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Sample Business ContractsHome: Sample Business Contracts:
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CREDIT AGREEMENT
Dated as of September 1, 2000,
among
PEET'S COFFEE AND TEA, INC.
as Borrower,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
as Credit Parties,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
===============================================================================
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. AMOUNT AND TERMS OF CREDIT........................................................ 1
1.1 Credit Facilities.......................................................... 1
1.2 Letters of Credit.......................................................... 3
1.3 Prepayment................................................................. 3
1.4 Use of Proceeds............................................................ 5
1.5 Interest and Applicable Margins............................................ 5
1.6 Reserves Against Borrowing Availability.................................... 7
1.7 [Intentionally Omitted.]................................................... 7
1.8 Cash Management System..................................................... 7
1.9 Fees....................................................................... 7
1.10 Receipt of Payments........................................................ 8
1.11 Application and Allocation of Payments..................................... 8
1.12 Loan Account and Accounting................................................ 9
1.13 Indemnity.................................................................. 9
1.14 Access..................................................................... 10
1.15 Taxes...................................................................... 11
1.16 Capital Adequacy; Increased Costs; Illegality.............................. 11
1.17 Single Loan................................................................ 12
2. CONDITIONS PRECEDENT.............................................................. 12
2.1 Conditions to the Initial Loans............................................ 12
2.2 Further Conditions to Each Loan............................................ 13
3. REPRESENTATIONS AND WARRANTIES..................................................... 14
3.1 Corporate Existence; Compliance with Law.................................. 14
3.2 Executive Offices; Collateral Locations; FEIN............................. 14
3.3 Corporate Power, Authorization, Enforceable Obligations................... 14
3.4 Financial Statements and Projections...................................... 15
3.5 Material Adverse Effect................................................... 15
3.6 Ownership of Property; Liens.............................................. 15
3.7 Labor Matters............................................................. 16
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness. 16
3.9 Government Regulation..................................................... 17
3.10 Margin Regulations........................................................ 17
3.11 Taxes..................................................................... 17
3.12 ERISA..................................................................... 18
3.13 No Litigation............................................................. 19
3.14 Brokers................................................................... 19
3.15 Intellectual Property..................................................... 19
3.16 Full Disclosure........................................................... 19
3.17 Environmental Matters..................................................... 19
3.18 Insurance................................................................. 20
3.19 Deposit and Disbursement Accounts......................................... 20
3.20 Government Contracts...................................................... 20
</TABLE>
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
3.21 Customer and Trade Relations............................................... 20
3.22 Agreements and Other Documents............................................. 21
3.23 Solvency................................................................... 21
3.24 Year 2000 Representations.................................................. 21
4. FINANCIAL STATEMENTS AND INFORMATION.............................................. 21
4.1 Reports and Notices........................................................ 21
4.2 Communication with Accountants............................................. 21
5. AFFIRMATIVE COVENANTS............................................................. 22
5.1 Maintenance of Existence and Conduct of Business........................... 22
5.2 Payment of Obligations..................................................... 22
5.3 Books and Records.......................................................... 22
5.4 Insurance; Damage to or Destruction of Collateral.......................... 22
5.5 Compliance with Laws....................................................... 24
5.6 Supplemental Disclosure.................................................... 24
5.7 Intellectual Property...................................................... 25
5.8 Environmental Matters...................................................... 25
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters............. 25
5.10 Inactive Subsidiary........................................................ 26
5.11 Further Assurances......................................................... 26
6. NEGATIVE COVENANTS................................................................ 26
6.1 Mergers, Subsidiaries, Etc................................................. 26
6.2 Investments; Loans and Advances............................................ 26
6.3 Indebtedness............................................................... 27
6.4 Employee Loans and Affiliate Transactions.................................. 27
6.5 Capital Structure and Business............................................. 28
6.6 Guaranteed Indebtedness.................................................... 28
6.7 Liens...................................................................... 28
6.8 Sale of Stock and Assets................................................... 29
6.9 ERISA...................................................................... 29
6.10 Financial Covenants........................................................ 29
6.11 Hazardous Materials........................................................ 29
6.12 Sale-Leasebacks............................................................ 29
6.13 Cancellation of Indebtedness............................................... 29
6.14 Restricted Payments........................................................ 29
6.15 Change of Corporate Name or Location; Change of Fiscal Year................ 29
6.16 No Impairment of Intercompany Transfers.................................... 30
6.17 No Speculative Transactions................................................ 30
6.18 Leases..................................................................... 30
6.19 Store Expansion............................................................ 31
6.20 Credit Parties Other than Borrower......................................... 31
</TABLE>
ii
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
7. TERM.............................................................................. 32
7.1 Termination................................................................ 32
7.2 Survival of Obligations Upon Termination of Financing Arrangements......... 32
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES............................................ 32
8.1 Events of Default.......................................................... 32
8.2 Remedies................................................................... 34
8.3 Waivers by Credit Parties.................................................. 34
9. PARTICIPATIONS.................................................................... 34
10. SUCCESSORS AND ASSIGNS............................................................ 35
11. MISCELLANEOUS..................................................................... 35
11.1 Complete Agreement; Modification of Agreement.............................. 35
11.2 Amendments and Waivers..................................................... 36
11.3 Fees and Expenses.......................................................... 36
11.4 No Waiver.................................................................. 37
11.5 Remedies................................................................... 37
11.6 Severability............................................................... 37
11.7 Conflict of Terms.......................................................... 37
11.8 Confidentiality............................................................ 38
11.9 GOVERNING LAW.............................................................. 38
11.10 Notices.................................................................... 39
11.11 Section Titles............................................................. 39
11.12 Counterparts............................................................... 39
11.13 WAIVER OF JURY TRIAL....................................................... 39
11.14 Press Releases............................................................. 40
11.15 Reinstatement.............................................................. 40
11.16 Advice of Counsel.......................................................... 40
11.17 No Strict Construction..................................................... 40
</TABLE>
iii
<PAGE>
THIS CREDIT AGREEMENT ("Agreement") is entered into as of September 1,
---------
2000, by and among PEET'S COFFEE AND TEA, INC., a Washington corporation
("Borrower"); the other Credit Parties signatory hereto; and GENERAL ELECTRIC
--------
CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE
--
Capital"), as Lender.
-------
RECITALS
--------
A. Borrower has requested that Lender extend revolving and term
credit facilities to Borrower of up to Thirty Million Dollars ($30,000,000) in
the aggregate for the purpose of refinancing certain indebtedness of Borrower
and to provide (i) working capital financing for Borrower, (ii) funds for other
general corporate purposes of Borrower, and (iii) funds for certain fees and
expenses in connection with the financing transactions contemplated herein; and
Lender is willing to make certain loans and other extensions of credit to
Borrower of up to such amount upon the terms and conditions set forth herein.
B. Borrower desires to secure all of its obligations under the Loan
Documents by granting to Lender a security interest in and lien upon all of its
existing and after-acquired personal and real property.
C. Peet's Trademark Company, a Washington corporation ("Trademark
---------
Co."), is willing to enter into a guaranty of all of the obligations of Borrower
---
to Lender under the Loan Documents and to pledge all of its assets to secure
such guaranty.
D. Peet's Companies, Inc., a Washington corporation ("Holdings"), is
--------
willing to enter into a guaranty of all of the obligations of Borrower to Lender
under the Loan Documents and to pledge to Lender all of the capital Stock of
Borrower and Trademark Co. to secure such guaranty.
E. Capitalized terms used in this Agreement shall have the meanings
ascribed to them in Annex A and, for purposes of this Agreement and the other
-------
Loan Documents, the rules of construction set forth in Annex A shall govern.
-------
All exhibits, schedules, annexes and other attachments (collectively,
"Appendices") hereto, or expressly identified to this Agreement, are
----------
incorporated herein by reference and, taken together with this Agreement, shall
constitute but a single agreement. These Recitals shall be construed as part of
the Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facilities.
-----------------
(a) Revolving Credit Facility.
-------------------------
(i) Subject to the terms and conditions hereof, Lender
agrees to make its advances available to Borrower from time to time until the
Commitment Termination Date (each, a "Revolving Credit Advance"). The aggregate
amount of Revolving Credit Advances outstanding shall not exceed at any time the
lesser of (A) the Revolving Loan Commitment and (B) the
1 CREDIT AGREEMENT
<PAGE>
Borrowing Base, in each case less the sum of the Letter of Credit Obligations
outstanding at such time ("Borrowing Availability"). Until the Commitment
----------------------
Termination Date, Borrower may from time to time borrow, repay and reborrow
under this Section 1.1(a). Each Revolving Credit Advance shall be made on notice
--------------
by Borrower to the representative of Lender identified in Schedule 1.1 at the
------------
address specified therein. Any such notice must be given no later than (1) 10:30
a.m (California time) on the Business Day of the proposed Revolving Credit
Advance, in the case of an Index Rate Loan, or (2) 10:30 a.m. (California time)
on the date that is three Business Days prior to the proposed Revolving Credit
Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Revolving
-------------------
Credit Advance") shall be given in writing (by telecopy or overnight courier)
--------------
substantially in the form of Exhibit 1.1(a)(i), and shall include the
-----------------
information required in such Exhibit and such other information as may be
required by Lender. If Borrower desires to have the Revolving Credit Advances
bear interest by reference to a LIBOR Rate, it must comply with Section 1.5(e).
--------------
(ii) Borrower shall execute and deliver to Lender a
note to evidence the Revolving Loan Commitment which note shall be (A) dated the
Closing Date and (B) substantially in the form of Exhibit 1.1(a)(ii) (the
------------------
"Revolving Note"). The Revolving Note shall represent the obligation of Borrower
--------------
to pay the amount of the Revolving Loan Commitment or, if less, the aggregate
unpaid principal amount of all Revolving Credit Advances made to Borrower
together with interest thereon as prescribed in Section 1.5. The entire unpaid
-----------
balance of the Revolving Loan and all other noncontingent Obligations shall be
immediately due and payable in full in immediately available funds on the
Commitment Termination Date.
(b) Term Loans.
