Alloy Inc. Contracts
Sample Business Contracts
Loan and Security Agreement - Wells Fargo Retail Finance II LLC, delia*s Corp., Alloy Merchandise LLC, Skate Direct LLC, delia*s Corp., delia*s Operating Co. and delia*s Retail Co.
Loan Forms
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
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WELLS FARGO RETAIL FINANCE II, LLC
THE LENDER
DELIA*S CORP.
THE LEAD BORROWER
FOR:
ALLOY MERCHANDISE, LLC
SKATE DIRECT, LLC
DELIA*S CORP.
DELIA*S OPERATING COMPANY
DELIA*S RETAIL COMPANY
THE BORROWERS
OCTOBER 14, 2004
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TABLE OF CONTENTS
Page
ARTICLE 1: Definitions:......................................................... 5
ARTICLE 2: The Revolving Credit:................................................ 29
2.1 Establishment of Revolving Credit...................................... 29
2.2 Reserves............................................................... 30
2.3 Eligible Inventory Criteria............................................ 31
2.4 Advances in Excess of Borrowing Base (OverLoans)....................... 31
2.5 Risks of Value of Collateral........................................... 31
2.6 Lender's Commitment.................................................... 32
2.7 Revolving Credit Loan Requests......................................... 32
2.8 Making of Revolving Credit Loans....................................... 34
2.9 The Loan Account....................................................... 35
2.10 The Revolving Credit Note.............................................. 36
2.11 Payment of The Loan Account............................................ 36
2.12 Interest on Revolving Credit Loans..................................... 37
2.13 Fees................................................................... 38
2.14 Lender's Discretion.................................................... 39
2.15 Procedures For Issuance of L/C's....................................... 40
2.16 Fees For L/C's......................................................... 41
2.17 Concerning L/C's....................................................... 43
2.18 Changed Circumstances.................................................. 44
2.19 Designation of Lead Borrower as Borrowers' Agent....................... 45
ARTICLE 3: Conditions Precedent:................................................ 46
3.1 Corporate Due Diligence................................................ 46
3.2 Opinion................................................................ 46
3.3 Officers' Certificates................................................. 46
3.4 Additional Documents. Satisfaction of Conditions....................... 47
3.5 Makewhole Agreement By Alloy, Inc...................................... 47
3.6 Cash Management Requirements........................................... 47
3.7 Representations and Warranties......................................... 47
3.8 No Borrower In Default................................................. 47
3.9 No Adverse Change...................................................... 47
3.10 Benefit of Conditions Precedent........................................ 48
ARTICLE 4: General Representations, Covenants and Warranties:................... 48
4.1 Payment and Performance of Liabilities................................. 48
4.2 Due Organization. Authorization. No Conflicts.......................... 48
4.3 Trade Names............................................................ 49
4.4 Infrastructure......................................................... 50
4.5 Locations.............................................................. 50
4.6 Lease Amendments. New Stores. Store Closings........................... 51
4.7 Title to Assets........................................................ 53
4.8 Indebtedness........................................................... 53
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4.9 Insurance.............................................................. 55
4.10 Licenses............................................................... 56
4.11 Leases................................................................. 56
4.12 Requirements of Law.................................................... 56
4.13 Labor Relations........................................................ 57
4.14 Maintain Properties.................................................... 58
4.15 Taxes.................................................................. 59
4.16 No Margin Stock........................................................ 60
4.17 ERISA.................................................................. 60
4.18 Hazardous Materials.................................................... 61
4.19 Litigation............................................................. 61
4.20 Dividends. Investments. Corporate Action............................... 61
4.21 Loans.................................................................. 62
4.22 Protection of Assets................................................... 62
4.23 Line of Business....................................................... 62
4.24 Affiliate Transactions................................................. 62
4.25 Further Assurances..................................................... 63
4.26 Adequacy of Disclosure................................................. 64
4.27 No Restrictions on Liabilities......................................... 65
4.28 Skate Direct........................................................... 65
4.29 Other Covenants........................................................ 65
ARTICLE 5: Financial Reporting and Performance Covenants:....................... 65
5.1 Maintain Records....................................................... 65
5.2 Access to Records...................................................... 66
5.3 Immediate Notice to Lender............................................. 67
5.4 Borrowing Base Certificate............................................. 68
5.5 Monthly Reports........................................................ 68
5.6 Annual Reports......................................................... 68
5.7 Officers' Certificates................................................. 69
5.8 Inventories, Appraisals, and Audits.................................... 70
5.9 Additional Financial Information. Business Plan........................ 72
5.10 Financial Performance Covenants........................................ 72
5.11 E-Reporting............................................................ 73
ARTICLE 6: Use of Collateral:................................................... 73
6.1 Use of Inventory Collateral............................................ 73
6.2 Inventory Quality...................................................... 74
6.3 Adjustments and Allowances............................................. 74
6.4 Validity of Accounts................................................... 74
6.5 Notification to Account Debtors........................................ 74
ARTICLE 7: Cash Management. Payment of Liabilities:............................. 74
7.1 Depository Accounts.................................................... 74
7.2 Credit Card Receipts................................................... 75
7.3 The Concentration, Blocked, and Operating Accounts .................... 76
7.4 Proceeds and Collections .............................................. 77
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7.5 Payment of Liabilities................................................. 78
7.6 The Operating Account.................................................. 79
ARTICLE 8: Grant of Security Interest........................................... 79
8.1 Grant of Security Interest............................................. 79
8.2 Extent and Duration of Security Interest............................... 80
ARTICLE 9: Lender As Borrower's Attorney-In-Fact:............................... 80
9.1 Appointment as Attorney-In-Fact........................................ 80
9.2 No Obligation to Act................................................... 81
ARTICLE 10: Events of Default:.................................................. 81
10.1 Failure to Pay the Revolving Credit.................................... 82
10.2 Failure To Make Other Payments......................................... 82
10.3 Failure to Perform Covenant or Liability (No Grace Period)............. 82
10.4 Failure to Perform Covenant or Liability (Grace Period)................ 82
10.5 Misrepresentation...................................................... 82
10.6 Acceleration of Other Debt. Breach of Lease............................ 83
10.7 Default Under Other Agreements......................................... 83
10.8 Uninsured Casualty Loss................................................ 83
10.9 Attachment. Judgment. Restraint of Business............................ 83
10.10 Business Failure....................................................... 83
10.11 Bankruptcy............................................................. 84
10.12 Indictment - Forfeiture................................................ 84
10.13 Default................................................................ 84
10.14 Termination of Guaranty................................................ 84
10.15 Challenge to Loan Documents............................................ 84
10.16 Change in Control...................................................... 84
10.17 Material Adverse Change................................................ 84
10.18 Excess Availability.................................................... 85
ARTICLE 11: Rights and Remedies Upon Default:................................... 85
11.1 Acceleration........................................................... 85
11.2 Rights of Enforcement.................................................. 85
11.3 Sale of Collateral..................................................... 85
11.4 Occupation of Business Location........................................ 86
11.5 Grant of Nonexclusive License.......................................... 87
11.6 Assembly of Collateral................................................. 87
11.7 Rights and Remedies.................................................... 87
ARTICLE 12: Notices:............................................................ 87
12.1 Notice Addresses....................................................... 87
12.2 Notice Given........................................................... 88
ARTICLE 13: Term:............................................................... 89
13.1 Termination of Revolving Credit........................................ 89
13.2 Actions On Termination................................................. 89
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ARTICLE 14: General:............................................................ 90
14.1 Protection of Collateral............................................... 90
14.2 Publicity.............................................................. 90
14.3 Successors and Assigns................................................. 90
14.4 Severability........................................................... 91
14.5 Amendments. Course of Dealing......................................... 91
14.6 Power of Attorney...................................................... 92
14.7 Application of Proceeds................................................ 92
14.8 Increased Costs........................................................ 92
14.9 Costs and Expenses of the Lender....................................... 93
14.10 Copies and Facsimiles.................................................. 94
14.11 Massachusetts Law...................................................... 94
14.12 Consent to Jurisdiction................................................ 94
14.13 Indemnification........................................................ 95
14.14 Rules of Construction.................................................. 95
14.15 Intent................................................................. 97
14.16 Participations......................................................... 98
14.17 Confidentiality........................................................ 98
14.18 Right of Set-Off....................................................... 98
14.19 Pledges To Federal Reserve Banks....................................... 98
14.20 Maximum Interest Rate.................................................. 99
14.21 Waivers................................................................ 99
14.22 Merger................................................................. 100
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AMENDED AND RESTATED
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT WELLS FARGO RETAIL FINANCE II, LLC
THE LENDER
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THIS AGREEMENT is made between Wells Fargo Retail Finance II, LLC (the
"Lender"), a Delaware limited liability company with offices at One Boston Place
- 18th Floor, Boston, Massachusetts 02108, and
dELiA*s Corp. ( in such capacity, the " LEAD BORROWER"), a Delaware
corporation with its principal executive offices at 435 Hudson Street, New York,
New York 10014, as agent for the following (individually, a "BORROWER" and
collectively, the "BORROWERS"):
dELiA*s Corp.,
dELiA*s Operating Company,
dELiA*s Retail Company,
each a Delaware corporation with its principal executive offices at 435
Hudson Street, New York, New York 10014, and
Alloy Merchandise, LLC,
Skate Direct, LLC,
each a Delaware limited liability company with its principal executive
offices at 435 Hudson Street, New York, New York 10014, in consideration of the
mutual covenants contained herein and benefits to be derived herefrom,
WITNESSETH:
WHEREAS, certain of the Borrowers and the Lenders entered into a Loan and
Security Agreement dated as of September 24, 2001 (as amended and in effect, the
"Existing Loan Agreement"); and
WHEREAS, the Borrowers and the Lender desire to amend and restate the
Existing Loan Agreement in order to, among other things, include those Borrowers
not party to the Existing Loan Agreement and to revise certain terms and
conditions contained therein.
NOW THEREFORE, it is hereby agreed that the Existing Loan Agreement is
hereby amended and restated in its entirety as follows:
ARTICLE 1: DEFINITIONS:
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As used herein, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"1934 ACT": The Securities Exchange Act of 1934, as amended.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts receivable,
receivables, and rights to payment (whether or not earned by performance) for:
property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of; services rendered or to be rendered; a policy of
insurance issued or to be issued; a secondary obligation incurred or to be
incurred; energy provided or to be provided; for the use or hire of a vessel;
arising out of the use of a credit or charge card or information contained on or
used with that card; winnings in a lottery or other game of chance; and also all
Inventory which gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all reclaimed, returned,
rejected or repossessed Inventory (if any) the sale of which gave rise to any
Account.
"ACH": Automated clearing house.
"AFFILIATE": With respect to any two Persons, a relationship in which (i)
one holds, directly or indirectly, not less than Twenty Five Percent (25%) of
the capital stock, beneficial interests, partnership interests, or other equity
interests of the other; or (ii) one has, directly or indirectly, the right,
under ordinary circumstances, to vote for the election of a majority of the
directors (or other body or Person who has those powers customarily vested in a
board of directors of a corporation); or (iii) not less than Twenty Five Percent
(25%) of their respective ownership is directly or indirectly held by the same
third Person; or (iv) one directly or indirectly is under the common control of
the other by reason of direct or indirect power to direct or cause the direction
of management and policies of the other (through the ownership of voting
securities, by contract, or on any other basis).
"APPLICABLE LAW": As to any Person:(i) All statutes, rules, regulations,
orders, or other requirements having the force of law and (ii) all (A) court
orders and injunctions, (B) arbitrator's written decisions, and/or (C) similar
rulings which similar rulings are in writing, in each instance ((i) and (ii)) of
or by any federal, state, municipal, and other governmental authority, or court,
tribunal, panel, or other legislative or administrative body which has or claims
jurisdiction over such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible.
"APPROVED BANK ISSUER": (x) Any commercial bank organized under the laws
of the United States, any state thereof, the District of Columbia, having
capital and surplus in an aggregate amount not less than $500,000,000 which has
not less than the second highest rating by a nationally recognized credit rating
agency and (y) the Lender (and Affiliates of the Lender).
"AVAILABILITY": The result of the following:
(i) The lesser of
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(A) The Credit Limit
or
(B) The Borrowing Base
Minus
(ii) The aggregate unpaid balance of the Loan Account.
Minus
(iii) The aggregate undrawn Stated Amount of all then outstanding
L/C's.
Minus
(iv) The aggregate of the Availability Reserves.
Minus
(v) The Availability Block.
"AVAILABILITY BLOCK": A permanent "Availability Block" (so-called) in an
amount equal to the greater of: (i) 8.4% of the Borrowing Base, at any time, or
(ii) $1,700,000.00, plus in the case of both (i) and (ii), during the fiscal
months of July, August, October and November (as determined pursuant to the
Retail Calendar (as defined below), the additional sum of $250,000.00.
"AVAILABILITY RESERVES": Such reserves as the Lender from time to time
determines in the Lender's reasonable discretion as being appropriate to reflect
the impediments to the Lender's ability to realize upon the Collateral. Without
limiting the generality of the foregoing, Availability Reserves may include (but
are not limited to) reserves based on the following:
(i) Rent as provided in Sections 4.5(e) and 4.5(f).
(ii) 50% of all Customer Credit Liabilities under 365 days
old.
(iii) Bank Product Reserves.
(iv) Taxes and other governmental charges, including, ad
valorem, personal property, and other taxes which
reasonably could be expected to have priority over the
Collateral Interests of the Lender in the Collateral.
(v) L/C Landing Costs.
(vi) Self funded insurance premiums to be paid based on the
prior three (3) months' premium paid.
(vii) Returns, based upon historical return levels.
"BANK PRODUCT AGREEMENTS" means those certain cash management service
agreements entered into from time to time by the Borrower in connection with any
of the Bank Products.
"BANK PRODUCT OBLIGATIONS" means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower to the
Lender, Wells Fargo Bank, N. A., or any of their Affiliates pursuant to or
evidenced by the Bank Product Agreements and irrespective of whether for the
payment of money, whether direct or indirect,
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absolute or contingent, due or to become due, now existing or hereafter arising,
and including all such amounts that the Borrower is obligated to reimburse to
the Lender as a result of the Lender purchasing participations or executing
indemnities or reimbursement obligations with respect to the Bank Products
provided to the Borrower pursuant to the Bank Product Agreements.
"BANK PRODUCTS" means any service or facility extended to the Borrower by
Wells Fargo Bank, N. A. or any of its Affiliates: (a) credit cards, (b) credit
card processing services, (c) debit cards, (d) purchase cards, (e) ACH
Transactions, (f) cash management, including controlled disbursement, accounts
or services, or (g) hedge agreements.
"BANK PRODUCT RESERVES" means, as of any date of determination, the amount
of reserves that the Lender has established (based upon Wells Fargo Bank, N.
A.'s or its Affiliate's reasonable determination of the credit exposure in
respect of then extant Bank Products) for Bank Products then provided or
outstanding.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BLOCKED ACCOUNT": Any DDA into which the contents of any other DDA is
transferred.
"BLOCKED ACCOUNT AGREEMENT": An Agreement, in form reasonably satisfactory
to the Lender, which Agreement recognizes the Lender's Collateral Interest in
the contents of the DDA which is the subject of such Agreement and agrees that,
on notice from the Lender, such contents thereafter shall be transferred only to
the Concentration Account (or, with respect to the Concentration Account, to the
Lender's Depository Account).
"BORROWER" and "BORROWERS": Is defined in the Preamble.
"BORROWING BASE": The aggregate of the following:
(i) The result of the lesser of (a) or (b):
(a) The product of the Cost of Eligible Inventory (exclusive
of Eligible In-Transit Inventory and Eligible L/C Inventory)
(net of Inventory Reserves) multiplied by the Inventory
Advance Rate.
and
(b) The product of (i) the NRLV Percentage, times (ii) 85%
during the fiscal months of December through June and the
fiscal month of September (all as described on the retail
calendar attached hereto as Exhibit 1.1 (the "RETAIL
CALENDAR")), or 90% during the fiscal months of July through
August and the fiscal months of October through November (all
as described in the Retail Calendar) each year, times (iii)
the Cost of Eligible Inventory (exclusive of Eligible
In-Transit Inventory and Eligible L/C Inventory) (net of
Inventory Reserves).
plus,
(ii) the lesser of (a) or (b):
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(a) The product of (i) the NRLV Percentage of Eligible
In-Transit Inventory, times (ii) 85% during the fiscal months
of December through June and the fiscal month of September
(all as described in the Retail Calendar) each year, or 90%
from the fiscal months of July through August and the fiscal
months of October through November (all as described in the
Retail Calendar) each year, times (iii) the Cost of Eligible
In-Transit Inventory (net of Inventory Reserves). and
(b) $1,000,000.00.
plus,
(iii) the Cost of Eligible L/C Inventory (net of Inventory
Reserves), times 50%.
plus,
(iv) The lesser of:
(x) 25% of the Credit Limit, or
(y) The face amount of Eligible Credit Card Receivables
multiplied by the Credit Card Advance Rate.
"BORROWING BASE CERTIFICATE": Is defined in Section 5.4.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any day
on which banks in Boston, Massachusetts or in New York, New York, generally are
not open to the general public for the purpose of conducting commercial banking
business; or (c) a day on which the principal office of the Lender is not open
to the general public to conduct business.
"BUSINESS PLAN": The Borrowers' business plan annexed hereto as EXHIBIT
5.10(b) and any revision, amendment, or update of such business plan presented
by the Lead Borrower to the Lender as to which the Lender has provided its
written sign-off. (SEE SECTION 5.9(c) WHICH RELATES TO THE LENDER'S SIGNING OFF
ON A REVISED BUSINESS PLAN IN THE EVENT OF THE REFINANCING OF THE HANOVER
PROPERTY INDEBTEDNESS).
"CAPITAL LEASE": Any lease which should be capitalized in accordance with
GAAP.
"CASH EQUIVALENTS": Each of the following, but only to the extent that
Section 4.25 (which relates to further assurances) is satisfied with respect
thereto:
(a) Securities issued or directly and fully guaranteed or insured
by the United States of America or any agency or
instrumentality thereof and entitled to the full faith and
credit of the United States of America.
(b) Dollar denominated commercial paper issued by any Approved
Bank Issuer or by the parent company of any Approved Bank
Issuer and commercial paper issued by, or guaranteed by, any
Person with a short-term commercial paper rating of at least
A-1 or the equivalent thereof by
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S&P or at least P-1 or the equivalent thereof by Moody's, and
in each instance maturing within twelve months after the date
of acquisition.
(c) Marketable direct obligations issued by any state of the
United States of America or any political subdivision of any
such state of any public instrumentality thereof maturing
within twelve months from the date of acquisition thereof and,
at the time of acquisition have one of the two highest ratings
obtainable from either S&P or Moody's.
(d) Any repurchase agreement entered into with any Approved Bank
Issuer which is secured by any obligation of the type
described in any of clauses (a) through (c) of this
Definition.
(e) Investments in money market funds substantially all the assets
of which are comprised of securities of the types described in
clauses (a) through (d) of this Definition.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) More than half of the persons who were directors of Alloy,
Inc. on the first day of any period consisting of Twelve (12)
consecutive calendar months (the first of which Twelve (12)
month periods commencing with the first day of the month
during which this Agreement was executed), cease to be
directors of Alloy, Inc. for any reason other than (i) death
or disability or (ii) replacement by individuals whose
nomination for election to the relevant board of directors is
approved, prior to such election, by a majority of the
directors of the relevant board of directors.
(b) Any failure of Alloy, Inc. directly or indirectly to own,
beneficially and of record, 100% of the capital stock or share
capital of all of the Borrowers.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 8.1.
"COLLATERAL INTEREST": Any interest in property to secure an obligation,
including, without limitation, a security interest, mortgage, and deed of trust.
"COLLATERAL INTEREST RESTRICTIONS": Any restriction to the creation of a
Collateral Interest to the extent that such restriction is not made ineffective
by UCC Sections 9-401, 9-407, 9-408, or 9-409.
"CONCENTRATION ACCOUNT": Is defined in Section 7.3(a)(ii).
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"CONGRESS": Congress Financial Corporation.
"CONSOLIDATED": When used to modify a financial term, test, statement, or
report, refers to the application or preparation of such term, test, statement
or report (as applicable) based upon the consolidation, in accordance with GAAP,
of the financial condition or operating results of the Borrowers and their
respective subsidiaries.
"COST": The lower of (a) or (b), where:
(a) is the calculated cost of purchases, based upon the Borrowers'
accounting practices, known to the Lender, which practices are
in effect on the date on which this Agreement was executed as
such calculated cost is determined from: invoices received by
the Borrowers; the Borrowers' purchase journal; or the
Borrowers' stock ledger.
(b) is the cost equivalent of the lowest ticketed or promoted
price at which the subject Inventory is offered to the public
by a Borrower, after all mark-downs (whether or not such price
is then reflected on the Borrowers' accounting system), which
cost equivalent is determined in accordance with the Lead
Borrower's historic accounting method reflecting the
Borrowers' historic business practices.
("Cost" does not include inventory capitalization costs or other
non-purchase price charges (such as freight) used in the Borrowers' calculation
of cost of goods sold).
"COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the Lender's
outside attorneys, and all reasonable out-of-pocket costs incurred by the Lender
in the administration of the Liabilities and/or the Loan Documents, including,
without limitation, reasonable costs and expenses associated with travel on
behalf of the Lender, where such costs and expenses are directly or indirectly
related to or in respect of the Lender's: administration and management of the
Liabilities; negotiation, documentation, and amendment of any Loan Document; or
efforts to preserve, protect, collect, or enforce the Collateral, the
Liabilities, and/or the Lender's Rights and Remedies and/or any of the rights
and remedies of the Lender against or in respect of any guarantor or other
person liable in respect of the Liabilities (whether or not suit is instituted
in connection with such efforts). The Costs of Collection are Liabilities, and
at the Lender's option may bear interest at the then effective Prime Rate.
"CREDIT CARD ADVANCE RATE": 85%
"CREDIT LIMIT": $20,000,000.00; however, the Lead Borrower may request an
increase to the Credit Limit by $10,000,000.00 to $30,000,000.00 by providing
written notice to the Lender of the Borrowers' request at any time on or before
October 14, 2006, and, the Lead Borrower may request an increase to the Credit
Limit by $10,000,000.00 to $40,000,000.00 by providing written notice to the
Lender of the Borrowers' request at any time on or before October 14, 2006. Upon
receipt of such notice(s) from the Borrowers, and so long as the Borrowers are
not then in Default and/or no Event of Default has theretofore occurred, the
Lender will increase the Credit Limit to $30,000,000.00, or $40,000,000.00, as
applicable.
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Upon the implementation of any increase to the Credit Limit, the Borrowers shall
pay to the Lender an incremental origination fee in the amount of .25% of the
amount of the increase.
"CUSTOMER CREDIT LIABILITY": Gift certificates, customer deposits,
merchandise credits, layaway obligations, frequent shopping programs, and
similar liabilities of any Borrower to its retail customers and prospective
customers.
