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CREDIT AGREEMENT
Dated as of October 3, 1997
between
SPEC'S MUSIC, INC.
as Borrower
and
MUSIC FUNDING I, LLC
as Lender
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TABLE OF CONTENTS
1. AMOUNT AND TERMS OF CREDIT.................................1
1.1 Revolving Credit Loans ...............................1
1.2 Use of Proceeds ......................................2
1.3 Single Obligation ....................................2
1.4 Interest .............................................2
1.5 Net Liquidation Value of Inventory ...................4
1.6 Fees .................................................4
1.7 Cash Management Systems ..............................5
1.8 Receipt of Payments ..................................5
1.9 Application and Allocation of Payments ...............5
1.10 Accounting ...........................................5
1.11 Indemnity ............................................5
1.12 Access ...............................................6
1.13 Taxes ................................................7
2. CONDITIONS PRECEDENT.......................................7
2.1 Conditions to the Initial Loans ......................7
2.2 Further Conditions to Each Loan ......................8
3. REPRESENTATIONS AND WARRANTIES ............................9
3.1 Corporate Existence; Compliance with Law .............9
3.2 Executive Office; Corporate or Other Names ...........9
3.3 Corporate Power; Authorization;
Enforceable Obligations .............................9
3.4 Financial Statements and Projections ................10
3.5 Material Adverse Change .............................10
3.6 Ownership of Property; Liens ........................10
3.7 Restrictions; No Default ............................11
3.8 Labor Matters .......................................11
3.9 Subsidiaries, Joint Ventures and Affiliates;
Outstanding Stock and Indebtedness .................11
3.10 Government Regulation ..............................11
3.11 Margin Regulations .................................12
3.12 Taxes ..............................................12
3.13 ERISA ..............................................12
3.14 No Litigation ......................................13
3.15 Brokers ............................................14
3.16 Employment Matters .................................14
3.17 Patents, Trademarks, Copyrights and Licenses .......14
3.18 Full Disclosure ....................................14
3.19 Hazardous Materials ................................14
3.20 Insurance Policies .................................14
3.21 Cash Management and Other Deposit Accounts .........15
3.22 Solvent Financial Condition ........................15
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4. FINANCIAL STATEMENTS AND INFORMATION .....................15
4.1 Reports and Notices .................................15
4.2 Communication with Accountants ......................15
5. AFFIRMATIVE COVENANTS ....................................15
5.1 Maintenance of Existence and Conduct of Business.....15
5.2 Payment of Obligations ..............................16
5.3 Books and Records ...................................16
5.4 Litigation ..........................................16
5.5 Insurance ...........................................16
5.6 Compliance with Laws ................................17
5.7 Agreements ..........................................17
5.8 Supplemental Disclosure .............................17
5.9 Employee Plans ......................................17
5.10 Environmental Matters ...............................18
5.11 Landlord's Agreements ...............................18
5.12 Confidentiality and Press Releases ..................18
6. NEGATIVE COVENANTS .......................................18
6.1 Mergers, Etc ........................................18
6.2 Investments; Loans and Advances .....................19
6.3 Indebtedness ........................................19
6.4 Transactions with Affiliates ........................19
6.5 Capital Structure and Business ......................19
6.6 Guaranteed Indebtedness .............................19
6.7 Liens ...............................................19
6.8 Sale of Assets ......................................20
6.9 Events of Default ...................................20
6.10 ERISA ...............................................20
6.11 Financial Covenants .................................20
6.12 Hazardous Materials .................................20
6.13 Sale-Leasebacks .....................................21
6.14 Cancellation of Indebtedness ........................21
6.15 Restricted Payments .................................21
7. TERM .....................................................21
7.1 Termination .........................................21
7.2 Survival of Obligations Upon Termination of
Financing Arrangement ..............................21
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ...................22
8.1 Events of Default ...................................22
8.2 Remedies ............................................23
8.3 Waivers by Borrower .................................24
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9. SUCCESSORS AND ASSIGNS ...................................24
9.1 Successors and Assigns ..............................24
10. MISCELLANEOUS ............................................25
10.1 Complete Agreement; Modification of Agreement ......25
10.2 Fees and Expenses ..................................25
10.3 No Waiver ..........................................26
10.4 Remedies ...........................................26
10.5 Severability .......................................26
10.6 Conflict of Terms ..................................26
10.7 Authorized Signatures ..............................27
10.8 GOVERNING LAW ......................................27
10.9 Notices ............................................28
10.10 Section Titles .....................................28
10.11 Counterparts .......................................28
10.12 Time of Essence ....................................28
10.13 Waiver of Jury Trial ...............................28
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INDEX OF EXHIBITS, SCHEDULES AND ANNEXES
Exhibit A - Forms of Notice of Revolving Credit Loan
Exhibit B - Form of Borrowing Capacity Certificate
Exhibit C - Form of Revolving Credit Note
Exhibit D - Forms of Collateral Documents
Exhibit E - Form of Telephone Instruction Letter
Exhibit F - Form of Lessor Subordination and Consent
Exhibit G - Forms of Cash Management Account Agreements
Exhibit H - Form of Accountant/Tax Adviser
Disclosure Letter
Exhibit I - Form of Closing Certificate
Exhibit J - Forms of Opinions of Borrower's Counsels
Exhibit K - Intentionally Left Blank
Exhibit L - Intentionally Left Blank
Exhibit M - Intentionally Left Blank
Exhibit N - Form of Rent Payment Certificate
Schedule 3.4 - Financial Statements and Projections
Schedule 3.6 - Real Estate and Leases
Schedule 3.9 - Subsidiaries, Joint Ventures, and Affiliates;
Outstanding Stock and Indebtedness
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.16 - Employment Matters
Schedule 3.17 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.19 - Hazardous Materials
Schedule 3.20 - Insurance Policies
Schedule 3.21 - Cash Management and Other Deposit Accounts
and Banks
Schedule 4.1 - Financial Statements and Other Notices
Schedule 6.7 - Liens
Schedule 6.11 - Financial Covenants
Schedule 10.7 - Authorized Signatures
Schedule 10.9 - Notice Addresses
Annex A - Definitions
Annex B - Cash Management System
Annex C - Schedule of Documents
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THIS AGREEMENT IS SUBJECT TO A SUBORDINATION AND INTERCREDITOR
AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED AS OF OCTOBER 3,
1997 AMONG GENERAL ELECTRIC CAPITAL CORPORATION, MUSIC FUNDING I,
LLC AND SPEC'S MUSIC, INC.
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "AGREEMENT"), dated as of
October 3, 1997, is made by and between SPEC'S MUSIC, INC., a
Florida corporation ("BORROWER"), and MUSIC FUNDING I, LLC, a
North Carolina limited liability company ("LENDER").
RECITALS
A. Borrower desires to obtain up to a total of One
Million Dollars ($1,000,000) in credit from Lender, and Lender is
willing to extend such credit to Borrower of up to such total
amount at any one time, all upon the terms and conditions set
forth herein.
B. Capitalized terms used herein shall have the
meanings ascribed to them on ANNEX A to this Agreement. All
Schedules, Annexes and Exhibits hereto, or expressly identified
to this Agreement, are incorporated herein by reference, and
taken together, shall constitute but a single agreement. As used
herein, the plural shall include the singular, the singular shall
include the plural, and pronouns in any gender (masculine,
feminine or neuter) shall apply to all genders. These Recitals
shall be construed as part of this Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter contained, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 REVOLVING CREDIT LOANS. (a) Upon and subject to
the terms and conditions hereof, Lender agrees to make available,
from time to time prior to the Commitment Termination Date, for
Borrower's use and upon the request of Borrower therefor,
advances in $100,000 increments (each a "REVOLVING CREDIT LOAN")
against the Net Liquidation Value of Inventory in an amount up to
the Net Current Borrowing Capacity at such time; PROVIDED,
however, that Lender shall not be obligated hereunder to make any
Revolving Credit Loan to the Borrower at any time if and to the
extent that the sum of the aggregate outstanding balance at such
time of all Revolving Credit Loans made hereunder exceeds (or
would exceed with the making of such Revolving Credit Loan) the
Maximum Revolving Credit Loans. Until all amounts outstanding in
respect of the Borrower's Revolving Credit Loans shall become due
and payable on the Commitment Termination Date, Borrower may from
time to time borrow, repay and reborrow under this SECTION
1.1(a). Revolving Credit Loans shall not be made more frequently
than once a week. Each Revolving Credit Loan shall be made on
notice by Borrower to the Lender, given no later than 11:00 a.m.
(Eastern time) on the first Business Day of the week. Repayments
of Revolving Credit Loans shall not be made more frequently than
once a week and shall be made by 11:00 a.m. Eastern time on the
first Business Day of the week. Such notice (each a "NOTICE
OF REVOLVING CREDIT LOAN") shall be substantially in the form of
EXHIBIT A-1 hereto, specifying therein the requested date, the
amount of such Revolving Credit Loan, and such other information
as may be required by Lender and shall be given in writing (by
telecopy, telex or cable) or by telephone confirmed immediately
in writing.
(b) The Revolving Credit Loans shall be evidenced
by a note dated the Closing Date and executed by Borrower in
favor of Lender substantially in the form of EXHIBIT C (the
"REVOLVING CREDIT NOTE"). The Revolving Credit Note shall
represent the obligation of Borrower to pay the amount of the
Maximum Revolving Credit Loans or, if less, the aggregate unpaid
principal amount of all Revolving Credit Loans made by Lender
with interest thereon as prescribed in SECTION 1.4. The date and
amount of each Revolving Credit Loan and each payment of
principal with respect thereto shall be recorded on the books and
records of Lender which books and records shall constitute PRIMA
FACIE evidence of the accuracy of the information therein
recorded. The entire unpaid balance of the Revolving Credit
Loans of Borrower shall be immediately due and payable in full on
the Commitment Termination Date.
(c) In the event that the outstanding balance of
the Revolving Credit Loans shall, at any time, exceed any of the
applicable limits set forth in SECTION 1.1(a) above, Borrower
shall immediately prepay Revolving Credit Loans by the amount of
such excess. If the unpaid principal balance of the Revolving
Credit Loans should at any time exceed any of the
above-referenced limits, the excess balance nevertheless shall
constitute Obligations of Borrower that are secured by the
Collateral and entitled to all of the benefits thereof and of the
other Loan Documents and shall be evidenced by the Revolving
Credit Note.
