EXHIBIT 10.3
SECURITY AGREEMENT dated as of April 23, 1998 among MTS,
Incorporated, a California corporation ("MTS"), each Material Subsidiary
of MTS (other than Tower Records Kabushiki Kaisha and its Material
Subsidiaries and any other Non-US Subsidiaries of MTS), if any, listed
on Schedule I hereto (each such subsidiary being individually called a
"Subsidiary Grantor" and collectively, the "Subsidiary Grantors"; the
Subsidiary Grantors and MTS are referred to collectively herein as the
"Grantors") and THE CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (the "Collateral Agent") for the Secured
Parties (as defined below).
Reference is made to the Credit Agreement dated as of April 23, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among MTS, Tower Records Kabushiki Kaisha, a Japanese
corporation ("TRKK", and together with MTS, the "Borrowers"), the lenders
from time to time party thereto (the "Lenders") and the Chase Manhattan Bank,
as administrative agent for the Lenders. Capitalized terms used and not
defined herein shall have the meanings assigned to them in the Credit
Agreement.
The Lenders have agreed to make Loans to the Borrowers upon the terms
and subject to the conditions set forth in the Credit Agreement. Each of the
Guarantors has agreed to guarantee, among other things, all the obligations
of the Borrowers under the Credit Agreement. The obligations of the Lenders
to make Loans are conditioned upon, among other things, the execution and
delivery by the Grantors of a Security Agreement in the form hereof to secure
the Obligations (as defined below). In order to induce the Lenders to make
Loans, the Grantors are willing to execute and deliver this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITION OF CERTAIN TERMS USED HEREIN. As used herein,
the following terms shall have the following meanings:
"ACCOUNT DEBTOR" means any person who is or may become obligated to any
Grantor under, with respect to or on account of an Account.
"ACCOUNTS" means any and all right, title and interest of any Grantor to
payment for goods and services sold or leased, including any such right
evidenced by chattel paper, whether due or to become due, whether or not it
has been earned by performance, and whether now or hereafter acquired or
arising in
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the future, including accounts receivable from Affiliates of the Grantors.
"ACCOUNTS RECEIVABLE" means all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities
and guarantees with respect thereto, including any rights to stoppage in
transit, replevin, reclamation and resales, and all related security
interests, liens and pledges, whether voluntary or involuntary, in each case
whether now existing or owned or hereafter arising or acquired.
"COLLATERAL" means all (a) Accounts Receivable, (b) Documents, (c)
Inventory and (d) Proceeds.
"COLLECTION DEPOSIT ACCOUNT" means a lockbox account of a Grantor
maintained for the benefit of the Secured Parties with the Collateral Agent
pursuant to Article V or with a Sub-Agent pursuant to a Lockbox Agreement.
"CREDIT AGREEMENT" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"DOCUMENTS" means all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
"INVENTORY" means all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished
by any Grantor under contracts of service, or consumed in any Grantor's
business, including raw materials, intermediates, work in process, packaging
materials, finished goods, semi-finished inventory, scrap inventory,
manufacturing supplies and spare parts, and all such goods that have been
returned to or repossessed by or on behalf of any Grantor.
"LOCKBOX AGREEMENT" means a Lockbox Agreement substantially in the form
of Annex 2 hereto among a Grantor, the Collateral Agent and a Sub-Agent or
such other form as may be agreed upon by a Grantor, the Collateral Agent and
a Sub-Agent.
"OBLIGATIONS" means (a) the due and punctual payment of (i) the
principal of and interest (including interest accruing during the pendency of
any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, and (ii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations
incurred during the pendency of any bankruptcy, insolvency, receivership or
other similar proceeding, regardless of whether allowed or allowable in such
proceeding), of the Loan Parties to the Secured Parties under the Credit
Agreement, the Guarantee Agreement and the other Loan Documents and (b) all
obligations of the Loan Parties, monetary or otherwise, under each Hedging
Agreement entered into to fix or limit interest rate or exchange rate risk
associated with the
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Loans under the Credit Agreement with a counterparty that was a Lender at the
time such Hedging Agreement was entered into, but only if such Lender and
such Loan Parties expressly agree that such obligations shall constitute
"Obligations".
"PERFECTION CERTIFICATE" shall mean a certificate substantially in the
form of Exhibit F to the Credit Agreement, completed and supplemented with
the schedules and attachments contemplated thereby, and duly executed by a
Chief Financial Officer of the Borrowers' Agent.
"PROCEEDS" shall mean any consideration received from the sale,
exchange, license, lease or other disposition of any asset or property that
constitutes Collateral, any value received as a consequence of the possession
of any Collateral and any payment received from any insurer or other person
or entity as a result of the destruction, loss, theft, damage or other
involuntary conversion of whatever nature of any asset or property which
constitutes Collateral, and shall include (a) all cash and negotiable
instruments received by or held on behalf of the Collateral Agent in
connection with any Collection Deposit Accounts and (b) any and all other
amounts from time to time paid or payable under or in connection with any of
the Collateral.
"SECURED PARTIES" means (a) the Lenders, (b) the Administrative Agent,
(c) the Collateral Agent, (d) each counterparty to a Hedging Agreement
entered into with any Borrower if such counterparty was a Lender at the time
the Hedging Agreement was entered into, (e) the beneficiaries of each
indemnification obligation undertaken by any Grantor under any Loan Document
and (f) the successors and assigns of each of the foregoing.
"SECURITY INTEREST" shall have the meaning assigned to such term in
Section 2.01.
"SUB-AGENT" means a financial institution which shall have delivered to
the Collateral Agent an executed Lockbox and Depository Agreement.
