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AMENDED AND RESTATED TERM SHEET
This Amended and Restated Term Sheet (this "Amended Term Sheet") sets
forth the terms upon which the undersigned bank lenders, subject to the prior
satisfaction of all conditions set forth in the following paragraph, shall agree
to permit the other parties hereto to satisfy the indebtedness due and owing to
them from West Coast Entertainment Corporation ("WCEC") and various of WCEC's
direct and indirect subsidiaries (collectively with WCEC, the "Borrowers")
pursuant to that certain Credit Agreement dated December 15, 1997, as the same
has been and may hereafter be amended (the "Credit Agreement"). The parties
hereto intend that the satisfaction of the indebtedness owing to the Banks under
the terms herein described shall be accomplished only in connection with a
merger (the "Merger") of WCEC and Video City, Inc. ("VCI" or "Issuer") pursuant
to the terms of that certain Agreement and Plan of Merger among VCI, Keystone
Merger Corp. and WCEC dated August 1, 1999, as amended (the "Merger Agreement").
The terms and provisions of this Amended Term Sheet are intended to satisfy the
condition to closing (the "Closing") of the Merger set forth in Section 7.03(d)
of the Merger Agreement.
By executing this Amended Term Sheet where indicated, the parties
hereto are evidencing their consent to the terms set forth herein and their
willingness and ability to enter into and execute such various agreements and
other documents containing various terms, including, without limitation, the
terms enumerated herein. The parties understand, however, that the terms of this
Amended Term Sheet remain subject to, and the rights and obligations of the
parties hereto are expressly conditioned upon, among other things, the
following: (i) the consent and agreement of all the bank lenders who are parties
to the Credit Agreement (all such bank lenders, hereinafter being referred to as
the "Banks") to the terms and provisions of the Amended Term Sheet or, absent
the consent and agreement of the Banks, the entry of a final order by a court of
competent jurisdiction approving a plan of reorganization which incorporates the
terms set forth herein; (ii) the preparation and execution of documentation
regarding the satisfaction of the Bank Debt (as provided for in Section 3) and
the closing of the Merger, satisfactory in form and substance to the parties and
their respective counsel, containing, inter alia, the terms contained herein and
such other terms and conditions not stated herein which are deemed necessary by
the parties in their respective reasonable discretion and which are not
inconsistent with the terms herein; and (iii) all of the conditions contained in
such documentation regarding the satisfaction of the Bank Debt (as provided for
in Section 3) and the closing of the Merger shall have occurred and shall have
been fully performed or shall have been waived in writing by the appropriate
parties.
Nothing contained in this Amended Term Sheet is intended to, and
nothing in this Amended Term Sheet shall be deemed to (i) alter or modify any
provision of the Credit Agreement, (ii) reduce the aggregate amount of the
obligations due and owing to the Banks under the Credit Agreement, or (iii)
constitute a waiver by the Banks of existing defaults or Events of Default or of
any rights and remedies available to the Banks under the Credit Agreement or
under other applicable law. All provisions of the Credit Agreement shall remain
in effect and shall continue to be binding upon WCEC and the other Borrowers
thereunder unless and until terminated in conjunction with the satisfaction of
the Bank Debt.
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As used herein, the term "Bank Debt" includes all indebtedness of the
Borrowers to the Banks but specifically excludes any non-cash compensation,
including, without limitation, warrants, previously received by the Banks in
connection with their extension of credit to the Borrowers or their waiver of
prior defaults under the Credit Agreement. This Amended Term Sheet shall
supersede the Term Sheet, dated as of September 15, 1999 (the "First Term
Sheet"), entered into by and among VCI, WCEC and the Banks and the parties
hereto hereby agree that the First Term Sheet is terminated as of the date
hereof.
Management of WCEC Business. Contemporaneously with the execution of
this Amended Term Sheet, VCI and WCEC shall execute and deliver a Management
Agreement in substantially the form attached hereto as Exhibit A providing for,
among other things, VCI's operation and management of the WCEC business prior to
the Merger under certain terms and conditions.