(d) Borrower shall have the right at any time on
ninety (90) days' prior written notice to Lender to prepay the
Revolving Credit Loans and terminate this Agreement, all without
premium or penalty except as expressly provided in this paragraph
or in SECTION 1.6(d) below, and upon such prepayment and
termination Borrower's rights to receive any further Revolving
Credit Loans shall simultaneously terminate. In the event
Borrower exercises its right under this paragraph to prepay the
Revolving Credit Loans, and terminate this Agreement, Borrower
agrees that such prepayment and termination shall be accompanied
by the payment by Borrower to Lender of all accrued and unpaid
interest and all Fees and other remaining Obligations.
1.2 USE OF PROCEEDS. Borrower shall utilize the
proceeds of the Revolving Credit Loans solely (I) for working
capital and to finance the general corporate needs of Borrower
and its Subsidiaries, and (ii) to finance the Fees payable to
Lender under any of the Loan Documents.
1.3 SINGLE OBLIGATION. The Loans and all of the
other Obligations of the Borrower arising under this Agreement
and the other Loan Documents shall constitute one general
obligation of the Borrower to Lender secured, until the
Termination Date, by all of the Collateral.
1.4 INTEREST. (a) Borrower shall pay interest on
the Loans to Lender in arrears on the first (1st) day of each
calendar month, commencing with the calendar month following the
calendar month in which the Closing Date occurs, and continuing
to be due on the first (1st) day of each succeeding calendar
month thereafter and on the Commitment Termination Date. If any
interest on any
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of the Loans accrues or remains payable after the Commitment
Termination Date, such interest shall be payable by Borrower upon
demand by Lender.
(b) Except as provided in paragraph (d) below,
Borrower shall be obligated to pay interest to Lender on the
outstanding principal balance of each Loan from the date such
Loan is made until such Loan is repaid in full at a floating rate
equal to the Prime Rate (as in effect for each calendar month
during the term hereof) PLUS eight and one quarter percentage
points (8.25%).
(c) All computations of interest hereunder or under
the other Loan Documents shall be made by Lender on the basis of
a three hundred and sixty (360) day year, in each case for the
actual number of days occurring in the period for which such
interest is payable. Each determination by Lender of an interest
rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) So long as any Default or Event of Default shall
have occurred and be continuing, the interest rate applicable to
the Loans or other Obligations may be increased by Lender, at its
option, by two percentage points (2%) per annum above the rate
otherwise applicable (the "DEFAULT RATE").
(e) Notwithstanding anything to the contrary set
forth in this SECTION 1.4, if, at any time until payment in full
of all of the Obligations, the rate of interest payable hereunder
by Borrower exceeds the highest rate of interest permissible
under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "MAXIMUM LAWFUL
RATE"), then in such event and so long as the Maximum Lawful Rate
would be so exceeded, the rate of interest payable hereunder by
Borrower shall be equal to the Maximum Lawful Rate; PROVIDED,
however, that if at any time thereafter the rate of interest
payable by Borrower hereunder is less than the Maximum Lawful
Rate, Borrower shall continue to pay interest hereunder at the
Maximum Lawful Rate until such time as the total interest
received by Lender from the making of advances hereunder to
Borrower is equal to the total interest which Lender would have
received had the interest rate payable hereunder by Borrower been
(but for the operation of this paragraph) the interest rate
payable since the Closing Date as otherwise provided in this
Agreement. Thereafter, the interest rate payable by Borrower
hereunder shall be the rate of interest otherwise provided in
this SECTION 1.4, unless and until the rate of interest again
exceeds the Maximum Lawful Rate, in which event this paragraph
shall again apply. In no event shall the total interest received
by Lender pursuant to the terms of this Agreement or any other
Loan Document exceed the amount which Lender could lawfully have
received had the interest due hereunder been calculated for the
full term hereof or thereof at the Maximum Lawful Rate. All
interest paid by, charged to or collected from Borrower hereunder
or under any other Loan Document shall, to the maximum extent
permitted by applicable law, be amortized, allocated
and spread throughout the full term of the Obligation on which it
accrued. In the event the Maximum Lawful Rate is calculated
pursuant to this paragraph, such interest shall be calculated at
a daily rate equal to the Maximum Lawful Rate divided by the
number of days in the year in which such calculation is made. In
the event that a court of competent jurisdiction, notwithstanding
the provisions of this SECTION 1.4(e), shall make a final
determination that Lender has received interest hereunder or
under any of the Loan Documents from Borrower in excess of the
Maximum Lawful Rate, Lender shall, to the extent permitted by
applicable law, promptly apply such excess first to any interest
due from Borrower and not yet paid hereunder, then
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to the outstanding principal of the Obligations of Borrower, then
to Fees and any other unpaid Obligations owed by Borrower and
thereafter shall refund any excess to Borrower or as a court of
competent jurisdiction may otherwise order.
1.5 NET LIQUIDATION VALUE OF INVENTORY. Based on
the most recent Borrowing Capacity Certificate delivered by
Borrower to Lender and on other information available to Lender,
Lender shall determine in accordance with Schedule A to the Form
of Borrowing Capacity Certificate attached hereto as EXHIBIT B
the Net Liquidation Value of Inventory for purposes of
determining the maximum amount of the Revolving Credit Loans, if
any, to be advanced or incurred by Lender hereunder.
1.6 FEES. (a) As additional compensation for
Lender's costs and risks in making the Revolving Credit Loans
available to Borrower during its initial term, Borrower agrees to
pay to Lender a non-refundable closing fee of $30,000 (the
"CLOSING FEE"). The Closing Fee shall be fully earned and shall
be due on the Closing Date and there shall be credited against
the Closing Fee, the unused balance (if any) of any underwriting
deposit heretofore paid by Borrower to Lender in connection with
the Loans.
(b) As additional compensation for Lender's costs
and risks in making the Revolving Credit Loans available to
Borrower, Borrower agrees to pay to Lender, in arrears for the
preceding month, on the first day of each calendar month prior to
the Commitment Termination Date and on the Commitment Termination
Date, a fee for Borrower's non-use of available funds (the
"NON-USE FEE") in an amount equal to one percent (1.0%) per annum
of the difference between the daily average for such month of (I)
the Maximum Revolving Credit Loans MINUS (ii) the aggregate
outstanding principal balance of the Revolving Credit Loans
during the period for which the Non-use Fee is due. The Non-use
Fee shall be computed on the basis of a 360-day year and the
actual days elapsed.
(c) As additional compensation for Lender's costs and
risks in making the Loans available to Borrower, Borrower also
agrees to pay to Lender an administrative fee (the
"ADMINISTRATIVE FEE") in the amount of $500.00 per month. The
initial Administrative Fee shall be fully earned and shall be due
on the Closing Date and each succeeding Administrative Fee shall
be fully earned and shall be due on each succeeding monthly
anniversary of the Closing Date up to and through the last
anniversary date which precedes the Commitment Termination Date.
(d) If this Agreement is terminated pursuant to
SECTION 1.1(d) above or SECTION 8.2 below at any time during the
period from the Closing Date until (but not including) August 1,
1998, Borrower shall pay to Lender, at the time of such early
termination, a fee (the "EARLY TERMINATION FEE") in an amount
equal to two and one-half percent (2.5%) of the amount of the
Maximum Revolving Credit Loans as then in effect. Borrower
acknowledges and agrees that (I) it would be difficult or
impractical to calculate Lender's actual damages from an early
termination of this Agreement, (ii) the Early Termination Fee is
intended to be a fair and reasonable approximation of such
damages, and (iii) the Early Termination Fee is not intended to
be a penalty.
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1.7 CASH MANAGEMENT SYSTEMS. On or prior to the
Closing Date, Borrower will establish, and Borrower will maintain
until the Termination Date, the Cash Management System described
on ANNEX B.
1.8 RECEIPT OF PAYMENTS. Borrower shall make each
payment owing by it hereunder not later than 11:00 a.m. (Eastern
time) on the day when due in lawful money of the United States of
America in immediately available funds.
1.9 APPLICATION AND ALLOCATION OF PAYMENTS.
Borrower irrevocably waives the right to direct the application
of any and all payments at any time or times hereafter received
from or on behalf of Borrower, and Borrower irrevocably agrees
that Lender shall have the continuing exclusive right to apply
any and all such payments against the then due and payable
Obligations as Lender may deem advisable. In the absence of a
specific determination by Lender with respect thereto, the same
shall be applied to the Obligations in the following order: (I)
then due and payable Fees and expenses; (ii) then due and payable
interest payments; (iii) Obligations other than Fees, expenses
and interest and principal payments; and (iv) then due and
payable principal payments on the Obligations. In the event
Lender applies any payment in any order other than that provided
in the immediately preceding sentence, Lender shall give written
notice thereof to Borrower promptly after such application.
Lender is authorized to, and at its option may, make or cause to
be made Revolving Credit Loans on behalf of Borrower for payment
of all Fees, expenses, Charges, costs, interest, or other
Obligations owing by Borrower under this Agreement or any of the
other Loan Documents if and to the extent such Obligations are
not paid as and when due.
1.10 ACCOUNTING. Lender will provide Borrower with a
monthly accounting of transactions relating to the Loans. Each
and every accounting shall (absent manifest error) be deemed
final, binding and conclusive upon Borrower in all respects as to
all matters reflected therein, unless Borrower, within 30 days
after the date any such accounting is rendered, shall notify
Lender in writing of any objection which Borrower may have to any
such accounting, describing the basis for such objection with
specificity. In that event, only those items expressly objected
to in such notice shall be deemed to be disputed by Borrower.
1.11 INDEMNITY. (a) Borrower shall indemnify and
hold Lender and Lender's Affiliates, managers, officers,
directors, employees, attorneys and agents (each an "INDEMNIFIED
PERSON"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other
costs of investigation or defense, including those incurred upon
any appeal) which may be instituted or asserted against or
incurred by such Indemnified Person as the result of credit
having been extended to Borrower under this Agreement or any of
the other Loan Documents or in connection with or arising out of
any of the transactions contemplated hereunder and thereunder,
including any claim, action, suit, proceeding, loss, cost,
damage, liability, deficiency, fine, penalty, punitive, exemplary
or consequential damage or expense (including reasonable
attorneys' and consultants' fees, investigation and laboratory
fees, court costs and litigation expenses), directly or
indirectly resulting from, arising out of, or based upon (I) the
presence, Release, use, manufacture, installation, generation,
discharge, storage or disposal, at any time, of any Hazardous
Materials on, under, in or about, or the transportation of any
such materials to or from, any of the Subject Property, or (ii)
the violation or alleged violation by Borrower or any other
Credit
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Party of any law, statute, ordinance, order, rule, regulation,
permit, judgment or license relating to the use, generation,
manufacture, installation, Release, discharge, storage or
disposal of Hazardous Materials to or from any of the Subject
Property; which indemnity shall include, without limitation, (A)
any damage, liability, fine, penalty, punitive, exemplary or
consequential damage, cost or expense arising from or out of any
claim, action, suit or proceeding for personal injury (including
sickness, disease, death, pain or suffering), tangible or
intangible property damage, compensation for lost wages, business
income, profits or other economic loss, damage to the natural
resources or the environment, nuisance, pollution, contamination,
leak, Release or other adverse effect on the environment, and (B)
the cost of any required or necessary repair, cleanup, treatment,
remediation or detoxification of any of the Subject Property and
the preparation and implementation of any closure, disposal,
remedial or other required actions in connection with any of the
Subject Property; PROVIDED, that Borrower shall not be liable for
any indemnification to such Indemnified Person to the extent that
any such suit, action, proceeding, claim, damage, loss, liability
or expense results from such Indemnified Person's gross
negligence or willful misconduct. NEITHER LENDER NOR ANY OTHER
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY
OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
(b) Borrower hereby acknowledges and agrees that
Lender (I) is not now, and has not ever been, in control of any
of the Subject Property or the affairs of Borrower or any of the
other Credit Parties, and (ii) does not have the capacity through
the provisions of the Loan Documents to influence Borrower's or
any other Credit Party's conduct with respect to the ownership,
operation or management of any of the Subject Property.