SECTION 1.03. RULES OF INTERPRETATION. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
SECURITY INTEREST
SECTION 2.01. SECURITY INTEREST. As security for the payment or
performance, as the case may be, in full of the Obligations (other than, as
to each Subsidiary Grantor that is a Non-US Subsidiary, the applicable
Excluded Obligations), each Grantor hereby bargains, sells, conveys, assigns,
sets over, mortgages, pledges, hypothecates and transfers to the Collateral
Agent, its successors and assigns, for the ratable benefit of the Secured
Parties, and hereby grants to the Collateral Agent, its
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successors and assigns, for the ratable benefit of the Secured Parties, a
security interest in, all of such Grantor's right, title and interest in, to
and under the Collateral now or hereafter owned by such Grantor (the
"Security Interest"). Without limiting the foregoing, the Collateral Agent
is hereby authorized to file one or more financing statements, continuation
statements or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any Grantor, and naming any Grantor or the
Grantors as debtors and the Collateral Agent as secured party, to the extent
permitted by law.
SECTION 2.02. NO ASSUMPTION OF LIABILITY. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any
other Secured Party to, or in any way alter or modify, any obligation or
liability of any Grantor with respect to or arising out of the Collateral.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Grantors jointly and severally represent and warrant to the
Collateral Agent and the Secured Parties that:
SECTION 3.01. TITLE AND AUTHORITY. Each Grantor has good and valid
rights in and title to the Collateral with respect to which it has purported
to grant a Security Interest hereunder and has full power and authority to
grant to the Collateral Agent the Security Interest in such Collateral
pursuant hereto and to execute, deliver and perform its obligations in
accordance with the terms of this Agreement, without the consent or approval
of any other person other than any consent or approval which has been
obtained.
SECTION 3.02. FILINGS. The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements or other appropriate filings, recordings or registrations
containing a description of the Collateral have been delivered to the
Collateral Agent for filing in each governmental, municipal or other office
specified in Schedule 6 to the Perfection Certificate, which are all the
filings, recordings and registrations that are necessary to publish notice of
and protect the validity of and to establish a legal, valid and perfected
security interest in favor of the Collateral Agent (for the ratable benefit
of the Secured Parties) in respect of all Collateral in which the Security
Interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the
filing of continuation statements (unless a Grantor shall change its name or
location).
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SECTION 3.03. VALIDITY OF SECURITY INTEREST. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations and (b) subject to
the filings described in Section 3.02 above, a perfected security interest in
all Collateral in which a security interest may be perfected by filing,
recording or registering a financing statement or analogous document in the
United States (or any political subdivision thereof) and its territories and
possessions pursuant to the Uniform Commercial Code or other applicable law
in such jurisdictions. The Security Interest is and shall be prior to any
other Lien on any of the Collateral, other than Liens expressly permitted to
be prior to the Security Interest pursuant to Section 6.02 of the Credit
Agreement.
SECTION 3.04. ABSENCE OF OTHER LIENS. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed
or consented to the filing of (a) any financing statement or analogous
document under the Uniform Commercial Code or any other applicable laws
covering any Collateral or (b) any assignment in which any Grantor assigns
any Collateral or any security agreement or similar instrument covering any
Collateral with any foreign governmental, municipal or other office, which
financing statement or analogous document, assignment, security agreement or
similar instrument is still in effect, except, in each case, for Liens
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
ARTICLE IV
COVENANTS
SECTION 4.01. CHANGE OF NAME; LOCATION OF COLLATERAL; RECORDS; PLACE OF
BUSINESS. (a) Each Grantor agrees promptly to notify the Collateral Agent
in writing of any change (i) in its corporate name or in any trade name used
to identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating
to Collateral owned by it or any office or facility at which Collateral owned
by it is located (including the establishment of any such new office or
facility), (iii) in its identity or corporate structure or (iv) in its
Federal Taxpayer Identification Number. Each Grantor agrees not to effect or
permit any change referred to in the preceding sentence unless all filings
have been made under the Uniform Commercial Code or otherwise that are
required in order for the Collateral Agent to continue at all times following
such change to have a valid, legal and perfected first priority security
interest in all the Collateral subject only to Liens permitted pursuant to
Section 6.02 of the Credit Agreement. Each Grantor agrees promptly to notify
the Collateral Agent if any material portion of the Collateral owned or held
by such Grantor is damaged or destroyed.
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(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as
is consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect
to any part of the Collateral, and, at such time or times as the Collateral
Agent may reasonably request (but, so long as no Event of Default has
occurred and is continuing, no more frequently than once per fiscal year),
promptly to prepare and deliver to the Collateral Agent a duly certified
schedule or schedules in reasonable detail showing the identity, amount and
location of any and all Collateral.
SECTION 4.02. PERIODIC CERTIFICATION. Each year, at the time of
delivery of annual financial statements with respect to the preceding fiscal
year pursuant to Section 5.01 of the Credit Agreement, if so requested by the
Collateral Agent, the Borrowers' Agent shall deliver to the Collateral Agent
a certificate executed by the chief financial officer and the chief legal
officer of the Borrowers' Agent (a) setting forth the information required
pursuant to Section 2 of the Perfection Certificate or confirming that there
has been no change in such information since the date of such certificate or
the date of the most recent certificate delivered pursuant to this Section
4.02 and (b) certifying that all Uniform Commercial Code financing statements
or other appropriate filings, recordings or registrations, including all
refilings, rerecordings and reregistrations, containing a description of the
Collateral have been filed of record in each governmental, municipal or other
appropriate office in each jurisdiction identified pursuant to clause (a)
above to the extent necessary to protect and perfect the Security Interest
for a period of not less than 18 months after the date of such certificate
(except as noted therein with respect to any continuation statements to be
filed within such period).
SECTION 4.03. PROTECTION OF SECURITY. Each Grantor shall, at its own
cost and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien
not expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. FURTHER ASSURANCES. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time reasonably request to better assure, preserve,
protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection
with the execution and delivery of this Agreement, the granting of the
Security Interest and the filing of any financing statements or other
documents in connection herewith or therewith. If any amount greater than
$1,000,000 that is payable under or in connection with any of the Collateral
shall be or become evidenced by any promissory note or other instrument, such
note or
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instrument shall be immediately pledged and delivered to the Collateral
Agent, duly endorsed in a manner satisfactory to the Collateral Agent.
