<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998 Commission File No. 0-27338
GT INTERACTIVE SOFTWARE CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3689915
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
417 FIFTH AVENUE, NEW YORK, NY 10016
(Address of principal (Zip code)
executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 726-6500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of November 10, 1998, there were 70,415,014 shares of the
registrant's Common Stock outstanding.
<PAGE> 2
GT INTERACTIVE SOFTWARE CORP.
SEPTEMBER 30, 1998 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited):
Consolidated Condensed Balance Sheets as of March 31,
1998 (audited) and September 30, 1998 3
Consolidated Statements of Operations for the Three and
Six Months Ended September 30, 1997 and 1998 4
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended September 30, 1997 and 1998 5
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended September 30, 1997 and 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 1. Litigation 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
-------- --------
(audited) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 17,329 $ 5,323
Receivables, net 134,815 170,369
Inventories, net 98,469 109,628
Income taxes receivable 10,684 2,668
Other current assets 34,103 36,791
-------- --------
Total current assets 295,400 324,779
Property and equipment, net 29,049 33,846
Goodwill, net 28,043 26,542
Other assets 13,379 14,987
-------- --------
Total assets $365,871 $400,154
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $103,062 $ 99,133
Accrued liabilities 49,414 38,246
Revolving credit facility 28,000 --
Royalties payable 40,395 29,694
Income taxes payable 3,449 5,177
Other current liabilities 1,086 1,159
-------- --------
Total current liabilities 225,406 173,409
Long-term debt -- 80,250
Other long-term liabilities 1,576 3,327
-------- --------
Total liabilities 226,982 256,986
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par, 150,000,000 shares
authorized, 67,991,926 and 68,119,264 shares
issued and outstanding, respectively 680 681
Additional paid-in capital 131,382 131,736
Retained earnings 6,827 10,751
-------- --------
Total stockholders' equity 138,889 143,168
-------- --------
Total liabilities and stockholders' equity $365,871 $400,154
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE> 4
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $120,990 $116,151 $223,727 $232,542
Cost of goods sold 65,767 55,957 125,930 111,855
Selling and distribution expenses 25,800 29,108 46,919 55,568
General and administrative expenses 10,745 11,411 20,089 23,864
Research and development 3,743 15,965 6,811 32,562
Amortization of goodwill 283 676 566 1,547
-------- -------- -------- --------
Operating income 14,652 3,034 23,412 7,146
Interest and other expenses, net 612 789 1,238 1,965
-------- -------- -------- --------
Income before income taxes 14,040 2,245 22,174 5,181
Provision for income taxes 5,512 876 9,179 2,009
-------- -------- -------- --------
Net income $ 8,528 $ 1,369 $ 12,995 $ 3,172
======== ======== ======== ========
Basic net income per share $ 0.13 $ 0.02 $ 0.19 $ 0.05
Weighted average number of shares outstanding 67,032 68,088 66,904 68,072
Diluted net income per share $ 0.12 $ 0.02 $ 0.19 $ 0.05
Weighted average number of shares outstanding 68,683 68,567 67,615 68,785
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE> 5
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 8,528 $ 1,369 $ 12,995 $ 3,172
Other comprehensive income (loss):
Foreign currency translation adjustments (347) 376 11 752
Unrealized holding gain (loss) on securities 8 -- (118) --
-------- -------- -------- --------
Comprehensive income $ 8,189 $ 1,745 $ 12,888 $ 3,924
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE> 6
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,995 $ 3,172
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,449 6,437
Deferred income taxes 11,226 589
Deferred income (6,314) 28
Changes in operating assets and liabilities:
Receivables, net (24,722) (35,072)
Inventories, net (15,083) (10,923)
Income taxes receivable -- 8,016
Other current assets (18,289) (3,527)
Accounts payable 3,098 (3,778)
Accrued liabilities (3,608) (10,947)
Royalties payable 3,137 (10,687)
Income taxes payable (8,328) 1,790
Long-term liabilities 250 1,746
Other 2,188 (1,561)
-------- --------
Net cash used in operating activities (41,001) (54,717)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (233) --
Purchases of property and equipment (9,687) (9,626)
Acquisitions, net (846) --
-------- --------
Net cash used in investing activities (10,766) (9,626)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings, net 40,400 52,250
Proceeds from exercise of stock options 2,786 355
-------- --------
Net cash provided by financing activities 43,186 52,605
-------- --------
Effect of exchange rates on cash and cash equivalents 11 (268)
-------- --------
Net decrease in cash and cash equivalents (8,570) (12,006)
Cash and cash equivalents - beginning of period 16,640 17,224
-------- --------
Cash and cash equivalents - end of period $ 8,070 $ 5,218
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
<PAGE> 7
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim consolidated financial statements of GT
Interactive Software Corp. and Subsidiaries (the "Company") are unaudited, but
in the opinion of management, reflect all adjustments consisting of normal
recurring accruals necessary for a fair presentation of the results for the
interim period in accordance with instructions for Form 10-Q. Accordingly, they
do not include all information and notes required by generally accepted
accounting principles for complete financial statements. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Transition Report on Form 10-K for the transition period from January 1, 1998 to
March 31, 1998.
Reclassifications
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to classifications used in the
current period.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 requires dual presentation of basic earnings per share ("EPS")
and diluted EPS on the face of all statements of earnings for all entities with
complex capital structures. Basic EPS is computed as net earnings divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation plans including stock options, restricted stock
awards, warrants and other convertible securities using the treasury stock
method.
Fiscal Year
Effective January 1, 1998, the Company changed its fiscal year end from
December 31 to March 31.
NOTE 2 - ACQUISITIONS
In October 1997, the Company acquired SingleTrac Entertainment
Technologies, Inc. ("SingleTrac"), a software developer, for cash and stock.
Total consideration, including acquisition costs, was approximately $14.7
million, of which approximately $5.4 million was cash and the balance of the
purchase price was the issuance of 0.7 million newly issued shares of the
Company's Common Stock and the assumption of approximately 0.3 million stock
options. The acquisition was accounted for as a purchase. The purchase price was
allocated to net assets acquired, purchased in-process research and development
("R&D"), and goodwill and other intangibles. Purchased in-process R&D includes
the value of products in the development stage and not considered to have
reached technological feasibility. In accordance with the applicable accounting
rules, purchased in-process R&D is required to be expensed. Accordingly,
approximately $11 million of acquisition cost was expensed in the fourth quarter
of 1997.
