Exhibit 10.44
REVOLVING LINE OF CREDIT LOAN
AGREEMENT
AND SECURITY
AGREEMENT
THIS REVOLVING LINE
OF CREDIT LOAN AGREEMENT AND SECURITY AGREEMENT
(“Agreement”) is made as of March 8, 2007, by and
between Varsity Group Inc., a Delaware corporation, Campus
Outfitters Group, LLC, a Delaware limited liability company, and
VarsityBooks.com, LLC, a Delaware limited liability company, all
having an address at 1300 19 th
Street,
NW, Washington, D.C. 20036-5854; and Bank of America, N.A., a
national banking corporation, having an address at 1101 Wootton
Parkway, 4 th
Floor,
Rockville, Maryland 20852.
RECITALS
A. The Borrower has applied to the
Lender for a revolving line of credit loan facility in the maximum
principal amount of Five Million and 00/100 Dollars ($5,000,000.00)
to be used by the Borrower for working capital and issuance of
letters of credit.
B. The Lender is willing to make the
Revolving Loan on the terms and conditions hereinafter set
forth.
AGREEMENTS
NOW, THEREFORE, in consideration of
the premises, the mutual agreements herein contained, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
ARTICLE 1. DEFINITIONS.
1.1 Defined Terms . Certain
capitalized terms not otherwise defined herein are used in this
Agreement with the following meanings, unless the context otherwise
requires:
a. “ Account ”
means a right to payment of a monetary obligation, whether or not
earned by performance, (i) for property that has been or is to
be sold, leased, licensed, assigned, or otherwise disposed of,
(ii) for services rendered or to be rendered, (iii) for a
policy of insurance issued or to be issued, (iv) for a
secondary obligation incurred or to be incurred, (v) for
energy provided or to be provided, (iv) for use or hire of a
vessel under a charter or other contract, (v) arising out of
the use of a credit or charge card or information contained on or
for use with the card.
b. “ Adjusted Collateral
Value ” means, for each type of BOA Investments in the
BOA Collateral Accounts, the dollar value that results by
multiplying the Investment Collateral Value for each type of BOA
Investments in the BOA Collateral Accounts by the applicable Margin
Percentage for each such type of BOA Investments.
c. “ Advance ”
means an advance of funds under the Revolving Loan.
d. “ Affiliate ”
means, with respect to any specified Person, any other Person
which, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, such
specified Person. The term “control” means the
possession, directly or indirectly, of the power to direct or cause
the direction of management and policies of a Person, whether
through ownership of common stock, by contract, or
otherwise.
e. “ Aggregate Adjusted
Collateral Value ” means the aggregate of the Adjusted
Collateral Values for the BOA Investments in the BOA Collateral
Accounts.
f. “ Agreement ”
means this Revolving Line of Credit Loan Agreement and Security
Agreement, as the same may be amended, modified or supplemented
from time to time.
g. “ Allowed Amount of
Advances ” means the aggregate amount of all Advances of
principal under the Revolving Loan permitted to be outstanding at
any particular time under section 2.1 of this Agreement titled
“Allowed Amount of Advances.”
h. “ Apparel Inventory
” means that part of the Borrower’s Inventory which is
clothing for sale to the general public and which is not New
Textbook Inventory, Used Textbook Inventory or On Campus
Inventory.
i. “ Assignment ”
means a direct assignment of Payments under Government Contracts,
pursuant to and in compliance with the Assignment of Claims
Act.
j. “ Assignment of Claims
Act ” means Title 31, United States Code § 3727, and
Title 41, United States Code § 15, as revised or amended,
and any rules or regulations issued pursuant thereto, and also
shall be deemed to include any other laws, rules or regulations
governing the assignment of payments under Government Contracts or
claims against a Government.
k. “ BOA Collateral
Accounts ” means one or more restricted deposit or
investment accounts owned and established by Borrower with Lender
or Bank of America Securities, LLC, in which shall be deposited and
held the BOA Investments.
l. “ BOA Investments
” means the cash, instruments, securities and other
Investment Property now owned or hereafter acquired by Borrower
from time to time and to be held in the BOA Collateral
Accounts.
m. “ Borrower ”
means Varsity Group Inc., a Delaware corporation, Campus Outfitters
Group, LLC, a Delaware limited liability company, and
VarsityBooks.com, LLC, a Delaware limited liability company, and to
each such Person or to all of them, as the context may require, and
the representations and obligations hereunder of the Persons
comprised by the term “Borrower” shall be joint and
several. For purposes of testing compliance with the financial
covenants hereinafter, the negative covenants hereinafter, and the
unused fee provided
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hereinafter, financial information concerning
the Borrower shall mean financial information for Varsity Group
Inc., Campus Outfitters Group, LLC, and VarsityBooks.com, LLC,
stated on a consolidated basis.
n. “ Borrowing Base
” means:
1. Aggregate Adjusted Collateral
Value; plus
2. Fifty percent (50%) of
Borrower’s Eligible New Textbook Inventory; plus
3. Twenty-Five percent (25%) of
Borrower’s Eligible Used Textbook Inventory; plus
4. Fifty percent (50%) of
Borrower’s Eligible On Campus Inventory; plus
5. Fifty percent (50%) of
Borrower’s Eligible Apparel Inventory; plus
6. Eighty percent (80%) of
Borrower’s Eligible Commercial Accounts.
After calculating the portion of the
Borrowing Base comprised of (a) the Aggregate Adjusted
Collateral Value of the BOA Investments, (b) Eligible New
Textbook Inventory, (c) Eligible Used Textbook Inventory,
(d) Eligible On Campus Inventory, (e) Eligible Apparel
Inventory and (f) Eligible Commercial Accounts, Lender shall
deduct from such portion of the Borrowing Base such reserves as
Lender may establish from time to time in its reasonable credit
judgment, including without limitation, reserves for dilution, rent
at leased locations subject to statutory or contractual
landlord’s liens, Inventory shrinkage, customs charges,
warehousemen’s or bailees’ charges, and the amount of
estimated maximum exposure, as determined by Lender from time to
time, under any interest rate contracts which Borrower enters into
with Lender (including interest rate swaps, caps, floors, options
thereon, combinations thereof, or similar contracts).
In addition, Lender may require
modifications to the percentage rates of advance set forth above,
based on the results of any field examination or audit of Borrower,
as determined in Lender’s sole and absolute discretion. In
the absence of manifest error, Lender’s determination of the
amount of the Borrowing Base shall be conclusive.
o. “ Borrowing Base
Certificate ” means a certificate substantially in the
form of Schedule 1.1(A) attached hereto and made a part
hereof (or such subsequent form as the Lender shall
require).
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p. “ Borrowing Date
” means the date on which an Advance is made.
q. “ Business Day
” means any day that is not a Saturday, Sunday or banking
holiday in the State of Maryland.
r. “ Capital Lease
” means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.
s. “ Cash Collateral
Account ” means an account to be established by Lender in
Borrower’s name, with the Lender, upon the occurrence and
continuation of an Event of Default, for the purpose of receiving
Payments, which shall constitute part of the Collateral unless and
until disbursed to the Borrower or applied for the Borrower’s
account in accordance with this Agreement.
t. “ Closing Date
” means March 8, 2007.
u. “ Code ” means
the Internal Revenue Code of the United States, as
amended.
