
"Securities Account" means a "securities account" as that term
is defined in the Code.
"Settlement" has the meaning set forth in Section 2.3(f)(i).
"Settlement Date" has the meaning set forth in Section
2.3(f)(i).
"Solvent" means, with respect to any Person on a particular
date, that such Person is not insolvent (as such term is defined in the Uniform
Fraudulent Transfer Act).
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
"Stock Pledge Agreement" means a stock pledge agreement, in
form and substance satisfactory to Agent, executed and delivered by Borrower to
Agent with respect to the pledge of the Stock owned by Borrower.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock having ordinary voting power to
elect a majority of the board of directors (or
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appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Swing Lender" means Foothill or any other Lender that, at the
request of Borrower and with the consent of Agent agrees, in such Lender's sole
discretion, to become the Swing Lender hereunder.
"Swing Loan" has the meaning set forth in Section 2.3(d)(i).
"Tangible Net Worth" means, as of any date of determination,
the result of (a) Borrower's total stockholder's equity, minus (b) the sum of
(i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaid expenses,
and (iii) all amounts due to Borrower from Affiliates known by Borrower to be
Affiliates (unless such amounts are reflected as a reduction of stockholder's
equity) other than TEC Worldwide, Inc., Children's Discovery Centers of America,
Inc., Knowledge Kids Network, Inc., PremierSchool.com, Inc. d.b.a. K12.com,
CharterSchools USA, Inc., LearnNow, Inc., Unext.com LLC, Nobel Learning
Communities, Inc.
"Taxes" has the meaning set forth in Section 16.11.
"Underlying Issuer" means a third Person which is the
beneficiary of an L/C Undertaking and which has issued a letter of credit at the
request of the Issuing Lender for the benefit of Borrower.
"Underlying Letter of Credit" means a letter of credit that
has been issued by an Underlying Issuer.
"Voidable Transfer" has the meaning set forth in Section 17.7.
"Wells Fargo" means Wells Fargo Bank, National Association, a
national banking association.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower and its Subsidiaries
on a consolidated basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement or any
other Loan Document clearly requires otherwise, references to the plural include
the singular, references to the singular include the plural, the term
"including" is not limiting, and the term "or" has,
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except where otherwise indicated, the inclusive meaning represented by the
phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document, as the case may be, as a whole and not to
any particular provision of this Agreement or such other Loan Document, as the
case may be. Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified. Any reference in this
Agreement or in the other Loan Documents to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable (subject to any restrictions on such
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein to any Person shall be construed to include such Person's
successors and assigns. Any requirement of a writing contained herein or in the
other Loan Documents shall be satisfied by the transmission of a Record and any
Record transmitted shall constitute a representation and warranty as to the
accuracy and completeness, in all material respects, of the information
contained therein.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVER ADVANCES.
(a) Subject to the terms and conditions of this
Agreement, and during the term of this Agreement, each Lender with a Revolver
Commitment agrees (severally, not jointly or jointly and severally) to make
advances ("Advances") to Borrower in an amount at any one time outstanding not
to exceed such Lender's Pro Rata Share of an amount equal to the lesser of (i)
the Maximum Revolver Amount less the Letter of Credit Usage, or (ii) the
Borrowing Base less the Letter of Credit Usage. For purposes of this Agreement,
"Borrowing Base," as of any date of determination, shall mean the result of:
(x) 85% of the amount of Eligible Accounts, less
the amount, if any, of the Dilution Reserve and the Seasonal
Dilution Reserve, plus
(y) the lowest of
(i) $40,000,000;
(ii) 60% of Eligible Inventory for the
months of December and January through March of each year, 64%
of Eligible Inventory during the months of April through
August of each year and 72% of Eligible Inventory during the
month of September through November of each year;
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(iii) 85% times the then Net
Liquidation Percentage times the book value of Borrower's
Inventory; and
(iv) (A) 150% of the amount of
credit availability created by clause (x) above for the months
of January through June of each year and (B) 100% of the
amount of credit availability created by clause (x) above for
the months of July through December of each year; minus
(z) the aggregate amount of reserves,
if any, established by Agent under Section 2.1(b).