Page 7
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 - INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
-------- --------
(in thousands)
<S> <C> <C>
Finished goods $ 94,220 $104,229
Raw materials 4,249 5,399
-------- --------
$ 98,469 $109,628
======== ========
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
On January 21, 1997, the Company entered, with certain banks, into a
revolving Credit Agreement (as amended, the "Old Credit Agreement") expiring on
December 31, 1998. On September 11, 1998, the borrowings under the Old Credit
Agreement were repaid and the Old Credit Agreement was terminated.
Simultaneously, on September 11, 1998, the Company entered, with First
Union National Bank, as agent for a syndicate of banks, into a new revolving
Credit Agreement (the "New Credit Agreement") expiring on September 11, 2001.
Under the New Credit Agreement, the Company can borrow up to $125 million (the
"Line") which borrowings have been used to refinance indebtedness under the Old
Credit Agreement and will be used for ongoing working capital requirements,
letters of credit and other general corporate purposes, including permitted
acquisitions. Borrowing is limited to a percentage of domestic accounts
receivable and inventory, and is secured by these and certain other assets. The
borrowings under the New Credit Agreement bear interest at either the banks'
reference rate (which is generally equivalent to the published prime rate) or
the LIBOR rate, plus a spread that is based on certain ratios, which is
currently 1.25%. The Company pays, on the unused portion of the Line, a
commitment fee that is based on certain ratios, which is currently 0.275%. The
New Credit Agreement requires maintenance of certain financial ratios and net
income levels.
At September 30, 1998, the Company had outstanding debt of
approximately $80.3 million, representing borrowings under the New Credit
Agreement, and letters of credit amounting to approximately $6.9 million.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-----------------------
1997 1998
------ ------
(in thousands)
<S> <C> <C>
Cash paid for income taxes $6,031 $6,118
Cash paid for interest 977 2,305
</TABLE>
Page 8
<PAGE> 9
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 - SUBSEQUENT EVENT
On November 5, 1998, the Company acquired all of the outstanding
capital stock of One Zero Media, Inc. ("OZM"), an Internet entertainment
content company, in exchange for approximately 2.4 million newly issued shares
of the Company's common stock. The transaction will be accounted for as a
pooling of interests.
Page 9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements which
involve risks and uncertainties. The Company's actual results or future events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to,
world-wide business and industry conditions, adoption of new hardware systems,
product delays, software development requirements and their impact on product
launches, company customer relations and other risks and factors detailed, from
time to time, in the Company's SEC filings including, but not limited to, the
factors described on pages 11 through 17 of the Company's Transition Report on
Form 10-K for the transition period from January 1, 1998 to March 31, 1998.
OVERVIEW
The Company creates, publishes, merchandises and distributes
interactive entertainment, edutainment and value-priced consumer software for a
variety of platforms on a worldwide basis. Since it commenced operations in
February 1993, the Company has experienced rapid growth and its product and
customer mix has changed substantially.
Publishing, together with merchandising and distribution, are the two
major activities of the Company. Publishing is divided into front-line and
value-priced products. Because each of these product categories has different
associated costs, the Company's margins have depended and will depend, in part,
on the percentage of net revenues attributable to each category. In addition, a
particular product's margin may depend on whether it has been internally or
externally developed and the platforms on which it is published. Further, the
Company's margins may vary significantly from quarter to quarter depending on
the timing of its new published product releases. To the extent that mass
merchants require greater proportions of third-party software products, some of
which may yield lower margins, the Company's operating results may be impacted
accordingly.
The worldwide interactive entertainment software market is comprised
primarily of software for two distinct platforms: personal computers ("PCs") and
dedicated game consoles such as the 32-bit Sony PlayStation ("PSX") and 64-bit
Nintendo 64 ("N64"). The market has grown dramatically in recent years with its
growth driven by the increasing installed base of multimedia PCs and current
generation game console systems. In addition, the development of enabling
multimedia technologies, the proliferation of software titles, the development
of new and expanding distribution channels and the emergence of a strong
international market for interactive entertainment software have spurred the
rapid expansion of the interactive entertainment market.
There has been an increased rate of change and complexity in the
technological innovations affecting the Company's products, coupled with
increased competitiveness for shelf space and buyer selectivity. The market for
front-line titles has become increasingly hit-driven, which has led to higher
production budgets, more complex development processes, longer development
cycles and generally shorter product life cycles. The importance of the timely
release of hit titles, as well as the increased scope and complexity of the
product development and production process, have increased the need for
disciplined product development processes that limit cost and schedule overruns.
This in turn has increased the importance of leveraging the technologies,
characters or storylines of such hit titles into additional interactive
entertainment software products in order to spread development costs among
multiple products. In this environment, the Company has determined to increase
its focus on building internal development, alliances and acquisitions, and to
reduce its relative dependence on third-party developers.
Along with its industry competitors, the Company historically
capitalized royalties advanced to third-party developers as a prepayment in
current assets and evaluated the realization of these royalty advances on a
quarterly basis. The market changes noted above have made it extremely difficult
to
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<PAGE> 11
determine the likelihood of individual product acceptance and success. As a
result, in the quarter ended December 31, 1997, the Company expensed royalty
advances of $73.8 million on products that were in development or on sale. In
connection with this change in the dynamics of the marketplace, the Company
changed its accounting, beginning on January 1, 1998, for future royalty
advances, treating such costs as research and development expenses, which are
expensed as incurred. Multi-year output advances continue to be capitalized as
royalty advances and expensed over the development periods, in accordance with
generally accepted accounting principles.
Since royalty advances are fixed costs, their impact is more
significant during softer revenue quarters. The Company expects higher research
and development costs as a percentage of net revenues, relative to the prior
year, due to the expensing of royalty advances as a result of the change in
accounting.
The distribution channels for interactive software have changed
significantly in recent years. Traditionally, consumer software was sold through
specialty stores. Today, consumer software is increasingly sold through mass
merchants such as Wal-Mart, Kmart and Target, as well as major retailers,
including Sam's Club, Price-Costco and Best Buy. During the second half of 1997,
Wal-Mart began purchasing software directly from a number of publishers whose
software was previously sold to Wal-Mart through the Company. The Internet and
on-line networks also present a new channel through which publishers and
distributors can distribute their products to end-users.