"DDA": Any checking or other demand daily depository account maintained by
any Borrower, other than any Exempt DDA.
"DEFAULT": Any occurrence, circumstance, or state of facts with respect to
a Borrower which (a) is an Event of Default; or (b) would become an Event of
Default if any requisite notice were given and/or any requisite period of time
were to run and such occurrence, circumstance, or state of facts were not
absolutely cured within any applicable grace period.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC and also
includes all demand, time, savings, passbook, or similar accounts maintained
with a bank.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EARLY TERMINATION FEE": Is defined in Section 2.13(d).
"ELIGIBLE CREDIT CARD RECEIVABLES": Under 4 business day accounts due on a
non recourse basis from major credit card processors (which, if due on account
of a private label credit card program, are deemed in the discretion of the
Lender to be eligible).
"ELIGIBLE IN-TRANSIT INVENTORY": As of the date of determination thereof,
without duplication of other Eligible Inventory, Inventory (a) which has been
shipped from a foreign location for receipt by a Borrower within forty-five (45)
days of the date of determination, but which has not yet been delivered to a
Borrower, (b) for which payment has been made by a Borrower and title has passed
to a Borrower, (c) for which the document of title reflects a Borrower as
consignee (along with delivery to such Borrower of the documents of title with
respect thereto), (d) as to which the Lender has control over the documents of
title which evidence ownership of the subject Inventory (such as, if requested
by the Lender, by the delivery of a customs broker agency agreement,
satisfactory to the Lender), and (e) which otherwise would constitute Eligible
Inventory.
"ELIGIBLE INVENTORY": All Inventory of the Borrowers which consists of
finished goods held for resale in the ordinary course of the business of the
Borrowers is acceptable to the Lender in the exercise of the Lender's discretion
based on the application of the Eligible Inventory Criteria.
"ELIGIBLE INVENTORY CRITERIA": At the execution of this Agreement, as set
forth below and subject to resetting as provided in Section 2.3. "Eligible
Inventory" does not include any of the following:
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(a) Inventory which is not then in compliance with any
representation or warranty included in any Loan Document.
(b) Inventory in the possession of a contract manufacturer, or in
the possession of a third party on consignment or pursuant to
a sale on approval or sale or return, or otherwise located at
the place of business of a third party at which such party
deals in goods of that kind or under other circumstances in
which such third party or creditors of such third party may be
able to assert rights in the Inventory.
(c) Inventory, title to which is evidenced by warehouse receipts
or other documents of the title.
(d) Inventory which is located at premises other than one then
owned or leased by a Borrower.
(e) Inventory sold on lay-away or any similar arrangement (subject
to a basket of up to $50,000.00 in such Inventory at any one
time, the sale of which under such arrangements has not yet
been reflected by being relieved from the Borrower's stock
ledger).
(f) Inventory which is damaged, defective, or otherwise not
salable in the ordinary course of business.
(g) Inventory which is not similar in type to that which the
Borrowers offer for resale in the ordinary course (i) in the
businesses in which they were engaged at the execution of this
Agreement or (ii) in a business reasonably related thereto.
(h) Inventory which consists of packaging and shipping materials.
(i) Inventory which consists of supplies used or consumed in any
Borrower's business.
(j) Inventory which is subject to a Encumbrance (even if such
Encumbrance is a Permitted Encumbrance) other than an
Encumbrance in favor of the Lender.
(k) Inventory which has been sold on a bill and hold basis.
(l) Inventory which is not subject to the prior and only perfected
security interest in favor of the Lender.
(m) Returned Inventory which is not first quality goods being held
for resale.
(n) Inventory being held to be returned to vendors.
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(o) Inventory which has been subject to more than one transfer
from a Sales Channel to another other than in the ordinary
course of business.
"ELIGIBLE L/C INVENTORY": As of the date of determination thereof, without
duplication of other Eligible Inventory, Inventory (a) not yet delivered to a
Borrower, (b) the purchase of which is supported by a Documentary Letter of
Credit having an expiry within forty-five (45) days of such date of
determination, (c) for which the document of title reflects a Borrower as
consignee (along with delivery to such Borrower of the documents of title with
respect thereto), (d) as to which the Lender has control over the documents of
title which evidence ownership of the subject Inventory (such as, if requested
by the Lender, by the delivery of a customs broker agency agreement,
satisfactory to the Lender), and (e) which otherwise would constitute Eligible
Inventory.
"EMPLOYEE BENEFIT PLAN": Any employee pension plan, as defined in Section
3(2) of ERISA and covered by Title IV of ERISA.
"ENCUMBRANCE": Each of the following:
(a) A Collateral Interest or agreement to create or grant a
Collateral Interest; the interest of a lessor under a Capital
Lease; conditional sale or other title retention agreement;
sale of accounts receivable or chattel paper; or other
arrangement pursuant to which any Person is entitled to any
preference or priority with respect to the property or assets
of another Person or the income or profits of such other
Person; each of the foregoing whether consensual or
non-consensual and whether arising by way of agreement,
operation of law, legal process or otherwise.
(b) The filing, authorized by a Borrower, of any financing
statement under the UCC or comparable law of any jurisdiction
other than a filing in respect of a lease otherwise permitted
by this Agreement.
"END DATE": The date upon which all of the following conditions are
satisfied: (a) all payment Liabilities described in Section 13.2(a) have been
paid in full; (b) those arrangements concerning L/C's, Bank Products, and Bank
Product Obligations which are described in Section 13.2(b) have been made; and
(c) all obligations of the Lender to make loans and advances and to provide
other financial accommodations to the Borrowers hereunder shall have been
irrevocably terminated.
"ENVIRONMENTAL LAWS": All of the following:
(a) Applicable Law which regulates or relates to, or imposes any
standard of conduct or liability on account of or in respect
to pollution or protection of the environment, including,
without limitation, Hazardous Materials, as are now or
hereafter in effect.
(b) The common law to the extent that it relates to damage to
Persons or property from releases of or exposure to Hazardous
Materials.
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"EQUIPMENT": Includes, without limitation, "equipment" as defined in the
UCC, and also all furniture, store fixtures, motor vehicles, rolling stock,
machinery, office equipment, plant equipment, tools, dies, molds, and other
goods, property, and assets which are used and/or were purchased for use in the
operation or furtherance of a Borrower's business, and any and all accessions or
additions thereto, and substitutions therefor.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with a
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes any Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 10:. An "Event of Default"
shall be deemed to have occurred and to be continuing unless and until that
Event of Default has been duly waived by the Lender or cured by the Borrowers.
"EXCESS AVAILABILITY": The result of (a) Availability minus (b) all then
past due obligations of the Borrowers, including accounts payable which are
beyond customary trade terms extended to the Borrowers and rent obligations of
the Borrowers which are beyond applicable grace periods, and which are not then
otherwise reflected in the Availability Reserve.
"EXCLUDED ASSETS" : The following:
(a) The Excluded Hanover Property.
(b) Any rights or interest in any Leasehold Interest, General
Intangible, or Payment Intangible to the extent that the
creation of a security interest therein is prohibited by terms
by which the relevant Borrower is bound and such restriction
is a Collateral Interest Restriction.
(c) Trademarks listed on Schedule A to the Security Agreement
dated February 24, 2003 entered into between dELiA*s Brand LLC
and JLP Daisy LLC (the "Excluded Trademarks").
"EXCLUDED HANOVER PROPERTY": Equipment, a security interest in which is
created by any Hanover Loan Document, to the extent that the creation of a
security interest therein is subject to a Collateral Interest Restriction.
"EXEMPT DDA": A depository account maintained by any Borrower, the only
contents of which may be transfers from the Operating Account and actually used
solely (i) for petty cash purposes; or (ii) for payroll.
"EXISTING LOAN AGREEMENT": Has the meaning set forth in the Recitals
hereto.
"FIRST FUNDING": The making of the first loan under the Revolving Credit.
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"FISCAL": When followed by "month" or "quarter", the relevant fiscal
period based on the Borrowers' fiscal year and accounting conventions. When
followed by reference to a specific year, the fiscal year which ends in a month
of the year to which reference is being made (e.g. if the Borrowers' fiscal year
ends in January 2004 reference to that year would be to the Borrowers' "Fiscal
2004").
"FIXTURES": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or adopted
by the Financial Accounting Standards Board and its predecessors (or successors)
in effect and applicable to that accounting period in respect of which reference
to GAAP is being made.
"GENERAL INTANGIBLES": Includes, without limitation, "general intangibles"
as defined in the UCC; and also all: rights to payment for credit extended;
deposits; amounts due to any Borrower; credit memoranda in favor of any
Borrower; warranty claims; tax refunds and abatements; insurance refunds and
premium rebates; all means and vehicles of investment or hedging, including,
without limitation, options, warrants, and futures contracts; records; customer
lists; telephone numbers; goodwill; causes of action; judgments; payments under
any settlement or other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission; licenses;
franchises; license agreements (other than those relating to Excluded Assets),
including all rights of any Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any governmental
authority; patents, patent applications, patents pending, and other intellectual
property (other than those relating to Excluded Assets); internet addresses and
domain names; developmental ideas and concepts; proprietary processes;
blueprints, drawings, designs, diagrams, plans, reports, and charts; catalogs;
manuals; technical data; computer software programs (including the source and
object codes therefor), computer records, computer software, rights of access to
computer record service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade secrets rights,
copyrights, mask work rights and interests, and derivative works and interests;
user, technical reference, and other manuals and materials; trade names,
trademarks, service marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general intangible property of any
Borrower in the nature of intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts or ideas, and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold, or
leased, by any Borrower or credit extended or services performed, by any
Borrower, whether intended for an individual customer or the general business of
any Borrower, or used or useful in connection with research by any Borrower.
"GOODS": Has the meaning given that term in the UCC, and also includes all
things movable when a security interest therein attaches and also all computer
programs embedded in goods and any supporting information provided in connection
with a transaction relating to the program if (i) the program is associated with
the goods in such manner that it customarily is considered part of the goods or
(ii) by becoming the owner of the goods, a Person acquires a right to use the
program in connection with the goods.
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"GUARANTOR'S DEFAULT": The occurrence of (a) any event described in
Section 10.11 (which relates to bankruptcy) with respect to any guarantor of the
Liabilities, or Alloy, Inc., or (b) any "Event of Default" within the meaning of
any instrument which secures the guaranty of the Liabilities by such guarantor.
"HANOVER PROPERTY": The land, with the buildings thereon located in Penn
Township, York County, Pennsylvania and known for street numbering purposes as
348 Poplar Street, Hanover, Pennsylvania 17331.
"HANOVER PROPERTY INDEBTEDNESS": Indebtedness of dELiA*s Distribution
Company to Allfirst Bank arising pursuant to the Hanover Property Loan Documents
as in effect on the date hereof or any refinancing thereof, provided, that, each
of the following conditions is satisfied:
(a) The principal amount of such Indebtedness does not exceed
$3,000,00.00, less the aggregate amount of all repayments,
repurchases or redemptions, whether optional or mandatory in
respect thereof, plus interest thereon at the rate provided
for in the Hanover Property Loan Documents as in effect on the
date of this Agreement.
(b) Such Indebtedness is not secured by any assets or properties
of any Borrower other than the Hanover Property.
"HANOVER PROPERTY LOAN DOCUMENTS": The following, each dated August 6,
1999 (as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced) , which, except for the instrument
described in clause (f) of this Definition is between dELiA*s Distribution
Company and Allfirst Bank or in favor of Allfirst Bank:
(a) Construction Loan Agreement.
(b) Open-End Construction /Permanent Loan Mortgage and Security
Agreement with respect to the Hanover Property.
(c) Equipment Security Agreement with respect to the equipment and
fixtures located at the Hanover Property.
(d) Collateral Assignment of Agreements Affecting Real Estate.
(e) Assignment of Leases and Rents
(f) Suretyship Agreement, dated August 6, 1999, by dELiA*s Corp.
in favor of Allfirst Bank.
"HAZARDOUS MATERIALS": Any (a) substance which is defined or regulated as
a hazardous material in or under any Environmental Law and (b) oil in any
physical state in amounts or concentrations which are regulated under any
Environmental Law.
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"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness which
is non-recourse to the credit of such Person but which is
secured by an Encumbrance on any asset of such Person, but
only to the extent of the greater or the market or net book
value of such asset) whether or not evidenced by a promissory
note, bond, debenture or other written obligation to pay
money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of
all letters of credit and acceptances issued for the account
of such Person or reimbursement on account of which such
Person would be obligated).
(c) In connection with the sale or discount of accounts receivable
or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
(f) In connection with any sale and leaseback transaction.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an Encumbrance on any asset of such
Person, whether or not such Indebtedness is assumed by such Person (except that,
if such Indebtedness is non-recourse to such Person, it shall be deemed
"Indebtedness" within the meaning of this Definition only to the extent of the
greater of the market or net book value of such assets).
(y) Any guaranty, endorsement, suretyship or other undertaking pursuant to
which that Person may be liable on account of any obligation of any third party
except for endorsements of instruments for deposit or collection or standard
contractual indemnities entered into, in each instance, in the ordinary course
of business.
(z) The Indebtedness of a partnership or joint venture for which such
Person is liable as a general partner or joint venturer.
"Indebtedness" does not include any obligation which is payable solely
with shares of the Lead Borrower's common stock.
"INDEMNIFIED PERSON": Is defined in Section 14.13.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INTEREST PAYMENT DATE": With reference to:
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Each LIBOR Loan: The last day of the Interest Period relating thereto; the
Termination Date; and the End Date.
Each Prime Rate Loan: The first day of each month; the Termination Date;
and the End Date.
"INTEREST PERIOD": The following:
(a) With respect to each LIBOR Loan: Subject to Subsection (c),
below, the period commencing on the date of the making or
continuation of, or conversion to, the subject LIBOR Loan and
ending one, two, or three months thereafter, as the Lead
Borrower may elect by notice (pursuant to Section 2.7) to the
Lender.
(b) With respect to each Prime Rate Loan: Subject to Subsection
(c), below, the period commencing on the date of the making or
continuation of or conversion to such Prime Rate Loan and
ending on that date (i) as of which the subject Prime Rate
Loan is converted to a LIBOR Loan, as the Lead Borrower may
elect by notice (pursuant to Section 2.7) to the Lender, or
(ii) on which the subject Prime Rate Loan is paid by the
Borrowers.
(c) The setting of Interest Periods is in all instances subject to
the following:
(i) Any Interest Period for a Prime Rate Loan which would
otherwise end on a day which is not a Business Day shall
be extended to the next succeeding Business Day.
(ii) Any Interest Period for a LIBOR Loan which would
otherwise end on a day that is not a Business Day shall
be extended to the next succeeding Business Day, unless
that succeeding Business Day is in the next calendar
month, in which event such Interest Period shall end on
the last Business Day of the month during which the
Interest Period ends.
(iii) Subject to Subsection (iv), below, any Interest Period
applicable to a LIBOR Loan, which Interest Period begins
on a day for which there is no numerically corresponding
day in the calendar month during which such Interest
Period ends, shall end on the last Business Day of the
month during which that Interest Period ends.
(iv) Any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(v) The number of Interest Periods in effect at any one time
is subject to Section 2.12(d) hereof.
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"INVENTORY": Includes, without limitation, "inventory" as defined in the
UCC and also all: (a) Goods which are leased by a Person as lessor; are held by
a Person for sale or lease or to be furnished under a contract of service; are
furnished by a Person under a contract of service; or consist of raw materials,
work in process, or materials used or consumed in a business; (b) Goods of said
description in transit; (c) Goods of said description which are returned,
repossessed and rejected; (d) packaging, advertising, and shipping materials
related to any of the foregoing; (e) all names, marks, and General Intangibles
affixed or to be affixed or associated thereto; and (f) Documents and Documents
of Title which represent any of the foregoing.
"INVENTORY ADVANCE RATE": The Inventory Advance Rates set forth in the
grid below, or such greater or lesser percentage as the Lender may determine
from time to time, in the Lender's reasonable and exclusive discretion, based
upon the most recent appraisal of the Borrowers' Inventory.
PERIOD INVENTORY ADVANCE RATE
------ ----------------------
June 59%
July - August 62%
September 55%
October 65%
November 65%
December 1-15 65%
December 16 - May 53%
"INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Lender in the Lender's reasonable discretion with respect to the
determination of the saleability, at retail, of the Eligible Inventory or which
reflect such other factors as affect the market value of the Eligible Inventory.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"ISSUER": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of any Borrower and any acceptance made on account of
such letter of credit.
"L/C LANDING COSTS": To the extent not included in the Stated Amount of an
L/C, customs, duty, freight, and other out-of-pocket costs and expenses which
will be expended to "land" the Inventory, the purchase of which is supported by
such L/C.
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"LEASE": Any lease or other agreement, no matter how styled or structured,
pursuant to which a Borrower is entitled to the use or occupancy of any space.
"LEASEHOLD INTEREST": Any interest of a Borrower as lessee under any
Lease.
"LENDER": Is defined in the Preamble to this Agreement.
"LENDER'S DEPOSITORY ACCOUNT": Is defined in Section 7.3(a)(iii).
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11.7.
"LETTER-OF-CREDIT RIGHT": Has the meaning given that term in the UCC and
also refers to any right to payment or performance under an L/C, whether or not
the beneficiary has demanded or is at the time entitled to demand payment or
performance.
"LIABILITIES": Includes, without limitation, the following:
(i) Any and all direct and indirect liabilities, debts, and
obligations of each Borrower to the Lender.
(ii) Any and all direct and indirect liabilities, debts, and
obligations of each Borrower to any Affiliate of the
Lender, each of every kind, nature, and description
which arises under any Loan Document.
(iii) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now
or hereafter owing by any Borrower to the Lender
(including all future advances whether or not made
pursuant to a commitment by the Lender), whether or not
any of such are liquidated, unliquidated, primary,
secondary, secured, unsecured, direct, indirect,
absolute, contingent, or of any other type, nature, or
description, or by reason of any cause of action which
the Lender may hold against any Borrower.
(iv) All notes and other obligations of each Borrower now or
hereafter assigned to or held by the Lender, each of
every kind, nature, and description.
(v) All interest, fees, and charges and other amounts which
may be charged by the Lender to any Borrower and/or
which may be due from any Borrower to the Lender from
time to time.
(vi) All Bank Product Obligations.
(vii) All costs and expenses incurred or paid by the Lender in
respect of any agreement between any Borrower and the
Lender or instrument furnished by any Borrower to the
Lender (including, without limitation, Costs of
Collection, attorneys' reasonable fees, and all court
and litigation costs and expenses).
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(viii) Any and all covenants of each Borrower to or with the
Lender and any and all obligations of each Borrower to
act or to refrain from acting in accordance with any
agreement between that Borrower and the Lender or
instrument furnished by that Borrower to the Lender.
"LIBOR BUSINESS DAY": Any day which is both a Business Day and a day on
which banks are open for dealings in dollar deposits in the London interbank
market.
"LIBOR LOAN": Any Revolving Credit Loan which bears interest at a LIBOR
Rate.
"LIBOR MARGIN": 225 basis points.
"LIBOR OFFER RATE": That rate of interest (rounded upwards, if necessary,
to the next 1/100 of 1%) determined by the Lender in good faith (which shall be
presumed) to be the average prevailing rate per annum at which deposits on U.S.
Dollars are offered to Wells Fargo Bank, N.A., by first-class banks in the LIBOR
market in which Wells Fargo Bank, N.A. participates at or about 10:00AM (Boston
Time) Two (2) LIBOR Business Days before the first day of the Interest Period
for the subject LIBOR Loan, for a deposit approximately in the amount of the
subject loan for a period of time approximately equal to such Interest Period.
"LIBOR RATE": That per annum rate which is the aggregate of the LIBOR
Offer Rate plus the LIBOR Margin except that, in the event that the Lender
determines in good faith (which shall be presumed) that the Lender is subject to
the Reserve Percentage, the "LIBOR Rate" shall mean, with respect to any LIBOR
Loans then outstanding (from the date on which that Reserve Percentage first
became applicable to such loans), and with respect to all LIBOR Loans thereafter
made (but only so long as the Reserve Percentage continues to apply to such
LIBOR Loans), an interest rate per annum equal the sum of (a) plus (b), where:
(a) is the decimal equivalent of the following fraction:
LIBOR Offer Rate
1 minus Reserve Percentage
(i) is the applicable LIBOR Margin.
"LOAN ACCOUNT": Is defined in Section 2.9.
"LOAN DOCUMENTS": All of the following:
(a) This Agreement and each other instrument or document from time
to time executed and/or delivered to the Lender in connection
with the arrangements contemplated hereby.
(b) Each instrument or document from time to time executed and/or
delivered in connection with or in furtherance of the
arrangements
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contemplated hereby with or to any Affiliate of the Lender,
including, without limitation, cash management services,
letter of credit services, or interest rate protection
provided by any Affiliate of the Lender, including any Bank
Product Agreements, as each may be amended from time to time.
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to accounting
periods subsequent to the Borrowers' fiscal year most recently completed prior
to the execution of this Agreement, which change has a material effect on the
Borrowers' Consolidated financial condition or operating results, as reflected
on financial statements and reports prepared by or for the Borrowers, when
compared with such condition or results as if such change had not taken place or
where preparation of the Borrowers' statements and reports in compliance with
such change results in the breach of a financial performance covenant imposed
pursuant to Section 5.10 where such a breach would not have occurred if such
change had not taken place or visa versa.
"MATURITY DATE": October 14, 2007.
"MATERIAL ADVERSE CHANGE": Any event, fact, circumstance, change in, or
effect, on the business of the Borrowers, when taken as a whole, which,
individually or in the aggregate or on a cumulative basis with any other
circumstances, changes in, or effects on, the Borrowers or the Collateral,
constitutes any of the following:
(a) A material adverse change in the business, operations, results
of operations, assets, liabilities, or condition (financial or
otherwise) of the Borrowers (when taken as a whole),
including, without limitation, a material adverse change in
the business, operations, results, assets, liabilities or
condition since the date of the latest financial information
supplied pursuant to this Agreement or at any time when
compared to the Business Plan.
(b) The material impairment of the Borrowers' ability to perform
their obligations under the Loan Documents or of the Lender's
ability to enforce the Liabilities or to realize on any of the
Collateral.
(c) A material adverse effect on the value of the Collateral or
the amount which the Lender likely would receive (after giving
consideration to delays in payment and costs of enforcement).
(d) A material impairment to the priority of the Lender's
Collateral Interests in the Collateral.
"MATERIAL ADVERSE EFFECT": A result, consequence, or outcome with respect
to the Borrowers, taken as a whole which constitutes a Material Adverse Change.
"MOODY'S": Moody's Corporation.
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"NRLV": The product of (a) the Cost of Eligible Inventory (net of
Inventory Reserves) multiplied by (b) the NRLV Percentage. ("NRLV" refers to
"net retail liquidation value").