(b) Anything to the contrary in this Section 2.1
notwithstanding, Agent shall have the right to establish reserves in such
amounts, and with respect to such matters, as Agent in its Permitted Discretion
shall deem necessary or appropriate, against the Borrowing Base, including
reserves with respect to (i) sums that Borrower is required to pay (such as
taxes, assessments, insurance premiums, or, in the case of leased assets, rents
or other amounts payable under such leases) and has failed to pay under any
Section of this Agreement or any other Loan Document, and (ii) amounts owing by
Borrower to any Person to the extent secured by a Lien on, or trust over, any of
the Collateral (other than any existing Permitted Lien set forth on Schedule P-1
which is specifically identified thereon as entitled to have priority over the
Agent's Liens), which Lien or trust, in the Permitted Discretion of Agent likely
would have a priority superior to the Agent's Liens (such as Liens or trusts in
favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or
suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes
where given priority under applicable law) in and to such item of the
Collateral. In addition to the foregoing, Agent shall have the right to have the
Inventory reappraised by a qualified appraisal company selected by Agent from
time to time after the Closing Date for the purpose of redetermining the Net
Liquidation Percentage of the Eligible Inventory portion of the Collateral and,
as a result, redetermining the Borrowing Base; provided, however, that so long
as an Event of Default has not occurred and is continuing, Agent shall not be
entitled to have such appraisals to be performed more frequently than twice
during any 12-month period.
(c) Amounts borrowed pursuant to this Section
may be repaid and, subject to the terms and conditions of this Agreement,
reborrowed at any time during the term of this Agreement.
2.2 INTENTIONALLY OMITTED.
2.3 BORROWING PROCEDURES AND SETTLEMENTS.
(a) PROCEDURE FOR BORROWING. Each Borrowing
shall be made by an irrevocable written request by an Authorized Person
delivered to Agent (which notice must be received by Agent no later than 10:00
a.m. (California time) on the Business Day prior to the date that is the
requested Funding Date in the case of a request for an Advance specifying (i)
the amount of such Borrowing, and (ii) the requested Funding Date, which
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shall be a Business Day; provided, however, that in the case of a request for
Swing Loan in an amount of $15,000,000, or less, such notice will be timely
received if it is received by Agent no later than 10:00 a.m. (California time)
on the Business Day that is the requested Funding Date) specifying (i) the
amount of such Borrowing, and (ii) the requested Funding Date, which shall be a
Business Day. At Agent's election, in lieu of delivering the above-described
written request, any Authorized Person may give Agent telephonic notice of such
request by the required time, with such telephonic notice to be confirmed in
writing by an Authorized Person within 24 hours of the giving of such notice.
(b) AGENT'S ELECTION. Promptly after receipt of
a request for a Borrowing pursuant to Section 2.3(a), Agent shall elect, in its
discretion, (i) to have the terms of Section 2.3(c) apply to such requested
Borrowing, or (ii) if the Borrowing is for an Advance, to request Swing Lender
to make a Swing Loan pursuant to the terms of Section 2.3(d) in the amount of
the requested Borrowing; provided, however, that if Swing Lender declines in its
sole discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall
elect to have the terms of Section 2.3(c) apply to such requested Borrowing.
(c) MAKING OF ADVANCES.
(i) In the event that Agent shall elect to have
the terms of this Section 2.3(c) apply to a requested
Borrowing as described in Section 2.3(b), then promptly after
receipt of a request for a Borrowing pursuant to Section
2.3(a), Agent shall notify the Lenders, not later than 1:00
p.m. (California time) on the Business Day immediately
preceding the Funding Date applicable thereto, by telecopy,
telephone, or other similar form of transmission, of the
requested Borrowing. Each Lender shall make the amount of such
Lender's Pro Rata Share of the requested Borrowing available
to Agent in immediately available funds, to Agent's Account,
not later than 10:00 a.m. (California time) on the Funding
Date applicable thereto. After Agent's receipt of the proceeds
of such Advances, upon satisfaction of the applicable
conditions precedent set forth in Section 3 hereof, Agent
shall make the proceeds thereof available to Borrower on the
applicable Funding Date by transferring immediately available
funds equal to such proceeds received by Agent to Borrower's
Designated Account; provided, however, that, subject to the
provisions of Section 2.3(i), Agent shall not request any
Lender to make, and no Lender shall have the obligation to
make, any Advance if Agent shall have actual knowledge that
(1) one or more of the applicable conditions precedent set
forth in Section 3 will not be satisfied on the requested
Funding Date for the applicable Borrowing unless such
condition has been waived, or (2) the requested Borrowing
would exceed the Availability on such Funding Date.