In October 1997, the Company acquired SingleTrac, a leading developer
of front-line software. Financial results of SingleTrac have been included in
the Company's Consolidated Financial Statements on a purchase basis for the
period since the acquisition. This acquisition did not have a material impact on
the financial condition or the results of operations of the Company in the year
acquired.
Sales are recorded net of expected future returns. Historically, the
Company has experienced returns at approximately 30% of gross sales.
Effective January 1, 1998, the Company changed its fiscal year end from
December 31 to March 31.
The consumer software industry is seasonal. Net revenues are typically
highest during the fourth calendar quarter. This seasonality is primarily a
result of the increased demand for consumer software during the year-end holiday
buying season.
Page 11
<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
September 30, September 30,
-------------- --------------
1997 1998 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 54.4 48.2 56.3 48.1
Selling and distribution expenses 21.3 25.1 21.0 23.9
General and administrative expenses 8.9 9.8 9.0 10.3
Research and development 3.1 13.7 3.0 14.0
Amortization of goodwill 0.2 0.6 0.3 0.7
----- ----- ----- -----
Operating income 12.1 2.6 10.5 3.1
Interest and other expense, net 0.5 0.7 0.6 0.8
----- ----- ----- -----
Income before income taxes 11.6 1.9 9.9 2.2
Provision for income taxes 4.6 0.8 4.1 0.9
----- ----- ----- -----
Net income 7.0% 1.2% 5.8% 1.4%
===== ===== ===== =====
</TABLE>
Net revenues for the three months ended September 30, 1998 decreased
approximately $4.8 million, or 4.0%, to $116.2 million from $121.0 million, and
increased for the six months ended September 30, 1998 approximately $8.8
million, or 3.9%, to $232.5 million from $223.7 million, as compared to the
comparable periods of the prior year. The decline in net revenues for the three
months ended September 30, 1998 was attributable to a three percent decrease in
publishing revenues, which includes both front-line publishing and value-priced
publishing ("Published Product"), to $80.4 million from $82.6 million for the
comparable period of the prior year, and a seven percent decrease in products
distributed for third parties, to $35.8 million from $38.4 million for the
comparable period of the prior year. In addition, the recognition of a deferred
gain from the sale of certain North American publishing rights and the partial
reversal of a related reserve contributed to the offset of the decrease in
Published Product revenues. The increase in net revenue for the six
months ended September 30, 1998 was attributable to a three percent increase in
Published Product revenues, to $151.0 million from $147.3 million for the
comparable period of the prior year, and a seven percent increase in products
distributed for third parties, to $81.5 million from $76.4 million for the
comparable period of the prior year.
The decrease in Published Product revenues for the three months ended
September 30, 1998 is primarily due to the delay in release of Duke Nukem: Time
to Kill for PSX to the Company's third fiscal quarter. This decrease was
partially offset by the newly released Deer Hunter II for the PC, Rogue Trip for
PSX, the Blues Clues PC titles published by Humongous Entertainment, Inc., a
subsidiary of the Company ("Humongous"), based on Nickelodeon's top-rated
pre-school TV show, Mortal Kombat IV for PSX, N64 and the PC internationally and
the continued strong sales of Unreal for the PC, Total Annihilation: the Core
Contingency for the PC, Dead Ball Zone for PSX and various other catalog titles.
In addition, the factor mentioned in the preceding paragraph contributed to the
offset of the decrease in Published Product revenues. These offsetting factors
and the continued strong sales of Oddworld: Abe's Oddysee for the PSX, Deer
Hunter for the PC and the hunting and fishing genre products such as Rocky
Mountain Trophy Hunter for the PC and various catalog titles contributed to the
increase in Published Product revenues for the six months ended September 30,
1998, compared to the comparable period of the prior year.
The decrease in revenues of products distributed for third parties for
the three months ended September 30, 1998 is primarily due to the direct
distribution to Wal-Mart by several publishers who previously distributed
products through the Company. The continued strong sales of Windows '98 Upgrade,
the newly released Quicken '99 and the growth of the Company's affiliated label
program partially offset the decline in revenues for the three months ended
September 30, 1998 and were the
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<PAGE> 13
primary cause for the increase in revenues for the six months ended September
30, 1998, compared to the comparable period of the prior year.
Cost of goods sold primarily includes costs of purchased products.
These expenses for the three and six months ended September 30, 1998 decreased
approximately $9.8 million, or 14.9%, to $56.0 million from $65.8 million, and
$14.1 million, or 11.2%, to $111.9 million from $125.9 million, respectively, as
compared to the comparable periods of the prior year. Cost of goods sold as a
percentage of net revenues for the three and six months ended September 30, 1998
decreased to 48.2% and 48.1% from 54.4% and 56.3%, respectively, as compared to
the comparable periods of the prior year. The decrease, as a percentage of net
revenues, was primarily due to the Company's change in accounting with respect
to royalty advances, resulting in the expensing of such advances to research and
development as incurred, rather than recouping such advances based on sales and
to a change in the product mix.
Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. These expenses for the three and six months ended
September 30, 1998 increased approximately $3.3 million, or 12.8%, to $29.1
million from $25.8 million, and $8.6 million, or 18.4%, to $55.6 million from
$46.9 million, respectively, as compared to the comparable periods of the prior
year. Selling and distribution expenses as a percentage of net revenues for the
three and six months ended September 30, 1998 increased to 25.1% and 23.9% from
21.3% and 21.0%, respectively, as compared to the comparable periods of the
prior year. The increase, as a percentage of net revenues, was primarily
attributable to the increase of advertising worldwide to support existing and
upcoming releases of the Company's Published Product, and the expense of
consolidating inventory of the Company's Value Price Division from Plymouth,
Minnesota into the Company's Edison, NJ distribution center.
General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.
These expenses for the three and six months ended September 30, 1998 increased
approximately $0.7 million, or 6.2%, to $11.4 million from $10.7 million, and
$3.8 million, or 18.8%, to $23.9 million from $20.1 million, respectively, as
compared to the comparable periods of the prior year. General and administrative
expenses as a percentage of net revenues for the three and six months ended
September 30, 1998 increased to 9.8% and 10.3% from 8.9% and 9.0%, respectively,
as compared to the comparable periods of the prior year. The increase was due
primarily to the depreciation associated with the expansion of the Company's
worldwide facilities and the implementation of enterprise software to enhance
the Company's management information systems worldwide.