"NRLV PERCENTAGE": The percentage of the Cost value of the Borrowers'
Eligible Inventory that is estimated to be recoverable in an orderly liquidation
of such Eligible Inventory, net of liquidation expenses, as determined from time
to time by the Lender in its reasonable discretion based upon the most recent
appraisal obtained by the Lender.
"OPERATING ACCOUNT": Is defined in Section 7.3.
"OVERLOAN": A loan, advance, or providing of credit support (such as the
issuance of any L/C) to the extent that, immediately after its having been made,
Availability is less than zero.
"PAYMENT INTANGIBLE": Has the meaning given that term in the UCC and also
refers to any general intangible under which the Account Debtor's primary
obligation is a monetary obligation.
"PERMITTED DISTRIBUTIONS": Each of the following:
(a) The payment of any dividend by any Borrower or any subsidiary
of a Borrower to another Borrower.
(b) The payment, by the Lead Borrower on account of stock option
plans and stock appreciation rights programs of the Lead
Borrower and repurchase options for common stock of the Lead
Borrower upon the termination of employment, death, permanent
disability or retirement of its employees, directors,
management or consultants, provided, that, as to any such
repurchase, each of the following conditions is satisfied:
(i) As of the date of the payment for such repurchase and
after giving effect thereto, no Borrower is in Default.
(ii) Such repurchase is paid for with funds legally available
therefor or solely in common stock of the Lead Borrower.
(iii) Such repurchase shall not violate any Applicable Law or
the terms of any indenture, agreement or undertaking to
any Borrower is a party or by which any Borrower or its
property are bound.
(iv) The aggregate amount of all payments for such repurchase
in any Fiscal year does not exceed $250,000.00.
(c) Payment of any Borrower's Indebtedness with capital stock of
the Lead Borrower.
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(d) The payment of any dividends or making of any distributions by
any Borrower or any subsidiary of a Borrower to Alloy, Inc. so
long as, as of the date of such dividend or distribution each
of the following conditions is satisfied:
(i) As of the date of the payment of such dividend or making
of such distribution, and after giving effect thereto,
no Borrower is in Default;
(ii) As of the date of the payment of such dividend or making
of such distribution, and after giving effect thereto,
Excess Availability is not less than $2,500,000.00; and
(iii) Such dividend is paid or distribution is made with funds
legally available therefore.
"PERMITTED ENCUMBRANCES": The following:
(a) Inchoate liens for unpaid taxes that either (i) are not yet
due and payable or (ii) are being contested in good faith by
any Borrower (or subsidiary thereof) to the extent permitted
by Section 4.15.
(b) The interests of lessors under operating leases of personal
property.
(c) Encumbrances arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, incurred in the ordinary course of
business of any Borrower and not in connection with the
borrowing of money.
(d) Encumbrances arising from deposits made in connection with
obtaining worker's compensation or other unemployment
insurance.
(e) Encumbrances or deposits to secure performance bids, tenders,
or leases (to the extent permitted under this Agreement),
incurred in the ordinary course of business of Borrower and
not in connection with the borrowing of money.
(f) Encumbrances arising by reason of security for surety or
appeal bonds in the ordinary course of business of any
Borrower.
(g) Encumbrances of or resulting from any judgment or award to the
extent that such judgment or award does not constitute an
Event of Default (as to which, see Section 10.9)
(h) Encumbrances with respect to easements, zoning restrictions,
rights-of-way, restrictions, minor defects or irregularities
in title and other similar charges or encumbrances not
interfering in any material respect with the
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ordinary conduct of the business of any Borrower or any of its
subsidiaries.
(i) Encumbrances of licensors under any license permitted by this
Agreement.
(j) The interests of any mortgagee of real estate, all or a part
thereof of which is leased by a Borrower.
(k) Restrictions on assignments of Leases, to the extent that such
restrictions do not constitute Collateral Interest
Restrictions.
(l) Purchase money security interests in Equipment which solely
secures Permitted Indebtedness, in an amount not to exceed
$500,000.00 in aggregate principal amount at any time
outstanding.
(m) The security interests in favor of the landlord thereof
created by those Leases described on EXHIBIT 4.5, annexed
hereto.
"PERMITTED INDEBTEDNESS": The following:
(a) The Hanover Property Indebtedness.
(b) Indebtedness of any Borrower to any other Borrower or to
Alloy, Inc., provided, that, the Indebtedness arising pursuant
to such loan or advance shall not be evidenced by a promissory
note or other instrument, unless the originals of all notes or
other instruments are delivered to Lender to hold as part of
the Collateral, with such endorsement and/or assignment by the
payee of such notes as Lender may require, and provided
further that any indebtedness to Alloy, Inc. shall be subject
to the Subordination Agreement.
(c) Indebtedness arising pursuant to guarantees by one or more
Borrowers (or any subsidiary thereof) of (i) any Indebtedness
of another Borrower, which Indebtedness is permitted by
Section 4.8 or (ii) any Leases or other contractual
obligations of another Borrower, which Lease or other
contractual obligation is permitted by this Agreement.
(d) The Indebtedness set forth on EXHIBIT 4.8 , annexed hereto.
(e) Purchase money Indebtedness (including Capital Leases), not to
exceed $250,000.00 outstanding in the aggregate at any one
time.
"PERMITTED INVESTMENTS": Each of the following, but only to the extent
that Section 4.25 (which relates to further assurances) is satisfied with
respect thereto:
(a) Cash Equivalents.
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(b) Lead Borrower's holding of equity interests in the other
Borrowers and other subsidiaries.
(c) Receivables owing to Borrower, if created or acquired in the
ordinary course of business and payable or dischargeable in
accordance with customary trade terms (including the dating of
receivables) of such Borrower.
(d) Equity securities and debt obligations received in connection
with the bankruptcy or reorganization of suppliers and
customers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers arising in the
ordinary course of business.
(e) Each of the following, but only if entered into in the
ordinary course of business and for bona fide business (and
not speculative) purposes:
(i) Interest rate protection agreements entered into to
protect against fluctuations in interest rates in
respect of the Liabilities.
(ii) Other hedging agreements with respect to currencies in
which a Borrower transacts business.
(f) Investments extant on the date of this Agreement and listed on
EXHIBIT 4.20 annexed hereto (but not any additions thereto or
replacements thereof).
(g) Investments of the types extant on the date of this Agreement,
listed on EXHIBIT 4.20 annexed hereto, and held in the
securities account maintained by Chase H&Q, a division of
Chase Securities Inc., and any additions or replacements
thereto.
(h) Investments in licensing and branding joint ventures, provided
that (i) the revenues which are generated therefrom are
treated as Receipts; (ii) such joint ventures do not have a
material adverse effect on the Lender's ability to realize on
the Collateral; (iii) total Cash Equivalents, Inventory
(valued at Cost), and Equipment (at net book value)
contributed to such joint ventures does not exceed
$1,000,000.00; and (iv) no making of any such contribution
results in a breach of Excess Availability.
(i) Intercompany loans and advances by any Borrower to any other
Borrower to the extent permitted by Section 4.8.
(j) Loans and advances by any Borrower to the extent permitted by
Section 4.24.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or entity.
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"PROCEEDS": Includes, without limitation, "Proceeds" as defined in the UCC
and each type of property described in Section 8.1 hereof.
"RECEIPTS": All cash, cash equivalents, money, checks, credit card slips,
receipts which constitute any of the following: (a) Proceeds from any sale of
the Collateral; (b) the net proceeds of any investment by a third party in any
of the Borrowers; (c) the proceeds of any Indebtedness (other than under the
Revolving Credit); and (d) proceeds which arise other than from ordinary
business operations (such as, by way of illustration, tax refunds and
condemnation awards).
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists of
Accounts, Accounts Receivable, General Intangibles, Chattel Paper, Instruments,
Documents of Title, Documents, Investment Property, Payment Intangibles,
Letter-of-Credit Rights, bankers' acceptances, and all other rights to payment.
"PRIME RATE": The Prime Rate announced from time to time by Wells Fargo
Bank, N.A. (or any successor in interest to Wells Fargo Bank, N.A.). In the
event that said bank (or any such successor) ceases to announce such a rate,
"Prime Rate" shall refer to that rate or index announced or published from time
to time as the Lender, in good faith, designates as the functional equivalent to
said Prime Rate. Any change in "Prime Rate" shall be effective, for purposes of
the calculation of interest due hereunder, when such change is made effective
generally by the bank on whose rate or index "Prime Rate" is being set.
"PRIME RATE LOAN": Each Revolving Credit Loan while bearing interest at
the Prime Rate.
"REQUIREMENTS OF LAW": As to any Person:
(a) Applicable Law.
(b) That Person's organizational documents.
(c) That Person's by-laws and/or other instruments which deal with
corporate or similar governance, as applicable.
"RESERVE PERCENTAGE": The decimal equivalent of that rate applicable to
the Lender under regulations issued from time to time by the Board of Governors
of the Federal Reserve System for determining the maximum reserve requirement of
the Lender with respect to "Eurocurrency liabilities" as defined in such
regulations. The Reserve Percentage applicable to a particular LIBOR Loan shall
be based upon that in effect during the subject Interest Period, with changes in
the Reserve Percentage which take effect during such Interest Period to take
effect (and to consequently change any interest rate determined with reference
to the Reserve Percentage) if and when such change is applicable to such loans.
"RESERVES": The following: Availability Reserves and Inventory Reserves.
"REVOLVING CREDIT": Is defined in Section 2:.
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"REVOLVING CREDIT LOANS": Loans made under the Revolving Credit, except
that where the term "Revolving Credit Loan" is used with reference to available
interest rates applicable to the loans under the Revolving Credit, it refers to
so much of the unpaid principal balance of the Loan Account as bears the same
rate of interest for the same Interest Period. (See Section 2.12).
"REVOLVING CREDIT NOTE": Is defined in Section 2.10.
"S&P": Standard & Poors, a division of the McGraw Hill Companies.
"SALES CHANNEL": Any of the following, as the context requires: (a) a
premier store; (b) an outlet store; or (c) sales through a Borrower's catalogue
or internet operations.
"SEC": The Securities and Exchange Commission.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"STORE": (When used as a noun) A location at which any Borrower maintains
Inventory for retail sale to the public from that location.
"SUBORDINATION AGREEMENT": That certain Subordination and Intercreditor
Agreement dated as of June 4, 2004 by and among Alloy, Inc., dELiA*s Corp., and
Wells Fargo Retail Finance II, LLC, as amended by that certain First Amendment
to Subordination and Intercreditor Agreement dated as of October 14, 2004.
"SUPPORTING OBLIGATION": Has the meaning given that term in the UCC and
also refers to any Letter-of-Credit Right or secondary obligation which supports
the payment or performance of an Account, Chattel Paper, a Document, a General
Intangible, an Instrument, or Investment Property.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10.11, below; or (c) the Lender's
notice to the Lead Borrower setting the Termination Date on account of the
occurrence of any Event of Default other than as described in Section 10.11,
below; (d) that date of which not less than fifteen (15) days irrevocable prior
written notice is provided by the Lead Borrower to the Lender; or (e) that date
set by the Lead Borrower or the Lender as provided herein
"UCC": The Uniform Commercial Code as in effect from time to time in
Massachusetts.
"UNUSED LINE FEE": Is defined in Section 2.13(c).
ARTICLE 2: THE REVOLVING CREDIT:
2.1 ESTABLISHMENT OF REVOLVING CREDIT
(a) The Lender hereby establishes a revolving line of credit (the
"REVOLVING CREDIT") in the Borrowers' favor pursuant to which
the Lender, subject to, and in accordance with, this
Agreement, shall make loans and
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advances and otherwise provide financial accommodations to and
for the account of the Borrowers as provided herein.
(b) Loans, advances, and financial accommodations under the
Revolving Credit shall be made with reference to the Borrowing
Base and shall be subject to Availability. The Borrowing Base
and Availability shall be determined by the Lender by
reference to Borrowing Base Certificates furnished as provided
in Section 5.4, below, and shall be subject to the following:
(i) The Cost of Eligible Inventory will be determined in a
manner consistent with current tracking practices, based
on the Borrowers' stock ledger inventory.
(ii) The NRLV Percentage shall be determined in accordance
with the Definition of that term.
(iii) The proceeds of borrowings under the Revolving Credit
shall be used solely in accordance, in all material
respects, with the Business Plan for the Borrowers'
general corporate purposes, including for working
capital and Capital Expenditures, all solely to the
extent permitted by this Agreement. No proceeds of a
borrowing under the Revolving Credit may be used, nor
shall any be requested, with a view towards the
accumulation of any general fund or funded reserve of
the Borrowers other than in the ordinary course of the
Borrowers' business and consistent with the provisions
of this Agreement.
2.2 RESERVES.
(a) The only reserves, at the execution of this Agreement, are as
follows:
(i) Availability Reserve for rent as provided in Sections
4.5(e) and 4.5(f).
(ii) Inventory Reserves:
(A) 100% of the Cost of all Eligible Inventory located
at any location the landlord of which has been
granted a security interest in the personal
property of any Borrower, which landlord has not
subordinated to the security interests created
herein by an instrument which is reasonably
satisfactory to the Lender.
(B) Return to vendor and damaged goods.
(C) Discrepancy store Inventory.
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(D) Shrinkage, initially in the amount of $50,000.00
plus 1.2% of the Borrowers' retail sales since the
date of the last physical inventory, assuming the
physical to book adjustment has been made.
(iii) The Lender may, in its reasonable and exclusive
discretion from time to time, increase then existing
Availability Reserves and Inventory Reserves and/or
establish additional Availability Reserves and Inventory
Reserves, in such amounts as the Lender deems
appropriate based upon the then existing facts,
circumstances, or factors that the Lender, in its
reasonable and exclusive discretion, deems relevant
relating to both the Borrowers, as a whole, and the
additional Reserve being established. Any such Reserve
shall take effect on the Business Day after notice
thereof has been provided by the Lender to the Borrower.
2.3 ELIGIBLE INVENTORY CRITERIA.
(a) The Lender may reset the Eligible Inventory Criteria from time
to time to reflect facts, events, conditions, or circumstances
which the Lender determines in the exercise of the Lender's
discretion could reasonably be expected to adversely affect
the saleability of Inventory, but only where such facts,
events, conditions or circumstances either:
(i) Come into existence after the date of this Agreement; or
(ii) are extant at the execution of this Agreement and of
which the Lender does not have knowledge.
2.4 ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)
(a) The Lender does not have any obligation to make any loan or
advance, or otherwise to provide any credit to or for the
benefit of the Borrowers where the result of such loan,
advance, or credit is an OverLoan.
(b) The Lender's providing of an OverLoan on any one occasion does
not affect the obligations of each Borrower hereunder
(including each Borrower's obligation to immediately repay any
amount which otherwise constitutes an OverLoan) nor obligate
the Lender to do so on any other occasion.
2.5 RISKS OF VALUE OF COLLATERAL. The Lender's
reference to a given asset in connection with the making of loans, credits, and
advances and the providing of financial accommodations under the Revolving
Credit and/or the monitoring of compliance with the provisions hereof shall not
be deemed a determination by the Lender relative to the actual value of the
asset in question. All risks concerning the value of the Collateral are and
remain upon the Borrowers. All
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Collateral secures the prompt, punctual, and faithful performance of the
Liabilities whether or not relied upon by the Lender in connection with the
making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
2.6 LENDER'S COMMITMENT. Subject to the provisions of this Agreement, the Lender
shall make a loan or advance under the Revolving Credit and shall endeavor to
have an L/C issued for the account of any of the Borrowers, in each instance if
duly and timely requested by the Lead Borrower as provided herein provided that:
(a) No OverLoan is then outstanding and none will result
therefrom.
(b) No Borrower is then in Default and none will thereby become in
Default.
2.7 REVOLVING CREDIT LOAN REQUESTS.
(a) Requests for loans and advances under the Revolving Credit or
for the continuance or conversion of an interest rate
applicable to a Revolving Credit Loan may be requested by the
Lead Borrower pursuant to the procedures set forth below, it
being understood, however, that the Lender, from time to time
may alter and adjust such procedures reasonably and on not
less than five (5) Business Days prior written notice (in
reasonable detail as to the manner of such alteration or
adjustment) to the Lead Borrower.
(b) Subject to the provisions of this Agreement, the Lead Borrower
may request a Revolving Credit Loan and elect an interest rate
and Interest Period to be applicable to that Revolving Credit
Loan by giving notice to the Lender by no later than the
following:
(i) If such Revolving Credit Loan is to be or is to be
converted to a Prime Rate Loan: By 11:30AM on the
Business Day on which the subject Revolving Credit Loan
is to be made or is to be so converted. Prime Rate Loans
requested by the Lead Borrower, other than those
resulting from the conversion of a LIBOR Loan, shall not
be less than $10,000.00.
(ii) If such Revolving Credit Loan is to be, or is to be
continued as, or converted to, a LIBOR Loan: By 1:00PM
Three (3) LIBOR Business Days before the commencement of
any new Interest Period or the end of the then
applicable Interest Period. LIBOR Loans and conversions
to LIBOR Loans shall each be not less than $1,000,000.00
and in increments of $500,000.00 in excess of such
minimum.
(iii) Any LIBOR Loan which matures while any Borrower is in
Default shall be converted, at the option of the Lender,
to a Prime
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Rate Loan notwithstanding any notice from the Lead
Borrower that such Loan is to be continued as a LIBOR
Loan.
(c) Any request for a Revolving Credit Loan or for the continuance
or conversion of an interest rate applicable to a Revolving
Credit Loan which is made after the applicable deadline
therefor, as set forth above, shall be deemed to have been
made at the opening of business on the then next Business Day
or LIBOR Business Day, as applicable.
(d) L/C's for the account of the Borrowers as provided in Section
2.15.
(e) The Lender may rely on any request for a loan or advance, or
other financial accommodation under the Revolving Credit which
the Lender, in good faith, believes to have been made by a
Person duly authorized to act on behalf of the Lead Borrower
and may decline to make any such requested loan or advance, or
issuance, or to provide any such financial accommodation
pending the Lender's being furnished with such documentation
concerning that Person's authority to act as reasonably may be
satisfactory to the Lender.
(f) A request by the Lead Borrower for a loan or advance, or other
financial accommodation under the Revolving Credit shall be
irrevocable and shall constitute certification by each
Borrower that as of the date of such request, each of the
following is true and correct:
(i) There has been no Material Adverse Change in the
Borrowers' financial condition from the most recent
financial information (taken as a whole) furnished
Lender pursuant to this Agreement.
(ii) All or a portion of any loan or advance so requested
will be set aside by the Borrowers to cover the
Borrowers' obligations for sales tax on account of sales
since the then most recent borrowing pursuant to the
Revolving Credit.
(iii) Each representation which is made herein or in any of
the Loan Documents is then true and complete in all
material respects as of and as if made on the date of
such request.
(iv) Unless accompanied by a written Certificate of the Lead
Borrower's Chief Executive Officer, President or its
Chief Financial Officer that a Borrower is in Default,
and describing (in reasonable detail) the facts and
circumstances thereof and the steps (if any) being taken
to remedy such condition, that no Borrower is or if a
Borrower is in Default.
(g) If, at any time or from time to time, any Borrower is in
Default:
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(i) The Lender may suspend the Revolving Credit immediately, in
which event, the Lender shall not be obligated, during such
suspension, to make any loans or advance, or to provide any
financial accommodation hereunder or to seek the issuance of
any L/C.
(ii) The Lender may suspend the right of the Lead Borrower to
request any LIBOR Loan or to convert any Prime Rate Loan to a
LIBOR Loan.
2.8 MAKING OF REVOLVING CREDIT LOANS
(a) A loan or advance under the Revolving Credit shall be made by
the transfer of the proceeds of such loan or advance to the
Operating Account or as otherwise instructed by the Lead
Borrower.
(b) A loan or advance shall be deemed to have been made under the
Revolving Credit (and the Borrowers shall be indebted to the
Lender for the amount thereof immediately) at the following:
(i) The Lender's initiation of the transfer of the proceeds
of such loan or advance in accordance with the Lead
Borrower's wire instructions (if such loan or advance is
of funds requested by the Lead Borrower).
(ii) The charging of the amount of such loan to the Loan
Account in accordance with this Agreement (in all other
circumstances).
(c) Except as provided in Section (d), there shall not be any
recourse to or liability of the Lender on account of the
following:
(i) Any reasonable delay in the making of any loan or
advance requested under the Revolving Credit.
(ii) Any delay by any bank or other depository institution in
treating the proceeds of any such loan or advance as
collected funds.
(iii) Any delay in the receipt, and/or any loss, of funds
which constitutes a loan or advance under the Revolving
Credit, the wire transfer of which was properly
initiated by the Lender in accordance with wire
instructions provided to the Lender by the Lead Borrower
(written confirmation of the initiation of which is
provided by the Lender to the Lead Borrower on request
of the Lead Borrower).
(d) Section (c) shall not relieve the Lender from recourse or
liability on account of an act or failure to act where there
is a specific finding in a judicial proceeding by a court of
competent jurisdiction (in which the
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Lender has been given an opportunity to be heard), from which
finding no further appeal is available, that the Lender had
acted in actual bad faith or in a grossly negligent manner or
in wilful misconduct.
2.9 THE LOAN ACCOUNT
(a) An account ("LOAN ACCOUNT") shall be opened on the books of
the Lender in which a record shall be kept of all loans and
advances made under the Revolving Credit.
(b) The Lender shall also keep a record (either in the Loan
Account or elsewhere, as the Lender may from time to time
elect) of all interest, fees, service charges, costs,
expenses, and other debits owed to the Lender on account of
the Liabilities and of all credits against such amounts so
owed.
(c) The Lender shall provide the Lead Borrower, monthly, with a
statement of the Loan Account.
(d) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such
credits. The amount of any item credited against the
Liabilities which is charged back against the Lender for any
reason or is not so paid shall be a Liability and shall be
added to the Loan Account, whether or not the item so charged
back or not so paid is returned.
(e) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which any Borrower is
obligated hereunder are payable on demand. In the event that
the Lead Borrower prevails in any dispute of the amount of any
such fee, service charge, cost, or expense, the Lender shall
refund any interest which accrued on any amount paid over to
that Borrower in consequence of the resolution of such
dispute.
(f) In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments
which will be due and payable between the date of such
determination and the first day of the then next succeeding
month as having been advanced under the Revolving Credit
whether or not such amounts are then due and payable.
(g) The Lender, without the request of the Lead Borrower, may
advance under the Revolving Credit any interest, fee, service
charge, or other payment to which Lender is entitled from any
Borrower pursuant hereto and may charge the same to the Loan
Account notwithstanding that an OverLoan may result thereby
and shall provide notice of such advance to the Lead Borrower.
Such action on the part of the Lender shall not constitute a
waiver of the Lender's rights and each Borrower's obligations
under Section 2.11(b). Any amount which is added to the
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principal balance of the Loan Account as provided in this
Section (g) shall bear interest at the interest rate then and
thereafter applicable to Prime Rate Loans.
