EXHIBIT (D)(4)
CONFORMED COPY
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GUARANTEE AND COLLATERAL AGREEMENT
made by
CDNOW, INC.
and certain of its Subsidiaries
in favor of
BERTELSMANN, INC.
as Security Agent
Dated as of 19 July, 2000
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TABLE OF CONTENTS
Page
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SECTION 1. DEFINED TERMS
1.1 Definitions.........................................................1
1.2 Other Definitional Provisions.......................................5
SECTION 2. GUARANTEE
2.1 Guarantee...........................................................5
2.2 Right of Contribution...............................................6
2.3 No Subrogation.....................................................6
2.4 Amendments, etc. with Respect to the Borrower Obligations. ........6
2.5 Guarantee Absolute and Unconditional. .............................7
2.6 Reinstatement.......................................................8
2.7 Payments............................................................8
SECTION 3. GRANT OF SECURITY INTEREST
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 Representations in Credit Agreement.................................9
4.2 Perfected First Priority Liens......................................9
4.3 Chief Executive Office..............................................9
4.4 Inventory and Equipment.............................................9
4.5 Pledged Securities.................................................10
4.6 Receivables........................................................10
4.7 Contracts..........................................................10
4.8 Intellectual Property..............................................10
SECTION 5. COVENANTS
5.1 Covenants in Credit Agreement. ...................................10
5.2 Delivery of Instruments and Chattel Paper. .......................11
5.3 Payment of Obligations. ..........................................11
5.4 Maintenance of Perfected Security Interest; Further Documentation. 11
5.5 Changes in Locations, Name, etc. .................................11
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5.6 Notices............................................................12
5.7 Pledges Securities.................................................12
5.8 Intellectual Property..............................................13
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables............................13
6.2 Communications with Obligors; Grantors Remain Liable...............14
6.3 Pledged Stock......................................................15
6.4 Proceeds to be Turned Over to Security Agent.......................15
6.5 Application of Proceeds............................................16
6.6 Code and Other Remedies............................................16
6.7 Registration Rights................................................17
6.8 Waiver; Deficiency.................................................17
SECTION 7. THE SECURITY AGENT
7.1 Appointment........................................................18
7.2 Delegation of Duties...............................................18
7.3 Exculpatory Provisions.............................................18
7.4 Reliance by Security Agent.........................................18
7.5 Notice of Default..................................................19
7.6 Non-Reliance on Security Agent.....................................19
7.7 Indemnification....................................................20
7.8 Security Agent in Its Individual Capacity..........................20
7.9 Security Agent's Appointment as Attorney-in-Fact, etc. ............20
7.10 Duty of Security Agent.............................................22
7.11 Execution of Financing Statements..................................22
7.12 Authority of Security Agent........................................23
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing..............................................23
8.2 Notices............................................................23
8.3 No Waiver by Course of Conduct; Cumulative Remedies................23
8.4 Enforcement Expenses; Indemnification..............................24
8.5 Successors and Assigns.............................................24
8.6 Set-Off............................................................24
8.7 Counterparts.......................................................25
8.8 Severability.......................................................25
8.9 Section Headings...................................................25
8.10 Integration........................................................25
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8.11 GOVERNING LAW......................................................25
8.12 Submission To Jurisdiction; Waivers................................25
8.13 Acknowledgments....................................................26
8.14 WAIVER OF JURY TRIAL...............................................26
8.15 Additional Grantors................................................26
8.16 Releases...........................................................26
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GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of 19 July, 2000, made by
each of the signatories hereto (together with any other entity that may become
a party hereto as provided herein, the "Grantors"), in favor of Bertelsmann,
Inc., as Security Agent (in such capacity, the "Security Agent") for
Bertelsmann, Inc. (the "Lender") under the Convertible Loan Agreement, dated as
of July 19, 2000 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among CDnow, Inc. (the "Borrower") and the
Lender.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to make
extensions of credit to the Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of companies that
includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement will be used in part to enable the Borrower to make valuable
transfers to one or more of the other Grantors in connection with the operation
of their respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect
benefit from the making of the extensions of credit under the Credit Agreement;
and
WHEREAS, it is a condition precedent to the obligation of the Lender to
make its extension of credit to the Borrower under the Credit Agreement that
the Grantors shall have executed and delivered this Agreement to the Security
Agent for the ratable benefit of the Lender;
NOW, THEREFORE, in consideration of the premises and to induce the Lender
to enter into the Credit Agreement and to induce the Lender to make its
extension of credit to the Borrower thereunder, each Grantor hereby agrees with
the Security Agent, for the ratable benefit of the Lender, as follows:
SECTION 1.
DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit
Agreement, and the following terms which are defined in the Uniform Commercial
Code in effect in the State of New York on the date hereof are used herein as
so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products,
Instruments, Inventory and Investment Property.
(b) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Borrower Obligations": the collective reference to the unpaid principal
of and interest on the Loans and all other obligations and liabilities of the
Borrower (including, without limitation, interest accruing at the then
applicable rate provided in the Credit Agreement after the maturity of the
Loans and interest accruing at the then applicable rate provided in the Credit
Agreement after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) to the Security Agent or the Lender, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Loan Documents, or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Security Agent or to the Lender that
are required to be paid by the Borrower pursuant to the terms of any of the
foregoing agreements).
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by the Security
Agent as provided in Section 6.1 or 6.4.
"Copyright Licenses": any written agreement naming any Grantor as licensor
or licensee (including, without limitation, those listed in Schedule 6),
granting any right under any Copyright, including, without limitation, the
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.
