EXHIBIT 10.1
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT ("Agreement') is dated as of September 10, 1999
between Video City, Inc., a Delaware corporation with its principal executive
offices at 000 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx, 00000, (as a
"Borrower" and "Agent Borrower") and its wholly owned subsidiaries listed as "a
Borrower" below ("Subsidiaries", and together with Video City, Inc., the
"Borrowers") and BankBoston Retail Finance Inc., a Delaware corporation with an
address of 00 Xxxxx Xxxxxx, Xxxxxx 00000 (the "Lender").
RECITALS
A. Lender and Borrower are parties to the Loan and Security Agreement
(the "Loan Agreement") dated as of December 29, 1999, as amended from time to
time. Terms defined in the Loan Agreement are used herein as therein defined.
B. Due to the Borrowers' failure to comply with the financial covenants
set forth in Section 5.12 of the Loan Agreement and failure to comply with
certain other terms and conditions of the Loan Agreement, the Borrowers are in
default under the Loan Documents. The Borrowers have requested that Lender
forbear from exercising its rights and remedies under the Loan Documents
regarding such defaults. As an accommodation to the Borrowers, Lender has agreed
to the foregoing request, subject in all respects, however, to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Accuracy of Recitals. The parties hereto acknowledge and agree that
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the foregoing Recitals are true and accurate.
2. Acknowledgment of Indebtedness. The Borrowers acknowledge and agree
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they are indebted to Lender under the Loan Documents in the following amounts:
(a) an aggregate principal amount of $9,536,632.27 (as of September 20,
1999);
(b) interest of $43,791.95 (as of September 20, 1999);
(c) costs and expenses of Lender of $4,730.00 (as of September 20, 1999);
(d) a remaining unpaid facility fee of $94,500.00;
(e) a line (unused) fee of $5,414.27 (as of September 20, 1999);
(f) a termination fee of $300,000.00; and
(g) legal fees and expenses of $8,381.15, billed through August 31, 1999.
3. Default Rate. The Lender reserves the right to charge and collect the
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default rate of interest applicable to the Liabilities under the Loan Agreement
as of June 10, 1999 following a New Default (defined in Section 10 below).
Should Lender exercise its right to charge and collect the default rate of
interest applicable to the Liabilities from June 10, 1999, Availability shall
nevertheless be calculated by applying the Base Margin Rate or LIBOR Rate,
whichever may be applicable; provided, however that no New Default has occurred.
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Lender reserves its
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right to calculate Availability by applying the default rate of interest
applicable to the Liabilities under the Loan Agreement as of and following a New
Default.
4. Limitation on Borrowings. Without in any way modifying the amount of
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the Loan Ceiling, which, subject to change by the Lender pursuant to the terms
of the Loan Agreement, remains Thirty Million Dollars ($30,000,000.00), the
aggregate of the balance of the Loan Account and the Stated Amount of all L/C's
shall be temporarily limited to Ten Million Five Hundred Thousand Dollars
($10,500,000.00), or such lesser amount as the Lender may establish following
the occurrence of a New Default, defined in Section 10, below.
5. Availability Reserve. Lender agrees that the Availability Reserve
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established to address discrepancies in inventory reporting by the Borrowers
shall be reduced from One Million Dollars ($1,000,000.00) to Five Hundred
Thousand Dollars ($500,000.00).
6. Financial Performance Covenants. The Borrowers' compliance with the
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financial performance covenants set forth in Exhibit 5-12(a) of the Loan
Agreement shall be suspended during the term of this Agreement. During the term
of this Agreement, the Borrowers shall observe and comply with the following
financial performance covenants. The financial performance covenants are based
upon the cash flow projections dated September 17, 1999 submitted to the Lender
by the Borrowers, a true copy of which is attached hereto as EXHIBIT "A".
Pursuant to Section 5.11(e) of the Loan Agreement, the Lender hereby signs-off
on such projections, which, shall hereinafter be considered the Business Plan
under the Loan Agreement.
a. The Borrowers shall not permit or suffer to exist their revenues to be
less than 85% of projected revenues, as calculable from the Business
Plan. This revenue covenant shall be tested commencing September 28,
1999 for the two week period ending September 24, 1999, on October 5,
1999 for the three week period ending October 2, 1999, and on each
week thereafter for the trailing four week period.
b. The Borrowers shall not permit or suffer to exist purchases
(delineated as "Costs of Goods Sold" in its Business Plan) to be less
than 85% of projected purchases, as calculable from the Business Plan.