----------
(i) Subject to the terms and conditions hereof, Lender
agrees to make (A) a term loan on the Closing Date to Borrower ("Term Loan A")
-----------
in the original principal amount of the Term Loan A Commitment, and (B) a term
loan on the Closing Date to Borrower ("Term Loan B," and collectively with Term
-----------
Loan A, the "Term Loans") in the original principal amount of the Term Loan B
Commitment. Term Loan A shall be evidenced by a promissory note substantially in
the form of Exhibit 1.1(b)(1) (the "Term Loan A Note") and Term Loan B shall be
----------------- ----------------
by a promissory note substantially in the form of Exhibit 1.1(b)(2) (the "Term
----------------- ----
Loan B Note," and collectively with the Term Loan A Note, the "Term Notes"),
----------- ----------
and Borrower shall execute and deliver each Term Note to Lender. Each Term Note
shall represent the obligation of Borrower to pay to Lender the amount of the
applicable Term Loan Commitment, together with interest thereon as prescribed
in Section 1.5.
-----------
(ii) (A) Borrower shall pay the principal amount of
Term Loan A in (x) fifty-nine (59) consecutive monthly installments of One
Hundred Sixteen Thousand Six Hundred Sixty Six and 66/100 Dollars ($116,666.66)
each, on the last day of each of fifty-nine (59) Fiscal Months commencing
September 30, 2000, and (y) one installment of One Hundred Sixteen Thousand Six
Hundred Sixty Six and 67/100 Dollars ($116,666.67) on August 31, 2005.
(B) Borrower shall pay the entire principal
amount of Term Loan B in a single payment of Eight Million Dollars ($8,000,000)
on February 28, 2002.
(iii) Notwithstanding Section 1.1(b)(ii), the aggregate
------------------
outstanding principal balance of Term Loan A and Term Loan B shall each be due
and payable in full in immediately available funds on the Commitment Termination
Date, if not sooner paid in full.
2 CREDIT AGREEMENT
<PAGE>
(c) Reliance on Notices. Lender shall be entitled to rely
-------------------
upon, and shall be fully protected in relying upon, any Notice of Revolving
Credit Advance, Notice of Conversion/ Continuation or similar notice believed by
Lender to be genuine. Lender may assume that each Person executing and
delivering any such notice was duly authorized, unless the responsible
individual acting thereon for Lender has actual knowledge to the contrary.
1.2 Letters of Credit. Subject to and in accordance with the
-----------------
terms and conditions contained herein and in Annex B, Borrower shall have the
-------
right to request, and Lender agrees to incur, Letter of Credit Obligations in
respect of Borrower.
1.3 Prepayment.
----------
(a) Voluntary Prepayments. Borrower may at any time on at
---------------------
least five days' prior written notice to Lender (i) voluntarily prepay all or
part of either of the Term Loans or (ii) voluntarily prepay all or part of the
Revolving Loan and permanently reduce (but not terminate) the Revolving Loan
Commitment; provided, that (A) any such prepayments or reductions shall be in a
--------
minimum amount of $1,000,000 and integral multiples of $500,000 in excess of
such amount, (B) the Revolving Loan Commitment shall not be reduced to an amount
less than the greater of (1) $10,000,000 and (2) the L/C Sublimit, and (C) if
all or any part of any such prepayment is applied to reduce the then outstanding
principal amount of Term Loan B, then, after giving effect to such prepayment,
Borrower shall have Net Borrowing Availability of not less than $2,000,000.
Borrower may at any time on at least ten days' prior written notice to Lender
terminate the Revolving Loan Commitment; provided, that upon such termination
--------
all Loans and other Obligations shall be immediately due and payable in full and
Borrower shall make arrangements, in accordance with the terms and conditions of
Annex B, for the satisfaction of any outstanding Letter of Credit Obligations.
-------
Any such voluntary prepayment and any such reduction or termination of the
Revolving Loan Commitment must be accompanied by payment of the fee required by
Section 1.9(c), if any, Lender's out-of-pocket expenses, and payment of any
-------------
LIBOR funding breakage costs in accordance with Section 1.13(b). Upon any such
---------------
prepayment and reduction or termination of the Revolving Loan Commitment,
Borrower's right to request Revolving Credit Advances, or request that Letter of
Credit Obligations be incurred on its behalf, shall simultaneously be
permanently reduced or terminated, as the case may be; provided, that a
--------
permanent reduction of the Revolving Loan Commitment shall not require a
corresponding pro rata reduction in the L/C Sublimit. Each notice of partial
prepayment shall designate the Loan or other Obligations to which such
prepayment is to be applied; provided, that any partial prepayment of Term Loan
--------
A made by Borrower shall be applied to prepay the scheduled installments of Term
Loan A in inverse order of maturity.
(b) Mandatory Prepayments.
---------------------
(i) If at any time the outstanding balance of the
Revolving Loan exceeds the lesser of (A) the Revolving Loan Commitment and (B)
the Borrowing Base, then Borrower shall immediately repay the aggregate
outstanding Revolving Credit Advances to the extent required to eliminate such
excess. If any such excess remains after repayment in full of the aggregate
outstanding Revolving Credit Advances, Borrower shall provide cash collateral
for the Letter of Credit Obligations in the manner set forth in Annex B to the
-------
extent required to eliminate such excess.
(ii) Immediately upon receipt by any Credit Party of
proceeds of any asset disposition (excluding proceeds of asset dispositions
permitted by Section 6.8) or any sale of Stock of any Subsidiary of any Credit
-----------
Party, Borrower shall prepay the Loans in an amount equal to
3 CREDIT AGREEMENT
<PAGE>
all such proceeds, net of (A) commissions and other reasonable and customary
transaction costs, fees and expenses properly attributable to such transaction
and payable by Borrower in connection therewith (in each case, paid to non-
Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior Liens
(to the extent such Liens constitute Permitted Encumbrances hereunder), if any,
and (D) an appropriate reserve for income taxes in accordance with GAAP in
connection therewith. Any such prepayment shall be applied in accordance with
Section 1.3(c).
--------------
(iii) If any Credit Party issues Stock or any debt
securities:
(A) If such issuance occurs in connection with
any Public Offering or Private Placement of Stock of Holdings then, no later
than the Business Day following the date of receipt by any Credit Party of the
proceeds thereof, Borrower shall, except as otherwise provided in Section
-------
6.19(c), apply all such proceeds, net of underwriting discounts and commissions
-------
and other reasonable costs paid to non-Affiliates in connection with any such
Public Offering or Private Placement, as follows: first, to accrued and unpaid
-----
interest outstanding under Term Loan B; second, to prepay the outstanding
------
principal amount of Term Loan B until such Loan shall have been prepaid in full;
third, to interest then due and payable on the Revolving Credit Advances; and
-----
fourth, to the outstanding principal balance of Revolving Credit Advances until
the same shall have been paid in full; provided, that the Revolving Loan
--------
Commitment shall not be permanently reduced by the amount of any such payments
with respect to the Revolving Loan.
(B) If such issuance occurs other than for the
purposes provided in clause (A) above then, no later than the Business Day
following the date of receipt of the proceeds thereof, Borrower shall prepay the
Loans in an amount equal to all such proceeds, net of underwriting discounts and
commissions and other reasonable costs paid to non-Affiliates in connection
therewith; provided, that no prepayment of the Loans shall be required in
--------
connection with the issuance of Stock of Holdings to employees of Borrower upon
the exercise of employee stock options to the persons or pursuant to the stock
option plans identified in Disclosure Schedule (3.7).
-------------------------
(iv) If the proceeds described in Section 1.3(b)(ii) or
------------------
1.3(b)(iii) are received by a Credit Party other than Borrower, such Credit
-----------
Party shall immediately distribute or contribute such proceeds to Borrower to
fund the prepayments required by Section 1.3(b)(ii) or 1.3(b)(iii), as
------------------ -----------
applicable. Any prepayments required by Section 1.3(b)(i), 1.3(b)(ii), or
----------------- ----------
1.3(b)(iii)(B) shall be applied in accordance with Section 1.3(c).
-------------- --------------
(c) Application of Certain Mandatory Prepayments. Any
--------------------------------------------
prepayments made by Borrower pursuant to Section 1.3(b)(ii) or (b)(iii)(B) shall
----------------- -----------
be applied as follows: first, to Fees and reimbursable expenses of Lender then
-----
due and payable pursuant to any of the Loan Documents; second, to interest then
------
due and payable on Term Loan B; third, to prepay the principal amount of Term
-----
Loan B until such Loan shall have been prepaid in full; fourth, to interest then
------
due and payable on Term Loan A; fifth, to prepay the scheduled installments of
-----
Term Loan A in inverse order of maturity, until such Loan shall have been
prepaid in full; sixth, to interest then due and payable on the Revolving Credit
-----
Advances; seventh, to the outstanding principal balance of Revolving Credit
-------
Advances until the same shall have been paid in full; and eighth, to any Letter
------
of Credit Obligations incurred on behalf of Borrower, to provide cash collateral
therefor in the manner set forth in Annex B, until all such Letter of Credit
-------
Obligations have been fully cash collateralized in the manner set forth in Annex
-----
B. The Revolving Loan Commitment shall not be permanently reduced by the amount
-
of any such prepayments.
4 CREDIT AGREEMENT
<PAGE>
(d) Application of Prepayments from Insurance Proceeds. Prepayments
--------------------------------------------------
from insurance proceeds in accordance with Section 5.4(c) shall be applied as
--------------
follows: insurance proceeds from casualties or losses to cash or Inventory shall
be applied to the Revolving Credit Advances; insurance or condemnation proceeds
from casualties or losses to Equipment, Fixtures and Real Estate shall be
applied first to Term Loan B and, after Term Loan B shall have been paid in
full, to prepay the scheduled installments of Term Loan A in inverse order of
maturity, until Term Loan A shall have been prepaid in full. The Revolving Loan
Commitment shall not be permanently reduced by the amount of any such
prepayments. If the precise amount of insurance or condemnation proceeds
allocable to Inventory as compared to Equipment, Fixtures and Real Estate are
not otherwise determined, the allocation and application of those proceeds shall
be determined by Lender.
(e) No Consent to Prohibited Transactions. Nothing in this Section
------------------------------------- -------
1.3 shall be construed to constitute Lender's consent to any transaction that is
---
not permitted by other provisions of this Agreement or the other Loan Documents.
1.4 Use of Proceeds. Borrower shall utilize the proceeds of the Term
---------------
Loans and the Revolving Loan solely for the Refinancing (and to pay any related
transaction expenses), for scheduled payments in connection with the Facility
Bond, and for the financing of Borrower's ordinary working capital and general
corporate needs (but excluding in any event the making of any Restricted Payment
not specifically permitted by Section 6.14). Disclosure Schedule (1.4) contains
------------ -------------------------
a description of Borrower's sources and uses of funds as of the Closing Date,
including Loans and Letter of Credit Obligations to be made or incurred on such
date, and a funds flow memorandum detailing how funds from each source are to be
transferred to particular uses.