v. “ Collateral ”
means all of the following kinds of property now owned or hereafter
acquired by the Borrower:
1. Accounts;
2. Chattel paper;
3. Deposit accounts;.
4. Documents;
5. Equipment;
6. Fixtures;
7. General intangibles (including
payment intangibles and software);
8. Instruments;
9. Inventory;
10. Investment Property;
11. Intellectual
property;
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12. Money;
13. Supporting obligations
(including letter of credit rights);
14. All books and records and
computer hardware, software and systems;
15. All policies of insurance and
the proceeds thereof;
16. All additions and accessions to
and replacements of the collateral described above; and
17. All products and proceeds of all
of the collateral described above;
provided , however , that notwithstanding any of
the other provisions set forth in this definition or in Article 4
hereof, this Agreement shall not constitute a grant of a security
interest in (i) any property to the extent that such grant of
a security interest is prohibited by any requirements of law of a
Government, (ii) more than 65% of the total outstanding voting
capital stock of any foreign subsidiary of the Borrower, and
(iii) cash held by the Borrower or any of its subsidiaries in
connection with its role as a tuition payment and/or collection
agent, to the extent that Borrower has no existing or future
ownership interest in or entitlement to ownership in all or any
part of such cash, and is holding such cash only as an agent for
another Person. It is hereby understood and agreed that any
property described in the preceding provision shall be excluded
from the definition of “Collateral” and shall be
referred to as the “ Excluded Collateral
”.
w. “ Commercial
Accounts ” means all Accounts of Borrower due from
Customers other than the Government.
x. “ Compliance
Certificate ” means a certificate substantially in the
form of Schedule 1.1(B) attached hereto and made a part
hereof.
y. “ Consolidated Debt
” means with respect to Borrower and its subsidiaries on a
consolidated basis, without duplication, all of the following,
whether or not included as indebtedness or liabilities in
accordance with GAAP:
1. all indebtedness of Borrower and
its subsidiaries for borrowed money, whether current or long-term
(including all amounts owing with respect to the Revolving Loan)
and all obligations of Borrower and its subsidiaries evidenced by
bonds, debentures, notes, loan agreements or other similar
instruments;
2. all purchase money indebtedness
of Borrower and its subsidiaries;
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3. the principal portion of all
indebtedness under conditional sale or other title retention
agreements relating to property purchased by Borrower and its
subsidiaries (other than customary reservations or retentions of
title under agreements with suppliers entered into in the ordinary
course of business);
4. all obligations of Borrower and
its subsidiaries arising under letters of credit (including standby
and commercial), bankers’ acceptances, bank guaranties,
surety bonds and similar instruments;
5. all indebtedness of Borrower and
its subsidiaries in respect of the deferred purchase price of
property or services, other than trade accounts payable in the
ordinary course of business and, in each case, not past due for
more than 120 days after the date on which such trade account
payable was created, and;
6. any indebtedness of Borrower and
its subsidiaries under Capital Leases, sale and leaseback
transactions, synthetic leases and securitization
transactions;
7. all obligations of Borrower and
its subsidiaries to purchase, redeem, retire, defease or otherwise
make any payment prior to the Ending Date in respect of any equity
or ownership interests in such Person or any other Person, valued,
in the case of a redeemable preferred interest, at the greater of
its voluntary or involuntary liquidation value plus accrued and
unpaid dividends;
8. all Consolidated Debt of others
secured by (or for which the holder of such Consolidated Debt has
an existing right, contingent or otherwise, to be secured by) any
Encumbrance on, or payable out of the proceeds of production from,
property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed;
9. all guarantees with respect to
Consolidated Debt of the types specified in clauses
(1) through (8) above of another Person (other than
Borrower and its subsidiaries); and
For purposes hereof, the amount of
any obligation arising under letters of credit (including standby
and commercial), bankers’ acceptances, bank guaranties,
surety bonds and similar instruments shall be the maximum amount
available to be drawn thereunder.
z. “ Contra Account
” means an Account due from an account debtor to which the
Borrower owes money.
aa. “ Customer ”
means any governmental entity (federal, state, county, municipal or
otherwise) or business entity (corporation, association,
partnership, limited liability company or partnership, sole
proprietorship or otherwise) or individual to which Borrower
provides goods or services for compensation.
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bb. “ Eligible ,”
when used to describe an Account, means that the Account conforms
to the following criteria:
1. the Account has been
Billed;
2. in the case of a Commercial
Account or Government Account, less than ninety-one (91) days
have passed from the original billing date;
3. at the Lender’s option, in
the case of a Government Account, the Borrower has made an
Assignment of all Payments due or to become due under the
Government Contract giving rise to the Account;
4. the Account arose from a bona
fide sale of goods or services to a Customer; the goods or
services have been delivered or provided to the Customer; the
Borrower possesses receipts from the Customer acknowledging
delivery of the goods or performance of the services; and Customer
has not returned or rejected the goods or services;
5. the Account is based upon an
enforceable written order or contract for goods or
services;
6. the Borrower’s title to the
Account is absolute and is not subject to any prior assignment,
claim, escrow agreement or amendment; lien or security interest,
and the Borrower otherwise has the full and unqualified right and
power to assign and grant a security interest in the Account to the
Lender;
7. the amount shown on the books of
the Borrower and on any invoice, certificate, schedule or statement
delivered to the Lender regarding the amount due on the Account is
due and owing to the Borrower;
8. the Account is not subject to any
claim of reduction, counterclaim, set-off, recoupment or other
defense in law or equity, or any claim for credits, allowances or
adjustments by the Customer because of returned, inferior or
damaged goods, unsatisfactory services or for any other reason, or
any claim by a Customer against a warranty provided by Borrower for
an Account arising from the sale of goods or services to a
Customer;
9. the Customer has not notified the
Borrower of any dispute concerning any of the goods or services
giving rise to the Account, nor made claim that the goods or
services fail to conform to the requirements of the
Customer’s order or contract, nor notified the Borrower to
cure any default under the Customer’s order or
contract;
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10. the Account does not arise out
of a Customer’s contract or order that by its terms forbids
or makes void or unenforceable the Borrower’s assignment of
the Account to the Lender;
11. the Borrower has not received
any note, trade acceptance draft or other instrument tendered in
payment of the Account;
12. the Borrower has not received
any notice of the death of the Customer or any partner in a
Customer that is a partnership (where the death of such partner
would result in dissolution or termination of such Customer); nor
has Borrower received any notice of dissolution, termination of
existence, insolvency, business failure, appointment of a receiver
for any part of the property of, assignment for the benefit of
creditors by, or the filing of a petition in bankruptcy or the
commencement of any proceeding under any bankruptcy or insolvency
laws by or against the Customer;
13. the Customer is not incorporated
in any jurisdiction outside the United States and is not conducting
its business primarily outside the United States;
14. Borrower is not indebted in any
manner to the Customer;
15. no bond has been issued or is
contemplated with respect to the goods or services furnished by the
Borrower or with respect to the project or contract for which those
goods or services were furnished, unless otherwise agreed to in
advance, in writing by Lender, as determined by Lender in its sole
and absolute discretion; and
16. the Account is not an Ineligible
Account; and
when used to describe Inventory,
shall mean the cost of the Borrower’s Inventory, less such
part of the Inventory that the Lender determines to be ineligible,
and less a reserve for obsolescence to be determined by the Lender.
Ineligible Inventory shall include, but shall not be limited to,
work-in-process, Inventory on consignment and any other Inventory
that the Lender believes should not be considered eligible, either
because of doubtful value or because the Lender believes there
would be practical difficulties in realizing on the
Inventory.
