Exhibit 10.2
CHAPTER 11 FINANCING AGREEMENT
This Chapter 11 Financing Agreement ("Agreement") is entered into as
of the 16th day of May, 2001, by and between Video Update, Inc. ("Debtor"), a
Delaware corporation, as debtor and debtor in possession; and Movie Gallery,
Inc. ("Senior Creditor"), a Delaware Corporation, with reference to the
following recitals of fact:
RECITALS
A. On September 18, 2000 (the "Petition Date"), Debtor and its
subsidiaries listed on Schedule 1 hereto ("Sub-Debtors"), commenced Chapter 11
cases, Nos. 00-3663 through 00-3683 (JHW) (collectively the "Chapter 11 Case"),
by filing voluntary petitions for relief under Chapter 11 of Title 11 of the
United States Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the District of Delaware (the "Court"). Debtor and Sub-Debtors
continue to operate their business and manage their properties as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
B. Prior to the Petition Date, Debtor was indebted to various lending
entities (collectively the "Banks") in the principal amount of approximately
$121,000,000, plus accrued and unpaid interest, fees and other charges,
including attorneys' fees and costs (collectively the "Prepetition Loan").
C. The Prepetition Loan was incurred by the Debtor in accordance with
the terms of that certain Credit Agreement dated as of March 6, 1998, and any
amendments and modifications thereto (collectively the "Loan Agreement"), and by
various other documents executed in connection therewith or in furtherance
thereof. A copy of the Loan Agreement is attached hereto and incorporated herein
as Exhibit A.
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D. Pursuant to the Loan Agreement, the Prepetition Loan was and is
secured, under a U.S. Security Agreement dated as of March 6, 1998, and any
amendments and modifications thereto (the "U.S. Security Agreement"), and by
various other documents executed in connection therewith or in furtherance
thereof, including a U.S. Pledge Agreement dated as of March 6, 1998, and any
amendments and modifications thereto (the "U.S. Pledge Agreement"). A copy of
the U.S. Security Agreement is attached hereto and incorporated herein as
Exhibit B. A copy of the U.S. Pledge Agreement is attached hereto and
incorporated herein as Exhibit C. Pursuant to the Loan Agreement, the
Prepetition Loan was and is also secured under certain security agreements
executed by Canadian subsidiaries of the Debtor, also dated as of March 6, 1998,
and any amendments and modifications thereto (collectively the "Canada Security
Agreements"), and by various other documents executed in connection therewith or
in furtherance thereof, including Pledge Agreements dated as of March 6, 1998
and any amendments and modifications thereto (the "Canada Pledge Agreements"). A
copy of each of the Canada Security Agreements is attached hereto and
incorporated herein as, respectively, Exhibits D, E, F and G. A copy of each of
the Canada Pledge Agreements is attached hereto and incorporated herein as,
respectively, Exhibits H and I.
E. The Sub-Debtors and the Non-Debtor Subsidiaries executed a
Subsidiaries Guaranty, dated as of March 6, 1998 ("Subsidiaries Guaranty"). A
copy of the Subsidiaries Guaranty is attached hereto and incorporated herein as
Exhibit J. (The Loan Agreement, the U.S. Security Agreement, the U.S. Pledge
Agreement, the Canada Security Agreements, the Canada Pledge Agreements, the
Subsidiaries Guaranty and the various other documents executed in connection
therewith or in furtherance thereof are collectively hereinafter referred to as
the ("Existing Loan Documents").
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F. All but one of the Banks (the "Assignor Banks") which collectively
comprise approximately 92% in interest of all of the Banks, as of May 2, 2001,
irrevocably and completely assigned all of their secured, partially secured and
unsecured creditor claims in the Chapter 11 Case relating to the Existing Loan
Documents, and underlying documents and rights represented thereby, to the
Senior Creditor, pursuant to an Assignment Agreement, dated as of May 2, 2001
("Assignment Agreement"), among BNP Paribas and the Assignor Banks, as
Assignors, and the Senior Creditor and Movie Gallery No. 1, LLC as Assignees.