(ii) Unless Agent receives notice from a Lender
on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at least 1 Business Day
prior to the date of such Borrowing, that such Lender will not
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make available as and when required hereunder to Agent for the
account of Borrower the amount of that Lender's Pro Rata Share
of the Borrowing, Agent may assume that each Lender has made
or will make such amount available to Agent in immediately
available funds on the Funding Date and Agent may (but shall
not be so required), in reliance upon such assumption, make
available to Borrower on such date a corresponding amount. If
and to the extent any Lender shall not have made its full
amount available to Agent in immediately available funds and
Agent in such circumstances has made available to Borrower
such amount, that Lender shall on the Business Day following
such Funding Date make such amount available to Agent,
together with interest at the Defaulting Lender Rate for each
day during such period. A notice submitted by Agent to any
Lender with respect to amounts owing under this subsection
shall be conclusive, absent manifest error. If such amount is
so made available, such payment to Agent shall constitute such
Lender's Advance on the date of Borrowing for all purposes of
this Agreement. If such amount is not made available to Agent
on the Business Day following the Funding Date, Agent will
notify Borrower of such failure to fund and, upon demand by
Agent, Borrower shall pay such amount to Agent for Agent's
account, together with interest thereon for each day elapsed
since the date of such Borrowing, at a rate per annum equal to
the interest rate applicable at the time to the Advances
composing such Borrowing. The failure of any Lender to make
any Advance on any Funding Date shall not relieve any other
Lender of any obligation hereunder to make an Advance on such
Funding Date, but no Lender shall be responsible for the
failure of any other Lender to make the Advance to be made by
such other Lender on any Funding Date.
(iii) Agent shall not be obligated to transfer to
a Defaulting Lender any payments made by Borrower to Agent for
the Defaulting Lender's benefit, and, in the absence of such
transfer to the Defaulting Lender, Agent shall transfer any
such payments to each other non-Defaulting Lender member of
the Lender Group ratably in accordance with their Commitments
(but only to the extent that such Defaulting Lender's Advance
was funded by the other members of the Lender Group) or, if so
directed by Borrower and if no Default or Event of Default had
occurred and is continuing (and to the extent such Defaulting
Lender's Advance was not funded by the Lender Group), retain
same to be re-advanced to Borrower as if such Defaulting
Lender had made Advances to Borrower. Subject to the
foregoing, Agent may hold and, in its Permitted Discretion,
re-lend to Borrower for the account of such Defaulting Lender
the amount of all such payments received and retained by it
for the account of such Defaulting Lender. Solely for the
purposes of voting or consenting to matters with respect to
the Loan Documents, such Defaulting Lender shall be deemed not
to be a "Lender" and such Lender's Commitment shall be deemed
to be zero. This Section shall remain effective with respect
to such Lender until (x) the Obligations under this Agreement
shall have been
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declared or shall have become immediately due and payable, (y)
the non-Defaulting Lenders, Agent, and Borrower shall have
waived such Defaulting Lender's default in writing, or (z) the
Defaulting Lender makes its Pro Rata Share of the applicable
Advance and pays to Agent all amounts owing by Defaulting
Lender in respect thereof. The operation of this Section shall
not be construed to increase or otherwise affect the
Commitment of any Lender, to relieve or excuse the performance
by such Defaulting Lender or any other Lender of its duties
and obligations hereunder, or to relieve or excuse the
performance by Borrower of its duties and obligations
hereunder to Agent or to the Lenders other than such
Defaulting Lender. Any such failure to fund by any Defaulting
Lender shall constitute a material breach by such Defaulting
Lender of this Agreement and shall entitle Borrower at its
option, upon written notice to Agent, to arrange for a
substitute Lender to assume the Commitment of such Defaulting
Lender, such substitute Lender to be acceptable to Agent. In
connection with the arrangement of such a substitute Lender,
the Defaulting Lender shall have no right to refuse to be
replaced hereunder, and agrees to execute and deliver a
completed form of Assignment and Acceptance Agreement in favor
of the substitute Lender (and agrees that it shall be deemed
to have executed and delivered such document if it fails to do
so) subject only to being repaid its share of the outstanding
Obligations (including an assumption of its Pro Rata Share of
the Risk Participation Liability) without any premium or
penalty of any kind whatsoever; provided further, however,
that any such assumption of the Commitment of such Defaulting
Lender shall not be deemed to constitute a waiver of any of
the Lender Groups' or Borrower's rights or remedies against
any such Defaulting Lender arising out of or in relation to
such failure to fund.