1.5 Interest and Applicable Margins.
-------------------------------
(a) Borrower shall pay interest to Lender in arrears on each
applicable Interest Payment Date, at the following rates: (i) with respect to
the Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index
Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus
---------
the Applicable Revolver LIBOR Margin per annum; (ii) with respect to Term Loan
---------
A, the Index Rate plus the Applicable Term Loan A Index Margin per annum or, at
---------
the election of Borrower, the applicable LIBOR Rate plus the Applicable Term
Loan A LIBOR Margin per annum, and (iii) with respect to Term Loan B, the Index
---------
Rate plus the Applicable Term Loan B Index Margin per annum or, at the election
---------
of Borrower, the applicable LIBOR Rate plus the Applicable Term Loan B LIBOR
Margin per annum.
The Applicable Margins as of the Closing Date shall be determined by
reference to the following table:
Applicable Margin Per Annum Rate
----------------- --------------
Applicable Revolver Index Margin 1.25%
Applicable Revolver LIBOR Margin 3.00%
Applicable Term Loan A Index Margin 1.25%
Applicable Term Loan A LIBOR Margin 3.00%
Applicable Term Loan B Index Margin 5.25%
Applicable Term Loan B LIBOR Margin 7.00%
(b) If any payment on any Loan becomes due and payable on a day
other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as
5 CREDIT AGREEMENT
<PAGE>
set forth in the definition of LIBOR Period) and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
(c) All computations of Fees calculated on a per annum basis and
---------
interest shall be made by Lender on the basis of a 360-day year, in each case
for the actual number of days occurring in the period for which such fees or
interest are payable. Each determination by Lender of an interest rate hereunder
shall be final, binding and conclusive on Borrower (absent manifest error).
(d) So long as an Event of Default under Sections 8.1(a), (h) or (i)
--------------- --- ---
shall have occurred and be continuing or so long as any other Default or Event
of Default shall have occurred and be continuing, and at the election of Lender
after written notice from Lender to Borrower, the interest rates applicable to
the Loans and the Letter of Credit Fees shall be increased by two percentage
points (2%) per annum above the rates of interest or the rate of such Fees
---------
otherwise applicable hereunder (the "Default Rate"), and all outstanding
------------
Obligations shall bear interest at the Default Rate applicable to such
Obligations. Interest and Letter of Credit Fees at the Default Rate shall
accrue from the initial date of such Default or Event of Default until that
Default or Event of Default is cured or waived and shall be payable upon demand.
(e) Subject to the conditions precedent set forth in Section 2.2,
-----------
Borrower shall have the option to (i) request that any Revolving Credit Advance
be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding
Loans from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an
Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with
Section 1.13(b) if such conversion is made prior to the expiration of the LIBOR
---------------
Period applicable thereto, or (iv) continue all or any portion of any Loan as a
LIBOR Loan upon the expiration of the applicable LIBOR Period and the succeeding
LIBOR Period of that continued Loan shall commence on the last day of the LIBOR
Period of the Loan to be continued. Any Loan to be made or continued as, or
converted into, a LIBOR Loan must be in a minimum amount of $2,000,000 and
integral multiples of $500,000 in excess of such amount. Any such election must
be made by 10:30 a.m (California time) on the third Business Day prior to (A)
the date of any proposed Revolving Credit Advance that is to bear interest at
the LIBOR Rate, (B) the end of each LIBOR Period with respect to any LIBOR Loans
to be continued as such, or (C) the date on which Borrower wishes to convert any
Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in
such election. If no election is received with respect to a LIBOR Loan by 10:30
a.m. (California time) on the third Business Day prior to the end of the LIBOR
Period with respect thereto (or if a Default or an Event of Default shall have
occurred and be continuing or if the additional conditions precedent set forth
in Section 2.2 shall not have been satisfied), that LIBOR Loan shall be
-----------
converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must
make such election by notice to Lender in writing, by telecopy or overnight
courier. In the case of any conversion or continuation, such election must be
made pursuant to a written notice (a "Notice of Conversion/ Continuation") in
----------------------------------
the form of Exhibit 1.5(e).
--------------
(f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent jurisdiction determines in a final order
-----------
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
-------------------
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, that if at any time thereafter
--------
the rate of interest payable hereunder is less than the Maximum Lawful Rate,
Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate
until such time as the total interest received by Lender is equal to the total
interest that would have been received had the interest rate payable hereunder
been
6 CREDIT AGREEMENT
<PAGE>
(but for the operation of this paragraph) the interest rate payable since
the Closing Date as otherwise provided in this Agreement. Thereafter, interest
hereunder shall be paid at the rate(s) of interest and in the manner provided in
Sections 1.5(a) through (e), unless and until the rate of interest again exceeds
--------------- ---
the Maximum Lawful Rate, and at that time this paragraph shall again apply. In
no event shall the total interest received by Lender pursuant to the terms
hereof exceed the amount that Lender could lawfully have received had the
interest due hereunder been calculated for the full term hereof at the Maximum
Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this
paragraph, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. If, notwithstanding the provisions of this Section 1.5(f),
--------------
a court of competent jurisdiction shall finally determine that Lender has
received interest hereunder in excess of the Maximum Lawful Rate, Lender shall,
to the extent permitted by applicable law, promptly apply such excess in the
order specified in Section 1.11 and thereafter shall refund any excess to
------------
Borrower or as a court of competent jurisdiction may otherwise order.
1.6 Reserves Against Borrowing Availability. Based on the information
---------------------------------------
delivered by Borrower to Lender and on any other information available to
Lender, Lender shall in its reasonable credit judgment determine whether
Borrowing Availability shall be subject to Reserves. Lender reserves the right,
at any time and from time to time after the Closing Date in its reasonable
credit judgment, to establish or modify criteria for Reserves; provided, that
--------
Reserves established to ensure the payment of accrued Interest Expenses or
Indebtedness shall be deemed to be a reasonable exercise of Lender's credit
judgment.
1.7 [Intentionally Omitted.]
---------------------
1.8 Cash Management System. On or prior to the Closing Date, Borrower
----------------------
will establish and will maintain until the Termination Date the cash management
system described in Annex C (the "Cash Management System").
------- ----------------------
1.9 Fees.
----
(a) Borrower shall pay to Lender on the Closing Date a closing
fee of $300,000 (the "Closing Fee"), which Closing Fee shall be fully earned and
-----------
nonrefundable on the Closing Date, and against which Closing Fee shall be
credited (x) the initial $25,000 underwriting deposit paid to Lender by Borrower
in connection with the proposal letter dated May 19, 2000, and (y) the $100,000
---
commitment fee paid to Lender by Borrower in connection with the commitment
letter dated July 5, 2000, net of (z) costs and expenses, including reasonable
------
attorneys' fees and other legal costs and expenses of Murphy Sheneman Julian &
Rogers, incurred as of the Closing Date by Lender in connection with the
transactions contemplated hereby.
(b) [Intentionally Omitted.]
---------------------
(c) If Borrower prepays all or any portion of Term Loan A or
prepays the Revolving Loan and reduces or terminates the Revolving Loan
Commitment, whether voluntarily or involuntarily and whether before or after
acceleration of the Obligations, then Borrower shall pay to Lender as liquidated
damages and compensation for the costs of being prepared to make funds available
hereunder an amount equal to (i) the Applicable Percentage multiplied by (ii)
(A) the principal amount of Term Loan A prepaid, plus (B) the amount of the
reduction of the Revolving Loan Commitment. As used herein, the term "Applicable
Percentage" shall mean (1) three percent (3%) in the case of a prepayment on or
prior to the first anniversary of the Closing Date, (2) two
7 CREDIT AGREEMENT
<PAGE>
percent (2%) in the case of a prepayment after the first anniversary of the
Closing Date but on or prior to the second anniversary thereof, and (3) one
percent (1%) in the case of a prepayment after the second anniversary of the
Closing Date but on or prior to the third anniversary thereof. Notwithstanding
the foregoing, no prepayment fee shall be payable by Borrower upon (x) a
mandatory prepayment made pursuant to Sections 1.3(b) or 1.16(c); provided, that
--------
Borrower does not permanently reduce the Revolving Loan Commitment upon any such
prepayment and, in the case of prepayments made pursuant to Sections 1.3(b)(ii)
or (b)(iii), the transaction giving rise to the applicable prepayment is
expressly permitted under Section 6, or (y) prepayment of some or all of the
Obligations then outstanding in connection with a Public Offering or Private
Placement of Holdings.
(d) Borrower shall pay to Lender the Letter of Credit Fee as
provided in Annex B.
-------
1.10 Receipt of Payments. Borrower shall make each payment under this
-------------------
Agreement not later than 11:00 a.m. (California time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing Fees and determining Borrowing Availability or Net Borrowing
Availability as of any date, all payments shall be deemed received on the
Business Day of receipt of immediately available funds therefor in the
Collection Account prior to 11:00 a.m. (California time). For purposes of
computing interest, all payments shall be deemed received on the Business Day
following receipt of immediately available funds therefor in the Collection
Account prior to 11:00 a.m. (California time). Payments received after 11:00
a.m. (California time) on any Business Day shall be deemed to have been received
on the following Business Day.
1.11 Application and Allocation of Payments.
--------------------------------------
(a) So long as no Default or Event of Default shall have
occurred and be continuing: (i) payments consisting of proceeds of Accounts
received in the ordinary course of business shall be applied to the Revolving
Loan; (ii) payments matching specific scheduled payments then due shall be
applied to those scheduled payments; (iii) voluntary prepayments shall be
applied as determined by Borrower, subject to the provisions of Section 1.3(a);
--------------
and (iv) mandatory prepayments shall be applied as set forth in Sections 1.3(c)
---------------
and (d). As to each other payment, and as to all payments made when a Default or
---
Event of Default shall have occurred and be continuing or following the
Commitment Termination Date, Borrower hereby irrevocably waives the right to
direct the application of any and all payments received from or on behalf of
Borrower, and irrevocably agrees that Lender shall have the continuing exclusive
right to apply any and all such payments against the Obligations as Lender may
deem advisable notwithstanding any previous entry by Lender in the Loan Account
or any other books and records. In the absence of a specific determination by
Lender with respect thereto, payments shall be applied to amounts then due and
payable in the following order: (1) to Fees and Lender's expenses reimbursable
hereunder; (2) to interest on the Loans, ratably in proportion to the interest
accrued as to each Loan; (3) to principal payments on Term Loan B; (4) to
principal payments on Term Loan A; (5) to principal payments on the Revolving
Loans and to provide cash collateral for Letter of Credit Obligations in the
manner described in Annex B, ratably to the aggregate, combined principal
-------
balance of the Revolving Loans and outstanding Letter of Credit Obligations; and
(6) to all other Obligations to the extent reimbursable under Section 11.3.
