<PAGE>
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
by and among
HANCOCK FABRICS, INC.
HF MERCHANDISING, INC.
HANCOCK FABRICS OF MI, INC.
HANCOCKFABRICS.COM, INC.
HANCOCK FABRICS, LLC
as Borrowers
and
HF ENTERPRISES, INC.
HF RESOURCES, INC.
as Guarantors
THE LENDERS AND ISSUING BANK FROM TIME TO TIME PARTY HERETO
WACHOVIA BANK, NATIONAL ASSOCIATION
as Administrative Agent
THE CIT GROUP/BUSINESS CREDIT, INC.
as Syndication Agent
WACHOVIA CAPITAL MARKETS, LLC
as Sole Lead Arranger, Manager and Bookrunner
Dated: June 29, 2005
<PAGE>
<TABLE>
<S>
<C>
SECTION 1.
DEFINITIONS.........................................................................
1
SECTION 2. CREDIT
FACILITIES...................................................................
33
2.1 Revolving
Loans.........................................................................
33
2.2 Letters of
Credit.......................................................................
33
2.3 Increase or Decrease in
Maximum Credit..................................................
38
SECTION 3. INTEREST AND
FEES...................................................................
40
3.1
Interest................................................................................
40
3.2
Fees....................................................................................
41
3.3 Changes in Laws and
Increased Costs of
Loans............................................ 42
SECTION 4. CONDITIONS
PRECEDENT................................................................
44
4.1 Conditions Precedent to
Initial Loans and Letters of Credit.............................
44
4.2 Conditions Precedent to
All Loans and Letters of Credit ................................
46
SECTION 5. GRANT AND PERFECTION OF SECURITY
INTEREST........................................... 47
5.1 Grant of Security
Interest..............................................................
47
5.2 Perfection of Security
Interests........................................................
48
SECTION 6. COLLECTION AND
ADMINISTRATION.......................................................
52
6.1 Borrowers' Loan
Accounts................................................................
52
6.2
Statements..............................................................................
52
6.3 Cash Management;
Collection of Collateral
Proceeds...................................... 52
6.4
Payments................................................................................
54
6.5
Taxes...................................................................................
55
6.6 Authorization to Make
Loans.............................................................
57
6.7 Use of
Proceeds.........................................................................
58
6.8 Appointment of
Administrative Borrower as Agent for Requesting Loans and Receipts
of
Loans and
Statements....................................................................
58
6.9 Pro Rata
Treatment......................................................................
59
6.10 Sharing of Payments,
Etc...............................................................
59
6.11 Settlement
Procedures..................................................................
60
6.12 Obligations Several;
Independent Nature of Lenders' Rights.............................
62
6.13 Bank
Products..........................................................................
62
SECTION 7. COLLATERAL REPORTING AND
COVENANTS..................................................
63
7.1 Collateral
Reporting....................................................................
63
7.2 Accounts
Covenants......................................................................
64
7.3 Inventory
Covenants.....................................................................
65
7.4 Equipment and Real
Property
Covenants...................................................
66
7.5 Power of
Attorney.......................................................................
66
7.6 Right to
Cure...........................................................................
67
</TABLE>
(ii)
<PAGE>
<TABLE>
<S>
<C>
7.7 Access to
Premises......................................................................
68
SECTION 8. REPRESENTATIONS AND
WARRANTIES......................................................
68
8.1 Existence, Power and
Authority..........................................................
68
8.2 Name; State of
Organization; Chief Executive Office; Collateral
Locations............... 68
8.3 Financial Statements; No
Material Adverse Change........................................
69
8.4 Priority of Liens; Title
to Properties..................................................
69
8.5 Tax
Returns.............................................................................
70
8.6
Litigation..............................................................................
70
8.7 Compliance with Other
Agreements and Applicable Laws....................................
70
8.8 Environmental
Compliance................................................................
71
8.9 Employee
Benefits.......................................................................
71
8.10 Bank
Accounts..........................................................................
72
8.11 Intellectual
Property..................................................................
72
8.12 Subsidiaries;
Affiliates; Capitalization;
Solvency..................................... 73
8.13 Labor
Disputes.........................................................................
73
8.14 Restrictions on
Subsidiaries...........................................................
74
8.15 Material
Contracts.....................................................................
74
8.16 Credit Card
Agreements.................................................................
74
8.17 Interrelated
Businesses................................................................
74
8.18 Payable
Practices......................................................................
75
8.19 Accuracy and
Completeness of
Information...............................................
75
8.20 Survival of Warranties;
Cumulative.....................................................
75
SECTION 9. AFFIRMATIVE AND NEGATIVE
COVENANTS..................................................
75
9.1 Maintenance of
Existence................................................................
75
9.2 New Collateral
Locations................................................................
76
9.3 Compliance with Laws,
Regulations, Etc..................................................
76
9.4 Payment of Taxes and
Claims.............................................................
77
9.5
Insurance...............................................................................
77
9.6 Financial Statements and
Other Information..............................................
78
9.7 Sale of Assets,
Consolidation, Merger, Dissolution,
Etc................................. 80
9.8
Encumbrances............................................................................
82
9.9
Indebtedness............................................................................
84
9.10 Loans, Investments,
Etc................................................................
86
9.11 Restricted
Payments....................................................................
88
9.12 Transactions with
Affiliates...........................................................
90
9.13 Compliance with
ERISA..................................................................
90
9.14 End of Fiscal Years;
Fiscal Quarters...................................................
90
9.15 Change in
Business.....................................................................
90
9.16 Limitation of
Restrictions Affecting
Subsidiaries...................................... 90
9.17 License
Agreements.....................................................................
91
9.18 Credit Card
Agreements.................................................................
92
9.19 Minimum Excess
Availability............................................................
92
9.20 After Acquired Real
Property...........................................................
92
9.21 Foreign Assets Control
Regulations, Etc................................................
93
</TABLE>
(iii)
<PAGE>
<TABLE>
<S>
<C>
9.22 Costs and
Expenses....................................................................
93
9.23 Further
Assurances....................................................................
94
SECTION 10. EVENTS OF DEFAULT AND
REMEDIES....................................................
95
10.1 Events of
Default.....................................................................
95
10.2
Remedies..............................................................................
98
SECTION 11. JURY TRIAL WAIVER; OTHER
WAIVERS..................................................
101
11.1 Governing Law; Choice
of Forum; Service of Process; Jury Trial Waiver.................
101
11.2 Waiver of
Notices.....................................................................
103
11.3 Amendments and
Waivers................................................................
103
11.4 Waiver of
Counterclaims...............................................................
105
11.5
Indemnification.......................................................................
105
SECTION 12. THE
AGENT.........................................................................
106
12.1 Appointment, Powers and
Immunities....................................................
106
12.2 Reliance by
Agent.....................................................................
106
12.3 Events of
Default.....................................................................
107
12.4 Wachovia in its
Individual
Capacity...................................................
107
12.5
Indemnification.......................................................................
107
12.6 Non-Reliance on Agent
and Other Lenders...............................................
108
12.7 Failure to
Act........................................................................
108
12.8 Additional
Loans......................................................................
108
12.9 Concerning the
Collateral and the Related Financing
Agreements........................ 109
12.10 Field Audit,
Examination Reports and other Information; Disclaimer by
Lenders........
109
12.11 Collateral
Matters...................................................................
110
12.12 Agency for
Perfection................................................................
111
12.13 Successor
Agent......................................................................
112
12.14 Other Agent
Designations.............................................................
112
SECTION 13. TERM OF AGREEMENT;
MISCELLANEOUS..................................................
112
13.1
Term..................................................................................
112
13.2 Interpretative
Provisions.............................................................
114
13.3
Notices...............................................................................
115
13.4 Partial
Invalidity....................................................................
117
13.5
Confidentiality.......................................................................
117
13.6
Successors............................................................................
118
13.7 Assignments;
Participations...........................................................
118
13.8 Entire
Agreement......................................................................
120
13.9 USA Patriot
Act.......................................................................
121
13.10 Counterparts,
Etc....................................................................
121
</TABLE>
(iv)
<PAGE>
INDEX
TO
EXHIBITS AND SCHEDULES
<TABLE>
<S>
<C>
Exhibit A
Form of Assignment and Acceptance
Exhibit B
Information Certificate
Exhibit C
Form of Borrowing Base Certificate
Exhibit D
Form of Compliance Certificate
Schedule 1.27
Commitments
Schedule 1.35
Customs Brokers
Schedule 1.55
Existing Lenders
Schedule 1.95
Owned Store Real Properties
Schedule 8.16
Credit Card Agreements
</TABLE>
(v)
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan
and Security Agreement dated June 29, 2005 is entered into by
and among Hancock Fabrics, Inc, a Delaware
corporation ("Parent"), HF
Merchandising, Inc., a Delaware corporation
("Merchandising"), Hancock Fabrics
of MI, Inc., a Delaware corporation
("Fabrics MI"), hancockfabrics.com, Inc., a
Delaware corporation ("Fabrics.com"),
Hancock Fabrics, LLC, a Delaware limited
liability company ("Fabrics LLC", and
together with Parent, Merchandising,
Fabrics MI and Fabrics.com, each
individually a "Borrower" and collectively,
"Borrowers" as hereinafter further
defined), HF Enterprises, Inc., a Delaware
corporation ("Enterprises"), HF Resources,
Inc., a Delaware corporation
("Resources", and together with
Enterprises, each individually a "Guarantor" and
collectively, "Guarantors" as hereinafter
further defined), the parties hereto
from time to time as lenders, whether by
execution of this Agreement or an
Assignment and Acceptance (each
individually, a "Lender" and collectively,
"Lenders" as hereinafter further defined)
and Wachovia Bank, National
Association , a national banking
association, in its capacity as agent for
Lenders (in such capacity, "Agent" as
hereinafter further defined).
W I T N E S S E T H:
WHEREAS,
Borrowers and Guarantors have requested that Agent and Lenders
enter into financing arrangements with
Borrowers pursuant to which Lenders may
make loans and provide other financial
accommodations to Borrowers; and
WHEREAS,
each Lender is willing to agree (severally and not jointly) to
make such loans and provide such financial
accommodations to Borrowers on a pro
rata basis according to its Commitment (as
defined below) on the terms and
conditions set forth herein and Agent is
willing to act as agent for Lenders on
the terms and conditions set forth herein
and the other Financing Agreements;
NOW,
THEREFORE, in consideration of the mutual conditions and
agreements
set forth herein, and for other good and
valuable consideration, the receipt and
sufficiency of which is hereby
acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
For
purposes of this Agreement, the following terms shall have the
respective meanings given to them
below:
1.1
"Accounts" shall mean, as to each Borrower and Guarantor, all
present
and future rights of such Borrower and
Guarantor to payment of a monetary
obligation, whether or not earned by
performance, which is not evidenced by
chattel paper or an instrument, (a) for
property that has been or is to be sold,
leased, licensed, assigned, or otherwise
disposed of, (b) for services rendered
or to be rendered, (c) for a secondary
obligation incurred or to be incurred, or
(d) arising out of the use of a credit or
charge card or information contained
on or for use with the card.
1.2
"Adjusted Eurodollar Rate" shall mean, with respect to each
Interest
Period for any Eurodollar Rate Loan
comprising part of the same borrowing
(including conversions,
<PAGE>
extensions and renewals), the rate per
annum determined by dividing (a) the
London Interbank Offered Rate for such
Interest Period by (b) a percentage equal
to: (i) one (1) minus (ii) the Reserve
Percentage. For purposes hereof, "Reserve
Percentage" shall mean for any day, that
percentage (expressed as a decimal)
which is in effect from time to time under
Regulation D of the Board of
Governors of the Federal Reserve System (or
any successor), as such regulation
may be amended from time to time or any
successor regulation, as the maximum
reserve requirement (including, without
limitation, any basic, supplemental,
emergency, special, or marginal reserves)
applicable with respect to
Eurocurrency liabilities as that term is
defined in Regulation D (or against any
other category of liabilities that includes
deposits by reference to which the
interest rate of Eurodollar Loans is
determined), whether or not any Lender has
any Eurocurrency liabilities subject to
such reserve requirement at that time.
Eurodollar Loans shall be deemed to
constitute Eurocurrency liabilities and as
such shall be deemed subject to reserve
requirements without benefits of credits
for proration, exceptions or offsets that
may be available from time to time to
a Lender. The Adjusted Eurodollar Rate
shall be adjusted automatically on and as
of the effective date of any change in the
Reserve Percentage.
1.3 "Administrative Borrower"
shall mean Hancock Fabrics, Inc., a Delaware
corporation in its capacity as
Administrative Borrower on behalf of itself and
the other Borrowers pursuant to Section 6.8
hereof and it successors and assigns
in such capacity.
1.4 "Affiliate"
shall mean, with respect to a 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 Person, and
without limiting the generality of the
foregoing, includes (a) any Person which
beneficially owns or holds ten (10%)
percent or more of any class of Voting
Stock of such Person or other equity
interests in such Person, (b) any Person of
which such Person beneficially owns or
holds ten (10%) percent or more of any
class of Voting Stock or in which such
Person beneficially owns or holds ten
(10%) percent or more of the equity
interests and (c) any director or executive
officer of such Person. For the purposes of
this definition, the term "control"
(including with correlative meanings, the
terms "controlled by" and "under
common control with"), as used with respect
to any Person, means the possession,
directly or indirectly, of the power to
direct or cause the direction of the
management and policies of such Person,
whether through the ownership of Voting
Stock, by agreement or otherwise.
1.5
"Agent" shall mean Wachovia Bank, National Association, in its
capacity as agent on behalf of Lenders
pursuant to the terms hereof and any
replacement or successor agent
hereunder.
1.6 "Agent
Payment Account" shall mean account no. 5000000030295 of Agent
at Wachovia, or such other account of Agent
as Agent may from time to time
designate to Administrative Borrower as the
Agent Payment Account for purposes
of this Agreement and the other Financing
Agreements.
1.7
"Applicable Margin" shall mean, at any time, as to the interest
rate
for Prime Rate Loans and the interest rate
for Eurodollar Rate Loans, the
applicable percentage (on a per annum
basis) set forth below if the Quarterly
Average Excess Availability for the
immediately
2
<PAGE>
preceding fiscal quarter is at or within
the amounts indicated for such
percentage as of the last day of the
immediately preceding fiscal quarter:
<TABLE>
<CAPTION>
Applicable
Applicable
Quarterly Average
Eurodollar Rate
Prime Rate
Tier
Excess Availability
Margin
Margin
----
----------------------------
---------------
----------
<S>
<C>
<C>
<C>
1
Greater than $35,000,000
1.25%
0%
2
Less than or equal to
$35,000,000 and greater than
1.50%
0%
$15,000,000
3
Less than or equal to
$15,000,000
1.75%
.25%
</TABLE>
provided, that, (i) the Applicable Margin
shall be calculated and established
once each fiscal quarter and shall remain
in effect until adjusted thereafter
after the end of the next fiscal quarter,
(ii) the Applicable Margin through
December 31, 2005 shall be the amount for
Tier 2 set forth above, and (iii) in
the event that the level of Quarterly
Average Excess Availability falls within
Tier 1, the EBITDA of the Parent and its
Subsidiaries for the immediately
preceding four (4) fiscal quarters (based
on the most recent financial
statements then received by Agent) shall
not be less than $20,000,000 in order
for the Applicable Margins set forth for
Tier 1 to apply (it being understood
that, if the level of Quarterly Average
Excess Availability falls within Tier 1
but such EBITDA of Parent and its
Subsidiaries is less than $20,000,000 then the
Applicable Margin shall be the amount for
Tier 2 set forth above).
1.8
"Assignment and Acceptance" shall mean an Assignment and
Acceptance
substantially in the form of Exhibit A
attached hereto (with blanks
appropriately completed) delivered to Agent
in connection with an assignment of
a Lender's interest hereunder in accordance
with the provisions of Section 13.7
hereof.
1.9
"Baldwyn Real Property" shall mean the Real Property of Parent
located
in Baldwyn, Mississippi.
1.10 "Bank
Product Provider" shall mean any Lender, Affiliate of any
Lender or other financial institution (in
each case as to any Lender, Affiliate
or other financial institution to the
extent approved by Agent) that provides
any Bank Products to Borrowers or
Guarantors.
1.11 "Bank
Products" shall mean any one or more of the following types or
services or facilities provided to a
Borrower by Agent, any Lender or any
Affiliate of any Lender or any other
financial institution acceptable to Agent:
(a) credit cards or stored value cards or
(b) cash management or related
services, including (i) the automated
clearinghouse transfer of funds for the
account of a Borrower pursuant to agreement
or overdraft for any accounts of
Borrowers maintained at Agent, any Lender
or any Affiliate of any Lender (in
each case to the extent approved by Agent)
that are subject to the control of
Agent pursuant to any Deposit Account
3
<PAGE>
Control Agreement to which Agent, such
Affiliate of Agent, Lender or Affiliate
of Lender is a party, as applicable, and
(ii) controlled disbursement services
and (iii) Hedge Agreements if and to the
extent permitted hereunder. Any of the
foregoing shall only be included in the
definition of the term "Bank Products"
to the extent that the Lender, its
Affiliate or the other financial institution
has been approved by Agent.
1.12
"Blocked Accounts" shall have the meaning set forth in Section
6.3
hereof.
1.13
"Borrowers" shall mean, collectively, the following (together
with
their respective successors and assigns):
(a) Hancock Fabrics, Inc., a Delaware
corporation; (b) HF Merchandising, Inc, a
Delaware corporation; (c) Hancock
Fabrics of MI, Inc., a Delaware
corporation; (d) hancockfabrics.com, Inc., a
Delaware corporation; (e) Hancock Fabrics,
LLC, a Delaware limited liability
company, and (f) any other Person that at
any time after the date hereof becomes
a Borrower; each sometimes being referred
to herein individually as a
"Borrower".
1.14
"Borrowing Base" shall mean, at any time, the amount equal to:
(a) the sum of: (i) the amount equal to eighty-five (85%) percent
of
Eligible Credit Card Receivables, plus (ii)
the amount equal to the lesser of
(A) sixty-five (65%) percent multiplied by
the Value of Eligible Inventory or
(B) eighty-five (85%) percent of the Net
Recovery Percentage multiplied by the
Value of such Eligible Inventory, plus
(iii) the amount equal to the lesser of
(A) sixty-five (65%) percent multiplied by
the Value of Eligible In-Transit
Inventory, (B) eighty-five (85%) percent of
the Net Recovery Percentage
multiplied by the Value of such Eligible
In-Transit Inventory or (C) $2,500,000,
plus (iv) Real Property Availability,
minus
(b) Reserves.
The amounts of Eligible Inventory of any
Borrower shall, at Agent's option, be
determined based on the lesser of the
amount of Inventory set forth in the
general ledger of such Borrower or the
perpetual inventory record maintained by
such Borrower.
1.15
"Borrowing Base Certificate" shall mean a certificate
substantially
in the form of Exhibit C hereto, as such
form may from time to time be modified
by Agent, which is duly completed
(including all schedules thereto) and executed
by the chief financial officer or other
appropriate financial officer of
Borrowers acceptable to Agent and delivered
to Agent.
1.16
"Business Day" shall mean any day other than a Saturday, Sunday,
or
other day on which commercial banks are
authorized or required to close under
the laws of the State of Texas or the State
of North Carolina, and a day on
which Agent is open for the transaction of
business, except that if a
determination of a Business Day shall
relate to any Eurodollar Rate Loans, the
term Business Day shall also exclude any
day on which banks are closed for
dealings in dollar deposits in the London
interbank market or other applicable
Eurodollar Rate market.
1.17
"Capital Leases" shall mean, as applied to any Person, any lease
of
(or any agreement conveying the right to
use) any property (whether real,
personal or mixed) by such
4
<PAGE>
Person as lessee which in accordance with
GAAP, is required to be reflected as a
liability on the balance sheet of such
Person.
1.18
"Capital Stock" shall mean, with respect to any Person, any and
all
shares, interests, participations or other
equivalents (however designated) of
such Person's capital stock or partnership,
limited liability company or other
equity interests at any time outstanding,
and any and all rights, warrants or
options exchangeable for or convertible
into such capital stock or other
interests (but excluding any debt security
that is exchangeable for or
convertible into such capital stock).