In the event of any dispute, under
the foregoing criteria, as to whether an Account or Inventory is,
or has ceased to be, an Eligible Account or Eligible Inventory, the
Lender’s decision shall control.
cc. “ Encumbrance
” means any mortgage, pledge, deed of trust, collateral
assignment, security interest, hypothecation, lien or charge of any
kind (including any conditional sale or other title retention
agreement, any Capital Lease having substantially the same economic
effect
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as any of the foregoing, and the filing of, or
agreement or authorization to give or file, any financing statement
under the Uniform Commercial Code or comparable law of any
jurisdiction). It is understood and agreed by the parties hereto
that the Borrower and its subsidiaries may, as part of their
businesses, grant licenses to Persons to use Intellectual Property
owned or developed by, or licensed to, the Borrower or its
subsidiaries. For purposes of this Agreement, such licensing
activity shall not constitute an “Encumbrance” under
this Agreement against such Intellectual Property.
dd. “ Ending Date
” means April 30, 2008.
ee. “ Environmental
Laws ” mean all laws relating to Hazardous Wastes, Toxic
Substances or materials that might be emitted, released or
discharged into the environment or other laws or regulations
protecting the environment.
ff. “ ERISA ”
means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, as interpreted by the
rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be
construed also to refer to any successor sections.
gg. “ ERISA Affiliate
” means an entity, whether or not incorporated, which is
under common control with the Borrower or any of its subsidiaries
within the meaning of Section 4001(a)(14) of ERISA, or is a
member of a group which includes the Borrower or any of its
subsidiaries and which is treated as a single employer under
Sections 414(b), (c), (m), or (o) of the Code.
hh. “ Event of Default
” means any one of the events specified as an “Event of
Default” under this Agreement.
ii. “ GAAP ”
means generally accepted accounting principles in the United States
of America, consistently applied.
jj. “ GAAS ”
means generally accepted auditing standards in the United States of
America.
kk. “ Governance
Documents ” means the Borrower’s Articles or
Certificate of Incorporation and Bylaws or other documents or
agreements affecting the Borrower’s corporate governance if
Borrower is a corporation, or the Borrower’s Articles of
Organization and Operating Agreement or other documents or
agreements affecting the Borrower’s limited liability company
governance if Borrower is a limited liability company.
ll. “ Government
” means the government of the United States of America or the
departments or agencies of the United States, but does not include
the government of any state or the District of Columbia or any
departments or agencies of any state or of the District of
Columbia.
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mm. “ Government
Accounts ” means all Accounts of Borrower arising out of
any Government Contract.
nn. “ Government
Contracts ” means all contracts of Borrower with a
Government, including all renewals, extensions, modifications,
change orders and amendments thereof and thereto.
oo. “ Hazardous Wastes
” mean all waste materials subject to regulation under the
Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. §§ 9601 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. §§ 6901 et seq., or
applicable state law and any other applicable federal, state or
local laws and their regulations now in force or hereafter enacted
relating to hazardous wastes.
pp. Ineligible Accounts
” shall include the following Accounts:
1. Accounts that do not conform with
the criteria set forth for Eligible Accounts;
2. An Account owing by any account
debtor for which the Lender has deemed fifty percent (50%) or
more of the account debtor’s other Accounts to be
non-Eligible; however, for purposes of this category of Ineligible
Accounts, each Government Contract shall be treated as an
individual Customer;
3. Government Accounts arising under
Government Contracts which contain an express prohibition against
assignment of the Borrower’s rights to Payment;
4. The last payment due on a
Government Account, unless such Government Account arises from a
Government Contract which is a “fixed price contract”
(as defined in the Federal Acquisition Regulations) which does not
include any provision for progress payments, incentive arrangements
or price redetermination;
5. Contra Accounts;
6. Any Accounts owing by Customers
purchasing goods or services from the Borrower for such
Customer’s personal, family or household use, or otherwise
constituting an Account arising from the sale of Consumer Goods (as
such term is defined in the UCC); or Accounts constituting credit
card purchases or which otherwise arise from obligations of
individuals to pay for such goods or services;
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7. Accounts receivable from
Affiliates or subsidiaries of the Borrower;
8. Unbilled Accounts, including, but
not limited to, progress payments, retainages, milestones and final
payments; or
9. Any Account deemed by the Lender,
in the exercise of its sole and absolute discretion, to be an
Ineligible Account because of uncertainty as to the
creditworthiness of the Customer or because the Lender otherwise
considers the collateral value thereof to the Lender to be impaired
or its ability to realize such value to be insecure.
qq. Initial TNW Amount -
means the Tangible Net Worth of Borrower as of December 31,
2006, as set forth in the PWC Audit, less Five Hundred Thousand and
00/100 Dollars ($500,000.00).
rr. “ Intellectual
Property ” shall mean all patents, licenses, trade names,
trademarks, copyrights, inventions, service marks, trademark
registrations, service mark registrations and copyright
registrations, whether domestic or foreign and applications for any
of the foregoing, and all proprietary technology, know-how, trade
secrets or other intellectual property rights owned or used by the
Borrower or any subsidiary in the operation of their respective
businesses.
ss. “ Inventory ”
means the New Textbook Inventory, Used Textbook Inventory, On
Campus Inventory, Apparel Inventory and all other inventory of
Borrower, as such term is defined in the UCC.
tt. “ Investment Collateral
Value ” means the value for each type of BOA Investments
in the BOA Collateral Accounts which shall be determined at any
given time as follows:
1. If checking, savings, money
market or other deposit accounts, the Investment Collateral Value
shall be the daily balance on deposit with respect to each of such
accounts as reported by Lender or stated in a statement or
certificate issued by Lender for the day on which such valuation is
requested.
2. If stock, the Investment
Collateral Value shall be determined by multiplying (i) the
per share price of such stock at the most recent close of trading
on a trading exchange for such stock, times (ii) the number of
shares of such stock held by Lender as Collateral. In the event
that stock held as Collateral is not traded on an exchange, the
Investment Collateral Value of such stock shall be determined by
obtaining the quoted value of such stock from a reputable brokerage
firm selected by Lender. If no such quote is available, the value
will be determined by Lender in its sole discretion.
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3. If a mutual fund, the Investment
Collateral Value shall be determined by multiplying (i) the
most recent per share net asset value of such mutual fund obtained
from the Wall Street Journal, times (ii) the number of shares
of such mutual fund held by Lender as Collateral. In the event that
such net asset value is not available in the Wall Street Journal,
the Investment Collateral Value shall be the value quoted to Lender
by a reputable brokerage firm selected by Lender. If no such quote
is available, the value will be determined by Lender in its sole
discretion.
4. If corporate bonds, the
Investment Collateral Value shall be determined from the most
recent closing price for such bonds obtained from the Wall Street
Journal. If such closing price is not available in the Wall Street
Journal, the Investment Collateral Value shall be the value quoted
to Lender by a reputable brokerage firm selected by Lender. If no
such quote is available, the value will be determined by Lender in
its sole discretion.
5. If government or agency
obligations or bonds, the Investment Collateral Value shall be
determined from the most recent closing bid price for such bonds
obtained from the Wall Street Journal. If such closing bid price is
not available in the Wall Street Journal, the Investment Collateral
Value shall be the value quoted to Lender by a reputable brokerage
firm selected by Lender. If no such quote is available, the value
will be determined by Lender in its sole discretion.
6. If other than stock, mutual
funds, corporate bonds, or government agency obligations or bonds
or for which no quote is available from a reputable brokerage firm,
the Investment Collateral Value shall be determined by the Lender
in its sole discretion.
Notwithstanding the definition of
“Investment Collateral Value” set forth above, in the
event that the per share price of any Collateral that is stock, at
the most recent close of trading on a trading exchange for such
stock, is $10.00 or less, or if the stock has been issued and
outstanding for less than six months since the initial public
offering for such stock, the Investment Collateral Value of such
stock shall conclusively be deemed to be $0 for purposes of this
Agreement. In the event that such stock is not traded on an
exchange, the per share price of such stock shall be determined by
obtaining the quoted value of such stock from a reputable brokerage
firm selected by Lender. If no such quote is available, the value
will be determined by Lender in its sole discretion. The foregoing
reduction in Investment Collateral Value shall not affect the
Lender’s continuing lien and security interest in such
Collateral established by the Loan Documents.
In addition, notwithstanding the
foregoing, the Investment Property and any amounts held by Lender
Bank of America Securities, LLC or the Affiliates of either (on
deposit or otherwise) and comprising Collateral shall be deemed to
not have any Investment Collateral Value hereunder unless it is
subject to a perfected first priority security interest in favor of
Lender.