(d) MAKING OF SWING LOANS.
(i) In the event Agent shall elect, with the
consent of Swing Lender, as a Lender, to have the terms of
this Section 2.3(d) apply to a requested Borrowing as
described in Section 2.3(b), Swing Lender as a Lender shall
make such Advance in the amount of such Borrowing (any such
Advance made solely by Swing Lender as a Lender pursuant to
this Section 2.3(d) being referred to as a "Swing Loan" and
such Advances being referred to collectively as "Swing Loans")
available to Borrower on the Funding Date applicable thereto
by transferring immediately available funds to Borrower's
Designated Account. Each Swing Loan is an Advance hereunder
and shall be subject to all the terms and conditions
applicable to other Advances, except that no such Swing Loan
shall be eligible for the LIBOR Option and all payments on any
Swing Loan shall be payable to Swing Lender as a Lender solely
for its own account (and for the account of the holder of any
participation interest with respect to such Swing Loan).
Subject to the provisions of Section 2.3(i), Agent shall not
request Swing Lender as a Lender
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to make, and Swing Lender as a Lender shall not make, any
Swing Loan if Agent has actual knowledge that (i) one or more
of the applicable conditions precedent set forth in Section 3
will not be satisfied on the requested Funding Date for the
applicable Borrowing unless such condition has been waived, or
(ii) the requested Borrowing would exceed the Availability on
such Funding Date. Swing Lender as a Lender shall not
otherwise be required to determine whether the applicable
conditions precedent set forth in Section 3 have been
satisfied on the Funding Date applicable thereto prior to
making, in its sole discretion, any Swing Loan.
(ii) The Swing Loans shall be secured by the
Agent's Liens, shall constitute Advances and Obligations
hereunder, and shall bear interest at the rate applicable from
time to time to Advances that are Base Rate Loans.
(e) AGENT ADVANCES.
(i) Agent hereby is authorized by Borrower and
the Lenders, from time to time in Agent's sole discretion, (1)
after the occurrence and during the continuance of a Default
or an Event of Default, or (2) at any time that any of the
other applicable conditions precedent set forth in Section 3
have not been satisfied, to make Advances to Borrower on
behalf of the Lenders that Agent, in its Permitted Discretion
deems necessary or desirable (A) to preserve or protect the
Collateral, or any portion thereof, (B) to enhance the
likelihood of repayment of the Obligations, or (C) to pay any
other amount chargeable to Borrower pursuant to the terms of
this Agreement, including Lender Group Expenses and the costs,
fees, and expenses described in Section 10 (any of the
Advances described in this Section 2.3(e) shall be referred to
as "Agent Advances"). Each Agent Advance is an Advance
hereunder and shall be subject to all the terms and conditions
applicable to other Advances, except that no such Agent
Advance shall be eligible for the LIBOR Option and all
payments thereon shall be payable to Agent solely for its own
account (and for the account of the holder of any
participation interest with respect to such Agent Advance).
(ii) The Agent Advances shall be repayable on
demand and secured by the Agent's Liens granted to Agent under
the Loan Documents, shall constitute Advances and Obligations
hereunder, and shall bear interest at the rate applicable from
time to time to Advances that are Base Rate Loans.
(f) SETTLEMENT. It is agreed that each Lender's
funded portion of the Advances is intended by the Lenders to equal, at all
times, such Lender's Pro Rata Share of the outstanding Advances. Such agreement
notwithstanding, Agent, Swing Lender, and the other Lenders agree (which
agreement shall not be for the benefit of or enforceable by Borrower) that in
order to facilitate the administration of this Agreement and the other Loan
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Documents, settlement among them as to the Advances, the Swing Loans, and the
Agent Advances shall take place on a periodic basis in accordance with the
following provisions:
(i) Agent shall request settlement
("Settlement") with the Lenders on a weekly basis, or on a
more frequent basis if so determined by Agent, (1) on behalf
of Swing Lender, with respect to each outstanding Swing Loan,
(2) for itself, with respect to each Agent Advance, and (3)
with respect to Collections received, as to each by notifying
the Lenders by telecopy, telephone, or other similar form of
transmission, of such requested Settlement, no later than 2:00
p.m. (California time) on the Business Day immediately prior
to the date of such requested Settlement (the date of such
requested Settlement being the "Settlement Date"). Such notice
of a Settlement Date shall include a summary statement of the
amount of outstanding Advances, Swing Loans, and Agent
Advances for the period since the prior Settlement Date.