1.19 "Cash
Dominion Event" shall mean either (a) an Event of Default shall
exist or have occurred and be continuing or
(b) Excess Availability shall at any
time have fallen below the Cash Dominion
Trigger Amount.
1.20 Cash
Dominion Trigger Amount" shall mean $27,500,000; provided,
that,
the Cash Dominion Trigger Amount shall be
reduced to $20,000,000 commencing on
the date (if any) that Agent shall have
received evidence that Borrowers have
implemented and tested a management
information system with respect to inventory
which is satisfactory to Agent; provided,
further, that, if the Maximum Credit
exceeds $110,000,000, the Cash Dominion
Trigger Amount shall mean such greater
amount as Agent may determine.
1.21 "Cash
Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of ninety
(90) days or less issued or directly
and fully guaranteed or insured by the
United States of America or any agency or
instrumentality thereof; provided, that,
the full faith and credit of the United
States of America is pledged in support
thereof; (b) certificates of deposit or
bankers' acceptances with a maturity of
ninety (90) days or less of any
financial institution that is a member of
the Federal Reserve System having
combined capital and surplus and undivided
profits of not less than
$1,000,000,000; (c) commercial paper
(including variable rate demand notes) with
a maturity of ninety (90) days or less
issued by a corporation (except an
Affiliate of any Borrower or Guarantor)
organized under the laws of any State of
the United States of America or the
District of Columbia and rated at least A-1
by Standard & Poor's Ratings Service, a
division of The McGraw-Hill Companies,
Inc. or at least P-1 by Moody's Investors
Service, Inc.; (d) repurchase
obligations with a term of not more than
thirty (30) days for underlying
securities of the types described in clause
(a) above entered into with any
financial institution having combined
capital and surplus and undivided profits
of not less than $1,000,000,000; (e)
repurchase agreements and reverse
repurchase agreements relating to
marketable direct obligations issued or
unconditionally guaranteed by the United
States of America or issued by any
governmental agency thereof and backed by
the full faith and credit of the
United States of America, in each case
maturing within ninety (90) days or less
from the date of acquisition; provided,
that, the terms of such agreements
comply with the guidelines set forth in the
Federal Financial Agreements of
Depository Institutions with Securities
Dealers and Others, as adopted by the
Comptroller of the Currency on October 31,
1985; and (f) investments in money
market funds and mutual funds which invest
substantially all of their assets in
securities of the types described in
clauses (a) through (e) above.
1.22
"Change of Control" shall mean (a) the transfer (in one
transaction
or a series of transactions) of all or
substantially all of the assets of any
Borrower or Guarantor to any Person
5
<PAGE>
or group (as such term is used in Section
13(d)(3) of the Exchange Act), other
than as permitted in Section 9.7 hereof;
(b) the liquidation or dissolution of
any Borrower or Guarantor or the adoption
of a plan by the stockholders of any
Borrower or Guarantor relating to the
dissolution or liquidation of such
Borrower or Guarantor, other than as
permitted in Section 9.7 hereof; (c) the
acquisition by any Person or group (as such
term is used in Section 13(d)(3) of
the Exchange Act) of more than thirty (30%)
percent of beneficial ownership,
directly or indirectly, of the voting power
of the total outstanding Voting
Stock of Parent or the Board of Directors
of Parent; (d) during any period of
two (2) consecutive years, individuals who
at the beginning of such period
constituted the Board of Directors (or
similar governing body) of any Borrower
or Guarantor (together with any new
directors whose nomination for election by
the stockholders of such Borrower or
Guarantor was approved by a vote of at
least a majority of the directors (or
similar persons) then still in office who
were either directors (or similar persons)
at the beginning of such period or
whose election or nomination for election
was previously so approved) cease for
any reason to constitute a majority of the
Board of Directors (or similar
governing body) of any Borrower or
Guarantor then still in office; or (e) the
failure of Parent to own and control,
directly or indirectly, one hundred (100%)
percent of the voting power of the total
outstanding Voting Stock of any other
Borrower or Guarantor.
1.23
"Code" shall mean the Internal Revenue Code of 1986, as the same
now
exists or may from time to time hereafter
be amended, modified, recodified or
supplemented, together with all rules,
regulations and interpretations
thereunder or related thereto.
1.24
"Collateral" shall have the meaning set forth in Section 5
hereof.
1.25
"Collateral Access Agreement" shall mean an agreement in writing,
in
form and substance satisfactory to Agent,
from any lessor of premises to any
Borrower or Guarantor (other than lessors
of retail store locations, except as
otherwise agreed to by Administrative
Borrower and Agent), or any other person
to whom any Collateral is consigned or who
has custody, control or possession of
any such Collateral or is otherwise the
owner or operator of any premises on
which any of such Collateral is located, in
favor of Agent with respect to the
Collateral at such premises or otherwise in
the custody, control or possession
of such lessor, consignee or other
person.
1.26
"Commercial Letter of Credit" shall mean any Letter of Credit
issued
for the purpose of providing the primary
manner of payment for the purchase
price of goods or services by a Borrower in
the ordinary course of the business
of such Borrower.
1.27
"Commitment" shall mean, at any time, as to each Lender, the
principal amount set forth opposite such
Lender's name on Schedule 1.27 hereto
or on Schedule 1 to the Assignment and
Acceptance Agreement pursuant to which
such Lender became a Lender hereunder in
accordance with the provisions of
Section 2.3 or 13.7 hereof, as the same may
be adjusted from time to time in
accordance with the terms hereof; sometimes
being collectively referred to
herein as "Commitments".
1.28
"Consolidated Net Income" shall mean, with respect to any Person
for
any period, the aggregate of the net income
(loss) of such Person and its
Subsidiaries, on a consolidated basis, for
such period (and as to Borrowers and
Guarantors, excluding to the extent
included
6
<PAGE>
therein (i) any extraordinary, one-time or
non-recurring gains, (ii)
extraordinary, one-time or non-recurring
non-cash losses or charges, and (iii)
operations that have been discontinued on
or before the date hereof) after
deducting all charges which should be
deducted before arriving at the net income
(loss) for such period (but without regard
to operations that have been
discontinued on or before the date hereof)
and after deducting the Provision for
Taxes for such period, all as determined in
accordance with GAAP; provided,
that, (a) the net income of any Person that
is not a wholly-owned Subsidiary or
that is accounted for by the equity method
of accounting shall be included only
to the extent of the amount of dividends or
distributions paid or payable to
such Person or a wholly-owned Subsidiary of
such Person; (b) except to the
extent included pursuant to the foregoing
clause, the net income of any Person
accrued prior to the date it becomes a
wholly-owned Subsidiary of such Person or
is merged into or consolidated with such
Person or any of its wholly-owned
Subsidiaries or that Person's assets are
acquired by such Person or by any of
its wholly-owned Subsidiaries shall be
excluded; (c) the effect of any change in
accounting principles adopted by such
Person or its Subsidiaries after the date
hereof shall be excluded; (d) net income
shall exclude interest accruing, but
not paid, on indebtedness owing to a
Subsidiary or parent corporation of such
Person; and (e) the net income (if
positive) of any wholly-owned Subsidiary to
the extent that the declaration or payment
of dividends or similar distributions
by such wholly-owned Subsidiary to such
Person or to any other wholly-owned
Subsidiary of such Person is not at the
time permitted by operation of the terms
of its charter or any agreement,
instrument, judgment, decree, order, statute,
rule or governmental regulation applicable
to such wholly-owned Subsidiary shall
be excluded . For the purposes of this
definition, net income excludes any gain
and non-cash loss together with any related
Provision for Taxes for such gain
and non-cash loss realized upon the sale or
other disposition of any assets that
are not sold in the ordinary course of
business (including, without limitation,
dispositions pursuant to sale and leaseback
transactions and for this purpose
sales or other dispositions of retail store
locations shall not be deemed to be
in the ordinary course of the business of
Borrowers and Guarantors) or of any
Capital Stock of such Person or a
Subsidiary of such Person and any net income
or non-cash loss realized as a result of
changes in accounting principles or the
application thereof to such Person.
1.29
"Credit Card Acknowledgments" shall mean, collectively, the
agreements by Credit Card Issuers or Credit
Card Processors who are parties to
Credit Card Agreements in favor of Agent
acknowledging Agent's first priority
security interest, for and on behalf of
Lenders, in the monies due and to become
due to a Borrower or Guarantor (including,
without limitation, credits and
reserves) under the Credit Card Agreements,
and agreeing to transfer all such
amounts to the Blocked Accounts, as the
same now exist or may hereafter be
amended, modified, supplemented, extended,
renewed, restated or replaced,
sometimes being referred to herein
individually as a "Credit Card
Acknowledgment".
1.30
"Credit Card Agreements" shall mean all agreements now or
hereafter
entered into by any Borrower or any
Guarantor for the benefit of any Borrower,
in each case with any Credit Card Issuer or
any Credit Card Processor, as the
same now exist or may hereafter be amended,
modified, supplemented, extended,
renewed, restated or replaced, including,
but not limited to, the agreements set
forth on Schedule 8.16 hereto.
1.31
"Credit Card Issuer" shall mean any person (other than a
Borrower)
who issues or whose members issue credit
cards, including, without limitation,
MasterCard or VISA bank
7
<PAGE>
credit or debit cards or other bank credit
or debit cards issued through
MasterCard International, Inc., Visa,
U.S.A., Inc. or Visa International and
American Express, Discover, Diners Club,
Carte Blanche and other non-bank credit
or debit cards, including, without
limitation, credit or debit cards issued by
or through American Express Travel Related
Services Company, Inc., and Discover
Financial Services, Inc.
1.32
"Credit Card Processor" shall mean any servicing or processing
agent
or any factor or financial intermediary who
facilitates, services, processes or
manages the credit authorization, billing
transfer and/or payment procedures
with respect to any Borrower's or
Guarantor's sales transactions involving
credit card or debit card purchases by
customers using credit cards or debit
cards issued by any Credit Card Issuer.
1.33
"Credit Card Receivables" shall mean, collectively, (a) all
present
and future rights of any Borrower or
Guarantor to payment from any Credit Card
Issuer, Credit Card Processor or other
third party arising from sales of goods
or rendition of services to customers who
have purchased such goods or services
using a credit or debit card and (b) all
present and future rights of any
Borrower or Guarantor to payment from any
Credit Card Issuer, Credit Card
Processor or other third party in
connection with the sale or transfer of
Accounts arising pursuant to the sale of
goods or rendition of services to
customers who have purchased such goods or
services using a credit card or a
debit card, including, but not limited to,
all amounts at any time due or to
become due from any Credit Card Issuer or
Credit Card Processor under the Credit
Card Agreements or otherwise.
1.34
"Credit Facility" shall mean the Loans and Letters of Credit
provided
to or for the benefit of any Borrower
pursuant to Sections 2.1 and 2.2 hereof.
1.35
"Customs Broker" shall mean the persons listed on Schedule 1.35
hereto or such other person selected by any
Borrower after written notice by
such Borrower to Agent who are reasonably
acceptable to Agent to perform port of
entry services to process Inventory
imported by such Borrower from outside the
United States of America and to supply
facilities, labor and materials to such
Borrower in connection therewith.
1.36
"Default" shall mean an act, condition or event which with notice
or
passage of time or both would constitute an
Event of Default.
1.37
"Defaulting Lender" shall have the meaning set forth in Section
6.11
hereof.
1.38
Deposit Account Control Agreement" shall mean an agreement in
writing, in form and substance satisfactory
to Agent, by and among Agent, the
Borrower or Guarantor with a deposit
account at any bank and the bank at which
such deposit account is at any time
maintained which provides that such bank
will comply with instructions originated by
Agent directing disposition of the
funds in the deposit account without
further consent by such Borrower or
Guarantor and has such other terms and
conditions as Agent may require.
1.39
"EBITDA" shall mean, as to any Person, with respect to any period,
an
amount equal to: (a) the Consolidated Net
Income of such Person and its
Subsidiaries for such period, plus (b)
depreciation, amortization, LIFO
adjustments consisting of non-cash charges,
and other non-cash charges,
including imputed interest, deferred
compensation and in the case of
8
<PAGE>
Borrowers and Guarantors, non-cash costs
associated with the closing of retail
store locations, in each case for such
period (to the extent deducted in the
computation of Consolidated Net Income of
such Person), all in accordance with
GAAP, plus (c) Interest Expense for such
period (to the extent deducted in the
computation of Consolidated Net Income of
such Person), plus (d) the Provision
for Taxes for such period (to the extent
deducted in the computation of
Consolidated Net Income of such
Person).
1.40
"Eligible Credit Card Receivables" shall mean, as to each
Borrower,
Credit Card Receivables of such Borrower
which are and continue to be acceptable
to Agent based on the criteria set forth
below. Credit Card Receivables shall be
Eligible Credit Card Receivables if:
(a) such Credit Card Receivables arise from the actual and bona
fide
sale and delivery of goods or rendition of
services by such Borrower in the
ordinary course of the business of such
Borrower which transactions are
completed in accordance with the terms and
provisions contained in any
agreements binding on such Borrower or the
other party or parties related
thereto;
(b) such Credit Card Receivables are not past due (beyond any
stated
applicable grace period, if any, therefor)
pursuant to the terms set forth in
the Credit Card Agreements with the Credit
Card Issuer or Credit Card Processor
of the credit card or debit card used in
the purchase which give rise to such
Credit Card Receivables;
(c) such Credit Card Receivables are not unpaid more than five
(5)
Business Days after the date of the sale of
Inventory giving rise to such Credit
Card Receivables;
(d) all material procedures required by the Credit Card Issuer
or
the Credit Card Processor of the credit
card or debit card used in the purchase
which gave rise to such Credit Card
Receivables shall have been followed by such
Borrower and all documents required for the
authorization and approval by such
Credit Card Issuer or Credit Card Processor
shall have been obtained in
connection with the sale giving rise to
such Credit Card Receivables;
(e) the required authorization and approval by such Credit Card
Issuer or Credit Card Processor shall have
been obtained for the sale giving
rise to such Credit Card Receivables;
(f) such Borrower shall have submitted all materials required by
the
Credit Card Issuer or Credit Card Processor
obligated in respect of such Credit
Card Receivables in order for such Borrower
to be entitled to payment in respect
thereof;
(g) the Credit Card Issuer or Credit Card Processor obligated
in
respect of such Credit Card Receivable has
not failed to remit any monthly
payment in respect of such Credit Card
Receivable;
(h) such Credit Card Receivables comply with the applicable
terms
and conditions contained in Section 7.2 of
this Agreement;
(i) the Credit Card Issuer or Credit Card Processor with respect
to
such Credit Card Receivables has not
asserted a counterclaim, defense or dispute
and does not have, and
9
<PAGE>
does not engage in transactions which may
give rise to, any right of setoff
against such Credit Card Receivables (other
than setoffs to fees and chargebacks
consistent with the practices of such
Credit Card Issuer or Credit Card
Processor with such Borrower as of the date
hereof or as such practices may
change as a result of changes to the
policies of such Credit Card Issuer or
Credit Card Processor applicable to its
customers generally and unrelated to the
circumstance of such Borrower), but the
portion of the Credit Card Receivables
owing by such Credit Card Issuer or Credit
Card Processor in excess of the
amount owing by such Borrower to such
Credit Card Issuer or Credit Card
Processor pursuant to such fees and
chargebacks may be deemed Eligible Credit
Card Receivables;
(j) the Credit Card Issuer or Credit Card Processor with respect
to
such Credit Card Receivables has not setoff
against amounts otherwise payable by
such Credit Card Issuer or Credit Card
Processor to such Borrower for the
purpose of establishing a reserve or
collateral for obligations of such Borrower
to such Credit Card Issuer or Credit Card
Processor (notwithstanding that the
Credit Card Issuer or Credit Card Processor
may have setoffs for fees and
chargebacks consistent with the practices
of such Credit Card Issuer or Credit
Card Processor with such Borrower as of the
date hereof or as such practices may
hereafter change as a result of changes to
the policies of such Credit Card
Issuer or Credit Card Processor applicable
to its customers generally and
unrelated to the circumstances of such
Borrower);
(k) there are no facts, events or occurrences which would impair
the
validity, enforceability or collectability
of such Credit Card Receivables or
reduce the amount payable or delay payment
thereunder (other than for setoffs
for fees and chargebacks consistent with
the practices of such Credit Card
Issuer or Credit Card Processor with such
Borrower as of the date hereof or as
such practices may hereafter change as a
result of changes to the policies of
such Credit Card Issuer or Credit Card
Processor applicable to its customers
generally and unrelated to the
circumstances of such Borrower or any Guarantor);
(l) such Credit Card Receivables are subject to the first
priority,
valid and perfected security interest and
lien of Agent, for and on behalf of
itself and Lenders, and any goods giving
rise thereto are not, and were not at
the time of the sale thereof, subject to
any security interest or lien in favor
of any person other than Agent except as
otherwise permitted in this Agreement,
in each case subject to and in accordance
with the terms and conditions
applicable hereunder to any such permitted
security interest or lien;
(m) there are no proceedings or actions which are pending or, to
the
best of any Borrower's knowledge,
threatened against the Credit Card Issuers or
Credit Card Processors with respect to such
Credit Card Receivables which would
reasonably be expected to result in any
material adverse change in the financial
condition of any such Credit Card Issuer or
Credit Card Processor;
(n) such Credit Card Receivables are owed by Credit Card Issuers
or
Credit Card Processors deemed creditworthy
at all times by Agent in good faith;
(o) no event of default has occurred under the Credit Card
Agreement
of such Borrower with the Credit Card
Issuer or Credit Card Processor who has
issued the credit card or debit card or
handles payments under the credit card
or debit card used in the sale which
gave
10
<PAGE>
rise to such Credit Card Receivables which
event of default gives such Credit
Card Issuer or Credit Card Processor the
right to cease or suspend payments to
such Borrower or any Guarantor and no event
shall have occurred which gives such
Credit Card Issuer or Credit Card Processor
the right to setoff against amounts
otherwise payable to such Borrower,
including on behalf of a Guarantor (other
than for then current fees and chargebacks
consistent with the current practices
of such Credit Card Issuer or Credit Card
Processor as of the date hereof or as
such practices may hereafter change as a
result of changes to the policies of
such Credit Card Issuer or Credit Card
Processor applicable to its customers
generally and unrelated to the
circumstances of such Borrower or any Guarantor),
except as may have been waived in writing
on terms and conditions reasonably
satisfactory to Agent pursuant to the
Credit Card Acknowledgment by such Credit
Card Issuer or Credit Card Processor), or
the right to establish reserves or
establish or demand collateral, and the
Credit Card Issuer or Credit Card
Processor has not sent any written notice
of default and/or notice of its
intention to cease or suspend payments to
such Borrower in respect of such
Credit Card Receivables or to establish
reserves or cash collateral for
obligations of such Borrower to such Credit
Card Issuer or Credit Card
Processor, and such Credit Card Agreements
are otherwise in full force and
effect and constitute the legal, valid,
binding and enforceable obligations of
the parties thereto;
(p) the terms of the sale giving rise to such Credit Card
Receivables and all practices of such
Borrower and Guarantors with respect to
such Credit Card Receivables comply in all
material respects with applicable
Federal, State, and local laws and
regulations; and
(q) the customer using the credit card or debit card giving rise
to
such Credit Card Receivable shall not have
returned the merchandise purchased
giving rise to such Credit Card
Receivable.
Credit Card Receivables which would
otherwise constitute Eligible Credit Card
Receivables pursuant to this Section will
not be deemed ineligible solely by
virtue of the Credit Card Agreements with
respect thereto having been entered
into by any Guarantor, for the benefit of
Borrowers. General criteria for
Eligible Credit Card Receivables may only
be changed and any new criteria for
Eligible Credit Card Receivables may only
be established by Agent in good faith,
upon notice to Administrative Borrower,
based on either: (i) an event, condition
or other circumstance arising after the
date hereof, or (ii) existing on the
date hereof to the extent Agent has no
written notice thereof from a Borrower
prior to the date hereof, in either case
under clause (i) or (ii) which
adversely affects or could reasonably be
expected to adversely affect the Credit
Card Receivables in the good faith
determination of Agent. Any Credit Card
Receivables which are not Eligible Credit
Card Receivables shall nevertheless be
part of the Collateral.