(h) Any statement rendered by the Lender to the Lead Borrower
concerning the Liabilities shall be considered correct and
accepted by each Borrower and shall be conclusively binding
upon each Borrower unless the Lead Borrower provides the
Lender with written objection thereto within twenty (20) days
from the mailing of such statement, which written objection
shall indicate, with reasonable particularity, the reason for
such objection. The Loan Account and the Lender's books and
records concerning the loan arrangement contemplated herein
and the Liabilities shall be prima facie evidence and proof of
the items described therein absent manifest error.
2.10 THE REVOLVING CREDIT NOTE. The Borrowers' obligation to repay loans
and advances under the Revolving Credit, with interest as provided herein,
shall be evidenced by a note (the "Revolving Credit Note") in the form of
EXHIBIT 2.10, annexed hereto, executed by each Borrower. Neither the
original nor a copy of the Revolving Credit Note shall be required,
however, to establish or prove any Liability.
2.11 PAYMENT OF THE LOAN ACCOUNT.
(a) The Borrowers may repay all or any portion of the principal
balance of the Loan Account from time to time until the
Termination Date.
(b) The Borrowers, without notice or demand from the Lender shall
pay the Lender that amount, from time to time, which is
necessary so that there is no OverLoan outstanding.
(c) The Borrowers shall repay that amount described in Section
13.2(a) on the Termination Date.
(d) The Lender shall cause the application of payments (if any),
pursuant to Sections (a) and (b) in the following order:
(i) LIBOR Loans which are then maturing.
(ii) Prime Rate Loans.
(iii) LIBOR Loans which have not then matured.
(e) The Borrowers shall indemnify the Lender and hold the Lender
harmless from and against any actual loss, cost or expense
(including loss of anticipated profits and amounts payable by
the Lender on account of "breakage fees" (so-called)) which
the Lender sustains or incurs (including, without limitation,
by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of the following:
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(i) Default by any Borrower in payment of the principal
amount of or any interest on any LIBOR Loan as and when
due and payable, including any such loss or expense
arising from interest or fees payable by the Lender in
order to maintain its LIBOR Loans.
(ii) Default by any Borrower in making a borrowing or
conversion after the Lead Borrower has given (or is
deemed to have given) a request for a Revolving Credit
Loan or a request to convert a Revolving Credit Loan
from one applicable interest rate to another.
(iii) The making of any payment on a LIBOR Loan or the making
of any conversion of any such Loan to a Prime Rate Loan
on a day that is not the last day of the applicable
Interest Period with respect thereto.
2.12 INTEREST ON REVOLVING CREDIT LOANS.
(a) Each Revolving Credit Loan shall bear interest at the Prime
Rate unless timely notice is given (as provided in Section
2.7) that the subject Revolving Credit Loan (or a portion
thereof) is, or is to be converted to, a LIBOR Loan.
(b) Each Revolving Credit Loan which consists of a LIBOR Loan
shall bear interest at the applicable LIBOR Rate.
(c) Subject to, and in accordance with, the provisions of this
Agreement, the Lead Borrower may cause all or a part of the
unpaid principal balance of the Loan Account which bears
interest at the Prime Rate to bear interest at a LIBOR Rate as
specified from time to time by the Lead Borrower.
(d) The Lead Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that there are
more than four (4) LIBOR Rates applicable to the Revolving
Credit Loans at any one time.
(e) The Borrowers shall pay accrued and unpaid interest on each
Revolving Credit Loan in arrears as follows:
(i) On the applicable Interest Payment Date for that
Revolving Credit Loan.
(ii) On the Termination Date and on the End Date.
(iii) Following the occurrence of any Event of Default, with
such frequency as may be determined by the Lender.
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(f) Following the occurrence, and during the continuance, of any
Event of Default (and whether or not the Lender exercises the
Lender's rights on account thereof), all Revolving Credit
Loans shall bear interest, at the option of the Lender at a
rate which is the aggregate of the rate applicable to Prime
Rate Loans, plus Two Percent (2%) per annum.
2.13 FEES.
(a) Origination Fee: In consideration of the commitment to make
loans and advances to the Borrowers under the Revolving
Credit, and to maintain sufficient funds available for such
purpose, there has been earned and the Borrowers shall pay to
the Lender, at the execution of this Agreement, an origination
fee of $50,000,00.
(b) Collateral Monitoring Fee: The Borrowers shall pay to the
Lender, a Collateral Monitoring Fee in the amount of $1,500.00
per month on the first day of each calendar month until all
Liabilities have been irrevocably paid in full.
(c) Unused Line Fee: In addition to any other fee to be paid by
the Borrowers on account of the Revolving Credit, the
Borrowers shall pay the Lender an Unused Line Fee of 0.25% per
annum of the average difference, during the month just ended
(or relevant period with respect to the payment being made on
the Termination Date) between the Credit Limit and the
aggregate of the unpaid principal balance of the Loan Account
and the undrawn Stated Amount of L/C's outstanding during the
relevant period. The Unused Line Fee shall be paid in arrears,
on the first day of each month after the execution of this
Agreement and on the Termination Date.
(d) Early Termination Fee: (i) In the event that the Termination
Date occurs, for any reason, prior to October 14, 2006, the
Borrower shall pay to the Lender the "EARLY TERMINATION FEE"
in respect of amounts which are or become payable by reason
thereof equal to $250,000.00.
(ii) The Lender and the Borrower agree and acknowledge that
the Lender will have suffered damages on account of the early
termination of the Revolving Credit and that, in view of the
difficulty in ascertaining the amount of such damages, the
Early Termination Fee constitutes reasonable compensation and
liquidated damages to compensate the Lender on account
thereof.
(iii) Notwithstanding the foregoing, if the Termination Date
occurs as a result of a refinancing of the Liabilities by the
Borrower with another commercial lender with proceeds of a
credit facility containing terms and conditions which clearly
and objectively afford the Borrowers greater borrowing
availability and better economic terms on average than those
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provided by the Lender hereunder, and Lender has declined the
opportunity to provide such financing on the terms offered by
such commercial lender, then no Early Termination Fee shall be
due or payable.
(e) Pass Through of Fees Incurred by Lender: In addition to any
other payments to be made by the Borrowers to the Lenders, the
Borrowers shall reimburse the Lender for the following:
(i) The actual charges paid or incurred by the Lender for
each appraisal of the Collateral performed by personnel
employed or retained by the Lender.
(ii) The actual charges paid or incurred by the Lender for
each financial analysis and examination (i.e., audits)
of any of the Borrowers performed by personnel employed
or retained by the Lender.
(iii) The actual charges paid or incurred by the Lender if it
elects to employ or retain the services of one or more
third Persons to perform legal investigation,
documentation financial analysis and examinations (i.e.,
audits) of any of the Borrowers or to appraise the
Collateral.
(f) Additional Fees: In addition to any other right to which the
Lender is then entitled on account thereof, the Lender may
assess an additional fee payable by the Borrowers on account
of the accommodation of Lender to the Borrowers' request that
the Lender depart or dispense with one or more of the
administrative provisions of this Agreement.
(g) Concerning Fees: The Borrowers shall not be entitled to any
credit, rebate or repayment of any fee earned by the Lender
pursuant to this Agreement or any Loan Document
notwithstanding any termination of this Agreement or
suspension or termination of the Lender's obligation to make
loans and advances hereunder.
2.14 LENDER'S DISCRETION.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to the Lender's
exercise of its judgment, in good faith (which shall be
presumed), based upon the Lender's consideration of any such
factors as the Lender, taking into account information of
which the Lender then has actual knowledge, believes:
(i) Will or reasonably could be expected to materially
adversely affect the value of the Collateral, the
enforceability of the Lender's Collateral Interests
therein, or the amount which the Lender would likely
realize therefrom (taking into account delays
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which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of
Collection).
(ii) Reasonably indicates that any report or financial
information delivered to the Lender by or on behalf of
any Borrower is incomplete, inaccurate, or misleading in
any material manner or was not prepared in accordance
with the requirements of this Agreement.
(iii) Reasonably suggests an increase in the likelihood that
any Borrower will become the subject of a bankruptcy or
insolvency proceeding.
(iv) Reasonably suggests that any Borrower is in Default.
(b) In the exercise of such judgement described in Section (a),
the Lender also may take into account any of the following
factors:
(i) Those included in, or tested by, the definitions of
"Eligible Inventory" and "Cost".
(ii) The current financial and business climate of the
industry in which each Borrower competes (having regard
for that Borrower's position in that industry).
(iii) General macroeconomic conditions which have a material
effect on the Borrowers' cost structure.
(iv) Material changes in or to the mix of the Borrowers'
Inventory.
(v) Seasonality with respect to the Borrowers' Inventory and
patterns of retail sales.
(vi) Such other factors as the Lender reasonably determines
as having a material bearing on credit risks associated
with the providing of loans and financial accommodations
to the Borrowers.
(c) The burden of establishing the failure of the Lender to have
acted in a reasonable manner in the Lender's exercise of such
discretion or its not having acted in good faith in the
determination of a particular fact or circumstance, shall be
the Borrowers'.
2.15 PROCEDURES FOR ISSUANCE OF L/C'S.
(a) The Lead Borrower may request that the Lender cause the
issuance by the Issuer of L/C's for the account of any
Borrower. Each such request shall be in such manner as may
from time to time reasonably be acceptable to the Lender.
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(b) The Lender will endeavor to cause the issuance of any L/C so
requested by the Lead Borrower, provided that , at the time
that the request is made, the Revolving Credit has not been
suspended as provided in Section 2.7(g) and if so issued:
(i) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed $10,000,000.00.
(ii) Except as provided in Section (iii), the expiry of the
L/C is not later than the earlier of Thirty (30) days
prior to the Maturity Date or the following:
(A) Standby's: One (1) year from initial issuance
(without regard to any evergreen feature).
(B) Documentary's: Ninety (90) days from issuance.
(iii) If the expiry of an L/C is later than the Maturity Date,
it is 103% cash collateralized at its issuance.
(iv) An OverLoan will not result from the issuance of the
subject L/C.
(c) Each Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the
Issuer generally for the issuance of like kinds of L/C's.
(d) There shall not be any recourse to, nor liability of, the
Lender on account of
(i) Any delay or refusal by an Issuer to issue an L/C;
(ii) Any action or inaction of an Issuer on account of or in
respect to, any L/C.
(e) The Borrowers shall reimburse the Issuer for the amount of any
honoring of a drawing under an L/C on the same day on which
such honoring takes place. The Lender, without the request of
any Borrower, may advance under the Revolving Credit (and
charge to the Loan Account) the amount of any honoring of any
L/C and other amount for which any Borrower, the Issuer, or
the Lender becomes obligated on account of, or in respect to,
any L/C. Such advance shall be made whether or not any
Borrower is in Default or such advance would result in an
OverLoan. Such action shall not constitute a waiver of the
Lender's rights under Section 2.11(b) hereof.
2.16 FEES FOR L/C'S.
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(a) The Borrowers shall pay to the Lender a fee, on account of
L/C's, the issuance of which had been procured by the Lender,
monthly in arrears, and on the Termination Date and on the End
Date, equal to 10 basis points of the weighted average Stated
Amount of all L/C's outstanding during the period in respect
of which such fee is being paid except that, following the
occurrence and during the continuance of any Event of Default,
such fee shall be increased by 20 basis points.
(b) In addition to the fee to be paid as provided in Subsection
(a), above, the Borrowers shall pay to the Lender (or to the
Issuer, if so requested by Lender), on demand, all issuance,
processing, negotiation, amendment, and administrative fees
and other amounts then generally charged by the Issuer on
account of, or in respect to, any L/C.
(c) If any change in Applicable Law after the date of this
Agreement shall either:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of
credit heretofore or hereafter issued by any Issuer or
with respect to which the Lender or any Issuer has an
obligation to lend to fund drawings under any L/C; or
(ii) impose on any Issuer any other condition or requirements
relating to any such letters of credit;
and the result of any event referred to in Section (i) or (ii), above,
shall be to increase the cost to the Lender or to any Issuer of issuing or
maintaining any L/C (which increase in cost shall be the result of such Issuer's
reasonable allocation among the Lender's or Issuer's letter of credit customers
of the aggregate of such cost increases resulting from such events), then,
subject to Section (d), upon demand by the Lender and delivery by the Lender to
the Lead Borrower of a certificate of an officer of the Lender or the subject
Issuer describing such change in Applicable Law or interpretation thereof, its
effect on the Lender or such Issuer, and the basis for determining such
increased costs and their allocation, the Borrowers shall immediately pay to the
Lender, from time to time as specified by the Lender, such amounts as shall be
sufficient to compensate the Lender or the subject Issuer for such increased
cost. The Lender's or any Issuer's determination of costs incurred under Section
(i) or (ii), above, and the allocation, if any, of such costs among the
Borrowers and other similarly situated letter of credit customers of the Lender
or such Issuer, if done in good faith and made on an equitable basis and in
accordance with such officer's certificate, shall be conclusive and binding on
the Borrowers.
(d) The Borrowers shall be required to compensate the Lender
pursuant to Section (c)
(i) only if the Lender provides the Lead Borrower with
notice thereof within ninety (90) days after the Lender
has received actual notice
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of the occurrence of the relevant circumstances which
gives rise to the Borrower's obligation to do so; and
(ii) only to the extent that the Lender imposes a like such
compensation obligation on other of its customers who
are similarly situated to the Borrowers in respect of
any increased costs described in Section (c).
2.17 CONCERNING L/C'S.
(a) None of the Issuer, the Issuer's correspondents, the Lender or
any advising, negotiating, or paying bank with respect to any
L/C shall be responsible in any way for:
(i) The performance by any beneficiary under any L/C of that
beneficiary's obligations to any Borrower.
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the
legal effect of; any documents called for under any L/C
if (with respect to the foregoing) such documents on
their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C
and of any drawing thereunder, any drafts or other documents
otherwise in order, but signed or issued by an administrator,
executor, conservator, trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, liquidator,
receiver, or other legal representative of the party
authorized under such L/C to draw or issue such drafts or
other documents.
(c) Unless otherwise agreed to, in the particular instance, each
Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating
to any L/C are at the risk of the Borrowers. The Issuer shall
have discharged the Issuer's obligations under any L/C which,
or the drawing under which, includes payment instructions, by
the initiation of the method of payment called for in, and in
accordance with, such instructions (or by any other
commercially reasonable and comparable method). Neither the
Lender nor the Issuer shall have any responsibility for any
inaccuracy, interruption, error, or delay in transmission or
delivery by post, telegraph or cable, or for any inaccuracy of
translation.
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(e) Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in
addition to any heretofore or at any time hereafter otherwise
created or arising, whether by statute or rule of law or
contract.
(f) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Lead Borrower,
documentary L/C's will be governed by the Uniform Customs and
Practice for Documentary Credits, International Chamber of
Commerce, Publication No. 500, and standby L/C's will be
governed by International Standby Practices ISP98 (adopted by
the International Chamber of Commerce on April 6, 1998) and
any respective subsequent revisions thereof.
(g) The obligations of the Borrowers under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable
and shall be performed strictly in accordance with the terms
hereof under all circumstances, whatsoever including, without
limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of this Agreement,
any L/C, or any other agreement or instrument relating
thereto.
(ii) Any Borrower's consent to any amendment or waiver of, or
consent to the departure from, any L/C.
(iii) The existence of any claim, set-off, defense, or other
right which any Borrower may have at any time against
the beneficiary of any L/C.
(iv) Any good faith honoring of a drawing under any L/C,
which drawing possibly could have been dishonored based
upon a strict construction of the terms of the L/C.
2.18 CHANGED CIRCUMSTANCES.
(a) The Lender may advise the Lead Borrower that the Lender has
made the good faith determination (which determination shall
be final and conclusive) of any of the following:
(i) Adequate and fair means do not exist for ascertaining
the rate for LIBOR Loans.
(ii) The continuation of or conversion of any Revolving
Credit Loan to a LIBOR Loan has been made impracticable
or unlawful by the occurrence of a contingency that
materially and adversely affects the applicable market
or the compliance by the Lender in good faith with any
Applicable Law.
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(iii) The indices on which the interest rates for LIBOR Loans
are based shall no longer represent the effective cost
to the Lender for U.S. dollar deposits in the London
interbank market for deposits in which it regularly
participates.
(b) In the event that the Lender advises the Lead Borrower of an
occurrence described in Section (a), then, until the Lender
notifies the Lead Borrower that the circumstances giving rise
to such notice no longer apply (which notice the Lender shall
give promptly after it has knowledge thereof):
(i) The obligation of the Lender to make loans of the type
affected by such changed circumstances or to permit the
Lead Borrower to select the affected interest rate as
otherwise applicable to any Revolving Credit Loans shall
be suspended.
(ii) Any notice which the Lead Borrower had given the Lender
with respect to any LIBOR Loan, the time for action with
respect to which has not occurred prior to the Lender's
having given notice pursuant to Section (a), shall be
deemed at the option of the Lender to not having been
given.
2.19 DESIGNATION OF LEAD BORROWER AS BORROWERS' AGENT.
(a) Each Borrower hereby irrevocably designates and appoints the
Lead Borrower as that Borrower's agent to obtain loans and
advances under the Revolving Credit, the proceeds of which
shall be available to each Borrower for those uses as those
set forth in Section 2.1(b)(iii). As the disclosed principal
for its agent, each Borrower shall be obligated to the Lender
on account of loans and advances so made under the Revolving
Credit as if made directly by the Lender to that Borrower,
notwithstanding the manner by which such loans and advances
are recorded on the books and records of the Lead Borrower and
of any Borrower.
(b) Each Borrower recognizes that credit available to it under the
Revolving Credit is in excess of and on better terms than it
otherwise could obtain on and for its own account and that one
of the reasons therefor is its joining in the credit facility
contemplated herein with all other Borrowers. Consequently,
each Borrower hereby assumes and agrees to discharge all
Liabilities of each of the other Borrowers as if that Borrower
so assuming and agreeing was each of the other Borrowers.
(c) The Lead Borrower shall act as a conduit for each Borrower
(including itself, as a "Borrower") on whose behalf the Lead
Borrower has requested a Revolving Credit Loan.
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(d) The proceeds of each loan and advance provided under the
Revolving Credit which is requested by the Lead Borrower shall
be deposited into the Operating Account or as otherwise
indicated by the Lead Borrower. The Lead Borrower shall cause
the transfer of the proceeds thereof to the (those)
Borrower(s) on whose behalf such loan and advance was
obtained. The Lender shall not have any obligation to see to
the application of such proceeds.
ARTICLE 3: CONDITIONS PRECEDENT:
As a condition to the First Funding, each of the documents respectively
described in Sections 3.1 through and including 3.3, (each in form and substance
reasonably satisfactory to the Lender) shall have been delivered to the Lender,
and the conditions respectively described in Sections 3.7 through and including
3.9, shall have been satisfied:
3.1 CORPORATE DUE DILIGENCE.
(a) Certificates of corporate good standing for each Borrower,
respectively issued by the Secretary of State for the state in
which that Borrower is incorporated.
(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature
a Borrower's business conducted or assets owned could
reasonably be expected to require such qualification.
(c) Certificates of each Borrower's Secretary of the due adoption,
continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the
establishment of the loan arrangement contemplated by the Loan
Documents and attesting to the true signatures of each Person
authorized as a signatory to any of the Loan Documents.
3.2 OPINION. An opinion of counsel to the Borrowers in form and substance
reasonably satisfactory to the Lender in the form annexed hereto as
EXHIBIT 3.2.
3.3 OFFICERS' CERTIFICATES. Certificates executed by the Chief Executive
Officer, Chief Operating Officer or Chief Financial Officer of the Lead
Borrower which state that
(a) Such officer, acting on behalf of the Borrowers, has reviewed
each of the Loan Documents and has had the benefit of
independent counsel of the Lead Borrower's selection in
connection with the review and negotiation of the Loan
Documents. In particular, and without limiting the generality
of such review, the following provisions of the Loan Documents
have been brought to the attention of the undersigned by such
counsel: The waiver of the right to a trial by jury in
connection
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with controversies arising out of the loan arrangement
contemplated by the Loan Documents.
(i) The designation of, and submission to the exclusive
jurisdiction and venue of, certain courts.
(ii) Various other waivers and indemnifications included
therein.
(iii) The circumstances under which the Liabilities could be
accelerated and the grace periods available with respect
to certain Events of Default.
(b) The representations and warranties made by the Borrowers to
the Lender in the Loan Documents are true and complete in all
material respects as of the date of such Certificate, and that
no Default has occurred and is then continuing which is or
which, solely with the giving of notice or passage of time (or
both) would be an Event of Default.
3.4 ADDITIONAL DOCUMENTS. SATISFACTION OF CONDITIONS. The execution of
such additional instruments and documents and the satisfaction of such
additional conditions respective as the Lender or its counsel reasonably
may require or request.
3.5 MAKE WHOLE AGREEMENT BY ALLOY, INC.. A Make Whole Agreement by Alloy,
Inc., in form and substance satisfactory to the Lender.
3.6 CASH MANAGEMENT REQUIREMENTS. All actions required under Article
7.1(b) to be taken prior to the First Funding shall have been so taken,
provided that in the case of Alloy Merchandise, LLC and Skate Direct, LLC
such actions shall be completed within 45 days after the First Funding.
3.7 REPRESENTATIONS AND WARRANTIES. Each of the representations made by or
on behalf of each Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided
by or on behalf of each Borrower shall be true and complete in all
material respects as of the date as of which such representation or
warranty was made.
3.8 NO BORROWER IN DEFAULT>>
. No Borrower is in Default.
3.9 NO ADVERSE CHANGE. No event shall have occurred or failed to occur,
which occurrence or failure is or could reasonably be expected to have a
materially adverse effect upon the Borrowers' financial Consolidated
condition when compared with such financial condition at July 31, 2004.
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3.10 BENEFIT OF CONDITIONS PRECEDENT. The conditions set forth in this
Article 3: are for the sole benefit of the Lender and may be waived by the
Lender in whole or in part without prejudice to the Lender.
No document shall be deemed delivered to the Lender until received and
accepted by the Lender at its offices in Boston, Massachusetts. Under no
circumstances shall this Agreement take effect until executed and accepted by
the Lender at said offices.
ARTICLE 4: GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to establish the credit facility contemplated herein
and to induce the Lender to provide loans and advances under the Revolving
Credit (each of which loans shall be deemed to have been made in reliance
thereupon) the Borrowers, in addition to all other representations, warranties,
and covenants made by any Borrower in any other Loan Document, make those
representations, warranties, and covenants included in this Agreement.
4.1 PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrowers shall pay each
payment Liability in accordance with its respective terms, after giving
effect to any applicable grace period, and shall promptly, punctually, and
faithfully perform each other Liability.