SECTION 4.05. INSPECTION AND VERIFICATION. Subject to Section 5.06 of
the Credit Agreement, the Collateral Agent and its designated agents shall
have the right, at the Grantors' own cost and expense and at reasonable times
and upon reasonable notice, to inspect the Collateral, all records related
thereto (and to make extracts and copies from such records) and the pre-
mises upon which any of the Collateral is located, to discuss the Grantors'
affairs with the officers of the Grantors and their independent accountants
and to verify under reasonable procedures the validity, amount, quality,
quantity, value, condition and status of, or any other matter relating to,
the Collateral, including, in the case of Collateral in the possession of any
third person, by contacting the third person possessing such Collateral for
the purpose of making such a verification. The Collateral Agent may not
contact Account Debtors unless an Event of Default has occurred and is
continuing. The Collateral Agent shall have the absolute right to share any
information it gains from such inspection or verification with any Secured
Party (it being understood that any such information shall be deemed to be
"Information" subject to the provisions of Section 9.12 of the Credit
Agreement).
SECTION 4.06. TAXES; ENCUMBRANCES. At its option, the Collateral Agent
may discharge past due taxes, assessments, charges, fees, Liens, security
interests or other encumbrances at any time levied or placed on the
Collateral and not permitted pursuant to Section 6.02 of the Credit
Agreement, and may pay for the maintenance and preservation of the Collateral
to the extent any Grantor fails to do so as required by the Credit Agreement
or this Agreement, and each Grantor jointly and severally agrees to reimburse
the Collateral Agent on demand for any payment made or any expense incurred
by the Collateral Agent pursuant to the foregoing authorization; provided,
however, that nothing in this Section 4.06 shall be interpreted as excusing
any Grantor from the performance of, or imposing any obligation on the
Collateral Agent or any Secured Party to cure or perform, any covenants or
other promises of any Grantor with respect to taxes, assessments, charges,
fees, liens, security interests or other encumbrances and maintenance as set
forth herein or in the other Loan Documents.
SECTION 4.07. ASSIGNMENT OF SECURITY INTEREST. If at any time any
Grantor shall take a security interest in any property of an Account Debtor
or any other person to secure payment and performance of an Account, such
Grantor shall promptly assign such security interest to the Collateral Agent.
Such assignment need not be filed of public record unless necessary to
continue the perfected status of the security interest against creditors of
and transferees from the Account Debtor or other person granting the security
interest.
SECTION 4.08. CONTINUING OBLIGATIONS OF THE GRANTORS. Each Grantor
shall remain liable to observe and perform all the conditions and obligations
to be observed and performed by it
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under each contract, agreement or instrument relating to the Collateral, all
in accordance with the terms and conditions thereof, and each Grantor jointly
and severally agrees to indemnify and hold harmless the Collateral Agent and
the Secured Parties from and against any and all liability for such
performance.
SECTION 4.09. USE AND DISPOSITION OF COLLATERAL. None of the Grantors
shall make or permit to be made an assignment, pledge or hypothecation of
the Collateral or shall grant any other Lien in respect of the Collateral,
except as expressly permitted by Section 6.02 of the Credit Agreement. None
of the Grantors shall make or permit to be made any transfer of the
Collateral, except that (a) Inventory may be sold in the ordinary course of
business and (b) unless and until the Collateral Agent shall notify the
Grantors that an Event of Default shall have occurred and be continuing and
that during the continuance thereof the Grantors shall not sell, convey,
lease, assign, transfer or otherwise dispose of any Collateral (which notice
may be given by telephone if promptly confirmed in writing), the Grantors may
use and dispose of the Collateral in any lawful manner not inconsistent with
the provisions of this Agreement, the Credit Agreement or any other Loan
Document. Without limiting the generality of the foregoing, each Grantor
agrees that it shall not permit any Inventory to be in the possession or
control of any warehouseman, bailee, agent or processor at any time unless
such warehouseman, bailee, agent or processor shall have been notified of the
Security Interest and shall have agreed in writing to hold the Inventory
subject to the Security Interest and the instructions of the Collateral Agent
and to waive and release any Lien held by it with respect to such Inventory,
whether arising by operation of law or otherwise.
SECTION 4.10. LIMITATION ON MODIFICATION OF ACCOUNTS. None of the
Grantors will, without the Collateral Agent's prior written consent, grant
any extension of the time of payment of any of the Accounts Receivable,
compromise, compound or settle the same for less than the full amount
thereof, release, wholly or partly, any person liable for the payment thereof
or allow any credit or discount whatsoever thereon, other than extensions,
credits, discounts, compromises or settlements granted or made in the
ordinary course of business and consistent with its current practices and in
accordance with such prudent and standard practices used in industries that
are the same as or similar to those in which such Grantor is engaged.
SECTION 4.11. LEGEND. Each Grantor shall legend, in form and manner
satisfactory to the Collateral Agent, its books, records and documents
evidencing or pertaining to its Accounts Receivable with an appropriate
reference to the fact that the Collateral Agent has a security interest
therein.
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ARTICLE V
COLLECTIONS
SECTION 5.01. COLLECTION DEPOSIT ACCOUNTS. (a) At any time that an
Event of Default has occurred and is continuing, upon the written request of
the Collateral Agent, each Grantor agrees to establish and maintain one or
more Collection Deposit Accounts with the Collateral Agent or with any
financial institution that is satisfactory to the Collateral Agent and enters
into a Lockbox Agreement.
(b) Upon and after the establishment of any Collection Deposit Accounts
as provided above, each Grantor shall use all reasonable efforts to prevent
any funds which are not payments on Accounts Receivable or Inventory from
being deposited into, or otherwise commingled with, the funds held in the
Collection Deposit Accounts. Unless and until the Collection Deposit
Accounts are converted to closed lockbox accounts pursuant to paragraph (c)
below, each Grantor may at any time withdraw any of the funds contained in a
Collection Deposit Account of such Grantor for use, subject to the provisions
of the Loan Documents, for general corporate purposes. If all Events of
Default that had occurred shall be cured or waived or are no longer
continuing, any Grantor may notify each Sub-Agent that such Collection
Deposit Account shall no longer be in effect.