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Furthermore, to the extent that Borrower has not
(i) delivered any Collateral consisting of certificated
securities or instruments into the possession of Lender,
(ii) obtained the written agreement of any bailee or
securities intermediary in form and substance satisfactory to
Lender with respect to any Collateral, or (iii) taken any
other action required by Lender with respect to the Collateral,
Lender, in its sole discretion, may exclude from the calculations
of this Agreement, the Investment Collateral Value of any such
Collateral until Borrower has complied with such requirement to the
sole satisfaction of Lender.
uu. “ Investment
Property ” means a security, whether certificated or
uncertificated, security entitlement, securities account, commodity
contract, or commodity account, and as such term is further defined
under the UCC.
vv. “ Item ”
means any “item” as defined in Section 4-104 of
the Uniform Commercial Code, to include, without exclusion or
limitation, checks, drafts, money orders or other media by which
Payment may be made.
ww. “ Lender ”
means Bank of America, N.A., and its successors and
assigns.
xx. “ Letter of Credit
” means a letter of credit issued by the Lender for the
account of the Borrower under this Agreement.
yy. “ Letter of Credit
Agreement ” means the Application and Agreement for
Standby Letter of Credit form or Lender’s other standard form
of application and reimbursement agreement in effect from time to
time that Lender requires as a condition for each letter of credit
that Lender issues to one of its Customers.
zz. “ Letter of Credit
Sublimit ” means One Million and 00/100 Dollars
($1,000,000.00).
aaa. “ Loan ”
means the Revolving Loan.
bbb. “ Loan Documents
” mean this Agreement, the Revolving Note or any other
document executed by the Borrower or any other Person evidencing,
securing, guaranteeing or relating to the Revolving Loan, as such
documents or instruments may be amended, modified or extended from
time to time.
ccc. “ LOC Obligations
” means, at any time, the sum of (i) the maximum amount
which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance
with all requirements for drawings referred to in such Letters of
Credit; plus (ii) the aggregate amount of all drawings under
Letters of Credit honored by Lender but not reimbursed.
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ddd. “ Margin
Percentages ” means the percentages applicable to the
various types of BOA Investments in the BOA Collateral Accounts, as
follows:
1. Bank of America Money Market
Accounts/Certificates of Deposit/Savings/Checkings -
100%;
2. Bank of America Corporate Stock -
70%;
3. Securities rated by
Standard & Poor as A+ or A - 70%;
4. Securities rated by
Standard & Poor as B+ - 65%;
5. Securities rated by
Standard & Poor as B - 60%;
6. Money Market Mutual Funds quoted
in Wall Street Journal or Baron’s - 95%;
7. US Government Obligations quoted
in Wall Street Journal or Baron’s - 90%;
8. Corporate/Municipal Bonds quoted
in Wall Street Journal or Baron’s - 80%;
9. Equities (excluding international
funds and equities that are restricted or controlled stock) quoted
in Wall Street Journal or Baron’s - 70%;
10. U.S. Corporate Bonds (BAA or
higher) and State/Municipal Bonds (A or higher) - 80%;
11. Government issued or Government
guaranteed instruments - 90%;
12. U.S. Government or U.S. Agencies
Securities - 80%;
13. Bankers Acceptances -
90%;
14. Commercial Paper - A1/P1 - 90%;
and
15. Commercial Paper - A2/P2 -
85%.
eee. “ Material Adverse
Effect ” means any event, circumstance or condition that
would have a material adverse impact or effect on (1) the
business, operations, prospects, properties, or condition of the
Borrower (financial or otherwise), or (2) the Borrower’s
ability to duly and punctually pay or perform its obligations under
this Agreement or any of the other Loan Documents, the materiality
of such change to be determined by Lender in its reasonable
discretion.
fff. “ Maximum Revolving
Loan Commitment Amount ” means Five Million and 00/100
Dollars ($5,000,000.00), or such lesser amount that Borrower may
request as set forth in this Agreement.
ggg. “ Multiemployer
Plan ” means a Plan which is a multiemployer plan as
defined in Sections 3(37) or 4001(a)(3) of ERISA.
hhh. “ Multiple Employer
Plan ” means a Plan which the Borrower or any of its
subsidiaries or any ERISA Affiliate and at least one employer other
than the Borrower or any of its subsidiaries or any ERISA Affiliate
are contributing sponsors.
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iii. “ New Textbook
Inventory ” means that part of the Borrower’s
Inventory which is textbooks available for sale to the general
public that is comprised of new textbooks and is not Used Textbook
Inventory, On Campus Inventory or Apparel Inventory.
jjj. “ On Campus
Inventory ” means that part of the Borrower’s
Inventory which is for sale to the student population at colleges
and universities in the United States of America which is not New
Textbook Inventory, Used Textbook Inventory or Apparel
Inventory.
kkk. “ Operating
Account ” means a demand deposit account to be
established by the Borrower with the Lender for the
Borrower’s use in connection with its business operations and
with the Revolving Loan.
lll. “ Payment ”
or “ Payments ” means any check, draft, cash or
any other remittance or credit in payment or on account of any or
all of the Accounts of Borrower.
mmm. “ PBGC ”
means the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA and any successor
thereto.
nnn. “ Person ”
means any individual, partnership, association, trust, corporation,
limited liability company or partnership, or other
entity.
ooo. “ Plan ”
means any employee benefit plan (as defined in Section 3(3) of
ERISA) which is covered by ERISA and with respect to which the
Borrower or any of its subsidiaries or any ERISA Affiliate is (or,
if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an
“employer” within the meaning of Section 3(5) of
ERISA.
ppp. “ PWC Audit
” means that certain financial audit of the consolidated
financial statements of Varsity Group Inc. and its subsidiaries for
the year ending December 31, 2006, performed by
PricewaterhouseCoopers LLP and reflecting the consolidated
financial condition of Varsity Group Inc. and its subsidiaries, in
accordance with GAAP, such audit to have been performed in
accordance with GAAS.
qqq. “ Reportable Event
” means a “reportable event” as defined in
Section 4043 of ERISA with respect to which the notice
requirements to the PBGC have not been waived.
rrr. “ Revolving Loan
” means the Revolving Loan facility and any Advances made
available thereunder by Lender to Borrower pursuant to this
Agreement in the maximum principal amount of Five Million and
00/100 Dollars ($5,000,000.00), evidenced by the Revolving
Note.
sss. “ Revolving Note
” means the Borrower’s promissory note, of even date,
in the amount of Five Million and 00/100 Dollars ($5,000,000.00),
payable to the order of the Lender, and evidencing Borrower’s
obligation to repay the Revolving Loan.
15
ttt. “ Single Employer
Plan ” means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
uuu. “ Tangible Net
Worth ” means the value of Borrower’s total assets
(including leaseholds and leasehold improvements and reserves
against assets, but excluding goodwill, patents, trademarks, trade
names, organization expense, unamortized debt discount and expense,
capitalized or deferred research and development costs, deferred
marketing expenses, and other like intangibles, and monies due from
Affiliates, officers, directors, employees, shareholders, members
and managers of Borrower) less total liabilities, including but not
limited to accrued and deferred income taxes.
vvv. “ Termination
Event ” means (i) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA);
(ii) the withdrawal of the Borrower or any of its subsidiaries
or any ERISA Affiliate from a Multiple Employer Plan during a plan
year in which it was a substantial employer (as such term is
defined in Section 4001(a)(2) of ERISA), or the termination of
a Multiple Employer Plan; (iii) the distribution of a notice
of intent to terminate or the actual termination of a Plan pursuant
to Section 4041(a)(2) or 4041A of ERISA; (iv) the
institution of proceedings to terminate or the actual termination
of a Plan by the PBGC under Section 4042 of ERISA;
(v) any event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan; (vi) the
complete or partial withdrawal of the Borrower or any of its
subsidiaries or any ERISA Affiliate from a Multiemployer
Plan.
www. “ Toxic Substances
” mean any materials which have been shown to have
significant adverse effects on human health or which are subject to
regulation under the Toxic Substances Control Act, 15 U.S.C.