1.12 ACCESS. Borrower shall, upon advance notice
and at mutually convenient times (unless a Default or Event of
Default shall have occurred and be continuing, in which event no
notice shall be required and Lender shall have access at any and
all times), (I) provide access during normal business hours to
Lender and any of its officers, employees and agents, as
frequently as Lender determines to be appropriate, to the
properties and facilities of any Credit Party; (ii) permit Lender
and any of its officers, employees and agents to inspect, audit
and make extracts from any Credit Party's records, files and
books of account, and (iii) permit Lender to inspect, review and
evaluate such Credit Party's accounts and other records, at such
Credit Party's locations and at premises not owned by or leased
to such Credit Party. Borrower shall, make available to Lender
and its counsel, as quickly as practicable under the
circumstances, originals or copies of all books, records, board
minutes, contracts, insurance policies, environmental audits,
business plans, files, financial statements (actual and PRO
FORMA), filings with federal, state and local regulatory
agencies, and other instruments and documents which Lender may
request. Borrower shall, deliver any document or instrument
reasonably necessary for Lender, as it may from time to
time request, to obtain records from any service bureau or other
Person which maintains records for any Credit Party, and shall
maintain duplicate records or supporting documentation on media,
including, without limitation, computer tapes and discs owned by
any Credit Party. Borrower shall instruct its certified public
accountants and its banking and other financial institutions to
make available to Lender such information and records as Lender
may reasonably request.
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1.13 TAXES. (a) Any and all payments by Borrower
or any other Credit Party hereunder or under any Note or any
other Loan Document shall be made, in accordance with this
SECTION 1.13, free and clear of and without deduction for any and
all present or future Taxes. If Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note or any other Loan Document to Lender,
(I) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions
applicable to additional sums payable under this SECTION 1.13)
Lender receives an amount equal to the sum it would have received
had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted
to the relevant taxing or other authority in accordance with
applicable law.
(b) Borrower shall indemnify and pay, within 15 days
of demand therefor, Lender for the full amount of Taxes
(including without limitation, any Taxes imposed by any
jurisdiction on amounts payable under this SECTION 1.13) paid by
Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or
not such Taxes were correctly or legally asserted.
(c) Within 30 days after the date of any payment of
Taxes by Borrower or Lender, Borrower or Lender (as the case may
be) shall furnish or cause to be furnished to the other, at its
address referred to in SECTION 10.9, the original or a certified
copy of a receipt evidencing payment thereof, but Lender's
failure to give any such notice to Borrower will not impair
Lender's indemnity rights under paragraph (b) above.
2. CONDITIONS PRECEDENT
2.1 CONDITIONS TO THE INITIAL LOANS.
Notwithstanding any other provision of this Agreement and without
affecting in any manner the rights of Lender hereunder, Lender
shall not be obligated hereunder to make the initial Loans or to
take, fulfill, or perform any other action hereunder, unless and
until each and every of the following conditions have been
satisfied, in Lender's sole discretion, or waived in writing by
Lender:
(a) This Agreement or counterparts thereof shall
have been duly executed by, and delivered to, Borrower and Lender
and Guarantor shall have consented to the execution, delivery and
performance of this Agreement and the Subordination Agreement and
agreed to be bound by signing one or more counterparts of this
Agreement in the appropriate space indicated below and returning
same to Lender.
(b) Lender shall have received such documents,
instruments and agreements as Lender shall request in connection
with the transactions contemplated by this Agreement, including
all documents, instruments, agreements listed in the Schedule of
Documents, each in form and substance satisfactory to Lender.
(c) Evidence satisfactory to Lender that Borrower's
only Indebtedness is that incurred or permitted under the GE
Capital Credit Agreement and that Borrower's only Liens on any of
the Collateral are limited to those held by GE Capital pursuant
to the GE Capital Credit Agreement or permitted by GE Capital
pursuant to the GE Capital Credit Agreement.
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(d) Evidence satisfactory to Lender that each
Credit Party has obtained consents and acknowledgments of all
Persons whose consents and acknowledgments may be required (if
any), including, but not limited to, all requisite Governmental
Authorities, to the terms, and to the execution and delivery, of
this Agreement and the other Loan Documents and the consummation
of the transactions contemplated hereby and thereby.
(e) Evidence satisfactory to Lender that the
insurance policies provided for in SECTION 3.20 are in full force
and effect, together with appropriate evidence showing loss
payable endorsements or clauses in favor of Lender and in form
and substance acceptable to Lender, and that Lender has been
named an additional insured under Borrower's liability policies,
all as required by SECTION 5.5(b) hereof.
(f) A duly completed and executed initial Borrowing
Capacity Certificate shall have been delivered to Lender by
Borrower demonstrating to Lender's satisfaction that the Net
Liquidation Value of Inventory of Borrower is sufficient to
support the initial Loans.
(g) Payment by Borrower of the Fees due on the
Closing Date as provided in SECTION 1.6 above together with all
reasonable fees, costs and expenses of closing incurred by Lender
(including the reasonable fees of consultants and special counsel
to Lender presented as of the Closing Date) to the extent
Borrower is obligated to reimburse Lender therefor pursuant to
SECTION 10.2 hereof.
2.2 FURTHER CONDITIONS TO EACH LOAN. It shall be a
further condition to the funding of the initial and each
subsequent Loan that each and every of the following statements
shall be true on the date of each such funding or incurrence, as
the case may be:
(a) All of the Credit Parties' representations and
warranties contained herein or in any of the other Loan Documents
shall be true and correct in all material respects on and as of
the Closing Date and the date on which each such Loan is made as
though made or incurred on and as of such date, except to the
extent that any such representation or warranty expressly relates
to an earlier date and except for changes therein expressly
permitted or expressly contemplated by this Agreement or such
other Loan Document.
(b) No event shall have occurred and be continuing,
or would result from the making of such Loan, which constitutes
or would constitute a Default or an Event of Default.
(c) After giving effect to the making of such Loan,
the aggregate principal amount of the Revolving Credit Loans
shall not exceed the maximum amount permitted by SECTION 1.1(a).
(d) Each of the conditions set forth in SECTION
2.1(a) through (e) shall continue to be satisfied by Borrower as
of such date.
(e) No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to
enjoin, restrain or prohibit, or to obtain damages in respect of,
or which is related to or arises out of this
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Agreement or any of the other Loan Documents or the consummation
of the transactions contemplated thereby and which, in Lender's
sole judgment, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the other
Loan Documents.
Each request or acceptance by Borrower of the proceeds of any
Loan shall be deemed to constitute, as of the date of such
request or acceptance, (I) a representation and warranty by
Borrower that the conditions in this SECTION 2.2 have been
satisfied and (ii) a confirmation by Borrower of the granting and
continuance of Lender's Liens in the Collateral pursuant to the
Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loans available to
Borrower, and to make Loans as herein provided for, Borrower
makes (as to itself and each other Credit Party) the following
representations and warranties to Lender, each and all of which
shall be true and correct as of the date of execution and
delivery of this Agreement and shall survive the execution and
delivery of this Agreement:
3.1 CORPORATE EXISTENCE; Compliance with Law. Each
Credit Party (I) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation or organization and is duly qualified to do
business and is in good standing in each other jurisdiction where
its ownership or lease of property or the conduct of its business
requires such qualification; (ii) has the requisite corporate
power and authority and the legal right to obtain credit, to own,
pledge,
mortgage or otherwise encumber and operate its properties, to
lease the property it operates under lease, and to conduct its
business as now, heretofore and proposed to be conducted; (iii)
has all licenses, permits, consents or approvals from or by, and
has made all filings with, and has given all notices to, all
Governmental Authorities having jurisdiction, to the extent
required for such ownership, operation and conduct; (iv) is in
compliance with its certificate or articles of incorporation and
by-laws; and (v) is in compliance with all applicable provisions
of law where the failure to comply could reasonably be expected
to result in a Material Adverse Effect.
3.2 EXECUTIVE OFFICE; CORPORATE OR OTHER NAMES. The
current location of the chief executive office and principal
place of business of Borrower are set forth on SCHEDULE III to
the Security Agreement. During the five-year period immediately
preceding the date of this Agreement, Borrower has not been known
as or used any corporate, fictitious or trade names except as
disclosed on SCHEDULE III to the Security Agreement executed by
the Borrower.
3.3 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS. The execution, delivery and performance by each
Credit Party of the Loan Documents executed by it and all
instruments and documents to be delivered by such Credit Party
hereunder and thereunder and the creation of all Liens provided
for herein and therein: (I) are within such Credit Party's
corporate power; (ii) have been duly authorized by all necessary
or proper corporate and shareholder action on its part; (iii) are
not in contravention of any provision of such Credit Party's
certificate or articles of incorporation or by-laws; (iv) will
not violate any law or regulation, or any order or decree of any
court or governmental instrumentality; (v) will not conflict with
or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to
which such Credit Party is a party or by which any such
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Person or any of its property is bound; (vi) will not result in
the creation or imposition of any Lien upon any of the property
of any Credit Party other than those in favor of Lender, all
pursuant to the Loan Documents; and (vii) do not require the
consent or approval of any Governmental Authority or any other
Person, except those referred to in SECTION 2.1(d), all of which
will have been duly obtained, made or complied with prior to the
Closing Date. At or prior to the Closing Date, each of the Loan
Documents shall have been duly executed and delivered for the
benefit of or on behalf of the Credit Party which executed it and
each shall then constitute a legal, valid and binding obligation
of such Credit Party, enforceable against it in accordance with
its terms.