(c) Effective upon notice to the Grantors from the Collateral Agent
after the occurrence and during the continuance of an Event of Default (which
notice may be given by telephone if promptly confirmed in writing), each
Collection Deposit Account will, without any further action on the part of
any Grantor, the Collateral Agent or any Sub-Agent, convert into a closed
lockbox account under the exclusive dominion and control of the Collateral
Agent in which funds are held subject to the rights of the Collateral Agent
hereunder. No Grantor shall thereafter have any right or power to withdraw
funds from any Collection Deposit account without the prior written consent
of the Collateral Agent until all Events of Default are cured or waived. The
Grantors irrevocably authorize the Collateral Agent to notify each Sub-Agent
(i) of the occurrence of an Event of Default and (ii) of the matters referred
to in this paragraph (c). Following the occurrence of an Event of Default,
the Collateral Agent may instruct each Sub-Agent to transfer immediately all
funds in each Collection Deposit Account to an account maintained with the
Collateral Agent. If all Events of Default that had occurred shall be cured
or waived or are no longer continuing, any Grantor may notify each Sub-Agent
that such Collection Deposit Account shall no longer be a closed lockbox
account.
SECTION 5.02. COLLECTIONS. So long as no Event of Default shall have
occurred and be continuing, the Grantors shall have the right to collect all
Accounts Receivable and other payments in respect of Inventory in the
ordinary course of their businesses; PROVIDED, HOWEVER, that the Grantors
agree, if an Event of Default shall occur and be continuing and if the
Collateral Agent shall by notice to the Grantors so request (which
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notice may be given by telephone if promptly confirmed in writing), (i) to
arrange for remittances on any Accounts Receivable and Inventory to be made
directly to Collection Deposit Accounts established in accordance with
Section 6.01, and (ii) promptly to deposit all payments received by the
Grantors on account of Accounts Receivable and Inventory, whether in the form
of cash, checks, notes, drafts, bills of exchange, money orders or otherwise,
in such Collection Deposit Accounts in precisely the form in which received
(but with any endorsements of the Grantors necessary for deposit or
collection), and until they are so deposited such payments shall be held in
trust by the Grantors for and as the property of the Collateral Agent and
shall not be commingled with the Grantors' other funds.
SECTION 5.03. POWER OF ATTORNEY. Each Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as such Grantor's true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall
have the right, with power of substitution for each Grantor and in each
Grantor's name or otherwise, for the use and benefit of the Collateral Agent
and the Secured Parties, upon the occurrence and during the continuance of an
Event of Default (a) to receive, endorse, assign and/or deliver any and all
notes, acceptances, checks, drafts, money orders or other evidences of
payment relating to the Collateral or any part thereof; (b) to demand,
collect, receive payment of, give receipt for and give discharges and
releases of all or any of the Collateral; (c) to sign the name of any Grantor
on any invoice or xxxx of lading relating to any of the Collateral; (d) to
send verifications of Accounts Receivable to any Account Debtor; (e) to
commence and prosecute any and all suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to collect or otherwise
realize on all or any of the Collateral or to enforce any rights in respect
of any Collateral; (f) to settle, com-promise, compound, adjust or defend any
actions, suits or proceedings relating to all or any of the Collateral; (g)
to notify, or to require any Grantor to notify, Account Debtors to make
payment directly to the Collateral Agent; and (h) to use, sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with
all or any of the Collateral, and to do all other acts and things necessary
to carry out the purposes of this Agreement, as fully and completely as
though the Collateral Agent were the absolute owner of the Collateral for all
purposes; PROVIDED, HOWEVER, that nothing herein contained shall be construed
as requiring or obligating the Collateral Agent or any Secured Party to make
any commitment or to make any inquiry as to the nature or sufficiency of any
payment received by the Collateral Agent or any Secured Party, or to present
or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken or omitted to be
taken by the Collateral Agent or any Secured Party with respect to the
Collat-eral or any part thereof shall give rise to any defense, counterclaim
or offset in favor of any Grantor or to any claim or action against the
Collateral Agent or any Secured Party. It is understood and agreed that the
appointment of the Collateral Agent as the agent
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and attorney-in-fact of the Grantors for the purposes set forth above is
coupled with an interest and is irrevocable. The provisions of this Section
shall in no event relieve any Grantor of any of its obligations hereunder or
under any other Loan Document with respect to the Collateral or any part
thereof or impose any obligation on the Collateral Agent or any Secured Party
to proceed in any particular manner with respect to the Collateral or any
part thereof, or in any way limit the exercise by the Collateral Agent or
any Secured Party of any other or further right which it may have on the date
of this Agreement or hereafter, whether hereunder, under any other Loan
Document, by law or otherwise.
ARTICLE VI
REMEDIES
SECTION 6.01. REMEDIES UPON DEFAULT. Upon the occurrence and during
the continuance of an Event of Default, each Grantor agrees on demand to
deliver each item of Collateral to the Collateral Agent or to such location
specified by the Collateral Agent as is reasonably convenient to both such
Grantor and the Collateral Agent, and it is agreed that, to the extent
permitted by law, the Collateral Agent shall have the right to take any of or
all the following actions at the same or different times with or without
legal process and with or without prior notice or demand for performance, to
take possession of the Collateral and without liability for trespass
against Grantors to enter any premises where the Collateral may be located
for the purpose of taking possession of or removing the Collateral and,
generally, to exercise any and all rights afforded to a secured party under
the Uniform Commercial Code or other applicable law. Without limiting the
generality of the foregoing, each Grantor agrees that the Collateral Agent
shall have the right, subject to the mandatory requirements of applicable
law, to sell or otherwise dispose of all or any part of the Collateral, at
public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Collateral
Agent shall deem appropriate. The Collateral Agent shall be authorized at any
such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such
sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right on the part of any Grantor, and each Grantor hereby
waives (to the extent permitted by law) all rights of redemption, stay and
appraisal which such Grantor now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice
(which each Grantor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial
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Code as in effect in the State of New York or its equivalent in other
jurisdictions) of the Collateral Agent's intention to make any sale of
Collateral. Such notice, in the case of a public sale, shall state the time
and place for such sale and, in the case of a sale at a broker's board or on
a securities exchange, shall state the board or exchange at which such sale
is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale
shall be held at such time or times within ordinary business hours and at
such place or places as the Collateral Agent may fix and state in the notice
(if any) of such sale. At any such sale, the Collateral, or portion thereof,
to be sold may be sold in one lot as an entirety or in separate parcels, as
the Collateral Agent may (in its sole and absolute discretion) determine.
