Financing Agreement - Bluefly Inc. and Rosenthal & Rosenthal Inc.
ROSENTHAL & ROSENTHAL, INC.
FINANCING AGREEMENT
AGREEMENT dated March 30, 2001 between BLUEFLY, INC.
("Borrower"), a corporation duly organized and presently existing in good
standing under the laws of the State of Delaware whose chief executive office is
at 42 West 39th Street, New York, New York 10018, and ROSENTHAL & ROSENTHAL,
INC. ("Lender"), a New York corporation with an address at 1370 Broadway, New
York, New York 10018.
Borrower, in order to provide working capital for its
operations, desires to obtain Credit Accommodations (as defined in Section 1.10
hereof) from Lender on a revolving basis upon the security of the "Collateral"
(as defined in Section 1.7 hereof). Now, therefore, Borrower and Lender agree as
follows.
SECTION 1 DEFINITIONS
As used in this Agreement, these terms shall have the
following meanings which shall be applicable to both the singular and plural
forms of such terms.
1.1 "ACCOUNT DEBTOR" means any Person indebted absolutely or
contingently with respect to a Receivable.
1.2 "AFFILIATE" of a party shall mean any entity controlling, controlled by, or
under common control with, the party, and the term "controlling" and such
variations thereof shall mean ownership of a majority of the voting power of a
party.
1.3 "APPROVED DEPOSITORY ACCOUNT" shall mean an account subject to a
Controlled Account Agreement.
1.4 "BLUEFLY PAYMENTECH ACCOUNT" shall mean Bluefly's account no.
007-886624 at HSBC.
1.5 "BORROWER PAYABLES" shall mean all obligations of Borrower for the
payment of money arising out of the sale of goods or the rendering of services
by a Factored Supplier to Borrower, now existing or hereafter arising, however
evidenced, including, without limitation, all accounts, contract rights, general
intangibles, documents, chattel paper and instruments (as each of such terms is
defined in the UCC).
1.6 "BUSINESS DAY" shall mean a day on which Lender and major banks in
New York City are open for the regular transaction of business.
1.7 "CLOSING DATE" shall mean March 30, 2001
1.8 "COLLATERAL" shall have the meaning specified in Section 4.1
hereof.
1.9 "CONTROLLED ACCOUNTS" shall mean the bank accounts of Borrower
which is the subject of the Controlled Account Agreement.
<PAGE>
1.10 "CONTROLLED ACCOUNT AGREEMENT" shall mean the Controlled Account
Agreement among Lender, Borrower and HSBC Bank USA
1.11 dated as of the Closing Date.
1.12 "CREDIT ACCOMMODATIONS" shall mean any and all of the following,
as requested by the Borrower: (i) making loans and/or advances to Borrower;
and/or (ii) procuring the issuance of Letters of Credit, for the benefit of
Suppliers of Inventory to Borrower; and/or (iii) issuing Factors Guarantees to
Suppliers and/or (iv) purchasing Borrower Payables by Lender from Factored
Suppliers.
1.13 "CURRENT ASSETS" shall have the meaning specified in Section 6.11
hereof.
1.14 "CURRENT LIABILITIES" shall have the meaning specified in Section
6.11 hereof
1.15 "DEFAULT" shall have the meaning specified in Section 7.1 hereof.
1.16 "ELIGIBLE INVENTORY" shall mean Inventory owned by Borrower in the
regular course of its business in which Lender holds a perfected security
interest pursuant to the terms hereof ranking prior to all interests, claims and
rights of others excluding liens which are non-consensual or arise from the
operation of law ("Permitted Liens"). In general, Inventory shall not be deemed
eligible unless at least ninety percent (90%) (by value) of all Inventory is
subject to the Services Agreement which Services Agreement is in full force and
effect in all material respects and it complies in all material respects with
the representations, covenants and warranties hereinafter set forth, made by
Borrower with respect thereto. Without limiting the foregoing, the following
Inventory shall not be deemed to be Eligible Inventory:
(a) Inventory with respect to which the representations and warranties
set forth in Section 6 of this Agreement are not true and correct in any
material respect;
(b) Inventory consisting of promotional and marketing materials;
(c) Inventory that (i) fails to meet all standards imposed by any
governmental agency, or department or division thereof, having regulatory
authority over such Inventory or its use or sale or (ii) has not satisfactorily
completed the customary testing procedures at Underwriters Laboratories or any
other third-party generally recognized testing agency or service for such
Inventory and which does not have stamps, marks, decals, seals or other markings
evidencing such completion;
(d) Inventory located outside the United States or any of its
territories or Canada;
(e) Inventory that is not in the possession of or under the sole
control of the Borrower or not in a leased facility or public warehouse in
respect of which the owner ("Landlord") has entered into either a Landlord
Agreement or a landlord waiver or consent reasonably acceptable to Lender;
3
<PAGE>
(f) Inventory, after giving effect to the related filings of financing
statements that have then been made, if any, does not or has ceased to create a
valid and perfected first priority lien or security interest in favor of the
Lender securing the Obligations and as to which there are no other liens or
encumbrances (other than Permitted Liens);
(g) Inventory that (i) has not been sold by the Borrower for at least
twelve (12) calendar months from the date of acquisition thereof; or (ii) is
unusable or otherwise unavailable for sale;
(h) Inventory that is subject to any licensing, patent, royalty,
trademark, tradename or copyright agreement with any third party from whom
Borrower has received actual notice of a dispute or default in respect of any
such agreement; and
(i) Inventory consisting of work in progress.
1.17 "FACTORS GUARANTEE" shall mean any guarantee issued by Lender to a
Supplier (or the factor of a Supplier) acceptable in all respects to the
Borrower and to such supplier (or factor) in connection with Borrower's
purchases from such Supplier.
1.18 "FACTORED SUPPLIER" shall mean a supplier of goods or services to
Borrower which has entered into a factoring agreement with Lender.
1.19 "FUNDED CREDIT ACCOMMODATIONS" shall mean, with respect to any
Credit Accommodation, (i) in the case of a loan, the amount funded by Lender,
(ii) in the case of a Letter of Credit, the face amount of such Letter of Credit
actually drawn upon by the beneficiary thereof which is funded by Lender and
(iii) in the case of a Factors Guarantee, the face amount of such Factors
Guarantee actually funded by Lender. A purchase by Lender of a Borrower Payable
shall not constitute a "Funded Credit Accommodation" unless and until Borrower
has failed to pay its obligations under such Borrower Payable when due.
1.20 "GAAP" shall have the meaning specified in Section 6.11 hereof.
1.21 "HSBC" shall mean HSBC Bank USA.
1.22 "INVENTORY" shall mean all of Borrower's raw materials, work in
process, finished merchandise and all wrapping, packing and shipping materials,
wheresoever located, now owned or hereafter acquired, presently existing or
hereafter arising, and all additions and accessions thereto, the resulting
product or mass and any documents representing all or any part thereof and the
proceeds thereof.
1.23 "INVENTORY BOOK VALUE" shall mean the value of the Eligible
Inventory as determined quarterly by Borrower in accordance with GAAP and based
upon Borrower's inventory position as reported by Borrower in its quarterly
filings with the Securities and Exchange Commission.