This revenue covenant shall be tested commencing September 28, 1999
for the two week period ending September 24, 1999, on October 5, 1999
for the three week period ending October 2, 1999, and on each week
thereafter for the trailing four week period.
c. The Borrowers shall not permit or suffer to exist purchases from
Xxxxxx Entertainment, Inc. for prerecorded video cassettes, DVDs,
video games, tapes, discs, and other products supplied by Xxxxxx
Entertainment, Inc. to the Borrowers in the ordinary course of the
Borrowers' businesses to be less than $100,000.00 per week (tested on
a rolling four week basis), commencing as of September 21, 1999 for
the week ending September 18, 1999.
d. The Borrowers shall not permit or suffer to exist EBITDA, tested as of
Tuesday of each fiscal week (tested on a rolling four week basis)
ending the previous Saturday, commencing as of September 14, 1999, to
be less than 85% of a
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projected positive or more than 115% of a projected negative EBITDA,
as calculable from the Business Plan.
7. Additional Financial Reporting. In addition to any other weekly
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financial reports the Borrowers are required to provide to the Lender pursuant
to the terms of the Loan Agreement, weekly, on the Tuesday of each week (as of
the then immediately preceding Saturday) the Borrowers shall provide the Lender
with an Inventory roll forward report, with computer inventory control system
generated back-up documentation, certified by the Borrowers' President or Chief
Financial Officer as to the accuracy thereof. Such reports and supporting
documentation shall be in form and substance acceptable to Lender in its sole
discretion. Such report may be sent to the Lender by facsimile transmission,
provided that the original is forwarded to the Lender on the date of such
transmission.
8. Forbearance Fee. In consideration of the Lender's willingness to enter
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into this Agreement, the Borrowers agree to pay the Lender a Forbearance Fee, so
referred to herein, in the amount of $150,000.00. The Borrowers hereby authorize
the Lender to charge the Loan Account with the Forbearance Fee upon execution of
this Agreement by the Borrowers and the Lender. The Forbearance Fee shall not be
included in the calculation of Availability. The Lender agrees that in the event
that the Borrowers pay all Liabilities in full (inclusive of any unpaid portion
of the Facility Fee and Early Termination Fee) on or before December 31, 1999,
the Lender will credit Fifty Percent (50%) of the Forbearance Fee paid by the
Borrowers (i.e., $75,000.00) to the Early Termination Fee that would be then due
and payable pursuant to Section 2.13(a) of the Loan Agreement.
9. Acknowledgment Regarding Liabilities; Acknowledgment of Default Under
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the Loan Documents. Borrowers acknowledge and agree that the amounts set forth
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in Section 2 above are due and owing to Lender without offset, claim or defense
in connection therewith, all of which Borrowers hereby waive. The Borrowers
acknowledge and agree that (i) the existing defaults under the Loan Documents
constitute material defaults under the Loan Documents, (ii) any notices which
must be given and any grace periods or cure periods which must expire, prior to
Lender exercising any of its rights and remedies in connection with the Loan
Documents, have been given, complied with and expired and, in any event, are
hereby waived by Borrowers, and (iii) as a consequence, Lender is now entitled
to immediately exercise all of its rights and remedies under the Loan Documents,
at law or in equity, including, without limitation, its rights to declare all
"Liabilities" (as defined in the Loan Agreement) to be immediately due, payable
and performable, except to the extent that Lender agrees to forbear from
exercising those rights and remedies in this Agreement.
10. Forbearance; New Default. All rights and remedies of Lender in
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connection with the existing defaults under the Loan Documents are hereby
reserved, but, except as otherwise specifically provided herein, Lender agrees
to forbear from exercising its rights and remedies in connection with the
existing defaults under the Loan Documents until the earlier to occur of the
following (a "Termination Event"): (i) December 31, 1999 or (ii) the occurrence
of a "New Default" (as defined below). For purposes of this Agreement, the term
"New Default" shall mean any failure of the Borrowers in the performance of any
of the terms or conditions of, or any
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breach of any representation or warranty under, or any other default, Event of
Default, under this Agreement, the Loan Documents, any other agreements,
instruments or documents entered into in connection therewith, except that "New
Default" shall not include any of the foregoing which have occurred prior to the
date hereof, and of which Lender has actual knowledge, prior to the date hereof.