4.2 DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS.
(a) Each Borrower presently is and hereafter shall remain in good
standing as a corporation or limited liability company, as
applicable, under the laws of the State in which it is
organized, as set forth in the Preamble to this Agreement and
is and shall hereafter remain duly qualified and in good
standing in every other State in which, by reason of the
nature or location of each Borrower's assets or operation of
each Borrower's business, such qualification may be necessary,
except where the failure to so qualify could not reasonably be
expected to have a Material Adverse Effect.
(b) Each Borrower's respective organizational identification
number assigned to it by the State of its incorporation and
its respective federal employer identification number is
stated on EXHIBIT 4.2, annexed hereto.
(c) No Borrower shall change its State of organization; any
organizational identification number assigned to that Borrower
by that State; or that Borrower's federal taxpayer
identification number.
(d) Each Affiliate is listed on EXHIBIT 4.2. The Lead Borrower
shall provide the Lender with prior written notice of any
entity's becoming or ceasing to be an Affiliate.
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(e) Each Borrower has all requisite power and authority to execute
and deliver all Loan Documents to which that Borrower is a
party and has and will hereafter retain all requisite power to
perform all Liabilities.
(f) The execution and delivery by each Borrower of each Loan
Document to which it is a party; each Borrower's consummation
of the transactions contemplated by such Loan Documents
(including, without limitation, the creation of Collateral
Interests by that Borrower to secure the Liabilities); each
Borrower's performance under those of the Loan Documents to
which it is a party; the borrowings hereunder; and the use of
the proceeds thereof:
(i) Have been duly authorized by all necessary action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of
that Borrower.
(iii) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any
assets of that Borrower pursuant to any Requirement of
Law or obligation, except pursuant to the Loan
Documents.
(g) The Loan Documents have been duly executed and delivered by
each Borrower and are the legal, valid and binding obligations
of each Borrower, enforceable against each Borrower in
accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws and equitable
principles which affect the rights of creditors generally.
4.3 TRADE NAMES.
(a) EXHIBIT 4.3, annexed hereto, is a listing of:
(i) All names under which any Borrower conducted its
business since October 14, 1999.
(ii) All Persons with whom any Borrower ever consolidated or
merged, or from whom any Borrower ever acquired in a
single transaction or in a series of related
transactions substantially all of such Person's assets.
(b) The Lead Borrower will provide the Lender with not less than
twenty-one (21) days prior written notice (with reasonable
particularity) of any change to any Borrower's name from that
under which that Borrower is conducting its business at the
execution of this Agreement and will not effect such change
unless each Borrower is then in
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compliance in all material respects with all provisions of
this Agreement.
4.4 INFRASTRUCTURE.
(a) Except as described on EXHIBIT 4.4, annexed hereto, each
Borrower has and will maintain a sufficient infrastructure to
conduct its business as presently conducted and as
contemplated to be conducted following its execution of this
Agreement.
(b) Each Borrower owns and possesses, or has the right to use (and
will hereafter own, possess, or have such right to use) all
patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade
secrets, know-how, confidential information, and other
intellectual or proprietary property of any third Person
necessary for that Borrower's conduct of that Borrower's
business substantially in accordance with the Business Plan.
(c) The conduct by each Borrower of that Borrower's business does
not presently infringe (nor will any Borrower conduct its
business in the future so as to infringe) the patents,
industrial designs, trademarks, trade names, trade styles,
brand names, service marks, logos, copyrights, trade secrets,
know-how, confidential information, or other intellectual or
proprietary property of any third Person except where such
infringement could not reasonably be expected to have a
Material Adverse Effect.
4.5 LOCATIONS.
(a) The Collateral, and the books, records, and papers of
Borrowers' pertaining thereto, are kept and maintained solely
at the following locations:
(i) The Lead Borrower's chief executive offices which are at
435 Hudson Street, New York, New York 10014.
(ii) Those locations which are listed on EXHIBIT 4.5, annexed
hereto, which EXHIBIT includes, with respect to each
such location, the name and address of the landlord on
the Lease which covers such location (or an indication
that a Borrower owns the subject location) and of all
service bureaus with which any such records are
maintained.
(b) No Borrower shall remove any of the Collateral from said chief
executive office or those locations listed on EXHIBIT 4.5
except:
(i) To accomplish sales of Inventory in the ordinary course
of business.
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(ii) To move Inventory from one such location to another such
location.
(iii) To utilize such of the Collateral as is removed from
such locations in the ordinary course of business (such
as motor vehicles).
(iv) To dispose of such Collateral as otherwise permitted by
this Agreement.
(c) The Lead Borrower shall obtain and deliver to the Lender a
consent, waiver and subordination (each reasonably
satisfactory to the Lender) by the landlord of each Borrower's
warehouse and distribution center locations of which, prior to
the date of execution hereof, such Borrower is a tenant and by
the mortgagee or each Borrower's warehouse and distribution
center locations of which, prior to the date of execution
hereof, such Borrower is the owner.
(d) The Lead Borrower shall expend commercially reasonable efforts
to obtain and deliver to the Lender a consent, waiver and
subordination (each reasonably satisfactory to the Lender) by
the landlord for each Borrower's store locations within thirty
(30) days of the date of execution hereof.
(e) At the execution of this Agreement and at any time thereafter,
the Lender may establish an Availability Reserve for up to
thirty (30) days rent for each of the Borrowers' locations in
Pennsylvania, Washington and Virginia, or in any other state
with respect to which Lender reasonably determines that the
claim of a landlord against Inventory may be senior to the
Collateral Interest of the Lender and for which a satisfactory
consent, waiver and subordination has not been received. Such
Availability Reserve shall be eliminated with respect to any
particular location upon the furnishing to the Lender of a
consent, waiver and subordination (in form reasonably
satisfactory to the Lender) by the landlord for the subject
location.
(f) Without duplication of any Availability Reserve described
above, the Lender may establish an Availability Reserve for
past due rent.
(g) Except as otherwise disclosed pursuant to, or permitted by,
this Section 4.5, or by Section 4.6, no tangible personal
property of any Borrower is in the care or custody of any
third party or stored or entrusted with a bailee or other
third party and none shall hereafter be placed under such
care, custody, storage, or entrustment.
4.6 LEASE AMENDMENTS. NEW STORES. STORE CLOSINGS.
(a) No Borrower will alter, modify, or amend any Lease in any
material respect other than
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(i) for the subject Borrower's benefit, provided, however,
in no event may such alternation, modification, or
amendment have an adverse effect on the Lender's ability
to exercise the Lender's Rights and Remedies; or
(ii) to exercise options included therein (in which event,
such exercise shall be made only upon not less than ten
(10) days prior written notice to Lender (with
reasonable specificity of the facts and circumstances
thereof)).
(b) No Borrower will commit to, or open any Store, except that
subject to the conditions set forth in Section 4.6(a), the
Borrowers may open up to the following number of Stores during
each Fiscal year: 120% of the number of new Stores as
reflected in the Borrowers' Business Plan for the relevant
Fiscal year (which number shall be rounded upward or downward
based on a single decimal place).
The Borrowers' commitment to and its opening of new Stores
respectively are subject, in each instance, to the following
conditions:
(A) At the time that any Borrower becomes
contractually obligated on the Lease for such new
Store, no Event of Default has occurred and is
continuing.
(B) Neither any Borrower's becoming so contractually
obligated nor its opening of such Store will
result in the occurrence of an Event of Default.
(C) The Lead Borrower shall have provided not less
than fifteen (15) days prior written notice to
Lender (with reasonable specificity of the facts
and circumstances thereof) of the opening of that
location.
(c) No Borrower may close any Store except as provided in this
Section (c).
(i) Subject to the conditions set forth in Section (iii) the
Borrowers may voluntarily close up to five Stores beyond
those already disclosed to the Lender in any Fiscal
Year.
(ii) Any Borrower may close a Store upon the refusal of the
landlord thereof to renew the lease relating to such
Store upon substantially the same terms and conditions
of the previous lease between such Borrower and the
landlord. Any such closure shall be deemed an
involuntary closure for purposes hereof.
(iii) The Lead Borrower shall provide not less than thirty
(30) days prior written notice to Lender (with
reasonable specificity of the
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facts and circumstances thereof) of any voluntary
closing, and shall provide prompt notice of any
involuntary closing.
(iv) If the relevant Borrower determines to employ an
inventory liquidation agent to effect any such closing
(whether on a guarantee, fee or other basis), then the
Lead Borrower shall provide the Lender with the
following:
(A) Not less than five (5) Business Days advance
notice of the initiation of any bidding process
(which notice includes a summary, with reasonable
particularity, of such process).
(B) Within not less than a reasonable period prior to
its execution within which to review and provide
the Lead Borrower with the Lender's comments
thereon, a copy of the agreement pursuant to which
such agent is employed. The Borrowers shall not be
under any affirmative obligation to take any
action on account of such comments, if any,
provided by the Lender.
4.7 TITLE TO ASSETS.
(a) The Borrowers are, and shall hereafter remain, the owners of
the Collateral free and clear of all Encumbrances with the
exceptions of the following:
(i) Encumbrances in favor of the Lender.
(ii) Permitted Encumbrances.
(b) No Borrower has, and none shall have, possession of any
property on consignment to that Borrower.
(c) No Borrower shall acquire or obtain the right to use any
Equipment, the acquisition or right to use of which Equipment
is otherwise permitted by this Agreement, in which Equipment
any third party has an interest, except for the following:
(i) Equipment which is not material to the conduct of that
Borrower's business.
(ii) Equipment, the acquisition or right to use of which has
been consented to by the Lender, which consent may be
conditioned upon the Lender's receipt of an agreement
(substantially in the form of EXHIBIT 4.7(c)(ii),
annexed hereto) with the third party which has an
interest in such Equipment.
4.8 INDEBTEDNESS.
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(a) The Borrowers do not and shall not hereafter have any
Indebtedness with the exceptions of:
(i) Any Indebtedness on account of the Revolving Credit.
(ii) Permitted Indebtedness.
(b) Each Borrower shall observe and comply with the following
covenants, which are applicable with respect to the Hanover
Property Indebtedness:
(i) No Borrower, other than dELiA*s Distribution Company,
may make any payment, directly or indirectly, in respect
of the Hanover Property Indebtedness.
(ii) The only payments in respect of the Hanover Property
Indebtedness which may be made are regularly scheduled
payments of principal and interest and other mandatory
payments of principal or interests, in each instance
when due in accordance with the terms of the Hanover
Property Loan Documents as in effect on the date hereof.
(iii) No term of the Hanover Property Indebtedness may be
amended, modified, altered or changed other than the
following (with prior written notice (with reasonable
particularity) in each instance, to the Lender):
(A) Extension of the maturity thereof.
(B) Deferral of the timing of any payments in respect
thereof.
(C) Forgiveness or cancellation of any portion of such
Indebtedness.
(D) Reduction of the interest rate or any fees in
connection therewith.
(iv) Except as otherwise permitted by this Section (b), no
Borrower may redeem, retire, defease, purchase, or
otherwise acquire the Hanover Property Indebtedness nor
set aside or deposit or invest funds for such purpose
(v) The Lead Borrower shall furnish the Lender with all
notices, demands or other materials concerning such
Indebtedness either received by any Borrower or on its
behalf, promptly after receipt thereof, or sent by any
Borrower or on its behalf, concurrently with the sending
thereof, as applicable.
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(c) Each Borrower shall observe and comply with the following
covenants, which are applicable with respect to Indebtedness
described on EXHIBIT 4.8, annexed hereto and any refinancing
thereof:
(i) The Borrowers may only make regularly scheduled or other
mandatory payments of principal and interest in respect
of such Indebtedness when due in accordance with the
terms of the agreement or instrument evidencing or
giving rise to such Indebtedness as in effect on the
date hereof.
(ii) The Borrowers shall not directly or indirectly undertake
any of the following:
(A) The amendment, modification, alteration, or change
of the terms of such Indebtedness or any
agreement, document or instrument related thereto
as in effect on the date hereof in any material
respect except, that, the Borrowers, after prior
written notice to Lender (with reasonable
particularity), may amend, modify, alter or change
the terms thereof, so as to forgive or cancel any
portion of such Indebtedness (other than pursuant
to payments thereof), or to reduce the interest
rate or any fees in connection therewith.
(B) Except as permitted by Section (A), the
redemption, retirement, defeasance, purchase, or
other acquisition of such Indebtedness or the
setting aside or deposit or investment of funds
for such purpose.
4.9 INSURANCE.
(a) EXHIBIT 4.9, annexed hereto, is a schedule of all insurance
policies owned by the Borrowers or under which any Borrower is
the named insured as of the date of this Agreement. Each of
such policies is in full force and effect. Neither the issuer
of any such policy (to the knowledge of the Borrowers) nor any
Borrower is in default or violation in any material respect of
any such policy.
(b) The Borrowers shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms,
in such form, for such periods, and written by such companies
as is customary in their industry and is reasonably
satisfactory to the Lender.
(c) All insurance carried by the Borrowers shall provide for a
minimum of thirty (30) days' prior written notice of
cancellation to the Lender and all such insurance which covers
the Collateral shall
(i) Include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the
extent of the
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Lender's interest therein, shall not be impaired or
invalidated, in whole or in part, by reason of any act
or neglect of any Borrower or by the failure of any
Borrower to comply with any warranty or condition of the
policy.
(ii) Except as disclosed on EXHIBIT 4.9, not include an
endorsement in favor of any other Person.
(d) The coverage reflected on EXHIBIT 4.9 presently satisfies the
foregoing requirements, it being recognized by each Borrower
and the Lender, however, that such requirements may change
hereafter to reflect changing circumstances.
(e) The Lead Borrower shall furnish the Lender from time to time
with certificates or other evidence reasonably satisfactory to
the Lender regarding compliance by the Borrowers with the
foregoing requirements.
(f) In the event of the failure by the Borrowers to maintain
insurance as required herein, the Lender, at its option, may
obtain such insurance, provided, however, the Lender's
obtaining of such insurance shall not constitute a cure or
waiver of any Event of Default occasioned by the Borrowers'
failure to have maintained such insurance.
4.10 LICENSES. Each material license, distributorship, franchise, and
similar agreement issued to, or to which any Borrower is a party is in
full force and effect. To the Borrowers' knowledge, no party to any such
license or agreement is in default or violation thereof. No Borrower has
received any written notice or threat of cancellation of any such license
or agreement.
4.11 LEASES. EXHIBIT 4.11, annexed hereto, is a schedule of all presently
effective material Capital Leases. (Exhibit 4.5 includes a list of all
other presently effective Leases). Each of such Leases and Capital Leases
is in full force and effect. To the Borrowers' knowledge, no party to any
such Lease or Capital Lease is in default or violation of any such Lease
or Capital Lease. No Borrower has received any written notice or threat of
cancellation of any such Lease or Capital Lease. Each Borrower hereby
authorizes the Lender at any time and from time to time, on prior notice
to the Lead Borrower, to contact any of the Borrowers' respective
landlords in order to confirm the Borrowers' continued compliance with the
terms and conditions of the Lease(s) between the subject Borrower and that
landlord and to discuss such issues, concerning the subject Borrower's
occupancy under such Lease(s), as the Lender may determine.
4.12 REQUIREMENTS OF LAW.
(a) Subject to Section (b), each Borrower is in compliance with,
and shall hereafter comply with and use its assets in
compliance with, all Requirements of Law except where the
failure of such compliance is
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otherwise permitted by this Agreement and could not reasonably
be expected to have a Material Adverse Effect. No Borrower has
received any notice of any violation of any Requirement of Law
(other than of a violation which could not reasonably be
expected to have a Material Adverse Effect), which violation
has not been cured or otherwise remedied.
(b) The representations, covenants, and warranties which are made
and undertaken in Section (a) do not include the separately
made and undertaken representations, covenants, and warranties
included in the following Sections of this Agreement:
Section Relates To
4.13 Labor Relations
4.15 Taxes
4.17 ERISA
4.18 Hazardous Materials
4.13 LABOR RELATIONS.
(a) As of the date of this Agreement, no Borrower has been, and
none is presently a party to any collective bargaining or
other labor contract.
(b) As of the date of this Agreement, there is not presently
pending and, to any Borrower's knowledge, there is not
threatened any of the following:
(i) Any strike, slowdown, picketing, work stoppage, or
employee grievance process.
(ii) Any proceeding against or affecting any Borrower
relating to the alleged violation of any Applicable Law
pertaining to labor relations or before National Labor
Relations Board, the Equal Employment Opportunity
Commission, or any comparable governmental body,
organizational activity, or other labor or employment
dispute against or affecting any Borrower, which, if
determined adversely to that Borrower could reasonably
be expected to have a Material Adverse Effect.
(iii) Any lockout of any employees by any Borrower (and no
such action is contemplated by any Borrower).
(iv) Any application for the certification of a collective
bargaining agent.
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(c) Each Borrower:
(i) Has complied with all Applicable Law relating to
employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security
and similar taxes, occupational safety and health, and
plant closing except where the failure to so comply
could not reasonably be expected to have a Material
Adverse Effect.
(ii) Is not liable for the payment of any amount of
compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for that Borrower's failure
to comply with any Applicable Law referenced in Section
(i) except where the failure to make payment thereof
could not reasonably be expected to have a Material
Adverse Effect.
4.14 MAINTAIN PROPERTIES. The Borrowers shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted and to
the extent that the Collateral consists of Leasehold
Interests, subject to the obligations of the respective
Borrowers under the applicable Lease).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral (insured casualty excepted).
(c) Not use any of the Collateral in violation of any policy of
insurance thereon, which violation could reasonably be
expected to result in cancellation thereof or denial of
coverage thereunder.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with this Agreement.
(ii) The disposal of Equipment which is obsolete, outmoded,
worn out, or damaged beyond repair, which Equipment is
replaced to the extent necessary to preserve or improve
the operating efficiency of any Borrower.
(iii) The turning over to the Lender of all Receipts as
provided herein.
(iv) The disposal of Leasehold Interests as permitted by
Section 4.6(a).
(v) Dispositions of Collateral in any Fiscal year having a
net book value (if Equipment) or Cost (if Inventory),
which, when aggregated with "Collateral" so disposed of
by the Guarantors
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pursuant to a "basket" accorded to the Guarantors in
their respective Security Agreements in favor of the
Lender, does not exceed $200,000.00.
4.15 TAXES.
(a) With respect to the Borrowers' federal, state, and local tax
liability and obligations:
(i) Except as described on EXHIBIT 4.15: the Lead Borrower,
in compliance with all Applicable Law, has properly
filed all returns due to be filed up to the date of this
Agreement with the exception of any return, the failure
to timely file will not have a Material Adverse Effect
(all of which excepted returns ultimately will be
filed).
(ii) As of the date of this Agreement, except as described on
EXHIBIT 4.15:
(A) At no time has any Borrower received from any
taxing authority any request to perform any
examination of or with respect to any Borrower nor
any other written or verbal notice in any way
relating to any claimed failure by any Borrower to
comply with all Applicable Law concerning payment
of any taxes or other amounts in the nature of
taxes.
(B) No agreement is extant which waives or extends any
statute of limitations applicable to the right of
any taxing authority to assert a deficiency or
make any other claim for or in respect to federal
income taxes.
(C) No issue has been raised in any tax examination of
any Borrower which, by application of similar
principles, reasonably could be expected to result
in the assertion of a deficiency for any fiscal
year open for examination, assessment, or claim by
any taxing authority.
(b) The Borrowers have, and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and
other charges of any kind or nature levied, assessed or
claimed against any Borrower or the Collateral by any person
or entity whose claim could reasonably be expected to result
in an Encumbrance upon any asset of any Borrower or by any
governmental authority, except where such purported obligation
to pay is being contested in good faith by appropriate
proceedings in respect of which adequate reserves have been
established and no lien is filed with respect thereto;
properly exercise any trust responsibilities imposed upon any
Borrower by reason of withholding from employees'
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pay or by reason of any Borrower's receipt of sales tax or
other funds for the account of any third party; timely make
all contributions and other payments as may be required
pursuant to any Employee Benefit Plan now or hereafter
established by any Borrower; and timely file all tax and other
returns and other reports with each governmental authority to
whom any Borrower is obligated to so file.
4.16 NO MARGIN STOCK. No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within
the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of
any borrowing hereunder will be used at any time to purchase or carry any
such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
4.17 ERISA.
(a) Neither any Borrower nor any ERISA Affiliate has ever engaged,
committed, suffered, or caused any of the following where the
result thereof could reasonably be expected to have a Material
Adverse Effect:
(i) Violated or failed to be in full compliance with any
Borrower's Employee Benefit Plan.
(ii) Failed timely to file all periodic and other reports and
filings required by ERISA to be filed by any Borrower.
(iii) Engaged in any nonexempt "prohibited transactions" or
"reportable events" (respectively as described in
ERISA).
(iv) Engaged in, or committed, any act such that a tax or
penalty reasonably could be imposed upon any Borrower on
account thereof pursuant to ERISA.
(v) Accumulate any material cumulative funding deficiency
within the meaning of ERISA.
(vi) Terminated any Employee Benefit Plan such that a lien
could be asserted against any assets of any Borrower on
account thereof pursuant to ERISA.
(vii) Been a member of, contributed to, or have any obligation
under any Employee Benefit Plan which is a multiemployer
plan within the meaning of Section 4001(a) of ERISA
under which any Borrower or any ERISA Affiliate could
have any withdrawal liability.
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(b) Neither any Borrower nor any ERISA Affiliate shall engage in
any action of the type described in Section (a) where the
result thereof could reasonably be expected to have a Material
Adverse Effect.
4.18 HAZARDOUS MATERIALS.
(a) Except as described on EXHIBIT 4.18, annexed hereto, no
Borrower has ever engaged, committed, suffered, or caused any
of the following where the result thereof could reasonably be
expected to have a Material Adverse Effect:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of the incurrence of any expense
in connection with the assessment, containment, or
removal of any Hazardous Material for which that
Borrower would be responsible.
(b) Each Borrower shall: (i) dispose of any Hazardous Material
only in compliance with all Environmental Laws and (ii) have
possession of any Hazardous Material only in the ordinary
course of that Borrower's business and in compliance with all
Environmental Laws.
4.19 LITIGATION. As of the date of this Agreement, except as described in
EXHIBIT 4.19, annexed hereto, there is not presently pending or threatened
by or against any Borrower any suit, action, proceeding, or investigation
which, if determined adversely to any Borrower, could reasonably be
expected to have a Material Adverse Effect.
4.20 DIVIDENDS. INVESTMENTS. CORPORATE ACTION. No Borrower shall:
(a) Pay any cash dividend or make any other distribution in
respect of any class of that Borrower's capital stock other
than by way of a Permitted Distribution.
(b) Own, redeem, retire, purchase, or acquire any of any
Borrower's capital stock other than by way of a Permitted
Distribution.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any Person other
than Permitted Investments.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of that Borrower's operations with those of
any other Person other than of another Borrower.
(f) Organize or create any Affiliate.
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(g) Subordinate any debts or obligations owed to that Borrower by
any third party to any other debts owed by such third party to
any other Person.