Research and development primarily includes payment of royalty
advances to third-party developers on products that are currently in
development and direct costs of internally developing and producing a title
such as salaries and related costs. These expenses for the three and six months
ended September 30, 1998 increased approximately $12.2 million, or 326.5%, to
$16.0 million from $3.7 million, and $25.8 million, or 378.1%, to $32.6 million
from $6.8 million, respectively, as compared to the comparable periods of the
prior year. Research and development as a percentage of net revenues for the
three and six months ended September 30, 1998 increased to 13.7% and 14.0% from
3.1% and 3.0%, respectively, as compared to the comparable periods of the prior
year. The increase is primarily due to the change in accounting effective
January 1, 1998, whereby royalty advances on products that are currently in
development are expensed as incurred, and the additional headcount attributable
to increased in - house development capacity, primarily as a result of the
SingleTrac acquisition. Research and development expenses of the Company's
internal development studios, which primarily include SingleTrac, Cavedog
Entertainment and Humongous, increased to $7.3 and $14.4 million for the three
and six months ended September 30, 1998 from $3.7 and $6.8 million,
respectively, in the comparable periods of the prior year.
Interest and other expenses, net, increased approximately $0.2 million
and $0.7 million for the three and six months ended September 30, 1998,
respectively, as compared to the comparable periods of the prior year. The
increase was primarily attributable to the increase in interest costs associated
with increased borrowings under the Old Credit Agreement and New Credit
Agreement.
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<PAGE> 14
The Company's effective tax rate for the three and six months ended
September 30, 1998 was 39% and 41%, respectively, compared to 39% for the three
and six months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's working capital was $151.4
million compared to $70.0 million at March 31, 1998. Cash and cash equivalents
were $5.2 million at September 30, 1998 compared to $17.2 million at March 31,
1998.
The primary source of cash during the six months ended September 30,
1998 was cash provided by financing activities of $52.6 million and net income
of $3.2 million. These externally and internally generated funds and the
existing cash balance at March 31, 1998 of $17.2 million were primarily used to
fund receivables of $35.1 million, inventory of $10.9 million, royalty payments
in excess of recoupment of $10.7 million and the purchase of property and
equipment of $9.6 million. The increase in the receivable balance at September
30, 1998 reflects a larger proportion of sales, including Deer Hunter II, Rogue
Trip and the Blues Clues titles, occurring late in the quarter as compared to
the three months ended March 31, 1998. The increase in the inventory balances as
of September 30, 1998, as compared to March 31, 1998, was primarily attributable
to the purchases from third party publishers of Windows '98 Upgrade and Quicken
'99 and additional funding for inventory to support increased sales for the
holiday season. The increase in property and equipment is primarily due to
additional investments in computer hardware and software and leasehold
improvements to support the Company's growth.
On January 21, 1997, the Company entered, with certain banks, into a
revolving Credit Agreement (as amended, the "Old Credit Agreement") expiring on
December 31, 1998. On September 11, 1998, the borrowings under the Old Credit
Agreement were repaid and the Old Credit Agreement was terminated.
Simultaneously, on September 11, 1998, the Company entered, with First
Union National Bank, as agent for a syndicate of banks, into a new revolving
Credit Agreement (the "New Credit Agreement") expiring on September 11, 2001.
Under the New Credit Agreement, the Company can borrow up to $125 million (the
"Line") which borrowings have been used to refinance indebtedness under the Old
Credit Agreement and will be used for ongoing working capital requirements,
letters of credit and other general corporate purposes, including permitted
acquisitions. Borrowing is limited to a percentage of domestic accounts
receivable and inventory, and is secured by these and certain other assets. The
borrowings under the New Credit Agreement bear interest at either the banks'
reference rate (which is generally equivalent to the published prime rate) or
the LIBOR rate, plus a spread that is based on certain ratios, which is
currently 1.25%. The Company pays, on the unused portion of the Line, a
commitment fee that is based on certain ratios, which is currently 0.275%. The
New Credit Agreement requires maintenance of certain financial ratios and net
income levels.
Depending on market conditions, the Company's current intention is to
eventually proceed with the previously postponed private placement of senior
subordinated notes to institutional investors to be used for future
acquisitions and to fund operations. There can be no assurance, however, that
the Company will proceed with such private placement.
At September 30, 1998, the Company had outstanding debt of
approximately $80.3 million, representing borrowings under the New Credit
Agreement, and letters of credit amounting to approximately $6.9 million.
The Company expects continued volatility in the use of cash due to
varying seasonal, receivable payment cycles and quarterly working capital needs
to finance its distribution and growing publishing businesses.
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The Company believes that existing cash and cash equivalents, together
with cash expected to be generated from operations and from the New Credit
Agreement will be sufficient to fund the Company's anticipated operations for
the next twelve months.
On November 5, 1998, the Company acquired all of the outstanding
capital stock of One Zero Media, Inc. ("OZM"), an Internet entertainment
content company, in exchange for approximately 2.4 million newly issued shares
of the Company's common stock. The transaction will be accounted for as a
pooling of interests.
YEAR 2000 COMPLIANCE
Many currently installed operating systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields need additional digits to distinguish 21st century dates from 20th
century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Failure to correct systems to become "Year 2000 compliant," may result
in systems failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The Year 2000
issue also may affect the Company's products.
The Company's review of its Year 2000 compliance issues encompasses
three principal areas: critical information systems (including information
technology ("IT") such as financial and order entry systems and non-information
technology ("Non-IT") systems such as facilities); third party customers,
vendors and others with whom the Company does business; and the Company's
products.
The Company has conducted a comprehensive review of its critical
information systems and is in the process of creating a plan for reviewing its
products for Year 2000 compliance. A plan has been developed to remedy any
deficiencies in the Company's critical information systems. The Company expects
to resolve Year 2000 compliance issues primarily through normal upgrades of its
software or, when necessary, through replacement of existing software or
affected Non-IT systems with Year 2000 compliant applications or systems.
Presently, the Company is in the process of testing the enhancements to its
critical information systems and is developing a plan to identify time sensitive
components in its products currently under development. In addition, the Company
is in the process of asking vendors and other third parties with whom the
Company has relevant relationships to certify that they are Year 2000 compliant
or, if they are not yet so compliant, to provide a description of their plans to
become so. The Company expects to complete its programs for Year 2000 compliance
with respect to critical information systems and vendors and other third parties
by March 31, 1999 and intends to complete such process with respect to its
products in advance of January 1, 2000.