G. Pursuant to the Assignment Agreement the Senior Creditor is secured
by a security interest in substantially all of the property owned or held by the
Debtor, the Sub-Debtors and other subsidiaries ("Non-Debtor Subsidiaries") of
the Debtor, listed on Schedule 1 hereto, as of the Petition Date (the
"Prepetition Collateral") under the respective security agreements and pledge
agreements referred to in Recital D hereof.
H. On May 1, 2001, the Court issued its Sixth Interim Order
Authorizing the Use of Cash Collateral and Providing for Adequate Protection
("Sixth Cash Collateral Order"), which extended five previous Cash Collateral
Orders through May 27, 2001, up to a maximum sum of $8,050,100.
I. The Debtor has requested that the Senior Creditor make available to
the Debtor, in the Senior Creditor's sole discretion, a postpetition line of
credit in accordance with the general terms of the Loan Agreement. The Senior
Creditor is willing to extend such a revolving-credit loan ("Postpetition
Loan"), in accordance with and on the terms and conditions set forth in this
Agreement.
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NOW THEREFORE, the Debtor and the Senior Creditor hereby agree as
follows:
AGREEMENT
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1. The Budget. Attached hereto as Schedule 2 are projections (the
Analysis," setting forth the Debtor's best estimate of the Debtor's,
Sub-Debtors' and Non-Debtor Subsidiaries' cash needs during the period covered
thereby. From time to time, the Debtor may prepare additional or replacement
projections and additional or replacement budgets. Upon approval by the Senior
Creditor, any such additional or replacement projections and budgets shall
constitute the "Projections" and the "Budget" for purposes of this Agreement.
Notices of any additional or replacement projections or additional or
replacement budgets shall promptly be sent to the Official Committee of
Creditors Holding Unsecured Claims ("Creditors Committee").
2. Postpetition Loan. Upon satisfaction of the Conditions Precedent in
Section 5 hereof, the Senior Creditor will make available to the Debtor a line
of credit (together with all funds provided to the Debtor by Banks prior to the
date of Court approval hereof being referred to herein as the "Postpetition
Loan"), commencing immediately upon entry of the Authorizing Order (as such term
is defined in section 5.1 hereof), in accordance with the terms and conditions
set forth herein. The amount of the Postpetition Loan during the Interim Period
(as defined in section 2.1 below) shall be limited to $1,000,000 (the "Maximum
Permitted Interim Amount") and upon entry of a final Authorizing Order, the
Postpetition Loan shall be in an amount up to $5,000,000, inclusive of all
amounts advanced during the Interim Period, and shall be evidenced by a
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revolving note ("Revolving Note"), the form of which shall be similar to that
which is attached to the Loan Agreement; provided, however, that the term
"Revolving Loan Maturity Date" shall mean the earlier to occur of: (a) 10 days
after the date upon which the Court enters an Order confirming a Chapter 11 plan
of reorganization for one or more of the Debtors; or (b) April 30, 2002. All
advances made by the Senior Creditor to the Debtor under this Agreement shall
constitute one loan. The payments of the principal portion of the Postpetition
Loan shall be due and payable at such times and to the extent that the Debtor
receives Cash Collateral for application against the Postpetition Loan pursuant
to section 4 hereof; and provided further, that the Postpetition Loan shall be
immediately due and payable upon the "Termination Date" (as defined in section
2.13 hereof).
2.1 Defined Terms. Terms used in this Agreement without specific
definition shall have the meaning ascribed to them in the Existing Loan
Documents. With respect to those definitions, the term "Borrower" shall mean and
refer to Debtor, "Bank" or "Banks" individually or collectively shall include,
without limitation, the Senior Creditor, "Event of Default" shall mean and refer
to an Event of Default as defined in subsection 2.11 hereof, and "Collateral"
shall mean and refer to both the Prepetition Collateral and the Postpetition
Collateral, including, but without limitation, the Collateral under the U.S.