"Copyrights": (i) all copyrights arising under the laws of the United
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those listed in Schedule 6), all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the
United States Copyright Office, and (ii) the right to obtain all renewals
thereof.
"General Intangibles": all "general intangibles" as such term is defined
in Article 9 of the Uniform Commercial Code in effect in the State of New York
on the date hereof and, in any event, including, without limitation, with
respect to any Grantor, all contracts, agreements, instruments and indentures
in any form, and portions thereof, to which such Grantor
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is a party or under which such Grantor has any right, title or interest or to
which such Grantor or any property of such Grantor is subject, as the same may
from time to time be amended, supplemented or otherwise modified, including,
without limitation, (i) all rights of such Grantor to receive moneys due and to
become due to it thereunder or in connection therewith, (ii) all rights of such
Grantor to damages arising thereunder and (iii) all rights of such Grantor to
perform and to exercise all remedies thereunder, in each case to the extent the
grant by such Grantor of a security interest pursuant to this Agreement in its
right, title and interest in such contract, agreement, instrument or indenture
is not prohibited by such contract, agreement, instrument or indenture without
the consent of any other party thereto, would not give any other party to such
contract, agreement, instrument or indenture the right to terminate its
obligations thereunder, or is permitted with consent if all necessary consents
to such grant of a security interest have been obtained from the other parties
thereto (it being understood that the foregoing shall not be deemed to obligate
such Grantor to obtain such consents); provided, that the foregoing limitation
shall not affect, limit, restrict or impair the grant by such Grantor of a
security interest pursuant to this Agreement in any Receivable or any money or
other amounts due or to become due under any such contract, agreement,
instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the collective
reference to (i) the Borrower Obligations and (ii) all obligations and
liabilities of such Guarantor which may arise under or in connection with this
Agreement or any other Loan Document to which such Guarantor is a party, in
each case whether on account of guarantee obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Security Agent or to the Lender that are
required to be paid by such Guarantor pursuant to the terms of this Agreement
or any other Loan Document).
"Guarantors": the collective reference to each Grantor other than the
Borrower.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, the Copyrights, the Copyright Licenses, the Patents, the
Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to
xxx at law or in equity for any infringement or other impairment thereof,
including the right to receive all proceeds and damages therefrom.
"Intercompany Note": any promissory note evidencing loans made by any
Grantor to any Grantor or any of their Subsidiaries.
"Issuers": the collective reference to each issuer of a Pledged Security.
"New York UCC": the Uniform Commercial Code as from time to time in effect
in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower Obligations,
and (ii) in the case of each Guarantor, its Guarantor Obligations.
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"Patent License": all agreements, whether written or oral, providing for
the grant by or to any Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 6.
"Patents": (i) all letters patent of the United States, any other country
or any political subdivision thereof, all reissues and extensions thereof and
all goodwill associated therewith, including, without limitation, any of the
foregoing referred to in Schedule 6, (ii) all applications for letters patent
of the United States or any other country and all divisions, continuations and
continuations-in-part thereof, including, without limitation, any of the
foregoing referred to in Schedule 6, and (iii) all rights to obtain any
reissues or extensions of the foregoing.
"Pledged Notes": all promissory notes listed on Schedule 2, all
Intercompany Notes at any time issued to any Grantor and all other promissory
notes issued to or held by any Grantor (other than promissory notes issued in
connection with extensions of trade credit by any Grantor in the ordinary
course of business).
"Pledged Securities": the collective reference to the Pledged Notes and
the Pledge Stock.
"Pledged Stock": the Equity Securities listed on Schedule 2, together with
any other shares, stock certificates, options or rights of any nature
whatsoever in respect of the Equity Securities of any Person that may be issued
or granted to, or held by, any Grantor while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Article 9 of the
Uniform Commercial Code in effect in the State of New York on the date hereof
and, in any event, shall include, without limitation, all dividends or other
income from the Pledged Securities, collections thereon or distributions or
payments with respect thereto.
"Receivable": any right to payment for goods sold or leased or for
services rendered, whether or not such right is evidenced by an Instrument or
Chattel Paper and without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
"Trademark License": any agreement, whether written or oral, providing for
the grant by or to any Grantor of any right to use any Trademark, including,
without limitation, any of the foregoing referred to in Schedule 6.
"Trademarks": (i) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers, and all goodwill associated
therewith, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, whether in
the United States Patent and Trademark Office or in any similar office or
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agency of the United States, any State thereof or any other country or any
political subdivision thereof, or otherwise, and all common-law rights related
thereto, including, without limitation, any of the foregoing referred to in
Schedule 6, and (ii) the right to obtain all renewals thereof.
1.2 Other Definitional Provisions. (a) The words "hereof," "herein,"
"hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section and Schedule references are to this
Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or any
part thereof, when used in relation to a Grantor, shall refer to such Grantor's
Collateral or the relevant part thereof.
SECTION 2.
GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Security Agent, for the
ratable benefit of the Lender and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment and performance by the
Borrower when due (whether at the stated maturity, by acceleration or
otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under
the other Loan Documents shall in no event exceed the amount which can be
guaranteed by such Guarantor under applicable federal and state laws relating
to the insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may at any time
and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of the Security Agent or the Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain in full force
and effect until all the Borrower Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 2 shall have been
satisfied by payment in full and the Loan Commitment shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Borrower Obligations.