§§ 2601 et seq., applicable state law, or any other
applicable federal, state or local laws now in force or hereafter
enacted relating to toxic substances. “Toxic
Substances” includes, but is not limited to, asbestos,
polychlorinated biphenyls (PCBs), petroleum products, and
lead-based paints.
xxx. “ UCC ”
means the Uniform Commercial Code in the state(s) as set forth in
Section 1.4 of this Agreement.
yyy. “ Used Textbook
Inventory ” means that part of the Borrower’s
Inventory which is textbooks, which is available for sale to the
general public in the ordinary course of Borrower’s business,
and that is not New Textbook Inventory, On Campus Inventory or
Apparel Inventory.
1.2 Accounting Terms .
Accounting terms used in this Agreement but not defined in this
Agreement shall have the meanings given to them in accordance with
GAAP in effect as of the date of this Agreement and as modified
from time to time. Except as otherwise provided in
16
this Agreement, all financial computations made
pursuant to this Agreement and all financial reports provided to
the Lender shall be made in accordance with GAAP, consistently
applied. Except as otherwise provided in this Agreement, whenever
this Agreement refers to a balance sheet, financial statement or
the information contained in a balance sheet or other financial
statement, the Agreement shall be construed to refer to the most
recent consolidated balance sheet or other financial statement that
Borrower has provided to the Lender.
1.3 Use of Defined Terms .
All terms defined in this Agreement shall have the same defined
meanings when used in any certificate, report or other document
made or delivered in connection with this Agreement, unless
otherwise set forth therein.
1.4 UCC Terms . Terms that
incorporate definitions provided in the Uniform Commercial Code
shall have such meanings as are mandated by the Uniform Commercial
Code of the state or states applicable for the determination of
such meanings. Terms not otherwise defined herein and not
incorporating a definition under the Uniform Commercial Code of any
particular state, but which are defined in the Uniform Commercial
Code as adopted by the State of Maryland, shall have the meanings
ascribed to them under the Uniform Commercial Code as adopted by
the State of Maryland.
ARTICLE 2. LOAN.
2.1 Revolving Line of Credit
. The Lender agrees to extend the Revolving Loan to Borrower,
subject to the terms and conditions of this Agreement. Until the
Ending Date, Borrower may borrow, repay and reborrow Advances in
accordance with this Agreement.
a. Allowed Amount of Advances
. The aggregate principal amount of Advances outstanding at any
time under the Revolving Note shall not exceed the lesser
of:
1. the difference between
(i) the Maximum Revolving Loan Commitment Amount and
(ii) the LOC Obligations; or
2. the difference between
(i) the Borrowing Base and (ii) the LOC Obligations;
provided however, as follows:
Notwithstanding anything in this
Agreement to the contrary, Lender, in its sole and absolute
discretion, may reserve against the amount available for Advances
under the Revolving Note, thereby limiting the amount that the
Borrower may be advanced under the Revolving Note, should Lender
determine that such action is necessary or prudent to permit Lender
to be repaid all Advances made to Borrower.
b. Mandatory Prepayments . If
the principal outstanding under the Revolving Loan, at any time
exceeds the Allowed Amount of Advances, then Borrower shall make an
immediate payment of principal under the Revolving Loan in an
amount sufficient that the principal outstanding under the
Revolving Loan will no longer exceed the Allowed Amount of
Advances.
17
c. Procedure for Advances .
Borrower may request Advances by telephone through its employees or
agents, as hereinafter provided. Each Advance request must be
received by Lender not later than 1:00 p.m. (Eastern Standard time)
on the date the Advance is to be made and must specify the amount
of the Advance. Lender shall deposit the Advance into
Borrower’s Operating Account if Borrower is entitled to the
Advance, subject to the terms and conditions of this Agreement. If
Borrower has entered into a separate auto borrow or similar cash
management service with Lender, then the provisions of such service
shall control with respect to the procedures for making Advances to
Borrower.
d. Repayment of Revolving Loan;
Auto Debit . Borrower promises to repay the Revolving Loan,
with interest, at the time and in the manner and in accordance with
the terms provided in the Revolving Note. Borrower has elected to
authorize Lender to effect payment of sums due under the Revolving
Note and this Agreement by means of debiting Borrower’s
account with Lender, account number 4112807553. This authorization
shall not affect the obligation of Borrower to pay such sums when
due, without notice, if there are insufficient funds in such
account to make payment in full on the due date thereof, or if
Lender fails to debit the account.
e. Letter of Credit
Subfacility . At Lender’s discretion, Lender shall issue
Letters of Credit for the account of the Borrower from time to time
upon request from the Closing Date until the Ending Date, subject
to the following terms and conditions:
1. the aggregate amount of LOC
Obligations shall at no time exceed the Letter of Credit
Sublimit;
2. any request for a Letter of
Credit to be issued must be delivered and received by Lender not
later than five (5) business days prior to the date that
Borrower wishes to have the Letter of Credit issued;
3. no Letter of Credit shall have an
original expiry date more than one year from the date of issuance
or beyond the Ending Date unless otherwise agreed to by Lender in
writing or unless Borrower’s obligation to reimburse Lender
for drawings under the Letter of Credit has been fully secured by a
cash deposit with the Lender;
4. Borrower shall execute and
deliver to Lender a Letter of Credit Agreement with respect to each
Letter of Credit to be issued by Lender, using the Lender’s
standard reimbursement agreement form at the time the Letter of
Credit is issued. The form and substance of each Letter of Credit,
and any reimbursement agreement required by Lender in relation to a
Letter of Credit, must be satisfactory to the Lender, in its sole
judgment;
18
5. issuance of the Letter of Credit
shall not cause the aggregate outstanding principal amount of all
Advances to exceed the Allowed Amount of Advances, determined
taking into account the increase in the amount of the LOC
Obligations caused by the issuance of the Letter of
Credit;
6. Lender shall not be required to
issue any Letter of Credit if any circumstance exists that would
entitle Lender not to honor a request for an Advance under the
Revolving Loan;
7. upon notice from Lender of any
drawing under any Letter of Credit, Borrower shall, as to be
determined in Lender’s sole and absolute discretion, either
(a) deliver cash to Lender, in an amount satisfactory to
secure all LOC Obligations and all amounts payable by the Borrower
to the Lender under any Letter of Credit Agreement pertaining to
such LOC Obligations, or (b) immediately reimburse Lender for
the amount of the drawing, plus interest from the date of the
drawing at the highest rate of interest then in effect under the
Revolving Note. The Borrower’s obligation to reimburse the
Lender for any drawing under a Letter of Credit shall be absolute
and unconditional, irrespective of any rights of set-off,
counterclaim or defense to payment the Borrower may claim or have
against the Lender, the beneficiary of the Letter of Credit or any
other Person;
8. unless the Borrower makes
reimbursement from another source on the day of the drawing under
any Letter of Credit, the Borrower shall be deemed to have
requested an Advance under the Revolving Loan in the amount of the
drawing, and (i) Lender, at its option, may make such an
Advance (irrespective of whether Borrower would then be entitled to
an Advance under the terms of this Agreement) and apply the
proceeds of the Advance to satisfy the Borrower’s obligation
to reimburse Lender for the amount drawn on the Letter of Credit;
and (ii) any such Advance shall be repayable, with interest,
in accordance with the terms and conditions of the Revolving Note;
and
9. the provisions of the Letter of
Credit Agreement pertaining to each Letter of Credit are deemed
incorporated into this Agreement by this reference and shall be
binding upon the Lender and Borrower as if fully set forth herein.
If a conflict exists between the terms of the Letter of Credit
Agreement and any other Loan Document, the terms of the Letter of
Credit Agreement shall control with respect to the Letter of Credit
issued pursuant to that Letter of Credit Agreement but not as to
other matters governed by this Agreement or such Loan
Document.
f. Use of Revolving Loan
Proceeds . The proceeds of the Revolving Loan shall be used for
working capital and to finance the issuance of Letters of Credit,
and for no other purposes.
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g. Revolving Loan Fees .
Borrower promises to pay Lender the following fees in consideration
of entering into this Agreement. These fees are in addition to
interest payable under the Revolving Note:
1. an up front fee of $12,500.00,
payable on the Closing Date;
2. an unused fee for each day that
any part of the Maximum Revolving Loan Commitment Amount is unused.