1.41
"Eligible In-Transit Inventory" shall mean Inventory that would
otherwise be Eligible Inventory (other than
for its location) that as to which:
(i) the Inventory is not purchased with and
subject to a Letter of Credit, (ii)
the Inventory is then in transit (whether
by vessel, air or land) from a
location outside of the continental United
States of America to a location
permitted hereunder and for which Agent
shall have received such evidence
thereof as Agent may require, (iii) the
title of the Inventory has passed to,
and such Inventory is owned by, a Borrower
and for which Agent shall have
received such evidence thereof as Agent may
require, (iv) Agent has received
each of the following: (A) a Collateral
Access Agreement, duly authorized,
executed and delivered by the customs
broker, freight forwarder or other third
party
11
<PAGE>
handling the shipping and delivery of such
Inventory, (B) a copy of the
certificate of marine cargo insurance in
connection therewith in which Agent has
been named as an additional insured and
loss payee in a manner acceptable to
Agent and (C) a copy of the invoice,
packing slip and manifest with respect
thereto, (v) the Inventory is either (A)
subject to a negotiable bill of lading:
(1) that is consigned to Agent, (2) that
was issued by the carrier in respect of
such Inventory and (3) is either in the
possession of the customs broker,
freight forwarder or other third party
handling the shipping and delivery of
such Inventory acting on behalf of Agent or
the subject of a telefacsimile or
other electronic copy which also confirms
that such document is in transit to
Agent or the customs broker, freight
forwarder or other third party handling the
shipping and delivery of such Inventory
acting on behalf of Agent or (B) subject
to a negotiable cargo receipt and is not
the subject of a bill of lading (other
than a negotiable bill of lading consigned
to, and in the possession of a
carrier or Agent, or their respective
agents) and such negotiable cargo receipt
is (1) consigned to Agent, (2) issued by a
carrier in respect of such Inventory
and (3) either in the possession of Agent
or the customs broker, freight
forwarder or other third party handling the
shipping and delivery of such
Inventory acting on behalf of Agent or the
subject of a telefacsimile or other
electronic copy which also confirms that
such document is in transit to Agent or
the customs broker, freight forwarder or
other third party handling the shipping
and delivery of such Inventory, (vi) such
Inventory is insured against types of
loss, damage, hazards, and risks, and in
amounts, satisfactory to Agent, and
(vii) such Inventory shall not have been in
transit for more than forty-five
(45) days.
1.42
"Eligible Inventory" shall mean, as to each Borrower, Inventory
of
such Borrower consisting of finished goods
held for resale in the ordinary
course of the business of such Borrower
that satisfy the criteria set forth
below as determined by Agent. In general,
Eligible Inventory shall not include:
(a) raw materials and work-in-process; (b)
spare parts for equipment; (c)
packaging and shipping materials; (d)
supplies used or consumed in such
Borrower's business; (e) Inventory at
premises other than those owned or leased
and controlled by any Borrower except any
Inventory (other than Eligible
In-Transit Inventory and Eligible LC
Inventory) which would otherwise be deemed
Eligible Inventory that is not located at
premises owned and operated by such
Borrower may nevertheless be considered
Eligible Inventory: (i) as to retail
store locations which are leased by such
Borrower, Agent may, at its option,
establish such Reserves in respect of
amounts at any time payable by such
Borrower to the lessor thereof as Agent
shall determine in accordance with the
definition of Reserves, (ii) as to
locations which are leased by such Borrower
(other than retail store locations which
are leased), if Agent shall have
received a Collateral Access Agreement from
the lessor of such location, duly
authorized, executed and delivered by such
lessor, or if Agent shall not have
received such Collateral Access Agreement
(or Agent shall determine to accept a
Collateral Access Agreement that does not
include all required provisions or
provisions in the form otherwise required
by Agent), Agent may, at its option,
nevertheless consider Inventory at such
location to be Eligible Inventory to the
extent
12
<PAGE>
Agent shall have established such Reserves
in respect of amounts at any time
payable by such Borrower to the lessor
thereof as Agent shall determine in good
faith, and (iii) as to locations operated
by a third person, (A) if Agent shall
have received a Collateral Access Agreement
from such owner with respect to such
location, duly authorized, executed and
delivered by such operator or if Agent
shall not have received such Collateral
Access Agreement (or Agent shall
determine to accept a Collateral Access
Agreement that does not include all
required provisions or provisions in the
form otherwise required by Agent),
Agent may, at its option, nevertheless
consider Inventory at such location to be
Eligible Inventory to the extent Agent
shall have established such Reserves in
respect of amounts at any time payable by
such Borrower to the owner and
operator thereof as Agent shall determine,
and (B) in addition, if required by
Agent, if Agent shall have received: (1)
UCC financing statements between the
owner and operator, as consignee or bailee
and such Borrower, as consignor or
bailor, in form and substance satisfactory
to Agent, which are duly assigned to
Agent and (2) a written notice to any
lender to the owner and operator of the
first priority security interest in such
Inventory of Agent; (f) Inventory
subject to a security interest or lien in
favor of any Person other than Agent
except those permitted in this Agreement
that are subject to an intercreditor
agreement in form and substance
satisfactory to Agent between the holder of such
security interest or lien and Agent; (g)
bill and hold goods; (h) unserviceable,
obsolete or slow moving Inventory; (i)
Inventory that is not subject to the
first priority, valid and perfected
security interest of Agent; (j) returned
Inventory that is not saleable and held for
sale in the ordinary course of
business; (k) damaged and/or defective
Inventory; (l) Inventory purchased or
sold on consignment; (m) Inventory located
outside the United States of America;
and (n) Inventory of a Borrower sold under
a licensed trademark or trade name or
which contains or uses a medium subject to
a licensed copyright, unless, on or
prior to the forty-fifth (45th) day after
the date of this Agreement, either (i)
Agent shall be satisfied that it has the
right to sell or otherwise dispose of
such Inventory without further action or
(ii) Agent shall have received a letter
agreement, in form and substance
satisfactory to Agent, duly authorized,
executed and delivered by such Borrower and
the applicable licensor. The
criteria for Eligible Inventory set forth
above may only be changed and any new
criteria for Eligible Inventory may only be
established by Agent in good faith
based on either: (i) an event, condition or
other circumstance arising after the
date hereof, or (ii) an event, condition or
other circumstance existing on the
date hereof to the extent Agent has no
written notice thereof from a Borrower
prior to the date hereof, in either case
under clause (i) or (ii) which
adversely affects or could reasonably be
expected to adversely affect the
Inventory in the good faith determination
of Agent. Any Inventory that is not
Eligible Inventory shall nevertheless be
part of the Collateral.
1.43
"Eligible LC Inventory" shall mean Inventory that would otherwise
be
Eligible Inventory (other than for its
location) that as to which: (i) the
Inventory is purchased with and subject to
a Letter of Credit, (ii) the
Inventory is then in transit (whether by
vessel, air or land) from a location
outside of the continental United States of
America to a location permitted
hereunder and for which Agent shall have
received such evidence thereof as Agent
may require, (iii) the title of the
Inventory has passed to, and such Inventory
is owned by, a Borrower and for which Agent
shall have received such evidence
thereof as Agent may require, (iv) Agent
has received each of the following: (A)
a Collateral Access Agreement, duly
authorized, executed and delivered by the
customs broker, freight forwarder or other
third party handling the shipping and
delivery of such Inventory, (B) a copy of
the certificate of marine cargo
insurance in connection therewith in which
Agent has been named as an additional
insured and loss payee in a manner
acceptable to Agent and (C) a copy of the
invoice, packing slip and manifest with
respect thereto, (v) the Inventory is
either (A) subject to a negotiable bill of
lading: (1) that is consigned to
Agent, (2) that was issued by the carrier
in respect of such Inventory and (3)
is either in the possession of the customs
broker, freight forwarder or other
third party handling the shipping and
delivery of such Inventory acting on
behalf of Agent or the subject of a
telefacsimile or other electronic copy which
also confirms that such document is in
transit to Agent or the customs broker,
freight forwarder or other third party
handling the shipping and delivery of
such Inventory acting on behalf of Agent or
(B) subject to a negotiable cargo
receipt and is not the
13
<PAGE>
subject of a bill of lading (other than a
negotiable bill of lading consigned
to, and in the possession of a carrier or
Agent, or their respective agents) and
such negotiable cargo receipt is (1)
consigned to Agent, (2) issued by a carrier
in respect of such Inventory and (3) either
in the possession of Agent or the
customs broker, freight forwarder or other
third party handling the shipping and
delivery of such Inventory acting on behalf
of Agent or the subject of a
telefacsimile or other electronic copy
which also confirms that such document is
in transit to Agent or the customs broker,
freight forwarder or other third
party handling the shipping and delivery of
such Inventory, (vi) such Inventory
is insured against types of loss, damage,
hazards, and risks, and in amounts,
satisfactory to Agent, and (vii) such
Inventory shall not have been in transit
for more than forty-five (45) days.
1.44
"Eligible Real Property" shall mean, as to any Borrower, Real
Property owned by such Borrower in fee
simple in each case which are acceptable
to Agent in good faith based on the
criteria set forth below. In general,
Eligible Real Property shall not include:
(i) Real Property which is not
operated by a Borrower except as Agent may
otherwise agree; (ii) Real Property
subject to a security interest, lien,
mortgage or other encumbrance in favor of
any person other than Agent (and other than
those permitted under Section
9.8(b), 9.8(c) or 9.8(d) hereof or are
subject to an intercreditor agreement in
form and substance satisfactory to Agent
between the holder of such lien and
Agent); (iii) Real Property that is not
located in the continental United States
of America; (iv) Real Property that is not
subject to the valid and enforceable,
first priority, perfected security
interest, lien and mortgage of Agent; (v)
Real Property where Agent determines that
issues relating to compliance with
Environmental Laws adversely affect such
Real Property in such manner that such
Real Property would not be acceptable for
purposes of including it in the
calculation of the Borrowing Base based on
the customary practices, procedures
and policies of Agent and its Affiliates;
provided, that, if the Real Property
is acceptable for such purposes in
accordance with such practices, procedures
and policies, subject to the satisfaction
of the other conditions set forth
herein and any requirements arising
pursuant to such practices, procedures and
policies, such Real Property will be
considered Eligible Real Property but
subject to the right of Agent to establish
Reserves to reflect the adverse
affect of any environmental conditions or
events with respect thereto on its
value or the ability of Agent to sell or
otherwise realize on such Collateral;
(vi) Real Property improved with
residential housing; (vii) Real Property that
is not subject to a then current final
written appraisal by an appraiser
reasonably acceptable to Agent (which shall
be one of the appraisers selected by
Agent from its list of approved
appraisers), on which Agent and Lenders are
expressly permitted to rely, and that is in
form, scope and methodology
reasonably satisfactory to Agent; (viii) if
requested by Agent, Real Property
for which Agent shall not have received a
then current environmental audit
conducted by an independent environmental
engineering firm reasonably acceptable
to Agent (based on Agent's list of approved
firms and in form, scope, substance
and methodology reasonably satisfactory to
Agent, the results of which are
satisfactory to Agent; (ix) if requested by
Agent, Real Property for which Agent
shall not have received, in form and
substance reasonably satisfactory to Agent,
a valid and effective title insurance
policy (whether in the form of a pro form
policy or a marked up title policy
commitment) issued by a company and agent
reasonably acceptable to Agent: (A)
insuring the priority, amount and
sufficiency of the Mortgage with respect to
such Real Property, (B) insuring
against matters that would be disclosed by
surveys and (C) containing any
legally available endorsements, assurances
or affirmative coverage requested by
Agent for protection of its interests; and
(x) any Real Property
14
<PAGE>
other than the Baldwyn Real Property,
except as Agent may otherwise agree. Any
Real Property that is not Eligible Real
Property shall nevertheless be part of
the Collateral.
1.45
"Eligible Transferee" shall mean (a) any Lender; (b) the parent
company of any Lender and/or any Affiliate
of such Lender which is at least
fifty (50%) percent owned by such Lender or
its parent company; (c) any person
(whether a corporation, partnership, trust
or otherwise) that is engaged in the
business of making, purchasing, holding or
otherwise investing in bank loans and
similar extensions of credit in the
ordinary course of its business and is
administered or managed by a Lender or with
respect to any Lender that is a fund
which invests in bank loans and similar
extensions of credit, any other fund
that invests in bank loans and similar
extensions of credit and is managed by
the same investment advisor as such Lender
or by an Affiliate of such investment
advisor, and in each case is approved by
Agent; and (d) any other commercial
bank, financial institution or "accredited
investor" (as defined in Regulation D
under the Securities Act of 1933) approved
by Agent, provided, that, (i) neither
any Borrower nor any Guarantor or any
Affiliate of any Borrower or Guarantor
shall qualify as an Eligible Transferee and
(ii) no Person to whom any
Indebtedness which is in any way
subordinated in right of payment to any other
Indebtedness of any Borrower or Guarantor
shall qualify as an Eligible
Transferee, except as Agent may otherwise
specifically agree.
1.46
"Environmental Laws" shall mean all foreign, Federal, State and
local
laws (including common law), legislation,
rules, codes, licenses, permits
(including any conditions imposed therein),
authorizations, judicial or
administrative decisions, injunctions or
agreements between any Borrower or
Guarantor and any Governmental Authority,
(a) relating to pollution and the
protection, preservation or restoration of
the environment (including air, water
vapor, surface water, ground water,
drinking water, drinking water supply,
surface land, subsurface land, plant and
animal life or any other natural
resource), or to human health or safety,
(b) relating to the exposure to, or the
use, storage, recycling, treatment,
generation, manufacture, processing,
distribution, transportation, handling,
labeling, production, release or
disposal, or threatened release, of
Hazardous Materials, or (c) relating to all
laws with regard to recordkeeping,
notification, disclosure and reporting
requirements respecting Hazardous
Materials. The term "Environmental Laws"
includes (i) the Federal Comprehensive
Environmental Response, Compensation and
Liability Act of 1980, the Federal
Superfund Amendments and Reauthorization Act,
the Federal Water Pollution Control Act of
1972, the Federal Clean Water Act,
the Federal Clean Air Act, the Federal
Resource Conservation and Recovery Act of
1976 (including the Hazardous and Solid
Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic
Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act,
and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state
counterparts to such laws and (iii) any
common law or equitable doctrine that may
impose liability or obligations for
injuries or damages due to, or threatened
as a result of, the presence of or
exposure to any Hazardous Materials.
1.47
"Equipment" shall mean, as to each Borrower and Guarantor, all
of
such Borrower's and Guarantor's now owned
and hereafter acquired equipment,
wherever located, including machinery, data
processing and computer equipment
(whether owned or licensed and including
embedded software), vehicles, tools,
furniture, fixtures, all attachments,
accessions and property now or hereafter
affixed thereto or used in connection
therewith, and substitutions and
replacements thereof, wherever located.
15
<PAGE>
1.48
"ERISA" shall mean the Employee Retirement Income Security Act
of
1974, together with all rules, regulations
and interpretations thereunder or
related thereto.
1.49
"ERISA Affiliate" shall mean any person required to be
aggregated
with any Borrower, any Guarantor or any of
its or their respective Subsidiaries
under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
1.50
"ERISA Event" shall mean (a) any "reportable event", as defined
in
Section 4043(c) of ERISA or the regulations
issued thereunder, with respect to a
Pension Plan, other than events as to which
the requirement of notice has been
waived in regulations by the Pension
Benefit Guaranty Corporation; (b) the
adoption of any amendment to a Pension Plan
that would require the provision of
security pursuant to Section 401(a)(29) of
the Code or Section 307 of ERISA; (c)
a complete or partial withdrawal by any
Borrower, Guarantor or any ERISA
Affiliate from a Multiemployer Plan or a
cessation of operations which is
treated as such a withdrawal or
notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice
of intent to terminate, the treatment
of a Pension Plan amendment as a
termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings
by the Pension Benefit Guaranty
Corporation to terminate a Pension Plan;
(e) an event or condition which might
reasonably be expected to constitute
grounds under Section 4042 of ERISA for the
termination of, or the appointment of a
trustee to administer, any Plan; (f) the
imposition of any liability under Title IV
of ERISA, other than the Pension
Benefit Guaranty Corporation premiums due
but not delinquent under Section 4007
of ERISA, upon any Borrower, Guarantor or
any ERISA Affiliate in excess of
$750,000 and (g) any other event or
condition with respect to a Plan including
any Pension Plan subject to Title IV of
ERISA maintained, or contributed to, by
any ERISA Affiliate that could reasonably
be expected to result in liability of
any Borrower in excess of $750,000.
1.51
"Eurodollar Rate Loans" shall mean any Revolving Loans or
portion
thereof on which interest is payable based
on the Adjusted Eurodollar Rate in
accordance with the terms hereof.
1.52 "Event of Default" shall mean
the occurrence or existence of any
event or condition described in Section
10.1 hereof.
1.53
"Excess Availability" shall mean the amount, as determined by
Agent,
calculated at any time, equal to:
(a) the lesser of (i) the Borrowing Base or (ii) the Maximum
Credit
(in each case under (i) or (ii) after
giving effect to any Reserves other than
any Reserves in respect of Letters of
Credit), minus
(b) the sum of (i) the amount of the then outstanding Loans,
plus
(ii) the amount of all Reserves then
established in respect of Letters of
Credit, plus (iii) the aggregate amount of
all then outstanding and unpaid trade
payables and other obligations of Borrowers
which are outstanding more than
sixty (60) days past due as of the end of
the immediately preceding month or at
Agent's option, as of a more recent date
based on such reports as Agent
16
<PAGE>
may from time to time specify (other than
trade payables or other obligations
being contested or disputed by a Borrower
in good faith).
1.54
"Exchange Act" shall mean the Securities Exchange Act of 1934,
together with all rules, regulations and
interpretations thereunder or related
thereto.
1.55
"Existing Lenders" shall mean the lenders to Borrowers listed
on
Schedule 1.55 hereto and their respective
predecessors, successors and assigns.
1.56
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate per annum equal, for each day
during such period, to the weighted
average of the rates on overnight Federal
Funds transactions with members of the
Federal Reserve System arranged by Federal
Funds brokers, as published for such
day (or, if such day is not a Business Day,
for the next preceding Business Day)
by the Federal Reserve Bank of New York,
or, if such rate is not so published
for any day that is a Business Day, the
average of the quotations for such day
on such transactions received by the Agent
from three Federal Funds brokers of
recognized standing selected by it.
1.57 "Fee
Letter" shall mean the letter agreement, dated of even date
herewith, by and among Borrowers and Agent,
setting forth certain fees payable
by Borrowers in connection with the Credit
Facility, as the same now exists or
may hereafter be amended, modified,
supplemented, extended, renewed, restated or
replaced.
1.58
"Financing Agreements" shall mean, collectively, this Agreement
and
all notes, guarantees, security agreements,
deposit account control agreements,
investment property control agreements,
intercreditor agreements and all other
agreements, documents and instruments now
or at any time hereafter executed
and/or delivered by any Borrower or
Guarantor in connection with this Agreement;
provided, that, the Financing Agreements
shall not include Hedge Agreements.
1.59
"Foreign Lender" shall mean any Lender that is organized under
the
laws of a jurisdiction other than that in
which a Borrower is resident for tax
purposes. For purposes of this definition,
the United States of America, each
State thereof and the District of Columbia
shall be deemed to constitute a
single jurisdiction.
1.60
"Funding Bank" shall have the meaning given to such term in
Section
3.3 hereof.
1.61
"GAAP" shall mean generally accepted accounting principles in
the
United States of America as in effect from
time to time as set forth in the
opinions and pronouncements of the
Accounting Principles Board and the American
Institute of Certified Public Accountants
and the statements and pronouncements
of the Financial Accounting Standards Board
which are applicable to the
circumstances as of the date of
determination consistently applied.
1.62
"Governmental Authority" shall mean any nation or government,
any
state, province, or other political
subdivision thereof, any central bank (or
similar monetary or regulatory authority)
thereof, and any entity exercising
executive, legislative, judicial,
regulatory or administrative functions of or
pertaining to government.