Security Agreement and Pledge Agreement, the Canada Security Agreements and
Pledge Agreements and Subsidiaries Guaranty. The term "Interim Period" shall
mean and refer to the period of time from the first Order of the Court approving
this Agreement on an interim basis until a later Order of the Court is issued
granting final approval of this Agreement and the Postpetition Loan.
2.2 Compliance With Budget. The Debtor, the Sub-Debtors and the
Non-Debtor Subsidiaries shall not incur expenses during the Interim Period in
the Chapter 11 Case, other than those types of expenses described in the Budget
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and in the amounts specified therein. Nor shall the Debtor, the Sub-Debtors and
the Non-Debtor Subsidiaries incur any expenses during any particular week in any
particular category referred to in the Budget in an amount that is greater than
110% of the budgeted amount, unless such expenditure is approved in writing by
the Senior Creditor. The Debtor, the Sub-Debtors and the Non-Debtor Subsidiaries
shall use the proceeds of the Postpetition Loan only for those categories of
expenses and only in the amounts set forth in the Budget; provided that, in
addition:
A. Sales Tax and Payroll Taxes. Sales taxes may be paid in the
amounts legally required even though the amounts of sales taxes paid exceed the
budgeted amounts therefor; expenses for payroll and sale taxes shall be paid by
Debtor, the Sub-Debtor and the Non-Debtor Subsidiaries when due;
B. Miscellaneous. "Miscellaneous" expenses may be paid without
prior approval of the Senior Creditor, so long as the amount of any particular
expense does not exceed $5,000; miscellaneous expenses may include office
supplies, maintenance or repairs, advertising and the like;
C. Payroll. Without the prior written approval of the Senior
Creditor, no person may receive an increase in salary, a bonus, an advance on
salary, or a loan, except as set forth in the Budget and other than as
previously ordered by the Court;
D. Transactions with Management. Without the prior approval of
the Senior Creditor, no property of the Debtor, the Sub-Debtors or the
Non-Debtor Subsidiaries, shall be bought from or sold to any officer,
shareholder or director, or any company or business entity owned or controlled
directly or indirectly by any officer, shareholder, or director;
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E. Outside Services. Except in the ordinary course of business,
budgeted amounts for outside services may be expended only for consultants,
attorneys and other professionals who have been approved by the Court;
F. Inventory. During the Interim Period, expenses for "Inventory"
may only be incurred for purchases of movies and games in the ordinary course of
business.
2.3 Letter of Credit Accommodations. Debtor shall pay to Senior
Creditor fees for Letter of Credit Accommodations in the amount set forth in
section 3 of the Loan Agreement; provided, however, that the factor (x) set
forth in Section 3(c) of the Loan Agreement shall be 2.5%, rather than 3.5%. Any
such Letter of Credit Accommodations shall only be made in the Senior Creditor's
sole discretion.
2.4 Interest Rate; Payment of Interest; Loan Fee. The Postpetition
Loan shall bear interest calculated daily on the basis of a three hundred sixty
day year, and shall be a Base-Rate Loan (as defined in the Loan Agreement);
provided, however, that the definition of the term "Base Rate" in the Loan
Agreement shall be modified to mean 1/2 of 1% plus the higher of (i) the Federal
funds Rate and (ii) the Prime Lending Rate. As additional compensation for the
Senior Creditor's entering into this Agreement, Debtor shall pay to the Senior
Creditor a fee of $150,000, payable to the extent of the first available funds,
and payable in full in any event no later than August 31, 2001.
2.5 Reimbursement of Expenses. The Debtor shall reimburse the Senior
Creditor on demand for all costs and expenses, including reasonable attorneys'
fees, incurred by the Senior Creditor in connection with the protection or
exercise of the Senior Creditor's rights under the Loan Agreement or under this
Agreement, including costs and expenses relating to the documentation and
implementation of this Agreement, the administration of the Postpetition Loan
and the taking of any action in the Chapter 11 Case. The amount of all such
costs and expenses shall be secured by all Collateral and may, at Senior
Creditor's discretion, be added to the Postpetition Loan.