"New Default" shall also not include the failure of Borrwers to make rental
payments when due under Leases as contemplated in the Business Plan; provided,
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however, that none of Borrowers' lessors has made a written demand (whether by
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letter, the commencement of legal proceedings or otherwise) for payment of the
overdue rent. Upon a Termination Event, Lender's agreement thereunder to forbear
from exercising its rights or remedies shall immediately terminate, without the
requirement of any demand, presentment, protest or notice of any kind, all of
which Borrowers hereby waive, and Lender may at any time thereafter proceed to
exercise any and all of its rights and remedies, including without limitation,
its rights and remedies in connection with the existing defaults under the Loan
Documents, all of which are hereby reserved.
11. Enforceability of Liabilities; Waiver and Consents. Borrowers agree
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that (i) the Liabilities are secured by the Collateral described in the Loan
Documents, (ii) the Loan Documents are in full force and effect, and enforceable
against Borrowers in accordance with their respective terms, (iii) the Borrowers
have no offsets, claims or defenses to or in connection with the Liabilities, or
the terms of the Loan Documents, all of which offsets, claims or defenses are
hereby waived. Borrowers hereby waive and affirmatively agree not to challenge
or otherwise pursue any and all defenses, affirmative defenses, counterclaims,
claims, cause of actions, setoffs or other rights that it may have as of the
date hereof relating to the Liabilities, the Loan Documents, or the Collateral
therefor, including, but not limited to, any right to contest the existing
defaults under the Loan Documents, the liens and security interests in favor of
Lender, or the conduct of Lender in administering any such indebtedness or
agreements.
12. Covenants, Representations and Warranties. The Borrowers hereby make
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the following covenants, representations and warranties:
12.1 Authority. The Borrowers are duly authorized to enter into, and
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perform its obligations under, this Agreement and the agreements, instruments
and documents contemplated hereby. The execution, delivery and performance by
Borrowers of this Agreement will not violate any law or any provision of, nor
are there any grounds for acceleration under, any agreement, note, or instrument
which is binding upon Borrowers.
12.2 No Misrepresentations. Without limiting any rights or remedies
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Lender may have under law or in equity, Borrowers agree that all written
statements and information provided by Borrowers to Lender pursuant to, or in
connection wit, this Agreement or the negotiations leading to this Agreement,
have been true, complete and correct in all material respects, and none of the
same contain any material omissions of any fact or matter necessary to keep the
statements and information therein from being misleading.
12.3 Indemnity. The Borrowers agree to indemnify and hold Lender
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harmless from and against any and all losses, debts, damages, liabilities,
claims, demands, actions, causes
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of action, lawsuits, penalties, judgments, costs and expenses (including,
without limitation, attorneys' fees of counsel of Lender's choice), of every
nature and description, which Lender may sustain or incur, based upon, arising
out of, or in any way relating to any representations or warranties of Borrowers
being untrue or misleading, or this Agreement.
13. Entitlement to Relief from Stay. Borrowers hereby acknowledge and
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agree, in further consideration for the Lender entering into this Forbearance
Agreement, that, in the event that Borrowers shall make application for or seek
relief or protection under any of the sections of chapters of the Bankruptcy
Code, 11 U.S.C. (S)101 et seq. (the "Code"), or in the event that any
involuntary petition is filed against the Borrowers under the Code and an order
for relief is entered as a result thereof, then the Lender shall thereupon be
entitled to immediate relief from any automatic stay imposed by Section 362 of
the Code, or otherwise, on or against the exercise of any and all of its rights
and remedies under this Agreement, the Loan Documents or under applicable law
based upon defaults which have occurred as of the date of this Agreement. This
entitlement shall be irrespective of any of the requirements of Section 362 of
the Code and the Lender will not be obliged to satisfy those requirements in
order to obtain relief from stay. Notwithstanding the foregoing, the Borrowers
specifically acknowledge that "cause" now exists and will continue to exist for
such relief within the meaning of Section 362(d) of the Code. Borrowers now
consent and will hereafter consent to any motion for relief from stay the Lender
may file and the Borrowers irrevocably waive and release any right to object to
such relief or to impede any of the Lender's remedies, including without
limitation any rights under Sections 362 and 105 of the Code. This provision is
a material inducement to the Lender in entering into the Forbearance Agreement.