(h) Acquire any assets other than in the ordinary course and
conduct of that Borrower's business as conducted at the
execution of this Agreement.
4.21 LOANS. No Borrower shall make any loans or advances to, nor acquire
the Indebtedness of, any Person, provided, however, the foregoing does not
prohibit any of the following:
(a) Advance payments made to that Borrower's suppliers in the
ordinary course.
(b) Advances to that Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be
incurred by such officers, employees, and salespersons for the
benefit of that Borrower, which expenses are properly
substantiated by the person seeking such advance and properly
reimbursable by that Borrower.
(c) Loans, not the exceed $500,000.00 in the aggregate outstanding
at any one time to employees.
4.22 PROTECTION OF ASSETS. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action which the Lender may deem necessary
or desirable to repair, insure, maintain, preserve, collect, or realize
upon any of the Collateral, but only to the extent that the Borrowers have
failed to comply with their respective obligations hereunder with respect
thereto. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so
undertaken except where there is a specific finding in a judicial
proceeding by a court of competent jurisdiction (in which the Lender has
been given an opportunity to be heard), from which finding no further
appeal is available, that the Lender had acted in actual bad faith or in a
grossly negligent manner or in wilful misconduct. The Borrowers shall pay
to the Lender, on demand, or the Lender, in its discretion, may add to the
Loan Account, all amounts paid or incurred by the Lender pursuant to this
section 4.22.
4.23 LINE OF BUSINESS. No Borrower shall engage in any business other
than the business in which it is currently engaged or a business
reasonably related thereto.
4.24 AFFILIATE TRANSACTIONS. No Borrower shall make any payment, nor give
any value to any Affiliate except for the following:
(a) Transactions which are in the ordinary course of such
Borrower's business, including agreement listed on EXHIBIT
4.24 in place on the date hereof,
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(i) upon fair and reasonable terms prior written disclosure
of which (with reasonable particularity) has been made
by the Lead Borrower to the Lender; and
(ii) that are no less favorable to such Borrower than would
be obtained in an arm's length transaction with a
non-Affiliate of such Borrower.
(b) Transactions between any Borrower, on the one hand, and any
other Borrower or guarantor of the Liabilities, on the other
hand.
4.25 FURTHER ASSURANCES.
(a) Except as provided in Section (g), no Borrower is the owner
of, nor has it any interest in, any property or asset which,
immediately upon the satisfaction of the conditions precedent
to the effectiveness of the credit facility contemplated
hereby (Article 3:) will not be subject to a prior perfected
Collateral Interest in favor of the Lender (subject only to
Permitted Encumbrances) to secure the Liabilities.
(b) Except as provided in Section (g), no Borrower will hereafter
acquire any asset or any interest in property which is not,
immediately upon such acquisition, subject to such a perfected
Collateral Interest in favor of the Lender to secure the
Liabilities (subject only to Permitted Encumbrances).
(c) Each Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such
things from time to time hereafter as the Lender may request
to carry into effect the provisions and intent of this
Agreement; to protect and perfect the Lender's Collateral
Interests in the Collateral; and to comply with all applicable
statutes and laws, and facilitate the collection of the
Receivables Collateral. Each Borrower shall execute all such
instruments as reasonably may be required by the Lender with
respect to the recordation and/or perfection of the Collateral
Interests created or contemplated herein.
(d) Each Borrower hereby designates the Lender as and for that
Borrower's true and lawful attorney, with full power of
substitution, to sign and file any financing statements in
order to perfect or protect the Lender's Collateral Interests
in the Collateral.
(e) This Agreement constitutes an authenticated record which
authorizes the Lender to file such financing statements as the
Lender reasonably determines as appropriate to perfect or
protect the Collateral Interests created by this Agreement.
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(f) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument
executed pursuant to this Section 4.25 shall be sufficient for
filing to perfect the security interests granted herein.
(g) The requirements of Sections (a) and (b) are subject to the
following:
(i) Such requirements shall not apply to any Excluded Asset.
(ii) Except as provided in Sections(iii), such requirements
shall not apply to any Borrower's right to use property
which is not material to the conduct of that Person's
business.
(iii) Such requirements shall apply in all events to the
following:
(A) Any Permitted Investments.
(B) Any trademark or service mark becomes "active"
after the execution of this Agreement.
4.26 ADEQUACY OF DISCLOSURE.
(a) The Consolidated financial statements furnished to the Lender
by the Lead Borrower have been prepared (except as otherwise
disclosed thereon) in accordance with GAAP consistently
applied and present fairly the condition of the Borrowers and
their respective subsidiaries at the date(s) thereof and the
results of operations and cash flows for the period(s) covered
therein (provided however, that unaudited financial statements
are subject to normal year end adjustments and to the absence
of footnotes). Except as reflected on such financial
statements, there has been no change in the Consolidated
financial condition, results of operations, or cash flows of
the Borrowers and their respective subsidiaries since July 31,
2004, other than changes in the ordinary course of business,
which changes have not been materially adverse, either
singularly or in the aggregate.
(b) No Borrower has any contingent obligations or obligation under
any Lease or Capital Lease which is required by GAAP to be
disclosed and which is not noted in the Borrowers'
Consolidated financial statements furnished to the Lender
prior to the execution of this Agreement.
(c) No document, instrument, agreement, or paper, when taken as a
whole in light of all written information delivered to the
Lender by and on behalf of each Borrower, now or hereafter
given to the Lender by or on behalf of each Borrower or any
guarantor of the Liabilities in connection with the execution
of this Agreement by the Lender contains or will contain any
untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the
statements therein
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not misleading, provided, however, the foregoing
representation does not include any projections or so-called
forward looking statements which might have been provided to
the Lender. Taken as a whole, in light of all information
delivered to the Lender by or on behalf of each Borrower,
there is no fact known to any Borrower which has, or which, in
the foreseeable future could reasonably be expected to have, a
material adverse effect on the financial condition of any
Borrower or any such guarantor which has not been disclosed in
writing to the Lender.
4.27 NO RESTRICTIONS ON LIABILITIES. No Borrower shall enter into or
directly or indirectly become subject to any agreement which prohibits or
restricts, in any manner, any Borrower's:
(a) Creation of, and granting of Collateral Interests in favor of
the Lender.
(b) Incurrence of Liabilities.
4.28 SKATE DIRECT.
(a) During the fiscal months of February through October, the
amount of payables owed by Skate Direct, LLC to its trade
vendors shall not exceed fifty percent (50%) of the Eligible
Inventory owned by Skate Direct, LLC; and
(b) During the fiscal months of November through January, the
amount of payables owed by Skate Direct, LLC to its trade
vendors shall not exceed sixty percent (60%) of the Eligible
Inventory owned by Skate Direct, LLC.
4.29 OTHER COVENANTS. No Borrower shall indirectly do or cause to be done
any act which, if done directly by that Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 5: FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5.1 MAINTAIN RECORDS. The Borrowers shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the
Borrowers' financial transactions, all in accordance with GAAP
applied consistently with prior periods to fairly reflect the
financial condition of the Borrowers at the close of, and its
results of operations for, the periods in question, subject,
however to usual year end adjustments and, with the exception
of Alloy, Inc.'s Consolidated annual statement, the absence of
footnotes.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5: or
otherwise, each of which reports,
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statements and schedules shall be prepared, to the extent
applicable, in accordance with GAAP applied consistently with
prior periods to fairly reflect the Consolidated financial
condition of the Borrowers at the close of, and the results of
operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost,
and sales records of its Inventory, accurately and
sufficiently itemizing and describing the kinds, types, and
quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants
who are either one of the so-called "Big 4" or other
nationally recognized accounting firms (or any successor
thereto), or are otherwise reasonably satisfactory to the
Lender, and instruct such accountants reasonably to cooperate
with, and be available to, the Lender to discuss the
Borrowers' financial performance, financial condition,
operating results, controls, and such other matters, within
the scope of the retention of such accountants, as may be
raised by the Lender. The parties hereto agree that BDO
Seidman, the current certified public accountants of the Lead
Borrower, shall be satisfactory to Lender for purposes of this
Section 5.1(d).
(e) Not change any Borrower's fiscal year.
5.2 ACCESS TO RECORDS.
(a) Upon reasonable prior notice during normal business hours,
each Borrower shall accord the Lender with access from time to
time as the Lender reasonably may require to all properties
owned by or over which any Borrower has control. The Lender
shall have the right, and each Borrower will permit the Lender
from time to time as Lender may request, to examine, inspect,
copy, and make extracts from any and all of the Borrowers'
books, records, electronically stored data, papers, and files.
Each Borrower shall make all of that Borrower's copying
facilities reasonably available to the Lender.
(b) Each Borrower hereby authorizes the Lender:
(i) Upon reasonable prior notice during normal business
hours, to inspect, copy, duplicate, review, cause to be
reduced to hard copy, run off, draw off, and otherwise
use any and all computer or electronically stored
information or data which relates to any Borrower, or
any service bureau, contractor, accountant, or other
person, and directs any such service bureau, contractor,
accountant, or other person reasonably to cooperate with
the Lender with respect thereto.
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(ii) Verify at any time the Collateral or any portion
thereof, including verification with Account Debtors,
and/or with each Borrower's computer billing companies,
collection agencies, and accountants and to sign the
name of each Borrower on any notice to each Borrower's
Account Debtors or verification of the Collateral.
(c) The Lender from time to time may designate one or more
representatives to exercise the Lender's rights under this
Section 5.2 as fully as if the Lender were doing so.
5.3 IMMEDIATE NOTICE TO LENDER.
(a) The Lead Borrower shall provide the Lender with written notice
promptly upon the occurrence of any of the following events,
which written notice shall be with reasonable particularity as
to the facts and circumstances in respect of which such notice
is being given:
(i) Any change in the Lead Borrower's President, chief
executive officer, chief operating officer, and chief
financial officer (without regard to the title(s)
actually given to the Persons discharging the duties
customarily discharged by officers with those titles).
(ii) Any ceasing of any Borrower's making of material
payment, in the ordinary course, to its creditors
(other than its ceasing of making of such payments on
account of a de minimis dispute which is diligently
being pursued by such Borrower).
(iii) Any failure by any Borrower to pay rent at any of that
Borrower's locations, which failure continues for more
than Three (3) days following the last day on which
such rent was payable (after giving effect to any
applicable grace period) without more than a de minimis
adverse effect to that Borrower.
(iv) Any material adverse change in the business,
operations, or financial affairs of any Borrower.
(v) Any Borrower's becoming in Default.
(vi) Any intention on the part of any Borrower to discharge
that Borrower's present independent accountants or any
withdrawal or resignation by such independent
accountants from their acting in such capacity (as to
which, see Subsection 5.1(d)).
(vii) Any litigation which, if determined adversely to any
Borrower and after giving effect to any applicable
insurance coverage could reasonably be expected to have
a material adverse effect on the financial condition of
that Borrower.
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(viii) The reduction by any of Borrower's material vendors in
the amount of trade credit or terms provided by such
vendor to Borrower on the date of execution hereof.
(b) The Lead Borrower shall:
(i) Provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the
Lead Borrower (qua such shareholders).
(ii) Provide the Lender:
(A) When filed, copies of all material filings with
the SEC (including any filing on forms 10-K,
10-Q, or 8-K).
(B) When received, copies of all correspondence from
the SEC, other than routine non-substantive
general communications from the SEC.
(iii) Add the Lender as an addressee on all mailing lists
maintained by or for each Borrower.
(iv) At the request of the Lender, from time to time, provide
the Lender with copies of all advertising (including
copies of all print advertising and duplicate tapes of
all video and radio advertising).
(v) Provide the Lender, promptly following receipt by any
Borrower, with a copy of any management letter or
similar communications from any accountant of any
Borrower.
5.4 BORROWING BASE CERTIFICATE. Daily, on or before 1:00 P.M. by
telecopier:
(a) A Borrowing Base Certificate, as of the close of business for
the prior Business Day.
(b) A statement calculating the Borrowers' Excess Availability as
of the close of business for the prior Business Day. Such
Borrowing Base Certificate will roll forward Collateral
weekly.
5.5 MONTHLY REPORTS. Monthly, the Lead Borrower shall provide the Lender
with those financial statements and reports described in EXHIBIT 5.5,
annexed hereto.
5.6 ANNUAL REPORTS.
(a) Annually, within forty five (45) days following the end of the
Borrowers' fiscal year, the Lead Borrower shall furnish the
Lender with the Borrower's internally prepared draft of its
annual financial statement for the year then just completed,
which shall include, at a minimum
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(with comparative information for the then prior Fiscal year)
a balance sheet, income statement, and cash flows.
(b) Annually, within ninety (90) days following the end of the
Borrowers' fiscal year, the Lead Borrower shall furnish the
Lender with the following:
(i) An original signed counterpart of Alloy, Inc.'s
Consolidated annual financial statement, which statement
shall have been audited by, and bear the opinion,
without material qualification, of, Alloy Inc.'s
independent certified public accountants (i.e. said
statement shall be "certified" by such accountants) and
shall include, at a minimum (with comparative
information for the then prior Fiscal year) a balance
sheet, income statement, statement of changes in
shareholders' equity, cash flows, and schedules of
consolidation.
(ii) The officer's compliance certificate described in
Section 5.7.
(c) No later than the earlier of Fifteen (15) days prior to the
end of each of the Borrowers' fiscal years or the date on
which such accountants commence their work on the preparation
of Alloy, Inc.'s Consolidated annual financial statement, the
Lead Borrower shall give written notice to such accountants
(with a copy of such notice, when sent, to the Lender) that:
(i) Such annual financial statement will be delivered by the
Lead Borrower to the Lender.
(ii) It is the primary intention of the Borrowers to satisfy
the financial reporting requirements set forth in this
Article 5:.
(iii) The Lead Borrower has been advised that the Lender will
rely thereon with respect to the administration of, and
transactions under, the credit facility contemplated by
this Agreement.
(d) Each annual statement shall be accompanied by such
accountant's Certificate indicating that, in conducting the
audit for such annual statement, nothing came to the attention
of such accountants to believe that the Borrower is not in
Default (or that if the Borrower is in Default, the facts and
circumstances thereof).
5.7 OFFICERS' CERTIFICATES. The Lead Borrower shall cause either the
Lead Borrower's Chief Executive Officer, Chief Financial Officer or Chief
Operating Officer, in each instance, to provide such Person's Certificate
with those monthly financial statements required to be filed within thirty
(30) days of the end of each month, and with those annual statements to be
furnished pursuant to this Agreement, which Certificate shall:
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(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the
Consolidated financial condition of the Borrowers at the close
of, and the results of the Borrowers' operations and cash
flows for, the period(s) covered, subject, however to the
following:
(i) Usual year end adjustments and the absence of footnotes
(this exception shall not be included in the Certificate
which accompanies such annual statement).
(ii) Material Accounting Changes (in which event, such
Certificate shall include a schedule (in reasonable
detail) of the effect of each such Material Accounting
Change) not previously specifically taken into account
in the determination of the financial performance
covenant imposed pursuant to Section 5.10.
(b) Indicate either that (i) no Borrower is in Default, or (ii) if
such an event has occurred, its nature (in reasonable detail)
and the steps (if any) being taken or contemplated by the
Borrowers to be taken on account thereof.
(c) Include calculations concerning the Borrowers' compliance (or
failure to comply) at the date of the subject statement with
each of the financial performance covenants included in
Section 5.10 hereof.
5.8 INVENTORIES, APPRAISALS, AND AUDITS.
(a) The Lender shall be permitted, either directly or through
agents retained for that purpose, after delivery of reasonable
advance notice to the Lead Borrower, and at the borrowers'
expense in each instance, to conduct during regular business
hours such audits, inspections, and field examinations of the
Borrowers' books, records, and assets as the Lender may
require from time to time, as the Lender in its reasonable
discretion may determine are necessary and/or appropriate. The
Lender contemplates conducting no more than 3 audits per year.
The Borrowers, subject to receipt of reasonable advance
notice, during regular business hours shall cooperate with and
assist the Lender, or its agents, in connection with the
performance of any such audit, inspection, and field
examination.
(b) The Lender, at the expense of the Borrowers, may participate
in and/or observe each physical count and/or inventory of so
much of the Collateral as consists of Inventory which is
undertaken on behalf of any Borrower.
(c) The Borrowers shall obtain (at the Borrower's expense in all
instances) financial or SKU based physical counts and/or
inventories conducted by such inventory takers as are
satisfactory to the Lender and following
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such methodology as is consistent with the Borrowers'
practices in effect at the execution of this Agreement and as
provided in this Section.
(i) Unless an Event of Default has occurred and is
continuing, the Borrowers shall cause the following number of such
counts / inventories to be undertaken in each twelve (12) month
period during which this Agreement is in effect:
(A) Retail operations : One (1).
(B) Direct operations (catalogue and web): One (1).
(ii) If an Event of Default occurs and is continuing, the
foregoing limit on the number of such counts and/or inventories
shall terminate and the Lender may require such counts and/or
inventories (at the expense of the Borrowers in each instance) at
such intervals as the Lender, in its discretion, may determine as
being appropriate.
(iii) The Borrowers shall cause their accountants to observe
the Borrowers' year end retail operations and direct operations
counts / inventories (and such other counts / inventories as the
accountants may require so as to permit those accountants to express
its opinion on the Borrowers' annual Consolidated financial
statement to the standard set out in this Agreement).
(iv) The Lead Borrower shall provide the Lender with a copy
of the preliminary results of each such count and/or inventory (as
well as of any other physical inventory undertaken by any Borrower)
within ten (10) business days following the completion of such
inventory.
(v) The Lead Borrower, within thirty (30) days following the
completion of such count and/or inventory, shall provide the Lender
with a reconciliation of the results of each such count and/or
inventory (as well as of any other physical inventory undertaken by
any Borrower) and shall, in the case of a year-end inventory, post
such results to the Borrowers' stock ledger and, as applicable to
the Borrowers' other financial books and records. The Lender may use
the reconciliation and results of each such count and/or inventory
and implement them in accordance with the terms of this Agreement.
(d) The Lender may obtain such appraisals of Collateral consisting
of Inventory, from time to time during the period that this
Agreement is in effect, conducted by such appraisers as are
satisfactory to the Lender (at the Borrowers' expense in each
instance). The Lender contemplates conducting 3 appraisals per
year.
(e) The Lender from time to time (in all events, at the Borrowers'
expense) may undertake "mystery shopping" (so-called) visits
to all or any of the Borrowers' business premises.
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5.9 ADDITIONAL FINANCIAL INFORMATION. BUSINESS PLAN.
(a) In addition to all other information required to be provided
pursuant to this Article 5:, the Lead Borrower promptly shall
provide the Lender (and any guarantor of the Liabilities),
with such other and additional information concerning the
Borrowers, the Collateral, the operation of the Borrowers'
business, and the Borrowers' financial condition, including
original counterparts of financial reports and statements, as
the Lender may from time to time reasonably request from the
Lead Borrower.
(b) The Borrowers have provided the Lender with their current
Business Plan, a copy of which is annexed hereto as EXHIBIT
5.9(b).
(i) The Borrowers may provide the Lender, from time to time
hereafter, with updated business plans.
(ii) In all events by (x) not later than January 31 of each
year, the Borrowers shall furnish the Lender with a good
faith estimate of its updated and extended business plan
which shall go out at least through the end of the then
next Fiscal year and (y) the Borrowers shall furnish the
Lender with copies of the final business plan, as
approved by the Lead Borrower's Board of Directors, for
the forthcoming Fiscal year promptly following its
adoption, but in no event later than each February 28.
In each event, such updated and extended business plans
shall be prepared pursuant to a methodology and shall
include such assumptions as are made in good faith by
the Lead Borrower.
(c) The Lead Borrower may furnish the Lender with a business plan
within forty five (45) days of the refinancing of the Hanover
Property Indebtedness, on which business plan the Lender shall
provide its sign-off provided that it was prepared pursuant to
the methodology used to prepare the Business Plan and updated
from the Business Plan solely to reflect the effect of such
refinancing.
5.10 FINANCIAL PERFORMANCE COVENANTS.
(a) The Borrower shall not incur Capital Expenditures in excess of
$2,400,000.00 on an aggregate basis for Fiscal Year 1.
The Borrowers may incur Capital Expenditures of up to 120% of the
amounts provided in their business plan for any year, and in
addition may open up to 120% of the number of stores provided for in
their business plan for any given year, and the costs incurred in
connection with such store openings shall be in addition to the
Capital Expenditures provided for in such business plan.
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Permitted Capital Expenditures for Years 2 and 3 will be established
in connection with the business plans for such year.
(b) Compliance with such financial performance covenant set forth
in Section (a) shall be made as if no Material Accounting
Changes had been made (other than any Material Accounting
Changes specifically taken into account in the setting of such
covenants).
(c) The Lender may determine the Borrowers' compliance with such
covenants based upon financial reports and statements provided
by the Lead Borrower to the Lender (whether or not such
financial reports and statements are required to be furnished
pursuant to this Agreement) as well as by reference to interim
financial information provided to, or developed by, the
Lender.
5.11 E-REPORTING. At the Lender's option all information and reports
required to be supplied to the Lender by any Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and
shall be in a record layout format designated by the Lender from time to
time, provided, however,
(a) the Borrowers shall not be required to incur any material
expense in connection with their compliance with this Section
5.11; and
(b) the Borrowers shall not be obligated to so transmit such
information and reports unless the Borrowers are reasonably
satisfied that such system incorporates reasonable assurances
of security for the data being so transmitted.
ARTICLE 6: USE OF COLLATERAL:
6.1 USE OF INVENTORY COLLATERAL.
(a) No Borrower shall engage in any of the following:
(i) An sale of the Inventory other than for fair
consideration in the conduct of the Borrowers' business
in the ordinary course.
(ii) Sales or other dispositions to creditors.
(iii) Sales or other dispositions in bulk.
(iv) Sales of any Collateral in breach of any provision of
this Agreement.
(v) Any sale on consignment, approval, or under any other
circumstances such that, with the exception of the
Borrowers' customary return policy applicable to the
return of inventory purchased by the Borrowers' retail
customers in the ordinary
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course, such Inventory may be returned to a Borrower
without the consent of the Lender.
(b) The Borrowers shall not transfer items of their Inventory from
one Sales Channel of their business to another Sales Channel
other than in the ordinary course of business.
6.2 INVENTORY QUALITY. All Inventory now owned or hereafter acquired by
each Borrower is and will be of good and merchantable quality and free
from defects (other than defects within customary trade tolerances).
6.3 ADJUSTMENTS AND ALLOWANCES. Each Borrower may grant such allowances
or other adjustments to that Borrower's Account Debtors (exclusive of
extending the time for payment of any material Account or material Account
Receivable, which shall not be done without first obtaining the Lender's
prior written consent in each instance) as that Borrower may reasonably
deem to accord with sound business practice, provided, however, the
authority granted the Borrowers pursuant to this Section 6.3 may be
limited or terminated by the Lender at any time that an Event of Default
has occurred.