(e) No payment made by the Borrower, any of the Guarantors, any other
guarantor or any other Person or received or collected by the Security Agent or
the Lender
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from the Borrower, any of the Guarantors, any other guarantor or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Borrower Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder which shall,
notwithstanding any such payment (other than any payment made by such Guarantor
in respect of the Borrower Obligations or any payment received or collected
from such Guarantor in respect of the Borrower Obligations), remain liable for
the Borrower Obligations up to the maximum liability of such Guarantor
hereunder until the Borrower obligations are paid in full and the Loan
Commitment is terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that to the extent
that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 2.3. The provisions of
this Section 2.2 shall in no respect limit the obligations and liabilities of
any Guarantor to the Security Agent and the Lender, and each Guarantor shall
remain liable to the Security Agent and the Lender for the full amount
guaranteed by such Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any Guarantor
hereunder or any set-off or application of funds of any Guarantor by the
Security Agent or the Lender, no Guarantor shall be entitled to be subrogated
to any of the rights of the Security Agent or the Lender against the Borrower
or any other Guarantor or any collateral security or guarantee or right of
offset held by the Security Agent or the Lender for the payment of the Borrower
Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing
to the Security Agent and the Lender by the Borrower on account of the Borrower
obligations are paid in full and the Loan Commitment is terminated. If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Borrower Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Security Agent and
the Lender, segregated from other funds of such Guarantor, and shall, forthwith
upon receipt by such Guarantor, be turned over to the Security Agent in the
exact form received by such Guarantor (duly indorsed by such Guarantor to the
Security Agent, if required), to be applied against the Borrower Obligations,
whether matured or unmatured, in such order as the Security Agent may
determine.
2.4 Amendments, etc. with Respect to the Borrower Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Security Agent or the Lender may be rescinded by the
Security Agent or such Lender and any of the Borrower Obligations continued,
and the Borrower Obligations, or the liability of any other Person upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Security Agent or the Lender,
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and the Credit Agreement and the other Loan Documents and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Security Agent (or the
Lender, as the case may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Security Agent or the Lender for the payment of the Borrower Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Security Agent
nor the Lender shall have any obligation to protect, secure, perfect or insure
any Lien at any time held by it as security for the Borrower Obligations or for
the guarantee contained in this Section 2 or any property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Borrower Obligations and notice of or proof of reliance by the Security Agent
or the Lender upon the guarantee contained in this Section 2 or acceptance of
the guarantee contained in shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this Section 2; and all dealings between the
Borrower and any of the Guarantors, on the one hand, and the Security Agent and
the Lender, on the other hand, likewise shall be conclusively presumed to have
been had or consummated in reliance upon the guarantee contained in this
Section 2. Each Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrower or any of
the Guarantors with respect to the Borrower Obligations. Each Guarantor
understands and agrees that the guarantee contained in this Section 2 shall be
construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity or enforceability of the Credit Agreement or
any other Loan Document, any of the Borrower Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Security Agent or the
Lender, (b) any defense, setoff or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted by
the Borrower or any other Person against the Security Agent or the Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge
of the Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Borrower
Obligations, or of such Guarantor under the guarantee contained in this Section
2, in bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Security Agent or the Lender may, but shall be under no obligation to, make a
similar demand on or otherwise pursue such rights and remedies as it may have
against the Borrower, any other Guarantor or any other Person or against any
collateral security or guarantee for the Borrower obligations or any right of
offset with respect thereto, and any failure by the Security Agent or the
Lender to make any such demand, to pursue such other rights or remedies or to
collect any payments from the Borrower, any other Guarantor or any other Person
or to realize upon any such collateral security or guarantee or to exercise any
such right of offset, or any release of the Borrower, any other Guarantor or
any other Person or any such collateral security, guarantee or right of offset,
shall not relieve any Guarantor of any obligation this Section 2; the Borrower
Obligations, and any of them, or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Security Agent or the
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Lender against any Guarantor. For the purposes hereof "demand" shall include
the commencement and continuance of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Borrower Obligations is rescinded
or must otherwise be restored or returned by the Security Agent or the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Borrower or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Guarantor or any substantial part of its property, or
otherwise, all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments hereunder
will be paid to the Security Agent without set-off or counterclaim in the
lawful money of the United States of America at the office of the Security
Agent set forth in Schedule 1.
SECTION 3.
GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the Security Agent, and
hereby grants to the Security Agent, for the ratable benefit of the Lender, a
security interest in, all of the following property now owned or at any time
hereafter acquired by such Grantor or in which such Grantor now has or at any
time in the future may acquire any right, title or interest (collectively, the
"Collateral"), as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of such Grantor's Obligations:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Documents;
(d) all Equipment;
(e) all General Intangibles;
(f) all Instruments;
(g) all Intellectual Property;
(h) all Inventory;
(i) all Pledged Securities and other Investment Property;
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(j) all books and records pertaining to the Collateral; and
(k) to the extent not otherwise included, all Proceeds and products of any
and all of the foregoing and all collateral security and guarantees given by
any Person with respect to any of the foregoing.
SECTION 4.
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into the Credit Agreement and to induce the
Lender to make their respective extensions of credit to the Borrower
thereunder, each Grantor hereby represents and warrants to the Security Agent
and the Lender that:
4.1 Representations in Credit Agreement. In the case of each Guarantor,
the representations and warranties set forth in Section 4 of the Credit
Agreement as they relate to such Guarantor or to the Loan Documents to which
such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Security Agent and the Lender shall be
entitled to rely on each of them as if they were fully set forth herein,
provided that each reference in each such representation and warranty to the
Borrower's knowledge shall, for the purposes of this Section 4.1, be deemed to
be a reference to such Guarantor's knowledge.