The Lender, in turn, acknowledges that this paragraph shall not be construed as
a restriction or prohibition on the Borrowers' right to make application for or
seek relief or protection under the Code.
14. Release. In consideration for Lender entering into this Agreement,
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Borrowers hereby release and forever discharge Lender, and its successors,
assigns, agents, shareholders, directors, officers, employees, agents,
attorneys, parent corporations, subsidiary corporations, affiliated
corporations, affiliates, and each of them, (and in the case of individuals, in
their individual capacity and as they have acted as agents of the Lender) from
any and all claims, debts, liabilities, demands, obligations, costs, expenses,
actions and causes of action, of every nature and description, known and
unknown, whether or not related to the subject matter of this Agreement, which
Borrowers now have or at any time may hold, by reason of any matter, cause or
thing occurred, done, omitted or suffered to be done prior to the date of this
Agreement. Borrowers waive the benefits of any law, which may provide in
substance: "A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor." Borrowers understand that the facts which they believe to be true at
the time of making the release provided for herein may later turn out to be
different than they now believe, and that information which is not know known or
suspected may later be discovered. Borrowers accept this possibility, and
Borrowers assume the risk of the facts turning out to be different and new
information being discovered; and Borrowers further agree that the release
provided for herein shall in all respects continue to be effective and not
subject to termination or rescission because of any difference in such facts or
any new information. This
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release is fully effective on the date hereof. Lender is not releasing Borrowers
from any claims, debts, liabilities, demands, obligations, costs, expenses,
actions or causes of action.
15. General Provisions
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15.1 Integration; Amendment; Waivers. This Agreement, and the Loan
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Documents set forth in full and terms of agreement between the parties and are
intended as the full, complete and exclusive contract governing the relationship
between the parties, superseding all other discussions, promises,
representations, warranties, agreements and the understandings between the
parties with respect thereto. No term of the Loan Documents may be modified or
amended, nor may any rights thereunder be waived, except in a writing signed by
the party against whom enforcement of the modification, amendment or waiver is
sought. Any waiver of any condition in, or breach of, any of the foregoing in a
particular instance shall not operate as a waiver of other or subsequent
conditions or breaches of the same or a different kind. Lender's exercise or
failure to exercise any rights under any of the foregoing in a particular
instance shall not operate as a waiver of its right to exercise the same or
different rights in subsequent instances. Except as expressly provided to the
contrary in this Agreement, or in another written agreement, all the terms,
conditions, and provisions of the Loan Documents shall continue in full force
and effect. If in this Agreement's description of an agreement between the
parties, rights and remedies of Lender or obligations of the borrower are
described which also exist under the terms of the other Loan Documents, the fact
that this Agreement may omit or contain a briefer description of any rights,
remedies and obligations shall not be deemed to limit any of such rights,
remedies and obligations contained in the other Loan Documents.
15.2 Payment of Expenses. Without limiting the terms of the Loan
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Documents, Borrowers shall pay all costs and expenses incurred by or on behalf
of Lender (including attorneys' fees) arising under or in connection with the
Loan Documents, including without limitation, in connection with (i) the
negotiation, preparation, execution and delivery of this Agreement and the Loan
Documents, and any and all consents, waivers or other documents or instruments
relating thereto, (ii) the filing and recording of any Loan Documents and any
other documents or instruments or further assurances filed or recorded in
connection with any Loan Document, (iii) any other action reasonably required in
the course of administration hereof, including, but not limited to, all
reasonable out-of-pocket expenses incurred in connection with audits and
inspections, and (iv) the defense or enforcement of the Loan Documents, whether
or not there is any litigation between the parties. All costs and expenses shall
be added to the Liabilities and the Borrowers authorize the Lender to charge the
Loan Account for such expenses.
15.3 No Third Party Beneficiaries. Except as may be otherwise
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expressly provided for herein, this Agreement does not create, and shall not be
construed as creating, any rights enforceable by any person not a party to this
Agreement.