------------
(b) Lender is authorized to, and at its sole election may,
charge to the Revolving Loan balance on behalf of Borrower and cause to be paid
all Fees, expenses, Charges, costs (including insurance premiums in accordance
with Section 5.4(a)) and interest and principal, other
---------------
8 CREDIT AGREEMENT
<PAGE>
than principal of the Revolving Loan, owing by Borrower under this Agreement or
any of the other Loan Documents if and to the extent Borrower fails to pay
promptly any such amounts as and when due, even if such charges would cause the
aggregate amount of Revolving Credit Advances outstanding to Borrower after
giving effect to such charges to exceed Borrowing Availability. At Lender's
option and to the extent permitted by law, any charges so made shall constitute
part of the Revolving Loan hereunder.
1.12 Loan Account and Accounting. Lender shall maintain a loan
account (the "Loan Account") on its books to record: (a) all Revolving Credit
------------
Advances and the Term Loans, (b) all payments made by Borrower, and (c) all
other debits and credits as provided in this Agreement with respect to the Loans
or any other Obligations. All entries in the Loan Account shall be made in
accordance with Lender's customary accounting practices as in effect from time
to time. The balance in the Loan Account, as recorded on Lender's most recent
printout or other written statement, shall, absent manifest error, be
presumptive evidence of the amounts due and owing to Lender by Borrower;
provided that any failure to so record or any error in so recording shall not
--------
limit or otherwise affect Borrower's duty to pay the Obligations. Lender shall
render to Borrower a monthly accounting of transactions with respect to the
Loans setting forth the balance of the Loan Account for the immediately
preceding month. Unless Borrower notifies Lender in writing of any objection to
any such accounting (specifically describing the basis for such objection),
within 120 days after the date thereof, each and every such accounting shall be
deemed final, binding and conclusive on Borrower (absent manifest error) in all
respects as to all matters reflected therein. Only those items expressly
objected to in such notice shall be deemed to be disputed by Borrower.
1.13 Indemnity.
---------
(a) Each Credit Party that is a signatory hereto shall jointly
and severally indemnify and hold harmless each of Lender and its Affiliates, and
each such Person's respective officers, directors, employees, attorneys, agents
and representatives (each, an "Indemnified Person"), from and against any and
------------------
all suits, actions, proceedings, claims, damages, losses, liabilities and
expenses (including reasonable attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) that may
be instituted or asserted against or incurred by any such Indemnified Person as
the result of credit having been extended, suspended or terminated under this
Agreement and the other Loan Documents and the administration of such credit,
and in connection with or arising out of the transactions contemplated hereunder
and thereunder and any actions or failures to act in connection therewith,
including any and all Environmental Liabilities and legal costs and expenses
arising out of or incurred in connection with disputes between or among any
parties to any of the Loan Documents (collectively, "Indemnified Liabilities");
-----------------------
provided, that no such Credit Party shall be liable for any indemnification to
--------
an Indemnified Person to the extent that any such suit, action, proceeding,
claim, damage, loss, liability or expense results from that Indemnified Person's
gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY
OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
9 CREDIT AGREEMENT
<PAGE>
(b) To induce Lender to provide the LIBOR Rate option on the
terms provided herein, if: (i) any LIBOR Loans are repaid in whole or in part
prior to the last day of any applicable LIBOR Period (whether such repayment is
made pursuant to any provision of this Agreement or any other Loan Document or
occurs as a result of acceleration, by operation of law or otherwise); (ii)
Borrower shall default in payment when due of the principal amount of or
interest on any LIBOR Loan; (iii) Borrower shall default in making any borrowing
of, conversion into or continuation of LIBOR Loans after Borrower has given
notice requesting the same in accordance herewith; or (iv) Borrower shall fail
to make any prepayment of a LIBOR Loan after Borrower has given a notice thereof
in accordance herewith, then Borrower shall indemnify and hold harmless Lender
from and against all losses, costs and expenses resulting from or arising from
any of the foregoing. Such indemnification shall include any loss (including
loss of margin) or expense arising from the reemployment of funds obtained by it
or from fees payable to terminate deposits from which such funds were obtained.
For the purpose of calculating amounts payable under this subsection, Lender
shall be deemed to have actually funded the relevant LIBOR Loan through the
purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to
the amount of that LIBOR Loan and having a maturity comparable to the relevant
LIBOR Period; provided, that Lender may fund each of its LIBOR Loans in any
--------
manner it sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this subsection. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. As promptly as practicable under the
circumstances, Lender shall provide Borrower with its written calculation of all
amounts payable pursuant to this Section 1.13(b), and such calculation shall be
---------------
binding on the parties hereto unless Borrower shall object in writing within
thirty (30) calendar days of receipt thereof, specifying the basis for such
objection in detail.
1.14 Access.
------
(a) Each Credit Party that is a party hereto shall, during
normal business hours, from time to time upon two Business Days' prior notice as
frequently as Lender determines to be appropriate: (i) provide Lender and any of
its officers, employees and agents access to its properties, facilities,
advisors and employees (including officers) of each Credit Party and to the
Collateral; (ii) permit Lender and any of its officers, employees and agents to
inspect, audit and make extracts from such Credit Party's books and records; and
(iii) permit Lender and its officers, employees and agents to inspect, review,
evaluate and make test verifications and counts of the Accounts, Inventory and
other Collateral of any Credit Party. If a Default or Event of Default shall
have occurred and be continuing or if access is necessary to preserve or protect
the Collateral as determined by Lender, each such Credit Party shall provide
such access at all times and without advance notice. Furthermore, so long as any
Event of Default shall have occurred and be continuing, Borrower shall provide
Lender with access to its suppliers and customers. Each such Credit Party shall
make available to Lender and its counsel, as quickly as is possible under the
circumstances, originals or copies of all books and records that Lender may
request. Each such Credit Party shall deliver any document or instrument
necessary for Lender, as it may from time to time request, to obtain records
from any service bureau or other Person that maintains records for such Credit
Party, and shall maintain supporting documentation on media, including computer
tapes and discs owned by such Credit Party.
(b) Within 30 days after delivery of an invoice therefor,
Borrower shall pay Lender a Fee of $600 per day per individual (plus all out-of-
pocket costs and expenses) in connection with Lender's field examinations
permitted under Section 1.14(a) and Section 4(c) of the Security Agreement. Such
--------------- ------------
Fees and expenses shall be charged against the Revolving Loan in connection with
10 CREDIT AGREEMENT
<PAGE>
each field audit conducted after the Closing Date; provided, that (A) if a
--------
Default or Event of Default shall have occurred and be continuing, then there
shall be no limit on the reimbursement of Lender's charges or out of pocket
expenses for field examinations and appraisals, and (B) so long as no Default or
Event of Default shall have occurred and be continuing, Lender shall not be
entitled to be reimbursed for more than two (2) field examinations in any
calendar year or for an aggregate amount in excess of $15,000 per field
examination.
1.15 Taxes.
-----
(a) Any and all payments by Borrower hereunder or under the
Notes shall be made, in accordance with this Section 1.15, free and clear of and
------------
without deduction for any and all present or future Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the Notes, (i) the sum payable shall be increased as much as
shall be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.15) Lender
------------
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions, and (iii)
Borrower shall pay the full amount deducted to the relevant taxing or other
authority in accordance with applicable law. Within 30 days after the date of
any payment of Taxes, Borrower shall furnish to Lender the original or a
certified copy of a receipt evidencing payment thereof.
(b) Each Credit Party that is a signatory hereto shall indemnify
and, within ten days of demand therefor, pay Lender for the full amount of Taxes
(including any Taxes imposed by any jurisdiction on amounts payable under this
Section 1.15) paid by Lender, and any liability (including penalties, interest
------------
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes were correctly or legally asserted.
1.16 Capital Adequacy; Increased Costs; Illegality.
---------------------------------------------
(a) If Lender shall have determined that the adoption after the
date hereof of any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy, reserve requirements
or similar requirements or compliance by Lender with any request or directive
regarding capital adequacy, reserve requirements or similar requirements
(whether or not having the force of law), in each case adopted after the Closing
Date, from any central bank or other Governmental Authority increases or would
have the effect of increasing the amount of capital, reserves or other funds
required to be maintained by Lender and thereby reducing the rate of return on
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by Lender pay to Lender additional amounts
sufficient to compensate Lender for such reduction. A certificate as to the
amount of that reduction and showing the basis of the computation thereof
submitted by Lender to Borrower shall be final, binding and conclusive on
Borrower (absent manifest error) for all purposes.
(b) If, due to either (i) the introduction of or any change in
any law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the Closing Date, there shall be any increase in the cost to
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrower shall, from time to time upon demand by Lender, pay to Lender
additional amounts sufficient to compensate Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to Borrower by
Lender, shall be final, binding and conclusive on Borrower (absent manifest
error) for all purposes.
11 CREDIT AGREEMENT
<PAGE>
Lender agrees that, as promptly as practicable after it becomes aware of any
circumstances referred to above that would result in any such increased cost,
Lender shall, to the extent not inconsistent with Lender's internal policies of
general application, use reasonable commercial efforts to minimize costs and
expenses incurred by it and payable to it by Borrower pursuant to this Section
-------
1.16(b).
-------
(c) Notwithstanding anything to the contrary contained herein,
if the introduction of or any change in any law or regulation (or any change in
the interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for Lender to agree to
make or to make or to continue to fund or maintain any LIBOR Loan, then, unless
Lender is able to make or to continue to fund or to maintain such LIBOR Loan at
another branch or office of Lender without, in Lender's opinion, adversely
affecting it or its Loans or the income obtained therefrom, on notice thereof
and demand therefor by Lender to Borrower (i) the obligation of Lender to agree
to make or to make or to continue to fund or maintain LIBOR Loans shall
terminate, and (ii) Borrower shall forthwith prepay in full all outstanding
LIBOR Loans owing to Lender, together with interest accrued thereon, unless
------
Borrower, within five Business Days after the delivery of such notice and
demand, converts all such LIBOR Loans into Index Rate Loans.