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2.6 Grant of Security Interest and Lien on Prepetition Collateral and
Postpetition Collateral. As security for the prompt payment of the Postpetition
Loan and for performance of any obligations arising under this Agreement or any
other agreement entered into between Debtor and the Banks or the Senior Creditor
on or after the Petition Date, Debtor hereby grants to Senior Creditor a
security interest in and a lien upon (A) all Prepetition Collateral, and (B) any
and all property and interests in property owned or held by Debtor, the
Sub-Debtors or the Non-Debtor Subsidiaries on the Petition Date, or acquired by
Debtor, the Sub-Debtors or the Non-Debtor Subsidiaries at any time after the
Petition Date, including, but without limitation, any and all Accounts,
Inventory, Equipment, General Intangibles, Documents, Instruments Chattel Paper,
Tangible Chattel Paper, Electronic Chattel Paper, Cash, Deposit Accounts,
Contracts, Contract Rights, Cash Collateral, Moneys, Securities, Patents,
Copyrights, Marks, Trade Secret Rights, Intellectual Property, Proprietary
Information, Computer Programs, Lessee Interests in Real Property, Lessor and
Lessee Interests in Personal Property, Accessions, Substitutions, Renewals,
Replacements, Improvements, Additions, Accountings, Commercial Tort Claims,
Commodity Accounts, Commodity Contracts, Consignments, Investment Property,
Software, and any and all other types of property referred to as Collateral in
the respective U.S. Security Agreement and Pledge Agreement, the Canada Security
Agreements and Pledge Agreements, and the Subsidiaries Guaranty, and all rents,
issues, proceeds and profits therefrom which are now or in the future shall be,
property of the Debtor, the Sub-Debtors or the Non-Debtor Subsidiaries
(collectively, the "Postpetition Collateral"; provided, however, that all
avoidance claims under Chapter 5 of the Bankruptcy Code shall be excluded from
the Collateral. The security interest in the Collateral is granted in accordance
with sections 364(c)(1), (2) and (3) of the Bankruptcy Code and shall be of
first priority, except for valid, enforceable, and perfected liens or security
interests of record on the Petition Date, but only if and to the extent that
such liens or security interests were senior and prior to the security interest
in or lien on the Collateral under the Existing Loan Documents immediately prior
to the Petition Date; and, in addition, a security interest is granted pursuant
to Section 364(d)(1) of the Bankruptcy Code, providing valid and perfected first
priority senior priming liens and security interests with respect to the Senior
Creditor's interests in the Prepetition Collateral.
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2.7 Adequate Protection. The Debtor grants to the Senior Creditor
adequate protection for any diminution of the value, as of the Petition Date, of
the Senior Creditor's Cash Collateral and for any use of the Senior Creditor's
Cash Collateral with respect to the secured indebtedness owing under the
Existing Loan Documents, including:
A. Replacement liens and security interests pursuant to sections
361(2) and 363 of the Bankruptcy Code, in and to any and all the Postpetition
Collateral senior to any and all other liens and claims existing on the Petition
Date, subject and subordinate only to the Carve-Out (defined below) and the
liens, claims and security interests granted to the Senior Creditor with respect
to Postpetition balances owing to the Senior Creditor, to the same extent,
validity and priority of the Senior Creditor's liens, claims and security
interests in the Prepetition Collateral; and
B. A priority claim, pursuant to section 507(b) of the Bankruptcy
Code, to the same extent, validity and priority as the Senior Creditor's liens,
claims and security interests in the Prepetition Collateral, senior to any and
all other claims having administrative expense priority and any and all other
administrative expenses of the kind specified in sections 105, 326, 327, 328,
330, 331, 365(d)(3), or 503(b) solely with respect to the Debtor and the
Sub-Debtors as to sections 507(a), 507(b), 726, or 1114 of the Bankruptcy Code,
including, without limitation, administration expenses arising in connection
with any superseding case or proceeding under or in Chapter 7 of the Bankruptcy
Code, subject and subordinate only to the Carve-Out (defined below) and the
liens, claims and security interests granted to the Senior Creditor with respect
to the Postpetition balance owed by the Debtor to the Senior Creditor.