17
<PAGE>
1.63
"Guarantors" shall mean, collectively, the following (together
with
their respective successors and assigns):
(a) HF Enterprises, Inc., a Delaware
corporation; (b) HF Resources, Inc., a
Delaware corporation; and (c) any other
Person that at any time after the date
hereof becomes party to a guarantee in
favor of Agent or any Lender or otherwise
liable on or with respect to the
Obligations or who is the owner of any
property which is security for the
Obligations (other than Borrowers); each
sometimes being referred to herein
individually as a "Guarantor".
1.64
"Hazardous Materials" shall mean any hazardous, toxic or
dangerous
substances, materials and wastes, including
hydrocarbons (including naturally
occurring or man-made petroleum and
hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation,
radioactive materials, biological
substances, polychlorinated biphenyls,
pesticides, herbicides and any other kind
and/or type of pollutants or contaminants
(including materials which include
hazardous constituents), sewage, sludge,
industrial slag, solvents and/or any
other similar substances, materials, or
wastes and including any other
substances, materials or wastes that are or
become regulated under any
Environmental Law (including any that are
or become classified as hazardous or
toxic under any Environmental Law).
1.65
"Hedge Agreement" shall mean an agreement between any Borrower
or
Guarantor and a Bank Product Provider that
is a rate swap agreement, basis swap,
forward rate agreement, commodity swap,
interest rate option, forward foreign
exchange agreement, spot foreign exchange
agreement, rate cap agreement, rate
floor agreement, rate collar agreement,
currency swap agreement, cross-currency
rate swap agreement, currency option, any
other similar agreement (including any
option to enter into any of the foregoing
or a master agreement for any the
foregoing together with all supplements
thereto) for the purpose of protecting
against or managing exposure to
fluctuations in interest or exchange rates,
currency valuations or commodity prices;
sometimes being collectively referred
to herein as "Hedge Agreements".
1.66
"Indebtedness" shall mean, with respect to any Person, any
liability,
whether or not contingent, (a) in respect
of borrowed money (whether or not the
recourse of the lender is to the whole of
the assets of such Person or only to a
portion thereof) or evidenced by bonds,
notes, debentures or similar
instruments; (b) representing the balance
deferred and unpaid of the purchase
price of any property or services (other
than an account payable to a trade
creditor (whether or not an Affiliate)
incurred in the ordinary course of
business of such Person and payable in
accordance with customary trade
practices); (c) all obligations as lessee
under leases which have been, or
should be, in accordance with GAAP recorded
as Capital Leases; (d) any
contractual obligation, contingent or
otherwise, of such Person to pay or be
liable for the payment of any indebtedness
described in this definition of
another Person, including, without
limitation, any such indebtedness, directly
or indirectly guaranteed, or any agreement
to purchase, repurchase, or otherwise
acquire such indebtedness, obligation or
liability or any security therefor, or
to provide funds for the payment or
discharge thereof, or to maintain solvency,
assets, level of income, or other financial
condition; (e) all obligations with
respect to redeemable stock and redemption
or repurchase obligations under any
Capital Stock or other equity securities
issued by such Person; (f) all
reimbursement obligations and other
liabilities of such Person with respect to
surety bonds (whether bid, performance or
otherwise), letters of credit,
banker's acceptances, drafts or similar
documents or instruments issued for such
Person's account; (g) all indebtedness of
such Person in respect of indebtedness
of another Person for
18
<PAGE>
borrowed money or indebtedness of another
Person otherwise described in this
definition which is secured by any
consensual lien, security interest,
collateral assignment, conditional sale,
mortgage, deed of trust, or other
encumbrance on any asset of such Person,
whether or not such obligations,
liabilities or indebtedness are assumed by
or are a personal liability of such
Person, all as of such time; (h) all
obligations, liabilities and indebtedness
of such Person (marked to market) arising
under swap agreements, cap agreements
and collar agreements and other agreements
or arrangements designed to protect
such person against fluctuations in
interest rates or currency or commodity
values; (i) all obligations owed by such
Person under License Agreements with
respect to non-refundable, advance or
minimum guarantee royalty payments; (j)
indebtedness of any partnership or joint
venture in which such Person is a
general partner or a joint venturer to the
extent such Person is liable therefor
as a result of such Person's ownership
interest in such entity, except to the
extent that the terms of such indebtedness
expressly provide that such Person is
not liable therefor or such Person has no
liability therefor as a matter of law
and (k) the principal and interest portions
of all rental obligations of such
Person under any synthetic lease or similar
off-balance sheet financing where
such transaction is considered to be
borrowed money for tax purposes but is
classified as an operating lease in
accordance with GAAP.
1.67 "Information
Certificate" shall mean, collectively, the Information
Certificates of Borrowers and Guarantors
constituting Exhibit B hereto
containing material information with
respect to Borrowers and Guarantors, their
respective businesses and assets provided
by or on behalf of Borrowers and
Guarantors to Agent in connection with the
preparation of this Agreement and the
other Financing Agreements and the
financing arrangements provided for herein.
1.68
"Intellectual Property" shall mean, as to each Borrower and
Guarantor, such Borrower's and Guarantor's
now owned and hereafter arising or
acquired: patents, patent rights, patent
applications, copyrights, works which
are the subject matter of copyrights,
copyright applications, copyright
registrations, trademarks, servicemarks,
trade names, trade styles, trademark
and service mark applications, and licenses
and rights to use any of the
foregoing and all applications,
registrations and recordings relating to any of
the foregoing as may be filed in the United
States Copyright Office, the United
States Patent and Trademark Office or in
any similar office or agency of the
United States, any State thereof, any
political subdivision thereof or in any
other country or jurisdiction, together
with all rights and privileges arising
under applicable law with respect to any
Borrower's or Guarantor's use of any of
the foregoing; all extensions, renewals,
reissues, divisions, continuations, and
continuations-in-part of any of the
foregoing; all rights to sue for past,
present and future infringement of any of
the foregoing; inventions, trade
secrets, formulae, processes, compounds,
drawings, designs, blueprints, surveys,
reports, manuals, and operating standards;
goodwill (including any goodwill
associated with any trademark or
servicemark, or the license of any trademark or
servicemark); customer and other lists in
whatever form maintained; trade secret
rights, copyright rights, rights in works
of authorship, domain names and domain
name registration; software and contract
rights relating to computer software
programs, in whatever form created or
maintained.
1.69
"Intercompany Royalty Accounts" shall mean, collectively, the
following bank accounts maintained at PNC
Bank: (a) the bank account of
Resources bearing account number 5602229374
and (b) the bank account of
Enterprises bearing account number
5602229788
19
<PAGE>
1.70
"Interest Expense" shall mean, for any period, as to any Person,
as
determined in accordance with GAAP, the
total interest expense of such Person,
whether paid or accrued during such period
(including the interest component of
Capital Leases for such period), including,
without limitation, discounts in
connection with the sale of any Accounts
and bank fees, commissions, discounts
and other fees and charges owed with
respect to letters of credit, banker's
acceptances or similar instruments.
1.71
"Interest Period" shall mean for any Eurodollar Rate Loan, a
period
of approximately one (1), two (2), or three
(3) months duration as any Borrower
(or Administrative Borrower on behalf of
such Borrower) may elect, the exact
duration to be determined in accordance
with the customary practice in the
applicable Eurodollar Rate market;
provided, that, such Borrower (or
Administrative Borrower on behalf of such
Borrower) may not elect an Interest
Period which will end after the last day of
the then-current term of this
Agreement.
1.72
"Interest Rate" shall mean,
(a) Subject to clause (b) of this definition below:
(i) as to Prime Rate Loans, a rate equal to the then
Applicable Margin for Prime Rate Loans on a
per annum basis plus the Prime Rate,
and
(ii) as to Eurodollar Rate Loans, a rate equal to the then
Applicable Margin for Eurodollar Rate Loans
on a per annum basis plus the
Adjusted Eurodollar Rate.
(b) Notwithstanding anything to the contrary contained herein,
Agent
may, at its option, and Agent shall, at the
direction of the Required Lenders,
increase the Applicable Margin otherwise
used to calculate the Interest Rate for
Prime Rate Loans and Eurodollar Rate Loans
in each case to the highest
percentage set forth in the definition of
the term Applicable Margin for each
category of Revolving Loans (without regard
to the amount of Quarterly Average
Excess Availability) plus two (2%) percent
per annum: (i) for the period (A)
from and after the effective date of
termination or non-renewal hereof until
Agent and Lenders have received full and
final payment of all outstanding and
unpaid Obligations which are not contingent
and cash collateral or letter of
credit, as Agent may specify, in the
amounts and on the terms required under
Section 13.1 hereof for contingent
Obligations (notwithstanding entry of a
judgment against any Borrower or Guarantor)
and (B) from and after the date of
the occurrence of an Event of Default and
for so long as such Event of Default
is continuing and (ii) on Revolving Loans
at any time outstanding in excess of
the Borrowing Base (whether or not such
excess(es) arise or are made with or
without the knowledge or consent of Agent
or any Lender and whether made before
or after an Event of Default).
1.73
"Inventory" shall mean, as to each Borrower and Guarantor, all
of
such Borrower's and Guarantor's now owned
and hereafter existing or acquired
goods, wherever located, which (a) are
leased by such Borrower or Guarantor as
lessor; (b) are held by such Borrower or
Guarantor for sale or lease or to be
furnished under a contract of service; (c)
are furnished by such Borrower or
Guarantor under a contract of service; or
(d) consist of raw materials, work in
process, finished goods or materials used
or consumed in its business.
1.74
"Investment" shall have the meaning set forth in Section 9.10
hereof.
20
<PAGE>
1.75
"Investment Property Control Agreement" shall mean an agreement
in
writing, in form and substance satisfactory
to Agent, by and among Agent, any
Borrower or Guarantor (as the case may be)
and any securities intermediary,
commodity intermediary or other person who
has custody, control or possession of
any investment property of such Borrower or
Guarantor acknowledging that such
securities intermediary, commodity
intermediary or other person has custody,
control or possession of such investment
property on behalf of Agent, that it
will comply with entitlement orders
originated by Agent with respect to such
investment property, or other instructions
of Agent, and has such other terms
and conditions as Agent may require.
1.76
"Issuing Bank" shall mean Wachovia.
1.77
"Lenders" shall mean the financial institutions who are
signatories
hereto as Lenders and other persons made a
party to this Agreement as a Lender
in accordance with Section 13.7 hereof, and
their respective successors and
assigns; each sometimes being referred to
herein individually as a "Lender".
1.78
"Letter of Credit Documents" shall mean, with respect to any
Letter
of Credit, such Letter of Credit, any
amendments thereto, any documents
delivered in connection therewith, any
application therefor, and any agreements,
instruments, guarantees or other documents
(whether general in application or
applicable only to such Letter of Credit)
governing or providing for i) the
rights and obligations of the parties
concerned or at risk or ii) any collateral
security for such obligations.
1.79
"Letter of Credit Limit" shall mean $25,000,000.
1.80
"Letter of Credit Obligations" shall mean, at any time, the sum of
i)
the aggregate undrawn amount of all Letters
of Credit outstanding at such time,
plus ii) the aggregate amount of all
drawings under Letters of Credit for which
Issuing Bank has not at such time been
reimbursed, plus iii) without
duplication, the aggregate amount of all
payments made by each Lender to Issuing
Bank with respect to such Lender's
participation in Letters of Credit as
provided in Section 2.2 for which Borrowers
have not at such time reimbursed the
Lenders, whether by way of a Revolving Loan
or otherwise.
1.81
"Letters of Credit" shall mean all letters of credit (whether
documentary or stand-by and whether for the
purchase of inventory, equipment or
otherwise) issued by an Issuing Bank for
the account of any Borrower pursuant to
this Agreement, and all amendments,
renewals, extensions or replacements
thereof.
1.82
"License Agreements" shall have the meaning set forth in Section
8.11
hereof.
1.83
"Loans" shall mean the Revolving Loans.
1.84
"London Interbank Offered Rate" shall mean, with respect to any
Eurodollar Rate Loan for the Interest
Period applicable thereto, the rate of
interest per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any
successor page) as the London interbank
offered rate for deposits in U.S. Dollars
at approximately 11:00 a.m. (London
time) two (2) Business Days prior to the
first day of such Interest Period for a
term comparable to such Interest Period;
provided, that, if more than one rate
is specified on
21
<PAGE>
Telerate Page 3750, the applicable rate
shall be the arithmetic average of all
such rates. If, for any reason, such rate
is not available, the term "London
Interbank Offered Rate" shall mean, with
respect to any Eurodollar Loan for the
Interest Period applicable thereto, the
rate of interest per annum (rounded
upwards, if necessary, to the nearest 1/100
of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered
rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two
(2) Business Days prior to the first
day of such Interest Period for a term
comparable to such Interest Period;
provided, however, if more than one rate is
specified on Reuters Screen LIBO
Page, the applicable rate shall be the
arithmetic average of all such rates.
1.85
"Material Adverse Effect" shall mean a material adverse effect on
(a)
the financial condition, business,
performance or operations of Borrowers; (b)
the legality, validity or enforceability of
this Agreement or any of the other
Financing Agreements; (c) the legality,
validity, enforceability, perfection or
priority of the security interests and
liens of Agent upon the Collateral; (d)
the Collateral or its value; (e) the
ability of any Borrower to repay the
Obligations or of any Borrower to perform
its obligations under this Agreement
or any of the other Financing Agreements as
and when to be performed; or (f) the
ability of Agent or any Lender to enforce
the Obligations or realize upon the
Collateral or otherwise with respect to the
rights and remedies of Agent and
Lenders under this Agreement or any of the
other Financing Agreements.
1.86
"Material Contract" shall mean (a) any contract or other
agreement
(other than the Financing Agreements),
written or oral, of any Borrower or
Guarantor involving monetary liability of
or to any Person in an amount in
excess of $5,000,000 in any fiscal year and
(b) any other contract or other
agreement (other than the Financing
Agreements), whether written or oral, to
which any Borrower or Guarantor is a party
as to which the breach,
nonperformance, cancellation or failure to
renew by any party thereto would have
a Material Adverse Effect.
1.87
"Maturity Date" shall mean shall have the meaning set forth in
Section 13.1 hereof.
1.88
"Maximum Credit" shall mean the amount of $110,000,000, as such
amount may be increased or decreased in
accordance with the terms of Section 2.3
hereof.
1.89 "Mortgage"
shall mean the Deed of Trust, Security Agreement,
Assignment of Rents and Leases and Fixture
Filing, dated even date herewith by
Parent in favor of Agent with respect to
the Real Property and related assets of
such Borrower located in Baldwyn,
Mississippi, as the same now exist or may
hereafter be amended, modified,
supplemented, extended, renewed, restated or
replaced.
1.90
"Multiemployer Plan" shall mean a "multi-employer plan" as defined
in
Section 4001(a)(3) of ERISA which is or was
at any time during the current year
or the immediately preceding six (6) years
contributed to by any Borrower,
Guarantor or any ERISA Affiliate or with
respect to which any Borrower,
Guarantor or any ERISA Affiliate may incur
any liability.
1.91 "Net
Recovery Percentage" shall mean the fraction, expressed as a
percentage, (a) the numerator of which is
the amount equal to the recovery on
the aggregate amount of the Inventory at
such time on a "going out of business
sale" basis as set forth in the most
recent
22
<PAGE>
appraisal of Inventory received by Agent in
accordance with Section 7.3, net of
operating expenses, liquidation expenses
and commissions, and (b) the
denominator of which is the applicable
original cost of the aggregate amount of
the Inventory subject to appraisal.
1.92
"Obligations" shall mean (a) any and all Loans, Letter of
Credit
Obligations and all other obligations,
liabilities and indebtedness of every
kind, nature and description owing by any
or all of Borrowers to Agent or any
Lender, including principal, interest,
charges, fees, costs and expenses,
however evidenced, whether as principal,
surety, endorser, guarantor or
otherwise, arising under this Agreement or
any of the other Financing
Agreements, whether now existing or
hereafter arising, whether arising before,
during or after the initial or any renewal
term of this Agreement or after the
commencement of any case with respect to
such Borrower under the United States
Bankruptcy Code or any similar statute
(including the payment of interest and
other amounts which would accrue and become
due but for the commencement of such
case, whether or not such amounts are
allowed or allowable in whole or in part
in such case), whether direct or indirect,
absolute or contingent, joint or
several, due or not due, primary or
secondary, liquidated or unliquidated, or
secured or unsecured and (b) for purposes
only of Section 5.1 hereof and the
Security Provisions and subject to the
priority in right of payment set forth in
Section 6.4 hereof, all obligations,
liabilities and indebtedness of every kind,
nature and description owing by any or all
of Borrowers or Guarantors to Agent
or any Bank Product Provider arising under
or pursuant to any Bank Products,
whether now existing or hereafter arising,
provided, that, (i) as to any such
obligations, liabilities and indebtedness
arising under or pursuant to a Hedge
Agreement, the same shall only be included
within the Obligations if upon
Agent's request, Agent shall have entered
into an agreement, in form and
substance satisfactory to Agent, with the
Bank Product Provider that is a
counterparty to such Hedge Agreement, as
acknowledged and agreed to by Borrowers
and Guarantors, providing for the delivery
to Agent by such counterparty of
information with respect to the amount of
such obligations and providing for the
other rights of Agent and such Bank Product
Provider in connection with such
arrangements, (ii) any Bank Product
Provider, other than Wachovia and its
Affiliates, shall have delivered written
notice to Agent that (A) such Bank
Product Provider has entered into a
transaction to provide Bank Products to a
Borrower and Guarantor and (B) the
obligations arising pursuant to such Bank
Products provided to Borrowers and
Guarantors constitute Obligations entitled to
the benefits of the security interest of
Agent granted hereunder, and Agent
shall have accepted such notice in writing
and (iii) in no event shall any Bank
Product Provider to whom such obligations,
liabilities or indebtedness are owing
be deemed a Lender for purposes hereof to
the extent of and as to such
obligations, liabilities or indebtedness
other than for purposes of Section 5.1
hereof and other than for purposes of
Sections 12.1, 12.2, 12.3(b), 12.6, 12.7,
12.9, 12.12 and 13.6 hereof and in no event
shall such obligations be included
in the Obligations to the extent that the
effect is that the value of the
Collateral (as determined by Agent) is less
than the Obligations and in no event
shall the approval of any such person be
required in connection with the release
or termination of any security interest or
lien of Agent.
1.93
"Obligor" shall mean any guarantor, endorser, acceptor, surety
or
other person liable on or with respect to
the Obligations or who is the owner of
any property which is security for the
Obligations (including, without
limitation, Guarantors), other than
Borrowers.
1.94
"Other Taxes" shall have the meaning given to such term in
Section
6.5 hereof.
23
<PAGE>
1.95
"Owned Store Real Properties" shall mean, collectively, the
Real
Properties of Parent listed on Schedule
1.95 hereto.
1.96
"Parent" shall mean Hancock Fabrics, Inc., a Delaware
corporation,
and its successors and assigns.
1.97
"Participant" shall mean any financial institution that acquires
and
holds a participation in the interest of
any Lender in any of the Loans and
Letters of Credit in conformity with the
provisions of Section 13.7 of this
Agreement governing participations.