6.4 VALIDITY OF ACCOUNTS.
(a) The amount of each Account shown on the books, records, and
invoices of the Borrowers represented as owing by each Account
Debtor is and will be the correct amount actually owing by
such Account Debtor and shall have been fully earned by
performance by the Borrowers.
(b) As of the date of this agreement, no Borrower has any
knowledge of any impairment of the validity or collectibility
of more than a de minimis amount of its Accounts. The Lead
Borrower shall notify the Lender of any such impairment
immediately after any Borrower becomes aware of any such
impairment.
6.5 NOTIFICATION TO ACCOUNT DEBTORS. The Lender shall have the right
(whether or not an Event of Default has occurred) to notify any of the
Borrowers' Account Debtors to make payment directly to the Lender and to
collect all amounts due on account of the Collateral.
ARTICLE 7: CASH MANAGEMENT. PAYMENT OF LIABILITIES:
7.1 DEPOSITORY ACCOUNTS.
(a) Annexed hereto as EXHIBIT 7.1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each
depository (i) the name and address of that depository; (ii)
the account number(s) of the account(s) maintained with such
depository; and (iii) a contact person at such depository.
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(b) Prior to the First Funding, the Lead Borrower shall deliver
the following to the Lender:
(i) Notification, executed on behalf of each Borrower, to
each depository institution with which any DDA is
maintained (other than any Exempt DDA and the Blocked
Account), in form reasonably satisfactory to the Lender
of the Lender's interest in such DDA.
(ii) A Blocked Account Agreement with any depository
institution at which either of the following conditions
applies:
(A) Both any DDA (other than the Operating Account)
and the Operating Account is maintained.
(B) A Blocked Account is maintained.
(c) No Borrower will establish any DDA hereafter (other than an
Exempt DDA) unless, contemporaneous with such establishment,
the Lead Borrower delivers the following to the Lender:
(i) Notification to the depository at which such DDA is
established if the same would have been required
pursuant to Section (b)(ii)(A) if the subject DDA were
open on the date of this Agreement.
(ii) A Blocked Account Agreement executed on behalf of the
depository at which such DDA is established if the same
would have been required pursuant to Section (b)(ii)(B)
if the subject DDA were open on the date of this
Agreement.
7.2 CREDIT CARD RECEIPTS.
(a) Annexed hereto as EXHIBIT 7.2, is a Schedule which describes
all arrangements to which any Borrower is a party with respect
to the payment to that Borrower of the proceeds of credit card
charges for sales by that Borrower.
(b) The Lead Borrower shall deliver to the Lender, notification,
executed on behalf of each Borrower, to each of each
Borrower's credit card clearinghouses and processors of notice
(in form reasonably satisfactory to the Lender), which notice
provides that payment of all credit card charges submitted by
that Borrower to that clearinghouse or other processor and any
other amount payable to that Borrower by such clearinghouse or
other processor shall be directed to the Blocked Account or as
otherwise designated from time to time by the Lender. No
Borrower shall change such direction or designation except
upon and with the prior written consent of the Lender.
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7.3 THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS .
(a) The following accounts have been or will be established (and
are so referred to herein):
(i) The "BLOCKED ACCOUNT" (so referred to herein): Account
No. 530-733285 established by the Lead Borrower with The
Chase Manhattan Bank.
(ii) The "CONCENTRATION ACCOUNT"(so referred to herein): An
account established by the Lead Borrower with The Chase
Manhattan Bank.
(iii) The "LENDER'S DEPOSITORY ACCOUNT" (so referred to
herein): Established by the Lender with The Chase
Manhattan Bank.
(iv) The "OPERATING ACCOUNT" (so referred to herein):
Established by the Lead Borrower with The Chase
Manhattan Bank.
(b) The contents of each DDA (other than the Operating Account)
and of the Blocked Accounts and the Concentration Account
constitute Collateral and Proceeds of Collateral. The contents
of the Lender's Depository Account constitutes the Lender's
property.
(c) The Blocked Accounts and the Concentration Account shall be
subject to a "Blocked Account Control Agreement ("Automatic
Sweep/Frozen Account")" substantially in the form provided by
The Chase Manhattan Bank.
(d) The Borrowers shall pay all fees and charges of, and maintain
such imprest balances as may be required by the depository in
which any account is opened as required hereby (even if such
account is opened by and/or is the property of the Lender).
(e) This section (e) applies to the "Instructions" within the
meaning of the above referenced Blocked Account Control
Agreement ("Automatic Sweep/Frozen Account").
(i) Except as provided in, and subject in all events to,
Section (ii), notwithstanding anything to the contrary
in any agreement to which the Lender is a party, the
Lender will not change the above referenced
"Instructions" from those in effect at the execution of
this Agreement nor terminate any such above referenced
Blocked Account Control Agreement ("Automatic
Sweep/Frozen Account") without the prior written consent
of the Lead Borrower.
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(ii) Section (i) is not effective to the extent that it
results in the Lender's not having control of the
Concentration Account within the meaning of Section
9-104 of the UCC.
7.4 PROCEEDS AND COLLECTIONS.
(a) All Receipts and all cash proceeds of any sale or other
disposition of any of each Borrower's assets:
(i) Constitute Collateral and proceeds of Collateral.
(ii) Shall be held in trust by the Borrowers for the Lender.
(iii) Shall not be commingled with any of any Borrower's other
funds.
(iv) Shall be deposited and/or transferred by the Borrowers
only to the Blocked Account, the Concentration Account
or the Lender's Depository Account.
(b) Whether or not there is then an outstanding balance in the
Loan Account, the Lead Borrower shall cause the ACH or wire
transfer to one of the Blocked Accounts, not less frequently
than weekly (daily following the occurrence of an Event of
Default) of the following:
(i) The then contents of each DDA (other than any Exempt
DDA) which consist of available funds, each such
transfer to be net of any minimum balance, (not to
exceed $750.00), as may be required to be maintained in
the subject DDA by the bank at which such DDA is
maintained.
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
(c) Whether or not there is then an outstanding balance in the
Loan Account, not less frequently than weekly (daily following
the occurrence of an Event of Default) the then contents of
each Blocked Account which consist of available funds shall be
transferred to the Concentration Account, such transfer to be
net of any minimum balance, (not to exceed $750.00), as may be
required to be maintained in the subject DDA by the bank at
which such DDA is maintained.
(d) Whether or not there is then an outstanding balance in the
Loan Account, not less frequently than weekly (daily following
the occurrence of an Event of Default) the then contents of
each Concentration Account which consist of available funds
shall be transferred to the Lender's Depository Account, such
transfer to be net of any minimum balance, (not to exceed
$750.00), as may be required to
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be maintained in the subject DDA by the bank at which such DDA
is maintained.
(e) In the event that, notwithstanding the provisions of this
Section 7.4, any Borrower receives or otherwise has dominion
and control of any Receipts, or any proceeds or collections of
any Collateral, such Receipts, proceeds, and collections shall
be held in trust by that Borrower for the Lender and shall not
be commingled with any of that Borrower's other funds or
deposited in any account of any Borrower other than as
instructed by the Lender.
7.5 PAYMENT OF LIABILITIES.
(a) On each Business Day, the Lender shall apply the then
collected balance of the Lender's Depository Account (net of
fees charged, and of such impressed balances as may be
required by the bank at which the Depository Account is
maintained) which are not transferred to the Operating Account
pursuant to Section 7.4(e) towards the unpaid balance of the
Loan Account and all other Liabilities, provided, however, for
purposes of the calculation of interest on the unpaid
principal balance of the Loan Account, such payment shall be
deemed to have been made One (1) Business Day after such
transfer.
(b) The following rules shall apply to deposits and payments under
and pursuant to this Section 7.5:
(i) Funds shall be deemed to have been deposited to the
Lender's Depository Account on the Business Day on which
deposited, provided that notice of such deposit is
available to the Lender by 2:00PM on that Business Day.
(ii) Funds paid to the Lender, other than by deposit to the
Lender's Depository Account, shall be deemed to have
been received on the Business Day when they are good and
collected funds, provided that notice of such payment is
available to the Lender by 2:00PM on that Business Day.
(iii) If notice of a deposit to the Lender's Depository
Account (Section (i)) or payment (Section (ii)) is not
available to the Lender until after 2:00PM on a Business
Day, such deposit or payment shall be deemed to have
been made at 9:00AM on the then next Business Day.
(iv) All deposits to the Lender's Depository Account and
other payments to the Lender are subject to clearance
and collection.
(c) The Lender shall transfer to the Operating Account any surplus
in the Lender's Depository Account remaining after the
application towards
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the Liabilities referred to in Section (a), above (less those
amounts which are to be netted out, as provided therein)
provided, however, in the event that
(i) any Borrower is in Default; and
(ii) one or more L/C's are then outstanding,
then the Lender may establish a funded reserve of up to 105% of the
aggregate Stated Amounts of such L/C's. Such funded reserve shall either be (i)
returned to the Lead Borrower provided that no Borrower is in Default or (ii)
applied towards the Liabilities following the occurrence of any Event of Default
described in Section 10.11 or acceleration following the occurrence of any other
Event of Default.
7.6 THE OPERATING ACCOUNT. Except as otherwise specifically provided in,
or permitted by, this Agreement or as described on EXHIBIT 7.6, annexed
hereto, all checks shall be drawn by the Lead Borrower upon, and other
disbursements shall be made by the Lead Borrower solely from, the
Operating Account.
ARTICLE 8: GRANT OF SECURITY INTEREST
8.1 GRANT OF SECURITY INTEREST. To secure the Borrowers' prompt,
punctual, and faithful performance of all and each of the Liabilities,
each Borrower, subject to Section 8.2(b), hereby grants to the Lender a
continuing security interest in and to, and assigns to the Lender the
following, and each item thereof, whether now owned or now due, or in
which that Borrower has an interest or the power to transfer rights, or
hereafter acquired, arising, or to become due, or in which that Borrower
obtains an interest or the power to transfer rights, and all products,
Proceeds, substitutions, and accessions of or to any of the following (all
of which, together with any other property in which the Lender may in the
future be granted a security interest, is referred to herein as the
"COLLATERAL"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All Letter-of-Credit Rights.
(i) All Payment Intangibles.
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(j) All Supporting Obligations.
(k) All books, records, and information relating to the Collateral
and/or to the operation of each Borrower's business, and all
rights of access to such books, records, and information, and
all property in which such books, records, and information are
stored, recorded, and maintained.
(l) All Leasehold Interests.
(m) All Investment Property, Instruments, Documents, Deposit
Accounts, money, policies and certificates of insurance,
deposits, impressed accounts, compensating balances, cash, or
other property.
(n) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit
insurance, whether any of such proceeds, refunds, and premium
rebates arise out of any of the foregoing. ((a) through (m))
or otherwise.
(o) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing ((a) through (n)),
including the right of stoppage in transit.
8.2 EXTENT AND DURATION OF SECURITY INTEREST.
(a) The security interest created and granted herein is in addition to,
and supplemental of, any other security interest granted from time
to time by any Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until both
(i) all Liabilities have been paid and/or satisfied in full; and
(ii) the security interest created herein is specifically
terminated in writing by a duly authorized officer of the
Lender;
(b) It is intended that the Collateral Interests created herein extend
to and cover all assets of each Borrower other than the Excluded
Assets.
ARTICLE 9: LENDER AS BORROWER'S ATTORNEY-IN-FACT:
9.1 APPOINTMENT AS ATTORNEY-IN-FACT. Each Borrower hereby irrevocably
constitutes and appoints the Lender as that (acting through any of its
officers) Borrower's true and lawful attorney, with full power of
substitution, which designation the Lender may exercise only following the
occurrence of any Event of Default, to convert the Collateral into cash at
the sole risk, cost, and expense of that Borrower, but for the sole
benefit of the Lender. The rights and powers granted the Lender by this
appointment include but are not limited to the right and power to:
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(a) Prosecute, defend, compromise, or release any action relating
to the Collateral.
(b) Sign change of address forms to change the address to which
each Borrower's mail is to be sent to such address as the
Lender shall designate; receive and open each Borrower's mail;
remove any Receivables Collateral and Proceeds of Collateral
therefrom and turn over the balance of such mail either to the
Lead Borrower or to any trustee in bankruptcy or receiver of
the Lead Borrower, or other legal representative of a Borrower
whom the Lender determines to be the appropriate person to
whom to so turn over such mail.
(c) Endorse the name of the relevant Borrower in favor of the
Lender upon any and all checks, drafts, notes, acceptances, or
other items or instruments; sign and endorse the name of the
relevant Borrower on, and receive as secured party, any of the
Collateral, any invoices, schedules of Collateral, freight or
express receipts, or bills of lading, storage receipts,
warehouse receipts, or other documents of title respectively
relating to the Collateral.
(d) Sign the name of the relevant Borrower on any notice to that
Borrower's Account Debtors or verification of the Receivables
Collateral; sign the relevant Borrower's name on any Proof of
Claim in Bankruptcy against Account Debtors, and on notices of
lien, claims of mechanic's liens, or assignments or releases
of mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which
any Borrower is a beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole
or in part the purchase order of any customer of each
Borrower.
(g) Use, license or transfer any or all General Intangibles of
each Borrower.
9.2 NO OBLIGATION TO ACT. The Lender shall not be obligated to do any of
the acts or to exercise any of the powers authorized by Section 9.1
herein, but if the Lender elects to do any such act or to exercise any of
such powers, it shall not be accountable for more than it actually
receives as a result of such exercise of power, and shall not be
responsible to any Borrower for any act or omission to act, except for any
act or omission to act as to which there is a final determination made in
a judicial proceeding by a court of competent jurisdiction (in which the
Lender has been given an opportunity to be heard), which determination
includes a specific finding that the subject act or omission to act had
been grossly negligent or in actual bad faith or wilful misconduct.
ARTICLE 10: EVENTS OF DEFAULT:
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The occurrence of any event described in this Article 10: respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 10.11, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, the Lender may declare any and all
Liabilities shall become immediately due and payable. The occurrence of any
Event of Default shall also constitute, without notice or demand, a default
under all other agreements between the Lender and any Borrower and instruments
and papers heretofore, now, or hereafter given the Lender by any Borrower.
10.1 FAILURE TO PAY THE REVOLVING CREDIT. The failure by any Borrower to
pay when due (including any applicable grace period) any principal
of, interest on, or fees in respect of, the Revolving Credit.
10.2 FAILURE TO MAKE OTHER PAYMENTS. The failure by any Borrower to pay
when due (or upon demand, if payable on demand) any payment
Liability other than any payment liability on account of the
principal of, or interest on, or fees in respect of, the Revolving
Credit.
10.3 FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD). The
failure by any Borrower to promptly, punctually, faithfully and
timely perform, discharge, or comply with any covenant or Liability
included in any of the following provisions hereof:
Section Relates to:
4:4-7(a) Title to Assets
4:4-8 Indebtedness
4:4-9 Insurance
4.20 Dividends. Investments. Other Corporate Actions
Article 5: Reporting Requirements and Financial Performance Covenants
Article 7: Cash Management
10.4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The failure
by any, Borrower within twenty (20) days following the earlier of any
Borrower's knowledge of a breach of any covenant or Liability not
described in any of Sections 10.1, 10.2, or 10.3 or of its receipt of
written notice from the Lender of the breach of any of any of such
covenants or Liabilities.
10.5 MISREPRESENTATION. The determination by the Lender that any
representation or warranty at any time made by any Borrower to the Lender
was not true or complete in all material respects when given.
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10.6 ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of any
event such that any Indebtedness of any Borrower in excess of $500,000.00
to any creditor other than the Lender could be accelerated or, without the
consent of any Borrower, more than five (5) Leases could then be
terminated (whether or not the subject creditor or lessor takes any action
on account of such occurrence).
10.7 DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach of any
covenant or Liability imposed by, or of any default under, any agreement
(including any Loan Document) between the Lender and any Borrower or
instrument given by any Borrower to the Lender and the expiry, without
cure, of any applicable grace period (notwithstanding that the Lender may
not have exercised all or any of its rights on account of such breach or
default).
10.8 UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the
Collateral.
10.9 ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS.
(a) The service of process upon the Lender seeking to attach, by
trustee, mesne, or other process, any funds of any Borrower on
deposit with, or assets of any Borrower in the possession of,
the Lender, which is attachment is not stayed within thirty
(30) days after service thereof.
(b) The entry of any judgment in excess of $500,000.00 against any
Borrower, which judgment is not satisfied (if a money
judgment) or appealed from (with execution or similar process
stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in
any material way the conduct by any Borrower of its business
in the ordinary course, which order is not appealed from (with
execution or similar process stayed) within fifteen (15) days
of its entry.
10.10 BUSINESS FAILURE. Any act by, against, or relating to any Borrower,
or its property or assets, which act constitutes the determination, by any
Borrower, to initiate a program of partial self-liquidation (other than as
provided for in the Business Plan) or a program of total self-liquidation;
application for, consent to, or sufferance of the appointment of a
receiver, trustee, or other person, pursuant to court action or otherwise,
over all, or any part of any Borrower's property; the granting of any
trust mortgage or execution of an assignment for the benefit of the
creditors of any Borrower, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for any Borrower;
the offering by or entering into by any Borrower of any composition,
extension, or any other arrangement seeking relief from or extension of
the debts of any Borrower; or the initiation of any judicial or
non-judicial proceeding or agreement by, against, or including any
Borrower which seeks or intends to accomplish a reorganization or
arrangement with creditors; and/or the initiation by or on behalf of
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any Borrower of the liquidation or winding up of all or any part of any
Borrower's business or operations.
10.11 BANKRUPTCY. The failure by any Borrower to generally pay the debts
of that Borrower as they mature; adjudication of bankruptcy or insolvency
relative to any Borrower; the entry of an order for relief or similar
order with respect to any Borrower in any proceeding pursuant to the
Bankruptcy Code or any other federal bankruptcy law; the filing of any
complaint, application, or petition by any Borrower initiating any matter
in which any Borrower is or may be granted any relief from the debts of
that Borrower pursuant to the Bankruptcy Code or any other insolvency
statute or procedure; the filing of any complaint, application, or
petition against any Borrower initiating any matter in which that Borrower
is or may be granted any relief from the debts of that Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure, which
complaint, application, or petition is not timely contested in good faith
by that Borrower by appropriate proceedings or, if so contested, is not
dismissed within thirty (30) days of when filed.
10.12 INDICTMENT - FORFEITURE. The criminal conviction of any Borrower,
under any Applicable Law where the relief, penalties, or remedies sought
or available include the forfeiture of any material property of any
Borrower and/or the imposition of any stay or other order, the effect of
which could be to restrain in any material way the conduct by any Borrower
of its business in the ordinary course.
10.13 DEFAULT. The occurrence of any Guarantor's Default.
10.14 TERMINATION OF GUARANTY. The termination or attempted termination of
any guaranty by any guarantor of the Liabilities.
10.15 CHALLENGE TO LOAN DOCUMENTS.
(a) Any challenge by or on behalf of any Borrower or any guarantor
of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly
in accordance with the subject Loan Document's terms or which
seeks to void, avoid, limit, or otherwise adversely affect any
security interest created by or in any Loan Document or any
payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable
strictly in accordance with the subject Loan Document's terms
or which voids, avoids, limits, or otherwise adversely affects
any security interest created by any Loan Document or any
payment made pursuant thereto.
10.16 CHANGE IN CONTROL. Any Change in Control.
10.17 MATERIAL ADVERSE CHANGE. The occurrence of any Material Adverse
Change with respect to the Borrowers, taken as a whole.
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10.18 EXCESS AVAILABILITY. The failure to maintain Excess Availability in
an amount equal to or greater than $2,500,000.00 which Excess Availability
is not restored within two (2) days thereafter.
ARTICLE 11: RIGHTS AND REMEDIES UPON DEFAULT:
11.1 ACCELERATION. Upon the occurrence and during the continuance of any
Event of Default as described in Section 10.11, all Indebtedness of the
Borrowers to the Lender shall be immediately due and payable. Upon the
occurrence and during the continuance of any Event of Default other than
as described in Section 10.11, the Lender may declare all Indebtedness of
the Borrowers to the Lender to be immediately due and payable and may
exercise all of the Lender's Rights and Remedies as the Lender from time
to time thereafter determines as appropriate.
11.2 RIGHTS OF ENFORCEMENT. Upon the occurrence and during the continuance
of any Event of Default, the Lender shall have all of the rights and
remedies of a secured party upon default under, the UCC, in addition to
which the Lender shall have all and each of the following rights and
remedies:
(a) To give notice to any bank at which any DDA or Blocked Account
is maintained and in which Proceeds of Collateral are
deposited, to turn over such Proceeds directly to the Lender.
(b) To give notice to any customs broker of any of the Borrowers
to follow the instructions of the Lender as provided in any
written agreement or undertaking of such broker in favor of
the Lender.
(c) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(d) Without causing a breach of the peace, to take possession of
all or any portion of the Collateral.
(e) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such
preparation or processing as the Lender deems advisable and
with or without the taking of possession of any of the
Collateral.
(f) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(g) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete
satisfaction of) the Liabilities.
(h) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan
Documents.
11.3 SALE OF COLLATERAL.
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(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as
the Lender deems advisable, having due regard to compliance
with any statute or regulation which might affect, limit, or
apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of
business sales, in the Lender's own right or by one or more
agents and contractors. Such sale(s) may be conducted upon any
premises owned, leased, or occupied by any Borrower. The
Lender and any such agent or contractor, in conjunction with
any such sale, may augment the Inventory with other goods (all
of which other goods shall remain the sole property of the
Lender or such agent or contractor). Any amounts realized from
the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses
incurred in their disposition) shall be the sole property of
the Lender or such agent or contractor and neither any
Borrower nor any Person claiming under or in right of any
Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a
recognized market (in which event the Lender shall provide the
Lead Borrower such notice as may be practicable under the
circumstances), the Lender shall give the Lead Borrower at
least ten (10) days prior written notice of the date, time,
and place of any proposed public sale, and of the date after
which any private sale or other disposition of the Collateral
may be made. Each Borrower agrees that such written notice
shall satisfy all requirements for notice to that Borrower
which are imposed under the UCC or other applicable law with
respect to the exercise of the Lender's rights and remedies
upon default.
(d) The Lender may purchase the Collateral, or any portion of it
at any sale held under this Article.
(e) If any of the Collateral is sold, leased, or otherwise
disposed of by the Lender on credit, the Liabilities shall not
be deemed to have been reduced as a result thereof unless and
until payment is finally received thereon by the Lender.
(f) The Lender shall apply the proceeds of the Lender's exercise
of its rights and remedies upon default pursuant to this
Article 11: in such manner, and with such frequency, as the
Lender determines.
11.4 OCCUPATION OF BUSINESS LOCATION. In connection with the Lender's
exercise of the Lender's rights under this Article 11: upon the occurrence
and during the continuance of any Event of Default, the Lender, without
causing a breach of the peace,
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may enter upon, occupy, and use any premises owned or occupied by each
Borrower, and may exclude each Borrower from such premises or portion
thereof as may have been so entered upon, occupied, or used by the Lender.