3
<PAGE>
1.24 "INVENTORY LIQUIDATION VALUE" shall mean the value of the Eligible
Inventory on a liquidation basis as determined, from time to time, by an
independent appraiser of national stature which is not a competitor of Borrower
and which is satisfactory to Lender.
1.25 "LANDLORD" shall have the meaning specified in Section 1.14
hereof.
1.26 "LANDLORD AGREEMENT" shall be an agreement among Lender, Borrower
and the owner of a leased facility or public warehouse in which Borrower houses
Inventory in the form of Exhibit A attached hereto.
1.27 "LETTER OF CREDIT" shall mean any letter of credit acceptable in
all respects to the Borrower which Lender assists Borrower in procuring pursuant
to this Agreement.
1.28 "LINE OF CREDIT" shall mean the total available amount of Credit
Accommodations on any basis up to the Maximum Credit Facility.
1.29 "LOAN ACCOUNT" shall have the meaning specified in Section 2.1(d)
hereof.
1.30 "MAXIMUM CREDIT FACILITY" shall mean an amount equal to the lesser
of (i)$10,000,000 or (ii) the undrawn amount of the unexpired Standby Letter of
Credit plus the lesser of (A) twenty percent (20%) of the Inventory Book Value
of the Eligible Inventory (excluding any reserves or allowances that are or may
be included in Borrower's books with respect to such Inventory to the extent
such reserves do not exceed the amount of the Inventory Book Value of the
Inventory excluded from Eligible Inventory pursuant to clause (g) of the
definition of Eligible Inventory) or (B) the Inventory Liquidation Value; or
(C)Two Million Dollars ($2,000,000).
1.31 "MAXIMUM INVENTORY FACILITY" shall mean $2,000,000
1.32 "MAXIMUM RATE" shall have the meaning specified in Section 8.2
hereof.
1.33 "OBLIGATIONS" shall mean all obligations, liabilities and
indebtedness of Borrower to Lender, however evidenced, arising under this
Agreement, including, without limitation, loans and/or advances and/or sums paid
by Lender to any person in connection with drawings under Letters of Credit,
whether now existing or incurred from time to time hereafter and whether before
or after termination hereof (in respect of Credit Accommodations issued to
Borrower prior to termination), absolute or contingent, joint or several,
matured or unmatured, direct or indirect, primary or secondary, liquidated or
unliquidated, and including, without limitation, all of Lender's reasonable
charges, commissions, fees, interest, expenses, costs and reasonable attorneys'
fees chargeable to Borrower in connection therewith and all obligations,
liabilities and indebtedness of the Borrower with respect to any Letters of
Credit; provided that "Obligations" shall not include any and all sums owed to
Lender with respect to a Borrower Payable purchased by Lender unless and until
Borrower has failed to pay its obligations under such Borrower Payable when due.
4
<PAGE>
1.34 "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, government, or any agency or political
subdivision thereof, or any other entity.
1.35 "PRIME RATE" shall mean the prime rate from time to time publicly
announced in New York City by The Chase Manhattan Bank.
1.36 "RECEIVABLES" shall mean all obligations to Borrower for the
payment of money, (whether such obligations are owed (i) by the recipient of the
goods or services; (ii) by any other Person including, without limitation, the
issuer of a credit card or other instrument which directly or indirectly enables
the recipient of the goods or services to obtain the same; or (iii) for any
other reason now existing or hereafter arising, however evidenced, including,
without limitation, all accounts, contract rights, general intangibles,
documents, chattel paper and instruments (as each of such terms is defined in
the UCC) arising out of the sale of goods or the rendering of services by
Borrower.
1.37 "RENEWAL DATE" shall have the meaning specified in Section 8.1
hereof.
1.38 "SERVICES AGREEMENT" shall mean the Services Agreement between
Distribution Associates, Inc. and Borrower dated as of July 27, 2000.
1.39 "STANDBY LETTER OF CREDIT" shall mean any letter(s) of credit
issued by a Bank reasonably acceptable to Lender at the request of the
Subordinating Creditor, naming Lender as beneficiary.
1.40 "SUBORDINATING CREDITOR" shall mean Quantum Industrial Partners
LDC, a Cayman Islands limited duration company.
1.41 "SUBORDINATION AGREEMENT" shall mean the Subordination Agreement
between Lender and Subordinating Creditor dated as of the Closing Date.
1.42 "SUPPLIER" shall mean any Person (including, without limitation, a
Factored Supplier) which at any time sells goods to Borrower.
1.43 "TANGIBLE NET WORTH" shall have the meaning specified in Section
6.11 hereof.
1.44 "TRANSACTION DOCUMENTS" shall have the meaning specified in
Section 6.10 hereof.
1.45 "UCC" means the Uniform Commercial Code as in effect form time to
time in the State of New York.
1.46 "WARRANT" shall mean the warrant issued by Borrower to Lender for
the purchase by Lender of 50,000 shares of the capital stock of Borrower for
$2.34 per share which warrant shall be fully vested on the date of issuance.
5
<PAGE>
1.47 "WORKING CAPITAL" shall have the meaning specified in Section 6.11
hereof
SECTION 2 CREDIT ACCOMMODATIONS
2.1 (a) Subject to the terms and conditions of this Agreement, Lender
shall make Credit Accommodations to, on behalf of or as directed by Borrower,
from time to time, at Borrower's request, which Credit Accommodations, in the
aggregate, shall not exceed the Maximum Credit Facility.
(b) Any Credit Accommodation consisting of a Letter of Credit or
Factors Guarantee shall be in form and substance acceptable to the Borrower and
the applicable supplier in all respects and, in the case of a Letter of Credit,
shall be issued by a bank or savings institution of national standing with a
credit rating from a nationally recognized rating agency of at least "A."
(c) The fee chargeable to a Factored Supplier by Lender in connection
with Lender's purchase of a Borrower Payable shall not exceed 2% of the gross
invoiced amount of such Borrower Payable. The Borrower may, at its option, pay
all or any portion of such fee on behalf of the Factored Supplier.
(d) All amounts chargeable to Borrower under this Agreement or any
supplement hereto shall be charged to an account in Borrower's name on Lender's
books (the "Loan Account"). Lender shall render to Borrower each month a
statement in reasonable detail of the Loan Account (and all credits and charges
thereto) which shall be considered correct and accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice of Borrower's exceptions within 45 days
after such statement has been mailed by certified mail to Borrower.
SECTION 3 LENDER'S CHARGES
3.1 Borrower agrees to pay to Lender, each month, interest (computed on
the basis of the actual number of days elapsed over a year of 360 days) on the
average daily amount of Funded Credit Accommodations during the preceding month
at a per annum rate equal to the Prime Rate plus 1%. Any change in the effective
interest rate due to a change in the Prime Rate shall take effect on the date of
such change in the Prime Rate. All outstanding Funded Credit Accommodations
shall be repaid by the Borrower upon termination of this Agreement. The Borrower
may, from time to time, at its option, prepay any or all Funded Credit
Accommodations, without premium or penalty, upon three days' prior written
notice to Lender.
3.2 Borrower shall pay to Lender an annual facility fee in the amount
of one percent (1%) of the Maximum Inventory Facility which amount shall be due
and payable on (a) the Closing Date, and on (b) each anniversary of the Closing
Date thereafter during any Subsequent Term, if any, of this Agreement.