Credit Agreement; Forbearance. Contemporaneously with the execution of
this Amended Term Sheet, WCEC and the Banks (or such banks which constitute the
"Required Banks" under the Credit Agreement) shall execute and deliver a
Forbearance and Fifth Amendment to the Credit Agreement (the "Fifth Amendment")
in substantially the form attached hereto as Exhibit B, pursuant to which, among
other things, the Banks or the Required Banks, as the case may be, shall agree
to forbear from exercising their rights and remedies under the existing Credit
Agreement during the Forbearance Period (as such term is defined in the Fifth
Amendment), under certain terms and conditions.
Satisfaction of Bank Debt.
() Consideration for Satisfaction. The Bank Debt shall be deemed
satisfied and paid in full upon consummation of the Merger (as described in the
Merger Agreement, as the same has been amended in accordance with subsection (c)
hereof) and receipt by the Agent, for the benefit of the Banks, of the
following, provided that such receipt occurs on or before August 31, 2000:
(i) $20 million in immediately available funds;
(ii) $15 million in Tranche A VCI Senior Notes (the
"Tranche A Notes"), in form and substance
satisfactory to the Banks and upon terms consistent
with those set forth in paragraph 4 hereof;
(iii) Tranche B VCI Senior Notes (the "Tranche B Notes"),
in form and substance satisfactory to the Banks and
upon terms consistent with those set forth in
paragraph 4 hereof, in the amount of $20 million (the
"Tranche B Debt"). Notwithstanding the foregoing, a
portion of the Tranche B Debt evidenced by the
Tranche B
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Notes, in an amount equal to a committed line of
credit obtained by VCI up to $15 million (the
"Conversion Amount"), shall be convertible on or
after the closing of the Merger, at VCI's election,
into a corresponding amount of Series G Preferred
Stock at stated value, provided that the terms
governing any line of credit obtained by VCI are
approved by the Banks (which approval shall not be
unreasonably withheld); and
(iv) Shares of VCI Series G Preferred Stock at stated
value, in form and substance satisfactory to the
Banks and upon terms consistent with those set forth
in paragraph 5 hereof, in an amount equal to $25
million (which amount may be increased by the
Conversion Amount on or after the closing of the
Merger in the event VCI elects to convert Tranche B
Debt in accordance with and subject to (iii) above).
() Sale of Stores. Subject to any limitations contained in the Fifth
Amendment and the Required Banks' approval of the terms of the sale (which
approval shall not be unreasonably withheld and which shall be deemed to have
been given if the Banks fail to respond in writing to a written request for
consent within ten days of such request being provided by VCI to the Banks), the
Required Banks will consent to the sale by the Borrowers of certain of the
Borrowers' stores during the Forbearance Period, provided that the entire net
proceeds from each such sale are delivered to the Agent for the benefit of the
Banks immediately following such sale(s) and further provided that the average
net cash proceeds received by the Borrowers or any of them and paid to the Banks
from the store sales conducted during the Forbearance Period (as defined in the
Fifth Amendment) is no less than 45 percent of the sold stores' trailing twelve
months gross revenues. The term "net cash proceeds" shall mean the gross
proceeds from any such store sale less the normal and reasonable transaction
costs related to such sale and the amount, if actually paid by the Borrowers or
the buyer of the store being sold, of the trade payables directly related to the
store that is being sold. All proceeds received by the Banks from sales of
stores shall be credited towards the $20 million payment due to the Banks on or
prior to August 31, 2000.
() Management Payments; Merger Agreement. From the date this Amended
Term Sheet is first executed until (i) the Bank Debt is fully satisfied pursuant
to Section 3(a) of this
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Amended Term Sheet; and (ii) the Tranche A Notes, the Tranche B Notes and the
Series G Preferred Stock have been fully paid or redeemed, as the case may be,
no amount shall be paid, advanced, loaned or distributed in any manner to any
present or former WCEC board member or officer by VCI or any Borrower, which
exceeds, in the aggregate, $800,000 during any fiscal year. To the extent
necessary to be consistent with the terms set forth in this Amended Term Sheet,
VCI and WCEC shall enter into an amendment to the Merger Agreement, dated as of
August 1, 1999. WCEC and VCI shall use commercially reasonable efforts to send
proxy statements and hold their respective stockholders' meetings in connection
with the Merger as soon as possible following such amendment of the Merger
Agreement.