There can be no assurance that such upgrades and replacements can be
completed on schedule or within estimated costs or can successfully address the
Year 2000 compliance issues. If the Company's present efforts to address the
Year 2000 compliance issues are not successful, or if vendors and other third
parties with which the Company conducts business do not successfully address
such issues, the Company's business, operating results and financial position
could be materially and adversely affected. For example, failure to achieve Year
2000 compliance for the Company's internal critical information systems could
delay its ability to manufacture and ship products, disrupt customer service and
technical support facilities, or interrupt customer access to online products
and services. The Company also relies heavily on third parties such as vendors,
suppliers, service providers and a large retail distribution channel. If these
or other third parties experience Year 2000 failures or malfunctions, there
could be a material adverse impact on the Company's ability to conduct ongoing
operations. For example, the ability to manufacture and ship products (both the
Company's and third parties' for which the Company acts as distributor) into the
retail channel, to receive retail sales information necessary to maintain proper
inventory levels, or to complete online transactions dependent upon third party
service providers could be affected. Moreover, should third party products
distributed by the Company fail to be Year 2000 compliant, retail customers of
the Company might return such products or seek redress from the Company, which
in turn would require the Company to seek redress from the publisher of the
product. In addition, because of the number of products sold by the Company
currently and in the past, the Company could face litigation relating to Year
2000 compliance of products that the Company no longer sells and/or supports,
although the Company believes that any such exposure should not be material.
The Company has budgeted $0.4 million for the cost of upgrading,
replacing, testing and implementing its Year 2000 compliance, and has spent
approximately $0.25 million to date. Additionally, the Company has not yet
established a contingency plan and will continue to evaluate whether one is
necessary, depending upon its progress in implementing its Year 2000 compliance
measures as set forth above.
The above discussion regarding costs, risks and estimated completion
dates for the Year 2000 is based on the Company's best estimates given
information that is currently available, and is subject to change. Actual
results may differ materially from these estimates.
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PART II. OTHER INFORMATION
Item 1. Litigation
With respect to the Company's action against Micro Star Software
("Micro Star"), previously described in the Company's Transition Report on Form
10-K for the period ended March 31, 1998 (the "Transition Report"), by opinion
issued September 11, 1998, the Ninth Circuit affirmed the grant of the order
recalling Micro Star's product and, ruling in the Company's favor, remanded the
case to the district court and directed the entry of a preliminary injunction
barring distribution of Micro Star's infringing product, Nuke It. Based on the
Ninth Circuit opinion, the law governing the Company's copyright claim against
Micro Star has been clarified and such law supports the Company's claim for
recovery of damages and attorney's fees from Micro Star. Micro Star has filed a
petition for a re-hearing before the panel or en banc.
With respect to the action brought against the Company by Scavenger,
Inc. ("Scavenger"), previously described in the Transition Report, on September
17, 1998, Scavenger's counsel filed a motion seeking to be relieved as counsel,
which the New York Supreme Court granted on October 6, 1998. At a November 12,
1998 preliminary conference, another attorney appeared as Scavenger's
prospective new counsel, subject to further discussions with Scavenger. Such
attorney indicated that he will determine prior to December 1, 1998 whether he
will accept this representation, and the court has scheduled another preliminary
conference for that date.
With respect to the action brought against the Company by Big Tuna New
Media, LLC, previously described in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998, on October 1, 1998, the parties entered
into a Settlement Agreement and Letter of Intent, whereby the parties stipulated
to the dismissal of the lawsuit against the Company with prejudice and
restructured their business relationship.
With respect to the class action securities litigation, previously
described in the Transition Report, on October 7, 1998, the Court appointed lead
plaintiffs and lead counsel to the plaintiffs in the actions. Plaintiffs'
consolidated and amended complaint is due to be filed and served on November 25,
1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation, as
amended (incorporated herein by reference to the
exhibit with the corresponding number filed as part
of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998).
3.2 Amended and Restated By-laws, as amended
(incorporated herein by reference to the exhibit
with the corresponding number filed as part of the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.1 Employment Agreement between the Company and Charles
F. Bond.
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10.2 Employment Agreement between the Company and Jack J.
Cayre.
10.3 Credit Agreement, dated as of September 11, 1998, by
and among the Company, the Lenders thereto,
NationsBanc Montgomery Securities, LLC, as
Syndication Agent, Fleet Bank, N.A., as Documentation
Agent, and First Union National Bank, as
Administrative Agent.
10.4 Security Agreement, dated as of September 11, 1998,
by and between the Company and First Union National
Bank, as Administrative Agent.
10.5 Pledge Agreement, dated as of September 11, 1998, by
the Company in favor of First Union National Bank, as
Administrative Agent.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the Company filed: (i) a
Current Report on Form 8-K, dated July 22, 1998, to file a press release, dated
July 22, 1998, announcing the Company's intention to offer $100 million of
senior subordinated notes; (ii) a Current Report on Form 8-K, dated August 5,
1998, to file a press release, dated August 4, 1998, announcing the Company's
first fiscal quarter results; and (iii) a Current Report on Form 8-K, dated
August 12, 1998, to file a press release, dated August 11, 1998, announcing the
Company's decision to postpone its previously announced offering of $100 million
of senior subordinated notes.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
Ronald Chaimowitz
Chairman of the Board of Directors
and Chief Executive Officer
Date: November 16, 1998
By: /s/ ANDREW GREGOR
Andrew Gregor
Chief Financial Officer and Senior
Vice President, Finance and
Administration
Date: November 16, 1998
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EXHIBIT INDEX
10.1 Employment Agreement between the Company and Charles
F. Bond
10.2 Employment Agreement between the Company and Jack J.
Cayre.
10.3 Credit Agreement, dated as of September 11, 1998, by
and among the Company, the Lenders thereto,
NationsBanc Montgomery Securities, LLC, as
Syndication Agent, Fleet Bank, N.A., as Documentation
Agent, and First Union National Bank, as
Administrative Agent.
10.4 Security Agreement, dated as of September 11, 1998,
by and between the Company and First Union National
Bank, as Administrative Agent.
10.5 Pledge Agreement, dated as of September 11, 1998, by
the Company in favor of First Union National Bank, as
Administrative Agent.