3.4 FINANCIAL STATEMENTS AND PROJECTIONS. Borrower
has delivered the financial statements and projections identified
on SCHEDULE 3.4, and each such financial statement complies with
the description thereof contained on SCHEDULE 3.4.
3.5 MATERIAL ADVERSE CHANGE. Neither Borrower nor
any other Credit Party, as of July 31, 1997, had any obligations,
contingent liabilities, or liabilities for Charges, long-term
leases or unusual forward or long-term commitments which are not
reflected in the financial statements (including footnotes) of
the Credit Parties as of and for the period ending with such date
which were heretofore delivered by them to Lender and which could
reasonably be expected, alone or in the aggregate, to have or
result in a Material Adverse Effect. Between July 31, 1997 and
the Closing Date, no Restricted Payments were made by Borrower,
no material increase in the liabilities (liquidated or
contingent) of the Borrower occurred, and no material decrease on
the assets of the Borrower occurred. There has been no material
adverse change in the business, assets, operations, prospects or
financial or other condition of the Credit Parties taken as a
whole since July 31, 1997.
3.6 Ownership of Property; Liens. (a) Except as
described on SCHEDULE 3.6, the real estate listed on SCHEDULE 3.6
constitute all of the real property owned, leased, or used by any
Credit Party in its business. Each such Credit Party owns:
(I)good fee simple title to all of such Person's real estate, and
valid leasehold interests in all of such Person's Leases (both as
lessor and lessee, sublessee or assignee), all as described on
SCHEDULE 3.6, and (ii) good title to, or valid leasehold
interests in, all of its other properties and assets, and none of
the properties and assets of such Person are subject to any
Liens, except Permitted Encumbrances; and each such Credit Party
has received all deeds, assignments, waivers, consents,
non-disturbance and recognition or similar agreements, bills of
sale and other documents, and duly effected all recordings,
filings and other actions necessary to establish, protect and
perfect such Person's right, title and interest in and to all
such real estate and other assets or property. Except as
described on SCHEDULE 3.6, (I) neither any Credit Party nor any
other party to any such Lease described on SCHEDULE 3.6 is in
default of its obligations thereunder or has delivered or
received any notice of default under any such Lease,
and no event has occurred which, with the giving of notice, the
passage of time or both, would constitute a default under any
such Lease; (ii) no Credit Party owns or holds, or is obligated
under or a party to, any option, right of first refusal or any
other contractual right to purchase, acquire, sell, assign or
dispose of any real property owned or leased by such Person
except as set forth therein; and (iii) no portion of any real
property owned or leased by any Credit Party has suffered any
material damage by fire or other casualty loss or a Release which
has not heretofore been completely repaired and restored to its
original condition or is being remedied. All permits required to
have been issued or appropriate to enable all real property owned
or leased by any Credit Party to be
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lawfully occupied and used for all of the purposes for which it
is currently occupied and used, has been lawfully issued and is,
as of the date hereof, in full force and effect.
3.7 RESTRICTIONS; NO DEFAULT. No contract, lease,
agreement or other instrument to which any Credit Party is a
party or by which any such Person or any of its properties or
assets is bound or affected and no provision of applicable law or
governmental regulation has or results in a Material Adverse
Effect, or insofar as any Credit Party can reasonably foresee
could have or result in a Material Adverse Effect. Except as
disclosed on SCHEDULE 3.14, no Credit Party is in default, and to
Borrower's knowledge no third party is in default, under or with
respect to any material contract, agreement, lease or other
instrument to which any such Credit Party is a party. No Default
or Event of Default has occurred and is continuing.
3.8 LABOR MATTERS. There are no strikes or other
labor disputes against any Credit Party that is pending or, to
Borrower's knowledge, threatened which could have or result in a
Material Adverse Effect. Hours worked by and payments made to
employees of each Credit Party have not been in violation of the
Fair Labor Standards Act or any other applicable law dealing with
such matters which could have or result in a Material Adverse
Effect. All payments due from each Credit Party on account of
employee health and welfare insurance which could reasonably be
expected to have or result in a Material Adverse Effect if not
paid have been paid or accrued as a liability on the books of
such Credit Party. No Credit Party has any obligation under any
collective bargaining agreement or any employment agreement.
There is no organizing activity involving any Credit Party
pending or threatened by any labor union or group of employees.
There are no representation proceedings involving employees of
any Credit Party pending or threatened with the National Labor
Relations Board, and no labor organization or group of employees
of any Credit Party have made a pending demand for recognition.
There are no complaints or charges against any Credit Party
pending or threatened to be filed with any federal, state, local
or foreign court, governmental agency or arbitrator based on,
arising out of, in connection with, or otherwise relating to the
employment or termination of employment by such Credit Party of
any individual.
3.9 SUBSIDIARIES, JOINT VENTURES AND AFFILIATES;
OUTSTANDING STOCK AND INDEBTEDNESS. (a) Except as set forth on
Schedule 3.9, the Borrower has no Subsidiaries. Except as set
forth on SCHEDULE 3.9, neither the Borrower nor any of its
Subsidiaries, is engaged in any joint venture or partnership with
any other Person, or is an Affiliate of any other Person. All
outstanding Stock and Indebtedness of Borrower and its
Subsidiaries are described on SCHEDULE 3.9.
(b) Within thirty (30) days after the date of this
Agreement, Borrower shall cause 000xx Xxxxxx to be dissolved and
its assets distributed to Borrower or Borrower shall cause 000xx
Xxxxxx to be merged or consolidated with or into Borrower with
Borrower being the surviving corporation from such merger or
consolidated. Borrower represents and warrants to Lender that
000xx Xxxxxx is an inactive Subsidiary and has no material assets
or income and 000xx Xxxxxx does not own or have any other
interest in any of the inventory or equipment located at any of
Borrower's stores (including without limitation its store at 0000
X.X. 000xx Xxxxxx, X. Xxxxx Xxxxx, Xxxxxxx).
3.10 GOVERNMENT REGULATION. No Credit Party is an
"investment company" or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company," as such
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terms are defined in the Investment Company Act of 1940 as
amended. No Credit Party is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power
Act, the Interstate Commerce Act or any other federal or state
statute that restricts or limits such Person's ability to incur
Indebtedness, pledge its assets or to perform its obligations
hereunder or under any other Loan Document and the making of any
Loans by Lender, the application of the proceeds of any such
advances and repayment thereof by Borrower or the other Credit
Parties and the consummation of the transactions contemplated by
this Agreement and the other Loan Documents will not violate any
provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
3.11 MARGIN REGULATIONS. None of the Credit Parties
owns any "margin security," as that term is defined in
Regulations G and U of the Board of Governors of the Federal
Reserve System (the "FEDERAL RESERVE BOARD"), and none of the
proceeds of any of the Loans will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry
any margin security or for any other purpose which might cause
any of the loans or other extensions of credit under this
Agreement to be considered a "purpose credit" within the
meaning of Regulation G, T, U or X of the Federal Reserve Board.
Borrower will not take or permit to be taken any action which
might cause this Agreement or any document or instrument
delivered pursuant hereto to violate any regulation of the
Federal Reserve Board.
3.12 TAXES. All federal, state, local and foreign tax
returns, reports and statements required to be filed by any
Credit Party has been filed with the appropriate Governmental
Authority and all Charges and other impositions shown thereon to
be due and payable have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto for
nonpayment thereof, or any such fine, penalty, interest, late
charge or loss has been paid. Each Credit Party has paid when
due and payable all Charges required to be paid by it. Proper
and accurate amounts have been withheld by each Credit Party from
its respective employees for all periods in full and complete
compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the
respective Governmental Authorities. SCHEDULE 3.12 sets forth
those taxable years for which any Credit Party's tax returns are
being audited by the IRS or any other applicable Governmental
Authority and any assessments or threatened assessments in
connection with such audit or which are otherwise outstanding.
Except as described on SCHEDULE 3.12, none of the Credit Parties
has (I)executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having
the effect of extending, the period for assessment or collection
of any Charges, (ii)filed a consent pursuant to IRC Section
341(f) or agreed to have IRC Section 341(f) (2) apply to any
dispositions of subsection (f) assets (as such term is defined in
IRC Section 341(f)(4)), or (iii) agreed to make any adjustment
under IRC Section 481(a) by reason of a change in accounting
method or otherwise. None of the Credit Parties has any
obligations under any tax sharing agreement except as disclosed
on SCHEDULE 3.12.
3.13 ERISA. (a) SCHEDULE 3.13 lists all Plans
maintained or contributed to by any Credit Party and all
Qualified Plans maintained or contributed to by any other ERISA
Affiliate, and separately identifies the Title IV Plans,
Multiemployer Plans, any multiple employer plans subject to
Section 4064 of ERISA, unfunded Pension Plans, Welfare Plans and
Retiree Welfare Plans. Each Qualified Plan has been determined
by the IRS to qualify under Section 401 of the IRC, and the
trusts
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created thereunder have been determined to be exempt from tax
under the provisions of Section 501 of the IRC, and to the best
knowledge of Borrower nothing has occurred which would cause the
loss of such qualification or tax-exempt status. Each Plan is in
compliance with the applicable provisions of ERISA and the IRC,
including the filing of reports required under the IRC or ERISA
which are true and correct as of the date filed, and with respect
to each Plan, other than a Qualified Plan, all required
contributions and benefits have been paid in accordance with the
provisions of each such Plan. Neither any Credit Party nor any
other ERISA Affiliate, with respect to any Qualified Plan, has
failed to make any contribution or pay any amount due as required
by Section 412 of the IRC or Section 302 of ERISA or the terms of
any such Plan. None of the Credit Parties has been engaged in a
prohibited transaction, as defined in Section 4975 of the IRC or
Section 406 of ERISA, in connection with any Plan, which would
subject any or all of the Credit Parties (after giving effect to
any exemption) to a material tax on prohibited transactions
imposed by Section 4975 of the IRC or any other material
liability.