Subject to the terms and conditions contained herein
(including Section 2.3(c)(iii)): (y) if a Lender's balance of
the Advances, Swing Loans, and Agent Advances exceeds such
Lender's Pro Rata Share of the Advances, Swing Loans, and
Agent Advances as of a Settlement Date, then Agent shall, by
no later than 12:00 p.m. (California time) on the Settlement
Date, transfer in immediately available funds to the account
of such Lender as such Lender may designate, an amount such
that each such Lender shall, upon receipt of such amount, have
as of the Settlement Date, its Pro Rata Share of the Advances,
Swing Loans, and Agent Advances, and (z) if a Lender's balance
of the Advances, Swing Loans, and Agent Advances is less than
such Lender's Pro Rata Share of the Advances, Swing Loans, and
Agent Advances as of a Settlement Date, such Lender shall no
later than 12:00 p.m. (California time) on the Settlement Date
transfer in immediately available funds to the Agent's
Account, an amount such that each such Lender shall, upon
transfer of such amount, have as of the Settlement Date, its
Pro Rata Share of the Advances, Swing Loans, and Agent
Advances. Such amounts made available to Agent under clause
(z) of the immediately preceding sentence shall be applied
against the amounts of the applicable Swing Loan or Agent
Advance and, together with the portion of such Swing Loan or
Agent Advance representing Swing Lender's Pro Rata Share
thereof, shall constitute Advances of such Lenders. If any
such amount is not made available to Agent by any Lender on
the Settlement Date applicable thereto to the extent required
by the terms hereof, Agent shall be entitled to recover for
its account such amount on demand from such Lender together
with interest thereon at the Defaulting Lender Rate.
(ii) In determining whether a Lender's balance of
the Advances, Swing Loans, and Agent Advances is less than,
equal to, or greater than such Lender's Pro Rata Share of the
Advances, Swing Loans, and Agent Advances as of a Settlement
Date, Agent shall, as part of the relevant Settlement, apply
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to such balance the portion of payments actually received in
good funds by Agent with respect to principal, interest, fees
payable by Borrower and allocable to the Lenders hereunder,
and proceeds of Collateral. To the extent that a net amount is
owed to any such Lender after such application, such net
amount shall be distributed by Agent to that Lender as part of
such next Settlement.
(iii) Between Settlement Dates, Agent, to the
extent no Agent Advances or Swing Loans are outstanding, may
pay over to Swing Lender any payments received by Agent, that
in accordance with the terms of this Agreement would be
applied to the reduction of the Advances, for application to
Swing Lender's Pro Rata Share of the Advances. If, as of any
Settlement Date, Collections received since the then
immediately preceding Settlement Date have been applied to
Swing Lender's Pro Rata Share of the Advances other than to
Swing Loans, as provided for in the previous sentence, Swing
Lender shall pay to Agent for the accounts of the Lenders, and
Agent shall pay to the Lenders, to be applied to the
outstanding Advances of such Lenders, an amount such that each
Lender shall, upon receipt of such amount, have, as of such
Settlement Date, its Pro Rata Share of the Advances. During
the period between Settlement Dates, Swing Lender with respect
to Swing Loans, Agent with respect to Agent Advances, and each
Lender (subject to the effect of letter agreements between
Agent and individual Lenders) with respect to the Advances
other than Swing Loans and Agent Advances, shall be entitled
to interest at the applicable rate or rates payable under this
Agreement on the daily amount of funds employed by Swing
Lender, Agent, or the Lenders, as applicable.
(g) NOTATION. Agent shall record on its books
the principal amount of the Advances owing to each Lender, including the Swing
Loans owing to Swing Lender, and Agent Advances owing to Agent, and the
interests therein of each Lender, from time to time. In addition, each Lender is
authorized, at such Lender's option, to note the date and amount of each payment
or prepayment of principal of such Lender's Advances in its books and records,
including computer records, such books and records constituting conclusive
evidence, absent manifest error, of the accuracy of the information contained
therein.