1.17 Single Loan. All Loans to Borrower and all of the other
-----------
Obligations of Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of Borrower secured, until the
Termination Date, by all of the Collateral.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans. Lender shall not be obligated
-------------------------------
to make any Loan or incur any Letter of Credit Obligations on the Closing Date,
or to take, fulfill, or perform any other action hereunder, until the following
conditions have been satisfied or provided for in a manner satisfactory to
Lender, in Lender's sole discretion, or waived in writing by Lender:
(a) Credit Agreement; Loan Documents. This Agreement or
--------------------------------
counterparts hereof shall have been duly executed by and delivered to Borrower
and Lender, and Lender shall have received such documents, instruments,
agreements and legal opinions as Lender shall reasonably request in connection
with the transactions contemplated by this Agreement and the other Loan
Documents, including all those listed in the Schedule of Documents, each in form
and substance satisfactory to Lender.
(b) Repayment of Prior Lender Obligations; Satisfaction of
------------------------------------------------------
Outstanding L/C's. (i) Lender shall have received a fully executed original of a
-----------------
pay-off letter satisfactory to Lender confirming that all of the Prior Lender
Obligations will be repaid in full from the proceeds of the Term Loans and the
initial Revolving Credit Advance and all Liens upon any of the property of
Credit Parties or any of their Subsidiaries in favor of Prior Lender shall be
terminated by Prior Lender immediately upon such payment; and (ii) all letters
of credit issued or guaranteed by Prior Lender shall have been cash
collateralized, supported by a guaranty of Lender or supported by a Letter of
Credit issued pursuant to the Annex B, as mutually agreed upon by and among
-------
Lender, Borrower and Prior Lender.
(c) Approvals. Lender shall have received (i) satisfactory
---------
evidence that the Credit Parties have obtained all required consents and
approvals of all Persons, including all requisite Governmental Authorities, to
the execution, delivery and performance of this Agreement and the other Loan
Documents and the consummation of the Related Transactions; or (ii) an officer's
12 CREDIT AGREEMENT
<PAGE>
certificate in form and substance satisfactory to Lender affirming that no such
consents or approvals are required.
(d) Opening Availability. The Borrowing Base calculation
--------------------
supporting the initial Revolving Credit Advance and the initial Letter of Credit
Obligations incurred and the amount of the Reserves to be established on the
Closing Date shall be sufficient in value, as determined by Lender, to provide
Borrower with Net Borrowing Availability, after giving effect to the initial
Revolving Credit Advance, the funding of Term Loan A, the incurrence of the
initial Letter of Credit Obligations, and the consummation of the Related
Transactions (on a pro forma basis, with trade payables being paid currently,
---------
and expenses and liabilities being paid in the ordinary course of business and
without acceleration of sales) of at least $2,000,000.
(e) Payment of Fees. Borrower shall have paid the Fees required
---------------
to be paid on the Closing Date in the respective amounts specified in Section
-------
1.9, and shall have reimbursed Lender for all fees, costs and expenses of
---
closing presented as of the Closing Date.
(f) Capital Structure; Other Indebtedness. The capital
-------------------------------------
structure of each Credit Party and the terms and conditions of all Indebtedness
of each Credit Party shall be acceptable to Lender in its sole discretion.
(g) Due Diligence. Lender shall have completed its business and
-------------
legal due diligence, with results satisfactory to Lender.
(h) Consummation of Related Transactions. Lender shall have
------------------------------------
received fully executed copies of each of the other Related Transactions
Documents, each of which shall be in form and substance satisfactory to Lender
and its counsel.
2.2 Further Conditions to Each Loan. Lender shall not be obligated
-------------------------------
to fund any Loan, convert or continue any Loan as a LIBOR Loan or incur any
Letter of Credit Obligation, if, as of the date thereof:
(a) any representation or warranty by any Credit Party contained
herein or in any other Loan Document shall be untrue or incorrect as of such
date, except to the extent that such representation or warranty expressly
relates to an earlier date and except for changes therein expressly permitted or
expressly contemplated by this Agreement;
(b) any event or circumstance having a Material Adverse Effect
shall have occurred since the date hereof;
(c) any Default or Event of Default shall have occurred and be
continuing or would result after giving effect to any Loan (or the incurrence of
any Letter of Credit Obligations); or
(d) after giving effect to any Revolving Credit Advance (or the
incurrence of any Letter of Credit Obligations), the Revolving Loan would exceed
the lesser of the Borrowing Base and the Revolving Loan Commitment.
The request and acceptance by Borrower of the proceeds of any Loan, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as, a LIBOR Loan, as the case may be, shall be deemed to
constitute, as of the date of such request, acceptance or incurrence, (i) a
representation and warranty by Borrower that the conditions in this Section 2.2
-----------
have been
13 CREDIT AGREEMENT
<PAGE>
satisfied and (ii) a reaffirmation by Borrower of the granting and continuance
of Lender's Liens pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Revolving Credit Advances and Term Loans and
to incur Letter of Credit Obligations, the Credit Parties executing this
Agreement, jointly and severally, make the following representations and
warranties to Lender with respect to all Credit Parties, each and all of which
shall survive the execution and delivery of this Agreement.
3.1 Corporate Existence; Compliance with Law. Each Credit Party: (a)
----------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation; (b) is duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification,
except where the failure to be so qualified would not result in exposure to
losses, damages or liabilities in excess of $50,000; (c) has the requisite
corporate power and authority and the legal right to own, pledge, mortgage or
otherwise encumber and operate its properties, to lease the property it operates
under lease and to conduct its business as now, heretofore and proposed to be
conducted; (d) subject to specific representations regarding Environmental Laws,
has all licenses, permits, consents or approvals from or by, and has made all
filings with, and has given all notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership, operation and conduct;
(e) is in compliance with its charter and bylaws; and (f) subject to specific
representations set forth herein regarding ERISA, Environmental Laws, tax and
other laws, is in compliance with all applicable provisions of law, except where
the failure to comply, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
3.2 Executive Offices; Collateral Locations; FEIN. Disclosure
--------------------------------------------- ----------
Schedule (3.2) sets forth the location, as of the Closing Date, of (a) the chief
--------------
executive office of each Credit Party, (b) the federal employer identification
number of each Credit Party, and (c) the warehouses and premises within which
any Collateral is stored or located, other than miscellaneous Collateral the
fair market value of which, in the aggregate, does not exceed $250,000.
3.3 Corporate Power, Authorization, Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Credit Party's corporate power; (b) have been duly authorized by
all necessary or proper corporate and shareholder action; (c) do not contravene
any provision of such Credit Party's charter or bylaws; (d) do not violate any
law or regulation, or any order or decree of any court or Governmental
Authority; (e) do not conflict with or result in the breach or termination of,
constitute a default under or accelerate or permit the acceleration of any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which such Credit Party is a party or by which
such Credit Party or any of its property is bound; (f) do not result in the
creation or imposition of any Lien upon any of the property of such Credit Party
other than those in favor of Lender pursuant to the Loan Documents; and (g) do
not require the consent or approval of any Governmental Authority or any other
Person, except those referred to in Section 2.1(c), all of which will have been
--------------
duly obtained, made or complied with prior to the Closing Date. On or prior to
the Closing Date, each of the Loan Documents shall have been duly executed and
delivered by each Credit Party that is a party thereto and each such Loan
Document shall then constitute a legal, valid and binding obligation of such
Credit Party enforceable against it in accordance with its terms.
14 CREDIT AGREEMENT
<PAGE>
3.4 Financial Statements and Projections. Except for the Projections, all
------------------------------------
Financial Statements concerning Holdings and its Subsidiaries that are
referenced below have been prepared in accordance with GAAP consistently applied
throughout the periods covered (except as disclosed therein and except, with
respect to unaudited Financial Statements, for the absence of footnotes and
normal year-end audit adjustments) and present fairly in all material respects
the financial position of the Persons covered thereby as at the dates thereof
and the results of their operations and cash flows for the periods then ended.
(a) The following Financial Statements attached hereto as Disclosure
----------
Schedule (3.4(a)) have been delivered on the date hereof:
-----------------
(i) The audited consolidated balance sheets at January 3, 1999,
and January 2, 2000, and the related statements of income and cash flows of
Holdings and its Subsidiaries for the Fiscal Years then ended, certified by
the Chief Financial Officers of Holdings and Borrower.
(ii) The unaudited consolidated balance sheets at June 30, 2000,
and the related statements of income and cash flows of Holdings and its
Subsidiaries for the two Fiscal Quarters then ended.
(b) [Intentionally Omitted.]
---------------------
(c) Projections. The Projections delivered on the date hereof and
-----------
attached hereto as Disclosure Schedule (3.4(c)) have been prepared by Borrower
----------------------------
in light of the past operations of its businesses, but including future payments
of known contingent liabilities, and reflect projections for the three-year
period beginning on July 1, 2000, on a month-by-month basis for the first six
months and on a year-by-year basis thereafter. The Projections are based upon
estimates and assumptions stated therein, all of which Borrower believes to be
reasonable and fair in light of current conditions and current facts known to
Borrower and, as of the Closing Date, reflect Borrower's good faith and
reasonable estimates of the future financial performance of Borrower and of the
other information projected therein for the period set forth therein.
3.5 Material Adverse Effect. Between January 2, 2000, and the Closing
-----------------------
Date: (a) no Credit Party has incurred any obligations, contingent or
noncontingent liabilities, liabilities for Charges, long-term leases or unusual
forward or long-term commitments that are not reflected in the Pro Forma and
that, alone or in the aggregate, could reasonably be expected to have a Material
Adverse Effect; (b) Except as set forth in Disclosure Schedule (3.6), no
-------------------------
contract, lease or other agreement or instrument has been entered into by any
Credit Party or has become binding upon any Credit Party's assets and no law or
regulation applicable to any Credit Party has been adopted that has had or could
reasonably be expected to have a Material Adverse Effect; and (c) no Credit
Party is in default and to the best of each Credit Party's knowledge no third
party is in default under any material contract, lease or other agreement or
instrument to which such Credit Party is a party that alone or in the aggregate
could reasonably be expected to have a Material Adverse Effect. Between January
2, 2000, and the Closing Date, no event has occurred that alone or together with
other events, could reasonably be expected to have a Material Adverse Effect.