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2.8 Priority of Postpetition Loan; Carve-Out. Without limiting the
provisions of Sections 2.6 and 2.7 hereof, the Postpetition Loan shall
constitute, in accordance with section 364(c)(1) of the Bankruptcy Code, a claim
against Debtor's estate with priority as an administrative expense under
sections 503(b), 507(a)(1) and 507(b) of the Bankruptcy Code. Said priority
shall be senior to any other administrative expense in the Chapter 11 Case of
the kind specified in Bankruptcy Code sections 503 and 507. Notwithstanding any
other provision in this Agreement, the Senior Creditor's claims, security
interests and liens upon the Collateral shall all be subject and subordinate to
(a) the items, and in the respective amounts, defined as the "Carve-Out" in
Paragraph 6 of the Sixth Interim Order Authorizing the Use of Cash Collateral
and Providing for Adequate Protection ("Sixth Cash Collateral Order"); and (b)
any other carve out which may be agreed to by the Senior Creditor.
2.9 Representations and Warranties with Regard to Collateral. Debtor
agrees and acknowledges that each request for an advance under the Postpetition
Loan or for a Letter of Credit Accommodation under this Agreement shall
constitute (A) an automatic representation and warranty from Debtor to the
Senior Creditor that there does not then exist an Event of Default, and (B) a
reaffirmation, as of the date of said request, that all of the representations
and warranties contained herein are true and correct as of said date.
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2.10 Covenants. Debtor hereby agrees, covenants, and promises:
A. to deliver notice to the Senior Creditor of any event or
occurrence that constitutes an "Event of Default" pursuant to subsection 2.11
hereof;
B. to comply with all of the affirmative covenants set forth in
the Loan Agreement;
C. to comply with all of the negative covenants set forth in the
Loan Agreement;
D. to deliver to the Senior Creditor such information and reports
as the Senior Creditor shall reasonably request, including a daily report of
disbursements.
2.11 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under this Agreement:
A. the entry of an order by the Court appointing a trustee in the
Chapter 11 Case;
B. the entry of an order by the Court dismissing the Chapter 11
Case or converting the Chapter 11 Case to a case under Chapter 7;
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C. the failure of the Debtor and the Sub Debtors to propose a
plan of reorganization which is acceptable to the Senior Creditor on or before
June 30, 2001;
D. the breach by Debtor of any of its obligations under this
Agreement including, but without limitation, the Debtor's failure to make timely
payments of interest, principal or other amounts owed in connection with the
Postpetition Loan, the failure of the Debtor or of any of the Sub-Debtors to
comply in all respects with the Sixth Cash Collateral Order and any subsequent
order of the Court authorizing the use of cash collateral; the Debtor's
violation of any other Order of the Court; the Debtor's breach of any
representation, warranty, or covenant; or the Debtor's failure to maintain with
due care all of its books and records;
E. The amendment, supplementation or other modification of the
Authorizing Order (as defined in section 5.1 hereof) in a manner which shall, in
the sole determination of the Senior Creditor, adversely affect the rights of
the Senior Creditor hereunder or shall adversely affect the priority of any or
all of the Senior Creditor's liens, security interests, or claims as of the date
of the Authorizing Order (the "Authorizing Date");
F. The filing of a motion by Debtor, any of the Sub-Debtors or
any Non-Debtor Subsidiary, for an order authorizing the use of Cash Collateral
without the prior consent of the Senior Creditor; or the filing of a motion by
Debtor for an order authorizing the obtaining of credit or the incurring of
indebtedness secured by a lien on or security interest in the Collateral, other
than by or from the Senior Creditor ;
G. the granting or obtaining of a lien on or a security interest
in any of Debtor's, Sub-Debtors' or Non-Debtor Subsidiary's assets without the
prior written consent of the Senior Creditor;
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H. Debtor's, any Sub-Debtor's or any Non-Debtor Subsidiary's
filing, or joining in or supporting the filing by a party in interest, of any
motion, objection, or adversary proceeding to invalidate any of the Senior
Creditor's liens upon and security interests in any Collateral, or any part
thereof, or which seeks to set off, counterclaim against, or subordinate the
Prepetition Loan or the Postpetition Loan or any part thereof, or which seeks to
recover any legal or equitable remedy against the Senior Creditor;
I. The entry of an order in any lawsuit or adversary proceeding
in the Chapter 11 Case which invalidates the Debtor's, any Sub-Debtor's or any
Non-Debtor subsidiary's obligations to the Senior Creditor, any of Senior
Creditor's liens upon and security interests in the Collateral or any part
thereof, or which permits the set off, counterclaim against, or subordination of
any of the Debtor's, any Sub-Debtor's or any Non-Debtor Subsidiary's obligations
to the Senior Creditor or any of Senior Creditor's liens upon and security
interests in the Collateral, or which grants any legal or equitable remedy
against the Senior Creditor; and
J. The expiration of the Projections or the Budget without the
Senior Creditor's having approved a replacement Projection or a replacement
Budget.