3.3 A reasonably detailed statement of all of Lender's charges shall
accompany each monthly statement of the Loan Account. As long as the amount of
the Funded Credit
6
<PAGE>
Accommodations, together with interest accrued thereon pursuant to Section 3.1
hereof and any fees due and payable pursuant to Section 3.2 and/or 3.4 hereof,
is less than 90% of the amount of the undrawn Standby Letter of Credit, interest
shall continue to accrue but shall not be due and payable on any Funded Credit
Accommodations. However, if and when the amount of Funded Credit Accommodations,
together with interest accrued thereon pursuant to Section 3.1 hereof and any
fees due and payable pursuant to Sections 3.2 and/or 3.4 hereof, exceeds 90% of
the amount of the undrawn Standby Letter of Credit (the "Trigger Event"), if no
Default has occurred and is continuing, then 10 days after the occurrence of the
Trigger Event (provided the condition creating the Trigger Event is continuing),
the Lender may take control of the Bluefly Paymentech Account pursuant to the
Controlled Account Agreement (the "Cash Sweep Trigger"). Lender shall be
obligated to apply monies received from the Bluefly Paymentech Account (to the
extent not remitted to Borrower as provided hereafter in this Section 3.3) to
the reduction of the Funded Credit Accommodations, together with interest
accrued thereon pursuant to Section 3.1 hereof and any fees due and payable
pursuant to Sections 3.2 and/or 3.4 hereof, to an amount equal to not more than
90% of the amount of the undrawn Standby Letter of Credit. From and after the
date Lender assumes control of the Bluefly Paymentech Account through and
including the sixtieth day following the date of the Cash Sweep Trigger (the
"Cash Sweep Period"), Lender shall, provided no Default has occurred and is
continuing, within one Business Day after receipt of any funds from the Bluefly
Paymentech Account, remit to Borrower 50% of the amount so received.
Notwithstanding the foregoing, in the event that if at any time during the Cash
Sweep Period, provided that no Default has occurred and is continuing, the
Funded Credit Accommodations together with interest accrued thereon pursuant to
Section 3.1 hereof and any fees due and payable pursuant to Section 3.2 and/or
3.4 hereof, are reduced to an amount not more than 90% of the amount of the
undrawn Standby Letter of Credit for a period of 10 consecutive days, (the
"Trigger Cure"), then Lender shall inform HSBC to once again follow any and all
instructions given to HSBC by Borrower. In the event of a subsequent occurrence
of a Trigger Event, the foregoing procedures shall once again apply. As more
fully provided in Section 8.2 hereof, in no event shall the interest rate charge
hereunder exceed the Maximum Rate.
3.4 Borrower shall pay to Lender a fee for the opening of each Letter
of Credit or for the issuing of each Factors Guarantee equal to (i) one-half of
one percent (1/2 of 1%) of the face amount of such Letter of Credit (and the
usual and customary bank charges), plus (ii) an additional one-fourth of one
percent (1/4 of 1%) of such face amount for each thirty (30) days or portion
thereof that such Letters of Credit (or the acceptances resulting from the
Letters of Credit) or Factors Guarantee remains outstanding.
SECTION 4 SECURITY INTEREST IN COLLATERAL
4.1 To secure repayment of the Funded Credit Accommodations with
interest in accordance with the terms hereof, and the performance and observance
by the Borrower of each term, covenant or agreement contained herein, the
Borrower hereby grants to Lender a security interest in all property of
Borrower, whether now owned or hereafter acquired by Borrower, wherever located
and whether now existing or hereafter arising or created (the "Collateral"),
including, without limitation, the following:
7
<PAGE>
(a) all Receivables and all deposits, or other security for the
obligation of any person under or relating to Receivables and all of the
Borrower's rights and remedies of whatever kind or nature it may hold or acquire
for the purpose of securing or enforcing Receivables and all rights of stoppage
in transit, replevin, repossession and reclamation and all other rights and
remedies of an unpaid vendor or lienor, and all proceeds of any Letter of Credit
naming Borrower as beneficiary and which provides for guarantees or assures the
payment of any Receivable;
(b) all general intangibles whether or not arising out of the sale of
goods or rendition of services, and including, without limitation, choses in
action, causes of action, tax refunds (and claims) and reversions from
terminated pension plans;
(c) all Inventory;
(d) all equipment, machinery and fixtures of Borrower, including,
without limitation,
(e) all accessories and additions thereto, tools, parts, accessories
and attachments used in connection therewith, all spare parts relating thereto
and all tangible personal property;
(f) all copyrights, whether statutory or common law, registered or
unregistered, all letters patent and applications for letters patent throughout
the world, all trademarks, trade names, service marks, business names and other
sources of business identifiers, whether or not registered and all common law
and statutory trade secrets and all other confidential or proprietary
information and know how;
(g) all books and records (including, without limitation, computer
programs, tapes and related electronic data processing software) relating to any
of the foregoing; and
(h) all cash and non-cash proceeds and products of any of the
foregoing, including, without limitation, all insurance proceeds payable under
insurance policies relating to any of the foregoing;
provided, however, that the Collateral shall not include any agreement, license
or contract (or any right therein) or any data or information protected by
consumer privacy laws (i) the grant of a security interest in which or
assignment of which would violate such agreement, license or contract or
consumer privacy laws or (ii) to the extent that the pledge or assignment of
such agreement, license or contract (or any right therein) requires the consent
of a third party unless such third party has consented thereto, except, in the
case of clauses (i) and (ii), to the extent provided under Section 9-318(4) of
the UCC. The foregoing proviso shall not apply to the Inventory or to Borrower's
rights therein.
4.2 Borrower will take any and all steps and observe such formalities
as Lender may reasonably request from time to time to create and maintain in
Lender's favor a valid and first lien upon, security interest in and pledge of
all of the Collateral (subject to Permitted Liens), including, without
limitation, by way of filing financing statements and other notices, including,
8
<PAGE>
without limitation, notices with the United States Patent and Trademark Office
and the United States Copyright Office and amendments and renewals thereof that
may be requested by Lender to maintain such security interest in and pledge of
the Collateral.
SECTION 5 CUSTODY AND INSPECTION OF COLLATERAL AND RECORDS; COLLECTION AND
HANDLING OF COLLATERAL
5.1 Borrower will, at its own cost and expense, (i) arrange for
remittances on the Receivables to be made directly to the Controlled Account or
(ii) promptly deposit or cause to be deposited all such remittances directly to
the Controlled Account.