4.2 Perfected First Priority Liens. The security interests granted
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Security Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Security Agent, for the
ratable benefit of the Lender, as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for unrecorded Liens permitted by the
Credit Agreement which have priority over the Liens on the Collateral by
operation of law.
4.3 Chief Executive Office. On the date hereof, such Grantor's
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
4.4 Inventory and Equipment. On the date hereof, the Inventory and the
Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
4.5 Pledged Securities. (a) The shares of Pledged Stock pledged by such
Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Equity Securities of each Issuer owned by such Grantor.
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(b) Except as set forth on Schedule 2, all the shares of the Pledged Stock
have been duly and validly issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and binding
obligation of the obligor with respect thereto, enforceable in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Securities pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person,
except the security interest created by this Agreement.
4.6 Receivables. No material amount payable to such Grantor under or in
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Security Agent.
4.7 Contracts. (a) No consent of any party (other than such Grantor) to
any Contract is required, or purports to be required, in connection with the
execution, delivery and performance of this Agreement.
(b) No material amount payable to such Grantor under or in connection with
any Contract is evidenced by any Instrument or Chattel Paper which has not been
delivered to the Security Agent.
4.8 Intellectual Property. Schedule 6 lists all Intellectual Property
owned by such Grantor in its own name on the date hereof.
SECTION 5.
COVENANTS
Each Grantor covenants and agrees with the Security Agent and the Lender
that, from and after the date of this Agreement until the Obligations shall
have been paid in full and the Loan Commitment shall have terminated:
5.1 Covenants in Credit Agreement. In the case of each Guarantor, such
Guarantor shall take, or shall refrain from taking, as the case may be, each
action that is necessary to be taken or not taken, as the case may be, so that
no Default or Event of Default is
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caused by the failure to take such action or to refrain from taking such action
by such Guarantor or any of its Subsidiaries.
5.2 Delivery of Instruments and Chattel Paper. If any material amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper
shall be immediately delivered to the Security Agent, duly indorsed in a manner
satisfactory to the Security Agent, to be held as Collateral pursuant to this
Agreement.
5.3 Payment of Obligations. Such Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of income or profits therefrom, as
well as all claims of any kind (including, without limitation, claims for
labor, materials and supplies) against or with respect to the Collateral,
except that no such charge need be paid if the amount or validity thereof is
currently being contested in good faith by appropriate proceedings, reserves in
conformity with GAAP with respect thereto have been provided on the books of
such Grantor and such proceedings could not reasonably be expected to result in
the sale, forfeiture or loss of any material portion of the Collateral or any
interest therein.
5.4 Maintenance of Perfected Security Interest; Further Documentation. (a)
Such Grantor shall maintain the security interest created by this Agreement as
a perfected security interest having at least the priority described in Section
4.2 and shall defend such security interest against the claims and demands of
all Persons whomsoever.
(b) Such Grantor will furnish to the Security Agent and the Lender from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Security Agent may reasonably request, all in reasonable detail.
(c) At any time and from time to time, upon the written request of the
Security Agent, and at the sole expense of such Grantor, such Grantor will
promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Security Agent
may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby.
5.5 Changes in Locations, Name, etc. Such Grantor will not, except upon 30
days' prior written notice to the Security Agent and delivery to the Security
Agent of (a) all additional executed financing statements and other documents
reasonably requested by the Security Agent to maintain the validity, perfection
and priority of the security interests provided for herein and (b) if
applicable, a written supplement to Schedule 5 showing any additional location
at which Inventory or Equipment shall be kept:
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(i) permit any of the Inventory or Equipment to be kept at a location
other than those listed on Schedule 5;
(ii) change the location of its chief executive office or sole place
of business from that referred to in Section 4.3; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Security Agent in
connection with this Agreement would become misleading.
5.6 Notices. Such Grantor will advise the Security Agent and the Lender
promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral; and
(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
5.7 Pledge Securities. (a) If such Grantor shall become entitled to
receive or shall receive any certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection with
any reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights in respect of
the Equity Securities of any Issuer, whether in addition to, in substitution
of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or
otherwise in respect thereof, such Grantor shall accept the same as the agent
of the Security Agent and the Lender, hold the same in trust for the Security
Agent and the Lender and deliver the same forthwith to the Security Agent in
the exact form received, duly indorsed by such Grantor to the Security Agent,
if required, together with an undated stock power covering such certificate
duly executed in blank by such Grantor and with, if the Security Agent so
requests, signature guaranteed, to be held by the Security Agent, subject to
the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Pledged Securities upon the liquidation or
dissolution of any Issuer shall be paid over to the Security Agent to be held
by it hereunder as additional collateral security for the Obligations, and in
case any distribution of capital shall be made on or in respect of the Pledged
Securities or any property shall be distributed upon or with respect to the
Pledged Securities pursuant to the recapitalization or reclassification of the
capital of any Issuer or pursuant to the reorganization thereof, the property
so distributed shall, unless otherwise subject to a perfected security interest
in favor of the Security Agent, be delivered to the Security Agent to be held
by it hereunder as additional collateral security for the Obligations. If any
sums of money or property so paid or distributed in respect of the Pledged
Securities shall be received by such Grantor, such Grantor shall, until such
money or property is paid or delivered to the Security Agent, hold such money
or property in trust for the Lender, segregated from other funds of such
Grantor, as additional collateral security for the Obligations.