Terms of Senior Secured Notes.
Issuer VCI, its affiliates and subsidiaries and
each Borrower, jointly and severally
(collectively, the "Obligors")
Issue Tranche A Notes in the amount of $15 million
and Tranche B Notes in the amount of the
Tranche B Debt at the closing of the Merger.
The payment and priority of the liens in
property collateralizing the Tranche A Notes
and Tranche B Notes (collectively, the
"Notes") shall be subordinated to the
payment and priority of liens
collateralizing a revolving line of credit
given to the Obligors equal to the
Conversion Amount, provided that the terms
of such line of credit are approved by the
Banks (which approval shall not be
unreasonably withheld).
Maturity The Notes shall mature three years after the
date of issuance.
Interest Interest rate on the Tranche A Notes shall
accrue at an annual rate equal at all times
to the Agent's "prime rate" plus one percent
(1%), payable quarterly in immediately
available funds. Amounts outstanding under
the Tranche B Notes shall accrue interest at
the rate of 6.75 percent per annum, payable
semi-annually as follows: (a) during first
two years after issuance, at the Issuer's
election in (i) immediately available funds
or (ii) registered shares of the VCI's
common stock valued at market price; (b)
after year two, in immediately available
funds.
Collateral for Notes A first priority lien and security interest
in all assets, real and personal (including
collateral assignments
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of all leases of stores which are not sold
during the Forbearance Period, in recordable
form), of the Obligors, which lien and
security interest shall be junior only to
"permitted liens" which shall be determined
by the Banks. "Permitted Liens" shall
include purchase money security interests
securing loans on equipment to which the
Borrowers are subject on the date this
Amended Term Sheet is executed and new
purchase money security interests on
equipment so long as (i) the equipment that
is subject to the purchase money security
interest is the sole collateral for the
obligation and (ii) the amount of the
purchase money obligation does not exceed
100% of the value of the item(s) of
equipment purchased with the proceeds
thereof. The Banks shall subordinate their
liens to the lien of the lender to the
Obligors of a revolving line of credit,
provided that the line of credit does not
exceed the Conversion Amount and is on terms
otherwise approved by the Banks, which
approval shall not be unreasonably withheld.
Prepayment of Notes Following the Merger, if and when any store
is sold, the Banks shall be entitled to
receive, in immediately available funds, the
net proceeds from such sale in an amount
equal to the following: the dollar amount
outstanding under the Notes on the date of
the Merger multiplied by a fraction, the
numerator of which is the number of stores
being sold and the denominator of which is
the number of total stores existing at the
time of the Merger, multiplied by 120
percent. Provided that the Banks receive the
aforesaid amount and that no Event of
Default exists under the Notes, the Banks
shall release their liens on the store that
was sold and shall apply such proceeds first
to outstandings under the Tranche B Notes
and then to amounts outstanding under the
Tranche A Notes. So long as no Event of
Default has occurred and is continuing under
the Notes, the Tranche B Notes in an amount
up to $5 million may be prepaid, in
immediately available funds, at VCI's
election during the twelve months following
their issuance in an amount equal to
outstanding interest (which under this
instance must be paid in cash and may not be
"paid" with
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VCI's common stock and to the extent that
any interest payment has theretofore been
made in VCI's common stock, such stock must
be redeemed in cash for the amount of the
interest payment previously "paid" with such
common stock) together with 75 percent of
the principal amount outstanding thereunder.
The aforesaid prepayment option may be
exercised by the Obligors on one occasion
only.
5. Terms of Series G Preferred Stock.
Issuer Video City, Inc.
Issue 250,000 Shares of Series G Preferred Stock
(hereinafter the "Shares"). (Note: subject
to the limitations contained in this Term
Sheet, the number of Shares may increase on
or after the closing of the Merger by the
corresponding dollar amount of the
Conversion Amount.)
Stated Value $100 per share.
Conversion Convertible at any time at the election of
the holder into shares of VCI Common Stock
at a conversion price equal to $10.00 per
share.