5.2 Upon the occurrence and during the continuance of any Default, (i)
Lender may send a notice of assignment and/or notice of Lender's security
interest to any Account Debtors and thereafter Lender shall have the sole right
to collect the Receivables; (ii) Borrower hereby constitutes Lender or Lender's
designee as the Borrower's attorney-in-fact with power to endorse the Borrower's
name upon any notes acceptances, checks, drafts, money orders or other evidences
of payment or Collateral that may come into its possession; to sign Borrower's
name on any invoice or bill of lading relating to any Receivables, drafts
against Customers, assignments and verifications of Receivables and notices to
any Account Debtor; to send verifications of Receivables; to notify the Borrower
to such address as the Lender may designate; and to do all other acts and things
necessary to carry out this Agreement. Said attorney or designee shall not be
liable for any acts of omission or commission, for any error of judgment or for
any mistake of fact or law, provided that Lender or its designee shall not be
relieved of liability to the extent that its act, error mistake constituted
gross negligence or willful misconduct. This power of attorney being coupled
with an interest is irrevocable until all of the Obligations then due and
payable are paid in full; and (iii) Lender, without notice to or consent of
Borrower , (A) may sue upon or otherwise collect, extend the time of payment of,
or compromise or settle for cash, credit or otherwise upon any terms, any of the
Receivables or any securities, instruments or insurance applicable thereto
and/or release the Account Debtor thereon; (B) is authorized and empowered to
accept the return of goods represented by any of the Receivables; and (C) shall
have the right to receive, endorse, assign and/or deliver in its name or the
name of Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and Borrower hereby waives notice
of presentment, protest and non-payment of any instrument so endorsed.
5.3 Borrower shall reimburse Lender on demand for all costs of
collection incurred by Lender during the continuance of a Default in efforts to
enforce recovery of or realization upon the Receivables, the Inventory and any
other Collateral, including, without limitation, attorneys' fees (both in-house
and outside). All and any reasonable fees, costs and expenses, of whatever kind
and nature, including taxes of any kind, which Lender may incur in filing public
notices (including, without limitation, appraisal fees and advertising costs),
and the reasonable charges of any attorney whom Lender may engage in preparing
and filing documents, making title or lien examinations and rendering opinion
letters, as well as reasonable expenses incurred by Lender (including, without
limitation, (a) all reasonable attorneys' fees (both in-house and outside) and
(b) Lender's out of pocket expenses in conducting periodic field examinations of
Borrower and
9
<PAGE>
the Receivables, the Inventory and any other Collateral, plus Lender's
prevailing per diem charge for each of its examiners in the field and office,
now $750 per person per day, (provided that unless a Default is continuing,
Borrower shall not be liable for the expense of more than three field
examinations in any year) plus all of Lender's reasonable costs, in protecting,
maintaining, preserving, enforcing or foreclosing the pledge, lien and security
interest granted to Lender hereunder, whether through judicial proceedings or
otherwise, or recovery of or realization upon the Inventory or any other
Collateral, or in defending or prosecuting any actions or proceedings arising
out of or related to Lender's transactions with Borrower, including, without
limitation, actions or proceedings which may involve any Person asserting a
priority or claim with respect to the Inventory or any other Collateral, shall
be borne and paid for by Borrower on demand, shall constitute part of the
Obligations and may at Lender's option be charged to the Loan Account. In
addition, Borrower shall pay for an appraisal of the Inventory Liquidation Value
of the Inventory from time to time by an independent appraiser of national
stature which is not a competitor of Borrower and which is satisfactory to
Lender; provided that, in no event shall the Borrower pay more than $20,000, in
the aggregate, for any such appraisals during any twelve-month period.
5.4 Upon Lender's reasonable request, Borrower will, at any time and
from time to time, at Borrower's expense, deliver to Lender documents of title
representing the Inventory or otherwise evidence Lender's security interest in
such manner as Lender may reasonably require. Any and all assessments, taxes or
other charges that may be assessed upon or payable with respect to the Inventory
or any part thereof shall forthwith be paid by Borrower, and Borrower agrees
that Lender, in its discretion, may effect such payment and charge the amount
thereof to Borrower. Borrower further agrees that except for the pledge, lien
and security interest granted to Lender by Borrower hereby, Borrower shall not
permit the Inventory or any part thereof to otherwise become liened or
encumbered nor shall Borrower grant any security interest therein to any other
Person excepting only for the Subordinating Creditor which has executed the
Subordination Agreement . Borrower shall not, without Lender's written consent
first obtained, remove or dispose of any of the Inventory except to bona fide
purchasers thereof in the ordinary course of Borrower's business or as otherwise
provided in this Agreement. Borrower shall make all Inventory and all of
Borrower's records pertaining thereto available to Lender for inspection during
normal business hours upon reasonable prior written notice by Lender. Lender
shall have the right, in Lender's discretion, after a demand is made on the
Borrower to pay any liens or claims upon any of the Inventory, including,
without limitation, warehouse charges, dyeing, finishing and processing charges,
landlords' claims, etc. and the amount of any such payment shall be charged to
the Loan Account and secured hereby. Lender shall not be liable for the
safekeeping of any of the Inventory or for any loss, damage or diminution in the
value thereof or for any act or default of any warehouseman, carrier or other
person dealing in and with said Inventory, whether as Lender's agent or
otherwise, or for the collection of any proceeds thereof but the same shall at
all times be at Borrower's sole risk. Prior to its sale to a bona fide purchaser
in the ordinary course of business, Inventory shall at all times remain at the
addresses specified in Schedule 5.4 hereof and shall not be removed therefrom
without Lender's prior written consent.
5.5 Nothing contained in this Section 5 or elsewhere in this Agreement
shall be construed to constitute Borrower as agent of Lender for any purpose
whatsoever and Lender shall not be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part
10
<PAGE>
of the Collateral wherever the same may be located and regardless of the cause
thereof (except to the extent it is determined by a final judicial decision that
the Lender's act or omission constituted gross negligence or willful
misconduct). Lender shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the Receivables or
any instrument received in payment thereof or for any damage resulting therefrom
(except to the extent that Lender's error, omission or delay constituted gross
negligence or willful misconduct). Lender does not, by anything herein or in any
assignment or otherwise, assume Borrower's obligations under any contract or
agreement assigned to Lender, and Lender shall not be responsible in any way for
the performance by Borrower of any of the terms and conditions thereof.
SECTION 6 REPRESENTATIONS, COVENANTS AND WARRANTIES
As an inducement to Lender to enter into this Agreement, Borrower
represents, covenants and warrants (which shall survive the execution and
delivery of this Agreement) that:
6.1 Borrower is a corporation duly organized and presently existing in
good standing under the laws of the State of Delaware and is duly qualified and
existing in good standing in every other state in which the nature of Borrower's
business requires it to be qualified, except where the failure to be so
qualified would not have a material adverse effect on the Borrower. Borrower
shall at all times preserve, renew and keep in full, force and effect its
corporate existence and rights and franchises with respect thereto and maintain
in full force and effect all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts necessary to carry on its
business as presently or proposed to be conducted. Borrower shall give Lender
thirty (30) days prior written notice of any proposed change in its corporate
name, which notice shall set forth the new name and Borrower shall deliver to
Lender a copy of the amendment to the organizational documents of Borrower
providing for the name change certified by the Secretary of State of the
jurisdiction of incorporation of Borrower as soon as it is available.
6.2 The execution, delivery and performance of this Agreement are
within the powers of Borrower, have been duly authorized by appropriate action
and are not in contravention of the terms of Borrower's corporate charter or
bylaws or of any material indenture, agreement or undertaking to which Borrower
is a party or by which it may be bound. Borrower warrants that it is and
covenants that it shall remain solvent at all times while this Agreement is in
effect.