The Collateral Agent shall not be obligated to make any sale of any
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Collateral
Agent may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at the
time and place fixed for sale, and such sale may, without further notice, be
made at the time and place to which the same was so adjourned. In case any
sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent
until the sale price is paid by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon like notice.
At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby
waived and released to the extent permitted by law), the Collateral or any
part thereof offered for sale and may make payment on account thereof by
using any claim then due and payable to such Secured Party from any Grantor
as a credit against the purchase price, and such Secured Party may, upon
compliance with the terms of sale, hold, retain and dispose of such property
without further accountability to any Grantor therefor. For purposes hereof,
a written agreement to purchase the Collateral or any portion thereof shall
be treated as a sale thereof; the Collateral Agent shall be free to carry out
such sale pursuant to such agreement and no Grantor shall be entitled to the
return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Collateral Agent shall have entered
into such an agreement all Events of Default shall have been remedied and the
Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Collateral Agent may proceed by a suit or suits
at law or in equity to foreclose this Agreement and to sell the Collateral or
any portion thereof pursuant to a judgment or decree of a court or courts
having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
13
SECTION 6.02. APPLICATION OF PROCEEDS. The Collateral Agent shall
apply the proceeds of any collection or sale of the Collateral as follows:
FIRST, to the payment of all reasonable costs and expenses incurred
by the Administrative Agent or the Collateral Agent (in its capacity as
such hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any
of the Obligations, including all court costs and the fees and expenses
of its agents and legal counsel, the repayment of all advances made by
the Collateral Agent hereunder or under any other Loan Document on
behalf of any Grantor and any other costs or expenses incurred in
connection with the exercise of any right or remedy hereunder or under
any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in
accordance with the amounts of the Obligations owed to them on the date
of any such distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court
of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent
(including pursuant to a power of sale granted by statute or under a judicial
proceeding), the receipt of the Collateral Agent or of the officer making the
sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to the
Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. NOTICES. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and
notices hereunder to any Guarantor shall be given to it at its address or
telecopy number set forth on Schedule I, as the case may be, with a copy to
the Borrowers' Agent.
SECTION 7.02. SECURITY INTEREST ABSOLUTE. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document,
any agreement with respect to any of the Obligations or any other
14
agreement or instrument relating to any of the foregoing, (b) any change in
the time, manner or place of payment of, or in any other term of, all or any
of the Obligations, or any other amendment or waiver of or any consent to any
departure from the Credit Agreement, any other Loan Document or any other
agreement or instrument, (c) any exchange, release or non-perfection of any
Lien on other collateral, or any release or amendment or waiver of or consent
under or departure from any guarantee, securing or guaranteeing all or any of
the Obligations, or (d) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Grantor in respect
of the Obligations or this Agreement.
SECTION 7.03. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by
the Secured Parties and shall survive the making by the Lenders of the Loans,
and the execution and delivery to the Lenders of any notes evidencing such
Loans, regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect until this Agreement
shall terminate.
SECTION 7.04. BINDING EFFECT; SEVERAL AGREEMENT. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on
behalf of such Grantor shall have been delivered to the Collateral Agent and
a counterpart hereof shall have been executed on behalf of the Collateral
Agent, and thereafter shall be binding upon such Grantor and the Collateral
Agent and their respective successors and assigns, and shall inure to the
benefit of such Grantor, the Collateral Agent and the other Secured Parties
and their respective successors and assigns, except that no party hereto
shall have the right to assign or transfer its rights or obligations
hereunder or any interest herein or in the Collateral (and any such
assignment or transfer shall be void) except (x) that assignees of Lenders
will acquire interests in the Collateral and (y) as otherwise expressly
contemplated by this Agreement or the Credit Agreement. This Agreement shall
be construed as a separate agreement with respect to each Grantor and may be
amended, modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without affecting the
obligations of any other Grantor hereunder.
SECTION 7.05. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to
include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of any Grantor or the
Collateral Agent that are contained in this Agreement shall bind and inure to
the benefit of their respective permitted successors and assigns.
SECTION 7.06. COLLATERAL AGENT'S FEES AND EXPENSES; INDEMNIFICATION.
(a) Each Grantor jointly and severally agrees to pay upon demand to the
Collateral Agent the amount of any and all reasonable expenses, including the
reasonable fees,
15
disbursements and other charges of its counsel and of any experts or agents,
which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from or other realization upon any of the Collateral,
(iii) the exercise, enforcement or protection of any of the rights of the
Collateral Agent hereunder or (iv) the failure of any Grantor to perform or
observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the
other Loan Documents, each Grantor jointly and severally agrees to indemnify
the Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of
counsel, incurred by or asserted against any of them arising out of, in any
way connected with, or as a result of, the execution, delivery or performance
of this Agreement or any claim, litigation, investigation or proceeding
relating hereto or to the Collateral, whether or not any Indemnitee is a
party thereto; provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or
related expenses resulted from the gross negligence or wilful misconduct of
an Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The
provisions of this Section 7.06 shall remain operative and in full force and
effect regardless of the termination of this Agreement or any other Loan
Document, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term
or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Collateral Agent or any Lender.