Redemption Redeemable in cash in whole or in part, at
VCI's election, at (i) 75 percent of stated
value plus 100% of accrued, unpaid dividends
during the first three years following the
Merger; (ii) 85% of stated value plus 100%
of accrued, unpaid dividends during the next
two years following the period described in
(i); (iii) 95% of stated value plus 100% of
accrued, unpaid dividends during the next
two years following the period described in
(ii) and (iv) 100% of stated value plus 100%
of accrued, unpaid dividends anytime after
the period described in (iii).
Dividends 6.75% per annum, or $6.75 per share, payable
semi-annually as follows: (a) during first
two years after issuance, at the Issuer's
election in (i) cash or (ii) registered
shares of the VCI's common stock valued at
market price; (b) after year two, in
immediately available funds.
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Ranking Senior to all existing and future issuances
of preferred stock.
Registration and Listing Within 180 days following the Closing of the
Merger, VCI will (i) register for resale the
Shares of Series G Preferred Stock, and the
shares of common stock issuable as dividends
under the Securities Act of 1933 and (ii)
use commercially reasonable efforts to list
the Shares of Series G Preferred Stock on a
regional exchange. Notwithstanding the
foregoing, VCI shall not issue Shares other
than to the Banks, and the only holders of
Shares shall be the Banks or their
successors and assigns. Nothing contained
herein shall affect the rights of any of the
Banks under applicable law to convey or
transfer Shares.
Board Representation For as long as the Banks are the holders of
at least 75 percent of the cumulative number
of shares of the Series G Preferred Stock
issued to the Banks at the Closing and at
any time thereafter, the Banks (and only the
Banks) shall be entitled to designate an
individual, reasonably acceptable to VCI, to
stand for election to the Board of Directors
of VCI, and VCI shall cause its Board of
Directors to nominate such individual to
stand for election to VCI's Board of
Directors at the Buyer Meeting (as defined
in the Merger Agreement) and at each meeting
of the VCI stockholders thereafter at which
directors are to be elected. Senior
management of VCI and WCEC shall vote their
shares of common stock in favor of the
Banks' nominee for election to the Board of
Directors of VCI.
Merger, Consolidation, In the event of a merger, consolidation or
etc. other business combination transaction after
which VCI is not the surviving entity, VCI
shall be obligated to cause the surviving
entity to either redeem or exchange the
Series G Preferred Stock for a new issue of
preferred stock identical in all material
respects to the Series G Preferred Stock,
which new issue shall be acceptable to the
holders of Series G Preferred Stock. The
Series G Preferred Stock may be exchanged
for preferred stock of the surviving entity,
only if such surviving entity has a net
worth equal to or greater than VCI at the
effective time of the merger, consolidation
or other fundamental
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transaction and there will be no material
depreciation in the value of the exchanged
stock (relative to the value of the Series G
Preferred Stock) immediately following such
effective time.
6. Miscellaneous.
() Additional Information. Upon execution of this Amended Term Sheet
and, if then unavailable, as soon as the information becomes available, VCI and
WCEC shall provide the Banks with (i) all Amendments to the Merger Agreement,
and (ii) such other information as the Banks may reasonably request of VCI and
WCEC.
() Additional Documentation. The agreement of the parties evidenced by
this Amended Term Sheet, shall be subject to such additional documentation and
such other terms and conditions as are deemed reasonably necessary and
appropriate by the Banks for transactions and agreements of this nature.
() No Conflict. In the event of any conflict between the terms
described in the Amended Term Sheet and the specific terms of any agreement
referred to or provided for herein, the terms of the specific agreement shall
control.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Term Sheet to be duly executed and delivered as of this 3rd day of
March 2000.
VIDEO CITY, INC.
By: /s/ Xxxxxx X. Xxx
Name: Xxxxxx X. Xxx
Title: Chief Executive Officer
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ X. Xxxx Xxxxxxxx
Name: X. Xxxx Xxxxxxxx
Title: Chief Executive Officer
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Xxxxxxx X. Xxxxxxx
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President
FIRST UNION NATIONAL BANK
By: /s/ Xxxxxxx Xxxx
Name: Xxxxxxx Xxxx
Title: Director
FLEET NATIONAL BANK, f/k/a BANKBOSTON, N.A.
By: /s/ Xxxxxx X. Xxxxxxxxx
Name: Xxxxxx X. Xxxxxxxxx
Title: Senior Vice President
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