6.3 Borrower is and shall be, with respect to all Inventory, the owner
thereof free from any lien, security interest or encumbrance of any kind, except
for Permitted Liens or liens and security interests in favor of Lender and the
Subordinating Creditor which security interest is the subject of the
Subordination Agreement. None of any other Collateral has been or shall
hereafter be assigned, pledged or transferred to any person other than the
Lender and the Subordinating Creditor or in any way encumbered or subject to a
security interest except to Lender and the Subordinating Creditor and Borrower
shall defend the same against the claims of all persons.
11
<PAGE>
6.4 Borrower's books and records relating to the Receivables are
maintained at the office listed on Schedule 6.4 attached hereto. Except as
otherwise stated below, the principal executive office of Borrower is located at
such address and has been so located on a continuous basis since 1997. Borrower
shall not change such location without Lender's prior written consent, and, upon
making any such change, Borrower agrees to execute any additional financing
statements or other documents or notices which Lender may require.
6.5 All loans and advances requested by Borrower under this Agreement
shall be used for the general business purposes of Borrower.
6.6 Borrower shall maintain its shipping forms, invoices and other
related documents in a form reasonably satisfactory to Lender and shall maintain
its books, records and accounts in accordance with sound accounting practice.
Borrower agrees to furnish Lender with balance sheets, statements of profit and
loss, interim financial statements and such other information regarding the
business affairs and financial condition of Borrower as Lender may from time to
time reasonably request, including, without limitation (a) financial statements
prepared on a review basis by PriceWaterhouse Coopers or other independent
Certified Public Accountants reasonably acceptable to Lender within forty-five
(45) days after the end of the first three fiscal quarters in each fiscal year
of Borrower, (b) financial statements, prepared and certified by PriceWaterhouse
Coopers or other independent Certified Public Accountants reasonably acceptable
to Lender within ninety (90) days after the end of each fiscal year of Borrower.
All such statements and information shall fairly present the financial condition
of Borrower as of the dates, and the results of its operations for the periods,
for which the same are furnished.
6.7 Borrower shall furnish to Lender, promptly after the same become
publicly available, copies of such registration statements, annual, periodic and
other reports, and such proxy statements and other information, if any, as shall
be filed by Borrower, or any of its subsidiaries with the Securities and
Exchange Commission pursuant to the requirements of the Securities Act of 1933
or the Securities Exchange Act of 1934.
6.8 Borrower shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets prior to the date on which penalties attach thereto. Borrower shall be
liable for any tax (excluding a tax imposed on the overall net income of Lender)
imposed upon any transaction under this Agreement or giving rise to the
Receivables or which Lender may be required to withhold or pay for any reason
and Borrower agrees to indemnify and hold Lender harmless with respect thereto,
and to repay Lender on demand the amount thereof, and until paid by Borrower
shall be added to the Obligations secured hereunder, and may at Lender's option
be charged to the Loan Account.
6.9 All financial statements of Borrower, including, without
limitation, the financial statements of Borrower dated as of December 31, 2000
(unaudited) fairly present Borrower's financial condition and results of
operations and have been or will be prepared in accordance with GAAP. Since
December 31, 2000, there has been no material adverse change in Borrower's
condition or operations.
12
<PAGE>
6.10 The execution and delivery by Borrower of this Agreement and any
document or instrument contemplated to be executed and/or delivered in
connection with this Agreement (collectively, the "Transaction Documents") and
the consummation of the transactions contemplated hereby does not violate or
cause a breach in any material respect of any licensing, distribution or other
material agreement to the operations of Borrower. The exercise by Lender of any
of its rights under the Transaction Documents shall not result in any material
breach of or give rise to any action against either Borrower or Lender under any
provision of any licensing, distribution or other material agreement to the
operations of Borrower whether such agreements exist as of the Closing Date or
may be thereafter entered into by Borrower (subject to the provisions of this
Agreement).
6.11 Borrower shall until payment in full of all Obligations then due
and payable to Lender and termination of this Agreement in accordance with
Section 8.1 hereof (a) cause to be maintained at the end of each fiscal quarter
of Borrower, Tangible Net Worth in an amount not less than One Million Five
Hundred Thousand Dollars ($1,500,000) and (b) cause to be maintained at the end
of each such fiscal quarter, Working Capital of not less than Three and a Half
Million Dollars ($3,500,000).
For the purpose hereof the following terms shall have the following
definitions:
"CURRENT ASSETS" at a particular date shall mean all amounts which
would, in conformity with GAAP, be included under current assets on a balance
sheet of borrower as of such date, providing however, that such amounts shall
not include any amounts for any indebtedness owing by any Affiliate to Borrower.
"CURRENT LIABILITIES" at a particular date shall mean all amounts which
would, in conformity with GAAP, be included under current liabilities on a
balance sheet of Borrower, as of such date but in any case including, without
limitation, or duplications, the amounts of (a) all indebtedness payable on
demand, or at the option of the person or entity to whom such indebtedness is
owed, not more than twelve (12) months after such date, (b) any payments in
respect of any indebtedness (whether installment, serial maturity, sinking fund
payment or otherwise) required to be made not more than twelve (12) months after
such date, (c) all reserves in respect of liabilities or indebtedness payable on
demand or, at the option of the person or entity to whom such indebtedness is
owed, not more than twelve (12) months after such date, the validity of which is
not contested to such date, (d) all accruals for federal or other taxes measured
by income payable within twelve (12) months of such date and (e) all outstanding
indebtedness to Lender. Notwithstanding the foregoing, none of Borrower's
indebtedness to Lender under the Agreement shall be included in the definition
of Current Liabilities.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"TANGIBLE NET WORTH" shall mean, at a particular date (a) the aggregate
amount of all assets of Borrower as may be properly classified as such in
accordance with GAAP consistently applied excluding such other assets as are
properly classified as intangible assets
13
<PAGE>
under GAAP, less (b) the aggregate amount of all liabilities of Borrower
(excluding liabilities subordinated to Lender) determined in accordance with
GAAP.
"WORKING CAPITAL" shall mean the excess, if any, of Current Assets less
Current Liabilities.
6.12 Borrower shall, at all times, comply in all material respects with
all material laws, rules, regulations, licenses, permits, approvals and orders
of any Federal, State or local governmental authority applicable to it.
6.13 Borrower shall, at all times, maintain with financially sound and
reputable insurers insurance with respect to the Inventory and any other
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall reasonably require as proof of such
insurance, and, if Borrower fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of Borrower. All policies
shall provide for at least thirty (30) days prior written notice to Lender of
any cancellation or reduction of coverage. If at any time a Default exists or
has occurred and is continuing, Lender shall have the right to adjust, settle,
amend and cancel such insurance. Borrower shall notify Lender, not more than
forty-five (45) days and not less than fifteen (15) days prior to the expiration
date of any policy and, Lender may, but shall not be obligated to take such
action as it considers necessary to prevent such expiration, at the expense of
Borrower. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. If no Default has occurred and is continuing at the time
Lender receives any such insurance proceeds, Lender shall promptly pay to
Borrower the amount of such proceeds. During the continuance of a Default,
Lender may apply any insurance proceeds received by Lender, at its option, to
the cost of repairs or replacement of Inventory and/or any other Collateral
and/or to payment of the Obligations then due, in any order and in such manner
as Lender may reasonably determine.