1.98
"Permitted Acquisitions" shall mean the purchase by a Borrower
or
Guarantor after the date hereof of all or
substantially all of the assets of any
Person or a business or division of such
Person (including pursuant to a merger
with such Person or the formation of a
wholly owned Subsidiary solely for such
purpose that is merged with such Person) or
of all or a majority of the Capital
Stock (such assets or Person being referred
to herein as the "Acquired
Business") and in one or a series of
transaction that satisfies each of the
following conditions as determined by
Agent:
(a) Agent shall have received not less than ten (10) Business
Days'
prior written notice of the proposed
acquisition and such information with
respect thereto as Agent may request,
including (i) the proposed date and amount
of the acquisition, (ii) a list and
description of the assets or shares to be
acquired, (iii) the total purchase price
for the assets to be purchased (and the
terms of payment of such purchase price),
and (iv) a summary of the due
diligence undertaken by Borrowers in
connection with such acquisition,
(b) the Acquired Business shall be an operating company that
engages
in a line of business substantially similar
to the business that Borrowers are
engaged in on date hereof,
(c) the consideration paid for or in connection with the assets
or
shares of the Acquired Business shall not
exceed $10,000,000 and after giving
effect to all payments or other
consideration paid in respect of such
acquisition, the aggregate amount of all
payments made or other consideration
delivered in connection with all Permitted
Acquisitions shall not exceed
$20,000,000,
(d) if requested by Agent, Agent shall have received: (i) the
most
recent annual and interim financial
statements with respect to the Acquired
Business and related statements of income
and cash flows, (ii) detailed
forecasts of cash flows for the Acquired
Business, (iii) detailed projections
for Parent and its Subsidiaries through the
Maturity Date, on a monthly basis
for the first year after the acquisition
and on a quarterly basis thereafter,
giving pro forma effect to such
acquisition, based on assumptions satisfactory
to Agent and demonstrating pro forma
compliance with all financial covenants set
forth in this Agreement, prepared in good
faith an in a manner and using such
methodology as is consistent with the most
recent financial statements delivered
to Agent pursuant to Section 9.6 hereof and
in form and substance satisfactory
to Agent and (iv) current, updated
projections of the amount of the Borrowing
Base and Excess Availability for the six
month period after the date of such
acquisition, in a form reasonably
satisfactory to Agent, representing Borrowers'
reasonable best estimate of the future
24
<PAGE>
Borrowing Base and Excess Availability for
the period set forth therein as of
the date not more than ten (10) days prior
to the date of such acquisition,
which projections shall have been prepared
on the basis of the assumptions set
forth therein which Borrowers believe are
fair and reasonable as of the date of
preparation in light of current and
reasonably foreseeable business conditions,
(e) if Agent so elects, Agent shall have received an appraisal
of
the inventory of the Acquired Business and
such other assets of the Acquired
Business as Agent may specify, in each case
in form and containing assumptions
and appraisal methods satisfactory to Agent
by an appraiser acceptable to Agent,
on which Agent and Lenders are expressly
permitted to rely,
(f) if Agent so elects, Agent shall have completed a field
examination with respect to the business
and assets of the Acquired Business in
accordance with Agent's customary
procedures and practices and as otherwise
required by the nature and circumstances of
the business of the Acquired
Business, the scope and results of which
shall be satisfactory to Agent and any
inventory of the Acquired Business shall
only be Eligible Inventory to the
extent the criteria for Eligible Inventory
set forth herein are satisfied with
respect thereto in accordance with this
Agreement (or such other or additional
criteria as Agent may, at its option,
establish with respect thereto in
accordance with this Agreement and subject
to such Reserves as Agent may
establish in connection with the Acquired
Business),
(g) Agent shall have received all items required by Sections 5.2
and
9.23 in connection with the Acquired
Business,
(h) in the case of the acquisition of the Capital Stock of
another
Person, the board of directors (or other
comparable governing body) of such
other Person shall have duly approved such
acquisition and such Person shall not
have announced that it will oppose such
acquisition or shall not have commenced
any action which alleges that such
acquisition will violate applicable law,
(i) Excess Availability shall have been not less than
$30,000,000
(or, if the Maximum Credit has been
increased pursuant to Section 2.3 hereof,
such higher amount as Agent shall
determine) for each of the two consecutive
months immediately prior to the date of any
such acquisition based on the
Borrowing Base as of the end of each of
such months and after giving effect to
the acquisition and all payments and other
consideration in respect thereof, on
a pro forma basis using the Excess
Availability as of the end of the month
immediately prior to the date of such
acquisition and payments or other
consideration, Excess Availability shall be
not less than $30,000,000 (or, if
the Maximum Credit has been increased
pursuant to Section 2.3 hereof, such
higher amount as Agent shall
determine),
(j) no Default or Event of Default shall exist or have occurred
as
of the date of the acquisition or any
payment in respect thereof and after
giving effect to the acquisition or such
payment,
(k) Agent shall have received true, correct and complete copies
of
all agreements, documents and instruments
relating to such acquisition, which
documents shall be satisfactory to Agent,
and
25
<PAGE>
(l) if required by Agent, Agent shall have received a certificate
of
the chief financial officer or chief
executive officer of Administrative
Borrower certifying to Agent and Lenders as
to the matters set forth above in
this definition.
1.99
"Permitted Dispositions" shall mean each of the following:
(a) sales of Inventory in the ordinary course of business,
(b) the sale or other disposition of Equipment (including
worn-out
or obsolete Equipment or Equipment no
longer used or useful in the business of
any Borrower or Guarantor) so long as such
sales or other dispositions do not
involve Equipment having an aggregate fair
market value in excess of $500,000
for all such Equipment disposed of in any
fiscal year of Borrowers or as Agent
may otherwise agree,
(c) sales or other dispositions by any Borrower of assets in
connection with the closing or sale of a
retail store location of such Borrower
in the ordinary course of such Borrower's
business which consist of leasehold
interests in the premises of such store,
the Equipment and fixtures located at
such premises and the books and records
relating exclusively and directly to the
operations of such store; provided, that,
as to each and all such sales and
closings, (i) after giving effect thereto,
no Default or Event of Default shall
exist or have occurred and be continuing,
and (ii) such sale shall be on
commercially reasonable prices and terms in
a bona fide arm's length
transaction,
(d) the sale of the Tupelo Real Property, any of the Owned
Store
Real Properties, the Equipment and fixtures
located at the Tupelo Real Property
and the Owned Store Real Properties and the
books and records relating
exclusively and directly to the operations
of the Tupelo Real Property or any of
the Owned Store Real Properties; provided,
that, as to such sale and closing,
(i) Agent shall have received not less than
ten (10) Business Days prior written
notice of such sale or closing, which
notice shall set forth in reasonable
detail satisfactory to Agent, the parties
to such sale, the purchase price and
the manner of payment thereof and such
other information with respect thereto as
Agent may request, (ii) after giving effect
thereto, no Default or Event of
Default shall exist or have occurred and be
continuing, (iii) such sale shall be
on commercially reasonable prices and terms
in a bona fide arm's length
transaction,
(e) the grant by any Borrower or Guarantor after the date hereof
of
a non-exclusive license to any person for
the use of any Intellectual Property
consisting of trademarks owned by such
Borrower or Guarantor; provided, that, as
to any such license, each of the following
conditions is satisfied, (i) such
licenses shall be on commercially
reasonable prices and terms in a bona fide
arms' length transactions, (ii) the rights
of the licensee shall be subject to
the rights of Agent, and shall not
adversely affect, limit or restrict the
rights of Agent to use any Intellectual
Property of a Borrower or Guarantor to
sell or otherwise dispose of any Inventory
or other Collateral, (iii) Agent
shall have received, true, correct and
complete copies of the executed license
agreement, promptly upon the execution
thereof and (iv) as of the date of the
grant of any such license, and after giving
effect thereto, no Default or Event
of Default shall exist or have
occurred,
26
<PAGE>
(f) sales, transfers and dispositions of assets of a Borrower
to
another Borrower or by a Guarantor or other
Subsidiary of Parent to a Borrower
or Guarantor, in each case to the extent
permitted under Section 9.12 hereof.
1.100
"Permitted Investments" shall mean each of the following:
(a) the endorsement of instruments for collection or deposit in
the
ordinary course of business;
(b) Investments in cash or Cash Equivalents, provided, that, (i)
at
any time on and after a Cash Dominion Event
and for so long as the same is
continuing, no Loans are then outstanding
and (ii) the terms and conditions of
Section 5.2 hereof shall have been
satisfied with respect to the deposit
account, investment account or other
account in which such cash or Cash
Equivalents are held;
(c) the existing Investments of each Borrower and Guarantor as
of
the date hereof in its Subsidiaries,
provided, that, no Borrower or Guarantor
shall have any further obligations or
liabilities to make any capital
contributions or other additional
investments or other payments to or in or for
the benefit of any of such
Subsidiaries;
(d) loans and advances by any Borrower or Guarantor to employees
of
such Borrower or Guarantor not to exceed
the principal amount of $250,000 in the
aggregate at any time outstanding for: (i)
reasonably and necessary work-related
travel or other ordinary business expenses
to be incurred by such employee in
connection with their work for such
Borrower or Guarantor and (ii) reasonable
and necessary relocation expenses of such
employees (including home mortgage
financing for relocated employees);
(e) stock or obligations issued to any Borrower or Guarantor by
any
Person (or the representative of such
Person) in respect of Indebtedness of such
Person owing to such Borrower or Guarantor
in connection with the insolvency,
bankruptcy, receivership or reorganization
of such Person or a composition or
readjustment of the debts of such Person;
provided, that, the original of any
such stock or instrument evidencing such
obligations shall be promptly delivered
to Agent, upon Agent's request, together
with such stock power, assignment or
endorsement by such Borrower or Guarantor
as Agent may request; and
(f) obligations of account debtors to any Borrower or Guarantor
arising from Accounts which are past due
evidenced by a promissory note made by
such account debtor payable to such
Borrower or Guarantor; provided, that,
promptly upon the receipt of the original
of any such promissory note by such
Borrower or Guarantor, such promissory note
shall be endorsed to the order of
Agent by such Borrower or Guarantor and
promptly delivered to Agent as so
endorsed.
1.101
"Person" or "person" shall mean any individual, sole
proprietorship,
partnership, corporation (including any
corporation which elects subchapter S
status under the Code), limited liability
company, limited liability
partnership, business trust, unincorporated
association, joint stock
corporation, trust, joint venture or other
entity or any government or any
agency or instrumentality or political
subdivision thereof.
27
<PAGE>
1.102
"Plan" means an employee benefit plan (as defined in Section 3(3)
of
ERISA) which any Borrower or Guarantor
sponsors, maintains, or to which it
makes, is making, or is obligated to make
contributions, or, in the case of a
Multiemployer Plan, has made contributions
at any time during the immediately
preceding six (6) plan years or with
respect to which any Borrower or Guarantor
may incur liability.
1.103
"Prime Rate" shall mean, on any date, the greater of (a) the
rate
from time to time publicly announced by
Wachovia, or its successors, as its
prime rate, whether or not such announced
rate is the best rate available at
such bank or (b) the Federal Funds Rate in
effect on such day plus one-half
(1/2%) percent.
1.104
"Prime Rate Loans" shall mean any Revolving Loans or portion
thereof
on which interest is payable based on the
Prime Rate in accordance with the
terms thereof.
1.105 "Pro
Rata Share" shall mean as to any Lender, the fraction
(expressed as a percentage) the numerator
of which is such Lender's Commitment
and the denominator of which is the
aggregate amount of all of the Commitments
of Lenders, as adjusted from time to time
in accordance with the provisions of
Section 13.7 hereof; provided, that, if the
Commitments have been terminated,
the numerator shall be the unpaid amount of
such Lender's Loans and its interest
in the Letters of Credit and the
denominator shall be the aggregate amount of
all unpaid Loans and Letters of Credit.
1.106
"Provision for Taxes" shall mean an amount equal to all taxes
imposed on or measured by net income,
whether Federal, State, county or local,
and whether foreign or domestic, that are
paid or payable by any Person in
respect of any period in accordance with
GAAP.
1.107
"Quarterly Average Excess Availability" shall mean, at any time,
the
daily average of the aggregate amount of
the Excess Availability for the
immediately preceding fiscal quarter.
1.108
"Real Property" shall mean all now owned and hereafter acquired
real
property of each Borrower and Guarantor,
including leasehold interests, together
with all buildings, structures, and other
improvements located thereon and all
licenses, easements and appurtenances
relating thereto, wherever located,
including the real property and related
assets more particularly described in
the Mortgage.
1.109
"Real Property Availability" shall mean the amount equal to the
lesser of:
(a) $10,000,000; or
(b) fifty (50%) percent of the fair market value of Eligible
Real
Property as set forth in the most recent
acceptable appraisal (or acceptable
updates of existing appraisals) of such
Real Property received by Agent in
accordance with Section 4.1 or 7.4
hereof.
1.110
"Receivables" shall mean all of the following now owned or
hereafter
arising or acquired property of each
Borrower and Guarantor: (a) all Accounts;
(b) all interest, fees, late charges,
penalties, collection fees and other
amounts due or to become due or otherwise
payable
28
<PAGE>
in connection with any Account; (c) all
payment intangibles of such Borrower or
Guarantor; (d) letters of credit,
indemnities, guarantees, security or other
deposits and proceeds thereof issued
payable to any Borrower or Guarantor or
otherwise in favor of or delivered to any
Borrower or Guarantor in connection
with any Account; or (e) all other
accounts, contract rights, chattel paper,
instruments, notes, general intangibles and
other forms of obligations owing to
any Borrower or Guarantor, whether from the
sale and lease of goods or other
property, licensing of any property
(including Intellectual Property or other
general intangibles), rendition of services
or from loans or advances by any
Borrower or Guarantor or to or for the
benefit of any third person (including
loans or advances to any Affiliates or
Subsidiaries of any Borrower or
Guarantor) or otherwise associated with any
Accounts, Inventory or general
intangibles of any Borrower or Guarantor
(including, without limitation, choses
in action, causes of action, tax refunds,
tax refund claims, any funds which may
become payable to any Borrower or Guarantor
in connection with the termination
of any Plan or other employee benefit plan
and any other amounts payable to any
Borrower or Guarantor from any Plan or
other employee benefit plan, rights and
claims against carriers and shippers,
rights to indemnification, business
interruption insurance and proceeds
thereof, casualty or any similar types of
insurance and any proceeds thereof and
proceeds of insurance covering the lives
of employees on which any Borrower or
Guarantor is a beneficiary).
1.111
"Records" shall mean, as to each Borrower and Guarantor, all of
such
Borrower's and Guarantor's present and
future books of account of every kind or
nature, purchase and sale agreements,
invoices, ledger cards, bills of lading
and other shipping evidence, statements,
correspondence, memoranda, credit files
and other data relating to the Collateral
or any account debtor, together with
the tapes, disks, diskettes and other data
and software storage media and
devices, file cabinets or containers in or
on which the foregoing are stored
(including any rights of any Borrower or
Guarantor with respect to the foregoing
maintained with or by any other
person).
1.112
"Register" shall have the meaning set forth in Section 13.7
hereof.
1.113
"Required Lenders" shall mean, at any time, those Lenders whose
Pro
Rata Shares aggregate more than fifty (50%)
percent of the aggregate of the
Commitments of all Lenders, or if the
Commitments shall have been terminated,
Lenders to whom more than fifty (50%)
percent of the then outstanding
Obligations are owing; provided, that, if
the Pro Rata Share of any Lender
exceeds fifty (50%) percent at a time when
more than one Lender exists, then
Required Lenders shall mean such Lender and
at least one other Lender.
1.114
"Reserves" shall mean as of any date of determination, such
amounts
as Agent may from time to time establish
and revise in good faith reducing the
amount of Revolving Loans and Letters of
Credit which would otherwise be
available to any Borrower under the lending
formula(s) provided for herein: (a)
to reflect events, conditions,
contingencies or risks which, as determined by
Agent in good faith, adversely affect, or
would have a reasonable likelihood of
adversely affecting, either (i) the
Collateral or any other property which is
security for the Obligations, its value or
the amount that might be received by
Agent from the sale or other disposition or
realization upon such Collateral, or
(ii) the assets, business or prospects of
any Borrower or Guarantor or (iii) the
security interests and other rights of
Agent or any Lender in the Collateral
(including the enforceability, perfection
and priority thereof) or (b) to
reflect
29
<PAGE>
Agent's good faith belief that any
collateral report or financial information
furnished by or on behalf of any Borrower
or Guarantor to Agent is or may have
been incomplete, inaccurate or misleading
in any material respect or (c) to
reflect outstanding Letters of Credit as
provided in Section 2.2 hereof or (d)
in respect of any state of facts which
Agent determines in good faith
constitutes a Default or an Event of
Default. Without limiting the generality of
the foregoing, Reserves may be established
to reflect any of the following:
(i)that dilution with respect to the Credit
Card Receivables (based on the ratio
of the aggregate amount of non-cash
reductions in Credit Card Receivables for
any period to the aggregate dollar amount
of the sales of Borrowers giving rise
to Credit Card Receivables for such period)
as calculated by Agent for any
period is or is reasonably anticipated to
be greater than five (5%) percent of
such appraised fair market value, (ii) to
the extent that the fair market value
of the Real Property subject to the
Mortgage as set forth in the most recent
acceptable appraisals received by Agent
with respect thereto has declined so
that the amount of Real Property
Availability is greater than fifty (50%)
percent of such appraised fair market
value, (iii)inventory shrinkage, (iv)
reserves in respect of markdowns and cost
variances (pursuant to discrepancies
between the purchase order price of
Inventory and the actual cost thereof), (v)
amounts due or to become due in respect of
sales, use and/or withholding taxes,
(vi) any rental payments, service charges
or other amounts to become due to
lessors of real property to the extent
Inventory or Records are located in or on
such property or such Records are needed to
monitor or otherwise deal with the
Collateral, provided, that, the Reserves
established pursuant to this clause
(vi) as to retail store locations that are
leased shall not exceed at any time
the aggregate of amounts payable for the
next three (3) months to the lessors of
such retail store locations located in
those States where any right of the
lessor to Collateral may have priority over
the security interest and lien of
Agent therein, provided, that, such
limitation on the amount of the Reserves
pursuant to this clause (vi) shall only
apply so long as: (A) no Event of
Default shall exist or have occurred, (B)
neither a Borrower, Guarantor nor
Agent shall have received notice of any
event of default under the lease with
respect to such location and (C) no
Borrower has granted to the lessor a
security interest or lien upon any assets
of such Borrower, (vii) any rental
payments, service charges or other amounts
due or to become due to lessors of
personal property; (viii) amounts owing by
Borrowers to Credit Card Issuers or
Credit Card Processors in connection with
the Credit Card Agreements, (ix) up to
fifty (50%) percent of the aggregate amount
of merchandise gift certificates and
coupons, (x) an increase in the number of
days of the turnover of Inventory or a
change in the mix of the Inventory that
results in an overall decrease in the
value thereof or a deterioration in its
nature or quality (but only to the
extent not addressed by the lending
formulas in a manner satisfactory to Agent),
(xi) variances between the perpetual
inventory records of Borrowers and the
results of the test counts of Inventory
conducted by Agent with respect thereto
in excess of the percentage acceptable to
Agent, (xii) the aggregate amount of
deposits, if any, received by any Borrower
from its retail customers in respect
of unfilled orders for merchandise and the
purchase price of layaway goods and
(xiii) obligations, liabilities or
indebtedness (contingent or otherwise) of
Borrowers or Guarantors to any Bank Product
Provider arising under or in
connection with any Bank Products of any
Borrower or Guarantor with a Bank
Product Provider or as such Bank Product
Provider may otherwise require in
connection therewith to the extent that
such obligation, liabilities or
indebtedness constitute Obligations as such
term is defined herein or otherwise
receive the benefit of the security
interest of Agent in any Collateral. The
amount of any Reserve established by Agent
shall have a reasonable relationship
to the event, condition or other matter
which is the basis for such Reserve as
determined by Agent
30
<PAGE>
1.115
"Restricted Payment" shall mean (a) any cash dividend or other
cash
distribution, direct or indirect, on
account of any shares of any class of
Capital Stock of Parent or any of its
Subsidiaries, as the case may be, now or
hereafter outstanding, (b) any redemption,
retirement, sinking fund or similar
payment on account of, or purchase or other
acquisition for value, direct or
indirect, of any shares of any class of
Capital Stock of Parent or any of its
Subsidiaries, except for any redemption,
retirement, sinking funds or similar
payment payable solely in such shares of
that class of stock or in any class of
stock junior to that class, (c) any cash
payment made to redeem, purchase,
repurchase or retire, or to obtain the
surrender of, any outstanding warrants,
options or other rights to acquire any
shares of any class of Capital Stock of
Parent or any of its Subsidiaries now or
hereafter outstanding, or (d) any
payment to any Affiliate of any Borrower
except to the extent expressly
permitted in this Agreement.
1.116
"Revolving Loans" shall mean the loans now or hereafter made by
or
on behalf of any Lender or by Agent for the
account of any Lender on a revolving
basis pursuant to the Credit Facility
(involving advances, repayments and
readvances) as set forth in Section 2.1
hereof.