All amounts due under this Section 7.06 shall be payable on written demand
therefor.
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.08. WAIVERS; AMENDMENT. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to enforce such a
right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Collateral Agent hereunder and of the Collateral Agent, the Administrative
Agent and the Lenders under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provisions of this Agreement or any other Loan Document or
consent to any departure by any Grantor therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No
16
notice to or demand on any Grantor in any case shall entitle such Grantor or
any other Grantor to any other or further notice or demand in similar or
other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Collateral Agent and the Grantor or Grantors with respect
to which such waiver, amendment or modification is to apply, subject to any
consent required in accordance with Section 9.02 of the Credit Agreement.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS,
AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS SECTION 7.09.
SECTION 7.10. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.11 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract (subject to
Section 7.04), and shall become effective as provided in Section 7.04.
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be effective as delivery of a manually executed
counterpart hereof.
SECTION 7.12. HEADINGS. Article and Section headings used herein are
for the purpose of reference only, are not part of this Agreement and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 7.13. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and
any
17
appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement or the other Loan Documents, or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Collateral Agent, the Administrative Agent, the
Issuing Bank or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against any
Grantor or its properties in the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affected the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 7.14. TERMINATION. (a) This Agreement and the Security
Interest shall terminate when all the Obligations have been indefeasibly paid
in full other than inchoate indemnity Obligations, the Lenders have no
further commitment to lend under the Credit Agreement, at which time the
Collateral Agent shall execute and deliver to the Grantors, at the Grantors'
expense, all Uniform Commercial Code termination statements and similar
documents which the Grantors shall reasonably request to evidence such
termination. Any execution and delivery of termination statements or
documents pursuant to this Section 7.14 shall be without recourse to or
warranty by the Collateral Agent. A Grantor (other than MTS) shall
automatically be released from its obligations hereunder and the Security
Interest in the Collateral of such Grantor (other than MTS) shall be
automatically released in the event that all the capital stock of such
Grantor (other than MTS) shall be sold, transferred or otherwise disposed of
to a person that is not an Affiliate of the Borrowers in accordance with the
terms of the Credit Agreement; provided that the Required Lenders shall have
consented to such sale, transfer or other disposition (to the extent required
by the Credit Agreement) and the terms of such consent did not provide
otherwise.
(b) If at any time when no Default shall have occurred and be
continuing MTS shall have outstanding any senior,
18
unsecured, non-credit enhanced long-term Indebtedness for borrowed money that
shall be rated BBB- or better by Standard & Poor's Ratings Group and Baa3 or
better by Xxxxx'x Investors Service, Inc., the security interests granted
hereby shall be automatically released.
SECTION 7.15. ADDITIONAL GRANTORS. Pursuant to Section 5.09 of the
Credit Agreement, certain Subsidiaries that were not originally parties
hereto are required to become parties to this Agreement as Grantors. Upon
the execution and delivery after the date hereof by the Collateral Agent and
any Subsidiary of an instrument in the form of Annex 2 hereto, such
Subsidiary shall become a Grantor hereunder with the same force and effect as
if originally named as a Grantor herein. The execution and delivery of any
such instrument shall not require the consent of any Grantor hereunder. The
rights and obligations of each Grantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Grantor as a party to this
Agreement.
19
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MTS, INCORPORATED,
by /s/ XxXxxxxx Xxxxxxx
-------------------------------------
Name: XxXxxxxx Xxxxxxx
Title: Vice President - Finance
THREE A'S HOLDINGS, L.L.C.,
by /s/ Xxxxxxx Xxxxxxx
-------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Manager
XXXXXXXX RECORD SALES, INCORPORATED
by /s/ XxXxxxxx Xxxxxxx
-------------------------------------
Name: XxXxxxxx Xxxxxxx
Title: Vice President - Finance
FRESNO RECORD SALES, INCORPORATED,
by /s/ XxXxxxxx Xxxxxxx
-------------------------------------
Name: XxXxxxxx Xxxxxxx
Title: Vice President - Finance
SAN DIEGO RECORD SALES, INCORPORATED,
by /s/ XxXxxxxx Xxxxxxx
-------------------------------------
Name: XxXxxxxx Xxxxxxx
Title: Vice President - Finance
STOCKTON RECORD SALES, INCORPORATED,
by /s/ XxXxxxxx Xxxxxxx
-------------------------------------
Name: XxXxxxxx Xxxxxxx
Title: Vice President - Finance
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Xxxxxx Xxxxxxxx
-------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Authorized Officer
SCHEDULE I
SUBSIDIARY GRANTORS
Three A's Holdings, L.L.C.
Tower Domestic, INC.
Xxxxxxxx Record Sales, Incorporated
Fresno Record Sales, Incorporated
San Diego Record Sales, Incorporated
Stockton Record Sales, Incorporated
Annex 1 to the
Security Agreement
SUPPLEMENT NO. __ dated as of , to the
Security Agreement dated as of April 23, 1998, among MTS, Incorporated,
a California corporation ("MTS"), each Material Subsidiary of MTS (other
than Tower Records Kabushiki Kaisha and its Material Subsidiaries and
any other Non-US Subsidiaries of MTS), if any, listed on Schedule I
hereto (each such subsidiary being individually called a "Subsidiary
Grantor" and collectively, the "Subsidiary Grantors"; the Subsidiary
Grantors and MTS are referred to collectively herein as the "Grantors")
and THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase"),
as collateral agent (the "Collateral Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
A. Reference is made to the Credit Agreement dated as of April 23, 1998
(as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among MTS, Tower Records Kabushiki Kaisha, a Japanese
corporation ("TRKK", and together with MTS, the "Borrowers"), the lenders
from time to time party thereto (the "Lenders") and the Chase Manhattan Bank,
as administrative agent for the Lenders.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement and the
Credit Agreement.