15.4 Separability. If any provision of this Agreement is held by a
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court of competent jurisdiction to be invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall nevertheless remain in full force
and effect.
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15.5 Counterparts. This Agreement may be executed in any number of
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counterparts, which together shall constitute one and the same agreement.
15.6 Time of Essence. Time is of the essence in each of the
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Liabilities of the Borrowers and with respect to all conditions to be satisfied
by the Borrowers.
15.7 Statute of Limitations. The Borrowers waives the benefit of all
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statute(s) of limitations in any action or proceeding based upon or arising out
of this Agreement or the other Loan Documents.
15.8 Construction; Voluntary Agreement; Representation by Counsel.
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This Agreement has been prepared through the joint efforts of all the parties.
Neither its provisions nor any alleged ambiguity shall be interpreted or
resolved against any party on the ground that such party's counsel was the
draftsman of this Agreement. Each of the parties declares that such party has
carefully read this Agreement and the agreements, documents and instruments
being entered into in connection herewith and that such party knows the contents
thereof and sign the same freely and voluntarily. The parties hereto acknowledge
that they have been represented in negotiations for and preparation of this
Agreement and the agreements, documents and instrument being entered into in
connection herewith by legal counsel of their own choosing, and that each of
them has read the same and had their contents fully explained by such counsel
and is fully aware of their contents and legal effect.
15.9 Governing law; Forum Selection. This Agreement has been entered
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into and shall be governed by the laws of, the Commonwealth of Massachusetts. As
a material part of the consideration to the parties for entering into this
Agreement, each party (i) agrees that, at the option of the Lender, all actions
and proceedings based upon, arising out of or relating in any way directly or
indirectly to, this Agreement, or the Loan Documents, shall be litigated
exclusively in courts located in Suffolk County, Massachusetts; (ii) consents to
the jurisdiction of any such court and consent to the service of process in any
such action or proceeding (whether or not litigated in courts located in Suffolk
County, Massachusetts) by personal delivery or any other method permitted by
law; and (iii) waives any and all rights to transfer or to change the venue of
any such action or proceeding to any court located outside Suffolk County,
Massachusetts.
15.10 Further Assurances. Borrowers agree to take all further
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actions and execute all further documents as Lender may from time to time
reasonably request to carry out the transactions contemplated by this Agreement.
15.11 Notices. All notices, requests and demands to or upon the
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respective parties hereto shall be given in accordance with the Loan Agreement.
15.12 Mutual Waiver of Right to Jury Trial. LENDER AND EACH BORROWER
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EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT, OR ANY OF
THE AGREEMENTS, INSTRUMENTS OR DOCUMENTS REFERRED TO HEREIN; OR (II) ANY OTHER
PRESENT OR FUTURE
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INSTRUMENT OR AGREEMENT BETWEEN OR AMONG THEM; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF LENDER OR ANY BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
THEM; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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Executed under seal as of the date written above.
Video City, Inc. ("Borrower" and "Agent Old Republic Entertainment, Inc.
Borrower") ("Borrower")
/s/ Xxxxxxx X. Xxxxxx /s/ Xxx Xxxxxx
___________________________________ ________________________________
Xxx Xxxxxx Xxx Xxxxxx
By: _______________________________ By: ____________________________
EVP CFO
Title:_____________________________ Title:__________________________
Xxxxxxxx One, Inc. ("Borrower") Video Tyme, Inc. ("Borrower")
/s/ Xxx Xxxxxx /s/ Xxx Xxxxxx
___________________________________ ________________________________
Xxx Xxxxxx Xxx Xxxxxx
By: _______________________________ By: ____________________________
CFO CFO
Title:_____________________________ Title:__________________________
Videoland, Inc. ("Borrower") Video Galaxy, Inc. ("Borrower")
/s/ Xxx Xxxxxx /s/ Xxx Xxxxxx
___________________________________ ________________________________
Xxx Xxxxxx Xxx Xxxxxx
By: _______________________________ By: ____________________________
CFO CFO
Title:_____________________________ Title:__________________________
BANKBOSTON RETAIL FINANCE INC.
("Lender")
/s/ Xxxx X. Xxxxx
___________________________________
Xxxx X. Xxxxx
By: _______________________________
Director
Title:_____________________________
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