The unused fee shall be calculated and payable monthly, in arrears,
commencing on the first day of the first month after the date of
this Agreement. The unused fee shall be determined for each day by
multiplying the part of the Maximum Revolving Loan Commitment
Amount that is unused on that day by a per-diem rate equal to 0.25,
divided by 360;
3. an annual fee of 1.75% of the
face amount of any Letter of Credit issued by Lender under this
Agreement, such fee being initially payable at the time of issuance
of a Letter of Credit and then being payable on each anniversary
date of such issuance date while the Letter of Credit remains
outstanding. Borrower shall also pay, at the time of issuance of a
Letter of Credit, Lender’s standard costs for issuance of a
Letter of Credit, in the amount then being charged by Lender at the
time of issuance of such Letter of Credit; and
4. the fees and costs associated for
up to two field examinations performed by the Lender or its agents
per calendar year. However, the Lender shall have the right to
perform such additional field examinations at any time, in its sole
discretion. Each additional field examination will be at
Lender’s own expense if no Event of Default has occurred and
remains uncured at the time of the additional field examination,
but shall be at the Borrower’s expense if an Event of Default
has occurred and remains uncured at the time of the additional
field examination.
ARTICLE 3. CONDITIONS PRECEDENT TO
LOAN.
3.1 Conditions Precedent to
Initial Advance . The Lender shall be under no obligation to
make the first Advance under this Agreement until, in the
Lender’s sole judgment, all of the following conditions are
satisfied or waived in writing:
a. Representations and
Warranties; Compliance . All representations and warranties
made by Borrower in or in connection with this Agreement or any of
the other Loan Documents or otherwise made in writing in connection
with this Agreement shall be true and correct in all material
respects on the Closing Date, and the Borrower shall have performed
all of the promises or undertakings under this Agreement and
satisfied all of the conditions of this Agreement that the Borrower
was required to perform or to satisfy as of the Closing
Date.
b. Documents Concerning the
Borrower . If Borrower is a corporation, Borrower shall deliver
to the Lender copies of all documents requested by the Lender,
including a
20
complete, correct and current copy of the
Borrower’s Articles of Incorporation, certified by the
Secretary of State of the Borrower’s state of incorporation;
a complete, correct and current copy of its Bylaws, certified by
Borrower’s corporate secretary; a complete, correct and
current copy of all resolutions of Borrower’s Board of
Directors authorizing the execution, delivery and performance of
this Agreement and of the other Loan Documents, certified by
Borrower’s corporate secretary; and appropriate certificates
of incumbency for those officers of Borrower executing this
Agreement or any of the other Loan Documents, certified by
Borrower’s corporate secretary and president. If Borrower is
a limited liability company, Borrower shall deliver to the Lender
copies of all documents requested by the Lender, including a
complete, correct and current copy of the Borrower’s Articles
of Organization, certified by the Secretary of State of the
Borrower’s state of formation/organization; a complete,
correct and current copy of its Operating Agreement, certified by
Borrower’s manager or managing member; a complete, correct
and current copy of all resolutions of Borrower’s members and
managers authorizing the execution, delivery and performance of
this Agreement and of the other Loan Documents, certified by
Borrower’s manager or managing member. In addition, the
following documents and materials shall have been delivered to the
Lender, and must be satisfactory to the Lender in form and
substance:
1. all supporting documentation with
regard to the Borrower and the Revolving Loan as the Lender may
require;
2. Borrower’s projected income
statements for the fiscal year 2007;
3. such additional information,
opinions, certificates, reports and documents relating to the
Borrower or the Collateral as the Lender may deem necessary;
and
4. such lien releases or termination
statements as Lender may deem necessary to remove any Encumbrances
on the Collateral.
c. Executed Notes and Loan
Documents . Borrower shall deliver to the Lender, fully
executed: this Agreement, the Revolving Note, UCC-1 Financing
Statements and such other documents, instruments and certificates
as the Lender may reasonably require, in form and substance
satisfactory to the Lender. All taxes, fees and charges with
respect to the preparation, filing and recording of the Loan
Documents shall have been paid by Borrower.
d. Landlord and Mortgagee
Waivers . Borrower shall have used its best efforts to obtain
and deliver to Lender as soon as possible, such landlord and
mortgagee waivers as Lender shall request with respect to any of
the Borrower’s landlords or mortgagees which could claim an
interest in any Collateral as a remedy for a default under any
lease, mortgage or deed of trust; provided however, that in any
event, each such landlord and mortgagee for which a waiver has been
required by Lender (the required waivers being from landlords of
the real property leased by Borrower and having the following
addresses: (1) 8284 Center Run Drive, Suite B,
Indianapolis,
21
Indiana, and (2) 5107-A, 5107-D, 5112 and
5127 Berwyn Road, College Park, Maryland), shall have executed and
delivered to Lender waivers in form and substance satisfactory to
Lender by no later than ninety (90) days from the Closing
Date.
e. Warehouseman and Bailee
Waivers . Borrower shall use its best efforts to obtain and
deliver to Lender as soon as possible, such warehouseman and bailee
waivers as Lender shall request, in form and substance satisfactory
to Lender, with respect to any bailees, warehouse operators or
other Persons which could claim an interest in any Collateral as a
remedy for a default under any lease, fulfillment arrangement or
storage agreement or other agreement, or as a result of maintaining
possession of any property of Borrower; provided however, that in
any event, each such bailee, warehouse operator or other Person for
which a waiver has been required by Lender (the required waivers
being from the warehousemen holding Borrower’s property at
1160 Trademark Drive, Reno, Nevada), shall have executed and
delivered to Lender waivers in form and substance satisfactory to
Lender by no later than ninety (90) days from the Closing
Date.
f. Financing Statements and
Control Agreements . All financing statements and control
agreements deemed necessary by the Lender to perfect its security
interest in the Collateral or any other collateral or property
securing the Loan.
g. Legal Opinion . Borrower
shall deliver to the Lender a written opinion or opinions of legal
counsel for Borrower dated the Closing Date and addressed to the
Lender, which opinions must be in form and content satisfactory to
the Lender. Without limiting the generality of the foregoing, the
opinion or opinions must address the Borrower’s organization,
existence, power, good standing and authority and as to the
validity, binding effect and enforceability of the Loan Documents,
including the existence, validity, enforceability, attachment,
perfection, and binding effect of any security interest, lien or
assignment being granted by Borrower or any guarantor or other
Person providing Collateral to Lender with respect to the
Collateral.
h. Operating Account . The
Borrower shall establish and maintain at all times its primary
Operating Account with the Lender.
i. Compliance with Covenants
. Borrower shall establish to Lender’s satisfaction that,
immediately after giving effect to the proposed Advance, Borrower
would be in compliance with Borrower’s financial covenants in
section 6.14 of this Agreement.
j. Borrowing Base Certificate
. Borrower shall deliver to the Lender a Borrowing Base Certificate
dated as of December 31, 2006 with supporting schedules
attached thereto, including without limitation, current accounts
receivable and accounts payable reports.