3.6 Ownership of Property; Liens. As of the Closing Date, the real estate
----------------------------
("Real Estate") listed in Disclosure Schedule (3.6) constitutes all of the real
----------- -------------------------
property owned, leased, subleased, or used by any Credit Party. Each Credit
Party owns good and marketable fee simple title to all of its
15
<PAGE>
owned Real Estate, and valid and marketable leasehold interests in all of its
leased Real Estate, all as described in Disclosure Schedule (3.6), and copies of
-------------------------
all such leases or a summary of terms thereof satisfactory to Lender have been
delivered to Lender. Disclosure Schedule (3.6) further describes any Real Estate
-------------------------
with respect to which any Credit Party is a lessor, sublessor or assignor as of
the Closing Date. Each Credit Party also has good and marketable title to, or
valid leasehold interests in, all of its personal property and assets. As of the
Closing Date, none of the properties and assets of any Credit Party are subject
to any Liens other than Permitted Encumbrances, and there are no facts,
circumstances or conditions known to any Credit Party that may result in any
Liens (including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Except as described in Disclosure Schedule (3.6), each Credit
-------------------------
Party has received all deeds, assignments, waivers, consents, nondisturbance and
attornment or similar agreements, bills of sale and other documents, and has
duly effected all recordings, filings and other actions necessary to establish,
protect and perfect such Credit Party's right, title and interest in and to all
such Real Estate and other properties and assets. Except as expressly set forth
in the documents delivered to Lender by Credit Parties on or before the Closing
Date with respect to Credit Parties' interests in Real Estate, no Credit Party
holds any purchase options, rights of first refusal or other similar contractual
rights pertaining to any Real Estate. As of the Closing Date, no portion of any
Credit Party's Real Estate has suffered any material damage by fire or other
casualty loss that has not heretofore been repaired and restored in all material
respects to its original condition or otherwise remedied. As of the Closing
Date, all material permits required to have been issued or appropriate to enable
the Real Estate to be lawfully occupied and used for all of the purposes for
which it is currently occupied and used have been lawfully issued and are in
full force and effect.
3.7 Labor Matters. As of the Closing Date, (a) no strikes or other
-------------
material labor disputes against any Credit Party are pending or, to any Credit
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit Party comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matters; (c) all
payments due from any Credit Party for employee health and welfare insurance
have been paid or accrued as a liability on the books of such Credit Party; (d)
except as set forth in Disclosure Schedule (3.7), no Credit Party is a party to
-------------------------
or bound by any collective bargaining agreement, management agreement,
consulting agreement, employment agreement, bonus plan or agreement or stock
option, restricted stock, stock appreciation right or any similar plan,
agreement or arrangement (and as to all agreements described in Disclosure
----------
Schedule (3.7), Credit Parties have delivered to Lender template documents the
--------------
provisions of which are substantially identical to the provisions of all such
agreements to which any Credit Party is a party or by which any Credit Party is
bound); (e) there is no organizing activity involving any Credit Party pending
or, to any Credit Party's knowledge, threatened by any labor union or group of
employees; (f) there are no representation proceedings pending or, to any Credit
Party's knowledge, threatened with the National Labor Relations Board, and no
labor organization or group of employees of any Credit Party has made a pending
demand for recognition; and (g) except as set forth in Disclosure Schedule
-------------------
(3.7), there are no complaints or charges against any Credit Party pending or,
-----
to the knowledge of any Credit Party, threatened to be filed with any
Governmental Authority or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
any Credit Party of any individual.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Credit Party
------------ -------------------------
has any Subsidiaries, is engaged in any joint venture or partnership with any
other Person, or is an Affiliate of any other Person. As of the Closing Date,
all of the issued and outstanding Stock of each Credit Party is owned by each of
the Stockholders and in the amounts set forth in Disclosure Schedule (3.8).
-------------------------
Except as set forth in
16
<PAGE>
Disclosure Schedule (3.8), there are no outstanding rights to purchase, options,
-------------------------
warrants or similar rights or agreements pursuant to which any Credit Party may
be required to issue, sell, repurchase or redeem any of its Stock or other
equity securities or any Stock or other equity securities of its Subsidiaries.
All outstanding Indebtedness of each Credit Party as of the Closing Date is
described in Section 6.3 (including Disclosure Schedule (6.3)). Except as set
----------- --------------------------
forth in Disclosure Schedule (3.8), neither Holdings nor any of its Subsidiaries
-------------------------
other than Borrower and Trademark Co. has any assets (except Stock of its
Subsidiaries) or any Indebtedness or Guaranteed Indebtedness (except the
Obligations).
3.9 Government Regulation. No Credit Party is an "investment company" or
---------------------
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940. No Credit Party is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, or any other federal or state
statute that restricts or limits its ability to incur Indebtedness or to perform
its obligations hereunder. The making of the Loans by Lender to Borrower, the
incurrence of the Letter of Credit Obligations on behalf of Borrower, the
application of the proceeds thereof and repayment thereof and the consummation
of the Related Transactions will not violate any provision of any such statute
or any rule, regulation or order issued by the Securities and Exchange
Commission.
3.10 Margin Regulations. No Credit Party is engaged, nor will it engage,
------------------
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin security" as
such terms are defined in Regulation U of the Federal Reserve Board as now and
from time to time hereafter in effect (such securities being referred to herein
as "Margin Stock"). No Credit Party owns any Margin Stock, and none of the
------------
proceeds of the Loans or other extensions of credit under this Agreement will be
used, directly or indirectly, for the purpose of purchasing or carrying any
Margin Stock, for the purpose of reducing or retiring any Indebtedness that was
originally incurred to purchase or carry any Margin Stock or for any other
purpose that might cause any of the Loans or other extensions of credit under
this Agreement to be considered a "purpose credit" within the meaning of
Regulations T, U or X of the Federal Reserve Board. No Credit Party will take
or permit to be taken any action that might cause any Loan Document to violate
any regulation of the Federal Reserve Board.
3.11 Taxes.
-----
(a) Disclosure Schedule (3.11) sets forth as of the Closing Date
--------------------------
those taxable years for which any Credit Party's tax returns are currently being
audited by the IRS or any other applicable Governmental Authority and any
assessments or threatened assessments in connection with such audit, or
otherwise currently outstanding. Except as described in Disclosure Schedule
(3.11), no Credit Party has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges.
None of the Credit Parties or their respective predecessors are liable for any
Charges: (i) under any agreement (including any tax sharing agreements) or (ii)
to each Credit Party's knowledge, as a transferee.
(b) Except to the extent that any failure or failures of Credit
Parties to comply with such representations and warranties do not and could not
reasonably be expected, in the aggregate, to have a Material Adverse Effect, (i)
all tax returns, reports and statements, including information returns, required
by any Governmental Authority to be filed by any Credit Party have been filed
with the appropriate Governmental Authority and all Charges have been paid prior
to the
17
<PAGE>
date on which any fine, penalty, interest or late charge may be added thereto
for nonpayment thereof (or any such fine, penalty, interest, late charge or loss
has been paid), excluding Charges or other amounts being contested in accordance
with Section 5.2(b), (ii) proper and accurate amounts have been withheld by each
--------------
Credit Party from its respective employees for all periods in full and complete
compliance with all applicable federal, state, local and foreign laws and such
withholdings have been timely paid to the respective Governmental Authorities,
and (iii) as of the Closing Date, no Credit Party has agreed or been requested
to make any adjustment under IRC Section 481(a), by reason of a change in
accounting method or otherwise.
3.12 ERISA.
-----
(a) Disclosure Schedule (3.12) lists all (i) all ERISA
--------------------------
Affiliates and (ii) all Plans and separately identifies all Pension Plans,
including all Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans,
including all Retiree Welfare Plans. Copies of all such listed Plans, together
with a copy of the latest IRS/DOL 5500-series form for each such Plan, have been
delivered to Lender. Each Qualified Plan has been determined by the IRS to
qualify under Section 401 of the IRC, the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section 501 of the IRC,
and nothing has occurred that would cause the loss of such qualification or tax-
exempt status. Each Plan is in compliance with the applicable provisions of
ERISA and the IRC, including the timely filing of all reports required under the
IRC or ERISA, including the statement required by 29 CFR Section 2520.104-23.
Neither any Credit Party nor any ERISA Affiliate has failed to make any
contribution or pay any amount due as required by either Section 412 of the IRC
or Section 302 of ERISA or the terms of any such Plan. Neither any Credit Party
nor any ERISA Affiliate has engaged in a "prohibited transaction," as defined in
Section 406 of ERISA and 4975 of the IRC, in connection with any Plan, that
would subject any Credit Party to a material tax on prohibited transactions
imposed by Section 502(i) of ERISA or Section 4975 of the IRC. Each Credit Party
and each ERISA Affiliate has performed all of its respective obligations under
all Plans.
(b) Except as set forth in Disclosure Schedule (3.12): (i) no
--------------------------
Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Credit Party, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or lawsuits, asserted or
instituted against any Plan or any Person as fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years no Title IV Plan of any
Credit Party or any ERISA Affiliate (determined at any time within the last five
years) has been terminated, whether or not in a "standard termination" as that
term is used in Section 4041(b)(1) of ERISA, nor has any Title IV Plan of any
Credit Party or any ERISA Affiliate (determined at any time within the last five
years) with Unfunded Pension Liabilities been transferred outside of the
"controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any
Credit Party or ERISA Affiliate (determined at such time); (vi) except in the
case of any ESOP, Stock of all Credit Parties and their ERISA Affiliates makes
up, in the aggregate, no more than 10% of the assets of any Plan, measured on
the basis of fair market value as of the latest valuation date of any Plan; and
(vii) no liability under any Title IV Plan has been satisfied with the purchase
of a contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation or an equivalent rating by another nationally recognized
rating agency.
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<PAGE>
3.13 No Litigation. No action, claim, lawsuit, demand, investigation
-------------
or proceeding is now pending or, to the knowledge of any Credit Party,
threatened against any Credit Party before any Governmental Authority or before
any arbitrator or panel of arbitrators (collectively, "Litigation") that (a)
challenges any Credit Party's right or power to enter into or perform any of its
obligations under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b) that
has a reasonable risk of being determined adversely to any Credit Party and
that, if so determined, could have a Material Adverse Effect. Except as set
forth in Disclosure Schedule (3.13), as of the Closing Date there is no
Litigation pending or threatened that seeks damages in excess of $100,000 or
injunctive relief against, or alleges criminal misconduct by, any Credit Party.