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(b) Without the prior written consent of the Security Agent, such Grantor
will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Pledged Securities or Proceeds thereof
(except pursuant to a transaction expressly permitted by the Credit Agreement),
(ii) create, incur or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Pledged Securities or Proceeds
thereof, or any interest therein, except for the security interests created by
this Agreement or (iii) enter into any agreement or undertaking restricting the
right or ability of such Grantor or the Security Agent to sell, assign or
transfer any of the Pledged Securities or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer agrees
that (i) it will be bound by the terms of this Agreement relating to the
Pledged Securities issued by it and will comply with such terms insofar as such
terms are applicable to it, (ii) it will notify the Security Agent promptly in
writing of the occurrence of any of the events described in Section 5.7(a) with
respect to the Pledged Securities issued by it and (iii) the terms of Sections
6.3(c) shall apply to it, mutatis mutandis, with respect to all actions that
may be required of it pursuant to Section 6.3(c) with respect to the Pledged
Securities
5.8 Intellectual Property. (a) Whenever such Grantor, either by itself or
through any agent, employee, licensee or designee, shall file an application
for the registration of any Intellectual Property with the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, such
Grantor shall report such filing to the Security Agent within five Business
Days after the last day of the fiscal quarter in which such filing occurs. Upon
request of the Security Agent, such Grantor shall execute and deliver, and have
recorded, any and all agreements, instruments, documents, and papers as the
Security Agent may request to evidence the Security Agent's and the Lender's
security interest in any Copyright, Patent or Trademark and the goodwill and
general intangibles of such Grantor relating thereto or represented thereby.
(b) Such Grantor will take all reasonable and necessary steps, including,
without limitation, in any proceeding before the United States Patent and
Trademark Office, the United States Copyright office or any similar office or
agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
SECTION 6.
REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The Security Agent hereby
authorizes each Grantor to collect such Grantor's Receivables, subject to the
Security Agent's
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reasonable direction and control, and the Security Agent may curtail or
terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Security Agent at any
time after the occurrence and during the continuance of an Event of Default,
any payments of Receivables, when collected by any Grantor, (i) shall be
forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the
Security Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Security Agent, subject to withdrawal by the
Security Agent for the account of the Lender only as provided in Section 6.5,
and (ii) until so turned over, shall be held by such Grantor in trust for the
Security Agent and the Lender, segregated from other funds of such Grantor.
Each such deposit of Proceeds of Receivables shall be accompanied by a report
identifying in reasonable detail the nature and source of the payments included
in the deposit.
(b) At the Security Agent's request, each Grantor shall deliver to the
Security Agent all original and other documents evidencing, and relating to,
the agreements and transactions which gave rise to the Receivables, including,
without limitation, all original orders, invoices and shipping receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a) The Security
Agent in its own name or in the name of others may at any time after the
occurrence and during the continuance of an Event of Default communicate with
obligors under the Receivables and parties to the Contracts to verify with them
to the Security Agent's satisfaction the existence, amount and terms of any
Receivables or Contracts.
(b) Upon the request of the Security Agent at any time after the
occurrence and during the continuance of an Event of Default, each Grantor
shall notify obligors on the Receivables and parties to the Contracts that the
Receivables and the Contracts have been assigned to the Security Agent for the
ratable benefit of the Lender and that payments in respect thereof shall be
made directly to the Security Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor shall
remain liable under each of the Receivables and Contracts to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto. Neither the Security Agent nor the Lender shall have any obligation or
liability under any Receivable (or any agreement giving rise thereto) or
Contract by reason of or arising out of this Agreement or the receipt by the
Security Agent or the Lender of any payment relating thereto, nor shall the
Security Agent or the Lender be obligated in any manner to perform any of the
obligations of any Grantor under or pursuant to any Receivable (or any
agreement giving rise thereto) or Contract, to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as
to the sufficiency of any performance by any party thereunder, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
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6.3 Pledged Stock. (a) Unless an Event of Default shall have occurred and
be continuing and the Security Agent shall have given notice to the relevant
Grantor of the Security Agent's intent to exercise its corresponding rights
pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash
dividends paid in respect of the Pledged Stock and all payments made in respect
of the Pledged Notes, in each case paid in the normal course of business of the
relevant Issuer and consistent with past practice, to the extent permitted in
the Credit Agreement, and to exercise all voting and corporate rights with
respect to the Pledged Securities; provided, however, that no vote shall be
cast or corporate right exercised or other action taken which, in the Security
Agent's reasonable judgment, would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and the Security
Agent shall give notice of its intent to exercise such rights to the relevant
Grantor or Grantors, (i) the Security Agent shall have the right to receive any
and all cash dividends, payments or other Proceeds paid in respect of the
Pledged Securities and make application thereof to the Obligations in such
order as the Security Agent may determine, and (ii) any or all of the Pledged
Securities shall be registered in the name of the Security Agent or its
nominee, and the Security Agent or its nominee may thereafter exercise (x) all
voting, corporate and other rights pertaining to such Pledged Securities at any
meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y)
any and all rights of conversion, exchange and subscription and any other
rights, privileges or options pertaining to such Pledged Securities as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Securities upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of any Issuer, or upon the exercise by any
Grantor or the Security Agent of any right, privilege or option pertaining to
such Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Security Agent may determine), all without liability except
to account for property actually received by it, but the Security Agent shall
have no duty to any Grantor to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Pledged Securities pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Security Agent in writing that (x) states
that an Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Grantor, and each Grantor agrees that each Issuer shall
be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Security Agent.