1.117
"Secured Parties" shall mean, collectively, (i) Agent, (ii)
Lenders,
(iii) the Issuing Bank and (iv) any Bank
Product Provider; provided, that, (i)
as to any Bank Product Provider, only to
the extent of the Obligations owing to
such Bank Product Provider and (ii) such
parties are sometimes referred to
herein individually as a "Secured
Party".
1.118
"Security Provisions" shall mean the following provisions of
the
Financing Agreements (as the same now exist
or may hereafter be amended,
modified, supplemented, extended, renewed,
restated or replaced): (a) Section
2.01 of the Mortgage; (b) Section 1 of the
Trademark Collateral Assignment and
Security Agreement, dated of even date
herewith, by and between Enterprises and
Agent; (c) Section 1 of the Pledge and
Security Agreement, dated of even date
herewith, by Parent in favor of Agent; (d)
Section 1 of the Pledge and Security
Agreement, dated of even date herewith, by
Resources in favor of Agent; (e)
Section 1 of the Pledge and Security
Agreement, dated of even date herewith, by
Enterprises in favor of Agent; and (f) such
other sections of such other
Financing Agreements as Agent may from time
to time designate as a "Security
Provision" in a writing delivered by Agent
to Administrative Borrower.
1.119
"Solvent" shall mean, at any time with respect to any Person,
that
at such time such Person (a) is able to pay
its debts as they mature and has
(and has a reasonable basis to believe it
will continue to have) sufficient
capital (and not unreasonably small
capital) to carry on its business consistent
with its practices as of the date hereof,
and (b) the assets and properties of
such Person at a fair valuation (and
including as assets for this purpose at a
fair valuation all rights of subrogation,
contribution or indemnification
arising pursuant to any guarantees given by
such Person) are greater than the
Indebtedness of such Person, and including
subordinated and contingent
liabilities computed at the amount which,
such person has a reasonable basis to
believe, represents an amount which can
reasonably be expected to become an
actual or matured liability (and including
as to contingent liabilities arising
pursuant to any guarantee the face amount
of such liability as reduced to
reflect the probability of it becoming a
matured liability).
1.120
"Special Agent Advances" shall have the meaning set forth in
Section
12.11 hereof.
31
<PAGE>
1.121
"Specified Amount" shall mean $25,000,000; provided, that, the
Specified Amount shall be reduced to
$17,500,000 commencing on the date (if any)
that Agent shall have received evidence
that Borrowers have implemented and
tested a management information system with
respect to inventory which is
satisfactory to Agent.
1.122
"Standby Letters of Credit" shall mean all Letters of Credit
other
than Commercial Letters of Credit.
1.123
"Store Accounts" shall have the meaning set forth in Section
6.3.
1.124
"Subordinated Debt Documents" shall mean, collectively, any and
all
agreements, documents and instruments
evidencing or otherwise related to
Indebtedness permitted under Section 9.9(f)
hereof.
1.125
"Subsidiary" or "subsidiary" shall mean, with respect to any
Person,
any corporation, limited liability company,
limited liability partnership or
other limited or general partnership,
trust, association or other business
entity of which an aggregate of at least a
majority of the outstanding Capital
Stock or other interests entitled to vote
in the election of the board of
directors of such corporation (irrespective
of whether, at the time, Capital
Stock of any other class or classes of such
corporation shall have or might have
voting power by reason of the happening of
any contingency), managers, trustees
or other controlling persons, or an
equivalent controlling interest therein, of
such Person is, at the time, directly or
indirectly, owned by such Person and/or
one or more subsidiaries of such
Person.
1.126
"Tupelo Real Property" shall mean all Real Property of Parent
located in Tupelo, Mississippi.
1.127
"UCC" shall mean the Uniform Commercial Code as in effect in
the
State of New York and any successor
statute, as in effect from time to time
(except that terms used herein which are
defined in the Uniform Commercial Code
as in effect in the State of New York on
the date hereof shall continue to have
the same meaning notwithstanding any
replacement or amendment of such statute
except as Agent may otherwise
determine).
1.128
"Value" shall mean, as determined by Agent in good faith, with
respect to Inventory, the lower of (a) cost
computed on a first-in first-out
basis in accordance with GAAP or (b) market
value, provided, that, for purposes
of the calculation of the Borrowing Base,
(i) the Value of the Inventory shall
not include: (A) the portion of the value
of Inventory equal to the profit
earned by any Borrower or Guarantor on the
sale thereof to any other Borrower or
(B) write-ups or write-downs in value with
respect to currency exchange rates
and (ii) notwithstanding anything to the
contrary contained herein, the cost of
the Inventory shall be computed in the same
manner and consistent with the most
recent appraisal of the Inventory received
and accepted by Agent prior to the
date hereof, if any.
1.129
"Voting Stock" shall mean with respect to any Person, (a) one (1)
or
more classes of Capital Stock of such
Person having general voting powers to
elect at least a majority of the board of
directors, managers or trustees of
such Person, irrespective of whether at the
time Capital Stock of any other
class or classes have or might have voting
power by reason of the happening of
any contingency, and (b) any Capital Stock
of such Person convertible or
32
<PAGE>
exchangeable without restriction at the
option of the holder thereof into
Capital Stock of such Person described in
clause (a) of this definition.
1.130
"Wachovia" shall mean Wachovia Bank, National Association, in
its
individual capacity, and its successors and
assigns.
SECTION 2. CREDIT FACILITIES
2.1
Revolving Loans.
(a) Subject to and upon the terms and conditions contained
herein,
each Lender severally (and not jointly)
agrees to make its Pro Rata Share of
Revolving Loans to Borrowers from time to
time in amounts requested by any
Borrower (or Administrative Borrower on
behalf of Borrowers) up to the aggregate
amount outstanding for all Lenders at any
time equal to the Borrowing Base at
such time.
(b) Except in Agent's discretion, with the consent of all
Lenders,
or as otherwise provided herein, (i) the
aggregate principal amount of the
Revolving Loans and the Letter of Credit
Obligations outstanding at any time
shall not exceed the Maximum Credit and
(ii) the aggregate principal amount of
the Revolving Loans and Letter of Credit
Obligations outstanding at any time
shall not exceed the Borrowing Base.
(c) In the event that (i) the aggregate principal amount of the
Revolving Loans and the Letter of Credit
Obligations outstanding at any time
exceed the Maximum Credit, or (ii) except
as otherwise provided herein, the
aggregate principal amount of the Revolving
Loans and Letter of Credit
Obligations outstanding at any time exceed
the Borrowing Base, such event shall
not limit, waive or otherwise affect any
rights of Agent or Lenders in such
circumstances or on any future occasions
and Borrowers shall, upon demand by
Agent, which may be made at any time or
from time to time, immediately repay to
Agent the entire amount of any such
excess(es) for which payment is demanded.
2.2
Letters of Credit.
(a) Subject to and upon the terms and conditions contained
herein
and in the Letter of Credit Documents, at
the request of a Borrower (or
Administrative Borrower on behalf of such
Borrower), Agent agrees to cause
Issuing Bank to issue, and Issuing Bank
agrees to issue, for the account of such
Borrower one or more Letters of Credit, for
the ratable risk of each Lender
according to its Pro Rata Share, containing
terms and conditions acceptable to
Agent and Issuing Bank.
(b) In addition to any charges, fees or expenses charged by any
bank
or issuer in connection with the Letters of
Credit, Borrowers shall pay to
Agent, for the benefit of Lenders, monthly
a letter of credit fee at a rate
equal to the percentage (on a per annum
basis) set forth below on the daily
outstanding balance of the Commercial
Letters of Credit and Standby Letters of
Credit during the immediately preceding
month (or part thereof), payable in
arrears as of the first of each succeeding
month, provided, that, such
percentage shall be increased or decreased,
as the case may be, to the
percentage (on a per annum basis) set forth
below based on
33
<PAGE>
the Quarterly Average Excess Availability
for the immediately preceding fiscal
quarter being at or within the amounts
indicated for such percentage:
<TABLE>
<CAPTION>
Commercial
Standby
Quarterly Average Excess
Letter of
Letter of
Tier
Availability
Credit Rate
Credit Rate
----
-------------------
-----------
-----------
<S> <C>
<C>
<C>
1 Greater
than $35,000,000
.750%
1.25%
2 Less than
or equal to $35,000,000
and
greater than $15,000,000
.875%
1.50%
3 Less than
or equal to $15,000,000
1.000%
1.75%
</TABLE>
provided, that, (i) the applicable
percentage shall be calculated and
established once each fiscal quarter and
shall remain in effect until adjusted
thereafter after the end of the next fiscal
quarter, (ii) if the Excess
Availability is greater than $15,000,000 as
of the date hereof, the applicable
percentage through December 31, 2005 shall
be the amount for Tier 2 set forth
above (otherwise the applicable percentage
through December 31, 2005 shall be
the amount for Tier 3 above), (iii) in the
event that the level of Quarterly
Average Excess Availability falls within
Tier 1, the EBITDA of the Parent and
its Subsidiaries for the immediately
preceding four (4) fiscal quarters (based
on the most recent financial statements
then received by Agent) shall not be
less than $20,000,000 in order for the
applicable percentage set forth for Tier
1 to apply (it being understood that, if
the level of Quarterly Average Excess
Availability falls within Tier 1 but such
EBITDA of Parent and its Subsidiaries
is less than $20,000,000, then the
applicable percentage shall be the amount for
Tier 2), and (iv) notwithstanding anything
to the contrary contained herein,
Agent may, and upon the written direction
of Required Lenders shall, require
Borrowers to pay to Agent for the benefit
of Lenders, such letter of credit fee
at a rate equal to two (2%) percent per
annum on such daily outstanding balance
higher than the rate set forth in Tier 3:
(A) for the period (1) from and after
the effective date of termination or
non-renewal hereof until Agent and Lenders
have received full and final payment of all
outstanding and unpaid Obligations
which are not contingent and cash
collateral or a letter of credit, as Agent may
specify, in the amounts and on the terms
required under Section 13.1 hereof for
contingent Obligations (notwithstanding
entry of a judgment against any Borrower
or Guarantor) and (2) from and after the
date of the occurrence of an Event of
Default and for so long as such Event of
Default is continuing and (B) on the
Letters of Credit at any time outstanding
in excess of the Letter of Credit
Limit (whether or not such excess(es) arise
or are issued with or without the
knowledge or consent of Agent or any Lender
and whether issued before or after
an Event of Default).
(c) The Borrower requesting such Letter of Credit (or
Administrative
Borrower on behalf of such Borrower) shall
give Agent and Issuing Bank three (3)
Business Days' prior written notice of such
Borrower's request for the issuance
of a Letter of Credit. Such notice shall be
irrevocable and shall specify the
original face amount of the Letter of
Credit requested, the effective date
(which date shall be a Business Day and in
no event shall be a date
34
<PAGE>
less than ten (10) days prior to the end of
the then current term of this
Agreement) of issuance of such requested
Letter of Credit, whether such Letter
of Credit may be drawn in a single or in
partial draws, the date on which such
requested Letter of Credit is to expire
(which date shall be a Business Day and
shall not be more than one year from the
date of issuance), the purpose for
which such Letter of Credit is to be
issued, and the beneficiary of the
requested Letter of Credit. The Borrower
requesting the Letter of Credit (or
Administrative Borrower on behalf of such
Borrower) shall attach to such notice
the proposed terms of the Letter of Credit.
The renewal or extension of any
Letter of Credit shall, for purposes hereof
be treated in all respects the same
as the issuance of a new Letter of Credit
hereunder.
(d) In addition to being subject to the satisfaction of the
applicable conditions precedent contained
in Section 4 hereof and the other
terms and conditions contained herein, no
Letter of Credit shall be available
unless each of the following conditions
precedent have been satisfied in a
manner satisfactory to Agent: (i) the
Borrower requesting such Letter of Credit
(or Administrative Borrower on behalf of
such Borrower) shall have delivered to
Issuing Bank at such times and in such
manner as Issuing Bank may require, an
application, in form and substance
satisfactory to Issuing Bank and Agent, for
the issuance of the Letter of Credit and
such other Letter of Credit Documents
as may be required pursuant to the terms
thereof, and the form and terms of the
proposed Letter of Credit shall be
satisfactory to Agent and Issuing Bank, (ii)
as of the date of issuance, no order of any
court, arbitrator or other
Governmental Authority shall purport by its
terms to enjoin or restrain money
center banks generally from issuing letters
of credit of the type and in the
amount of the proposed Letter of Credit,
and no law, rule or regulation
applicable to money center banks generally
and no request or directive (whether
or not having the force of law) from any
Governmental Authority with
jurisdiction over money center banks
generally shall prohibit, or request that
Issuing Bank refrain from, the issuance of
letters of credit generally or the
issuance of such Letter of Credit, (iii)
after giving effect to the issuance of
such Letter of Credit, the Letter of Credit
Obligations shall not exceed the
Letter of Credit Limit, and (iv) the Excess
Availability, prior to giving effect
to any Reserves with respect to such Letter
of Credit, on the date of the
proposed issuance of any Letter of Credit
shall be equal to or greater than: (A)
if the proposed Letter of Credit is a
Commercial Letter of Credit for the
purpose of purchasing Eligible LC Inventory
and the documents of title with
respect thereto are consigned to the
Issuing Bank or delivered to and in the
possession of a Customs Broker (provided,
that, as to such Customs Broker, Agent
shall have received a Collateral Access
Agreement duly authorized, executed and
delivered by such person, such agreement
shall be in full force and effect and
such person shall be in compliance in all
material respects with the terms
thereof), the sum of: (1) the percentage
equal to one hundred (100%) percent
minus the then applicable percentage with
respect to Eligible Inventory set
forth in the definition of Borrowing Base
multiplied by the Value of such
Eligible LC Inventory plus (2) the amount
of the Reserve to be established based
on freight, taxes, duty and other amounts
which Agent estimates must be paid in
connection with such Inventory being
purchased with such Letter of Credit
calculated as described below and (B) if
the proposed Letter of Credit is a
Standby Letter of Credit or for any other
purpose or the documents of title are
not consigned to the Issuing Bank or are
not delivered to and in the possession
of a Customs Broker (or if delivered to and
in the possession of a Customs
Broker, any of the conditions set forth in
clause (A) are not satisfied as to
such Customs Broker) in connection with a
Letter of Credit for the purpose of
purchasing Inventory, an amount equal to
one hundred (100%) percent of the face
amount thereof and all other commitments
and obligations made or incurred by
Agent with respect thereto. Effective on
the issuance of each
35
<PAGE>
Letter of Credit, a Reserve shall be
established in the applicable amount set
forth in Section 2.2(d)(iv)(A) or Section
2.2(d)(iv)(B).
(e) The amount of the Reserve based on freight, taxes, duty and
other amounts referred to above shall be
calculated from time to time as
follows: (i) the amount equal to (A) the
most recent determination by Agent of
the average of the freight, taxes, duty and
other amounts referred to above as a
percentage of the outstanding Letters of
Credit consisting of Commercial Letters
of Credit used to purchase Inventory as of
the date of such calculation in
accordance with the current practices and
procedures of Agent as of the date
hereof, multiplied by (B) the then
outstanding amount of such Letters of Credit
multiplied by (ii) the percentage equal to
(A) the percentage of one hundred
(100%) percent minus (B) the average of the
percentages used for Inventory at
such time in the calculation of the
Borrowing Base.
(f) Except in Agent's discretion, with the consent of all
Lenders
(except as otherwise provided herein), the
amount of all outstanding Letters of
Credit and all other commitments and
obligations made or incurred by Agent or
any Lender in a connection therewith shall
not at any time exceed the Maximum
Credit less any Revolving Loans
outstanding.
(g) Each
Borrower shall reimburse immediately Issuing Bank for any
draw under any Letter of Credit issued for
the account of such Borrower and pay
Issuing Bank the amount of all other
charges and fees payable to Issuing Bank in
connection with any Letter of Credit issued
for the account of such Borrower
immediately when due, irrespective of any
claim, setoff, defense or other right
which such Borrower may have at any time
against Issuing Bank or any other
Person. Each drawing under any Letter of
Credit or other amount payable in
connection therewith when due shall
constitute a request by the Borrower for
whose account such Letter of Credit was
issued to Agent for a Prime Rate Loan in
the amount of such drawing or other amount
then due, and shall be made by Agent
on behalf of Lenders as a Revolving Loan
(or Special Agent Advance, as the case
may be). The date of such Loan shall be the
date of the drawing or as to other
amounts, the due date therefor. Any
payments made by or on behalf of Agent or
any Lender to Issuing Bank and/or related
parties in connection with any Letter
of Credit shall constitute additional
Revolving Loans to such Borrower pursuant
to this Section 2 (or Special Agent
Advances as the case may be).
(h) Borrowers and Guarantors shall indemnify and hold Agent and
Lenders harmless from and against any and
all losses, claims, damages,
liabilities, costs and expenses which Agent
or any Lender may suffer or incur in
connection with any Letter of Credit and
any documents, drafts or acceptances
relating thereto, including any losses,
claims, damages, liabilities, costs and
expenses due to any action taken by any
issuer or correspondent with respect to
any Letter of Credit, except for such
losses, claims, damages, liabilities,
costs or expenses that are a direct result
of the gross negligence or wilful
misconduct of Agent or any Lender as
determined pursuant to a final
non-appealable order of a court of
competent jurisdiction. Each Borrower and
Guarantor assumes all risks with respect to
the acts or omissions of the drawer
under or beneficiary of any Letter of
Credit and for such purposes the drawer or
beneficiary shall be deemed such Borrower's
agent. Each Borrower and Guarantor
assumes all risks for, and agrees to pay,
all foreign, Federal, State and local
taxes, duties and levies relating to any
goods subject to any Letter of Credit
or any documents, drafts or acceptances
thereunder. Each
36
<PAGE>
Borrower and Guarantor hereby releases and
holds Agent and Lenders harmless from
and against any acts, waivers, errors,
delays or omissions, whether caused by
any Borrower, Guarantor, by any issuer or
correspondent or otherwise with
respect to or relating to any Letter of
Credit, except for the gross negligence
or willful misconduct of Agent or any
Lender as determined pursuant to a final,
non-appealable order of a court of
competent jurisdiction. The provisions of
this Section 2.2(h) shall survive the
payment of Obligations and the termination
of this Agreement.
(i) In connection with Inventory purchased pursuant to any Letter
of
Credit, Borrowers and Guarantors shall, at
Agent's request, instruct all
suppliers, carriers, forwarders, customs
brokers, warehouses or others receiving
or holding cash, checks, Inventory,
documents or instruments in which Agent
holds a security interest that, upon
Agent's request, such items shall be
delivered to Agent and/or subject to
Agent's order, and if they shall come into
such Borrower's or Guarantor's possession,
to deliver them, upon Agent's
request, to Agent in their original form;
provided, that, Agent shall not
exercise the rights under this clause (i)
to have such persons deliver any cash,
checks, Inventory, documents or instruments
(but as to such documents and
instruments, Agent shall not exercise such
rights only so long as the same are
held by a Customs Broker and the conditions
set forth in Section 2.2(d)(iv)(A)
hereof as to such Customs Broker are
satisfied), unless an Event of Default
shall exist or have occurred and be
continuing. Borrowers and Guarantors shall
also, at Agent's request, designate Agent
as the consignee on all bills of
lading and other negotiable and
non-negotiable documents.
(j) Each Borrower and Guarantor hereby irrevocably authorizes
and
directs Issuing Bank to name such Borrower
or Guarantor as the account party
therein and to deliver to Agent all
instruments, documents and other writings
and property received by Issuing Bank
pursuant to any Letter of Credit and to
accept and rely upon Agent's instructions
and agreements with respect to all
matters arising in connection with any
Letter of Credit or the Letter of Credit
Documents with respect thereto. Nothing
contained herein shall be deemed or
construed to grant any Borrower or
Guarantor any right or authority to pledge
the credit of Agent or any Lender in any
manner. Borrowers and Guarantors shall
be bound by any reasonable interpretation
made in good faith by Agent, or
Issuing Bank under or in connection with
any Letter of Credit or any documents,
drafts or acceptances thereunder,
notwithstanding that such interpretation may
be inconsistent with any instructions of
any Borrower or Guarantor.