2.12 Consequence of an Event of Default. Upon or after the occurrence
of an Event of Default, which Default is not cured within five calendar days
following the Debtor's receipt of written notice from the senior Creditor
specifying the nature of such event of Default, the Senior Creditor shall have
the option to cease making all advances under the Postpetition Loan, to declare
the Postpetition Loan to be immediately due and payable and to terminate this
Agreement. The Senior Creditor shall notify Debtor, the Sub-Debtors and the
Non-Debtor Subsidiaries of its election to do so by delivering written notice to
the Debtor specifying that an Event of Default has occurred and stating that the
Senior Creditor shall not make additional advances.
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2.13 Termination Date; Effect of Termination. "Termination Date" shall
mean the fifth calendar day following the Debtor's receipt of a notice of
Default from the Senior Creditor; provided, however, that the Termination Date
shall not occur if the Debtor has cured such Default within the five
calendar-day period provided for herein. If the Termination Date shall occur,
(A) The Senior Creditor shall be relieved of its obligation, if any, to make any
advances with respect to the Postpetition Loan; (B) the Postpetition Loan shall
be immediately due and payable; (C) the Senior Creditor shall have all rights
and remedies referred to in the Existing Loan Documents (but the exercise of
such rights and remedies shall be subject to the automatic stay of Bankruptcy
Code section 362(a)); and (D) the Debtor, the Sub-Debtors and the Non-Debtor
Subsidiaries shall continue to comply with the terms of section 4 hereof with
respect to Cash Collateral until and unless the Court enters an order to the
contrary. Occurrence of the Termination Date shall not affect or diminish any
rights of the Senior Creditor hereunder or granted to the Senior Creditor
pursuant to the Authorizing Order.
3. The Prepetition Loan. The interest and the principal balance of the
Prepetition Loan shall remain due and owing in all respects to the Senior
Creditor.
4. Payment of Cash Collateral to the Senior Creditor; Application of
Payments by the Senior Creditor. All present and future proceeds of the
Prepetition Collateral and the Postpetition Collateral, to the extent collected
by Debtor or the Senior Creditor, constitute "cash collateral" of the Senior
Creditor as such term is defined in section 363(a) of the Bankruptcy Code (the
"Cash Collateral"). Any excess amount of Cash Collateral that is not used by the
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Debtor pursuant to the Sixth Cash Collateral Order (or any subsequent order
authorizing the use of cash collateral), during the period from the first
through and including the last day of each month, shall be applied in payment of
the Postpetition Loan in accordance with Section 2.4 hereof. Applications of
interest and principal shall be determined by the Senior Creditor in its sole
discretion.