6.4 Proceeds to be Turned Over to Security Agent. In addition to the
rights of the Security Agent and the Lender specified in Section 6.1 with
respect to payments of Receivables, if an Event of Default shall occur and be
continuing, all Proceeds received by any Grantor consisting of cash, checks and
other near-cash items shall be held by such Grantor in
15
trust for the Security Agent and the Lender, segregated from other funds of
such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over
to the Security Agent in the exact form received by such Grantor (duly indorsed
by such Grantor to the Security Agent, if required). All Proceeds received by
the Security Agent hereunder shall be held by the Security Agent in a
collateral Account maintained under its sole dominion and control. All Proceeds
while held by the Security Agent in a Collateral Account (or by such Grantor in
trust for the Security Agent and the Lender) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be agreed upon by
the Borrower and the Security Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Security Agent's election, the
Security Agent may apply all or any part of Proceeds held in any Collateral
Account in payment of the Obligations as follows:
First, to the extent not theretofore paid by or on behalf of any Loan
Party, to pay all fees, costs, expenses of the Security Agent and the Lender
incurred in connection with the performance of their duties hereunder or under
the Loan Documents, as the case may be, including attorneys' fees and expenses
and any other amounts payable to the Security Agent and the Lender hereunder or
under any of the Loan Documents in respect of any indemnities;
Second, to the Lender pro rata in accordance with the aggregate amount of
Interest owed to such Lender;
Third, to the Lender pro rata in accordance with the aggregate amount of
all other obligations held by such Lender;
Fourth, the balance, if any, to the Grantor or such other person or
persons as are entitled thereto.
Any balance of such Proceeds remaining after the obligations shall have been
paid in full and the Loan Commitment shall have terminated shall be paid over
to the Borrower or to whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall occur and be
continuing, the Security Agent, on behalf of the Lender, may exercise, in
addition to all other rights and remedies granted to them in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Security Agent, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law
referred to below) to or upon any Grantor or any other Person (all and each of
which demands, defenses, advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at
16
public or private sale or sales, at any exchange, broker's board or office of
the Security Agent or the Lender or elsewhere upon such terms and conditions as
it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Security Agent or the Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in any Grantor, which right or equity is hereby
waived and released. Each Grantor further agrees, at the Security Agent's
request, to assemble the Collateral and make it available to the Security Agent
at places which the Security Agent shall reasonably select, whether at such
Grantor's premises or elsewhere. The Security Agent shall apply the net
proceeds of any action taken by it pursuant to this Section 6.6, after
deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Security Agent and the Lender hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in
part of the Obligations, in the order set forth in Section 6.5, and only after
such application and after the payment by the Security Agent of any other
amount required by any provision of law, including, without limitation Section
9-504(l)(c) of the New York UCC, need the Security Agent account for the
surplus, if any, to any Grantor. To the extent permitted by applicable law,
each Grantor waives all claims, damages and demands it may acquire against the
Security Agent or the Lender arising out of the exercise by them of any rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition.
6.7 Registration Rights. Each Grantor recognizes that the Security Agent
may be unable to effect a public sale of any or all the Pledged Stock, by
reason of certain prohibitions contained in the Securities Act and applicable
state securities laws or otherwise, and may be compelled to resort to one or
more private sales thereof to a restricted group of purchasers which will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to the distribution or resale
thereof. Each Grantor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Security Agent shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the Issuer thereof to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
6.8 Waiver; Deficiency. To the extent permitted by applicable law, each
Grantor waives and agrees not to assert any rights or privileges which it may
acquire under Section 9-112 of the New York UCC. Each Grantor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay its Obligations and the fees and
disbursements of any attorneys employed by the Security Agent or the Lender to
collect such deficiency.
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SECTION 7.
THE SECURITY AGENT
7.1 Appointment. The Lender hereby irrevocably designates and appoints the
Security Agent as the agent of such Lender under this Agreement and the other
Loan Documents, and such Lender irrevocably authorizes the Security Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Security Agent by the terms of
this Agreement and the other Loan Documents, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Security Agent shall not have any
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with the Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Security
Agent. The Security Agent shall not take any action to foreclose upon, sell or
otherwise realize upon any Collateral unless directed to do so by the Lender
acting jointly.
7.2 Delegation of Duties. The Security Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Security Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys in-fact selected by
it with reasonable care.
7.3 Exculpatory Provisions. Neither the Security Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall
be (i) liable for any action lawfully taken or omitted to be taken by it or
such Person under or in connection with this Agreement or any other Loan
Document (except for its breach of this Agreement or its or such Person's own
gross negligence or willful misconduct) or (ii) responsible in any manner to
any of the Lender for any recitals, statements, representations or warranties
made by any Grantor or any officer thereof contained in this Agreement or any
other Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Security Agent under or in
connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of any Grantor to
perform its obligations hereunder or thereunder. The Security Agent shall not
be under any obligation to the Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Grantor.
7.4 Reliance by Security Agent. The Security Agent shall be entitled to
rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
18
(including, without limitation, counsel to any Grantor),'independent
accountants and other experts selected by the Security Agent. The Security
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless a written notice of assignment, negotiation or transfer thereof
shall have been filed with the Security Agent. The Security Agent shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Loan Document unless it shall first receive such advice or
concurrence of the Lender as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lender against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Security Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Lender, acting jointly, and such
request and any action taken or failure to act pursuant thereto shall be
binding upon the Lender and all future holders of the Loans.
7.5 Notice of Default. The Security Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Security Agent has received notice from a Lender or the
Borrower referring to the Credit Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Security Agent receives such a notice, the Security Agent shall give
notice thereof to the Lender. The Security Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Lender, acting jointly.
7.6 Non-Reliance on Security Agent. The Lender expressly acknowledges that
neither the Security Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by the Security Agent hereinafter taken,
including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Security Agent to the Lender.