22
3.2 Future Advances . The
obligation of the Lender to make any Advance under the Revolving
Loan subsequent to the Closing Date is further conditional
on:
a. Conditions of First Advance
Remain Satisfied . The Lender shall have determined, in its
sole judgment, that the conditions precedent to the first Advance
are satisfied as of the Borrowing Date for the subsequent Advance;
the Loan Documents shall remain in full force and effect; and
neither the Borrower nor any Person providing Collateral or a
guaranty shall have purported to terminate any of the Loan
Documents or notified Lender of an intention not to perform under
any applicable Loan Document;
b. Borrowing Base
Certificates . Until April 30, 2007, Lender shall rely on
the Borrowing Base Certificate to be provided by Borrower which
shall provide Borrowing Base and other financial information for
Borrower as of December 31, 2006, along with the supporting
schedules thereto. Commencing with the Borrowing Base Certificate
due under this Agreement on or before April 30, 2007 stating
the Borrowing Base as of March 31, 2007, and continuing with
each Borrowing Base due thereafter, prior to an Advance, the Lender
shall have timely received such Borrowing Base Certificate,
executed by a duly authorized officer of the Borrower with
supporting updated schedules attached thereto. Notwithstanding the
above, Lender shall be entitled to withhold Advances based on the
information provided in any Borrowing Base Certificate if Lender
reasonably determines that (1) the information provided by
Borrower in such Borrowing Base Certificate and/or supporting
schedules thereto is materially inaccurate, misleading, or
incomplete; or (2) a material adverse change has occurred with
respect to the information so provided or with respect to the
condition of Borrower (financial or otherwise).
c. Field Examination . Within
thirty (30) days of the Closing Date, Lender shall have
received the written results of the field examination conducted of
the Borrower and its business records, and such results shall be in
form and substance satisfactory to Lender as determined in
Lender’s sole discretion.
d. Representations and
Warranties . All representations and warranties contained
herein shall be true and correct in all material respects at the
date of such disbursement;
e. No Material Adverse Change
. The Lender shall have determined, in its sole discretion, that no
material adverse change has occurred in the financial condition of
the Borrower from that disclosed in the most recent financial
statements furnished to the Lender prior to the Closing Date;
and
f. No Default . No Event of
Default has occurred and remains uncured, and no default or event
has occurred or circumstance exists which, with the passage of time
or the giving of notice, or both, would constitute an Event of
Default.
3.3 Lender’s Right To Rely
On Communications . The Borrower authorizes the Lender to
accept, rely upon, act upon and comply with, any verbal or written
instructions, requests, confirmations and orders of any employee or
agent of the Borrower. The Borrower acknowledges that the
transmission between the Borrower and the Lender of any such
instructions, requests, confirmations and orders involves the
possibility of errors, omissions,
23
mistakes and discrepancies. The Borrower hereby
assumes all risk of loss arising out of: (i) the
Lender’s acceptance, reliance on, compliance with or
observation of any such instructions, requests, confirmations or
orders that Lender, in good faith, believes are genuine; and
(ii) any such errors, omissions, mistakes and discrepancies,
except those caused by the Lender’s gross negligence or
willful misconduct. Borrower agrees to indemnify Lender and to hold
Lender harmless for and from all claims, demands, suits, actions,
judgments, decrees, losses or damages, including attorneys fees and
expenses, that Lender may incur as a result of the foregoing events
or occurrences for which the Borrower has assumed the risk of
loss.
ARTICLE 4. SECURITY.
4.1 Grant of Security
Interest . As security for (i) the payment of the Loan,
and any other extensions of credit, loans, Letters of Credit or
other financial accommodations now or hereafter made by the Lender
for the benefit of the Borrower, (ii) the performance of the
Borrower’s obligations under or in connection with any
interest rate swap agreement as defined in 11 U.S.C. § 101 by
and between the Borrower and the Lender or any Affiliate of the
Lender (whether absolute or contingent and whether now or hereafter
becoming due or owing), and (iii) any other liability or
obligation of Borrower to Lender whether now or hereafter existing,
of every kind and description, whether or not evidenced by notes or
other instruments, and whether or not such liability or obligations
are direct or indirect, fixed or contingent, liquidated or
unliquidated, the Borrower hereby grants to the Lender a security
interest in the Collateral. In addition, except as provided by law,
Borrower grants to Lender a security interest in all deposit
accounts and investment accounts of Borrower with any of
Lender’s Affiliates. Proceeds of the Collateral shall be
allocated pari passu among the Loan and any outstanding
interest rate swap agreements. The Borrower further agrees that the
Lender shall have in respect of the Collateral all of the rights
and remedies of a secured party under the Uniform Commercial Code,
other applicable law and this Agreement. The Borrower covenants and
agrees to execute and deliver, and hereby authorizes Lender to
prepare and file with the financing statement records for such
jurisdictions as Lender deems appropriate, such financing
statements and other instruments and filings or perform any and all
acts as are necessary in the opinion of the Lender to perfect,
maintain and protect the security interest hereby granted. The
Borrower shall not dispose of the Collateral, or any part thereof,
other than in the ordinary course of its business or as otherwise
may be permitted by this Agreement.
4.2 Covenants Regarding Inventory
and Equipment . With regard to Collateral that constitutes
Inventory or equipment, the Borrower further covenants as
follows:
a. The Lender’s security
interest shall extend and attach to Inventory which is presently in
existence and is owned by the Borrower or in which the Borrower
purchases or acquires an interest at any time and from time to time
in the future, whether such Inventory is in transit or in the
Borrower’s constructive, actual or exclusive occupancy or
possession or not, and wherever the same may be located, including,
without limitation, all Inventory which may be located at the
premises of the Borrower or upon the premises of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents,
finishers, convertors or other third parties who may have
possession of the Inventory.
24
b. Upon sale, exchange, lease or
disposition of the Inventory or equipment, the security interest of
the Lender shall without break in continuity and without further
formality or act continue in and attach to all cash and non-cash
proceeds of such sale, exchange, lease or disposition, including
Inventory returned or rejected by customers or repossessed by
either the Borrower or the Lender. As to any such sale, exchange,
lease or disposition, the Lender shall have all of the rights of an
unpaid seller, including stoppage in transit, replevin, detinue and
reclamation.
4.3 Covenants Regarding BOA
Investments . The following supplemental covenants and
agreements are in addition to the covenants and agreements
otherwise set forth in this Agreement with respect to Investment
Property:
a. Voting rights . So long as
no Event of Default shall have occurred and be continuing, Borrower
shall be entitled to exercise all voting rights and other
consensual rights pertaining to the BOA Investments;
provided , however , that Borrower will not
cast any vote, give any consent, waiver or ratification, or take or
fail to take any action, in any manner, that would, or could
reasonably be expected to, violate or be inconsistent with any of
the terms of this Agreement, or any of the other Loan Documents or
have the effect of impairing the positions or interests of
Lender.
b. Dividends and
Distributions. So long as no Event of Default shall have
occurred and be continuing (or would occur as a result thereof),
and except as provided otherwise in this Agreement or in any of the
other Loan Documents, all interest, income, dividends,
distributions and other amounts payable in cash in respect of the
BOA Investments may be paid to, collected by, used, distributed and
retained by Borrower; provided , however ,
that all such income, dividends, distributions and other amounts
shall, at all times after the occurrence and during the continuance
of an Event of Default, be paid to Lender and retained by it as a
part of the Collateral (except to the extent applied upon receipt
to the repayment of the amounts owing under the Revolving Note,
this Agreement and/or the other Loan Documents). Lender shall also
be entitled at all times (whether or not during the continuance of
an Event of Default) to receive directly, and to retain as part of
the Collateral, (i) all interest, income, dividends,
distributions or other amounts paid or payable in cash or other
property in respect of any of the BOA Investments in connection
with the dissolution, liquidation, recapitalization or
reclassification of the capital of the applicable issuer to the
extent representing an extraordinary liquidating or other
distribution in return of capital, (ii) all additional BOA
Investments or other securities or property (other than cash) paid
or payable or distributed or distributable in respect of any of the
BOA Investments in connection with any noncash dividend,
distribution, return of capital, spin-off, stock split, split-up,
reclassification, combination of shares or interests or similar
rearrangement, and (iii) without affecting any restrictions
against such actions contained elsewhere in this Agreement or in
any of the other Loan Documents, all additional BOA Investments or
other securities or property
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(including cash) paid or payable or distributed
or distributable in respect of any of the BOA Investments in
connection with any consolidation, merger, exchange of securities,
liquidation or other reorganization. All interest, income,
dividends, distributions or other amounts that are received by
Borrower in violation of the provisions of this Section shall be
received in trust for the benefit of Lender, shall be segregated
from other property or funds of Borrower, and shall be forthwith
delivered to Lender as Collateral in the same form as so received
(with any necessary endorsements).
c. Delivery of Certificates and
Filings . To perfect the Lender’s lien on and security
interest in the BOA Investments and other Investment Property which
is part of the Collateral, Borrower shall immediately deliver to
Lender (or its Affiliates, including without limitation, Bank of
America Securities, LLC) the original of all certificates or other
instruments evidencing all or any part of the Collateral, which
shall be retained by Lender until this Agreement is terminated.