The Lender shall not be required to remove any of the Collateral from any
such premises upon the Lender's taking possession thereof, and may render
any Collateral unusable to the Borrowers. In no event shall the Lender be
liable to any Borrower for use or occupancy by the Lender of any premises
pursuant to this Article 11:, nor for any charge (such as wages for any
Borrower's employees and utilities) incurred in connection with the
Lender's exercise of the Lender's Rights and Remedies.
11.5 GRANT OF NONEXCLUSIVE LICENSE. Each Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and
affix any trademark, trade name, logo, or the like in which any Borrower
now or hereafter has rights, such license being solely with respect to the
Lender's exercise of the rights hereunder including, without limitation,
in connection with any completion of the manufacture of Inventory or sale
or other disposition of Inventory.
11.6 ASSEMBLY OF COLLATERAL. The Lender may require any Borrower to
assemble the Collateral and make it available to the Lender at the
Borrowers' sole risk and expense at a place or places which are reasonably
convenient to both the Lender and the Lead Borrower.
11.7 RIGHTS AND REMEDIES. The rights, remedies, powers, privileges, and
discretions of the Lender hereunder (herein, the "LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies
which it would otherwise have. No delay or omission by the Lender in
exercising or enforcing any of the Lender's Rights and Remedies shall
operate as, or constitute, a waiver thereof. No waiver by the Lender of
any Event of Default or of any default under any other agreement shall
operate as a waiver of any other default hereunder or under any other
agreement. No single or partial exercise of any of the Lender's Rights or
Remedies, and no express or implied agreement or transaction of whatever
nature entered into between the Lender and any person, at any time, shall
preclude the other or further exercise of the Lender's Rights and
Remedies. No waiver by the Lender of any of the Lender's Rights and
Remedies on any one occasion shall be deemed a waiver on any subsequent
occasion, nor shall it be deemed a continuing waiver. The Lender's Rights
and Remedies may be exercised at such time or times and in such order of
preference as the Lender may determine. The Lender's Rights and Remedies
may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 12: NOTICES:
12.1 NOTICE ADDRESSES. All notices, demands, and other communications
made in respect of any Loan Document (other than a request for a loan or
advance or other financial accommodation under the Revolving Credit) shall
be made to the following addresses, each of which may be changed upon
seven (7) days written notice to all others given by certified mail,
return receipt requested:
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If to the Lender:
Wells Fargo Retail Finance II, LLC
One Boston Place - 18th Floor
Boston, Massachusetts 02108
Attention :David Molinario
Vice President
Fax :617 817-6627
With a copy to:
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention :Robert E. Paul, Esquire
Fax :617 880 3456
If to the Lead Borrower
And All Borrowers:
dELiA*s Corp.
435 Hudson Street
New York, New York 10014
Attention : Ed Taffet, Esquire
Fax : 212 590 6310
With a copy to:
Alloy, Inc.
151 West 26th Street 11th Floor
New York, New York 10001
Attention : General Counsel
Fax: : 212-244-4311
With a copy to:
Katten Muchin Zavis Rosenman
1025 Thomas Jefferson St., N.W.
East Lobby, Suite 700
Washington, District of Columbia 20007-5201
Attention : Richard Graf, Esquire
Fax : 202.298.7570
12.2 NOTICE GIVEN.
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(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows
(all times being local to the place of delivery or receipt):
(i) By registered mail: the sooner of when actually received
or Three (3) days following deposit in the United States
mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business
Day following the day when sent.
(iii) By Hand: If delivered on a Business Day after 9:00 AM
and no later than Three (3) hours prior to the close of
customary business hours of the recipient, when
delivered. Otherwise, at the opening of the then next
Business Day.
(iv) By Facsimile transmission (which must include a header
on which the party sending such transmission is
indicated): If sent on a Business Day after 9:00 AM and
no later than Three (3) hours prior to the close of
customary business hours of the recipient, one (1) hour
after being sent. Otherwise, at the opening of the then
next Business Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for
which no due notice was given shall each be deemed receipt of
the notice sent.
ARTICLE 13: TERM:
13.1 TERMINATION OF REVOLVING CREDIT.
The Revolving Credit shall remain in effect (subject to suspension
as provided in Section 2.7(g) hereof) until the Termination Date.
13.2 ACTIONS ON TERMINATION.
(a) On the Termination Date, the Borrowers shall pay the Lender
(whether or not then due), in immediately available funds, all
then Liabilities including, without limitation: the following:
(i) The entire balance of the Loan Account (including the
unpaid principal balance of the Revolving Credit
Loans).
(ii) Any payments due on account of the indemnification
obligations included in Section 2.11(e).
(iii) Any accrued and unpaid Unused Line Fee.
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(iv) Any applicable Early Termination Fee.
(v) All unreimbursed costs and expenses of the Lender for
which any Borrower is responsible.
(b) On the Termination Date, the Borrowers shall also shall make
such arrangements concerning any L/C's and any Bank Products
and Bank Product Obligations then outstanding as are
reasonably satisfactory to the Lender.
(c) Until such payment (Section (a)) and arrangements concerning
L/C's (Section (b)), all provisions of this Agreement, other
than those included in Article 2: which place any obligation
on the Lender to make any loans or advances or to provide any
financial accommodations to any Borrower shall remain in full
force and effect until all Liabilities shall have been paid in
full.
(d) The release by the Lender of the Collateral Interests granted
to the Lender by the Borrowers hereunder may be upon such
conditions and indemnifications as the Lender may require.
(e) The Lender's obligation to release the Collateral Interests
granted to the Lender by any Borrower on the End Date shall
not be affected by any Liability's then being outstanding to
any Affiliate of the Lender.
ARTICLE 14: GENERAL:
14.1 PROTECTION OF COLLATERAL. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such
of the Collateral as may come into the possession of the Lender.
14.2 PUBLICITY. The Lender may issue a "tombstone" notice of the
establishment of the credit facility contemplated by this Agreement and,
subject to prior review by the Borrower in each instance, may make
reference to each Borrower (and may utilize any logo or other distinctive
symbol associated with each Borrower) in connection with any advertising,
promotion, or marketing (including the inclusion of a "case study" of the
financing contemplated hereby) undertaken by the Lender.
14.3 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon the Borrowers and their
respective representatives, successors, and assigns and shall
enure to the benefit of the Lender and its successors and
assigns, provided, however, no trustee or other fiduciary
appointed with respect to any Borrower shall have any rights
hereunder.
(b) In the event that the Lender assigns or transfers its rights
under this Agreement, the assignee shall thereupon succeed to
and become vested
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with all rights, powers, privileges, and duties of the Lender
hereunder and the Lender shall thereupon be discharged and
relieved from its duties and obligations hereunder.
(c) In the event that the Lender assigns or transfers its rights
under this Agreement to an assignee which is not an Affiliate
of the Lender or a Person controlling, controlled by, or under
common control with the Lender (other than in connection with
a programmed disposition, by the Lender, of all or a material
part of its portfolio of working capital loans), then the Lead
Borrower, by irrevocable written notice to such assignee given
no later than one hundred eighty (180) days after receipt of
notice of such assignment may set the Termination Date as a
date which is no more than forty five (45) days after (and
counting) the date of such notice.
14.4 SEVERABILITY. Any determination that any provision of this Agreement
or any application thereof is invalid, illegal, or unenforceable in any
respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
14.5 AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between each Borrower and the
Lender, either express or implied, concerning the matters
included herein and in such other instruments, any custom,
usage, or course of dealings to the contrary notwithstanding.
No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the
provisions thereof. No failure by the Lender to give notice to
the Lead Borrower of any Borrower's having failed to observe
and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or
covenant or the amendment of the subject Loan Document. No
change made by the Lender to the manner by which the Borrowing
Base is determined shall obligate the Lender to continue to
determine the Borrowing Base in that manner.
(b) Each Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required
hereby, upon and with the express prior written consent of the
Lender. No consent, modification, amendment, or waiver of any
provision of any Loan Document shall be effective unless
executed in writing by or on behalf of the party to be charged
with such modification, amendment, or waiver (and if such
party is the Lender then by a duly authorized officer
thereof). Any modification, amendment, or waiver provided by
the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of
the Borrowers (and
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any guarantor, endorser, or surety of the Liabilities) and
consequently may be rescinded in the event that any of such
representations or warranties was not true and complete in all
material respects when given.
14.6 POWER OF ATTORNEY. In connection with all powers of attorney
included in this Agreement, each Borrower hereby grants unto the Lender
(acting through any of its officers) full power to do any and all things
necessary or appropriate in connection with the exercise of such powers as
fully and effectually as that Borrower might or could do, hereby ratifying
all that said attorney shall do or cause to be done by virtue of this
Agreement except for any act or omission to act as to which there is a
final determination made in a judicial proceeding by a court of competent
jurisdiction (in which the Lender has been given an opportunity to be
heard), which determination includes a specific finding that the subject
act or omission to act had been grossly negligent or in actual bad faith
or wilful misconduct. No power of attorney set forth in this Agreement
shall be affected by any disability or incapacity suffered by any Borrower
and each shall survive the same. All powers conferred upon the Lender by
this Agreement, being coupled with an interest, shall be irrevocable until
this Agreement is terminated by a written instrument executed by a duly
authorized officer of the Lender.
14.7 APPLICATION OF PROCEEDS. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received
hereunder, shall be applied towards the Liabilities in such order and
manner as the Lender determines in its sole discretion, consistent,
however, with all applicable provisions of this Agreement and the UCC. The
Borrowers shall remain liable for any deficiency remaining following such
application.
14.8 INCREASED COSTS.
(a) If, as a result of any Requirement of Law, or of the
interpretation or application thereof by any court or by any
governmental or other authority or entity charged with the
administration thereof, whether or not having the force of
law, which:
(i) subjects the Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments
of principal, interest or other amounts payable by any
Borrower to the Lender under this Agreement (except for
taxes on the Lender based on net income, capital, or the
franchise held by such Lender imposed by the
jurisdiction in which the principal or lending offices
of the Lender are located);
(ii) imposes, modifies or deems applicable any reserve (other
than a reserve included in the computation of the
Reserve Percentage), cash margin, special deposit or
similar requirements against assets held by, or deposits
in or for the account of or loans by or any
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other acquisition of funds by the relevant funding
office of the Lender;
(iii) imposes on the Lender any other condition with respect
to any Loan Document; or
(iv) imposes on the Lender a requirement to maintain or
allocate capital in relation to the Liabilities;
and the result of any of the foregoing, in the Lender's reasonable
opinion, is to increase the cost to the Lender of making or maintaining any
loan, advance or financial accommodation or to reduce the income receivable by
the Lender in respect of any loan, advance or financial accommodation by an
amount which the Lender deems to be material, then, except as provided in
Section (b), upon written notice from the Lender, from time to time, to the Lead
Borrower (such notice to set out in reasonable detail the facts giving rise to
and a summary calculation of such increased cost or reduced income), the
Borrowers shall forthwith pay to the Lender, upon receipt of such notice, that
amount which shall compensate the Lender for such additional cost or reduction
in income.
(b) The obligation of the Borrowers to compensate the Lender
pursuant to Section (a) is subject to the following
conditions:
(i) The Lender's giving of notice to the Lead Borrower of an
event which gives rise to such compensation obligation
within ninety (90) days after the Lender has received
conclusive notice of the occurrence of the relevant
circumstance giving rise to such obligation.
(ii) The Lender's charging of its customers who are similarly
situated to the Borrowers in respect of any increased
costs or reduction in income on account of which an
obligations under Section (a) arises.
14.9 COSTS AND EXPENSES OF THE LENDER.
(a) The Borrowers shall pay the following:
(i) The reasonable costs, expenses, and disbursements
(including attorneys' reasonable fees and expenses of
the Lender's outside counsel) which are incurred by the
Lender in connection with the preparation, negotiation,
execution, and delivery of this Agreement and of the
other Loan Documents as part of the establishment of the
credit facility contemplated hereby, but only to the
extent to which the Lead Borrower has agreed to be
responsible for such reasonable costs, expenses, and
disbursements (including attorneys' reasonable fees and
expenses of the Lender's outside counsel).
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(ii) From time to time on demand all Costs of Collection and,
and all reasonable costs, expenses, and disbursements
not described in Section (i) which may be incurred in
connection with or in respect to the credit facility
contemplated hereby or which otherwise are incurred with
respect to the Liabilities.
(b) Each Borrower authorizes the Lender to pay all such fees and
expenses and in the Lender's discretion, to add such fees and
expenses to the Loan Account.
(c) The undertaking on the part of each Borrower in this Section
14.9 shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Lender in
favor of any Borrower, other than a termination, release, or
discharge which makes specific reference to this Section 14.9.
14.10 COPIES AND FACSIMILES. Each Loan Document and all documents and
papers which relates thereto which have been or may be hereinafter
furnished by or to the Lender may be reproduced by the Lender by any
photographic, microfilm, xerographic, digital imaging, or other process,
and the Lender may destroy any document so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular
course of business). Any facsimile which bears proof of transmission shall
be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the
original of such facsimile had been delivered to the party which or on
whose behalf such transmission was received.
14.11 MASSACHUSETTS LAW. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance,
shall be governed by the law of The Commonwealth of Massachusetts.
14.12 CONSENT TO JURISDICTION.
(a) The Lender and each Borrower agrees that any legal action,
proceeding, case, or controversy against any Borrower with
respect to any Loan Document may be brought in the Superior
Court of Suffolk County Massachusetts or in the United States
District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole
discretion. By execution and delivery of this Agreement, the
Lender and each Borrower, for itself and in respect of its
property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Lender and each Borrower WAIVES personal service of any
and all process upon it, and irrevocably consents to the
service of process out of any of the aforementioned courts in
any such action or proceeding by
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the mailing of copies thereof by certified mail, postage
prepaid, to the Lead Borrower at the Lead Borrower's address
for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
(c) The Lender and each Borrower WAIVES any objection based on
forum non conveniens and any objection to venue of any action
or proceeding instituted under any of the Loan Documents and
consents to the granting of such legal or equitable remedy as
is deemed appropriate by the Court.
(d) The Lender and each Borrower agrees that any action commenced
by the Lender or by any Borrower asserting any claim arising
under or in connection with this Agreement or any other Loan
Document shall be brought solely in the Superior Court of
Suffolk County Massachusetts or in the United States District
Court, District of Massachusetts, sitting in Boston,
Massachusetts, and that such Courts shall have exclusive
jurisdiction with respect to any such action.
14.13 INDEMNIFICATION. Each Borrower shall indemnify, defend, and hold the
Lender and any of their respective employees, officers, or agents (each,
an "INDEMNIFIED PERSON") harmless of and from any claim brought or
threatened against any Indemnified Person by any Borrower, any guarantor
or endorser of the Liabilities, or any other Person (as well as from
attorneys' reasonable fees, expenses, and disbursements in connection
therewith) on account of the relationship of the Borrowers or of any other
guarantor or endorser of the Liabilities, including all costs, expenses,
liabilities, and damages as may be suffered by any Indemnified Person in
connection with (x) the Collateral; (y) the occurrence of any Event of
Default; or (z) the exercise of any rights or remedies under any of the
Loan Documents (each of claims which may be defended, compromised,
settled, or pursued by the Indemnified Person with counsel of the Lender's
selection, but at the expense of the Borrowers) other than any claim as to
which a final determination is made in a judicial proceeding by a court of
competent jurisdiction (in which the Lender has been given an opportunity
to be heard), which determination includes a specific finding that the
Indemnified Person seeking indemnification had acted in a grossly
negligent manner, in actual bad faith or in willful misconduct. This
indemnification shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Lender in favor of the
Borrowers, other than a termination, release, or discharge duly executed
on behalf of the Lender which makes specific reference to this Section
14.13.
14.14 RULES OF CONSTRUCTION. The following rules of construction shall be
applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(a) Unless otherwise specifically provided for herein, interest
and any fee or charge which is stated as a per annum
percentage shall be calculated based on a 360 day year and
actual days elapsed.
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(b) Words in the singular include the plural and words in the
plural include the singular.
(c) Unless otherwise specifically provided for herein or in a
specific Loan Document (and then only to the extent so
provided), as between the parties hereto or to any Loan
Document, the definitions of the following terms, as included
in the UCC, are deemed to be as follows for purposes of the
performance of obligations arising under or in respect of any
Loan Document:
(i) "Authenticate" means "signed".
(ii) "Record" means written information in a tangible form.
(d) Titles, headings (indicated by being underlined or shown in
SMALL CAPITALS) and any Table of Contents are solely for
convenience of reference; do not constitute a part of the
instrument in which included; and do not affect such
instrument's meaning, construction, or effect.
(e) The words "includes" and "including" are not limiting.
(f) Text which follows the words "including, without limitation"
(or similar words) is illustrative and not limitational.
(g) Text which is shown in italics (except for parenthesized
italicized text), shown in BOLD, shown IN ALL CAPITAL LETTERS,
or in any combination of the foregoing, shall be deemed to be
conspicuous.
(h) The words "may not" are prohibitive and not permissive.
(i) Any reference to a Person's "knowledge" (or words of similar
import) are to such Person's knowledge assuming that such
Person has undertaken reasonable and diligent investigation
with respect to the subject of such "knowledge" (whether or
not such investigation has actually been undertaken).
(j) Terms which are defined in one section of any Loan Document
are used with such definition throughout the instrument in
which so defined.
(k) The term "Dollars" and the symbol "$" each refers to United
States Dollars.
(l) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is
to the entire Loan Document in which such reference is made.
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(m) References to "this Agreement" or to any other Loan Document
is to the subject instrument as amended to the date on which
application of such reference is being made.
(n) Except as otherwise specifically provided, all references to
time are to Boston time.
(o) In the determination of any notice, grace, or other period of
time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act, event,
or default from which the designated period of time
begins to run shall not be included and the last day of
the period so computed shall be included unless such
last day is not a Business Day, in which event the last
day of the relevant period shall be the then next
Business Day and (II) the period so computed shall end
at 5:00 PM on the relevant Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but
excluding".
(iv) The word "through" means "to and including".
(p) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth
in Section 14.15 hereof, provided, however, in the event of
any inconsistency between the provisions of this Agreement and
any other Loan Document, the provisions of this Agreement
shall govern and control.
14.15 INTENT. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of all Collateral Interests created by any Borrower
to secure the Liabilities be broadly construed in favor of the
Lender and that they cover all assets of each Borrower other
than any Excluded Assets.
(c) All Collateral Interests created in favor of the Lender at any
time and from time to time secure all Liabilities, whether now
existing or contemplated or hereafter arising.
(d) All reasonable costs, expenses, and disbursements incurred by
the Lender in connection with the Lender's relationship(s)
with any Borrower shall be borne by the Borrowers.
(e) Unless otherwise explicitly provided herein, the Lender's
consent to any action of any Borrower which is prohibited
unless such consent is given
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may be given or refused by the Lender in its sole discretion
and without reference to Section 2.14 hereof.
14.16 PARTICIPATIONS: The Lender may sell participations in the Lender's
interests herein to one or more financial institutions.
14.17 CONFIDENTIALITY: The Lender agrees that, except with the prior
consent of the Lead Borrower, it will not disclose any confidential
information with respect to the Borrowers which is now or in the future
furnished pursuant to this Agreement or any other Loan Document ,
provided, however, that the Lender may disclose any such information as
follows:
(a) To the following:
(i) To its employees, Affiliates, advisors or counsel.
(ii) To any prospective or actual transferee or participant
in connection with any contemplated transfer or
participation of this Agreement, the Liabilities, or any
interest therein by the Lender, which transfer or
participation is permitted by the terms of this
Agreement and which transferee or participant agrees to
be bound by this Section 14.17.
(b) As has become generally available to the public.
(c) As may be required or appropriate in any report, statement or
testimony submitted to any municipal, state, or federal
regulatory body having or claiming to have jurisdiction over
the Lender.
(d) As may be required or appropriate in respect to any summons or
subpoena or in connection with any litigation
(e) In order to comply with Applicable Law.
14.18 RIGHT OF SET-OFF. Any and all deposits or other sums at any time
credited by or due to any Borrower from the Lender or from any Affiliate
of any of the foregoing, and any cash, securities, instruments or other
property of any Borrower in the possession of any of the foregoing,
whether for safekeeping or otherwise (regardless of the reason such Person
had received the same) shall at all times constitute security for all
Liabilities and for any and all obligations of each Borrower to the Lender
or such Affiliate and may be applied or set off against the Liabilities
and against such obligations at any time, whether or not other collateral
is then available to the Lender.
14.19 PLEDGES TO FEDERAL RESERVE BANKS: Nothing included in this Agreement
shall prevent or limit the Lender, to the extent that the Lender is
subject to any of the twelve Federal Reserve Banks organized under Section
4 of the Federal Reserve Act (12 U.S.C. Section 341) from pledging all or
any portion of that Lender's interest and rights under this Agreement,
provided, however, neither such pledge nor the enforcement thereof shall
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release the Lender from any of its obligations hereunder or under any of
the Loan Documents.
14.20 MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge,
receive, collect, or apply as interest on any Liability, any amount in
excess of the maximum rate imposed by Applicable Law. Any payment which is
made which, if treated as interest on a Liability would result in such
interest's exceeding such maximum rate shall be held, to the extent of
such excess, as additional collateral for the Liabilities as if such
excess were "Collateral."
14.21 WAIVERS.
(a) Each Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Section
(b), below, to the full extent permitted by Applicable Law and
knowingly, voluntarily, and intentionally, and understands
that the Lender, in establishing the facilities contemplated
hereby and in providing loans and other financial
accommodations to or for the account of the Borrowers as
provided herein, whether now or in the future, is relying on
such waivers.
(b) EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all
forms of demand and notice, both with respect to the
Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's
exercising of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR
AGAINST THE LENDER OR IN WHICH THE LENDER IS JOINED AS A
PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF
OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN
ANY BORROWER OR ANY OTHER PERSON AND THE LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE
OR CONTROVERSY).
(iv) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on
the books and
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records of the Lender, could be reduced or claimed to be
paid otherwise than in accordance with the tenor of and
written terms of such Liability.
(v) Any claim to consequential, special, or punitive
damages.
14.22 MERGER. This Agreement supersedes all prior agreements,
understandings, consents and waivers among the parties
hereto with respect to the subject matter hereof.
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DELIA*S CORP.
("Lead Borrower")
By____________________________
Print Name:___________________
Title:________________________
ALLOY MERCHANDISE, LLC,
SKATE DIRECT, LLC
DELIA*S CORP.
DELIA*S OPERATING COMPANY
DELIA*S RETAIL COMPANY
("Borrowers"):
By____________________________
Print Name:___________________
Title:________________________
WELLS FARGO RETAIL FINANCE II, LLC
("Lender")
By____________________________
Print Name:___________________
Title:________________________
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