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all schedules hereto, the
"Agreement"), made in New York, New York as of the first day of July, 1998,
between GT INTERACTIVE SOFTWARE CORP., a Delaware corporation having its
executive offices and principal place of business in New York, New York (the
"Company"), and CHARLES F. BOND, the undersigned individual ("Executive").
WHEREAS, the parties hereto have entered into that certain
Employment Agreement, dated as of June 22, 1995 (the "Original Employment
Agreement").
WHEREAS, the parties hereto desire to enter into a new employment
agreement pursuant to which Executive will serve the Company in a different
capacity and to modify certain terms of the Original Employment Agreement.
IN CONSIDERATION of the mutual covenants and agreements hereinafter
set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall commence on the date hereof
and end on June 30, 2000 (the "Agreement Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be employed
by the Company for the Agreement Term upon the terms and subject to the
conditions set forth in this Agreement.
(b) Performance of Duties. Throughout the Agreement Term,
Executive shall faithfully and diligently perform Executive's duties in
conformity with the directions of the Company and serve the Company to the best
of Executive's ability. Until otherwise determined by the Chief Operating
Officer or the Chief Executive Officer of the Company, Executive shall (i) have
the title of Senior Vice President of the Value Price and Distribution Division
(the "Division") of the Company, (ii) initially have the responsibilities set
forth in Schedule A hereto and, thereafter, as determined or assigned from time
to time by the person to whom he then reports, and (iii) report to the
President, Chief Executive Officer, Chief Operating Officer, Chairman of the
Board of Directors or Chairman Emeritus of the Board of Directors of the
Company, in each case as determined in the discretion of the Company. Executive
hereby acknowledges that all employees who heretofore reported directly to him
shall hereafter report directly to the Chief Operating Officer of the Company,
unless otherwise determined by the Chief Executive Officer of the Company.
Executive
<PAGE> 2
acknowledges that the Chief Operating Officer (or such other person as is
designated by the Chief Executive Officer), will be the senior officer of the
Company in charge of the Division. Through the Agreement Term, Executive shall
devote Executive's full working time, attention and energies to the business and
affairs of the Company, subject to vacations and sick leave in accordance with
Company policy.
(c) Place of Performance. During the Agreement Term, Executive
shall be based in Minneapolis, Minnesota, provided, however, that the
distribution functions and related staff maintained as of the date hereof by the
Division may be moved to such location as is desired by the Company. The Company
hereby acknowledges that Executive may maintain his personal residence in the
State of Minnesota and that Executive shall not be required to travel outside
the Minneapolis, Minnesota area at any time between noon on any Thursday and
7:00 p.m. on the following Sunday without his prior consent.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive for
employment hereunder a base salary ("Base Salary") at the annual rate of
$375,000 per year through the period ending June 30, 1999, and thereafter at the
annual rate of $400,000 per year, payable in installments consistent with the
Company's payroll practices.
(b) Benefits and Perquisites. Executive shall be entitled to
participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to executives of the same level and
responsibility as Executive. Nothing in this Agreement shall preclude the
Company from terminating or amending from time to time any employee benefit plan
or program.
(c) Annual Bonus. Executive shall receive an annual bonus of
$375,000 for the period ending June 30, 1999 and an annual bonus of $400,000 for
the period ending June 30, 2000, which bonuses shall be payable in equal
quarterly installments commencing on September 30, 1998 and on each December 31,
March 31, June 30 and September 30 through the balance of the Agreement Term.
(d) Sign-On Bonus. Executive shall receive a one-time sign-on
bonus of $100,000 no later than ten business days following the execution by
Executive of this Agreement.
(e) Automobile Allowance. The Company shall provide to
Executive, or pay for the costs of rental, insurance and maintenance and repairs
of, an automobile for Executive, as designated by Executive, provided that the
costs to the Company for such rental, insurance and maintenance and repairs
shall not exceed $2,000 per month.
(f) Travel and Business Expenses. Upon submission of itemized
expense statements in the manner specified by the Company, Executive shall be
entitled to
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<PAGE> 3
reimbursement for reasonable travel and other reasonable business expenses duly
incurred by Executive in the performance of Executive's duties under this
Agreement in accordance with the policies and procedures established by the
Company from time to time for executives of the same level and responsibility as
Executive.
(g) No Other Compensation or Benefits; Payment. The
compensation, benefits and other payments specified in Sections 3 or 5 of this
Agreement shall be in lieu of any and all other compensation and benefits.
Payment of all compensation and benefits to Executive hereunder shall be made in
accordance with the relevant Company policies in effect from time to time,
including normal payroll practices, and shall be subject to all applicable
employment and withholding taxes.
(h) Cessation of Employment. In the event Executive shall
cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
(i) Options. The Board of Directors of the Company (or the
appropriate committee thereof) has approved, and the Company will grant to
Executive on the date this Agreement is executed, options to purchase 200,000
shares of the Company's Common Stock. Such options shall have an exercise price
equal to the fair market value of the Common Stock on the date of grant, and
shall vest and be exercisable in three equal annual installments commencing on
June 29, 1999 and on each successive June 29 thereafter. The terms (including
exercisability) of the Option shall be governed by the Company's 1997 Stock
Incentive Plan, as well as the applicable option agreement entered into pursuant
to the terms of such plan; provided that such options shall be exercisable only
to the extent that Employee is employed by the Company at the time of such
exercise and only to the extent that such options have vested at the time of
such exercise, except as otherwise specifically provided in the Plan.
4. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the Agreement
Term, Executive shall not: (i) engage in any activity which materially
interferes with the performance of Executive's duties hereunder, except as
approved in advance in writing by the Chairman and Chief Executive Officer, the
President and Chief Operating Officer, or the Board of Directors of the Company;
or (ii) accept any other full-time or substantially full-time employment,
whether as an executive or consultant or in any other capacity, and whether or
not compensated therefor.