(b) Except as set forth on SCHEDULE 3.13: (I) no
Title IV Plan has any Unfunded Pension Liability; (ii) No ERISA
Event or event described in Section 4062(e) of ERISA with respect
to any Title IV Plan has occurred or is reasonably expected to
occur; (iii) there are no pending, or to the knowledge of
Borrower, threatened claims, actions or lawsuits (other than
claims for benefits in the normal course), asserted or instituted
against (x) any Plan or its assets, (y) any fiduciary with
respect to any Plan or (z) any Credit Party or any other ERISA
Affiliate with respect to any Plan; (iv) neither any Credit Party
nor any other ERISA Affiliate has incurred or reasonably expects
to incur any Withdrawal Liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Section 4201 of ERISA as a
result of a complete or partial withdrawal from a Multiemployer
Plan; (v) within the last five years, neither Credit Party nor or
any other ERISA Affiliate has engaged in a transaction which
resulted in a Title IV Plan with Unfunded Pension Liabilities
being transferred outside of the "controlled group" (within the
meaning of Section 4001(a)(14) of ERISA) of any such entity; (vi)
no plan which is a Retiree Welfare Plan provides for continuing
benefits or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment
for reasons other than retirement (except as may be required by
Section 4980B of the IRC and at the sole expense of the
participant or the beneficiary of the participant); (vii) the
Credit Parties and the other ERISA Affiliates have complied with
the notice and continuation coverage requirements of Section
4980B of the IRC and the regulations thereunder except where the
failure to comply could not reasonably be expected have or result
in any Material Adverse Effect; and (viii) no liability under any
Plan has been funded, nor has such obligation been satisfied,
with the purchase of a contract from an insurance company that is
not rated AAA by the Standard & Poor's Corporation and the
equivalent by each other nationally recognized rating agency.
3.14 NO LITIGATION. Except as set forth on
SCHEDULE 3.14, no action, claim or proceeding is now pending or,
to the knowledge of Borrower, threatened against any Credit Party
at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, or
local government or of any agency or subdivision thereof, or
before any arbitrator or panel of arbitrators, (I) which
challenges any Credit Party's right, power or competence to enter
into or perform any of its obligations under any Loan Document,
or the validity or enforceability of any Loan Document or any
action hereunder or thereunder or (ii) which if determined
adversely, could reasonably be expected to have or result in a
Material Adverse Effect, nor to the knowledge of Borrower does a
state of facts exist which is reasonably likely to give rise to
such proceedings.
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3.15 BROKERS. No broker or finder acting on behalf
of Borrower or any other Credit Party brought about the
obtaining, making or closing of the loans made pursuant to this
Agreement or the other credit transactions contemplated by the
Loan Documents and none of the Credit Parties has any obligation
to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.16 EMPLOYMENT MATTERS. Except as set forth on
SCHEDULE 3.16, there are no (I) employment, consulting or
management agreements covering management of any or all of the
Credit Parties, or (ii) collective bargaining agreements or other
labor agreements covering any employee of any Credit Party. A
true and complete copy of each such agreement has been furnished
to Lender by Borrower.
3.17 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES.
Except as otherwise set forth on SCHEDULE 3.17, each Credit Party
owns all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications,
and trade names necessary to continue to conduct its business as
heretofore conducted by it, now conducted by it and proposed to
be conducted by it, each of which is listed, together with Patent
and Trademark Office application or registration numbers, where
applicable, on SCHEDULE 3.17. SCHEDULE 3.17 lists all tradenames
or other names under which each Credit Party conducts business.
Each Credit Party conducts its business without infringement or
claim of infringement of any license, patent, copyright, service
xxxx, trademark, trade name, trade secret or other intellectual
property right of others, except where such infringement or claim
of infringement could not have or result in a Material Adverse
Effect. To the Borrower's knowledge there is no infringement or
claim of infringement by others of any material license, patent,
copyright, service xxxx, trademark, trade name, trade secret or
other intellectual property right of any Credit Party.
3.18 FULL DISCLOSURE. No information contained in
this Agreement, the other Loan Documents, the Projections, the
Financial Statements or any written statement furnished by or on
behalf of any Credit Party pursuant to the terms of this
Agreement, which has previously been delivered to Lender,
contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained
herein or therein not misleading in light of the circumstances
under which they were made. No event has occurred since July 31,
1997 and is continuing which has had or could reasonably be
expected to have or result in a Material Adverse Effect.
3.19 HAZARDOUS MATERIALS. To the Borrower's
knowledge the Subject Property is free of any material
contamination from any Hazardous Material. In addition, SCHEDULE
3.19 discloses potential material environmental liabilities of
any Credit Party of which the Borrower has knowledge (I) related
to noncompliance with the Environmental Laws or (ii) associated
with the Subject Property. Except as set forth on SCHEDULE 3.19,
none of the Credit Parties has caused or suffered to occur any
material Release of any Hazardous Material at, under, above or
within any of the Subject Property.
3.20 INSURANCE POLICIES. SCHEDULE 3.20 PART II lists
all insurance of any nature maintained for current occurrences by
the Credit Parties, as well as a summary of the terms of such
insurance. Borrower covenants that such Insurance complies with
and shall at all times comply with the standards set forth on
SCHEDULE 3.20, PART I. Within seven (7) days after the date of
this Agreement Borrower shall deliver to Lender a Certificate of
Insurance in form and substance satisfactory to Lender with
respect to the insurance coverage of Guarantor and showing Lender
as loss payee.
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3.21 CASH MANAGEMENT AND OTHER DEPOSIT ACCOUNTS.
SCHEDULE 3.21 lists all banks at which Borrower maintains any
deposit and/or other such accounts, including, without
limitation, the Cash Management Accounts, and such Schedule
correctly identifies the name, address and telephone number of
each such bank, the name in which each such account is held at
such bank, a description of the purpose of each such account, and
the complete account number for each such account. Borrower
shall not establish or maintain (or permit any of its
Subsidiaries to establish or maintain) any other deposit accounts
with any bank or other financial institution.
3.22 SOLVENT FINANCIAL CONDITION. On the date of this
Agreement and after giving effect to the initial loans hereunder,
after giving effect to each subsequent Loan made hereunder,
Borrower is and will be Solvent.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 REPORTS AND NOTICES. Borrower covenants and
agrees that from and after the Closing Date and until the
Termination Date, it shall deliver or cause to be delivered to
Lender the Financial Statements, notices and Projections at the
times and in the manner set forth on SCHEDULE 4.1 and Borrower
shall comply with all other covenants set forth on such schedule.
4.2 COMMUNCATION WITH ACCOUNTANTS. Borrower
authorizes (and shall cause each of the other Credit Parties to
authorize) Lender to communicate directly with its and the other
Credit Parties' independent certified public accountants and tax
advisors and authorizes those accountants to disclose to Lender
any and all financial statements and other supporting financial
documents and schedules including copies of any management letter
with respect to the business, financial condition and other
affairs of Borrower. At or before the Closing Date, Borrower
shall (and shall cause each of the other Credit Parties to)
deliver a letter addressed to such accountants and tax advisors
instructing them to comply with the provisions of this SECTION
4.2 and authorizing Lender to rely on the certified financial
statements prepared by such accountants. Each such letter shall
be in the form of EXHIBIT H or in such other form as may be
acceptable to Lender.
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees (for itself and the other
Credit Parties) that, unless Lender shall otherwise consent in
writing, from and after the date hereof and until the Termination
Date:
5.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS.
Borrower shall, and shall cause each of the other Credit Parties
to, (a) do or cause to be done all things necessary to preserve
and keep in full force and effect such Person's corporate
existence and its rights and franchises; (b) continue to conduct
such Person's business substantially as now conducted or as
otherwise permitted hereunder (without limiting the generality of
this clause (b), Borrower shall not make any material change in
the mix or quality of its Inventory); (c) at all times maintain,
preserve and protect all of such Person's trademarks, trade names
and all other intellectual property and rights as licensee or
licensor thereof, and preserve all the remainder of such Person's
property, in use or useful in the conduct of its business, and
keep the same in good repair, working order and condition (taking
into consideration ordinary wear and tear) and from time to time
make, or cause to be made, all necessary or appropriate repairs,
replacements
-15-
and improvements thereto consistent with industry practices, so
that the business carried on in connection therewith may be
properly and advantageously conducted at all times; and (d) in
the case of each such Credit Party, transact business only in its
corporate name or such fictitious or trade names as are expressly
disclosed in the Security Agreement executed by such Credit
Party.
5.2 PAYMENT OF OBLIGATIONS. (a) Borrower shall, and
shall cause each of the other Credit Parties to, (I) pay and
discharge or cause to be paid and discharged all such Person's
Obligations, and (ii) prior to an Event of Default, pay and
discharge, or cause to be paid and discharged, such Person's
Indebtedness other than the Obligations, and, subject to SECTION
5.2(b), pay and discharge all (A) Charges imposed upon such
Person, its income and profits, or any of its property (real,
personal or mixed), and (B) lawful claims for labor, materials,
supplies and services or otherwise, before any thereof shall
become in default.
(b) Any Credit Party may in good faith contest, by
proper legal actions or proceedings, the validity or amount of
any Charges or claims arising under SECTION 5.2(a)(ii); PROVIDED,
that at the time of commencement of any such action or
proceeding, and during the pendency thereof (I) no Default or
Event of Default shall have occurred, (ii) adequate reserves with
respect thereto are maintained on the books of the contesting
Person in accordance with GAAP, (iii) such contest operates to
suspend collection of the contested Charges or claims and such
contest is maintained and prosecuted continuously and with
diligence, (iv) none of the Collateral would be subject to
forfeiture or loss or any Lien by reason of the institution or
prosecution of such contest, (v) no Lien shall exist, be imposed
or be attempted to be imposed for such Charges or claims during
such action or proceeding, (vi) the contesting Person shall
promptly pay or discharge such contested Charges and all
additional charges, interest, penalties and expenses, if any, and
shall deliver to Lender evidence acceptable to Lender of such
compliance, payment or discharge, if such contest is terminated
or discontinued adversely to the contesting Person, and (vii)
Lender has not advised Borrower in writing that Lender reasonably
believes that nonpayment or nondischarge thereof could reasonably
be expected to have or result in a Material Adverse Effect.
5.3 BOOKS AND RECORDS. Borrower shall, and shall
cause each of the other Credit Parties to, keep adequate records
and books of account with respect to such Person's business
activities, in which proper entries, reflecting all of its
financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements.
5.4 LITIGATION. Borrower shall notify Lender in
writing, promptly upon learning thereof, of any litigation
commenced or threatened against Borrower or any other Credit
Party, and of the institution against Borrower or any other
Credit Party of any suit or administrative proceeding, that (a)
may involve an amount in excess of $50,000 or (b) could
reasonably be expected to have or result in a Material Adverse
Effect if adversely determined.
5.5 INSURANCE. (a) Borrower shall, at its cost and
expense, maintain or cause to be maintained the policies of
insurance described on SCHEDULE 3.20 in form and with insurers
recognized as adequate by Lender. Such polices shall be in such
amounts as are set forth on SCHEDULE 3.20. Borrower shall notify
Lender promptly of any occurrence causing a material loss or
decline in value of any of its real or personal property and the
estimated (or actual, if available) amount of such loss or
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decline. In the event Borrower at any time or times hereafter
shall fail to obtain or maintain (or cause to be obtained or
maintained) any of the policies of insurance required above or to
pay (or cause to be paid) any premium in whole or in part
relating thereto, Lender, without waiving or releasing any
Obligations or Default or Event of Default hereunder, may at any
time or times thereafter (but shall not be obligated to) obtain
and maintain such policies of insurance and pay such premium and
take any other action with respect thereto which Lender deems
advisable. All sums so disbursed, including reasonable
attorneys' fees, court costs and other charges related thereto,
shall be payable, on demand, by Borrower to Lender and shall be
additional Obligations hereunder secured by the Collateral,
PROVIDED, that if and to the extent Borrower fail to promptly pay
any of such sums upon Lender's demand therefor, Lender is
authorized to, and at its option may, make or cause to be made
Revolving Credit Loans on behalf of Borrower for payment thereof.
(b) Borrower shall deliver to Lender endorsements to
all of its general liability and other liability policies naming
Lender an additional insured.
5.6 COMPLIANCE WITH LAWS. (a) Borrower shall, and
shall cause each of the other Credit Parties to, comply in all
material respects with all federal, state, local and foreign laws
and regulations applicable to each such Credit Party and its
assets and operations, including, without limitation, those
relating to licensing, environmental, occupational safety,
transportation, ERISA, and labor matters.
5.7 AGREEMENTS. Borrower shall, and shall cause each
of the other Credit Parties to, perform within all required time
periods (after giving effect to any applicable grace periods) all
of such Person's obligations and enforce all of such Person's
rights under each agreement to which such Person is a party,
including, without limitation, any lease and customer contracts
to which such Person is a party where the failure to so perform
and enforce could have or result in a Material Adverse Effect.
Borrower shall not, and shall not permit any other Credit Party
to, terminate or modify any provision of any agreement to which
such Person is a party which termination or modification could
reasonably be expected to have or result in a Material Adverse
Effect.
5.8 SUPPLEMENTAL DISCLOSURE. On the request of Lender
(in the event that such information is not otherwise delivered by
Borrower to Lender pursuant to this Agreement), so long as there
are Obligations outstanding hereunder, Borrower will supplement
(or cause to be supplemented) each schedule or representation
herein or in the other Loan Documents with respect to any matter
hereafter arising which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or
described in such schedule or as an exception to such
representation or which is necessary to correct any information
in such schedule or representation which has been rendered
inaccurate or misleading thereby; PROVIDED, however, that such
supplement to such schedule or representation shall not be deemed
an amendment thereof unless and until expressly consented to by
Lender in writing, and no such amendments, except as the same may
be consented to by Lender in a writing which expressly includes a
waiver, shall be or be deemed a waiver by Lender of any Default
or Event of Default disclosed therein.
5.9 EMPLOYEE PLANS. Borrower shall notify Lender of
(I) any and all claims, actions, or lawsuits asserted or
instituted, and of any threatened litigation or claims, against
any Credit Party or
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any other ERISA Affiliate in connection with any Plan maintained,
at any time, by any such Person or to which any such Person has
or had at any time any obligation to contribute, or/and against
any such Plan itself, or against any fiduciary of or service
provided to any such Plan, and (ii) the occurrence of any
"Reportable Event" with respect to any Pension Plan of any Credit
Party or any other ERISA Affiliate.
5.10 ENVIRONMENTAL MATTERS. Borrower shall, and
shall cause each of the other Credit Parties to, (I) comply in
all material respects with the Environmental Laws applicable to
such Person, (ii) notify Lender promptly after such Person
becomes aware of any material Release upon any premises owned or
occupied by such Person, and (iii) promptly forward to Lender a
copy of any order, notice, permit, application, or any
communication or report received by such Person in connection
with any such material Release or any other matter relating to
the Environmental Laws that may materially and adversely affect
such premises. The provisions of this SECTION 5.10 shall apply
whether or not the Environmental Protection Agency, any other
federal agency or any state or local environmental agency has
taken or threatened any action in connection with any Release or
the presence of any Hazardous Materials.
5.11 LANDLORD'S AGREEMENTS. Upon the occurrence of an
Event of Default hereunder, and if Lender so requests, Borrower
shall use its best efforts to obtain a landlord's agreement in
substantially the form of EXHIBIT F (or in such other form as may
be acceptable to Lender) from the lessor of each leased premises
currently being used by any Credit Party (except those lessors
from whom Borrower was unable to obtain a landlord's agreement
for GE Capital) and the lessor of any new leased premises,
subject to such exceptions as may be expressly approved in
writing by Lender in its discretion.
5.12 CONFIDENTIALITY AND PRESS RELEASES. Lender and
Borrower agree that the terms and conditions of this Agreement
are confidential. Borrower shall not use the name of or refer
to Music Funding I, LLC (or any Affiliate thereof) or "Music
Funding," or issue any press release regarding or make other
public disclosure of the existence of this Agreement or its
terms, without the prior written consent of Lender, except as may
be required by law; PROVIDED, that to the extent required by law,
Borrower may make such disclosures, but only if Borrower shall
first have afforded Lender a reasonable opportunity to review and
comment upon any such legally required disclosure, press release,
or use of such name.
6. NEGATIVE COVENANTS
Borrower covenants and agrees (for itself and the other
Credit Parties) that, without Lender's prior written consent,
from and after the date hereof until the Termination Date:
6.1 MERGERS, ETC. No Credit Party shall directly or
indirectly, by operation of law or otherwise, merge with,
consolidate with, acquire all or substantially all of the assets
or capital stock of, or otherwise combine with, any Person or
form any Subsidiary; PROVIDED, however, that any Subsidiary of
Borrower may merge, consolidate or otherwise combine with or sell
its assets to Borrower or another wholly-owned Subsidiary of
Borrower so long as Borrower or such other wholly-owned
Subsidiary is the surviving or acquiring entity in each such case
and no other Default or Event of Default is caused thereby.
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6.2 INVESTMENTS; LOANS AND ADVANCES. No Credit Party
shall make any investment in, or make any loans or advances of
money to any Person, through the direct or indirect holding of
securities or otherwise, except (I) to the extent permitted under
SECTION 6.1 above, (ii) Borrower may make loans or advances from
time to time to any other Credit Party so long as no other
Default or Event of Default is caused thereby; PROVIDED, however,
that the sum of the aggregate outstanding principal balance of
all loans or advances made by Borrower to Guarantor plus
Borrower's initial $350,000 capital contribution to Guarantor
shall not exceed $750,000 at any one time, and (iii) Borrower may
hold the notes described on SCHEDULE 2 to the Security Agreement.
6.3 INDEBTEDNESS. No Credit Party shall create,
incur, assume or permit to exist any Indebtedness, except (I) the
Obligations, (ii) the Obligations as defined in the GE Capital
Credit Agreement (iii) any other Indebtedness secured by Liens
permitted under SECTION 6.7, (iv) all deferred taxes, (v) any
Indebtedness of any Subsidiary to Borrower to the extent
permitted under SECTION 6.2 above, (vi) Purchase Money
Indebtedness to the extent such Indebtedness does not exceed
$25,000 in aggregate outstanding principal amount at any one
time, and (vii) any other Indebtedness set forth on SCHEDULE 3.9.
6.4 TRANSACTIONS WITH AFFILIATES. No Credit Party
shall directly or indirectly purchase, acquire or lease any
property from or sell, transfer or lease any property to, or
render any service to or obtain any service from, or otherwise
deal with, in the ordinary course of business or otherwise, any
Affiliate of such Credit Party except upon terms which are no
less favorable to such Credit Party than if the relationship of
Affiliate did not exist.
6.5 CAPITAL STRUCTURE AND BUSINESS. None of the
Credit Parties shall: (I) make any changes in any of its business
objectives, purposes, or operations which could materially and
adversely affect the repayment of the Obligations or have or
result in a Material Adverse Effect, (ii) make any change in
their respective capital structures as described on SCHEDULE 3.9
(including, without limitation, the issuance of any shares of
stock, warrants, or other securities convertible into stock or
any revision of the terms of its outstanding Stock; (iii) amend
their respective certificates or articles of incorporation (or
other charter instruments) or by-laws; or (iv) form or acquire
any Subsidiaries after the date of this Agreement. None of the
Credit Parties shall engage in any business other than the
respective business currently engaged in by each such Credit
Party.
6.6 GUARANTEED INDEBTEDNESS. None of the Credit
Parties shall incur any Guaranteed Indebtedness except by
endorsement of instruments or items of payment for deposit or
collection in the ordinary course of business.
6.7 LIENS. None of the Credit Parties shall create or
permit to exist any Lien on any of such Person's properties or
assets (including without limitation such Person's real property
assets) except (I) presently existing or hereafter created Liens
in favor of Lender, (ii) Liens set forth on SCHEDULE 6.7, (iii)
Purchase Money Liens securing Purchase Money Indebtedness to the
extent permitted under SECTION 6.3 above, (iv) Borrower may
obtain a loan of up to $3,500,000 in principal amount to
refinance its Miami Beach, Florida store and Borrower may xxxxx x
Xxxx on such store to secure such loan PROVIDED that (x) such
Lien does not attach to any of Borrower's Inventory in such
store, (y) the proceeds of such loan are used to repay any
Revolving Credit Loans as defined in the GE Capital Credit
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Agreement which may be then outstanding, and (z) if such loan is
not more than $2,000,000 in original principal amount, Borrower
shall cause the lender thereof to agree in writing to give Lender
prior written notice of any foreclosure of such Lien (but such
lender's right to conduct such foreclosure shall not be impaired
if it fails to give such notice to Lender), and (v) other
Permitted Encumbrances. Borrower also shall defend, and shall
cause each of the other Credit Parties to defend, the right,
title and interest of Lender and Borrower's or such other Credit
Party's rights, titles and interest in, to and under the
Collateral and the Proceeds thereof against the claims and
demands of all Persons whomsoever.
6.8 SALE OF ASSETS. None of the Credit Parties shall
sell, transfer, convey, assign or otherwise dispose of any such
Person's assets or properties, including, without limitation, its
Accounts; PROVIDED, however, that the foregoing shall not
prohibit (I) the sale of Inventory in the ordinary course of
business, (ii) any sale of obsolete, unnecessary or scrap
Equipment in the ordinary course of business and in accordance
with the past practices of such Credit Party, (iii) any other
sale of other assets expressly permitted by SECTION 6.1, (iv) any
Lien expressly permitted under SECTION 6.7, or (v) any sale of
such Person's own Stock provided no other Default or Event of
Default is caused thereby.
6.9 EVENTS OF DEFAULT. Borrower shall not, and shall
not permit any other Credit Party to, take any action or omit to
take any action, which act or omission would constitute (a) a
Default or an Event of Default pursuant to, or noncompliance with
any of, the terms of any of the Loan Documents or (b) a material
default or an event of default pursuant to, or noncompliance
with, any other contract, lease, mortgage, deed of trust or
instrument to which such Person is a party or by which it or any
of its property is bound, or any document creating a Lien.
6.10 ERISA. Neither any Credit Party nor any other
ERISA Affiliate shall without Lender's prior written consent
acquire any new ERISA Affiliate that maintains or has an
obligation to contribute to a Pension Plan that has either an
accumulated funding deficiency, as defined in Section 302 of
ERISA, or any "unfunded vested benefits," as defined in Section
4006(a)(3)(e)(iii) of ERISA, in the case of any plan other than a
Multiemployer Plan, and in Section 4211 of ERISA in the case of a
Multiemployer Plan. Additionally, neither any Credit Party nor
any other ERISA Affiliate shall, without Lender's prior written
consent, terminate any Pension Plan that is subject to Title IV
of ERISA where such termination could reasonably be anticipated
to result in liability to any such Person; permit any accumulated
funding deficiency, as defined in Section 302(a)(2) of ERISA, to
be incurred with respect to any Pension Plan; fail to make any
contributions or fail to pay any amounts due and owing as
required by the terms of any Plan before such contributions or
amounts become delinquent; make a complete or partial withdrawal
(within the meaning of Section 4201 of ERISA) from any
Multiemployer Plan; or at any time fail to provide Lender with
copies of any Plan documents or governmental reports or filings,
if reasonably requested by Lender.
6.11 FINANCIAL COVENANTS. Borrower shall not breach
or fail to comply with any of the Financial Covenants (the
"FINANCIAL COVENANTS") set forth on SCHEDULE 6.11.
6.12 HAZARDOUS MATERIALS. Borrower shall not, and
shall not permit any other Credit Party to, cause or permit any
material Release or the presence, use, generation, manufacture,
installation, Release, discharge, storage or disposal of any
Hazardous Materials on, under, in, above, or about any of the
Subject Property or the transportation of any Hazardous Materials
to or from any of the Subject
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Property where such Release or presence, use, generation,
manufacture, installation, discharge, storage or disposal would
violate any Environmental Laws in any material respects.
6.13 SALE-LEASEBACKS. None of the Credit Parties
shall engage in any sale-leaseback or similar transaction
involving any of such Person's assets.
6.14 CANCELLATION OF INDEBTEDNESS. None of the Credit
Parties shall cancel any claim or debt owing to such Person,
except for reasonable consideration and in the ordinary course of
its business.
6.15 RESTRICTED PAYMENTS. Borrower shall not make any
Restricted Payment.
7. TERM.
7.1 TERMINATION. The financing arrangements
contemplated hereby shall be in effect until the Commitment
Termination Date; PROVIDED, HOWEVER, that in the event of a
prepayment of any part of the Obligations prior to the Commitment
Termination Date with funds borrowed from any Person other than
Lender or GE Capital, pursuant to this Agreement, all of the
Revolving Credit Loans shall immediately become due and payable
in full and Borrower shall simultaneously therewith pay to
Lender, in full, in immediately available funds, all current and
liquidated Obligations arising under any of the Loan Documents
and provide for payment of all other Obligations in a manner
satisfactory to Lender.
7.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF
FINANCING ARRANGEMENT. Except as otherwise expressly provided for
in the Loan Documents, no termination or cancellation (regardless
or cause or procedure) of any financing arrangements under this
Agreement shall in any way affect or impair the obligations,
duties and liabilities of Borrower or any other Credit Party or
the rights of Lender relating to any unpaid Obligations, due or
not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any
transaction or event, the performance of which is not required
until after the Commitment Termination Date. Except as otherwise
expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and
representations of or binding upon the Borrower and the other
Credit Parties, and all rights and Liens of Lender, all as
contained in the Loan Documents shall not terminate
or expire, but rather shall survive such termination or
cancellation and shall continue in full force and effect until
such time as all of the Obligations have been indefeasibly paid
in full in accordance with the terms of the agreements creating
such Obligations.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any one or
more of the following events (regardless of the reason therefor)
shall constitute an "Event of Default" hereunder:
(a) Borrower shall fail to make any payment in
respect of any Obligations hereunder or under any of the other
Loan Documents when due and payable or declared due and payable,
including, without limitation, any payment of principal of, or
interest on, the Revolving Credit
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Loans or any payment of any Fees, and, in the case of any failure
to make any payment of interest or Fees, the continuation of such
failure for five (5) days after the due date of such payment.
(b) Borrower shall fail or neglect to perform, keep
or observe any of the provisions of SECTION 1.7, or SECTION 6,
including, without limitation, any of the provisions set forth on
ANNEX B and SCHEDULE 6.11, respectively, or Borrower shall fail
to deliver when due any of the notices or other documents
required by paragraphs (a), (b), (c), (e), (h) or (I) of SCHEDULE
4.1.
(c) Borrower shall fail or neglect to perform, keep
or observe any term or provision of this Agreement (other than
any such term or provision referred to in PARAGRAPHS (a) or (b)
above), and the same shall remain unremedied for a period ending
on the first to occur of ten (10) days after Borrower shall
receive written notice of any such failure from Lender or ten
(10) days after Borrower shall become aware thereof.
(d) A default shall occur in the payment of any
amount (whether principal, interest or otherwise) payable on any
Indebtedness of any Credit Party (other than the Obligations) or
a default shall occur in the performance of any other agreement,
term or covenant contained in any agreement, instrument or other
document under which any of such Indebtedness is created,
evidenced, secured or guaranteed if the effect of such default is
to entitle (after giving effect to any applicable notice and/or
cure rights) the holder or holders of such Indebtedness (or any
trustee therefor) to cause such Indebtedness to become due at or
prior to its stated maturity or to otherwise demand payment
thereof; PROVIDED, however, that in the case of any Indebtedness
noted above, the aggregate then outstanding balance of such
Indebtedness must equal or exceed $25,000.
(e) Any representation or warranty of Borrower or any
other Credit Party made herein or in any other Loan Document or
in any written statement delivered pursuant thereto or hereto or
in any report, financial statement or certificate made or
delivered to Lender by Borrower or any other Credit Party
pursuant thereto or hereto shall be untrue or incorrect in any
material respect as of the date when made or deemed made
(including those made or deemed made pursuant to SECTION 2.2).
(f) Any of the assets of any or all of Credit Parties
having an individual or aggregate value (based on the higher of
book value or fair market value) of $25,000 or more shall be
attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of such Person
and such matter shall remain unstayed or undismissed for thirty
(30) consecutive days; or any Person other than a Credit Party
shall apply for the appointment of a receiver, trustee or
custodian for any Credit Party's assets and such matter shall
remain unstayed or undismissed for thirty (30) consecutive days;
or any Credit Party shall have concealed removed or permitted to
be concealed or removed, any part of such Person's property, with
intent to hinder delay or defraud its creditors or any of them or
made or suffered a transfer of any of its property or the
incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced
against any Credit Party in a court having competent jurisdiction
seeking a decree or order (I) under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other
applicable federal, state or foreign
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bankruptcy, insolvency, moratorium or other similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee
or sequestrator (or similar official) for such Credit Party or of
any substantial part of its or their properties, or (iii)
ordering the winding up or liquidation of the affairs of such
Credit Party and such case or proceeding shall remain undismissed
or unstayed for thirty (30) consecutive days or such court shall
enter a decree or order granting the relief sought in such case
or proceeding.
(h) Any Credit Party shall (I) file a petition
seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable
federal, state or foreign bankruptcy, insolvency, moratorium or
other similar law, (ii) consent to the institution of proceedings
thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar
official) of such Credit Party or of any substantial part of such
Person's properties, (iii) fail generally pay its debts as such
debts become due, or (iv) take any corporate action in
furtherance of any such action.
(i) Final judgment or judgments (after the expiration
of all times to appeal therefrom) for the payment or money in
excess of $25,000 in the aggregate shall be rendered against any
or all of the Credit Parties unless the same shall be (I) fully
covered by insurance in accordance with SECTION 5.5 or (ii)
vacated, stayed, bonded, paid or discharged within a period of
thirty (30) days from the date of such judgment.
(j) Any other event shall have occurred (including
without limitation any material adverse changes by any Major
Label in its inventory return practices or policy) which has had
or could reasonably be expected to have a Material Adverse Effect
and Lender shall have given the Borrower notice thereof.
(k) Any provisions of any Collateral Document, after
delivery thereof pursuant to SECTION 2.1, shall for any reason
cease to be valid, binding and enforceable in accordance with its
terms, or any Lien created under any Collateral Document shall
cease to be valid and perfected Lien having the first priority
(or other priority if and as expressly permitted under the
Collateral Document establishing such Lien) in any of the
Collateral purported to be covered thereby.
(l) The acquisition after the date of this Agreement
by any Person or by any two or more such Persons acting in
concert of beneficial ownership (within the meaning of Rule 13d-3
of the Securities and Exchange Commission) of twenty percent
(20%) or more of the outstanding Voting Stock of Borrower.
(m) The occurrence of an Event of Default under (and
after giving effect to any notice and/or cure rights expressly
provided in) any of the other Loan Documents.
8.2 REMEDIES. If any Event of Default shall have
occurred and be continuing, Lender may, without notice, take any
one or more of the following actions: (a) increase the rate of
interest applicable to the Loans to the Default Rate, all as
provided in SECTION 1.4; or (b) terminate this facility with
respect to further Loans, whereupon any further Loans shall be
made or incurred solely in Lender's sole discretion. If any
Event of Default shall have occurred and be continuing, Lender
also may, without notice, (I) declare all or any portion of the
Obligations to be forthwith due and payable,
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whereupon such Obligations shall become and be due and payable,
without presentment, demand, protest or further notice of any
kind, all of which are expressly waived by Borrower; and (ii)
exercise any rights and remedies provided to Lender under any or
all of the Loan Documents and/or at law or equity, including all
remedies provided under the Code; PROVIDED, however, that upon
the occurrence of an Event of Default specified in SECTIONS
8.1(f), (g) or (h), the Obligations shall become immediately due
and payable and any obligation on Lender's part to make any
further Loans shall immediately terminate, all without
declaration, notice or demand by Lender.
8.3 WAIVERS BY BORROWER. Except as otherwise provided
for in this Agreement and applicable law, Borrower hereby waives
(I) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration,
protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper
and guaranties at any time held by Lender on which Borrower may
in any way be liable, and hereby ratifies and confirms whatever
Lender may do in this regard, (ii) all rights to notice and a
hearing prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, the Collateral or any
bond or security which might be required by any court prior to
allowing Lender to exercise any of its remedies, and (iii) the
benefit of all valuation, appraisal and exemption laws. Borrower
acknowledges that each of it and the other Credit Parties has
been advised by counsel of such Person's choice with respect to
this Agreement, the other Loan Documents and the transactions
evidenced by this Agreement and the other Loan Documents.
9. SUCCESSORS AND ASSIGNS
9.1 SUCCESSORS AND ASSIGNS. This Agreement and the
other Loan Documents shall be binding on and shall inure to the
benefit of Borrower, Lender, and their respective successors and
assigns, except as otherwise provided herein or therein.
Borrower may not assign, transfer, hypothecate or otherwise
convey any of its rights, benefits, obligations or duties
hereunder or under any of the other Loan Documents without the
prior express written consent of Lender. Any such purported
assignment, transfer, hypothecation or other conveyance by
Borrower without the prior express written consent of Lender
shall be void. Lender will have the right to resell (through
syndication, assignment or participation) debt provided by Lender
to Borrower under the Loan Documents, subject to the written
approval by Borrower (not to be unreasonably withheld), but such
prior approval requirement shall not apply if any Default or
Event of Default then exists. Subject to customary
confidentiality conditions for transactions of this
type, the Borrower shall assist Lender in whatever manner that
Lender deems necessary or desirable in order to effectuate any
such resale or syndication, including, but not limited to, the
preparation of any offering materials and the participation of
relevant members of Borrower's management in any meetings
connected therewith with the correctness, completeness and
accuracy of all information provided by, or relating to, Borrower
and included in such offering materials certified by the
appropriate officers of Borrower. The terms and provisions of
this Agreement and the other Loan Documents are for the purpose
of defining the relative rights and obligations of the Credit
Parties and Lender with respect to the transactions contemplated
hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Agreement or any of the other
Loan Documents.
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10. MISCELLANEOUS
10.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT.
The Loan Documents, together with the Subordination Agreement,
constitute the complete agreement between the parties with
respect to the subject matter thereof, supersede all prior
agreements, understandings, correspondence, negotiations or
inducements (whether express or implied, or oral or written), and
may not be modified, altered or amended except by an agreement in
writing signed by Borrower and Lender. Without limiting the
generality of the immediately preceding sentence, any term sheet,
letter of interest, letter of intent or commitment letter from
Lender to Borrower or any of its affiliates predating this
Agreement and relating to a financing of substantially similar
form, purpose or effect shall be merged with and into and
superseded by this Agreement.
10.2 FEES AND EXPENSES. Borrower agrees to reimburse
Lender for all reasonable out-of-pocket expenses incurred by
Lender in connection with (x) the organization of Music Funding
(including the reasonable fees and expenses of all of Lender's
attorneys and consultants retained in connection with the
organization of Music Funding and advice in connection
therewith), (y) the preparation, negotiation or consummation of
the Loan Documents (including the reasonable fees and expenses of
all of Lender's attorneys and consultants retained in connection
with the Loan Documents and the transactions contemplated thereby
and advice in connection therewith) and (z) wire transfers to the
account of the Borrower. Borrower agrees to reimburse Lender for
all reasonable fees, costs and expenses incurred by Lender,
including, without limitation, the reasonable fees, costs and
expenses of counsel or other consultants, for advice, assistance,
or other representation in connection with:
(i) the forwarding to Borrower or any other Person on
behalf of Borrower by Lender of the proceeds of
any Loans;
(ii) any amendment, modification, termination or waiver
of, or consent with respect to, any of the Loan
Documents or advice in connection with
the administration of the Loans made or
other credit extended pursuant hereto or its
rights hereunder or thereunder;
(iii) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any
way relating to the Collateral, any of the
Loan Documents, or any other agreement to be
executed or delivered in connection therewith
or herewith, whether as party, witness,
or otherwise, including any litigation,
contest, dispute, suit, case, proceeding or
action, and any appeal or review thereof, in
connection with a case commenced by or
against Borrower or any other Person that
may be obligated to Lender by virtue of the
Loan Documents, but excluding any such
litigation, suit, case, proceeding or other
court action in which the Borrower is the
prevailing party;
(iv) any attempt to enforce any rights of Lender
against Borrower or any other Person that may
be obligated to Lender by virtue of any of the
Loan Documents;
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(v) any attempt to (I) monitor the Obligations or
the Collateral, (ii) evaluate, observe, or
assess any Credit Party or its affairs, and
(iii) verify, protect, evaluate, assess,
appraise, collect, sell, liquidate or
otherwise dispose of any of the Collateral;
including, without limitation, the reasonable
attorneys' and other professional and
service providers' fees arising from such
services, including those in connection with
any appellate proceedings; and all expenses,
costs, charges and other fees incurred by such
counsel and others in any way or respect arising
in connection with or relating to any of the
events or actions described in this SECTION 10.2
shall be payable, on demand, by Borrower to
Lender and shall constitute part of the
Obligations.
Without limiting the generality of the foregoing, the
aforesaid expenses, costs, charges and fees may include: fees,
costs and expenses of accountants, appraisers, investment
bankers, management and other consultants and paralegals; court
costs and expenses; photocopying and duplication expenses; court
reporter fees, costs and expenses; long distance telephone
charges; air express charges; telegram charges, secretarial
overtime charges; and expenses for travel, lodging and food paid
or incurred in connection with the performance of such legal or
other advisory services.
10.3 NO WAIVER. Lender's failure, at any time or
times, to require strict performance by Borrower or any other
Credit Party of any provision of this Agreement or any of the
other Loan Documents shall not waive, affect or diminish any
right of Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver of any Default
or Event of Default under the Loan Documents shall not suspend,
waive or affect any other Default or Event of Default under this
Agreement or any of the other Loan Documents whether the same is
prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements,
warranties, covenants and representations of Borrower or any
other Credit Party contained in this Agreement or any of the
other Loan Documents and no Default or Event of Default by
Borrower under this Agreement and no defaults by Borrower or any
other Credit Party under any of the other Loan Documents shall be
deemed to have been suspended or waived by Lender, unless such
waiver or suspension is by an instrument in writing signed by an
officer of or other authorized employee of Lender and directed to
a Credit Party specifying such suspension or waiver.
10.4 REMEDIES. Lender's rights and remedies under
this Agreement shall be cumulative and nonexclusive of any other
rights and remedies which Lender may have under any other
agreement, including without limitation, the Loan Documents, by
operation of law or otherwise. Recourse to any of the Collateral
by Lender shall not be required.
10.5 SEVERABILITY. Wherever possible, each provision
of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of
this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.6 CONFLICT OF TERMS. Except as otherwise provided
in this Agreement, or any of the other Loan Documents by specific
reference to the applicable provisions of this Agreement, if any
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provision contained in this Agreement is in conflict with, or
inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern
and control.
10.7 AUTHORIZED SIGNATURES. Until Lender shall be
notified by Borrower to the contrary, the signature upon any
document or instrument delivered pursuant hereto of an officer of
Borrower listed on SCHEDULE 10.7 shall bind Borrower and be
deemed to be the duly authorized act of Borrower affixed pursuant
to and in accordance with resolutions duly adopted by Borrower's
Board of Directors.
10.8 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS
ARISING HEREUNDER OR THEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NORTH CAROLINA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN GREENSBORO, NORTH CAROLINA, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS, PROVIDED, THAT LENDER AND BORROWER ACKNOWLEDGES THAT
ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF GREENSBORO, NORTH CAROLINA AND, PROVIDED,
FURTHER, THAT NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENTS SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
JURISDICTION IN THE STATE OR FEDERAL COURTS LOCATED IN
GREENSBORO, NORTH CAROLINA, IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS IN THE STATE OR FEDERAL
COURTS LOCATED IN GREENSBORO, NORTH CAROLINA. BORROWER ALSO
HEREBY WAIVES PERSONAL SERVICE UPON IT OF THE SUMMONS, COMPLAINT
AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES
THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS
MAY BE MADE UPON IT BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT ITS ADDRESS SET FORTH ON SCHEDULE 10.9 OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3)
BUSINESS DAYS AFTER DEPOSIT IN THE U.S. MAILS, ADDRESSED AS
AFORESAID, AND PROPER POSTAGE PREPAID.
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10.9 NOTICES. Except as otherwise provided herein,
whenever it is provided herein that any notice, demand, request,
consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by any other
party, or whenever any of the parties desires to give or serve
upon any other party any communication with respect to this
Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall
be deemed to have been validly served, given or delivered (I)
upon the earlier of actual receipt and three (3) Business Days
after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (ii)
upon transmission, when sent by telecopy or other similar
facsimile transmission (with such telecopy or facsimile promptly
confirmed by delivery of a copy by personal delivery or United
States Mail as otherwise provided in this SECTION 10.9), (iii)
one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (iv) when delivered, if
hand-delivered by messenger, all of which shall be addressed to
the party to be notified and sent to the address or facsimile
number indicated on SCHEDULE 10.9 or to such other address (or
facsimile number) as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice.
Failure or delay in delivering any copies of any notice, demand,
request, consent, approval, declaration or other communication to
any Person (other than Borrower or Lender) designated on SCHEDULE
10.9 to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.
10.10 SECTION TITLES. The Section titles and Table
of Contents contained in this Agreement are and shall be without
substantive meaning or content of any kind whatsoever and are not
a part of the agreement between the parties hereto.
10.11 COUNTERPARTS. This Agreement may be executed
in any number of separate counterparts, each of which shall
collectively and separately constitute one agreement.
10.12 TIME OF ESSENCE. Time is of the essence of this
Agreement and each of the other Loan Documents.
10.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING
IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT
PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO
APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN LENDER AND BORROWER ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO.
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IN WITNESS WHEREOF, this Agreement has been duly
executed as of the date first written above.
BORROWER:
SPEC'S MUSIC, INC.
By: /s/ Xxxxxx X. Xxxxx
--------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chief Financial Officer
LENDER:
MUSIC FUNDING I, LLC
By: Geneva Associates, LLC,
Its Manager
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------
Xxxxxx X. Xxxxxx, Manager
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CONSENT OF GUARANTOR
The undersigned guarantor does hereby consent to the
execution, delivery and performance of the within and foregoing
Credit Agreement, authorizes and directs Spec's Music, Inc. to
enter into the Subordination Agreement described therein on the
undersigned guarantor's behalf, and agrees to be bound by the
terms and conditions of this Agreement and the Subordination
Agreement.
IN WITNESS WHEREOF, the undersigned guarantor has executed
this Consent under seal as of the day and year first above set
forth.
D S LATINO INC.
By: /s/ Xxxxxx X. Xxxxx
--------------------------------
Name: Xxxxxx X. Xxxxx
Title: VP/Secretary/Treasurer
Chief Financial Officer
[CORPORATE SEAL]
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