6.14 Borrower shall not, directly or indirectly, wind up, liquidate or
dissolve or agree to do any of the foregoing.
6.15 Borrower shall not, directly or indirectly, open, establish or
maintain any deposit account, investment account or any other account with any
bank or other financial institution, other than an account subject to a
Controlled Account Agreement without the consent of Lender, which consent shall
not be unreasonably withheld.
6.16 During the term of this Agreement, Borrower shall prepare and
deliver to Lender on no less than a bi-weekly basis reports of Receivables and
Inventory in form and substance reasonably satisfactory to Lender.
14
<PAGE>
6.17 At the reasonable request of Lender, at any time and from time to
time, Borrower shall, at its expense, duly execute and deliver, or cause to be
duly executed and delivered, such further agreements, documents and instruments,
and do or cause to be done such further acts as may be necessary or proper to
evidence, perfect, maintain and enforce the security interests and the priority
thereof in the Receivables, the Inventory and any other Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Transaction Documents.
6.18 Borrower shall deposit, promptly upon receipt, all sums received
by Borrower from any source including without limitation, from the sale of
Inventory into and only into a Controlled Account provided, however, that the
sums received by Borrower from the sale of Inventory shall be deposited into and
only into the Bluefly Paymentech Account.
6.19 Exhibit C hereof is a true and complete copy of the Services
Agreement (together with all modifications, supplements and amendments thereto)
as of the date of this Agreement.
SECTION 7 LENDER'S REMEDIES UPON BORROWER'S DEFAULT
7.1 (a) All Obligations shall be, at Lender's option, due and payable
(i) without notice or demand upon:
(A) if any representation or warranty or statement of fact
made by Borrower in any Transaction Document to Lender is fraudulent; or
(B) if Borrower shall become insolvent, is generally unable to
pay its debts as they mature or files a petition in bankruptcy liquidation or
reorganization or if Borrower discontinues doing business for any reason.
(C) the failure to effect a Trigger Cure on or before the 70th
day following the Trigger Event.
(ii) ten (10) days after written notice of the occurrence of
any one or more of the following events:
(A) if Borrower shall fail to pay to Lender when due any
amounts owing to Lender under any Obligations; or
(B) if a judgment against Borrower in excess of $100,000
remains unpaid, unstayed or undismissed for a period of more than thirty (30)
days, or if a custodian, receiver or trustee of any kind is appointed for it or
any of its property;
(C) if the Services Agreement ceases to be in full force and
effect in any material respect.
15
<PAGE>
(iii) thirty (30) days after written notice of the occurrence
of the following event:
if Borrower shall breach in any material respect any of the
terms, covenants, conditions or provisions of this Agreement (other than those
relating to failure to pay to Lender when due any amounts owing to Lender under
any Obligations) or any other agreement between Borrower and Lender or to which
Borrower and Lender are parties.
(b) Upon the continuation after any applicable cure periods of
any one or more of the events specified in subsection (a) above (each a
"Default") (i) Borrower shall pay to Lender, as liquidated damages and as part
of the Obligations, interest at the rate of three percent (3%) per annum above
the Prime Rate upon the unpaid balance of the Funded Credit Accommodations from
the date of Default until the date of full payment of the Obligations, which
charge shall be in lieu of compensation payable under Section 3.1 from such
date; provided, that in no event shall such rate exceed the Maximum Rate, (ii)
Borrower shall pay to Lender all reasonable costs, disbursements, charges and
expenses for the collection and enforcement of the Obligations, and for the
protection and enforcement of Lender's security interest, including attorneys'
fees (both in-house and outside) all of which shall be added to and deemed part
of the Obligations, and (iii) Lender shall have the right (in addition to any
other rights Lender may have under this Agreement or otherwise) without further
notice to Borrower, to enforce payment of the Receivables, to settle, compromise
or release (in whole or in part) any amounts owing on the Receivables, to
prosecute any action, suit or proceeding with respect to the Receivables, to
extend the time of payment of any and all Receivables, to make allowances and
adjustments with respect thereto, to issue credits in Lender's or Borrower's
name, to sell, assign and deliver the Receivable (or any part thereof) or the
Inventory (or any part thereof) or any other of the Collateral and any returned,
reclaimed or repossessed merchandise or other property held by Lender or by
Borrower for Lender's account, at public or private sale, at broker's board, for
cash, upon credit or otherwise, at Lender's sole option and discretion, and
Lender may bid or become purchaser at any such sale if public, free from any
right of redemption which is hereby expressly waived. Borrower agrees that the
giving of ten (10) days' notice by Lender, sent by certified mail return receipt
requested, postage prepaid, to the mailing address of Borrower set forth in this
Agreement, designating the place and time of any public sale or the time after
which any private sale or other intended disposition of the Receivables, the
Inventory or any other Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice with respect
thereto. The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by Lender to the payment of the
Obligations in such order as Lender may elect, and Borrower shall remain liable
to Lender for any deficiency. Upon the occurrence of any Default, Borrower shall
assemble all or any part of the Inventory and make it available to Lender at a
place to be designated by Lender, which is reasonably convenient to both
parties. In addition, Lender may peaceably, by its own means or with judicial
assistance, enter Borrower's or any other premises and take possession of the
Inventory and remove or dispose of it on Borrower's premises and Borrower agrees
that Borrower will not resist or interfere with any such action. To the full
extent permitted by law, Borrower hereby expressly waives demand, notice of sale
(except as herein provided), advertisement of sale and redemption before sale.
16
<PAGE>
7.2 The enumeration of the foregoing rights and remedies is not
intended to be exhaustive, and such rights and remedies are in addition to and
not by way of limitation of any other rights or remedies Lender may have under
the New York Uniform Commercial Code or other applicable law. Lender shall have
the right, in its sole discretion, to determine which rights and remedies, and
in which order any of the same, are to be exercised, and to determine which
Receivables are to be proceeded against and in which order, and the exercise of
any right or remedy shall not preclude the exercise of any others, all of which
shall be cumulative. No act, failure or delay by Lender shall constitute a
waiver of any of its rights and remedies. No single or partial waiver by Lender
of any provision of this Agreement, or breach or default thereunder, or of any
right or remedy which Lender may have shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. Borrower waives presentment,
notice of dishonor, protest and notice of protest of all instruments included in
or evidencing any of the Obligations or the Receivables and any and all notices
or demands whatsoever (except as expressly provided herein).
7.3 Notwithstanding anything contained in this Section 7 or any other
provision of this Agreement; in exercising its remedies during the continuance
of a Default, Lender may make multiple requests pursuant to the Standby Letter
of Credit provided that no request for payment under the Standby Letter of
Credit may be made unless (a) at least 120 days have passed from the occurrence
of such Default except in the case of a draw permitted pursuant to Section 7.5
hereof and (b) the amount requested under the Standby Letter of Credit are
Obligations under the Financing Agreement which the Borrower has failed to pay
in accordance with the terms of the Financing Agreement.
7.4 EACH PARTY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN THE EVENT
OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT, THE
OBLIGATIONS, THE RECEIVABLES, OR ANY OTHER TRANSACTION BETWEEN THE PARTIES AND
HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN SUCH STATE IN CONNECTION WITH ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
OBLIGATIONS.