(b) No Competition. Without limiting the generality of the
provisions of Sections 2(b) or 4(a), during the Agreement Term, Executive shall
not, directly or indirectly, own, manage, operate, join, control, participate
in, invest in or otherwise be connected or associated with, in any manner,
including as an officer, director, employee, independent contractor, partner,
consultant, advisor, agent, proprietor, trustee or investor, any Competing
Business (as defined below) located in the United States; provided, however,
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<PAGE> 4
that if Executive's employment hereunder is terminated by the Company under
Section 5(d), then the provisions of this Section 4(b), and all other
restrictions and limitations imposed on Executive by this Agreement shall remain
in effect so long as the Company shall continue to pay to Executive all amounts
described as severance pursuant to Section 5(d) and the benefits, perquisites
and bonus also described therein, subject to suspension as set forth herein; and
provided that ownership of 2% or less of the stock or other securities of a
corporation, the stock of which is listed on a national securities exchange or
is quoted on The Nasdaq Stock Market, shall not constitute a breach of this
Section 4, so long as the Executive does not in fact have the power to control,
or direct the management of, or is not otherwise associated with, such
corporation.
For purposes of this Section 4(b), the term "Competing Business"
shall mean any business or venture which develops, manufactures, publishes,
licenses, sells, distributes or supplies computer software or video games (or
any related books or other intellectual property or merchandise relating
thereto) to any retail outlet or by direct marketing.
(c) No Solicitation of Employment. During the Agreement Term,
Executive shall not solicit or encourage any employee to leave the Company for
any reason, nor employ such an employee in a Competing Business or any other
business.
(d) Company Customers. Executive shall not, during the
Agreement Term (or, if severance is then being paid to Executive as contemplated
by Sections 4(b) and 5(d) hereof, so long as the Company shall continue to pay
to Executive all amounts described as severance pursuant to Section 5(d) and the
benefits, perquisites and bonus also described therein, subject to suspension as
set forth herein), except as required by the Company in the performance of
Executives duties hereunder, directly or indirectly, contact, solicit, enter
into discussions with, regardless of who initiates such discussion, or do
business with (i) Wal-mart Stores, Inc., Target Stores, Caldor, Phar-mor, Best
Buy, CompUSA, Kmart or Office Depot (or any of their respective affiliated
operations) for the purpose of selling computer software or video games (or any
related books or other intellectual property or merchandise relating thereto) to
such customers; (ii) any "customers" (as defined below) of the Company for the
purpose of selling computer software or video games (or any related books or
other intellectual property or merchandise relating thereto).
For the purposes of the provisions of this Section 4(d), "customer"
shall include any entity that purchased computer software or video games (or any
related books or other intellectual property or merchandise relating thereto)
within eight months of the termination of Executive's employment hereunder,
without regard to the reason for such termination. The term "customer" also
includes any former customer or potential customer of the Company which the
Company has solicited within eight months of such termination, for the purpose
of selling computer software or video games (or any related books or other
intellectual property or merchandise relating thereto).
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<PAGE> 5
5. Termination of Employment.
(a) Termination. The Company may terminate Executive's
employment for Cause (as defined below) in which case the provisions of Section
5(b) shall apply. If Executive's employment is terminated by reason of
Executive's death, retirement or voluntary resignation, the provisions of
Section 5(b) shall apply. The Company may also terminate Executive's employment
in the event of Executive's Disability (as defined below), in which case the
provisions of Section 5(c) shall apply. The Company may also terminate the
Executive's employment for any other reason by written notice to Executive, in
which case the provisions of Section 5(d) shall apply.
(b) Termination for Cause; Termination by Reason of Death or
Retirement or Voluntary Resignation. In the event that Executive's employment
hereunder is terminated during the Agreement Term (x) by the Company for Cause
(as defined below), (y) by reason of Executive's death or retirement or (z) by
reason of Executive's voluntary resignation, then the Company shall pay to
Executive, within thirty (30) days of the date of such termination, only the
Base Salary through such date of termination. Notwithstanding anything to the
contrary contained herein, in the event that Executive's employment hereunder is
terminated during the Agreement Term by reason of Executive's death, then any
bonus accrued and owing to Executive pursuant to this Agreement for any period
prior to his death, on a pro rated basis, shall be paid to Executive's estate in
accordance with the further terms of this Agreement. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
involving the Company) constituting a felony in the jurisdiction in which the
conviction is entered; (ii) Gross Neglect (as hereinafter defined) by the
Executive in the performance of his duties hereunder; or (iii) material breach
of any obligation under Section 4(a)(ii), (b), (c) or (d) of this Agreement
(which, in the case of a breach that is capable of being cured, continues
following ten (10) days' notice from the Company setting forth in reasonable
detail the nature of such breach). For the purposes hereof, "Gross Neglect"
shall mean Executive's persistent and repeated failure to perform his duties
hereunder, which failure continues after twenty (20) days' notice from the
Company setting forth in reasonable detail the nature of the persistent and
repeated failure.
(c) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from Executive's
duties hereunder on a full time basis for either (i) one hundred twenty (120)
days within any three hundred sixty-five (365) day period, or (ii) ninety (90)
consecutive days, and within thirty (30) days after written notice of
termination is given shall not have returned to the performance of Executive's
duties hereunder on a full time basis, the Company may terminate Executive's
employment hereunder for "Disability". In that event, the Company shall pay to
Executive, within thirty (30) days of the date of such termination, only the
Base Salary through such date of termination. During any period that Executive
fails to perform Executive's duties hereunder as a result of incapacity due to
physical or mental illness (a "Disability Period"), Executive shall continue to
receive the compensation and benefits provided by Section 3 hereof until
Executive's employment hereunder is terminated; provided, however, that the
amount of compensation and benefits received by Executive during the Disability
Period shall be reduced by the aggregate amounts, if any, payable to
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<PAGE> 6
Executive under disability benefit plans and programs of the Company or under
the Social Security disability insurance program.
(d) Termination By Company For Any Other Reason. In the event
that Executive's employment hereunder is terminated by the Company during the
Agreement Term for any reason other than as provided in Section 5(b) or 5(c)
hereof, then the Company shall pay to Executive, within thirty (30) days of the
date of such termination, the Base Salary, the bonus provided for in Section
3(c) hereof and the automobile allowance provided for in Section 3(e) hereof,
through such date of termination, and, in lieu of any further compensation and
benefits for the balance of the Agreement Term, severance pay equal to the Base
Salary that Executive would have otherwise received during the remainder of the
Agreement Term, commencing with such date of termination, at the times and in
the amounts such Base Salary would have been paid. Under such circumstances,
except as set forth below, for the balance of such period, Executive shall also
continue to participate in and receive the benefits and perquisites provided for
in Section 3(b) hereof, the bonus provided for in Section 3(c) hereof and the
automobile allowance provided for in Section 3(e) hereof, to the same extent as
if Executive's employment hereunder had not been terminated; provided, however,
that in the event that Executive shall breach Sections 4 or 6 hereof, in
addition to any other remedies the Company may have in the event Executive
breaches this Agreement, the Company's obligation pursuant to this Section 5(d)
to pay Base Salary, bonus, benefits and perquisites shall be suspended and the
Company shall have the right to withhold payments of any amounts due hereunder
pending final judgment of a court of competent jurisdiction with respect to
damages attributable to such breach, provided, however, that any such amounts
withheld by the Company which are in excess of the amount determined (by
settlement or judicial proceedings) to be due to or properly withheld by the
Company shall be promptly paid to Executive together with interest at the rate
of 10% per annum from the date such amounts were originally due.