The Lender represents to the Security Agent that it has, independently and
without reliance upon the Security Agent, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Grantors and made its own decision to
make its Loans under the Credit Agreement and enter into this Agreement. The
Lender also represents that it will, independently and without reliance upon
the Security Agent, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of the Borrower. Except for notices,
reports and other documents expressly required to be furnished to the Lender by
the Security Agent hereunder, the Security Agent shall not have any duty or
responsibility to provide the Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Grantor which may come into
the possession of the Security Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
7.7 Indemnification. The Lender agrees to indemnify the Security Agent in
its capacity as such (to the extent not reimbursed by the Grantor and without
limiting the obligation
19
of the Grantor to do so), ratably, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against the Security Agent in any way
relating to or arising out of, the Loan Commitment, this Agreement, any of the
other Loan Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by the Security Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Security Agent's breach of this Agreement, gross negligence or willful
misconduct. The agreements in this subsection shall survive the payment of the
Loans and all other amounts payable hereunder.
7.8 Security Agent in Its Individual Capacity. The Security Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Grantor as though the Security Agent were not the
Security Agent hereunder and under the other Loan Documents. With respect to
the Loans made by it, the Security Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as the Lender and may
exercise the same as though it were not the Security Agent, and the terms
"Lender" and "Lender" shall include the Security Agent in its individual
capacity.
7.9 Security Agent's Appointment as Attorney-in-Fact, etc. (a) Each
Grantor hereby irrevocably constitutes and appoints the Security Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, each Grantor
hereby gives the Security Agent the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do any or all of the following:
(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable or Contract or with respect to any other Collateral and file
any claim or take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Security Agent for the
purpose of collecting any and all such moneys due under any Receivable or
Contract or with respect to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Security Agent may request to evidence the Security Agent's
and the Lender' security interest in such Intellectual Property and the
goodwill and general intangibles of such Grantor relating thereto or
represented thereby;
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(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in Section 6.6
or 6.7, any endorsements, assignments or other instruments of conveyance
or transfer with respect to the Collateral; and
(v) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Security Agent or as the Security Agent shall
direct;
(vi) ask or demand for, collect, and receive payment of and receipt
for, any and all moneys, claims and other amounts due or to become due at
any time in respect of or arising out of any Collateral;
(vii) sign and indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with
any of the Collateral;
(viii) commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral;
(ix) defend any suit, action or proceeding brought against such
Grantor with respect to any Collateral;
(x) settle, compromise or adjust any such suit, action or proceeding
and, in connection therewith, give such discharges or releases as the
Security Agent may deem appropriate;
(xi) assign any Copyright, Patent or Trademark (along with the
goodwill of the business to which any such Copyright, Patent or Trademark
pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Security Agent shall in its sole
discretion determine; and
(xii) generally, sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Security Agent were the absolute owner thereof
for all purposes, and do, at the Security Agent's option and such
Grantor's expense, at any time, or from time to time, all acts and things
which the Security Agent deems necessary to protect, preserve or realize
upon the Collateral and the Security Agent's and the Lender' security
interests therein and to effect the intent of this Agreement, all as fully
and effectively as such Grantor might do.
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Anything in this Section 7.9(a) to the contrary notwithstanding, the
Security Agent agrees that it will not exercise any rights under the power of
attorney provided for in this Section 7.9(a) unless an Event of Default shall
have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its agreements
contained herein, the Security Agent, at its option, but without any obligation
so to do, may perform or comply, or otherwise cause performance or compliance,
with such agreement.
(c) The expenses of the Security Agent incurred in connection with actions
undertaken as provided in this Section 7.9, together with interest thereon at a
rate per annum equal to the Interest Rate, from the date of payment by the
Security Agent to the date reimbursed by the relevant Grantor, shall be payable
by such Grantor to the Security Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable
until this Agreement is terminated and the security interests created hereby
are released.
7.10 Duty of Security Agent. The Security Agent's sole duty with respect
to the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the New York UCC or otherwise, shall be to
deal with it in the same manner as the Security Agent deals with similar
property for its own account. Neither the Security Agent, the Lender nor any of
their respective officers, directors, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Grantor or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Security Agent and the Lender hereunder
are solely to protect the Security Agent's and the Lender's interests in the
Collateral and shall not impose any duty upon the Security Agent or the Lender
to exercise any such powers. The Security Agent and the Lender shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own breach of Agreement, gross negligence or
willful misconduct.
7.11 Execution of Financing Statements. Pursuant to Section 9-402 of the
New York UCC and any other applicable law, each Grantor authorizes the Security
Agent to file or record financing statements and other filing or recording
documents or instruments with respect to the Collateral without the signature
of such Grantor in such form and in such offices as the Security Agent
reasonably determines appropriate to perfect the security interests of the
Security Agent under this Agreement. A photographic or other reproduction of
this Agreement shall be sufficient as a financing statement or other filing or
recording document or instrument for filing or recording in any jurisdiction.
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7.12 Authority of Security Agent. Each Grantor acknowledges that the
rights and responsibilities of the Security Agent under this Agreement with
respect to any action taken by the Security Agent or the exercise or
nonexercise by the Security Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Security Agent and the Lender, be
governed by subsections 7.1 to 7.8 hereof and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Security Agent and the Grantors, the Security Agent shall be conclusively
presumed to be acting as agent for the Lender with full and valid authority so
to act or refrain from acting, and no Grantor shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
SECTION 8.
MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by
a written instrument executed by each affected Grantor and the Security Agent
with the consent of the Lender.