3.14 Brokers. No broker or finder acting on behalf of any Person
-------
brought about the obtaining, making or closing of the Loans or the Related
Transactions, and no Credit Party has any obligation to any Person in respect of
any finder's or brokerage fees in connection therewith.
3.15 Intellectual Property.
---------------------
(a) Except as set forth in Disclosure Schedule (3.15), no
--------------------------
Credit Party is aware of any infringement or claim of infringement by others of
any Intellectual Property Collateral.
(b) Except to the extent that any failure or failures of Credit
Parties to comply with such representations and warranties do not and could not
reasonably be expected, in the aggregate, to have a Material Adverse Effect, (i)
as of the Closing Date, each Credit Party owns or has rights to use all
Intellectual Property necessary to continue to conduct its business as now or
heretofore conducted by it or proposed to be conducted by it, and each Patent,
Trademark, Copyright and License is listed, together with application or
registration numbers, as applicable, in Disclosure Schedule (3.15), and (ii)
--------------------------
each Credit Party conducts its business and affairs without infringement of or
interference with any Intellectual Property of any other Person.
3.16 Full Disclosure. No information contained in this Agreement, any
---------------
of the other Loan Documents, any Projections, Financial Statements or Collateral
Reports or other reports from time to time delivered hereunder or any written
statement furnished by or on behalf of any Credit Party to Lender pursuant to
the terms of this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Liens granted to Lender pursuant
to the Collateral Documents will at all times be fully perfected first priority
Liens in and to the Collateral described therein, subject, as to priority, only
to Permitted Encumbrances with respect to the Collateral other than Accounts.
3.17 Environmental Matters.
---------------------
(a) Except as set forth in Disclosure Schedule (3.17), as of
--------------------------
the Closing Date: (i) to the knowledge of each Credit Party, the Real Estate is
free of contamination from any Hazardous Material except for such contamination
that would not adversely impact the value or marketability of such Real Estate
and that would not result in Environmental Liabilities that could reasonably be
expected to have a Material Adverse Effect; (ii) no Credit Party has caused or
suffered to occur any Release of Hazardous Materials on, at, in, under, above,
to, from or about any of its Real Estate; (iii) the Credit Parties are and have
been in compliance with all Environmental Laws, except for such noncompliance
that would not result in Environmental Liabilities that could reasonably be
19
<PAGE>
expected to have a Material Adverse Effect; (iv) the Credit Parties have
obtained, and are in compliance with, all Environmental Permits required by
Environmental Laws for the operations of their respective businesses as
presently conducted or as proposed to be conducted, except where the failure to
so obtain or comply with such Environmental Permits would not result in
Environmental Liabilities that could reasonably be expected to have a Material
Adverse Effect, and all such Environmental Permits are valid, uncontested and in
good standing; (v) no Credit Party is involved in operations or knows of any
facts, circumstances or conditions, including any Releases of Hazardous
Materials, that are likely to result in any Environmental Liabilities of such
Credit Party that could reasonably be expected to have a Material Adverse
Effect, and, to the extent that any Credit Party has or has had the right to
control the use or occupancy of the Real Estate by Persons other than Credit
Parties, no Credit Party has permitted any current or former tenant or occupant
of the Real Estate to engage in any such operations; (vi) there is no Litigation
arising under or related to any Environmental Laws, Environmental Permits or
Hazardous Material that seeks damages, penalties, fines, costs or expenses in
excess of $25,000 or injunctive relief against, or that alleges criminal
misconduct by, any Credit Party; (vii) no notice has been received by any Credit
Party identifying it as a "potentially responsible party" or requesting
information under CERCLA or analogous state statutes, and to the knowledge of
the Credit Parties, there are no facts, circumstances or conditions that may
result in any Credit Party being identified as a "potentially responsible party"
under CERCLA or analogous state statutes; and (viii) the Credit Parties have
provided to Lender copies of all existing environmental reports, reviews and
audits and all written information pertaining to actual or potential
Environmental Liabilities, in each case relating to any Credit Party.
(b) Each Credit Party hereby acknowledges and agrees that (i)
to such Credit Party's actual knowledge, without investigation or inquiry of
other Persons, Lender is not now, and has not ever been, in control of any of
the Real Estate, (ii) except as provided in clause (i) of this Section 3.17(b)
---------- ---------------
with respect to Real Estate, Lender is not now, and has not ever been, in
control of any Credit Party's affairs, and (iii) Lender does not have the
capacity through the provisions of the Loan Documents or otherwise to cause such
Credit Party to violate or otherwise fail to comply with Environmental Laws or
Environmental Permits with respect to such Credit Party's ownership, operation
or management of any of its Real Estate.
3.18 Insurance. Disclosure Schedule (3.18) lists all insurance
--------- --------------------------
policies of any nature maintained, as of the Closing Date, for current
occurrences by each Credit Party, as well as a summary of the terms of each such
policy.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19)
--------------------------------- --------------------------
lists all banks and other financial institutions at which any Credit Party
maintains deposit or other accounts as of the Closing Date, including any
Disbursement Accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number
therefor.
3.20 Government Contracts. Except as set forth in Disclosure Schedule
-------------------- -------------------
(3.20), as of the Closing Date, no Credit Party is a party to any contract or
-----
agreement with any Governmental Authority and no Credit Party's Accounts are
subject to the Federal Assignment of Claims Act (31 U.S.C. Section 3727) or any
similar state or local law.
3.21 Customer and Trade Relations. As of the Closing Date, there
----------------------------
exists no actual or, to the knowledge of any Credit Party, threatened
termination or cancellation of, or any material adverse modification or change
in (a) the business relationship of any Credit Party with any customer or
20
<PAGE>
group of customers whose purchases during the preceding 12 months caused them to
be ranked among the ten largest customers of such Credit Party, or (b) the
business relationship of any Credit Party with any supplier material to its
operations.
3.22 Agreements and Other Documents. As of the Closing Date, each
------------------------------
Credit Party has provided to Lender or its counsel accurate and complete copies
(or summaries) of all of the following agreements or documents to which any of
them are subject, each of which is listed in Disclosure Schedule (3.22): (a)
--------------------------
supply agreements and purchase agreements not terminable by such Credit Party
within 60 days following written notice issued by such Credit Party and
involving transactions in excess of $1,000,000 per annum; (b) leases of
---------
Equipment having a remaining term of one year or longer and requiring aggregate
rental and other payments in excess of $500,000 per annum; (c) licenses and
---------
permits held by the Credit Parties, the absence of which could be reasonably
likely to have a Material Adverse Effect; (d) instruments and documents
evidencing Indebtedness of such Credit Party and any Lien granted by such Credit
Party with respect thereto; and (e) instruments and agreements evidencing the
issuance of any equity securities, warrants, rights or options to purchase
equity securities of such Credit Party.
3.23 Solvency. Both before and after giving effect to: (a) the Loans
--------
to be made or incurred on the Closing Date or such other date as Loans requested
hereunder are made or incurred; (b) the disbursement of the proceeds of such
Loans pursuant to the instructions of Borrower; (c) the Refinancing and the
consummation of the other Related Transactions; and (d) the payment and accrual
of all transaction costs in connection with the foregoing, each Credit Party is
and will be Solvent.
3.24 Year 2000 Representations. Each Credit Party has eliminated all
-------------------------
Year 2000 Problems, except where the failure to correct the same could not
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices.
-------------------
(a) Each Credit Party executing this Agreement hereby agrees
that, from and after the Closing Date and until the Termination Date, it shall
deliver to Lender the Financial Statements, notices, Projections and other
information at the times, to the Persons and in the manner set forth in Annex E.
-------
(b) Each Credit Party executing this Agreement hereby agrees
that, from and after the Closing Date and until the Termination Date, it shall
deliver to Lender the Collateral Reports (including Borrowing Base Certificates
in the form of Exhibit 4.1(b)) at the times, to the Persons and in the manner
---------------
set forth in Annex F.
-------
4.2 Communication with Accountants. Each Credit Party executing this
------------------------------
Agreement authorizes Lender to communicate directly with its independent
certified public accountants, including Deloitte & Touche, and authorizes and
shall instruct those accountants and advisors to disclose and make available to
Lender any and all Financial Statements and other supporting financial
documents, schedules and information relating to any Credit Party (including
copies of any issued management letters) with respect to the business, financial
condition and other affairs of any Credit Party.
21
<PAGE>
5. AFFIRMATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally agrees as
to all Credit Parties that from and after the date hereof and until the
Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Each Credit
------------------------------------------------
Party shall: (a) do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and its rights and
franchises; (b) continue to conduct its business substantially as now conducted
or as otherwise permitted hereunder; (c) at all times maintain, preserve and
protect all of its assets and properties used or useful in the conduct of its
business, and keep the same in good repair, working order and condition in all
material respects (taking into consideration ordinary wear and tear) and from
time to time make, or cause to be made, all necessary or appropriate repairs,
replacements and improvements thereto consistent with industry practices; and
(d) transact business only in such corporate and trade names as are set forth in
Disclosure Schedule (5.1); provided, that Credit Parties may transact business
------------------------- --------
under additional trade names upon not less than thirty (30) days advance written
notice to Lender.
5.2 Payment of Obligations.
----------------------
(a) Subject to Section 5.2(b), each Credit Party shall pay and
--------------
discharge or cause to be paid and discharged promptly all Charges payable by it,
including (i) Charges imposed upon it, its income and profits, or any of its
property (real, personal or mixed) and all Charges with respect to tax, social
security and unemployment withholding with respect to its employees, and (ii)
lawful claims for labor, materials, supplies and services or otherwise before
any thereof shall become past due.
(b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges, Taxes or claims described in
Section 5.2(a); provided, that: (i) adequate reserves with respect to such
-------------- --------
contest are maintained on the books of such Credit Party, in accordance with
GAAP, (ii) no Lien shall be imposed to secure payment of such Charges, Taxes or
claims that is superior to any of the Liens securing the Obligations and such
contest is maintained and prosecuted continuously and with diligence and
operates to suspend collection or enforcement of such Charges; (iii) none of the
Collateral becomes subject to forfeiture or loss as a result of such contest;
and (iv) such Credit Party shall promptly pay or discharge such contested
Charges, Taxes or claims and all additional charges, interest, penalties and
expenses, if any, and shall deliver to Lender evidence acceptable to Lender of
such compliance, payment or discharge, if such contest is terminated or
discontinued adversely to such Credit Party or the conditions set forth in this
Section 5.2(b) are no longer met.