7.5 Notwithstanding anything contained in this Section 7 or any other
provision of this Agreement, the Subordinating Creditor shall have the right,
but not the obligation, to purchase all (but not less than all) Obligations plus
the Borrower Payables for good funds simultaneously with the exercise of this
purchase option (the "Buyout Option") at any time upon reasonable notice to
Lender. In connection with the exercise of the Buyout Option, Subordinating
Creditor shall only be obligated to pay Lender the face amount of the
Obligations plus the Borrower Payables (less any amounts drawn under the Letter
of Credit). No additional fees or expenses of Lender shall be due and owing in
connection with such Buyout Option. Upon the occurrence of any Default excluding
a Default pursuant to Section 7.1(a)(i)(C) hereof, Subordinating Creditor shall
have ten (10) Business Days to exercise the Buyout Option described in this
paragraph prior to Lender's exercise of any rights or remedies available to it
under this Agreement or at law or under the Controlled Account Agreement. Lender
agrees that
17
<PAGE>
in connection with the payment of good funds by the Subordinating Creditor to
Lender in the exercise of the Buyout Option, it will, if requested by the
Subordinating Creditor, draw under the Standby Letter of Credit in an amount
equal to the lesser of (a) the face amount of the Obligations plus the Borrower
Payables or (b) the undrawn amount of the Standby Letter of Credit
simultaneously with the exercise by the Subordinating Creditor of the Buyout
Option. Upon the consummation of the Buyout Option by the Subordinating
Creditor, Borrower shall no longer have any obligations to Rosenthal & Rosenthal
Inc. under this Agreement.
7.6 Borrower agrees that Lender shall be entitled to receive additional
compensation determined pursuant to this paragraph if, as a result of its
exercise of its rights and remedies, Lender generates net cash proceeds from the
sale of the Collateral in excess of the Obligations due and owing the Lender
under this Agreement ("Excess Cash Proceeds") prior to any draw by Lender on the
Standby Letter of Credit. Lender shall be entitled to receive additional
compensation from the Borrower in an amount equal to 25% of the Excess Cash
Proceeds solely in the circumstances described in the first sentence. Upon any
draw of the Standby Letter of Credit by the Lender, Borrower's Obligations to
the Lender shall be reduced by the amount of the draw and Lender shall no longer
be entitled to any additional compensation from the sale of the Collateral. In
the event that the Subordinating Creditor exercises its right to purchase the
Obligations due and owing to Lender pursuant to Section 7.5, Subordinating
Creditor shall not be entitled to any additional compensation pursuant to this
Section 7.6.
SECTION 8 EFFECTIVE DATE, CONTROLLING LAW AND TERMINATION
8.1 This Agreement shall become effective on the Closing Date and shall
continue in full force and effect for one year from the Closing Date (the
"Initial Term"). Thereafter, the Agreement shall continue for subsequent one
year terms ("Subsequent Terms") unless one party gives the other party written
notice of termination 30 days prior to the end of any applicable Term (the
"Nonrenewal Termination"). In addition to the Nonrenewal Termination, Borrower
shall have the right to terminate this Agreement at any time upon twenty (20)
days prior written notice to Lender and payment of the following: (a) all the
Obligations then due and payable; and (b) with respect to a termination other
than a Nonrenewal Termination, an early termination fee of $35,000. Upon the
termination of this Agreement, (i) all Obligations (including without limitation
Obligations in respect of Letters of Credit and Factors Guarantees) shall be due
and payable without notice or demand, provided that (a) Obligations in respect
of Credit Accommodations that are not Funded Credit Accommodations and (b)
Borrower Payables purchased by Lender which are not due and payable may be
satisfied in full by delivering a letter of credit or cash collateral on terms
reasonably acceptable to Lender (and such letter of credit shall be terminated
and such cash collateral promptly returned to Borrower to the extent that such
Credit Accommodations terminate or expire without becoming Funded Credit
Accommodations) and (ii), subject to fulfillment of the provisions of Section
8.1(i)(a) above any amounts outstanding under a Borrower Payable purchased by
Lender shall remain due and payable in accordance with the terms of such
Borrower Payable. Simultaneously, with the satisfaction of all Obligations then
due and payable hereunder in full, Lender shall take any and all actions
necessary to release any security interest or lien it has on all the Receivables
and other Collateral hereunder (other than any collateral securing Credit
Accommodations that are not Funded Credit
18
<PAGE>
Accommodations in accordance with the preceding sentence). No provision hereof
shall be modified or amended orally or by course of conduct but only by a
written instrument expressly referring hereto signed by both parties.
8.2 ALL LOANS SHALL BE DISBURSED BY LENDER FROM ITS OFFICE IN THE STATE
OF NEW YORK, SHALL BE PAYABLE BY BORROWER AT SUCH OFFICE, AND THIS AGREEMENT AND
ALL TRANSACTIONS THEREUNDER SHALL BE DEEMED TO BE CONSUMMATED IN SUCH STATE AND
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THAT STATE.
If any part or provision of this Agreement is invalid or in contravention of the
applicable laws or regulations of any controlling jurisdiction, such part or
provision shall be severable without affecting the validity of any other part or
provision of this Agreement. Notwithstanding any provision herein or in any
related document, Lender shall never be entitled to receive, collect, or apply,
as interest on the Loan Account, any amount in excess of the maximum rate of
interest ("Maximum Rate") permitted to be charged from time to time by
applicable law (if such law imposes any maximum rate), and in the event Lender
ever receives, collects, or applies as interest, any amount in excess of the
Maximum Rate, such amount shall be deemed and treated as a partial prepayment of
the principal of the Loan Account; and, if the principal of the Loan Account and
all other of Lender's charges other than interest are paid in full, any
remaining excess shall be paid to Borrower.
SECTION 9 CONDITIONS OF CLOSING.
9.1 Initial Credit Accommodation: The obligation of Lender to provide
any Credit Accommodation hereunder is subject to the fulfillment of each of the
following conditions, and in the event such conditions require the delivery of
any document, such obligation of Lender shall also be subject to the delivery
(by Borrower or otherwise) of such document in a manner satisfactory to Lender
and that the document be in form and substance reasonably satisfactory to
Lender:
(a) Credit Accommodations Documents. Lender shall have received an
original of each of the following documents: (i) this Agreement fully and
properly executed by Borrower; (ii) the Controlled Account Agreement fully and
properly executed by Borrower and by the Bank; (iii) the Subordination Agreement
fully and properly executed by the Subordinating Creditor; (iv) the Standby
Letter of Credit fully and properly executed by the issuing Bank; (v) the
Warrant Agreement fully and properly executed by Borrower; (vi) the Landlord
Agreement, if any, fully and properly executed by the Landlord; and (vii) such
other documents, instruments and agreements in connection herewith as Lender
shall require, executed, certified and/or acknowledged by such parties as Lender
shall designate.