8.2 Notices. All notices, requests and demands to or upon the Security
Agent or any Grantor hereunder shall be effected in the manner provided for in
subsection 10.3 of the Credit Agreement; provided that any such notice, request
or demand to or upon any Guarantor or the Security Agent shall be addressed to
such Guarantor or the Security Agent at its notice address set forth on
Schedule 1; and provided further that a copy of each notice to the Security
Agent shall be provided to the Lender at its address for notices set forth in
the Credit Agreement.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the
Security Agent nor the Lender shall by any act (except by a written instrument
pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default. No failure to exercise, nor any delay in exercising, on
the part of the Security Agent or the Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Security Agent or the Lender of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Security Agent or such Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor agrees to
pay or reimburse the Lender and the Security Agent for all its costs and
expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Loan Documents to which
23
such Guarantor is a party, including, without limitation, the fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to the Lender and of counsel to the Security Agent.
(b) Each Guarantor agrees to pay, and to save the Security Agent and the
Lender harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by this
Agreement.
(c) Each Guarantor agrees to pay, and to save the Security Agent and the
Lender harmless from, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement to the extent the Borrower
would be required to do so pursuant to subsection 10.1 of the Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the
Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Security Agent and the Lender and their successors and assigns; provided that
no Grantor may assign, transfer or delegate any of its rights or obligations
under this Agreement without the prior written consent of the Security Agent
and the Lender. Upon exercise by the Security Agent, in its capacity as a
Lender, of its conversion option under the Credit Agreement with respect to all
of its Loans, the Security Agent shall be deemed to have assigned its rights
and obligations as a Security Agent hereunder to the remaining Lender.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the Security Agent
and the Lender at any time and from time to time while an Event of Default
shall have occurred and be continuing, without notice to such Grantor or any
other Grantor, any such notice being expressly waived by each Grantor, to
set-off and appropriate and apply any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Security Agent or such Lender to or for the credit or the account
of such Grantor, or any part thereof in such amounts as the Security Agent or
such Lender may elect, against and on account of the obligations and
liabilities of such Grantor to the Security Agent or such Lender hereunder and
claims of every nature and description of the Security Agent or such Lender
against such Grantor, in any currency, whether arising hereunder, under the
Credit Agreement, any other Loan Document or otherwise, as the Security Agent
or such Lender may elect, whether or not the Security Agent or the Lender has
made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The Security Agent and the Lender shall
notify such
24
Grantor promptly of any such set-off and the application made by the Security
Agent or such Lender of the proceeds thereof, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Security Agent and the Lender under this Section 8.6 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Security Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Loan Documents represent
the agreement of the Grantors, the Security Agent and the Lender with respect
to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Security Agent or the Lender
relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is a party,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York in
New York County, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or
claim the same;
25
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Grantor at its
address referred to in Section 8.2 or at such other address of which the
Security Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to xxx in
any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.
8.13 Acknowledgments. Each Grantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents to which it is a party;
(b) neither the Security Agent nor the Lender has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
the Grantors, on the one hand, and the Security Agent and Lender, on the other
hand, in connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Lender or among the Grantors and the Lender.
8.14 WAIVER OF JURY TRIAL. EACH GRANTOR AND THE SECURITY AGENT AND THE
LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
8.15 Additional Grantors. Each Subsidiary of the Borrower is required to
become a party to this Agreement pursuant to the Credit Agreement and shall
become a Grantor for all purposes of this Agreement upon execution and delivery
by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto.
8.16 Releases. (a) At such time as the Loans and the other Obligations
shall have been paid in full, the Loan Commitment has been terminated, the
Collateral shall be released from the Liens created hereby, and this Agreement
and all obligations (other than those expressly stated to survive such
termination) of the Security Agent and each Grantor hereunder shall terminate,
all without delivery of any instrument or performance of any act by any party,
and all rights to the Collateral shall revert to the Grantors. At the request
and sole expense of any
26
Grantor following any such termination, the Security Agent shall deliver to
such Grantor any Collateral held by the Security Agent hereunder, and execute
and deliver to such Grantor such documents as such Grantor shall reasonably
request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Security Agent, at the request and sole expense of such Grantor, shall
execute and deliver to such Grantor all releases or other documents reasonably
necessary or desirable for the release of the Liens created hereby on such
Collateral. At the request and sole expense of the Borrower, a Guarantor shall
be released from its obligations hereunder in the event that all the Equity
Securities of such Guarantor shall be sold, transferred or otherwise disposed
of in a transaction permitted by the Credit Agreement; provided that the
Borrower shall have delivered to the Security Agent, at least ten Business Days
prior to the date of the proposed release, a written request for release
identifying the relevant Guarantor and the terms of the sale or other
disposition in reasonable detail, including the price thereof and any expenses
in connection therewith, together with a certification by the Borrower stating
that such transaction is in compliance with the Credit Agreement and the other
Loan Documents.
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IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and
Collateral Agreement to be duly executed and delivered as of the date first
above written.
CDnow, Inc. as a Grantor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Title: Secretary
CDnow Investments, Inc. as a Grantor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Title: Secretary
CDnow Trademarks, Inc. as a Grantor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Title: Secretary
superSonic Boom, Inc. as a Grantor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Title: Secretary
TSI Licensing, Inc. as a Grantor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Title: Secretary
CDnow Online, Inc. as a Grantor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Title: Secretary
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N2K, Inc. as a Grantor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Title: Secretary
29
BERTELSMANN, INC., as Security Agent
By: /s/ Xxxxxx Xxxxxxxxxx
---------------------------------
Title: President and Chief Executive
Officer
30