--------------
5.3 Books and Records. Each Credit Party shall keep adequate books
-----------------
and records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
-------------------
(3.4(a)).
-------
5.4 Insurance; Damage to or Destruction of Collateral.
-------------------------------------------------
(a) The Credit Parties shall, at their sole cost and expense,
maintain the policies of insurance described in Disclosure Schedule (3.18) as in
--------------------------
effect on the date hereof or otherwise in form and in amounts and with insurers
acceptable to Lender. If any Credit Party at any time or times
22
<PAGE>
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay all premiums relating thereto, Lender may at any time
or times thereafter obtain and maintain such policies of insurance and pay such
premiums and take any other reasonable action with respect thereto that Lender
deems advisable. Lender shall have no obligation to obtain insurance for any
Credit Party or pay any premiums therefor. By doing so, Lender shall not be
deemed to have waived any Default or Event of Default arising from any Credit
Party's failure to maintain such insurance or pay any premiums therefor. All
sums so disbursed, including attorneys' fees, court costs and other charges
related thereto, shall be payable on demand by Borrower to Lender and shall be
additional Obligations hereunder secured by the Collateral.
(b) Lender reserves the right at any time upon any change in
any Credit Party's risk profile (including any change in the types of products
sold or maintained by any Credit Party or any laws affecting the potential
liability of such Credit Party) to require, in the exercise of its reasonable
credit judgment, additional forms and limits of insurance to, in Lender's
opinion, adequately protect both Lender's interests in all or any portion of the
Collateral and to ensure that each Credit Party is protected by insurance in
amounts and with coverage customary for its industry. If requested by Lender,
each Credit Party shall deliver to Lender from time to time a report of a
reputable insurance broker, satisfactory to Lender, with respect to its
insurance policies.
(c) Each Credit Party shall deliver to Lender, in form and
substance satisfactory to Lender, endorsements to (i) all "All Risk" and
business interruption insurance naming Lender as loss payee, and (ii) all
general liability and other liability policies naming Lender as additional
insured. Each Credit Party irrevocably makes, constitutes and appoints Lender
(and all officers, employees or agents designated by Lender), so long as any
Default or Event of Default shall have occurred and be continuing or the
anticipated insurance proceeds exceed $2,500,000, as such Credit Party's true
and lawful agent and attorney-in-fact for the purpose of making, settling and
adjusting claims under such "All Risk" policies of insurance, endorsing the name
of such Credit Party on any check or other item of payment for the proceeds of
such "All Risk" policies of insurance and for making all determinations and
decisions with respect to such "All Risk" policies of insurance. Lender shall
have no duty to exercise any rights or powers granted to it pursuant to the
foregoing power-of-attorney. Credit Parties shall promptly notify Lender of any
loss, damage, or destruction to the Collateral in the amount of $250,000 or
more, whether or not covered by insurance. After deducting from such proceeds
the reasonable expenses, if any, incurred by Lender in the collection or
handling thereof, Lender may, at its option, apply such proceeds to the
reduction of the Obligations in accordance with Section 1.3(d) (provided, that
-------------- --------
in the case of insurance proceeds pertaining to any Credit Party other than
Borrower, such insurance proceeds shall be applied to the Loans owing by
Borrower), or permit or require each Credit Party to use such money, or any part
thereof, to replace, repair, restore or rebuild the Collateral in a diligent and
expeditious manner with materials and workmanship of substantially the same
quality as existed before the loss, damage or destruction. Notwithstanding the
foregoing, if the casualty giving rise to such insurance proceeds could not
reasonably be expected to have a Material Adverse Effect and such insurance
proceeds do not exceed $2,500,000 in the aggregate, Lender shall permit the
applicable Credit Party to replace, restore, repair or rebuild the property;
provided, that if such Credit Party has not completed or entered into binding
--------
agreements to complete such replacement, restoration, repair or rebuilding
within fifteen (15) calendar months of such casualty, Lender may apply such
insurance proceeds to the Obligations in accordance with Section 1.3(d);
--------------
provided further, that in the case of insurance proceeds pertaining to any
-------- -------
Credit Party other than Borrower, such insurance proceeds shall be applied to
the Loans owing by Borrower. All insurance proceeds that are to be made
available to Borrower to replace, repair, restore or rebuild the Collateral
shall be applied by Lender to reduce the outstanding principal
23
<PAGE>
balance of the Revolving Loan (which application shall not result in a permanent
reduction of the Revolving Loan Commitment) and upon such application, Lender
shall establish a Reserve against the Borrowing Base in an amount equal to the
amount of such proceeds so applied. All insurance proceeds made available to any
Credit Party that is not a Borrower to replace, repair, restore or rebuild
Collateral shall be deposited in a cash collateral account. Thereafter, such
funds shall be made available to such Credit Party to provide funds to replace,
repair, restore or rebuild the Collateral as follows: (A) Borrower shall request
a Revolving Credit Advance or release from the cash collateral account to be
made to such Credit Party in the amount requested to be released; (B) so long as
the conditions set forth in Section 2.2 have been met, Lender shall make such
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Revolving Credit Advance or shall release funds from the cash collateral
account; and (C) in the case of insurance proceeds applied against the Revolving
Loan, the Reserve established with respect to such insurance proceeds shall be
reduced by the amount of such Revolving Credit Advance. To the extent not used
to replace, repair, restore or rebuild the Collateral, such insurance proceeds
shall be applied in accordance with Section 1.3(d); provided, that in the case
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of insurance proceeds pertaining to any Credit Party other than Borrower, such
insurance proceeds shall be applied to the Loans owing by Borrower.
(d) The rights and remedies provided to Lender in clauses (a)
through (c) of this Section 5.4 (collectively, "Section 5.4 Remedies"), are
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subject to all obligations of Credit Parties under, and the rights and remedies
of other parties to, all written documents and agreements delivered to Lender by
Credit Parties on or before the Closing Date, executed by any of the Credit
Parties in connection with (i) any lease of Equipment between such Credit Party,
as lessee, and any person other than Lender, as lessor, or (ii) the Facility
Bond, to the extent that such documents and agreements operate to limit the
Section 5.4 Remedies, provided, that, within two Business Days of any Credit
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Party's receipt thereof, Credit Parties shall provide Lender with copies of any
writing, and shall inform Lender of any other communication, constituting a
notice or demand from any Person that conflicts or is inconsistent with the
Section 5.4 Remedies.
5.5 Compliance with Laws. Each Credit Party shall comply with all
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federal, state, local, and foreign laws and regulations applicable to it,
including those relating to licensing, ERISA and labor matters, Environmental
Laws and Environmental Permits, and the purchase, sale, storage and processing
of food and food products, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
5.6 Supplemental Disclosure. From time to time or as may be
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requested by Lender (which request will not be made more frequently than once
each year absent the occurrence and continuance of a Default or an Event of
Default), the Credit Parties shall supplement each Disclosure Schedule hereto,
or any representation herein or in any other Loan Document, with respect to any
matter hereafter arising that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule or as an exception to such representation or that is
necessary to correct any information in such Disclosure Schedule or
representation that has been rendered inaccurate thereby (and, in the case of
any supplements to any Disclosure Schedule, such Disclosure Schedule shall be
appropriately marked to show the changes made therein); provided, that (a) no
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such supplement to any such Disclosure Schedule or representation shall be or be
deemed a waiver of any Default or Event of Default resulting from the matters
disclosed therein, except as consented to by Lender in writing, and (b) no
supplement shall be required as to representations and warranties that relate
solely to the Closing Date.
24
<PAGE>
5.7 Intellectual Property. Each Credit Party shall conduct its
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business and affairs without infringement of or interference with any
Intellectual Property of any other Person in any material respect.
5.8 Environmental Matters. Each Credit Party shall and shall cause
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each Person within its control to: (a) conduct its operations and keep and
maintain its Real Estate in compliance with all Environmental Laws and
Environmental Permits other than noncompliance that could not reasonably be
expected to have a Material Adverse Effect; (b) to the fullest extent possible
pursuant to any lease governing such Credit Party's use or occupancy of Real
Estate, implement any and all investigation, remediation, removal and response
actions that are appropriate or necessary to maintain the value and
marketability of the Real Estate or to otherwise comply with Environmental Laws
and Environmental Permits pertaining to the presence, generation, treatment,
storage, use, disposal, transportation or Release of any Hazardous Material on,
at, in, under, above, to, from or about any of its Real Estate; (c) notify
Lender promptly after such Credit Party becomes aware of any violation of
Environmental Laws or Environmental Permits or any Release on, at, in, under,
above, to, from or about any Real Estate that is reasonably likely to result in
Environmental Liabilities in excess of $25,000; and (d) promptly forward to
Lender a copy of any order, notice, request for information or any communication
or report received by such Credit Party in connection with any such violation or
Release or any other matter relating to any Environmental Laws or Environmental
Permits that could reasonably be expected to result in Environmental Liabilities
in excess of $25,000, in each case whether or not the Environmental Protection
Agency or any Governmental Authority has taken or threatened any action in
connection with any such violation, Release or other matter. If Lender at any
time has a reasonable basis to believe that there may be a violation of any
Environmental Laws or Environmental Permits by any Credit Party or any
Environmental Liability arising thereunder, or a Release of Hazardous Materials
on, at, in, under, above, to, from or about any of its Real Estate, that, in
each case, could reasonably be expected to have a Material Adverse Effect, then
each Credit Party shall, upon Lender's written request, to the fullest extent
possible pursuant to any lease governing such Credit Party's use or occupancy of
Real Estate, (i) cause the performance of such environmental audits including
subsurface sampling of soil and groundwater, and preparation of such
environmental reports, in each case at Borrower's expense, as Lender may from
time to time reasonably request, all of which shall be conducted by reputable
environmental consulting firms acceptable to Lender and shall be in form and
substance reasonably acceptable to Lender, and (ii) permit Lender or its
representatives to have access to all Real Estate for the purpose of conducting
such environmental audits and testing as Lender deems appropriate, including
subsurface sampling of soil and groundwater. Borrower shall reimburse Lender for
the costs of such audits and tests and the same will constitute a part of the
Obligations secured hereunder.
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters.
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Each Credit Party shall obtain a landlord's agreement, mortgagee agreement or
bail |