C. The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans. Section 7.15 of Security Agreement
provides that certain Subsidiaries that were not originally parties to the
Security Agreement are required to become Grantors under the Security
Agreement by execution and delivery of an instrument in the form of this
Supplement. The undersigned Subsidiary (the "New Grantor") is executing this
Supplement in accordance with the requirements of the Credit Agreement to
become a Grantor under the Security Agreement in order to induce the Lenders
to make additional Loans and as consideration for Loans previously made.
Accordingly, the Collateral Agent and the New Grantor agree as follows:
SECTION 1. In accordance with Section 7.15 of the Security Agreement,
the New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions
of the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as
a Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment
and performance in full of the Obligations (as defined in the Security
Agreement), does hereby create and grant to the Collateral Agent, its
successors and assigns, for the benefit of the Secured Parties, their
successors and assigns, a security interest in and lien on all of the New
Grantor's right, title and interest in and to the Collateral (as defined in
the Security Agreement) of the New Grantor. Each reference to a "Grantor" in
the Security Agreement
2
shall be deemed to include the New Grantor. The Security Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Grantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and con- stitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute
a single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed
counterpart of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor and (b) set forth under
its signature hereto, is the true and correct location of the chief executive
office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein and in the Security Agreement shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
hereto shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 7.01 of the Security Agreement. All
communications and notices hereunder to the New Grantor shall be given to it
at the address set forth under its signature below.
3
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year
first above written.
[Name Of New Grantor],
by ____________________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by ____________________________________
Name:
Title:
SCHEDULE I
TO SUPPLEMENT NO.___ TO THE
SECURITY AGREEMENT
LOCATION OF COLLATERAL
----------------------
Description Location
----------- --------
Annex 2 to the
Security Agreement
LOCKBOX AGREEMENT dated as of [ ], among [Name of
Grantor], a [ ] corporation (the "Grantor"), THE CHASE MANHATTAN
BANK, a New York banking corporation ("Chase"), as collateral agent (in
such capacity, the "Collateral Agent") for the Secured Parties (such
term, and each other capitalized term used but not defined herein,
having the meaning given it in the Security Agreement referred to below)
and [Name of Sub-Agent], a [ ] banking corporation (the "Sub-Agent").
A. The Grantor, certain other Grantors and the Collateral Agent are
parties to a Security Agreement dated as of April 23, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Security
Agreement"). Pursuant to the terms of the Security Agreement, the Grantor
has granted to the Collateral Agent, for the ratable benefit of the Secured
Parties, a security interest in its Accounts Receivable, Inventory and other
Collateral to secure the payment and performance of the Obligations and has
irrevocably appointed the Collateral Agent as its agent to collect amounts
due in respect thereof.
B. The Sub-Agent has agreed to act as collection sub-agent of the
Collateral Agent to receive and forward payments with respect to the Accounts
Receivable and Inventory on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Collateral Agent hereby appoints the Sub-Agent as its collection
sub-agent under the Security Agreement and authorizes the Sub-Agent, on the
terms and subject to the conditions set forth herein, to receive payments in
respect of Collateral consisting of Accounts Receivable and Inventory.
2. Contemporaneously with the execution and delivery by the Sub-Agent
of this Agreement, and for the purposes of this Agreement, the Sub-Agent
shall establish and maintain one or more collection accounts for the benefit
of the Collateral Agent (all such accounts being collectively called the
"Collection Deposit Account"). The Collection Deposit Account shall be
designated with the title, "The Chase Manhattan Bank, as Collateral Agent
under the MTS, Incorporated Security Agreement dated as of April 23, 1998"
(or a similar title). All payments received by the Sub-Agent in respect of
Accounts Receivable or Inventory shall be deposited in the Collection Deposit
and shall not be commingled with other funds. All funds at any time on
deposit in the Collection Deposit Account shall be held by the Sub-Agent for
application in accordance with the terms of this Agreement. The Sub-Agent
agrees to give the Collateral Agent prompt notice if the Collection Deposit
Account shall become subject to any writ, judgment, warrant of attachment,
execution or similar process. As security for the payment and performance of
the Obligations, the Grantor hereby confirms and pledges, assigns and
transfers to the Collateral Agent, and hereby creates and grants to the
Collateral Agent, a security interest in the Collection Deposit Account, all
property and assets held therein and all Proceeds thereof.
2
3. The Collection Deposit Account shall be under the sole dominion and
control of the Collateral Agent, who shall have the sole right of withdrawal
over the Collection Deposit Account; provided, however, that the Collateral
Agent hereby authorizes the Sub-Agent to permit the Grantor to make
withdrawals from the Collection Deposit Account so long as the Sub-Agent has
not received notice from the Collateral Agent pursuant to the next succeeding
sentence or paragraph 8 below. Upon receipt of written, telecopy or
telephonic notice (which, in the case of telephonic notice, shall be promptly
confirmed in writing or by telecopy) from the Collateral Agent so directing
the Sub-Agent at any time, the Sub-Agent shall no longer permit withdrawals
from the Collection Deposit Account to be made by the Grantor and, if so
directed in such notice, shall promptly transmit to the Collateral Agent at
the office specified in paragraph 11 hereof (or such other office as the
Collateral Agent shall specify) (a) all funds, if any, then on deposit in, or
otherwise to the credit of, the Collection Deposit Account (providedthat
funds on deposit that are subject to collection may be transmitted promptly
upon collection), (b) all checks, drafts and other instruments for the
payment of money relating to the Accounts Receivable or Inventory at the time
in the possession of or thereafter received by the Sub-Agent without
depositing such checks, drafts or other instruments in the Collection Deposit
Account or any other account.
4. The Sub-Agent shall furnish the Collateral Agent with monthly
statements setting forth the amounts deposited in and withdrawn from the
Collection Deposit Account and shall furnish such other information at such
times as shall be reasonably requested by the Collateral Agent.