(k) Immediately upon the issuance or amendment of any Letter of
Credit, each Lender shall be deemed to have
irrevocably and unconditionally
purchased and received, without recourse or
warranty, an undivided interest and
participation to the extent of such
Lender's Pro Rata Share of the liability
with respect to such Letter of Credit and
the obligations of Borrowers with
respect thereto (including all Letter of
Credit Obligations with respect
thereto). Each Lender shall absolutely,
unconditionally and irrevocably assume,
as primary obligor and not as surety, and
be obligated to pay to Issuing Bank
therefor and discharge when due, its Pro
Rata Share of all of such obligations
arising under such Letter of Credit.
Without limiting the scope and nature of
each Lender's participation in any Letter
of Credit, to the extent that Issuing
Bank has not been reimbursed or otherwise
paid as required hereunder or under
any such Letter of Credit, each such Lender
shall pay to Issuing Bank its Pro
Rata Share of such unreimbursed drawing or
other amounts then due to Issuing
Bank in connection therewith.
37
<PAGE>
(l) The obligations of Borrowers to pay each Letter of Credit
Obligations and the obligations of Lenders
to make payments to Agent for the
account of Issuing Bank with respect to
Letters of Credit shall be absolute,
unconditional and irrevocable and shall be
performed strictly in accordance with
the terms of this Agreement under any and
all circumstances, whatsoever,
notwithstanding the occurrence or
continuance of any Default, Event of Default,
the failure to satisfy any other condition
set forth in Section 4 or any other
event or circumstance. If such amount is
not made available by a Lender when
due, Agent shall be entitled to recover
such amount on demand from such Lender
with interest thereon, for each day from
the date such amount was due until the
date such amount is paid to Agent at the
interest rate then payable by any
Borrower in respect of Loans that are Prime
Rate Loans. Any such reimbursement
shall not relieve or otherwise impair the
obligation of Borrowers to reimburse
Issuing Bank under any Letter of Credit or
make any other payment in connection
therewith.
2.3
Increase or Decrease in Maximum Credit.
(a) Administrative Borrower may, at any time, deliver a written
request to Agent to increase or decrease
the Maximum Credit. Any such written
request shall specify the amount of the
increase or decrease, as the case may
be, in the Maximum Credit that Borrowers
are requesting, provided, that, (i) in
no event shall the aggregate amount of any
increase in the Maximum Credit cause
the Maximum Credit to exceed $130,000,000,
(ii) in no event shall the aggregate
amount of any decrease in the Maximum
Credit cause the Maximum Credit to be less
than $90,000,000, (ii) any such request for
an increase or decrease shall be for
an increase or decrease, as the case may
be, of not less than $10,000,000, (iv)
any such request shall be irrevocable, and
(v) in no event shall more than one
such written request be delivered to Agent
in any calendar year.
(b) Upon the receipt by Agent of a written request to increase
the
Maximum Credit, Agent shall notify each of
the Lenders of such request and each
Lender shall have the option (but not the
obligation) to increase the amount of
its Commitment by an amount up to its Pro
Rata Share of the amount of the
increase in the Maximum Credit requested by
Administrative Borrower as set forth
in the notice from Agent to such Lender.
Each Lender shall notify Agent within
thirty (30) days after the receipt of such
notice of a request for such increase
from Agent whether it is willing to so
increase its Commitment, and if so, the
amount of such increase; provided, that, no
Lender shall be obligated to provide
such increase in its Commitment and the
determination to increase the Commitment
of a Lender shall be within the sole and
absolute discretion of such Lender. If
the aggregate amount of the increases in
the Commitments received from the
Lenders does not equal or exceed the amount
of the increase in the Maximum
Credit requested by Administrative
Borrower, Agent may seek additional increases
from Lenders or Commitments from such
Eligible Transferees as it may determine,
after consultation with Administrative
Borrower. In the event Lenders (or
Lenders and any such Eligible Transferees,
as the case may be) have committed in
writing to provide increases in their
Commitments or new Commitments in an
aggregate amount in excess of the increase
in the Maximum Credit requested by
Borrowers or permitted hereunder, Agent
shall then have the right to allocate
such commitments, first to Lenders and then
to Eligible Transferees, in such
amounts and manner as Agent may determine,
after consultation with
Administrative Borrower.
38
<PAGE>
(c) In the event of a request to increase the Maximum Credit,
the
Maximum Credit shall be increased by the
amount of the increase in Commitments
from Lenders or new Commitments from
Eligible Transferees, in each case selected
in accordance with Section 2.3(b), for
which Agent has received Assignment and
Acceptances sixty (60) days after the date
of the request by Administrative
Borrower for the increase or such earlier
date as Agent and Administrative
Borrower may agree (but subject to the
satisfaction of the conditions set forth
below), whether or not the aggregate amount
of the increase in Commitments and
new Commitments, as the case may be, equal
or exceed the amount of the increase
in the Maximum Credit requested by
Administrative Borrower in accordance with
the terms hereof, effective on the date
that each of the following conditions
have been satisfied:
(i) Agent shall have received from each Lender or Eligible
Transferee that is providing an additional
Commitment as part of the increase in
the Maximum Credit, an Assignment and
Acceptance duly executed by such Lender or
Eligible Transferee and Administrative
Borrower;
(ii) the conditions precedent to the making of Revolving Loans
set forth in Section 4.2 hereof shall be
satisfied as of the date of the
increase in the Maximum Credit, both before
and after giving effect to such
increase;
(iii) Agent shall have received an opinion of counsel to
Borrowers and Guarantors in form and
substance and from counsel reasonably
satisfactory to Agent, addressing such
matters as Agent may reasonably request
(including an opinion as to no conflicts
with other Indebtedness);
(iv) such increase in the Maximum Credit on the date of the
effectiveness thereof shall not violate any
applicable law, regulation or order
or decree of any court or other
Governmental Authority and shall not be
enjoined, temporarily, preliminarily or
permanently;
(v) there shall have been paid to each Lender and Eligible
Transferee providing an additional
Commitment in connection with such increase
in the Maximum Credit all fees and expenses
due and payable to such Person on or
before the effectiveness of such increase;
and
(vi) there shall have been paid to Agent, for the account of
the Agent and Lenders (in accordance with
any agreement among them), all fees
and expenses (including reasonable fees and
expenses of counsel) due and payable
pursuant to any of the Financing Agreements
on or before the effectiveness of
such increase.
(d) Upon the receipt by Agent of a written request to decrease
the
Maximum Credit, Agent shall notify each of
the Lenders of such request and,
subject to the terms of Section 2.3(e)
hereof, the Commitments of each Lender
shall be decreased on the date determined
by Administrative Borrower and Agent
by an amount equal to such Lender's Pro
Rata Share of the amount of the decrease
in the Maximum Credit requested by
Administrative Borrower as set forth in the
notice from Agent to such Lender.
39
<PAGE>
(e) In the event of a request to decrease the Maximum Credit,
the
Maximum Credit shall be decreased by the
amount of the decrease in Commitments
requested by Administrative Borrower in
accordance with the terms hereof,
subject to the satisfaction of each of the
following conditions:
(i) the Maximum Credit, after giving effect to such decrease,
shall not be less than the aggregate amount
of the Loans and Letter of Credit
Obligations outstanding at such time;
and
(ii) Borrowers shall be in compliance with the terms of
Section 9.19 hereof, before and after
giving effect to such decrease.
(f) As of the effective date of any such increase or decrease,
as
the case may be, in the Maximum Credit,
each reference to the term Maximum
Credit herein and in any of the other
Financing Agreements shall be deemed
amended to mean the amount of the Maximum
Credit specified in the most recent
written notice from Agent to Administrative
Borrower of the increase or
decrease, as the case may be, in the
Maximum Credit.
SECTION 3. INTEREST AND FEES
3.1
Interest.
(a) Borrowers shall pay to Agent, for the benefit of Lenders,
interest on the outstanding principal
amount of the Loans at the Interest Rate.
All interest accruing hereunder on and
after the date of any Event of Default or
termination hereof shall be payable on
demand.
(b) Each Borrower (or Administrative Borrower on behalf of such
Borrower) may from time to time request
Eurodollar Rate Loans or may request
that Prime Rate Loans be converted to
Eurodollar Rate Loans or that any existing
Eurodollar Rate Loans continue for an
additional Interest Period. Such request
from a Borrower (or Administrative Borrower
on behalf of such Borrower) shall
specify the amount of the Eurodollar Rate
Loans or the amount of the Prime Rate
Loans to be converted to Eurodollar Rate
Loans or the amount of the Eurodollar
Rate Loans to be continued (subject to the
limits set forth below) and the
Interest Period to be applicable to such
Eurodollar Rate Loans. Subject to the
terms and conditions contained herein,
three (3) Business Days after receipt by
Agent of such a request from a Borrower (or
Administrative Borrower on behalf of
such Borrower), such Eurodollar Rate Loans
shall be made or Prime Rate Loans
shall be converted to Eurodollar Rate Loans
or such Eurodollar Rate Loans shall
continue, as the case may be, provided,
that, (i) no Default or Event of Default
shall exist or have occurred and be
continuing, (ii) no party hereto shall have
sent any notice of termination of this
Agreement, (iii) such Borrower (or
Administrative Borrower on behalf of such
Borrower) shall have complied with
such customary procedures as are
established by Agent and specified by Agent to
Administrative Borrower from time to time
for requests by Borrowers for
Eurodollar Rate Loans, (iv) no more than
four (4) Interest Periods may be in
effect at any one time, (v) the aggregate
amount of the Eurodollar Rate Loans
must be in an amount not less than
$5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (vi)
Agent and each Lender shall have
determined that the Interest Period or
Adjusted Eurodollar Rate is available to
Agent and such Lender and can be readily
determined as of the date of the
request for such
40
<PAGE>
Eurodollar Rate Loan by such Borrower. Any
request by or on behalf of a Borrower
for Eurodollar Rate Loans or to convert
Prime Rate Loans to Eurodollar Rate
Loans or to continue any existing
Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary
contained herein, Agent and Lenders
shall not be required to purchase United
States Dollar deposits in the London
interbank market or other applicable
Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions
hereof shall be deemed to apply as if
Agent and Lenders had purchased such
deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime
Rate Loans upon the last day of the
applicable Interest Period, unless Agent has
received and approved a request to continue
such Eurodollar Rate Loan at least
three (3) Business Days prior to such last
day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at
Agent's option, upon notice by Agent
to Parent, be subsequently converted to
Prime Rate Loans in the event that this
Agreement shall terminate or not be
renewed. Borrowers shall pay to Agent, for
the benefit of Lenders, upon demand by
Agent (or Agent may, at its option,
charge any loan account of any Borrower)
any amounts required to compensate any
Lender or Participant for any loss
(including loss of anticipated profits), cost
or expense incurred by such person, as a
result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to
any of the foregoing.
(d) Interest shall be
payable by Borrowers to Agent, for the account
of Lenders, monthly in arrears not later
than the first day of each calendar
month and shall be calculated on the basis
of a three hundred sixty (360) day
year (or, in the case of Prime Rate Loans,
a 365 or 366 day year, as the case
may be) and actual days elapsed. The
interest rate on non-contingent Obligations
(other than Eurodollar Rate Loans) shall
increase or decrease by an amount equal
to each increase or decrease in the Prime
Rate effective on the first day of the
month after any change in such Prime Rate
is announced based on the Prime Rate
in effect on the last day of the month in
which any such change occurs. In no
event shall charges constituting interest
payable by Borrowers to Agent and
Lenders exceed the maximum amount or the
rate permitted under any applicable law
or regulation, and if any such part or
provision of this Agreement is in
contravention of any such law or
regulation, such part or provision shall be
deemed amended to conform thereto.
3.2
Fees.
(a) Borrowers shall pay to Agent, for the account of Lenders,
monthly an unused line fee at a rate equal
to the percentage (on a per annum
basis) set forth below calculated upon the
amount by which the Maximum Credit
exceeds the average daily principal balance
of the outstanding Revolving Loans
and Letters of Credit during the
immediately preceding month (or part thereof)
while the Loan Agreement is in effect and
for so long thereafter as any
Obligations are outstanding. Such fee shall
be payable on the first day of each
month in arrears and shall be calculated
based on a three hundred sixty (360)
day year and actual days elapsed. The
percentage used for determining the unused
line fee shall be as set forth below if the
Quarterly Average Excess
Availability for the immediately preceding
fiscal quarter is at or within the
amounts indicated for such percentage:
41
<PAGE>
<TABLE>
<CAPTION>
Quarterly Average
Unused Line
Tier
Excess Availability
Fee Percentage
----
-------------------
--------------
<S>
<C>
<C>
1
Greater
than $35,000,000
.35%
2
Less than or equal to $35,000,000
and greater than $15,000,000
.30%
3
Less than or equal to $15,000,000
.25%
</TABLE>
provided, that, (i) the unused line fee
percentage shall be calculated and
established based on the foregoing once
each fiscal quarter, and (ii) the
applicable percentage through December 31,
2005 shall be the amount for Tier 2
set forth above.
(b) Borrowers agree to pay to Agent the other fees and amounts
set
forth in the Fee Letter in the amounts and
at all times specified therein.
3.3
Changes in Laws and Increased Costs of Loans.
(a) If after the date hereof, either (i) any change in, or in
the
interpretation of, any law or regulation is
introduced, including, without
limitation, with respect to reserve
requirements, applicable to any Lender or
any banking or financial institution from
whom any Lender borrows funds or
obtains credit (a "Funding Bank"), or (ii)
a Funding Bank or any Lender complies
with any future guideline or request from
any central bank or other Governmental
Authority or (iii) a Funding Bank, any
Lender or Issuing Bank determines that
the adoption of any applicable law, rule or
regulation regarding capital
adequacy, or any change therein, or any
change in the interpretation or
administration thereof by any Governmental
Authority, central bank or comparable
agency charged with the interpretation or
administration thereof has or would
have the effect described below, or a
Funding Bank, any Lender or Issuing Bank
complies with any request or directive
regarding capital adequacy (whether or
not having the force of law) of any such
authority, central bank or comparable
agency, and in the case of any event set
forth in this clause (iii), such
adoption, change or compliance has or would
have the direct or indirect effect
of reducing the rate of return on any
Lender's or Issuing Bank's capital as a
consequence of its obligations hereunder to
a level below that which such Lender
or Issuing Bank could have achieved but for
such adoption, change or compliance
(taking into consideration the Funding
Bank's or Lender's or Issuing Bank's
policies with respect to capital adequacy)
by an amount deemed by such Lender or
Issuing Bank to be material, and the result
of any of the foregoing events
described in clauses (i), (ii) or (iii) is
or results in an increase in the cost
to any Lender or Issuing Bank of funding or
maintaining the Loans, the Letters
of Credit or its Commitment, then Borrowers
and Guarantors shall from time to
time upon demand by Agent pay to Agent
additional amounts sufficient to
indemnify such Lender, as the case may be,
against such increased cost on an
after-tax basis (after taking into account
applicable deductions and credits in
respect of the amount indemnified). A
certificate as to the amount of such
increased cost shall be submitted to
Administrative Borrower by Agent or the
applicable Lender and shall be conclusive,
absent manifest error.
(b) If prior to the first day of any Interest Period, (i) Agent
shall have determined in good faith (which
determination shall be conclusive and
binding upon Borrowers and Guarantors)
that, by reason of circumstances
affecting the relevant market, adequate
and
42
<PAGE>
reasonable means do not exist for
ascertaining the Adjusted Eurodollar Rate for
such Interest Period, (ii) Agent has
received notice from the Required Lenders
that the Adjusted Eurodollar Rate
determined or to be determined for such
Interest Period will not adequately and
fairly reflect the cost to Lenders of
making or maintaining Eurodollar Rate Loans
during such Interest Period, or
(iii) Dollar deposits in the principal
amounts of the Eurodollar Rate Loans to
which such Interest Period is to be
applicable are not generally available in
the London interbank market, Agent shall
give telecopy or telephonic notice
thereof to Administrative Borrower as soon
as practicable thereafter, and will
also give prompt written notice to
Administrative Borrower when such conditions
no longer exist. If such notice is given
(A) any Eurodollar Rate Loans requested
to be made on the first day of such
Interest Period shall be made as Prime Rate
Loans, (B) any Loans that were to have been
converted on the first day of such
Interest Period to or continued as
Eurodollar Rate Loans shall be converted to
or continued as Prime Rate Loans and (C)
each outstanding Eurodollar Rate Loan
shall be converted, on the last day of the
then-current Interest Period thereof,
to Prime Rate Loans. Until such notice has
been withdrawn by Agent, no further
Eurodollar Rate Loans shall be made or
continued as such, nor shall any Borrower
(or Administrative Borrower on behalf of
any Borrower) have the right to convert
Prime Rate Loans to Eurodollar Rate
Loans.
(c) Notwithstanding any other provision herein, if the adoption
of
or any change in any law, treaty, rule or
regulation or final, non-appealable
determination of an arbitrator or a court
or other Governmental Authority or in
the interpretation or application thereof
occurring after the date hereof shall
make it unlawful for Agent or any Lender to
make or maintain Eurodollar Rate
Loans as contemplated by this Agreement,
(i) Agent or such Lender shall promptly
give written notice of such circumstances
to Administrative Borrower (which
notice shall be withdrawn whenever such
circumstances no longer exist), (ii) the
commitment of such Lender hereunder to make
Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such and convert
Prime Rate Loans to Eurodollar Rate
Loans shall forthwith be canceled and,
until such time as it shall no longer be
unlawful for such Lender to make or
maintain Eurodollar Rate Loans, such Lender
shall then have a commitment only to make a
Prime Rate Loan when a Eurodollar
Rate Loan is requested and (iii) such
Lender's Loans then outstanding as
Eurodollar Rate Loans, if any, shall be
converted automatically to Prime Rate
Loans on the respective last days of the
then current Interest Periods with
respect to such Loans or within such
earlier period as required by law. If any
such conversion of a Eurodollar Rate Loan
occurs on a day which is not the last
day of the then current Interest Period
with respect thereto, Borrowers and
Guarantors shall pay to such Lender such
amounts, if any, as may be required
pursuant to Section 3.3(d) below.
(d) Borrowers and Guarantors shall indemnify Agent and each
Lender
and to hold Agent and each Lender harmless
from any loss or expense which Agent
or such Lender may sustain or incur as a
consequence of (i) default by any
Borrower in making a borrowing of,
conversion into or extension of Eurodollar
Rate Loans after such Borrower (or
Administrative Borrower on behalf of such
Borrower) has given a notice requesting the
same in accordance with the
provisions of this Agreement, (ii) default
by any Borrower in making any
prepayment of a Eurodollar Rate Loan after
such Borrower has given a notice
thereof in accordance with the provisions
of this Agreement, and (iii) the
making of a prepayment of Eurodollar Rate
Loans on a day which is not the last
day of an Interest Period with respect
thereto. With respect to Eurodollar Rate
Loans, such indemnification may include an
amount equal to the excess, if any,
43
<PAGE>
of (A) the amount of interest which would
have accrued on the amount so prepaid,
or not so borrowed, converted or extended,
for the period from the date of such
prepayment or of such failure to borrow,
convert or extend to the last day of
the applicable Interest Period (or, in the
case of a failure to borrow, convert
or extend, the Interest Period that would
have commenced on the date of such
failure) in each case at the applicable
rate of interest for such Eurodollar
Rate Loans provided for herein over (B) the
amount of interest (as determined by
such Agent or such Lender) which would have
accrued to Agent or such Lender on
such amount by placing such amount on
deposit for a comparable period with
leading banks in the interbank Eurodollar
market. This covenant shall survive
the termination or non-renewal of this
Agreement and the payment of the
Obligations.
SECTION 4. CONDITIONS PRECEDENT
4.1
Conditions Precedent to Initial Loans and Letters of Credit.
The
obligation of Agent and Lenders to make the
initial Loans or of Issuing Bank to
issue the initial Letters of Credit
hereunder is subject to the satisfaction of,
or waiver of, immediately prior to or
concurrently with the making of such Loan
or the issuance of such Letter of Credit of
each of the following conditions
precedent:.