5. Conditions Precedent. This Agreement shall be of no force or effect and
shall not be binding on the parties hereto until and unless all of the following
conditions precedent shall have been fulfilled:
5.1 Court Approval; Authorizing Order. The Court shall enter an order
(the "Authorizing Order") approving Debtor's entry into this Agreement, and the
Sub-Debtors' and Non-Debtor Subsidiaries' executing the Consent, Reaffirmation
and Acknowledgment hereto, which shall contain such provisions as the Senior
Creditor shall consider necessary or desirable for protection of the Senior
Creditor's interests. Notwithstanding that this Agreement shall have been signed
and submitted to the Court, the Senior Creditor shall be under no obligation to
proceed with this Agreement unless the Authorizing Order is acceptable to the
Senior Creditor in all respects.
5.2 Change of Governance and Management. The Approving Order shall, in
addition to any and all other provisions contained therein, approve (A) the
appointment of new and different members of the Board of Directors of the Debtor
("Board"), (B) the resignation of all of the members of the Board who have been
such members prior to the date hereof, (C) the appointment by the Board,
following the resignations of the members of the Board referred to in the
immediately preceding subparagraph, of interim officers and (D) the Debtor's
entering into a consulting agreement with the written consent of the Senior
Creditor.
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5.3 Consent, Reaffirmation and Acknowledgment by Guarantors of all
Obligations under Guaranties; Guaranty and Security Agreement of Guarantors. All
of the Debtor's Subsidiaries shall execute the Consent, Reaffirmation and
Acknowledgment by Guarantors that accompanies this Agreement, acknowledging,
among other things, that their guaranties of the Prepetition Loan are and remain
in all respects fully and completely valid, binding and enforceable and that
those guaranties extend fully and completely to the Postpetition Loan and all
other obligations incurred by Debtor to the Banks and the Senior Creditor, on or
after the Petition Date; and that all of the Collateral, and the security
interests and liens therein, are, shall be and remain fully valid, binding and
enforceable against the Guarantors, and each of them.
6. Allowance of the Senior Creditors Claims for the Prepetition Loan. All
of the Debtor, the Sub-Debtors and the Non-Debtor Subsidiaries acknowledge and
agree that the Existing Loan Documents, and all Proofs of Claims filed by or on
behalf of the Banks, including all exhibits attached thereto, conclusively and
irrevocably shall establish that: (A) the amount of the Prepetition Loan as of
the Petition Date was in the amounts set forth in the respective Proofs of
Claims filed by or on behalf of the Banks; (B) neither the Debtor, the
Sub-Debtors, nor any of the Non-Debtor Subsidiaries has any claims of setoff or
other defenses to payment of the Prepetition Loan; and (C) the liens and
security interests of the Senior Creditor in the Prepetition Collateral were and
are valid, perfected, and enforceable as of the Petition Date.
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7. Hearing Upon Limited Notice. If either Debtor or the Senior Creditor
believes that the other party is in breach of the terms of this Agreement or the
Authorizing Order, then such party may request a hearing from the Court on 48
hours notice to the other party. If this Agreement shall terminate, then Debtor
may obtain a hearing on a motion to use Cash Collateral on 48 hours' notice to
the Senior Creditor, and the Senior Creditor may obtain a hearing on a motion
for relief from stay on 48 hours' notice to Debtor.
8. Rights and Remedies of the Senior Creditor. No failure on the part of
the Banks or the Senior Creditor to exercise, no course of dealing with respect
to, and no delay in exercising any right, power, or privilege under this
Agreement shall operate as or constitute a waiver thereof, nor shall any single
or partial exercise of any such right, power, or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. The remedies provided herein and in the Existing Loan Documents are
cumulative and not exclusive of any remedies provided by law. This Agreement is
without prejudice to the rights of the Senior Creditor under the Bankruptcy Code
and the Bankruptcy Rules or under nonbankruptcy law, including the right of the
Senior Creditor to (i) request additional adequate protection of its interests
in Collateral or relief from the automatic stay under section 362(a) of the
Bankruptcy Code in respect thereof, (ii) request conversion of the Chapter 11
Case to a case under Chapter 7 of the Bankruptcy Code, (iii) propose a Chapter
11 plan, (iv) request dismissal of the Chapter 11 Case for any reasons, or (v)
seek from the Bankruptcy Court any other relief whatsoever.