5. The fees for the services of the Sub-Agent shall be mutually agreed
upon between the Grantor and the Sub-Agent and shall be the obligation of the
Grantor; PROVIDED, HOWEVER, that, notwithstanding the terms of any agreement
under which the Collection Deposit Account shall have been established with
the Sub-Agent, the Grantor and the Sub-Agent agree not to terminate such
Collection Deposit Account for any reason (including the failure of the
Grantor to pay such fees) for so long as this Agreement shall remain in
effect (it being understood that the foregoing shall not be construed to
prohibit the resignation of the Sub-Agent in accordance with paragraph 8
below). Neither the Collateral Agent nor the Secured Parties shall have any
liability for the payment of any such fees.
6. The Sub-Agent may perform any of its duties hereunder by or through
its agents, officers or employees and shall be entitled to rely upon the
advice of counsel as to its duties. The Sub-Agent shall not be liable to the
Collateral Agent or the Grantor for any action taken or omitted to be taken
by it in good faith, nor shall the Sub-Agent be responsible to the Collateral
Agent or the Grantor for the consequences of any oversight or error of
judgment or be answerable to the Collateral Agent for the same unless such
consequences shall occur through the Sub-Agent's gross negligence or wilful
misconduct.
7. The Sub-Agent hereby represents and warrants that (a) it is a
banking corporation duly organized, validly existing and
3
in good standing under the laws of [ ] and has full corporate power and
authority under such laws to execute, deliver and perform its obligations
under this Agreement and (b) the execution, delivery and performance of this
Agreement by the Sub-Agent have been duly and effectively authorized by all
necessary corporate action and this Agreement has been duly executed and
delivered by the Sub-Agent and constitutes a valid and binding obligation of
the Sub-Agent enforceable in accordance with its terms.
8. The Sub-Agent may resign at any time as Sub-Agent hereunder by
delivery to the Collateral Agent of written notice of resignation not less
than 30 days prior to the effective date of such resignation. The Sub-Agent
may be removed by the Collateral Agent at any time, with or without cause, by
written, telecopy or telephonic notice (which, in the case of telephonic
notice, shall be promptly confirmed in writing or by telecopy) of removal
delivered to the Sub-Agent. Upon receipt of such notice of removal, or
delivery of such notice of resignation, the Sub-Agent shall immediately
transmit or deliver to the Collateral Agent at the office specified in
paragraph 11 (or such other office as the Collateral Agent shall specify) (a)
all funds, if any, then on deposit in, or otherwise to the credit of, the
Collection Deposit Account, (b) all checks, drafts and other instruments for
the payment of money relating to the Accounts Receivable or Inventory in
possession of the Sub-Agent, without depositing such checks, drafts or other
instruments in the Collection Deposit Account or any other account and (c)
any checks, drafts and other instruments for the payment of money received by
the Sub-Agent after such notice, in whatever form received.
9. The Grantor consents to the appointment of the Sub-Agent and agrees
that it will not withdraw, or request to withdraw, funds from the Collection
Deposit Account other than in accordance with the provisions of this
Agreement, the Security Agreement and the other Loan Documents. The
Sub-Agent shall incur no liability to the Grantor as a result of any action
taken pursuant to an instruction given by the Collateral Agent in accordance
with the provisions of this Agreement. The Grantor agrees to indemnify and
defend the Sub-Agent against any loss, liability, claim or expense (including
reasonable attorneys' fees) arising from the Sub-Agent's entry into this
Agreement and actions taken hereunder, except to the extent resulting from
the Sub-Agent's gross negligence or wilful misconduct.
10. The term of this Agreement shall extend from the date hereof until
the earlier of (a) the date on which the Sub-Agent has been notified in
writing by the Collateral Agent that the Sub-Agent has no further duties
under this Agreement and (b) the date of termination specified in the notice
of removal given by the Collateral Agent, or notice of resignation given by
the Sub-Agent, as the case may be, pursuant to paragraph 8. The obligations
of the Sub-Agent contained in the last sentence of paragraph 8 and in
paragraph 14, and the obligations of the Grantor contained in paragraphs 6
and 9, shall survive the termination of this Agreement.
11. All notices and communications hereunder shall be in writing and
shall be delivered by hand or by courier service, mailed by certified or
registered mail or sent by telecopy (except where telephonic instructions or
notices are authorized herein) and shall be effective on the day on which
received (a) in the case of the
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Collateral Agent, to The Chase Manhattan Bank, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, Attention of [Collateral Monitoring Department], and (b) in the
case of the Sub-Agent, addressed to [ ], Attention of [ ]. For
purposes of this Agreement, any officer of the Collateral Agent shall be
authorized to act, and to give instructions and notices, on behalf of the
Collateral Agent hereunder.
12. The Sub-Agent will not assign or transfer any of its rights or
obligations hereunder (other than to the Collateral Agent) without the prior
written consent of the other parties hereto, and any such attempted
assignment or transfer shall be void.
13. This Agreement may be amended only by a written instrument executed
by the Collateral Agent, the Sub-Agent and the Grantor, acting by their duly
authorized representative officers.
14. Except as otherwise provided in the Credit Agreement with respect
to rights of set off available to the Sub-Agent in its capacity as a Lender
(if and so long as the Sub-Agent is a Lender thereunder), the Sub-Agent
hereby irrevocably waives any right to set off against, or otherwise deduct
from, any funds held in the Collection Deposit Account, any indebtedness or
other claim owed by the Grantor to the Sub-Agent.
15. This Agreement shall inure to the benefit of and be binding upon
the Collateral Agent, the Sub-Agent, the Grantor and their respective
permitted successors and assigns.
16. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute
one and the same instrument. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.
17. EXCEPT TO THE EXTENT THE LAWS OF THE STATE OF [ ] GOVERN
THE COLLECTION DEPOSIT ACCOUNT, THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
18. The Sub-Agent shall be an independent contractor. This Agreement
does not give rise to any partnership, joint venture or fiduciary
relationship.
19. In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby (it
being understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the validity of
such provision in any other jurisdiction). The parties shall endeavor in
good-faith
5
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
[Name of Grantor],
by __________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by __________________________________
Name:
Title:
[Sub-Agent],
by __________________________________
Name:
Title:
