LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
AS LENDER
AND
VALLEY MEDIA, INC.
AS BORROWER
DATED: MAY 21, 1998
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES. . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Letter of Credit Accommodations. . . . . . . . . . . . . . . . . 13
2.3 Availability Reserves. . . . . . . . . . . . . . . . . . . . . . 15
2.4 Reduction in Maximum Credit. . . . . . . . . . . . . . . . . . . 16
SECTION 3. INTEREST AND FEES. . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Closing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4 Unused Line Fee. . . . . . . . . . . . . . . . . . . . . . . . . 18
3.5 Changes in Laws and Increased Costs of Loans . . . . . . . . . . 18
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 19
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . 21
SECTION 6. COLLECTION AND ADMINISTRATION. . . . . . . . . . . . . . . . . . 23
6.1 Borrower's Loan Account. . . . . . . . . . . . . . . . . . . . . 23
6.2 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . 23
6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Authorization to Make Loans. . . . . . . . . . . . . . . . . . . 25
6.6 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7. COLLATERAL REPORTING AND COVENANTS . . . . . . . . . . . . . . . 25
7.1 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Accounts Covenants . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Inventory Covenants. . . . . . . . . . . . . . . . . . . . . . . 28
7.4 Equipment Covenants. . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . 29
7.6 Right to Cure. . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.7 Access to Premises . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 31
8.1 Corporate Existence, Power and Authority; Subsidiaries . . . . . 31
8.2 Financial Statements; No Material Adverse Change.. . . . . . . . 31
8.3 Chief Executive Office; Collateral Locations.. . . . . . . . . . 32
8.4 Priority of Liens; Title to Properties . . . . . . . . . . . . . 32
8.5 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(i)
8.7 Compliance with Other Agreements and Applicable Laws . . . . . . 32
8.8 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.9 Accuracy and Completeness of Information.. . . . . . . . . . . . 33
8.10 Survival of Warranties; Cumulative . . . . . . . . . . . . . . . 33
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . . . . . . . . . 33
9.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . 33
9.2 New Collateral Locations . . . . . . . . . . . . . . . . . . . . 33
9.3 Compliance with Laws, Regulations, Etc.. . . . . . . . . . . . . 34
9.4 Payment of Taxes and Claims. . . . . . . . . . . . . . . . . . . 34
9.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.6 Financial Statements and Other Information . . . . . . . . . . . 35
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. . . . . 36
9.8 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.10 Loans, Investments, Guarantees, Etc. . . . . . . . . . . . . . . 39
9.11 Dividends and Redemptions. . . . . . . . . . . . . . . . . . . . 42
9.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 43
9.13 Additional Bank Accounts . . . . . . . . . . . . . . . . . . . . 43
9.14 Adjusted Net Worth . . . . . . . . . . . . . . . . . . . . . . . 43
9.15 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . 43
9.16 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . 44
10.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 44
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW . . . . . . . . . . . . . . . . 48
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.2 Waiver of Notices. . . . . . . . . . . . . . . . . . . . . . . . 49
11.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 49
11.4 Waiver of Counterclaims. . . . . . . . . . . . . . . . . . . . . 50
11.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS . . . . . . . . . . . . . . . . 50
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.3 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . 51
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.5 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 52
12.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 53
(ii)
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B Form of Landlord Agreement
Schedule 5.5 Equipment Excluded from Collateral
Schedule 8.6 Pending Actions, Suits, Proceedings and
Governmental Investigations
Schedule 8.8 Bank Accounts
Schedule 9.8 Permitted Liens
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
Schedule 9.12 Transactions with Affiliates
(i)
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated May 21, 1998 is entered into by and
between CONGRESS FINANCIAL CORPORATION (NORTHWEST), an Oregon corporation
("LENDER") and VALLEY MEDIA, INC., a California corporation ("BORROWER").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "ACCOUNT SETTLEMENT AGREEMENT" shall have the meaning set forth in
Section 7.2(c).
1.2 "ACCOUNTS" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.3 "ADJUSTED EURODOLLAR RATE" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by
(b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage.
For purposes hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such
deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as
of the effective day of any change in the Reserve Percentage.
1.4 "ADJUSTED NET WORTH" shall mean as to any Person, at any time,
using the average cost basis in accordance with GAAP (except as otherwise
specifically set forth below), on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to the sum of: (a) the difference
between: (i) the aggregate net book value of all assets of such Person and its
subsidiaries, calculating the book value of inventory for this purpose on an
average cost basis, after deducting from such book values all appropriate
reserves in accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization) and (ii) the aggregate
amount of the indebtedness and other liabilities of such Person and its
subsidiaries (including tax and other proper accruals), PLUS (b) Subordinated
Debt (as defined in Section 9.9(e) hereof).
1.5 "AVAILABILITY RESERVES" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans and Letter of Credit
Accommodations which would otherwise be available to Borrower under the lending
formula(s) provided for herein: (a) to reflect events, conditions, contingencies
or risks which, as determined by Lender in good faith, do or may affect either
(i) the Collateral or any other property which is security for the Obligations
or its value,(ii) the assets or business of Borrower or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof), (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect,(c) to reflect outstanding
Letter of Credit Accommodations as provided in Section 2.2 hereof, (d) in
respect of any state of facts which Lender determines in good faith constitutes
an Event of Default, (e) to reflect credits granted by Borrower with respect to
coop advertising allowance, or (f) if the Monthly Excess Availability for the
calendar month of August of any year of this Agreement is less than $10,000,000,
then for each week during the calendar months of September, October and
November, respectively, of such year of this Agreement, an amount equal to six
(6%) percent of the gross sales (subject to adjustment (either upward or
downward) by Lender based upon historical changes in dilution) for each such
week (the "Seasonal Reserve"); EXCEPT THAT, provided that Lender determines, in
good faith, that the Seasonal Reserve should not otherwise remain as an
Availability Reserve in respect of events, conditions, contingencies or risks as
provided for in Section 1.4(a), (b), (d), or (e) above, and
2
provided further that no Event of Default exists and is continuing, Lender
agrees to release (i) thirty-three and one-third (33-1/3%) percent of the
Seasonal Reserve on the last Business Day of December of such year in which the
Seasonal Reserve was established, provided that Lender has received from
Borrower a schedule of all credits issued for such month of December,
(ii) thirty-three and one-third (33-1/3%) percent of the Seasonal Reserve on the
last Business Day of January of the immediately succeeding year, provided that
Lender has received from Borrower a schedule of all credits issued for such
month of January, and (iii) thirty-three and one-third (33-1/3%) percent of the
Seasonal Reserve on the last Business Day of February of the immediately
succeeding year, provided that Lender has received from Borrower a schedule of
all credits issued for such month of February.
1.6 "BLOCKED ACCOUNTS" shall have the meaning set forth in Section 6.3
hereof.
1.7 "BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of California or the Commonwealth of Pennsylvania, and a
day on which the Reference Bank and Lender are open for the transaction of
business, except that if a determination of a Business Day shall relate to any
Eurodollar Rate Loans, the term Business Day shall also exclude any day on which
banks are closed for dealings in dollar deposits in the London interbank market
or other applicable Eurodollar Rate market.
1.8 "CHANGE OF CONTROL" shall mean the occurrence of the issuance,
sale, transfer or other disposition of shares of capital stock of Borrower that,
individually or in the aggregate, results in any Person (other than Barnet X.
Xxxxx and Xxxxxxx Xxxxx (his wife) collectively) owning, at any time, a majority
of the voting control of the equity ownership of Borrower, PROVIDED THAT, a
Change of Control shall not have occurred if said Barnet X. Xxxxx and Xxxxxxx
Xxxxx collectively own, at any time, less than a majority, and no other Person
then owns a majority, of the voting control of the equity ownership of Borrower.
1.9 "COLLATERAL" shall have the meaning set forth in Section 5 hereof.
1.10 "DELAWARE REINCORPORATION MERGER" shall mean the merger of the
Borrower into a Delaware corporation ("NEWCO") that, immediately prior to such
merger, is an entity that has no operating assets and liabilities and is subject
to no liens and that is wholly owned by Borrower prior to such merger, and that,
immediately after giving effect to such merger, Newco shall be the surviving
entity, will be owned by the same persons and entities, in the same percentages,
as owned Borrower prior to such merger, and provided that each of the following
conditions is satisfied prior to or contemporaneously with the effectiveness of
such merger: (a) Newco shall have changed its name to Valley Media, Inc.,(b)
Newco's directors and officers shall be the same as the directors and officers
of Borrower immediately prior to the merger,(c) Newco shall have delivered to
Lender an Assumption Agreement, duly executed by an authorized officer of Newco,
in form satisfactory to Lender and providing in substance that Newco expressly
assumes all of the Obligations of Borrower under the Financing Agreements, and
(d) Newco shall have delivered to Lender such UCC-2 or UCC-3 amendment
statements, such new UCC-1 financing statements,
3
such new documents for filing with the United States Patent and Trademark
Office, and such other notice filing documents, each duly executed by an
authorized officer of Newco, as Lender may request, regarding continuity of
perfection of Lender's security interests granted under any of the Financing
Agreements.
1.11 "DNA" shall mean Borrower's Distribution North America Division,
which sells audio products purchased from independent audio production
companies.
1.12 "ELIGIBLE ACCOUNTS" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and BONA FIDE sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than the lesser of
(i) sixty (60) days past the original due date thereof,and (ii) one hundred
twenty (120) days after the date of the original invoice for them; EXCEPT THAT,
Eligible Accounts shall include Accounts due and owing from those account
debtors as set forth in a written schedule submitted to Lender by Borrower from
time to time and which account debtors shall be acceptable to Lender ("SPECIAL
DESIGNATED ACCOUNTS") which are unpaid more than one hundred twenty (120) days
but not in excess of one hundred fifty (150) days from the original invoice date
for such Special Designated Accounts, PROVIDED, HOWEVER, that the maximum
aggregate amount of Special Designated Accounts created by DNA which may be
considered Eligible Accounts at any time shall not exceed $10,000,000;
(c) such Accounts are not Accounts created by Borrower under its
"Funatics" trade name;
(d) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(e) such Accounts do not arise from (i) sales on consignment or
(ii) sales on any terms under which payment by the account debtor may be
conditional or contingent, except in the ordinary course of Borrower's business
in accordance with practices and policies previously disclosed in writing to
Lender;
(f) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America or in
Canada, or, at Lender's option, if either: (i) the account debtor has delivered
to Borrower an irrevocable letter of credit issued or confirmed by a bank
satisfactory to Lender and payable only in the United States of America or
Canada and in U.S. dollars, sufficient to cover such Account, in form and
substance satisfactory to Lender and, if required by Lender, the original of
such letter of credit has been delivered to
4
Lender or Lender's agent and the issuer thereof notified of the assignment of
the proceeds of such letter of credit to Lender, or (ii)(A) such Account is
subject to credit insurance issued by Great American Insurance Company, Policy
Number MB-I-118833 and all of Borrower's interest to claim payments thereunder
has been, as of the date hereof, assigned to Lender or (B) is subject to such
other credit insurance payable to Lender issued by an insurer and on terms and
in an amount acceptable to Lender, or (iii) such Account is otherwise acceptable
in all respects to Lender (subject to such lending formula with respect thereto
as Lender may determine);
(g) such Accounts do not consist of progress xxxxxxxx, xxxx and
hold invoices or retainage invoices, except as to xxxx and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(h) there are no facts, events or occurrences which would
(i) impair the validity, enforceability or collectability of such Accounts or
(ii) reduce the amount payable or delay payment thereunder, except in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts is an officer, employee or
agent of or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise, except for such
Accounts that arise in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms no less
favorable to Borrower than Borrower would obtain in a comparable arm's-length
transaction with an unaffiliated person;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, political subdivision,
department, agency or instrumentality thereof, unless, if the account debtor is
the United States of America, political subdivision, department, agency or
instrumentality thereof, upon Lender's request, the Federal Assignment of Claims
Act of 1940, as amended, has been complied with in a manner satisfactory to
Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which
reasonably could be expected to result in any material adverse change in any
such account debtor's financial condition;
5
(m) such Accounts of a single account debtor or its affiliates
do not constitute more than fifteen (15%) percent of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than sixty (60) days past the original due date thereof,
but less than one hundred twenty (120) days after the date of the original
invoice for them and which Accounts constitute more than fifty (50%) percent of
the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may be deemed Eligible
Accounts); and
(p) such Accounts are not owed by account debtors reasonably
deemed to be uncreditworthy as determined by Lender in good faith.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.13 "ELIGIBLE INVENTORY" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower
which are acceptable to Lender based on the criteria set forth below. In
general, Eligible Inventory shall not include (a) packaging and shipping
materials; (b) supplies used or consumed in Borrower's business; (c)
Inventory at premises other than those owned and controlled by Borrower,
except if (i) Lender shall have received an agreement in writing from the
person in possession of such Inventory and/or the owner or operator of such
premises substantially in the form of Exhibit B attached hereto, as
applicable, acknowledging Lender's first priority security interest in the
Inventory, waiving security interests and claims by such person against the
Inventory and permitting Lender access to, and the right to remain on, the
premises so as to exercise Lender's rights and remedies and otherwise deal
with the Collateral, or (ii) if no agreement substantially in the form of
Exhibit B hereto has been received by Lender from the owner or operator of
such premises, Lender has established Availability Reserves in such amounts
as Lender deems appropriate and necessary, in its sole discretion, to enable
Lender to pay rent and other amounts due or to become due to the owner or
operator of such premises for the purpose of gaining access to the premises
so as to exercise Lender's rights and remedies and otherwise deal with the
Collateral; (d) Inventory subject to a security interest or lien in favor of
any person other than Lender except those permitted in this Agreement;
(e) xxxx and hold goods; (f) Inventory which is not subject to the first
priority, valid and perfected security interest of Lender; (g) damaged and/or
defective Inventory; and (h) Inventory purchased or sold on consignment.
General criteria for Eligible Inventory may be established and revised from
time to time by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
6
1.14 "EQUITY OFFERING" shall mean the sale and issuance by Borrower, at
any time from and after the date of this Agreement, of additional shares of its
capital stock as permitted under Section 9.7 hereof.
1.15 "EQUIPMENT" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.16 "EURODOLLAR RATE" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (Los Angeles, California time) two (2) Business Days prior to
the commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by and available to
Borrower in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrower.
1.17 "EURODOLLAR RATE LOANS" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.18 "EVENT OF DEFAULT" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.19 "EXCESS AVAILABILITY" shall mean the amount, as determined by
Lender, calculated at any time from and after the date of this Agreement, equal
to: (a) the lesser of (i) the amount of the Revolving Loans available to
Borrower as of such time based on the applicable lending formulas multiplied by
the Net Amount of Eligible Accounts and the Value of Eligible Inventory, as
determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder and (ii) the Maximum Credit,
MINUS (b) the sum of:(i) the amount of all then outstanding and unpaid Revolving
Loans and Letter of Credit Accommodations, plus (ii) as reflected on the
accounts payable aging for the immediately preceding month end, the aggregate
amount of all trade payables of Borrower which are more than sixty (60) days
past due as of such time, only to the extent that such trade payables exceed
five (5%) of all of Borrower's trade payables, excluding, however, trade
payables in an amount not to exceed $2,000,000 incurred by Borrower in the
ordinary course of its business in connection with "dollar day swap" programs
maintained by Borrower from time to time with certain of Borrower's vendors.
1.20 "EXCESS CLOSING AVAILABILITY" shall mean the amount, as determined
by Lender, calculated as of the date of this Agreement, equal to: (a) the lesser
of (i) the amount of the Revolving Loans available to Borrower as of such time
based on the applicable lending formulas
7
multiplied by the Net Amount of Eligible Accounts and the Value of Eligible
Inventory, as determined by Lender, and subject to the sublimits and
Availability Reserves from time to time established by Lender hereunder and (ii)
the Maximum Credit, MINUS (b) the sum of:(i) the amount of all then outstanding
and unpaid Revolving Loans and Letter of Credit Accommodations, plus (ii) the
aggregate amount of all trade payables of Borrower which are more than sixty
(60) days past due as of such time, only to the extent that such trade payables
exceed five (5%) of all of Borrower's trade payables, excluding, however, trade
payables in an amount not to exceed $2,000,000 incurred by Borrower in the
ordinary course of its business in connection with "dollar day swap" programs
maintained by Borrower from time to time with certain of Borrower's vendors.
1.21 "FINANCING AGREEMENTS" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.22 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.23 "INFORMATION CERTIFICATE" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.24 "INITIAL PUBLIC OFFERING" shall have the meaning set forth in
Section 9.7.
1.25 "INTEREST PERIOD" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2), or three (3) months duration as Borrower may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; PROVIDED, THAT, Borrower may
not elect an Interest Period which will end after the last day of the
then-current term of this Agreement.
1.26 "INTEREST RATE" shall mean,(a) as to Prime Rate Loans, commencing
as of the date hereof through and including June 30, 1998, a rate equal to eight
and one-half (8 1/2%) percent; and thereafter, for any given month, (i) if the
Monthly Excess Availability for the immediately preceding calendar month is
equal to or greater than $35,000,000, a rate equal to
8
the Prime Rate,(ii) if the Monthly Excess Availability for the immediately
preceding month is equal to or greater than $25,000,000, but less than
$35,000,000, a rate equal to the Prime Rate,(iii) if the Monthly Excess
Availability for the immediately preceding month is equal to or greater than
$10,000,000, but less than $25,000,000, a rate equal to one-quarter (1/4%)
percent per annum in excess of the Prime Rate, and (iv) if the Monthly Excess
Availability for the immediately preceding calendar month is less than
$10,000,000, a rate equal to one-half (1/2%) percent per annum in excess of the
Prime Rate, and (b) as to each Eurodollar Rate Loan, commencing as of the date
hereof through and including June 30, 1998, a rate equal to two and one-quarter
(2 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate, and,
thereafter, a rate of:(i) if the Monthly Excess Availability for the calendar
month immediately preceding the Effective Eurodollar Rate Determination Date (as
defined below) with respect to such Eurodollar Rate Loan is equal to or greater
than $35,000,000, a rate of two (2%) percent per annum in excess of the Adjusted
Eurodollar Rate,(ii) if the Monthly Excess Availability for the calendar month
immediately preceding the Effective Eurodollar Rate Determination Date with
respect to such Eurodollar Rate Loan is equal to or greater than $25,000,000,
but less than $35,000,000, a rate of two-and-one-quarter (21/4%) percent per
annum in excess of the Adjusted Eurodollar Rate,(iii) if the Monthly Excess
Availability for the calendar month immediately preceding the Effective
Eurodollar Rate Determination Date with respect to such Eurodollar Rate Loan is
equal to or greater than $10,000,000, but less than $25,000,000, a rate of
two-and-one-half (21/2%) percent per annum in excess of the Adjusted Eurodollar
Rate, and (iv) if the Monthly Excess Availability for the calendar month
immediately preceding the Effective Eurodollar Rate Determination Date with
respect to such Eurodollar Rate Loan is less than $10,000,000, a rate of
two-and-three-quarter (23/4%) percent per annum in excess of the Adjusted
Eurodollar Rate (the Adjusted Eurodollar Rate, in the case of each Eurodollar
Rate Loan, being based on the Eurodollar Rate applicable for the Interest Period
selected by Borrower as in effect three (3) Business Days after the date of
receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in
accordance with the terms hereof, whether such rate is higher or lower than any
rate previously quoted to Borrower); PROVIDED, THAT, the Interest Rate specified
in clauses (a)(i), (a)(ii) and (a)(iii) above with respect to Prime Rate Loans
and in clauses (b)(i), (b)(ii) and (b)(iii) above with respect to Eurodollar
Rate Loans shall be increased, in each case, by two (2%) percent, at Lender's
option, without notice, (A) for the period (1) from and after the date of
termination or non-renewal hereof until Lender has received full and final
payment of all obligations (notwithstanding entry of a judgment against
Borrower) and (2) from and after the date of the occurrence of an Event of
Default for so long as such Event of Default is continuing as determined by
Lender, and (B) on the Revolving Loans at any time outstanding in excess of the
amounts available to Borrower under Section 2 (whether or not such excess(es),
arise or are made with or without Lender's knowledge or consent and whether made
before or after an Event of Default). For the purposes hereof, the "Effective
Eurodollar Rate Determination Date" shall mean, with respect to each Eurodollar
Rate Loan, the day on which the Eurodollar Rate is determined under Section 1.16
of this Agreement for such Eurodollar Rate Loan and, thereafter, the first day
of each calendar month during the Interest Period with respect to such
Eurodollar Rate Loan.
9
1.27 "INVENTORY" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.28 "INVENTORY APPRAISAL" shall have the meaning set forth in Section
7.3 of this Agreement.
1.29 "LETTER OF CREDIT ACCOMMODATIONS" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
1.30 "LOANS" shall mean the Revolving Loans.
1.31 "MATERIAL ADVERSE CHANGE" shall mean a material adverse change in
the condition (financial or otherwise), operations, performance, properties,
business or affairs of the Borrower or any Obligor.
1.32 "MATERIAL ADVERSE EFFECT" shall mean a material adverse change in,
or a material adverse effect upon (a) the condition (financial or otherwise),
operations, business or affairs of Borrower or any Obligor, (b) the ability of
Borrower or any Obligor to repay any Obligations under any of the Financing
Agreements, or (c) Lender's rights or interests in its Collateral or of Lender's
ability to enforce the Obligations or realize upon its Collateral.
1.33 "MAXIMUM CREDIT" shall mean the amount of $130,000,000.
1.34 "MONTHLY EXCESS AVAILABILITY" shall mean, for any calendar month,
the sum of the Excess Availability on each Business Day during such calendar
month, divided by the total number of Business Days during such calendar month.
1.35 "NET AMOUNT OF ELIGIBLE ACCOUNTS" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits, chargebacks and allowances
of any nature at any time issued, owing, granted or outstanding with respect
thereto, other than returns, discounts, credits, chargebacks and allowances
issued or granted by Borrower in the ordinary course of its business in
accordance with practices and policies previously disclosed in writing to
Lender.
1.36 "OBLIGATIONS" shall mean any and all Revolving Loans, Letter of
Credit Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this
10
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including the payment
of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.37 "OBLIGOR" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.38 "PAYMENT ACCOUNT" shall have the meaning set forth in Section 6.3
hereof.
1.39 "PERSON" or "PERSON" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.40 "PRIME RATE" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A. (or its successors, including First Union
National Bank) at its office in Philadelphia, Pennsylvania, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
1.41 "PRIME RATE LOANS" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.42 "RECORDS" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.43 "REFERENCE BANK" shall mean CoreStates Bank, N.A., or its
successor, First Union National Bank, or such other bank as Lender may from time
to time designate.
1.44 "VALUE" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed using the average cost
method in accordance with GAAP or (b) market value.
1.45 "VIDEO INVENTORY" shall mean Inventory consisting of "VHS" format
video tapes.
11
SECTION 2. CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) seventy-seven (77%) percent of the Net Amount of
Eligible Accounts, PLUS
(ii) subject to the provisions of Section 2.1(e) below,
the lesser of (A) sixty-two (62%) percent of the
Value of Eligible Inventory consisting of finished
goods and (B) ninety-one (91%) percent of the median
net recovery Value of Eligible Inventory, as
determined from time to time by Lender using a
methodology and assumptions similar to the
methodology and assumptions set forth in the
Inventory Appraisal prepared by BGA Consulting,
Inc., dated as of March 19, 1998, delivered to
Lender prior to the date of this Agreement, LESS
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower,(i) reduce the lending formula
with respect to Eligible Accounts to the extent that Lender determines in its
good faith, reasonably exercised, that, without duplication: (A) the dilution
with respect to the Accounts for any period (based on the ratio of (1) the
aggregate amount of reductions in Accounts other than as a result of payments in
cash to (2) the aggregate amount of total sales) has increased in any material
respect or may be reasonably anticipated to increase in any material respect
above historical levels, or (B) the general creditworthiness of account debtors
has declined or (ii) reduce the lending formula(s) with respect to Eligible
Inventory to the extent that Lender determines in its good faith, reasonably
exercised, that, without duplication: (A) the number of days of the turnover of
the Inventory for any period has changed in any material respect or (B) the
nature and quality of the Inventory has deteriorated. In determining whether to
reduce the lending formula(s), Lender may consider events, conditions,
contingencies or risks which are also considered in determining Eligible
Accounts, Eligible Inventory or in establishing Availability Reserves.
To the extent Lender shall have established an Availability Reserve
which is sufficient to address any event, condition or matter in a manner
satisfactory to Lender in good faith, Lender shall not exercise its rights under
this Section 2.1(b) to reduce the lending formulas to address such event,
condition or matter. The amount of any reduction in the lending formula
12
by Lender pursuant to this Section 2.1(b) shall have a reasonable relationship
to the matter which is the basis for such a reduction.
(c) Except in Lender's discretion, the aggregate amount of the
Loans and the Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit. In the event that the outstanding amount of any
component of the Loans, or the aggregate amount of the outstanding Loans and
Letter of Credit Accommodations, exceed the amounts available under the lending
formulas, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on Revolving
Loans based on Eligible Inventory pursuant to Section 2.1(a)(ii), Lender may
treat the then undrawn amounts of outstanding Letter of Credit Accommodations
for the purpose of purchasing Eligible Inventory as Revolving Loans to the
extent Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being purchased with such
Letter of Credit Accommodations. In determining the actual amounts of such
Letter of Credit Accommodations to be so treated for purposes of the sublimit,
the outstanding Revolving Loans and Availability Reserves shall be attributed
first to any components of the lending formulas in Section 2.1(a) that are not
subject to such sublimit, before being attributed to the components of the
lending formulas subject to such sublimit.
(e) Notwithstanding anything to the contrary contained in
Section 2.1(a)(ii) above, the maximum aggregate amount of Revolving Loans
outstanding at any time (i) made in respect of the Value of Eligible Inventory,
shall not at any time exceed (x) $25,000,000 in respect of Eligible Inventory
consisting of Video Inventory and (y) $10,000,000 in respect of Eligible
Inventory relating to DNA.
2.2 LETTER OF CREDIT ACCOMMODATIONS.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to two (2%) percent
per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof),
13
payable in arrears as of the first day of each succeeding month, except that
Borrower shall pay to Lender such letter of credit fee, at Lender's option,
without notice, at a rate equal to four (4%) percent per annum on such daily
outstanding balance for: (i) the period from and after the date of termination
or non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrower) and (ii) the
period from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing as determined by Lender. Such
letter of credit fee shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed and the obligation of Borrower to pay
such fee shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the
sum of (A) the percentage equal to one hundred (100%) percent of the face amount
thereof minus the then applicable percentage set forth in Section 2.1(a)(ii)(A)
above of the Value of such Eligible Inventory, plus (B) freight, taxes, duty and
other amounts which Lender estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of Borrower's locations for
Eligible Inventory within the United States of America and (ii) if the proposed
Letter of Credit Accommodation is for any other purpose, an amount equal to one
hundred (100%) percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodation, an Availability Reserve shall
be established in the applicable amount set forth in Section 2.2(c)(i) or
Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed
$30,000,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrower shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation. Borrower assumes all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder.
14
Borrower hereby releases and holds Lender harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by Borrower, by any issuer
or correspondent or otherwise with respect to or relating to any Letter of
Credit Accommodation. The provisions of this Section 2.2(e) shall survive the
payment of Obligations and the termination or non-renewal of this Agreement.
Nothing in this Section 2.2(e) or elsewhere in this Agreement is intended to
constitute or operate as a waiver of any claim, right or defense Borrower may
have against any third party other than Lender (including, without limitation,
the issuer of any Letter of Credit Accommodation) on account of any negligent or
other wrongful conduct of such third party.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter
of Credit Accommodation provided by an issuer other than Lender unless Lender
has duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing,(A) approve or resolve any questions of
non-compliance of documents,(B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B)agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender and
to apply in all respects to Borrower.
2.3 AVAILABILITY RESERVES. All Revolving Loans otherwise available to
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
15
2.4 REDUCTION IN MAXIMUM CREDIT. (a) Notwithstanding anything to the
contrary contained in this Agreement, Borrower shall have the right at any time
within thirty (30) days after the date Borrower receives the net proceeds from
an Equity Offering, a subordinated loan permitted under Section 9.9(e) below or
a sale of assets permitted under Section 9.7(b) below ("NET REDUCTION PROCEEDS")
to reduce the Maximum Credit to an amount of not less than $90,000,000 (the
"REDUCED MAXIMUM CREDIT") by delivering written notice to Lender ("MAXIMUM
CREDIT REDUCTION NOTICE") at least twenty (20) days prior to the date, which
shall be specified in such Maximum Credit Reduction Notice, that the Reduced
Maximum Credit shall take effect (such effective date, the "REDUCED MAXIMUM
CREDIT EFFECTIVE DATE"), PROVIDED, HOWEVER, that the foregoing shall be of no
force and effect and the Reduced Maximum Credit specified in such written
Maximum Credit Reduction Notice shall not become effective on the Reduced
Maximum Credit Effective Date if any Event of Default exists on the Reduced
Maximum Credit Effective Date, PROVIDED FURTHER THAT, the Maximum Credit is
reduced in each instance by an amount not greater than the Net Reduction
Proceeds but in no event shall the Maximum Credit be reduced to an amount less
than $90,000,000.
(b) If the Reduced Maximum Credit becomes effective in
accordance with Section 2.4(a), the reduction in the original Maximum Credit
thereby effected shall be permanent and irrevocable and the Reduced Maximum
Credit shall, without further act or notice by either Lender or Borrower,
automatically constitute the Maximum Credit for all purposes of this Agreement
and the other Financing Agreements from and after the Reduced Maximum Credit
Effective Date. Borrower shall not be required to pay any prepayment or early
termination fee in connection with the reduction of the Maximum Credit as
permitted hereunder.
SECTION 3. INTEREST AND FEES
3.1 INTEREST.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the Loans at the Interest Rate. All interest accruing
hereunder on and after the date of any Event of Default or termination or
non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrower, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
PROVIDED, THAT,(i) no Event of Default exists or has occurred and is
continuing,(ii) no party hereto shall have sent any notice of termination or
non-renewal of this Agreement, (iii)Borrower shall have complied with such
customary procedures as are established by Lender and specified by Lender to
Borrower from time to time for requests by Borrower for Eurodollar Rate
Loans,(iv) no more than five (5)
16
Interest Periods may be in effect at any one time, (v) the aggregate amount of
the Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, (vi) the maximum amount of
the Eurodollar Rate Loans at any time requested by Borrower shall not exceed the
amount equal to ninety (90%) percent of the Revolving Loans then available to
Borrower under Section 2 of this Agreement as determined by Lender, and (vii)
Lender shall have determined that the Interest Period or Adjusted Eurodollar
Rate is available to Lender through the Reference Bank and can be readily
determined as of the date of the request for such Eurodollar Rate Loan by
Borrower. Any request by Borrower to convert Prime Rate Loans to Eurodollar
Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market to fund any Eurodollar Rate Loans, but the provisions hereof shall be
deemed to apply as if Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event that (i) an
Event of Default shall exist, or (ii) this Agreement shall terminate or not be
renewed. Borrower shall pay to Lender, upon demand by Lender (or Lender may, at
its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall
charges constituting interest payable by Borrower to Lender exceed the maximum
amount or the rate permitted under any applicable law or regulation, and if any
such part or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
(e) If a credit balance exists at any time in Borrower's loan
account maintained by Lender, interest shall accrue thereon at a rate equal to
the Prime Rate less three (3) percent or, at Borrower's option, such credit
balance shall be remitted by Lender to Borrower.
3.2 CLOSING FEE. Borrower shall pay to Lender as a closing fee the
amount of $975,000, which shall be fully earned as of and payable on the date
hereof.
17
3.3 SERVICING FEE. Borrower shall pay to Lender monthly a servicing
fee in an amount equal to $3,000 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 UNUSED LINE FEE. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to three-eighths (3/8%) percent per annum calculated
upon the amount by which the amount equal to eighty (80%) percent of the Maximum
Credit exceeds the average daily principal balance of the outstanding Revolving
Loans and Letter of Credit Accommodations during the immediately preceding month
(or part thereof) while this Agreement is in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be payable on the
first day of each month in arrears.
3.5 CHANGES IN LAWS AND INCREASED COSTS OF LOANS.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, Reference
Bank or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrower shall
pay to Lender, upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person as a result of the
foregoing, including, without limitation, any such loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the Eurodollar Rate Loans or any
portion thereof. A certificate of Lender setting forth the basis for the
determination of such amount necessary to compensate Lender as aforesaid shall
be delivered to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including,
18
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain such Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT
ACCOMMODATIONS. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all such consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, which may include acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral, subordination agreements in form and substance
satisfactory to Lender from all of Borrower's vendors claiming any security
interest in or lien upon any of the Collateral and Borrower's consignors who
deliver inventory to Borrower from time to time pursuant to consignment
19
arrangements with Borrower, and agreements permitting Lender access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(f) [Intentionally Omitted]
(g) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(h) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with respect
to the Financing Agreements and such other matters as Lender may request;
(i) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower of their respective financing arrangements with
Borrower and the termination and release by it or them, as the case may be, of
any interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by it or each of them, including, but
not limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such existing lender or lenders, in form acceptable for recording in
the appropriate government office;
(j) the Excess Closing Availability as determined by Lender, as
of the date hereof, shall be not less than $12,000,000 after giving effect to
the initial Loans made or to be made and Letter of Credit Accommodations issued
or to be issued in connection with the initial transactions hereunder; and
(k) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 CONDITIONS PRECEDENT TO ALL LOANS AND LETTER OF CREDIT
ACCOMMODATIONS. Each of the following is a condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrower, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making
20
of each such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto; and
(b) no Event of Default and no event or condition which could
reasonably be expected to have a Material Adverse Effect shall exist or have
occurred and be continuing on and as of the date of the making of such Loan or
providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "COLLATERAL"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures), chattel paper, documents, instruments, securities and other
investment property, letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including (a)
rights and remedies under or relating to guaranties, contracts of suretyship,
letters of credit and credit and other insurance related to the Collateral, (b)
rights of stoppage in transit, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, (c) goods
described in invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing, Accounts or other Collateral, including
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
21
5.7 all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
Notwithstanding anything to the contrary contained in this Section 5, the
foregoing grant of security interest shall not extend to or encompass, and the
Collateral shall not include,(i) the Equipment (or Borrower's leasehold interest
in any of the Equipment) identified in Part I of Schedule 5 hereto, which is
subject to an existing equipment lease or financing contract with a third party
that prohibits Borrower from granting or permitting to exist a security interest
in such Equipment (or Borrower's leasehold interest in such Equipment) in favor
of any other person or entity, which Equipment (or Borrower's leasehold interest
therein) shall not constitute Collateral for so long as the Equipment (or
Borrower's leasehold interest therein) remains subject to such a contractual
restriction, whether under the existing contract or contracts pertaining thereto
or under any modification, renewal or refinancing thereof as permitted pursuant
to Sections 9.8 and 9.9 of this Agreement, and (ii) the Equipment identified in
Part II of Schedule 5 hereto, which is existing Equipment of Borrower that
Borrower intends to bundle into and subject to an equipment lease or financing
contract, to the extent permitted pursuant to Sections 9.8 and 9.9 of this
Agreement, and the Borrower in fact enters into an equipment lease or financing
transaction with respect to such Equipment within 180 days after the date of
this Agreement that prohibits Borrower from granting or permitting to exist a
security interest in such Equipment (or Borrower's leasehold interest therein)
in favor of any person or entity other than the lessor or financer thereof,
which Equipment (or Borrower's leasehold interest therein) shall not constitute
Collateral for so long as the Equipment (or Borrower's leasehold interest
therein) remains subject to a contractual restriction, whether under the initial
contract or contracts pertaining thereto or under any modification, renewal or
refinancing thereof, as permitted pursuant to Sections 9.8 and 9.9 of this
Agreement; and (iii) any other Equipment (or Borrower's leasehold interest
therein) acquired or financed by Borrower in a future purchase money financing
transaction or a future secured equipment loan, whether styled as an equipment
lease or financing contract, each as permitted pursuant to Sections 9.8 and 9.9
of this Agreement, where the equipment lease or financing contract prohibits
Borrower from granting or permitting to exist a security interest in such
Equipment (or Borrower's leasehold interest in such Equipment) in favor of any
person or entity other than the lessor or financer thereof, which Equipment (or
Borrower's leasehold interest therein) shall not constitute Collateral for so
long as the Equipment (or Borrower's leasehold interest therein) remains subject
to such a contractual restriction, whether under the initial contract or
contracts pertaining thereto or under any modification, renewal or refinancing
thereof, as permitted pursuant to Sections 9.8 and 9.9 of this Agreement. To
the extent that Borrower enters into a financing transaction with a third party
of the type described in Section 5.7 (iii) above with respect to Equipment owned
by Borrower that constitutes Collateral hereunder, Lender agrees to release its
security interest in such Equipment and to execute, at Borrower's expense, such
UCC release forms or other documents reasonably required by such third party to
evidence such release.
22
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 BORROWER'S LOAN ACCOUNT. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral,(b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
6.2 STATEMENTS. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within forty-five (45) days after the date such statement has been mailed by
Lender. Until such time as Lender shall have rendered to Borrower a written
statement as provided above, the balance in Borrower's loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by Borrower.
6.3 COLLECTION OF ACCOUNTS.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"BLOCKED ACCOUNTS"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("PAYMENT ACCOUNT"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the business day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and are received by 1:00 p.m. Eastern
Standard
23
Time, and if not, then on the next business day. For the purposes of
calculating interest on the Loans, such payments or other funds received will be
applied (conditional upon final collection) to the Loans (i) from the date
hereof up to the first anniversary of the date hereof, one (1) business day
following the date of receipt of immediately available funds by Lender in the
Payment Account and (ii) from and after the first anniversary of the date
hereof, on the date of receipt of immediately available funds by Lender in the
Payment Account, PROVIDED, in each instance, such payments or other funds and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender, except that with respect to any monies received by Borrower in respect
of any cash sales to employees or other incidental cash sales, Borrower shall
remit the cash proceeds from such sales to Lender in accordance with the terms
hereof if, as and when, the aggregate amount of such cash proceeds received by
Borrower and not remitted to Lender equals or exceeds $30,000. In no event
shall the same be commingled with Borrower's own funds. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4 PAYMENTS. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations, whether or not then
due, in such order and manner as Lender determines. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrower shall be liable to pay to Lender, and
does hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any
24
contrary action which may be taken by Lender in reliance upon such payment or
proceeds. This Section 6.4 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
6.5 AUTHORIZATION TO MAKE LOANS. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an officer of Borrower
or other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All Loans shall be disbursed by Lender to
Borrower's "Disbursement Account" designated as such on Schedule 8.8 hereto or
to any account subsequently opened by Borrower consistent with Section 9.13
hereof and designated by Borrower in writing to Lender as Borrower's
"Disbursement Account" into which all Loans shall be disbursed from and after
the date of such written notice. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a business day) and the amount of the requested Loan. Requests received after
11:00 a.m. Los Angeles, California time on any day shall be deemed to have been
made as of the opening of business on the immediately following business day.
All Loans and Letter of Credit Accommodations under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 USE OF PROCEEDS. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by Borrower
to Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or for the purposes 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 to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 COLLATERAL REPORTING. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a)on a daily basis as
required by Lender, a schedule of sales made, credits issued and cash
received;(b) on a weekly basis or more frequently as Lender may request,
perpetual inventory reports and inventory reports by division (including Video
Inventory and DNA) and by category, including, without limitation, any inventory
which is subject to any consignment arrangements;(c) on a monthly basis or more
frequently as Lender may request,
25
(i) agings of accounts receivable, together with a schedule of all returns,
discounts, claims, credits, chargebacks and allowances of any nature issued,
owing, granted, outstanding, available or claimed with respect to such accounts
receivable, (ii)agings of accounts payable, (iii) a schedule of all outstanding
loans and advances to Designated Vendors (as defined in Section 9.10(b)(ii));(d)
upon Lender's request,(i) copies of customer statements and credit memos,
remittance advices and reports, and copies of deposit slips and bank
statements,(ii) copies of shipping and delivery documents, (iii) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrower, and (iv) a schedule of all loans and advances referenced
under Section 9.10(a)(ii) hereof; and (e) such other reports as to the
Collateral as Lender shall request from time to time. If any of Borrower's
records or reports of the Collateral are prepared or maintained by an accounting
service, contractor, shipper or other agent, Borrower hereby irrevocably
authorizes such service, contractor, shipper or agent to deliver such records,
reports, and related documents to Lender and to follow Lender's instructions
with respect to further services at any time that an Event of Default exists or
has occurred and is continuing.
7.2 ACCOUNTS COVENANTS.
(a) No credit, discount, allowance or extension or agreement for
any of the foregoing shall be granted to any account debtor without Lender's
consent, except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. At any time
the Borrower has Excess Availability of less than $10,000,000, or at any time
after the occurrence of an Event of Default and during its continuance, Borrower
shall, with respect to any Account which Lender deems an Eligible Account,
notify Lender promptly of:(i) any material delay in Borrower's performance of
any of its obligations to any account debtor or the assertion of any claims,
offsets, defenses or counterclaims by any account debtor, or any disputes with
account debtors, or any settlement, adjustment or compromise thereof involving,
with respect to any claim, offset, defense, counterclaim, dispute, settlement,
compromise or adjustment, an amount greater than $500,000, individually, or
greater than $1,000,000, in the aggregate; and (ii)any event or circumstance
which, to Borrower's knowledge, would cause Lender to consider any then existing
Eligible Accounts involving an amount greater than $500,000, individually, or
$1,000,000, in the aggregate, to no longer constitute Eligible Accounts. So
long as no Event of Default exists or has occurred and is continuing, Borrower
shall settle, adjust or compromise any claim, offset, counterclaim or dispute
with any account debtor. At any time that an Event of Default exists or has
occurred and is continuing, Lender shall, at its option, have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or dispute
with account debtors or grant any credits, discounts or allowances.
(b) At any time that Inventory is returned, reclaimed or
repossessed, the Account (or portion thereof) which arose from the sale of such
returned, reclaimed or repossessed Inventory shall not be deemed an Eligible
Account. In the event any account debtor returns Inventory when an Event of
Default exists or has occurred and is continuing, Borrower shall, upon Lender's
request,(i) hold the returned Inventory in trust for Lender, (ii)segregate all
returned Inventory from all of its other property,(iii) dispose of the returned
Inventory solely
26
according to Lender's instructions, and (iv) not issue any credits, discounts or
allowances with respect thereto without Lender's prior written consent.
(c) With respect to Accounts:(i) the amounts shown on invoices
delivered to Lender or schedules thereof delivered to Lender with respect to the
Borrower's Accounts shall be true and complete in all material respects,(ii) no
payments shall be made thereon except payments immediately delivered to Lender
pursuant to the terms of this Agreement,(iii) no credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to any account
debtor except as reported to Lender in accordance with this Agreement and except
for (A) credits, discounts, allowances or extensions made or given in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed to Lender and (B) an agreement with any account debtor
pursuant to which any Account owing by such account debtor which is no longer an
Eligible Account, as a result of the operation of Section 1.12(b) hereof (all
Accounts at any time owing to Borrower by such account debtor and by all other
account debtors that are not Eligible Accounts as a result of the operation of
Section 1.12(b) hereof are collectively referred to as "PAST DUE ACCOUNTS"),
becomes evidenced by and due and payable in accordance with a promissory note
and/or other written agreement executed and delivered by such account debtor in
favor of Borrower (such note and all such agreements executed with respect to
any Past Due Account are collectively referred to as an "ACCOUNTS SETTLEMENT
AGREEMENT"), PROVIDED, THAT, Borrower shall not enter into an Account Settlement
Agreements if an Event of Default exists and is continuing, and notwithstanding
Borrower's execution of any Settlement Agreements permitted by this
Section 7.2(c), all Past Due Accounts that become payable to Borrower in
accordance with Account Settlement Agreements permitted by this Section
7.2(c)(iii) shall nonetheless be deemed and in all events remain Accounts of
such account debtor for purposes of Section 1.12(n) hereof, (iv) there shall be
no setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as expressly permitted pursuant to the
terms hereof, or except in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed in writing to
Lender, or except as otherwise reported to Lender in accordance with the terms
of this Agreement,(v) none of the transactions giving rise thereto will violate
any applicable State or Federal laws or regulations, all documentation relating
thereto will be legally sufficient under such laws and regulations and all such
documentation will be legally enforceable in accordance with its terms,
including, without limitation, all recording, filing and other requirements of
giving public notice under any applicable law have been satisfied with respect
to Accounts, including, without limitation, the filing of any report in the
states of New Jersey, Minnesota and Indiana with the New Jersey Division of
Taxation, the Minnesota Department of Revenue and the Indiana Department of
Revenue, respectively.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Immediately upon Borrower's receipt of any Collateral which
constitutes or is evidenced by instruments or chattel paper ("SPECIAL
COLLATERAL"), Borrower shall deliver
27
the original thereof to Lender with appropriate endorsements or other specific
evidence (in form and substance acceptable to Lender) of assignment thereof to
Lender as security and shall take such actions as Lender may require to perfect
Lender's security interest in such Special Collateral; PROVIDED, HOWEVER, that
notwithstanding the foregoing, so long as no Event of Default has occurred and
is continuing, Borrower shall not be required to deliver to Lender any Special
Collateral (or take any of the foregoing actions with respect to Special
Collateral) relating to obligations to Borrower of less than $500,000
individually or $3,000,000 in the aggregate, EXCEPT THAT, provided no Event of
Default has occurred and is continuing, Borrower shall not be required to
deliver to Lender any Special Collateral (or take any of the foregoing actions
with respect to Special Collateral) if the Borrower has Excess Availability of
greater than $25,000,000.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account
debtors that the Accounts have been assigned to Lender and that Lender has a
security interest therein and Lender may direct any or all accounts debtors
to make payment of Accounts directly to Lender, (ii) extend the time of
payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all
Accounts or other obligations included in the Collateral and thereby
discharge or release the account debtor or any other party or parties in any
way liable for payment thereof without affecting any of the Obligations,
(iii) demand, collect or enforce payment of any Accounts or such other
obligations, but without any duty to do so, and Lender shall not be liable
for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the
protection of its interests. At any time that an Event of Default exists or
has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts and such
other obligations have been assigned to Lender and are payable directly and
only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 INVENTORY COVENANTS. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to
Lender, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, Borrower's cost therefor and
daily withdrawals therefrom and additions thereto; (b) Borrower shall conduct
a periodic cycle count of the Inventory in a manner that is acceptable to
Borrower's independent certified public accountants and, on or after an Event
of Default, shall conduct a physical count of the Inventory at any time or
times as Lender may request, and promptly following such physical inventory
shall supply Lender with a report in the form and with such specificity as
may be reasonably satisfactory to Lender concerning such physical count; (c)
Borrower shall not remove any Inventory from the locations set forth or
permitted herein, without the prior written consent of Lender, except for
sales of Inventory in the ordinary course of Borrower's business and except
to move Inventory directly from one location set forth or permitted herein to
another such location; (d) at Lender's request, Borrower shall, at its
expense on no more than two (2) occasions in any twelve month period, and at
Lender's own expense on the third and all subsequent occasions during such
period, deliver or cause to be delivered to Lender written
28
reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by Xxxxxxx-Xxxxxxxx & Associates, Inc. or another
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely (the "INVENTORY APPRAISAL"), PROVIDED, THAT, from
and after the occurrence and during the continuance of an Event of Default, all
Inventory Appraisals requested by Lender shall be delivered at Borrower's sole
cost and expense;(e) Borrower shall produce, use, store and maintain the
Inventory with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory;(g) except in the ordinary course of
Borrower's business in accordance with practices and policies previously
disclosed in writing to Lender, Borrower shall not sell Inventory to any
customer on approval, or any other basis which may obligate Borrower to
repurchase such Inventory;(h) Borrower shall keep the Inventory in good and
marketable condition;(i) Borrower shall not acquire or accept any Inventory on
consignment or approval unless Borrower discloses same in the weekly inventory
report delivered to Lender pursuant to Section 7.1(b) of this Agreement; and
(j) Borrower shall not, without Lender's prior consent in each instance, return
Inventory to any vendor in the ordinary course of Borrower's business or
otherwise if an Event of Default exists or has occurred and is continuing or if
the Borrower has Excess Availability of less than $2,000,000.
7.4 EQUIPMENT COVENANTS. With respect to the Equipment: (a) upon
Lender's request, Borrower shall, at its expense, at any time or times as Lender
may request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports as to the Equipment; (b) Borrower shall keep the
Equipment in good order, repair, running and marketable condition (ordinary wear
and tear excepted); (c) the Equipment is and shall be used in Borrower's
business; (d) Borrower shall deliver notice to Lender promptly after any
Equipment that constitutes a part of the Collateral is moved to a location that
is not owned or leased by Borrower, except to the extent necessary to have any
Equipment repaired or maintained in the ordinary course of the business of
Borrower or to move Equipment directly from one location set forth or permitted
herein to another such location and except for the movement of motor vehicles
used by or for the benefit of Borrower.
7.5 POWER OF ATTORNEY. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's
name, to: (a) at any time an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect
any Account or other Collateral, (iv) sell or assign any Account upon such
terms, for such amount and at such time or times as the Lender deems
advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi)
discharge and release any Account, (vii) prepare, file and sign Borrower's
name on any proof of claim in bankruptcy or other similar document against an
account debtor, (viii) notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated
29
by Lender, and open and dispose of all mail addressed to Borrower, (ix)
endorse Borrower's name upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to any Account or any
goods pertaining thereto or any other Collateral, (x) sign Borrower's name on
any verification of Accounts and notices thereof to account debtors and (xi)
do all acts and things which are necessary, in Lender's determination, to
fulfill Borrower's obligations under this Agreement and the other Financing
Agreements and (b) at any time to (i) take control in any manner of any item
of payment on or respecting Collateral or proceeds thereof to the extent it
has not been timely deposited into the Blocked Account in accordance with the
provisions of this Agreement, (ii) have access to any lockbox or postal box
into which any proceeds of Collateral is deposited, (iii) endorse Borrower's
name upon any items of payment on or respecting Collateral or proceeds of
Collateral and deposit the same in the Lender's account for application to
the Obligations, and (iv) execute in Borrower's name and file any UCC
financing statements or amendments thereto that Lender determines are
required in order to perfect, maintain or otherwise protect Lender's security
interest in any Collateral and/or the priority thereof, PROVIDED THAT, so
long as no Event of Default has occurred and is continuing, Lender shall not
exercise such right unless Borrower fails to execute any such financing
statement or amendment thereto promptly after request therefor by Lender.
Borrower hereby releases Lender and its officers, employees and designees
from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission,
except as a result of Lender's own gross negligence or wilful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.
7.6 RIGHT TO CURE. Lender may, at its option, (a) cure any default
by Borrower under any agreement with a third party or pay or bond on appeal
any judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with
respect to the Collateral and (c) pay any amount, incur any expense or
perform any act which, in Lender's judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the
Obligations and charge Borrower's account therefor, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to
effect such cure, payment or bonding and shall not, by doing so, be deemed to
have assumed any obligation or liability of Borrower. Any payment made or
other action taken by Lender under this Section shall be without prejudice to
any right to assert an Event of Default hereunder and to proceed accordingly.
7.7 ACCESS TO PREMISES. From time to time as requested by Lender, at
the cost and expense of Borrower, subject to the expense limitations set
forth in Section 7.3 and Section 9.15(g), (a) Lender or its designee shall
have complete access to all of Borrower's premises during normal business
hours and after reasonable notice to Borrower, or at any time and without
notice to Borrower if an Event of Default exists or has occurred and is
continuing, for the purposes of inspecting, verifying and auditing the
Collateral and all of Borrower's books and records, including the Records,
and (b) Borrower shall promptly furnish to Lender such copies of such books
and records or extracts therefrom as Lender may request after reasonable
notice to Borrower and during normal business hours, or at any time and
without notice to Borrower
30
if an Event of Default exists or has occurred and is continuing, and (c)
after reasonable notice to Borrower, use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and at any time and without notice to Borrower if
an Event of Default exists or has occurred and is continuing for the
collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 CORPORATE EXISTENCE, POWER AND AUTHORITY; SUBSIDIARIES. Borrower
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been duly authorized
and are not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms, except (a) to the extent that the
availability of equitable remedies may be subject to judicial discretion, and
(b)to the extent that enforcement of certain rights and remedies may be limited
by the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium
or other similar laws affecting the rights of creditors generally, including
without limitation, laws relating to fraudulent transfers or conveyances,
preferences and equitable subordination. Borrower does not have any
subsidiaries except as set forth on the Information Certificate and those
acquired or created after the date of this Agreement as permitted pursuant to
Sections 9.7 and 9.10 hereof.
8.2 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
31
8.3 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof.
8.4 PRIORITY OF LIENS; TITLE TO PROPERTIES. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens permitted under Section 9.8
hereof. Borrower has good and marketable title to all of its properties and
assets subject to no liens, mortgages, pledges, security interests, encumbrances
or charges of any kind, except those granted to Lender and such others as are
specifically permitted under Section 9.8 hereof.
8.5 TAX RETURNS. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender), except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect. All information in such tax
returns, reports and declarations is complete and accurate in all material
respects. Borrower has paid or caused to be paid all taxes due and payable or
claimed due and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books, or except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect. Adequate
provision has been made for the payment of all accrued and unpaid Federal,
State, county, local, foreign and other taxes whether or not yet due and payable
and whether or not disputed.
8.6 LITIGATION. Except as set forth on the Information Certificate and
on Schedule 8.6 hereto, as the same may be updated or supplemented from time to
time in accordance with the terms of this Agreement, and except for litigation
not required to be reported under Section 9.6(b) hereof and litigation reported
to Lender as required under Section 9.6(b) hereof, there is no present
investigation by any governmental agency pending, or to the best of Borrower's
knowledge threatened, against or affecting Borrower, its assets or business and
there is no action, suit, proceeding or claim by any Person pending, or to the
best of Borrower's knowledge threatened, against Borrower or its assets or
goodwill, or against or affecting any transactions contemplated by this
Agreement, which, in each or any case, if adversely determined against Borrower,
could reasonably be expected to result in a Material Adverse Effect.
8.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS. Borrower is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with
32
all applicable provisions of laws, rules, regulations, licenses, permits,
approvals and orders of any foreign, Federal, State or local governmental
authority, except any such defaults, violations or non-compliance that,
individually or in the aggregate, have not resulted in, and could not reasonably
be expected to result in, a Material Adverse Effect.
8.8 BANK ACCOUNTS. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.8 hereto, subject to the
right of Borrower to establish new accounts in accordance with Section 9.13
below.
8.9 ACCURACY AND COMPLETENESS OF INFORMATION. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a Material Adverse Effect, which has not been fully and accurately disclosed to
Lender in writing.
8.10 SURVIVAL OF WARRANTIES; CUMULATIVE. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 MAINTENANCE OF EXISTENCE. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted, except to the extent that any failure to do so, individually or in
the aggregate, does not, and could not reasonably be expected to, result in a
Material Adverse Effect. Borrower shall give Lender thirty (30) days prior
written notice of any proposed change in its corporate name, which notice shall
set forth the new name and Borrower shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of Borrower providing for the name
change certified by the Secretary of State of the jurisdiction of incorporation
of Borrower as soon as it is available.
9.2 NEW COLLATERAL LOCATIONS. (a) Borrower may open any new location
within the continental United States or in Canada provided Borrower (i) gives
Lender ten (10) days prior
33
written notice of the intended opening of any such new location and (ii)
executes and delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including UCC financing statements.
(b) Notwithstanding anything to the contrary set forth in
Section 9.2(a) above, so long as no Event of Default exists and is continuing,
and provided Borrower provides Lender with ten (10) days' prior written notice,
Borrower may move or transfer Inventory or Equipment to a location or locations
outside the United States and Canada, PROVIDED THAT,(i) in each instance, after
giving effect to such transfer of Inventory and Equipment, Borrower has Excess
Availability of not less than $25,000,000 and (ii)during the term of this
Agreement,(A) the aggregate value of all Equipment located outside the United
States and Canada shall not exceed, at any given time, $2,000,000 in the
aggregate and (B) the aggregate value of all Inventory located outside the
United States and Canada shall not exceed, at any given time, $5,000,000 in the
aggregate.
9.3 COMPLIANCE WITH LAWS, REGULATIONS, ETC. Borrower shall, at all
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals and orders of any Federal, State or local
governmental authority applicable to it, except where the failure to so comply
does not, individually or in the aggregate, and could not reasonably be expected
to, result in a Material Adverse Effect.
9.4 PAYMENT OF TAXES AND CLAIMS. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except (a) taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books and (b) where failure to pay any such taxes, assessments,
contributions or governmental charges does not, individually or in the
aggregate, and could not reasonably be expected to, result in a Material Adverse
Effect. Borrower shall be liable for any tax or penalties imposed on Lender as
a result of the financing arrangements provided for herein and Borrower agrees
to indemnify and hold Lender harmless with respect to the foregoing, and to
repay to Lender on demand the amount thereof, and until paid by Borrower such
amount shall be added and deemed part of the Loans, PROVIDED, THAT, nothing
contained herein shall be construed to require Borrower to pay any income or
franchise taxes attributable to the income of Lender from any amounts charged or
paid hereunder to Lender. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
9.5 INSURANCE. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds (excluding earthquake
insurance) and in the amounts customarily insured against or carried by
corporations of established reputation engaged in the same or similar businesses
and similarly situated. Said policies of insurance shall be satisfactory to
Lender as to form, amount and insurer. Borrower shall furnish certificates,
policies or endorsements to Lender as Lender shall require as proof of such
insurance, and, if Borrower fails to do so, Lender is
34
authorized, but not required, to obtain such insurance at the expense of
Borrower. All policies shall provide for at least ten (10) days prior written
notice to Lender of any cancellation or reduction of coverage and that Lender
may act for Borrower in obtaining, and at any time an Event of Default exists or
has occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance with respect to the Collateral shall be
payable to Lender as its interests may appear and further specify that Lender
shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i)within forty-five (45) business days after the end of each fiscal
month, monthly unaudited consolidated financial statements, and, if Borrower has
any subsidiaries, unaudited consolidating financial statements (including in
each case balance sheets, statements of income and loss, statements of cash
flow, and statements of shareholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of the operations of Borrower
and its subsidiaries as of the end of and through such fiscal month and (ii)
prior to the consummation of an Initial Public Offering, within one hundred
twenty (120) days after the end of each fiscal year, and from and after
consummation of an Initial Public Offering, within ninety (90) days after the
end of each fiscal year, audited consolidated financial statements and, if
Borrower has any subsidiaries, audited consolidating financial statements of
Borrower and its subsidiaries (including in each case balance sheets, statements
of income and loss, statements of cash flow and statements of shareholders'
equity), and the accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the operations of Borrower
and its subsidiaries as of the end of and for such fiscal year, together with
the unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrower and
reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss or damage in an amount of $500,000 or greater relating
to Collateral or any other property which is security for the Obligations;(ii)
any action, suit or proceeding relating to the Collateral
35
or any other property which is security for the Obligations, which action, suit
or proceeding, if adversely determined, could reasonably be expected to have a
Material Adverse Effect upon the Borrower's business or upon the Collateral or
any other property which is security for the Obligations; and (iii) the
occurrence of any Event of Default or event which, with the passage of time or
giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Subject to the provisions of Section 12.5 below, Lender is
hereby authorized to deliver a copy of any financial statement or any other
information relating to the business of Borrower to any court or other
government agency or to any participant or assignee or prospective participant
or assignee. Borrower hereby irrevocably authorizes and directs all accountants
or auditors to deliver to Lender, upon Lender's request, at Borrower's expense,
copies of the audited financial statements of Borrower and any reports or
management letters issued by such accountants or auditors pertaining to
Borrower, PROVIDED, THAT, if no Event of Default shall have occurred and be
continuing at the time of any such request of Lender, Borrower's accountants or
auditors shall not be authorized to make such delivery and/or disclosure to
Lender without Borrower's prior consent thereto. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender one (1) year after the same are delivered to Lender,
except as otherwise designated by Borrower to Lender in writing.
9.7 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC. Borrower
shall not, directly or indirectly,(a) merge into or with or consolidate with any
other Person or permit any other Person to merge into or with or consolidate
with it except for the Delaware Reincorporation Merger, or (b) sell, assign,
lease, transfer, abandon or otherwise dispose of any stock to any other Person
or any of its assets to any other Person (except for (i) sales of Inventory in
the ordinary course of business,(ii) the disposition of Equipment so long as, if
an Event of Default exists or has occurred and is continuing, the proceeds are
paid to Lender to the extent such Equipment, at the time of the disposition
thereof, constituted Collateral, and (iii) the sale or other disposition of
assets and properties of Borrower (other than Accounts, Inventory and Equipment)
having an aggregate fair market value not in excess of $2,000,000 for all such
assets and properties disposed of in any fiscal year of Borrower, provided that,
if an Event of Default exists or has occurred and is continuing, any proceeds
thereof shall be promptly remitted to Lender for application to the then unpaid
Obligations in such order and manner as Lender shall determine, or (c) form or
acquire any subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to
do any of the foregoing. Notwithstanding the foregoing, and provided no Event
of Default exists and is continuing, Borrower shall have the right to (x) form
or acquire subsidiaries in connection with
36
the acquisition of the assets or capital stock of another Person permitted by
Section 9.10 hereof, (y) sell and issue additional shares of its capital stock
or issue warrants or options with respect to Borrower's capital stock, (i) in
one or more private sales thereof, (ii) pursuant to the Securities Act of 1933,
as amended (the "INITIAL PUBLIC OFFERING"), and (iii) in connection with any
secondary public offering pursuant to the Securities Act of 1933, as amended,
PROVIDED THAT (1) all proceeds of any Equity Offering shall be used by Borrower
solely for its working capital and corporate purposes and (2) after giving
effect to any proposed Equity Offering, no Change of Control shall have
occurred, and (z) form any subsidiary, make an investment in any Person or
contribute assets or property to a joint venture in accordance with the
provisions of Section 9.10 hereof.
9.8 ENCUMBRANCES. Borrower shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, EXCEPT: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books; (c) non-consensual
statutory liens (other than liens securing the payment of taxes) arising in
the ordinary course of Borrower's business to the extent: (i) such liens
secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and
being defended at the sole cost and expense and at the sole risk of the
insurer or being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower, in each case prior to the
commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books; (d) zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of real property which do not interfere in any material respect with
the use of such real property or ordinary conduct of the business of Borrower
as presently conducted thereon or materially impair the value of the real
property which may be subject thereto; (e) purchase money security interests
in (i) Equipment (including capital leases) acquired after the date hereof
that does not constitute Collateral not to exceed (A) $15,000,000 in any
twelve-month period following the date of this Agreement and (B) $25,000,000
in the aggregate during the term of this Agreement and (ii) purchase money
mortgages on real estate acquired after the date hereof not to exceed
$4,000,000 in the aggregate at any time outstanding so long as such security
interests and mortgages do not apply to any property of Borrower other than
the Equipment or real estate so acquired, and the indebtedness secured
thereby does not exceed the cost of the Equipment or real estate so acquired,
as the case may be; (f) liens securing the refinancing of any indebtedness
secured by purchase money security interests in Equipment and real estate
provided that any such refinancing shall be provided by a non-affiliated
Person in an arm's length transaction and on commercially reasonable terms;
(g) liens securing secured equipment loans or capital leases ("EQUIPMENT
LOANS") provided by a non-affiliated Person, which Equipment Loans shall be
an arm's length transaction and on commercially reasonable terms, PROVIDED
THAT, in connection therewith, (i) any Equipment Loans shall be secured only
by the specific Equipment directly relating to the Equipment Loans made by
such Person and not by any other assets of the Borrower, (ii) any proceeds
received by Borrower from each Equipment Loan shall be used by
37
the Borrower to repay the Obligations hereunder and (iii) as of the date of
each Equipment Loan, no Event of Default exists hereunder; (h) the security
interests and liens set forth on Schedule 9.8 hereto; (i) liens approved by
Lender in accordance with Section 9.10(b) hereof; (j) any vendor's lien on
Inventory in favor of a vendor from whom Borrower has purchased Inventory,
PROVIDED THAT, such vendor has executed and delivered to Borrower for the
benefit of Lender a subordination agreement in substantially identical form
to the vendors' subordination agreements delivered to Lender on the closing
date pursuant to Section 4.1(e) hereof; and (k) any purported lien on
merchandise in Borrower's possession evidenced by a protective UCC-1 filing
by a person or entity who consigned such merchandise to Borrower, PROVIDED
THAT, such person or entity has executed and delivered to Borrower for the
benefit of Lender a consignor's waiver letter in substantially identical form
to the consignors' waiver letters delivered to Lender on the closing date
pursuant to Section 4.1(e) hereof.
9.9 INDEBTEDNESS. Borrower shall not incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any
obligations or indebtedness, EXCEPT: (a) the Obligations; (b) trade
obligations, other obligations reasonably incurred in the course of business
and normal accruals in the course of business that are not past due, or with
respect to which the Borrower is contesting in good faith the amount or
validity thereof by appropriate proceedings diligently pursued and available
to Borrower, and with respect to which adequate reserves have been set aside
on its books; (c)(i) indebtedness (including capital leases) to the extent
not incurred or secured by liens (including capital leases) in violation of
any other provision of this Agreement or (ii) indebtedness relating to
equipment leases or equipment financing transactions entered into in an arm's
length transaction and on commercially reasonable terms; (d) the indebtedness
set forth on Schedule 9.9 hereto; and (e) unsecured subordinated indebtedness
of Borrower ("SUBORDINATED DEBT") hereafter owing to one or more other
Persons (each, a "JUNIOR CREDITOR"), PROVIDED, THAT (i) the Junior Creditor
making any such subordinated loan(s) to Borrower shall have executed and
delivered in favor of Lender a subordination agreement, in form and substance
satisfactory to Lender, which shall provide, among other things, that the
Subordinated Debt owing to such Junior Creditor is subject and subordinate in
right of payment to the right of Lender to receive the prior final payment
and satisfaction in full of all of the Obligations, and (ii) all proceeds of
the Subordinated Debt shall be remitted by Borrower, upon receipt thereof, to
Lender for application to the then unpaid Obligations in such order and
manner as Lender shall determine; PROVIDED, THAT, with respect to the
indebtedness described in clauses (c) and (d) of this Section 9.9, Borrower
may only make regularly scheduled payments of principal and interest in
respect of such indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving rise to such indebtedness as in effect on the
date hereof so long as no Event of Default exists and is continuing, EXCEPT
THAT, Borrower shall have the right to refinance and prepay any equipment
financing indebtedness and shall have the right to prepay any other
indebtedness described in clauses (c) and (d) of this Section 9.9; PROVIDED
THAT, (A) no Event of Default exists and is continuing on the date Borrower
proposes to make such prepayment ("PREPAYMENT DATE") as set forth in a notice
of such proposed prepayment to be delivered by Borrower to Lender at least
ten (10) days prior to the Prepayment Date, (B) after giving effect to such
proposed prepayment, Borrower has Excess Availability of not less than
$20,000,000, and (C) the aggregate amount of all prepayments permitted
pursuant to this Section
38
9.9 shall not exceed (1) $6,000,000 in any twelve-month period following the
date of this Agreement and (2) $12,000,000 in the aggregate during the term of
this Agreement.
9.10 LOANS, INVESTMENTS, GUARANTEES, ETC. (a) Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part of
the assets or property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, EXCEPT:
(i) the endorsement of instruments for collection or
deposit in the ordinary course of business;
(ii) loans or advances of money (other than salary) to
officers, directors, employees, independent contractors, or stockholders of
Borrower consisting of (A) expense advances in the ordinary course of business
consistent with past practices, (B) loans, not to exceed Five Hundred Thousand
Dollars ($500,000), individually, or One Million Dollars ($1,000,000)
outstanding in the aggregate at any time, incidental to recruiting or relocating
officers, and (C) non-cash loans in connection with the exercise of stock
options;
(iii) the loans, advances and guarantees set forth on
Schedule 9.10 hereto; and
(iv) except as otherwise permitted hereunder;
PROVIDED, THAT, as to such loans, advances and guarantees, to the extent
requested by Lender, Borrower shall furnish to Lender all notices or demands in
connection with such loans, advances or guarantees or other indebtedness subject
to such guarantees either received by Borrower or on its behalf, promptly after
the receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
(b) Notwithstanding anything to the contrary contained in
Section 9.9 or this Section 9.10, provided no Event of Default exists and is
continuing:
(i) Borrower shall be permitted to purchase a
controlling ownership in the stock of any Person (a "STOCK ACQUISITION"; and
such Person whose shares of capital are acquired in the Stock Acquisition is
hereinafter referred to as the "TARGET COMPANY") or all or a substantial part of
the assets or property of any Person (an "ASSET ACQUISITION"; and the assets to
be acquired upon consummation of the Asset Acquisition are hereinafter
collectively referred to as the "ACQUIRED ASSETS"), provided the Target Company
is engaged in, or the Acquired Assets are then used in, a business (the
"ACQUIRED BUSINESS") similar or related to Borrower's business as presently
conducted, PROVIDED THAT (A) Borrower provides Lender with thirty (30) Business
Days' prior written notice of each contemplated Stock Acquisition or Asset
Acquisition (hereinafter, an "ACQUISITION"), which notice shall describe the
proposed Acquisition in
39
reasonable detail, including the total amount of consideration to be paid by
Borrower in connection therewith and a description of the assets or stock to be
acquired, (B) contemporaneously with the consummation of the Acquisition,
Borrower shall have granted Lender a first priority, perfected security interest
in and lien upon or pledge of (as applicable) all of the stock or assets
acquired by Borrower upon consummation of the Acquisition, subject to no other
liens or encumbrances except for those that shall be acceptable to Lender in its
discretion ("PERMITTED LIENS"), (C) notwithstanding anything to the contrary
contained herein, the Accounts and Inventory that are owned by the Target
Company or that constitute a part of the Acquired Assets (as applicable) and
that arise or are acquired as a result of Borrower's operation of the Acquired
Business after consummation of the Acquisition will not be Eligible Accounts or
Eligible Inventory hereunder unless and until Lender shall have completed a
field examination and, if Lender reasonably requests, conduct an appraisal with
respect thereto, the results of which, together with any legal due diligence as
Lender shall request, shall be satisfactory to Lender in all respects, and, in
the case of a Stock Acquisition, Lender shall have received from the Target
Company all documents, instruments and agreements as Lender shall reasonably
require in connection therewith, in form and substance satisfactory to Lender,
including, without limitation, a guarantee by the Target Company of all of the
Obligations to Lender and a general security agreement and related UCC-1
financing statements pursuant to which Lender shall have received a first
priority, perfected security interest in and lien upon all of the Target
Company's assets and properties, including, without limitation, its Accounts and
Inventory, subject to no other liens or encumbrances except Permitted Liens;
(D) after giving effect to the proposed Acquisition, Borrower shall have Excess
Availability of not less than $20,000,000, except that if the condition
precedent set forth in the immediately preceding clause (C) has been satisfied
in full, in Lender's sole judgment, as of the date of consummation of the
Acquisition, then the Acquired Assets consisting of Accounts and Inventory of
the Acquired Business shall be taken into account by Lender in calculating
Borrower's Excess Availability for the purposes of this clause (D); and
(ii) Borrower shall be permitted to make, in the ordinary
course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender, (A) loans and advances evidenced by
Accounts Settlement Agreements permitted pursuant to Section 7.2(c)(iii) hereof
and (B) so long as Borrower has, in each instance, Excess Availability of not
less than $10,000,000, loans and advances to certain Persons who sell and supply
to Borrower goods consisting of musical recordings, intellectual property
rights, distribution rights, or video records, games or accessories or other
related products or who manufacture such goods for such Persons (individually, a
"DESIGNATED VENDOR", and collectively, "DESIGNATED VENDORS"), PROVIDED THAT, (1)
if, after giving effect to the proposed loan or advance, Borrower has Excess
Availability of not less than (x) $10,000,000 on the date of such loan or
advance, the maximum aggregate amount of all loans and advances to any
Designated Vendor shall not exceed the aggregate amount of $1,000,000
outstanding at any given time, (y) $25,000,000 on the date of such loan or
advance, the maximum aggregate amount of all loans and advances to any
Designated Vendor shall not exceed the aggregate amount of $5,000,000
outstanding at any given time, and (z) $50,000,000 on the date of such loan or
advance, the maximum aggregate amount of all loans and advances to any
Designated Vendor
40
shall not exceed the aggregate amount of $5,000,000 outstanding at any given
time; and (2) the maximum aggregate amount of all loans and advances to all
Designated Vendors outstanding at any given time shall not exceed $15,000,000;
and
(iii) Borrower shall be permitted to form a subsidiary,
acquire a minority equity interest in a Person or contribute assets or
properties to a joint venture, PROVIDED THAT, during the term of this Agreement,
the maximum aggregate amount of all investments permitted under this Section
9.10(b)(iii) shall not exceed $20,000,000 and, PROVIDED FURTHER THAT, in each
instance (A) Borrower pledges or assigns in favor of Lender as Collateral for
the Obligations, all of Borrower's right, title and interest in and to such
subsidiary, equity ownership in such Person, or joint venture and executes and
delivers such agreements and documentation as Lender shall reasonably request to
perfect such security interest, and (B) the maximum aggregate amount of such
investments permitted under this Section 9.10(b)(iii) shall not exceed, in each
instance, the following amounts:
(1) If the Monthly Excess Availability for the
six (6) calendar months immediately preceding the date of any proposed
investment permitted hereunder is equal to or greater than $40,000,000 and,
after giving effect to the proposed investment permitted hereunder, Borrower has
Excess Availability of not less than $40,000,000, then the maximum amount of
such investment shall be $5,000,000, PROVIDED THAT, after giving effect to the
proposed investment, the aggregate amount of all existing investments permitted
under this Section 9.10(b)(iii) does not and will not exceed $5,000,000; and
(2) If the Monthly Excess Availability for the
six (6) calendar months immediately preceding the date of any proposed
investment permitted hereunder is equal to or greater than $75,000,000 and,
after giving effect to the proposed investment permitted hereunder, Borrower has
Excess Availability of not less than $75,000,000, then the maximum amount of
such investment shall be $10,000,000, PROVIDED THAT, after giving effect to the
proposed investment, the aggregate amount of all existing investments permitted
under this Section 9.10(b)(iii) does not and will not exceed $10,000,000; and
(3) If the Monthly Excess Availability for the
six (6) calendar months immediately preceding the date of any proposed
investment permitted hereunder is equal to or greater than $100,000,000 and,
after giving effect to the proposed investment permitted hereunder, Borrower has
Excess Availability of not less than $100,000,000, then the maximum amount of
such investment shall be $20,000,00, PROVIDED THAT, after giving effect to the
proposed investment, the aggregate amount of all existing investments permitted
under this Section 9.10(b)(iii) does not and will not exceed $20,000,000;
For the purposes of calculating the Monthly Excess Availability as required
under this Section 9.10(b)(iii), and not for any other Section of this
Agreement, to the extent that the Borrower receives proceeds from an Equity
Offering during any applicable six (6) month period as set forth above, said
proceeds shall be deemed received by Borrower as of the first (1st) Business Day
of such period;
41
(iv) Borrower shall be permitted to make investments in
Valley Records Foreign Sales Corporation, PROVIDED THAT, the maximum aggregate
amount of all investments permitted under this Section 9.10(b)(iv) shall not
exceed $30,000 in any fiscal year of Borrower; and
(v) Borrower shall be permitted to guarantee the
accounts payable owing to product manufacturers by Designated Vendors, PROVIDED
THAT, the aggregate amount of all such guarantees shall not exceed at any given
time $1,000,000.
9.11 DIVIDENDS AND REDEMPTIONS. Borrower shall not, directly or
indirectly:
(a) declare or pay any dividends on account of any shares of
class of capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, EXCEPT, THAT (i) Borrower
may declare and pay cash dividends upon its capital stock in an aggregate amount
not to exceed twenty-five (25%) percent of Borrower's net income for any fiscal
year, as reflected on the audited financial statements for such fiscal year
delivered by Borrower to Lender in accordance with Section 9.6(a) above,
PROVIDED, THAT (A) no Event of Default has occurred and is continuing on the
proposed dividend payment date ("DIVIDEND PAYMENT DATE") set forth in a notice
of such proposed dividend to be delivered by Borrower to Lender at least ten
(10) days prior to the Dividend Payment Date, (B) Borrower's Excess Availability
on the Dividend Payment Date, after giving effect to such dividend, is at least
$20,000,000, and (C) such cash dividend must be paid no later than thirty (30)
days after Lender's receipt of such audited financial statements, and
(ii) Borrower may issue stock dividends upon any shares of any class of capital
stock so long as the same is in accordance with all applicable laws and provided
no Event of Default has occurred; or
(b) redeem, retire, defease, purchase or otherwise acquire
any shares of any class of capital stock or retire options or warrants with
respect thereto (or set aside or otherwise deposit or invest any sums for
such purpose) (collectively, "REDEMPTION PAYMENTS") for any consideration
other than common stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, EXCEPT THAT Borrower may
repurchase shares of any class of its capital stock or retire options or
warrants with respect thereto if (i) no Event of Default shall have occurred
and be continuing on the proposed Redemption Payment date ("REDEMPTION
PAYMENT DATE") set forth in a notice of such proposed Redemption Payment to
be delivered by Borrower to Lender at least ten (10) days prior to the
Redemption Payment Date, and (ii) Borrower's Excess Availability, after
giving effect to the Redemption Payment, is at least $10,000,000 on the
Redemption Payment Date, then Borrower may repurchase shares of any class of
its capital stock or retire options or warrants with respect thereto as
follows: (A) if Borrower's Excess Availability, after giving effect to such
Redemption Payment, is equal to or greater than $10,000,000 but less than
$20,000,000, then the aggregate amount of all such Redemption Payments shall
not exceed $1,000,000 in the aggregate, or (B) if (1) the Borrower's Excess
Availability, after giving effect to such Redemption Payment is $20,000,000
or greater and (2) Borrower's Monthly Excess Availability for the six (6)
calendar months immediately preceding
42
the Redemption Payment Date is greater than $20,000,000, then the aggregate
amount of all such Redemption Payments shall not exceed $3,000,000 in the
aggregate. During the term of this Agreement, and notwithstanding anything to
the contrary contained above, the aggregate amount of all such Redemption
Payments permitted above shall in no event exceed $3,000,000 in the aggregate.
9.12 TRANSACTIONS WITH AFFILIATES. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person, or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except reasonable compensation
to officers, employees and directors for services rendered to Borrower in the
ordinary course of business; excluding, however, from the prohibitions set forth
in clauses (a) and (b) of this Section 9.12, the transactions described on
Schedule 9.12 hereto.
9.13 ADDITIONAL BANK ACCOUNTS. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.8 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by Borrower to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
9.14 ADJUSTED NET WORTH. Borrower shall, at all times, maintain
Adjusted Net Worth of not less than the sum of (a) $2,000,000 PLUS
(b) seventy-five (75%) percent of the aggregate amount of net proceeds received
by Borrower in connection with any Equity Offerings permitted pursuant to
Section 9.7.
9.15 COSTS AND EXPENSES. Subject to the limitations with respect to
Inventory Appraisals performed at Borrower's expense set forth in Section 7.3
above, Borrower shall pay to Lender on demand all costs, expenses, filing fees
and taxes paid or payable in connection with the preparation, negotiation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement, the other Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect
hereof and thereof, including: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable);(b) all insurance premiums, appraisal fees and search fees;(c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining
43
the Blocked Accounts, together with Lender's customary charges and fees with
respect thereto; (d) charges, fees or expenses charged by any bank or issuer
in connection with the Letter of Credit Accommodations; (e) costs and
expenses of preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including preparations for and consultations concerning any such
matters); (g) all out-of-pocket expenses and costs heretofore and from time
to time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem
charge at the rate of $600 per person per day for Lender's examiners in the
field and office; and (h) the fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the foregoing.
9.16 FURTHER ASSURANCES. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In
the event of such request by Lender, Lender may, at its option, cease to make
any further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 EVENTS OF DEFAULT. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "EVENT OF
DEFAULT", and collectively as "EVENTS OF DEFAULT":
(a) (i) Borrower fails to pay when due any of the Loans or
interest accrued thereon, (ii) Borrower fails to pay within five (5) days
after demand for payment thereof by Lender any Obligations other than the
Loans and interest accrued thereon, or (iii) Borrower fails to perform any of
the covenants contained in Sections 6.3, 6.4, 6.6 or 7.1 of this Agreement,
or (iv) Borrower fails to perform any of the covenants contained in Section 9
of this Agreement or fails to perform any term, covenant, condition or
provision contained in this Agreement or any of the other Financing
Agreements other than those described in Section 10.1(a)(i), (ii) and (iii)
above, and such failure shall continue for thirty (30) days, PROVIDED THAT,
(A) the thirty (30) day period provided for in this Section 10.1(a)(iv) above
shall not apply in the case of: (1) any failure to observe any such covenant
which is not capable of being cured at all or within such
44
thirty (30) day period, or which has been the subject of a prior failure
within a six (6) month period or (2) an intentional breach by Borrower of any
such covenant or (3) any failure to observe any such covenant if as a result
of such failure, any of the Financing Agreements shall terminate (other than
in accordance with its terms or the terms hereof or with the written consent
of Lender) or become void or unenforceable; and (B) the thirty (30) day
period provided for in this Section 10.1(a)(iv) above shall commence on the
earlier of (x) written notice of default being given to Borrower by Lender
and (y) a responsible officer of Borrower obtaining knowledge of such default;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any way or manner which could
reasonably be expected to result in a Material Adverse Effect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $500,000 in any one case or in excess of
$2,000,000 in the aggregate, exclusive in each case of any portion of such
judgment covered by insurance, and shall remain undischarged or unvacated for a
period in excess of sixty (60) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined
or evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
45
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) (A) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Lender, which results in the right of the holder of such obligation or
indebtedness to accelerate indebtedness owing to such holder in an amount equal
to at least $1,000,000; or (B) any default by Borrower or any Obligor under any
material contract, lease, license or other obligation to any person other than
Lender, which default continues for more than the applicable cure period, if
any, with respect thereto, and could reasonably be expected to result in
liability of Borrower to such other person in an amount equal to at least
$2,000,000;
(j) any Change in Control shall occur, EXCEPT THAT it shall
not be an Event of Default if the controlling ownership of Borrower's then
issued and outstanding capital stock is sold and transferred to another
Person (the "BUYER") in a single transaction (the "CONTROLLING STOCK SALE"),
provided that (A) no Event of Default shall exist at the time of the proposed
consummation of the Controlling Stock Sale, (B) the Buyer must have working
capital of not less than $30,000,000 and a tangible net worth of not less
than $30,000,000, each as determined in accordance with GAAP, (C) the Buyer
must be engaged, immediately prior to the consummation of the Controlling
Stock Sale, in the same business or in a business substantially similar to
the business in which Borrower is engaged, and (D) after giving effect to and
at all times from and after the consummation of the Controlling Stock Sale,
(1) there shall be no material change in the Borrower's business operations
and (2) Borrower shall be and remain a wholly owned subsidiary of Buyer,
conducting business independent from the business operations of the Buyer;
(k) the indictment of Borrower or any Obligor under any criminal
statute, or commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of Borrower or
such Obligor and which forfeiture could reasonably be expected to result in a
Material Adverse Effect; or
(l) there shall occur a Material Adverse Change with respect to
Borrower or any Obligor after the date hereof.
10.2 REMEDIES.
(a) At any time an Event of Default exists or has occurred and
is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and
46
remedies may be exercised without notice to or consent by Borrower or any
Obligor, except as such notice or consent is expressly provided for hereunder or
required by applicable law. All rights, remedies and powers granted to Lender
hereunder, under any of the other Financing Agreements, the Uniform Commercial
Code or other applicable law, are cumulative, not exclusive and enforceable, in
Lender's discretion, alternatively, successively, or concurrently on any one or
more occasions, and shall include, without limitation, the right to apply to a
court of equity for an injunction to restrain a breach or threatened breach by
Borrower of this Agreement or any of the other Financing Agreements. Lender
may, at any time or times, proceed directly against Borrower or any Obligor to
collect the Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender (PROVIDED, THAT,
upon the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii)
require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize
upon any and all Collateral, (v) remove any or all of the Collateral from any
premises on or in which the same may be located for the purpose of effecting
the sale, foreclosure or other disposition thereof or for any other purpose,
(vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and
all Collateral (including entering into contracts with respect thereto,
public or private sales at any exchange, broker's board, at any office of
Lender or elsewhere) at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with the Lender having the
right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption
of Borrower, which right or equity of redemption is hereby expressly waived
and released by Borrower and/or (vii) terminate this Agreement. If any of
the Collateral is sold or leased by Lender upon credit terms or for future
delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of prejudgment remedy,
Borrower waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the
47
highest rate provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both Lender
has reasonably determined could be expected to result in an Event of Default,
Lender may, at its option, without notice, (i) cease making Loans or arranging
for Letter of Credit Accommodations or reduce the lending formulas or amounts of
Revolving Loans and Letter of Credit Accommodations available to Borrower and/or
(ii) terminate any provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL
WAIVER.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the California Superior Court in and for San
Francisco County, and the United States District Court for the Northern District
of California and waive any objection based on venue or FORUM NON CONVENIENS
with respect to any action instituted therein arising under this Agreement or
any of the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against Borrower
or its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
48
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND
LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 WAIVER OF NOTICES. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Lender of any right, power and/or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
49
11.4 WAIVER OF COUNTERCLAIMS. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 INDEMNIFICATION. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in this Section may be unenforceable because it violates any law or
public policy, Borrower shall pay the maximum portion which it is permitted to
pay under applicable law to Lender in satisfaction of indemnified matters under
this Section. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 TERM.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "RENEWAL DATE"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Lender or Borrower may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; PROVIDED, THAT,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and
unpaid Obligations and shall furnish cash collateral to Lender in such amounts
as Lender reasonably determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received final
and indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, Los Angeles
time.
50
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) (i) If for any reason this Agreement is terminated prior
to the end of the then current term or renewal term of this Agreement, in view
of the impracticality and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(A) 2% of Maximum Credit From the date hereof to and
including May 21, 1999
(B) 1/2% of Maximum Credit From May 22, 1999 to and including
May 21, 2000
(C) 0% of Maximum Credit From May 22, 2000 to and including
May 21, 2001.
(ii) The early termination fee provided for in this
Section 12.1 shall be presumed to be the amount of damages sustained by Lender
as a result of such early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. In addition, Lender shall be
entitled to such early termination fee upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h) hereof, even if Lender does
not exercise its right to terminate this Agreement, but elects, at its option,
to provide financing to Borrower or permit the use of cash collateral under the
United States Bankruptcy Code. The early termination fee provided for in this
Section 12.1 shall be deemed included in the Obligations.
12.2 NOTICES. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 PARTIAL INVALIDITY. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole,
51
but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable and the rights and
obligations of the parties shall be construed and enforced only to such extent
as shall be permitted by applicable law.
12.4 SUCCESSORS. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation, PROVIDED, HOWEVER, that Lender shall
obtain Borrower's prior written consent, which consent shall not be unreasonably
withheld, with respect to any such proposed assignment by Lender, and if the
proposed assignee is a lending institution that is not organized and existing
under the laws of the United States or a political subdivision thereof, such
lending institution must be capable of receiving payments of interest hereunder
without deduction or withholding of United States federal income taxes under the
provisions of an applicable tax treaty concluded by the United States.
12.5 CONFIDENTIALITY.
(a) Lender shall use all reasonable efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, (i) any
non-public information supplied to it by Borrower pursuant to this Agreement
prior to the date hereof and (ii) any non-public information supplied to it
by Borrower pursuant to this Agreement after the date hereof which is clearly
and conspicuously marked as confidential at the time such information is
furnished by Borrower to Lender after the date hereof, PROVIDED, THAT,
nothing contained herein shall limit the disclosure of any such information:
(A) to the extent required by statute, rule, regulation, subpoena or court
order, (B) to bank examiners and other regulators, auditors and/or
accountants, (C) in connection with any litigation to which Lender is a
party, (D) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant (or prospective assignee
or participant) shall have first agreed in writing to treat such information
as confidential in accordance with this Section 12.5, or (E) to counsel for
Lender or any participant or assignee (or prospective participant or
assignee).
(b) In no event shall this Section 12.5 or any other provision
of this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof,(ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on
52
a non-confidential basis from a person other than Borrower, (iii) require
Lender to return any materials furnished by Borrower to Lender or (iv)
prevent Lender from responding to routine informational requests in
accordance with the CODE OF ETHICS FOR THE EXCHANGE OF CREDIT INFORMATION
promulgated by The Xxxxxx Xxxxxx Associates or other applicable industry
standards relating to the exchange of credit information. The obligations of
Lender under this Section 12.5 shall supersede and replace the obligations of
Lender under any confidentiality letter signed prior to the date hereof.
12.6 ENTIRE AGREEMENT. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION VALLEY MEDIA, INC.
(NORTHWEST)
By: /s/ Xxxxxx X. Xxxxx By: /s/ J. Xxxxxxxx Xxxx
----------------------------- -----------------------------
Title: First Vice President Title SVP & CFO
-------------------------- --------------------------
ADDRESS: CHIEF EXECUTIVE OFFICE:
Xxx Xxxx Xxxxx 0000 Xxxxx Xxxxx Xxxxx
000 Xxxxxxxxx Xxxx, Xxxxx 000 Xxxxxxxx, Xxxxxxxxxx 00000
Xxxxxxxx, Xxxxxx 00000
53