(a) Agent shall have received, in form and substance satisfactory
to
Agent, all releases, terminations and such
other documents as Agent may request
to evidence and effectuate the termination
by the Existing Lenders of their
respective financing arrangements with
Borrowers and Guarantors;
(b) all requisite corporate action and proceedings in
connection
with this Agreement and the other Financing
Agreements shall be satisfactory in
form and substance to Agent, and Agent
shall have received all information and
copies of all documents, including records
of requisite corporate action and
proceedings which Agent may have requested
in connection therewith, such
documents where requested by Agent or its
counsel to be certified by appropriate
corporate officers or Governmental
Authority (and including a copy of the
certificate of incorporation or formation
of each Borrower and Guarantor
certified by the Secretary of State (or
equivalent Governmental Authority) which
shall set forth the same complete name of
such Borrower or Guarantor as is set
forth herein and such document as shall set
forth the organizational
identification number of each Borrower or
Guarantor, if one is issued in its
jurisdiction of incorporation or
formation);
(c) no material adverse change shall have occurred in the
assets,
business or prospects of Borrowers since
the date of Agent's latest field
examination (not including for this purpose
the field review referred to in
clause (d) below) and no change or event
shall have occurred which would impair
the ability of any Borrower or Guarantor to
perform its obligations hereunder or
under any of the other Financing Agreements
to which it is a party or of Agent
or any Lender to enforce the Obligations or
realize upon the Collateral;
(d) Agent shall have completed a field review of the Records
and
such other information with respect to the
Collateral as Agent may require to
determine the amount of Loans available to
Borrowers (including, without
limitation, current perpetual inventory
records with respect to the distribution
center of Borrowers and/or roll-forwards of
Accounts and
44
<PAGE>
Inventory through the date of closing and
test counts of the Inventory in a
manner satisfactory to Agent, together with
such supporting documentation as may
be necessary or appropriate, and other
documents and information that will
enable Agent to accurately identify and
verify the Collateral), the results of
which in each case shall be satisfactory to
Agent, not more than seven (7)
Business Days prior to the date hereof or
such earlier date as Agent may agree;
(e) Agent shall have received, in form and substance satisfactory
to
Agent, (i) an opening pro-forma balance
sheet of Parent and its Subsidiaries (on
a consolidated basis), reflecting the
transactions contemplated hereby and (ii)
projected income statements, balance sheets
and statements of cash flow for
Parent and its Subsidiaries (on a
consolidated basis) prepared on a monthly
basis for the period through the end of the
2006 fiscal year and thereafter, on
an annual basis for each fiscal year
through the end of the 2009 fiscal year, in
each case with the results and assumptions
set forth in all of such projections
in form and substance satisfactory to
Agent;
(f) Agent shall have received, in form and substance satisfactory
to
Agent, all consents, waivers,
acknowledgments and other agreements from third
persons which Agent may deem necessary or
desirable in order to permit, protect
and perfect its security interests in and
liens upon the Collateral or to
effectuate the provisions or purposes of
this Agreement and the other Financing
Agreements, including, without limitation,
Collateral Access Agreements (other
than from the lessors of retail store
locations) and Credit Card
Acknowledgments;
(g) the Excess Availability as determined by Agent, as of the
date
hereof, shall be not less than $25,000,000
after giving effect to the initial
Loans made or to be made and Letters of
Credit issued or to be issued in
connection with the initial transactions
hereunder;
(h) Agent shall have received, in form and substance satisfactory
to
Agent, a Deposit Account Control Agreement
by and among Agent, duly authorized,
executed and delivered by Parent and
BancorpSouth Bank;
(i) Agent shall have received evidence, in form and substance
satisfactory to Agent, that Agent has a
valid perfected first priority security
interest in all of the Collateral;
(j) Agent shall have received and reviewed lien search results
for
each Borrower and Guarantor in such
jurisdictions as Agent shall request, which
search results shall be in form and
substance satisfactory to Agent;
(k) Agent shall have received environmental audits of the Real
Property to be subject to the Mortgage
conducted by an independent environmental
engineering firm acceptable to Agent, and
in form, scope and methodology
satisfactory to Agent, the results of which
shall be satisfactory to Agent;
(l) Agent shall have received, in form and substance satisfactory
to
Agent, a valid and effective title
insurance policy issued by a company and
agent acceptable to Agent: (i) insuring the
priority, amount and sufficiency of
the Mortgage, (ii) insuring against matters
that would be disclosed by surveys
and (iii) containing any legally available
endorsements, assurances or
affirmative coverage requested by Agent for
protection of its interests;
45
<PAGE>
(m) Agent shall have received originals of the shares of the
stock
certificates (if any) representing all of
the issued and outstanding shares of
the Capital Stock of each Borrower and
Guarantor (other than Parent) and owned
by any Borrower or Guarantor, in each case
together with stock powers duly
executed in blank with respect thereto;
(n) Agent shall have received a Borrowing Base Certificate
setting
forth the Loans and Letters of Credit
available to Borrowers as of the date
hereof as completed in a manner
satisfactory to Agent and duly authorized,
executed and delivered on behalf of
Borrowers;
(o) Agent shall have received evidence of insurance and loss
payee
endorsements required hereunder and under
the other Financing Agreements, in
form and substance satisfactory to Agent,
and certificates of insurance policies
and/or endorsements naming Agent as loss
payee;
(p) Agent shall have received a written appraisal as to the
Inventory of Borrowers and Guarantors and
the Baldwyn Real Property, in each
case by an appraiser acceptable to Agent,
in form, scope and methodology
reasonably acceptable to Agent, addressed
to Agent and upon which Agent and
Lenders are expressly permitted to
rely;
(q) no material pending or threatened, litigation, proceeding,
bankruptcy or insolvency, injunction, order
or claims with respect to Borrowers
and Guarantors shall exist;
(r) as of the date hereof and after giving effect to the
transactions contemplated hereby, no
defaults or events of default on any
material Indebtedness or any other Material
Contracts of Borrowers or Guarantors
shall exist or have occurred and be
continuing;
(s) Agent shall have received, in form and substance satisfactory
to
Agent, such opinion letters of counsel to
Borrowers and Guarantors with respect
to the Financing Agreements and such other
matters as Agent may request; and
(t) the other Financing Agreements and all instruments and
documents
hereunder and thereunder shall have been
duly executed and delivered to Agent,
in form and substance satisfactory to
Agent.
4.2
Conditions Precedent to All Loans and Letters of Credit . The
obligation of Lenders to make the Loans,
including the initial Loans, or of the
Issuing Bank to issue any Letter of Credit,
including the initial Letters of
Credit and any further Loans and Letters of
Credit, is subject to the further
satisfaction of, or waiver of, immediately
prior to or concurrently with the
making of each such Loan or the issuance of
such Letter of Credit of each of the
following conditions precedent:.
(a) all representations and warranties contained herein and in
the
other Financing Agreements shall be true
and correct in all material respects
with the same effect as though such
representations and warranties had been made
on and as of the date of the making of each
such Loan or providing each such
Letter of Credit and after giving effect
thereto, except to the extent that such
representations and warranties expressly
relate solely to an earlier date (in
46
<PAGE>
which case such representations and
warranties shall have been true and accurate
in all material respects on and as of such
earlier date);
(b) no law, regulation, order, judgment or decree of any
Governmental Authority shall exist, and no
action, suit, investigation,
litigation or proceeding shall be pending
or threatened in any court or before
any arbitrator or Governmental Authority,
which (i) purports to enjoin,
prohibit, restrain or otherwise affect (A)
the making of the Loans or providing
the Letters of Credit, or (B) the
consummation of the transactions contemplated
pursuant to the terms hereof or the other
Financing Agreements or (ii) has or
has a reasonable likelihood of having a
Material Adverse Effect; and
(c) no Default or Event of Default shall exist or have occurred
and
be continuing on and as of the date of the
making of such Loan or providing each
such Letter of Credit and after giving
effect thereto.
SECTION 5. GRANT AND PERFECTION OF SECURITY
INTEREST
5.1 Grant
of Security Interest. To secure payment and performance of all
Obligations, each Borrower and Guarantor
hereby grants to Agent, for itself and
the benefit of the Secured Parties, a
continuing security interest in, a lien
upon, and a right of set off against, and
hereby assigns to Agent, for itself
and the benefit of the Lenders, as
security, all of the following personal
property, and interests in personal
property, of each Borrower and Guarantor,
whether now owned or hereafter acquired or
existing, and wherever located
(together with all other collateral
security for the Obligations at any time
granted to or held or acquired by Agent or
any Lender, collectively, the
"Collateral"), including:.
(a) all Accounts;
(b) all general intangibles, including, without limitation,
Intellectual Property;
(c) all goods, including without limitation, Inventory and
Equipment;
(d) all Real Property and fixtures;
(e) all chattel paper, including without limitation, all
tangible
and electronic chattel paper;
(f) all instruments. including without limitation, all
promissory
notes;
(g) all documents;
(h) all deposit accounts;
(i) all letters of credit, banker's acceptances and similar
instruments and including all letter of
credit rights;
(j) all supporting obligations and all present and future
liens,
security interests, rights, remedies, title
and interest in, to and in respect
of Receivables and other
47
<PAGE>
Collateral, including (i) rights and
remedies under or relating to guaranties,
contracts of suretyship, letters of credit
and credit and other insurance
related to the Collateral; (ii) rights of
stoppage in transit, replevin,
repossession, reclamation and other rights
and remedies of an unpaid vendor,
lienor or secured party; (iii) goods
described in invoices, documents, contracts
or instruments with respect to, or
otherwise representing or evidencing, other
Collateral, including returned, repossessed
and reclaimed goods; and (iv)
deposits by and property of account debtors
and other persons securing the
obligations of account debtors;
(k) all (i) investment property (including securities, whether
certificated or uncertificated, securities
accounts, security entitlements,
commodity contracts or commodity accounts)
and (ii) monies, credit balances,
deposits and other property of any Borrower
or Guarantor now or hereafter held
or received by or in transit to Agent or
any Lender or its Affiliates at any
other depository or other institution from
or for the account of any Borrower or
Guarantor, whether for safekeeping, pledge,
custody transmission, collection or
otherwise;
(l) all commercial tort claims, including, without limitation,
those
identified in the Information
Certificate;
(m) to the extent not described above, all Receivables;
(n) all Records; and
(o)
all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims
against third parties for loss or
damage to or destruction of or other
involuntary conversion of any kind or
nature of any or all of the other
Collateral.
5.2
Perfection of Security Interests.
(a) Each Borrower and Guarantor irrevocably and unconditionally
authorizes Agent (or its agent) to file at
any time and from time to time such
financing statements with respect to the
Collateral naming Agent or its designee
as the secured party and such Borrower or
Guarantor as debtor, as Agent may
require, and including any other
information with respect to such Borrower or
Guarantor or otherwise required by part 5
of Article 9 of the Uniform Commercial
Code of such jurisdiction as Agent may
determine, together with any amendment
and continuations with respect thereto,
which authorization shall apply to all
financing statements filed on, prior to or
after the date hereof. Each Borrower
and Guarantor hereby ratifies and approves
all financing statements naming Agent
or its designee as secured party and such
Borrower or Guarantor, as the case may
be, as debtor with respect to the
Collateral (and any amendments with respect to
such financing statements) filed by or on
behalf of Agent prior to the date
hereof and ratifies and confirms the
authorization of Agent to file such
financing statements (and amendments, if
any). Each Borrower and Guarantor
hereby authorizes Agent to adopt on behalf
of such Borrower and Guarantor any
symbol required for authenticating any
electronic filing. In the event that the
description of the collateral in any
financing statement naming Agent or its
designee as the secured party and any
Borrower or Guarantor as debtor includes
assets and properties of such Borrower or
Guarantor that do not at any time
constitute Collateral, whether hereunder,
under any of the other Financing
Agreements or otherwise, the filing of such
financing statement shall
nonetheless be deemed authorized by such
Borrower or Guarantor to
48
<PAGE>
the extent of the Collateral included in
such description and it shall not
render the financing statement ineffective
as to any of the Collateral or
otherwise affect the financing statement as
it applies to any of the Collateral.
In no event shall any Borrower or Guarantor
at any time file, or permit or cause
to be filed, any correction statement or
termination statement with respect to
any financing statement (or amendment or
continuation with respect thereto)
naming Agent or its designee as secured
party and such Borrower or Guarantor as
debtor.
(b) Each Borrower and Guarantor does not have any chattel paper
(whether tangible or electronic) or
instruments as of the date hereof, except as
set forth in the Information Certificate.
In the event that any Borrower or
Guarantor shall be entitled to or shall
receive any chattel paper or instrument
after the date hereof, Borrowers and
Guarantors shall promptly notify Agent
thereof in writing. Promptly upon the
receipt thereof by or on behalf of any
Borrower or Guarantor (including by any
agent or representative), such Borrower
or Guarantor shall deliver, or cause to be
delivered to Agent, all tangible
chattel paper and instruments that such
Borrower or Guarantor has or may at any
time acquire, accompanied by such
instruments of transfer or assignment duly
executed in blank as Agent may from time to
time specify, in each case except as
Agent may otherwise agree. At Agent's
option, each Borrower and Guarantor shall,
or Agent may at any time on behalf of any
Borrower or Guarantor, cause the
original of any such instrument or chattel
paper to be conspicuously marked in a
form and manner acceptable to Agent with
the following legend referring to
chattel paper or instruments as applicable:
"This [chattel paper][instrument] is
subject to the security interest of
Wachovia Bank, National Association and any
sale, transfer, assignment or encumbrance
of this [chattel paper][instrument]
violates the rights of such secured
party."
(c) In the event that any Borrower or Guarantor shall at any
time
hold or acquire an interest in any
electronic chattel paper or any "transferable
record" (as such term is defined in Section
201 of the Federal Electronic
Signatures in Global and National Commerce
Act or in Section 16 of the Uniform
Electronic Transactions Act as in effect in
any relevant jurisdiction), such
Borrower or Guarantor shall promptly notify
Agent thereof in writing. Promptly
upon Agent's request, such Borrower or
Guarantor shall take, or cause to be
taken, such actions as Agent may request to
give Agent control of such
electronic chattel paper under Section
9-105 of the UCC and control of such
transferable record under Section 201 of
the Federal Electronic Signatures in
Global and National Commerce Act or, as the
case may be, Section 16 of the
Uniform Electronic Transactions Act, as in
effect in such jurisdiction.
(d) Each Borrower and Guarantor does not have any deposit
accounts
as of the date hereof, except as set forth
in the Information Certificate.
Borrowers and Guarantors shall not,
directly or indirectly, after the date
hereof open, establish or maintain any
deposit account unless each of the
following conditions is satisfied: (i)
Agent shall have received not less than
five (5) Business Days prior written notice
of the intention of any Borrower or
Guarantor to open or establish such account
which notice shall specify in
reasonable detail and specificity
acceptable to Agent the name of the account,
the owner of the account, the name and
address of the bank at which such account
is to be opened or established, the
individual at such bank with whom such
Borrower or Guarantor is dealing and the
purpose of the account, except as to
any Store Account opened or established
after the date hereof, so long as no
Event of Default shall exist or have
occurred and be continuing, Agent shall
only have received such information as to
such Store Account on the next monthly
report with respect to deposit accounts
49
<PAGE>
in accordance with Section 7.1(a) hereof,
(ii) the bank where such account is
opened or maintained shall be acceptable to
Agent, and (iii) on or before the
opening of such deposit account (other than
as to a Store Account so long as no
Event of Default shall exist or have
occurred and be continuing), such Borrower
or Guarantor shall as Agent may specify
either (A) deliver to Agent a Deposit
Account Control Agreement with respect to
such deposit account duly authorized,
executed and delivered by such Borrower or
Guarantor and the bank at which such
deposit account is opened and maintained or
(B) arrange for Agent to become the
customer of the bank with respect to the
deposit account on terms and conditions
acceptable to Agent. The terms of this
subsection (d) shall not apply to deposit
accounts specifically and exclusively used
for payroll, payroll taxes and other
employee wage and benefit payments to or
for the benefit of any Borrower's or
Guarantor's salaried employees.
(e) No Borrower or Guarantor owns or holds, directly or
indirectly,
beneficially or as record owner or both,
any investment property, as of the date
hereof, or have any investment account,
securities account, commodity account or
other similar account with any bank or
other financial institution or other
securities intermediary or commodity
intermediary as of the date hereof, in each
case except as set forth in the Information
Certificate.
(f) In the event that any Borrower or Guarantor shall be entitled
to
or shall at any time after the date hereof
hold or acquire any certificated
securities, such Borrower or Guarantor
shall promptly endorse, assign and
deliver the same to Agent, accompanied by
such instruments of transfer or
assignment duly executed in blank as Agent
may from time to time specify. If any
securities, now or hereafter acquired by
any Borrower or Guarantor are
uncertificated and are issued to such
Borrower or Guarantor or its nominee
directly by the issuer thereof, such
Borrower or Guarantor shall immediately
notify Agent thereof and shall as Agent may
specify, either (A) cause the issuer
to agree to comply with instructions from
Agent as to such securities, without
further consent of any Borrower or
Guarantor or such nominee, or (B) arrange for
Agent to become the registered owner of the
securities.
(g) Borrowers and Guarantors shall not, directly or indirectly,
after the date hereof open, establish or
maintain any investment account,
securities account, commodity account or
any other similar account (other than a
deposit account) with any securities
intermediary or commodity intermediary
unless each of the following conditions is
satisfied: (A) Agent shall have
received not less than five (5) Business
Days prior written notice of the
intention of such Borrower or Guarantor to
open or establish such account which
notice shall specify in reasonable detail
and specificity acceptable to Agent
the name of the account, the owner of the
account, the name and address of the
securities intermediary or commodity
intermediary at which such account is to be
opened or established, the individual at
such intermediary with whom such
Borrower or Guarantor is dealing and the
purpose of the account, (B) the
securities intermediary or commodity
intermediary (as the case may be) where
such account is opened or maintained shall
be acceptable to Agent, and (C) on or
before the opening of such investment
account, securities account or other
similar account with a securities
intermediary or commodity intermediary, such
Borrower or Guarantor shall as Agent may
specify either (i) execute and deliver,
and cause to be executed and delivered to
Agent, an Investment Property Control
Agreement with respect thereto duly
authorized, executed and delivered by such
Borrower or Guarantor and such securities
intermediary or commodity
50
<PAGE>
intermediary or (ii) arrange for Agent to
become the entitlement holder with
respect to such investment property on
terms and conditions acceptable to Agent.
(h) Borrowers and Guarantors are not the beneficiary or
otherwise
entitled to any right to payment under any
letter of credit, banker's acceptance
or similar instrument as of the date
hereof, except as set forth in the
Information Certificate. In the event that
any Borrower or Guarantor shall be
entitled to or shall receive any right to
payment under any letter of credit,
banker's acceptance or any similar
instrument, whether as beneficiary thereof or
otherwise after the date hereof, such
Borrower or Guarantor shall promptly
notify Agent thereof in writing. Such
Borrower or Guarantor shall immediately,
as Agent may specify, either (i) deliver,
or cause to be delivered to Agent,
with respect to any such letter of credit,
banker's acceptance or similar
instrument, the written agreement of the
issuer and any other nominated person
obligated to make any payment in respect
thereof (including any confirming or
negotiating bank), in form and substance
satisfactory to Agent, consenting to
the assignment of the proceeds of the
letter of credit to Agent by such Borrower
or Guarantor and agreeing to make all
payments thereon directly to Agent or as
Agent may otherwise direct or (ii) cause
Agent to become, at Borrowers' expense,
the transferee beneficiary of the letter of
credit, banker's acceptance or
similar instrument (as the case may
be).
(i) Borrowers and Guarantors do not have any commercial tort
claims
as of the date hereof, except as set forth
in the Information Certificate. In
the event that any Borrower or Guarantor
shall at any time after the date hereof
have any commercial tort claims, such
Borrower or Guarantor shall promptly
notify Agent thereof in writing, which
notice shall (i) set forth in reasonable
detail the basis for and nature of such
commercial tort claim and (ii) include
the express grant by such Borrower or
Guarantor to Agent o