(h) LENDERS' FAILURE TO PERFORM. All Advances
(other than Swing Loans and Agent Advances) shall be made by the Lenders
contemporaneously and in accordance with their Pro Rata Shares. It is understood
that (i) no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make any Advance (or other extension of credit)
hereunder, nor shall any Commitment of any Lender be increased or decreased as a
result of any failure by any other Lender to perform its obligations hereunder,
and (ii) no failure by any Lender to perform its obligations hereunder shall
excuse any other Lender from its obligations hereunder.
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(i) OPTIONAL OVERADVANCES. Any contrary
provision of this Agreement notwithstanding, the Lenders hereby authorize Agent
or Swing Lender, as applicable, and Agent or Swing Lender, as applicable, may,
but is not obligated to, knowingly and intentionally, continue to make Advances
(including Swing Loans) to Borrower notwithstanding that an Overadvance exists
or thereby would be created, so long as (i) after giving effect to such Advances
(including a Swing Loan), the outstanding Revolver Usage does not exceed the
Borrowing Base by more than $8,000,000, (ii) after giving effect to such
Advances (including a Swing Loan), the outstanding Revolver Usage (except for
and excluding amounts charged to the Loan Account for interest, fees, or Lender
Group Expenses) does not exceed the Maximum Revolver Amount, and (iii) at the
time of the making of any such Advance (including any Swing Loan), Agent does
not believe, in good faith, that the Overadvance created by such Advance will be
outstanding for more than 90 days. The foregoing provisions are for the
exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended
to benefit Borrower in any way. The Advances and Swing Loans, as applicable,
that are made pursuant to this Section 2.3(i) shall be subject to the same terms
and conditions as any other Advance or Swing Loan, as applicable, except that
they shall not be eligible for the LIBOR Option and the rate of interest
applicable thereto shall be the rate applicable to Advances that are Base Rate
Loans under Section 2.6(c) hereof without regard to the presence or absence of a
Default or Event of Default.
(i) In the event Agent obtains actual knowledge
that the Revolver Usage exceeds the amounts permitted by the
preceding paragraph, regardless of the amount of, or reason
for, such excess, Agent shall notify Lenders as soon as
practicable (and prior to making any (or any additional)
intentional Overadvances (except for and excluding amounts
charged to the Loan Account for interest, fees, or Lender
Group Expenses) unless Agent determines that prior notice
would result in imminent harm to the Collateral or its value),
and the Lenders with Revolver Commitments thereupon shall,
together with Agent, jointly determine the terms of
arrangements that shall be implemented with Borrower intended
to reduce, within a reasonable time, the outstanding principal
amount of the Advances to Borrower to an amount permitted by
the preceding paragraph. In the event Agent or any Lender
disagrees over the terms of reduction or repayment of any
Overadvance, the terms of reduction or repayment thereof shall
be implemented according to the determination of the Required
Lenders.
(ii) Each Lender with a Revolver Commitment shall
be obligated to settle with Agent as provided in Section
2.3(f) for the amount of such Lender's Pro Rata Share of any
unintentional Overadvances by Agent reported to such Lender,
any intentional Overadvances made as permitted under this
Section 2.3(i), and any Overadvances resulting from the
charging to the Loan Account of interest, fees, or Lender
Group Expenses.
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2.4 PAYMENTS.
(a) PAYMENTS BY BORROWER.
(i) Except as otherwise expressly provided
herein, all payments by Borrower shall be made to Agent's Account for
the account of the Lender Group and shall be made in immediately
available funds, no later than 11:00 a.m. (California time) on the date
specified herein. Any payment received by Agent later than 11:00 a.m.
(California time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall
continue to accrue until such following Business Day.
(ii) Unless Agent receives notice from Borrower
prior to the date on which any payment is due to the Lenders that
Borrower will not make such payment in full as and when required, Agent
may assume that Borrower has made (or will make) such payment in full
to Agent on such date in immediately available funds and Agent may (but
shall not be so required), in reliance upon such assumption, distribute
to each Lender on such due date an amount equal to the amount then due
such Lender. If and to the extent Borrower does not make such payment
in full to Agent on the date when due, each Lender severally shall
repay to Agent on demand such amount distributed to such Lender,
together with interest thereon at the Defaulting Lender Rate for each
day from the date such amount is distributed to such Lender until the
date repaid.
(b) APPORTIONMENT AND APPLICATION OF PAYMENTS.
(i) Except as otherwise provided with respect to
Defaulting Lenders and except as otherwise provided in the Loan
Documents (including letter agreements between Agent and individual
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