Borrower’s failure to so deliver such certificates or
instruments shall constitute an Event of Default under this
Agreement. In addition to the delivery of such certificates and
instruments, Borrower agrees that Lender may file and record UCC
financing statements in order to perfect Lender’s lien on and
security interest in the BOA Investments and other Investment
Property of Borrower. Borrower shall also execute such documents as
Lender may request in order to perfect or maintain the perfection
of Lender’s lien on and security interest in the BOA
Investments and other Investment Property of Borrower. Borrower
hereby agrees to pay the cost of filing all financing statements
authorized or required hereunder in all public offices wherever the
Lender deems filing to be necessary or desirable. Borrower hereby
authorizes Lender to prepare and file with the financing records
for such jurisdictions as Lender deems appropriate, such financing
statements, amendments thereto and continuations thereof and other
documents pursuant to the UCC and otherwise, and to take such other
action and perform such other acts, as are necessary, in the sole
and absolute opinion of the Lender, to perfect and maintain the
perfection and first lien priority and security interests granted
hereunder.
d. Control Agreements . With
respect to securities held in the BOA Collateral Accounts, Borrower
shall deliver to Lender a Control Agreement, signed by the Borrower
and Bank of America Securities, LLC, at which the BOA Collateral
Accounts is to be established, under which Bank of America
Securities, LLC shall agree to comply with all notifications
originated by the Lender that Bank of America Securities, LLC
receives directing it to transfer or redeem any property in the BOA
Collateral Accounts without further consent by the Borrower and
under which Bank of America Securities, LLC subordinates to the
Lender any security interest, lien or right of setoff that Bank of
America Securities, LLC may now or hereafter have against the BOA
Collateral Accounts or property in the account (except Bank of
America Securities, LLC’s lien for normal commissions and
fees).
e. Further Assurances; Power of
Attorney . (i) Borrower hereby agrees to do such further
acts and things and to execute and deliver to Lender such
additional conveyances, assignments, agreements and instruments as
Lender may require or deem advisable to perfect, establish, confirm
and maintain the security interest and first priority lien provided
for herein, to
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carry out the purposes of this Agreement or to
further assure and confirm unto Lender its rights, powers and
remedies hereunder, in each case at Borrower’s own expense.
Borrower hereby ratifies and approves all financing statements
naming Lender as secured party and Borrower as debtor with respect
to the Collateral (and any amendments and continuations with
respect to such financing statements) filed by or on behalf of
Lender prior to the date hereof and ratifies and confirms the
authorization of Lender to file such financing statements (and
amendments and continuations, if any). Borrower hereby authorizes
Lender to adopt on behalf of the Borrower any symbol required for
authenticating any electronic filing. In no event shall Borrower at
any time file, or permit or cause to be filed, any termination
statement with respect to any financing statement (or amendment or
continuation with respect thereto) naming Lender as secured party
and Borrower as debtor, without express prior written authorization
of Lender.
(ii) Borrower hereby irrevocably
appoints Lender as its lawful attorney-in-fact, with full authority
in the place and stead of Borrower and in the name of Borrower,
Lender or otherwise, and with full power of substitution in the
premises (which power of attorney, being coupled with an interest,
is irrevocable for so long as this Agreement shall be in effect),
exercisable from time to time in Lender’s discretion after
the occurrence and during the continuance of an Event of Default
(except for the actions described in clause (E) below which
may be taken by Lender without regard to whether an Event of
Default has occurred) to allow Lender to take any action and to
execute any instruments that Lender may reasonably deem necessary
or advisable to accomplish the purpose of this Agreement,
including, without limitation:
(A) to ask, demand, collect, sue
for, recover, compound, received and give acquittance and receipts
for moneys due and to become due under or in respect of any of the
BOA Investments;
(B) to receive, endorse and collect
any checks, drafts, instruments, chattel paper and other orders for
the payment of money made payable to Borrower representing any
interest, income, dividend, distribution or other amount payable in
respect of any of the BOA Investments and to give full discharge
for the same;
(C) to file any claims or take any
action or institute any proceedings that Lender may deem necessary
or advisable for the collection of any of the BOA Investments or
otherwise to enforce the rights of Lender with respect to any of
the BOA Investments;
(D) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with
any and all of the BOA Investments as fully and completely as
though Lender were the absolute owner of the BOA Investments for
all purposes, and to do from time to time, at Lender’s option
and the Borrower’s expense, all other acts and things deemed
necessary by Lender to protect, preserve or realize upon the BOA
Investments and to more completely carry out the purposes of this
Agreement; and
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(E) To sign the name of Borrower on
any financing statement, continuation statement, notice or other
similar document that, in Lender’s opinion, should be made or
filed in order to perfect or continue to perfect the security
interest granted under this Agreement;
(iii) If Borrower fails to perform
any covenant or agreement set forth in this Section 4.3
within ten (10) days after written request to do so by Lender
(provided that no such request shall be necessary at any time after
the occurrence and during the continuance of an Event of Default or
if the Collateral is of a type or nature which could readily
decline in value during such ten (10) day period), Lender may
itself perform, or cause the performance of, such covenant or
agreement and may take any other action that it deems necessary and
appropriate for the maintenance and preservation of the Collateral
or its security interest therein, and the expenses so incurred in
connection therewith shall be payable by Borrower, on demand by
Lender.
4.4 Certain Rights of the
Lender . The Lender shall have the right, but not the
obligation, (i) to pay any taxes or levies on the Collateral
or any costs to repair or to preserve the Collateral; and
(ii) to cure any defaults by Borrower on contracts by the
Borrower intended to give rise to Accounts. Such payments and the
costs of curing such defaults shall constitute Advances under the
Revolving Note and shall be secured pursuant to this Agreement,
irrespective of whether the Borrower would then be entitled to such
Advances under this Agreement.
4.5 Financing Statements;
Possession of Collateral by Lender; Control . At the request of
the Lender, Borrower will execute financing statements,
continuation statements and other documents with respect to the
Collateral pursuant to the Uniform Commercial Code or otherwise, in
form satisfactory to the Lender, and Borrower will pay the cost of
filing the same in all public offices wherever the Lender deems
filing to be necessary or desirable. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement,
provided however, that it shall not limit the obligations of
Borrower as previously set forth herein. Borrower grants the Lender
the right, and hereby authorizes Lender, at the Lender’s
option, to file any or all such financing statements, continuation
statements and other documents pursuant to the UCC and otherwise,
without Borrower’s signature, and irrevocably appoints the
Lender as Borrower’s attorney-in-fact to execute any such
statements and documents in Borrower’s name and to perform
all other acts which the Lender deems appropriate to perfect and to
continue the security interests conferred by this Agreement.
Borrower authorizes the Lender to use the collateral description
“all assets” or “all personal property” or
such other descriptions of the Collateral as Lender shall determine
to perfect Lender’s security interest in the
Collateral.
In addition, upon request of Lender,
Borrower shall immediately deliver to Lender, or authorize and
direct any and all Persons in possession of Collateral, to
immediately deliver to Lender all Collateral for which Lender
requires possession to perfect its security interest in such
Collateral, properly endorsed or acknowledged. Furthermore,
Borrower shall take all such actions as may be requested by Lender
to allow Lender to exercise control over any Collateral for such
purpose of allowing Lender to perfect its security interest in
Collateral, which Collateral may include deposit
accounts,
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Investment Property, letter-of-credit rights and
electronic chattel paper. At Lender’s request, Borrower shall
execute and deliver to Lender, and have any other Persons in
possession or control of