(b) Organization Documents. Lender shall have received copies of
Borrower's Certificate of Incorporation and Bylaws, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(c) Good Standing. Lender shall have received a certificate of status
with respect to Borrower, dated no earlier than March 26, 2001, by the Secretary
of State of the state
19
<PAGE>
of organization of Borrower, which certificate shall indicate that Borrower is
in good standing in such state;
(d) Foreign Qualification. Lender shall have received certificates of
status with respect to Borrower, each dated within ten (10) days of the Closing
Date, issued by the Secretary of State of each state in which such party's
failure to be duly qualified or licensed would have a material adverse effect on
its financial condition or assets, indicating that such party is in good
standing;
(e) Authorizing Resolutions and Incumbency. Lender shall have received
a certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors, and shareholders or members if
necessary, authorizing the obtaining of Credit Accommodations from Lender and
execution and delivery of this Agreement and the other Transaction Documents to
which Borrower is a party, and authorizing specific officers of Borrower to
execute same, and (ii) the authenticity of original specimen signatures of such
officers;
(f) Financing Statements. Lender shall have received executed copies of
financing statements in such jurisdictions as it shall determine;
(g) Consents/Waivers. Lender shall have received all consents or
waivers from third parties Lender, in its sole discretion, deems appropriate or
necessary of all locations where the Inventory or any of the other Collateral is
located;
(h) Fees. Borrower shall have paid all fees payable by it and due on
the Closing Date pursuant to this Agreement;
(i) Opinion of Counsel. Lender shall have received an opinion of
Borrower's counsel satisfactory to Lender in form and substance in its sole
discretion;
(j) Officer Certificate. Lender shall have received a certificate of
the President of Borrower, attesting to the accuracy of each of the
representations and warranties of Borrower set forth in this Agreement and the
fulfillment of all conditions precedent to the initial advance hereunder;
(k) Search and References. Lender shall have received and approved the
results of UCC, tax lien, litigation, judgment and bankruptcy searches regarding
Borrower.
(l) Financial Statements. The unaudited financial statements of
Borrower dated as of December 31, 2000, shall have been delivered to Lender
(m) No Material Adverse Changes. Prior to the Closing Date, there shall
have occurred no material adverse change in the financial condition of Borrower,
or in the condition of the assets of Borrower from that shown on the financial
statements of Borrower dated as of December 31, 2000. At the Closing, Borrower
shall deliver to Lender an officer's certification
20
<PAGE>
confirming that Borrower is unaware of the existence of any such material
adverse change in Borrower's financial condition.
(n) Projections. Borrower shall submit cash flow projections and a pro
forma balance sheet with adjusting entries (i) showing that the proposed
financing will provide sufficient funds for the Borrower's projected working
capital needs, and (ii) showing: (A) that Borrower will have reasonably
sufficient capital for the conduct of its business following the initial
funding, and (B) that Borrower will not incur debts beyond its ability to pay
such debts as they mature.
(o) Net Worth and Working Capital. Borrower shall have (i) Tangible Net
Worth (prior to giving effect to the initial advance) of not less than One
Million Five Hundred Thousand Dollars ($1,500,000) and (ii) Working Capital
(prior to giving effect to the initial advance) of not less than Three and a
Half Million Dollars ($ 3,500,000).
(p) Other Matters. All other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed and recorded.
9.2 Subsequent Advances. The obligation of Lender to make any
additional Credit Accommodation hereunder after the initial Credit Accommodation
shall be subject to the further conditions precedent that, on and as of the date
of making of such Credit Accommodation: (a) the representations and warranties
of Borrower contained herein shall be true and correct in all material respects,
before and after giving effect to such Credit Accommodation and to the
application of any proceeds thereof; (b) no Default and no event which, with
notice or passage of time or both, would constitute a Default shall have
occurred and be continuing, or would result from such Credit Accommodation or
from the application of any proceeds thereof; (c) the Borrower shall have
Tangible Net Worth of not less than One Million Five Hundred Thousand Dollars
($1,500,000); and (d) the Borrower shall have Working Capital of not less than
Three and a Half Million Dollars ($ 3,500,000).
SECTION 10 MISCELLANEOUS
10.1 NOTICES. All notices, requests, demands, acceptances and other
communications which are required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given (a) when delivered
personally, or (b) when sent by fax if sent on a business day prior to 5:00 P.M.
local time at the place of receipt, or on the following business day if sent
after 5:00 P.M. or on a non-business day, or (c) on the day following delivery
to a courier service if sent by next day delivery via a recognized international
courier service, or (d) five (5) days after the date when mailed by registered
or certified mail, return receipt requested, postage prepaid. All such notices,
requests, demands, acceptances and other communications shall be addressed to
the parties as follows, or at such other address as shall be specified by like
notice:
21
<PAGE>
If to Lender: Rosenthal & Rosenthal, Inc.
1370 Broadway
New York, New York 10018
Attn: David Flaxman, Esq.
Fax: (212) 356-0989
If to Borrower: Bluefly, Inc.
42 West, 39th Street
New York, New York 10018
Attn: Julie Tran, Esq.
Fax: (212) 840-1903
With a copy to: Swidler Berlin Shereff Friedman
405 Lexington Avenue
New York, New York, 10174
Attn: Richard Goldberg, Esq.
Fax: (212) 891-9598
10.2 INDEMNIFICATION. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Transaction Documents, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel, excluding, however, any of the foregoing caused by any acts of willful
misconduct or gross negligence of Lender. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 11.2 may be
unenforceable because it violates any law or public policy, Borrower shall pay
the maximum portion which it is permitted to pay under applicable law to Lender
in satisfaction of indemnified matters under this Section 11.2. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
10.3 WAIVERS. Either party hereto may, at its option, by written notice
to the other, (a) extend the time for the performance of any of the obligations
or other actions of the other, (b) waive compliance with any of the terms,
conditions or covenants required to be complied with by the other hereunder; and
(c) waive or modify performance of any of the obligations of the other
hereunder. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
10.4 AMENDMENT. No change, amendment or modification of any provision
of this Agreement shall be valid unless set forth in a written instrument signed
by the party to be bound thereby.
22
<PAGE>
10.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. No provision
hereof may be amended or modified except in writing, executed by the party
against which enforcement of such modification or amendment is sought.
10.6 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective permitted
successors and assigns. Except as provided in the next sentence, nothing in this
Agreement, express or implied, is intended to confer on any Person other than
the parties hereto or their respective permitted successors and assigns, any
rights, remedies, obligations or liabilities. Notwithstanding the foregoing, the
Subordinated Creditor is an express third party beneficiary of the agreements
contained in Sections 7.3, 7.5, 7.6 and 10.7 hereof.
10.7 ASSIGNMENT. This Agreement is personal in nature and neither of
the parties hereto shall, without the written consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder except in the
case of a purchase of the Obligations pursuant to Section 7.5 which each of the
parties hereby consents to. In the event of merger, consolidation, transfer or
sale of all or substantially all of the assets of Borrower, the successor
corporation's continued performance of this Agreement shall not be deemed an
assignment in violation of this clause.
10.8 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.9 HEADINGS. Headings of the paragraphs in this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall be deemed to be one and the same instrument.
23
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
executed by their respective officers thereto duly authorized as of the day and
year first above written.
BLUEFLY, INC.
By____________________________,
ROSENTHAL & ROSENTHAL, INC.
By____________________________
Name:
Title:
24
<PAGE>
SCHEDULE 5.4
LOCATION OF INVENTORY
307 Hollie Drive
Martinsville, VA 24112
<PAGE>
SCHEDULE 6.4
OFFICE LOCATION
42 West 39th Street
New York, New York 10018