9. Amendments Must be in Writing. This Agreement shall not be amended
except as mutually agreed by the parties hereto, in writing.
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10. Authorization; Successors and Assigns. Each person signing this
Agreement on behalf of Debtor or the Senior Creditor hereby warrants that he or
she is authorized to bind the entity he or she represents to this Agreement and
that the entity is authorized to bind itself to this Agreement. The provisions
of this Agreement shall be binding upon and inure to the benefit of all
signatories and their respective successors and assigns, including any trustee
for the Debtor or the Sub-Debtors in the Chapter 11 Case or any Chapter 7 case
to which the Chapter 11 Case is converted.
11. Further Assurances. The parties shall execute all additional documents
and take all additional acts necessary or desirable to effectuate the terms
hereof. Upon entry of the Authorizing Order, the lien and security interest
granted herein to the Senior Creditor shall be deemed fully and completely
valid, binding and perfected without further notice, orders, filing or
recording; provided, however, that the Senior Creditor may, in its sole
discretion, file and record or take any other action, or cause Debtor to file
and record any notices of, or deliver all documents and instruments requested by
the Senior Creditor in connection with such liens and security interests at
Debtor's expense.
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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the day and year first set forth above.
DEBTOR:
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Video Update, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
SENIOR CREDITOR:
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Movie Gallery, Inc.
By: /s/ X. X. Xxxxxxx
---------------------------
Name: X. X. Xxxxxxx
Title: Chief Executive Officer
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CONSENT, REAFFIRMATION AND ACKNOWLEDGMENT
The foregoing Chapter 11 Financing Agreement ("Agreement"), and each and
every, all and singular, of its provisions, are consented to, reaffirmed and
acknowledged by the undersigned entities that are defined in the Agreement as
Sub-Debtors and as Non-Debtor Subsidiaries, and they and each of them agree in
all respects to be bound by, and comply with, all provisions of the Agreement
that apply to them.
IN WITNESS WHEREOF, the entities executing this Consent, Reaffirmation and
Acknowledgment have executed the same as of 17th day of May, 2001.
GUARANTORS:
----------
Tinseltown Video, Inc.
an Oklahoma corporation
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Moovies, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
20
Moovies of the Carolinas, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Pic-a-Flick of Greenville, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Moovies of Georgia, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
The Movie Store, Inc. #2,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
21
The Movie Store III, Inc.
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Alpharetta Media Associates, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Rio Media Associates, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Moovies of Iowa, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
22
Moovies of Michigan, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Movie Warehouse Franchise Systems, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
E.C.6, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
DCO, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
23
SONI, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
SNO, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
PQ3, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
D-Xxxxxx, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
24
GBO, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
PTO, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Video Update Canada, Inc.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
1137239 Ontario, Ltd.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
25
24 Hour Entertainment Leasing, Ltd.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
24 Hour Entertainment Group Ltd.,
By:/s/ Xxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
26
LIST OF SCHEDULES AND EXHIBITS
1. Schedule 1 - List of Debtor and its subsidiaries.
2. Schedule 2 - Projections and Budget prepared by debtor
3. Exhibit "A" - Loan Agreement dated March 6, 1998
4. Exhibit "B" - U.S. Security Agreement dated March 6, 1998
5. Exhibit "C" - U.S. Pledge Agreement dated March 6, 1998.
6. Exhibit "D" - Video Canada, Inc. Security Agreement dated March 6, 1998
7. Exhibit "E" - 1137239 Ontario Ltd. Security Agreement dated March 6, 1998
8. Exhibit "F" - 24 Hour Entertainment Leasing Ltd. Security Agreement
dated March 6, 1998
9. Exhibit "G" - 24 Hour Entertainment Group Ltd. Security Agreement dated
March 6, 1998
10. Exhibit "H" - Video Canada, Inc. Pledge Agreement dated March 6, 1998
11. Exhibit "I" - 24 Hour Entertainment Group Inc. Pledge Agreement dated
March 6, 1998
12. Exhibit "J" - Subsidiaries Guaranty dated March 6, 1998
27