(e) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 5 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment and continuing benefits, and
perquisites, bonus and other payments pursuant to and in accordance with this
Section 5, as applicable, the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives shall have no further obligation or liability to Executive or
any other person under this Agreement. The Company shall have the right to
condition the payment of the full severance and other amounts pursuant to
Sections 5(c) or 5(d) hereof upon the delivery by Executive (prior to the
commencement of such payments) to the Company of a release in form and substance
satisfactory to the Company of any and all claims Executive may have against the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives arising out of or
related to Executive's employment by the Company and termination of such
employment.
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<PAGE> 7
6. Confidential Information.
(a) Existence of Confidential Information. The Company owns
and has developed and compiled, and will develop and compile, certain
proprietary techniques and confidential information which have great value to
its business (referred to in this Agreement, collectively, as "Confidential
Information"). Confidential Information includes not only information disclosed
by the Company to Executive, but also information developed or learned by
Executive during the course or as a result of employment with the Company, which
information shall be the property of the Company. Confidential Information
includes all information that has or could have commercial value or other
utility in the business in which the Company is engaged or contemplates
engaging, and all information of which the unauthorized disclosure could be
detrimental to the interests of the Company, whether or not such information is
specifically labelled as Confidential Information by the Company. By way of
example and without limitation, Confidential Information includes any and all
information developed, obtained, licensed by or to or owned by the Company
concerning trade secrets, techniques, know-how (including designs, plans,
procedures, merchandising, marketing, distribution and warehousing know-how,
processes, and research records), software, computer programs, and any other
intellectual property created, used, purchased or sold (through a license or
otherwise) by the Company, Electronic Data Information know-how and processes,
innovations, discoveries, improvements, research, development, test results,
reports, specifications, data, formats, marketing data and plans, business
plans, strategies, forecasts, unpublished financial information, orders,
agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, store plans, budgets, projections,
customer, supplier, licensee, licensor and subcontractor identities,
characteristics, agreements and operating procedures, and salary, staffing and
employment information.
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of duties under the Original
Employment Agreement and hereunder, the Company has disclosed to and entrusted,
and will continue to disclose to and entrust, Executive with Confidential
Information which is the exclusive property of the Company. Executive also
acknowledges that Executive is aware that the unauthorized disclosure of
Confidential Information, among other things, may be prejudicial to the
Company's interests, an invasion of privacy and an improper disclosure of trade
secrets. Accordingly, during the Agreement Term, Executive shall not, directly
or indirectly, use, make available, sell, disclose or otherwise communicate to
any corporation, partnership, individual or other third party, other than in the
course of Executive's assigned duties and for the benefit of the Company, any
Confidential Information. Furthermore, the Executive agrees that the foregoing
covenant regarding non-disclosure by the Executive shall continue after the
Agreement Term solely with respect to trade secrets of the Company except for
those trade secrets that were acquired from Slash pursuant to the Acquisition
Agreement. In the event Executive desires to publish the results of Executive's
work for or experiences with the Company through literature, interviews or
speeches, Executive will submit requests for such interviews or such literature
or speeches to the Chief Executive Officer of the Company at least fourteen (14)
days before any anticipated dissemination of such information for a
determination of whether such disclosure is in the best interests of the
Company, including
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<PAGE> 8
whether such disclosure may impair trade secret status or constitute an invasion
of privacy. Executive agrees not to publish, disclose or otherwise disseminate
such information without the prior written approval of the Chief Executive
Officer of the Company.
(c) Delivery of Records, Etc. In the event Executive's
employment with the Company ceases for any reason, Executive will not remove
from the Company's premises without its prior written consent any records,
files, drawings, documents, equipment, materials and writings received from,
created for or belonging to the Company, including those which relate to or
contain Confidential Information, or any copies thereof. Upon request or when
employment with the Company terminates, Executive will immediately deliver the
same to the Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of and
be enforceable by the Company and any successor or permitted assignee and may be
assigned by the Company to any purchaser of all or substantially all of the
Company's business or assets (by merger, sale of assets, consolidation,
acquisition of stock or otherwise) without the consent of Executive, and may
otherwise be assigned by the Company only with Executive's consent, which
consent shall not be unreasonably withheld. The Company will require any
permitted assignee to expressly assume and agree to perform under this Agreement
in the same manner and to the same extent that the Company would be required to
so perform if no such purchase, succession or assignment had taken place.
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
8. Miscellaneous.
(a) Noncompetition Agreement. Nothing in this Agreement shall
in any event limit the scope, duration and enforceability of the Noncompetition
Agreement, dated as of June 22, 1995, between the Executive and the Company (the
"Noncompetition Agreement"), which was entered into separately from the Original
Employment Agreement and as a condition to the Company's entry into the
Agreement and Plan of Reorganization, dated June 22, 1995.
(b) Other Obligations. Executive represents and warrants that
neither Executive's employment with the Company nor Executive's performance of
Executive's obligations hereunder will conflict with or violate or otherwise are
inconsistent with any other obligations, legal or otherwise, which Executive may
have.
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<PAGE> 9
(c) Nondisclosure; Other Employers. Executive will not
disclose to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Executive represents and warrants that Executive has returned all property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(d) Cooperation. Following termination of employment with the
Company, Executive shall cooperate with the Company, as reasonably requested by
the Company, to effect a transition of Executive's responsibilities and to
ensure that the Company is aware of all matters being handled by Executive.
(e) No Duty to Mitigate. Executive shall be under no duty to
mitigate with respect to any severance or other amounts payable pursuant to
Sections 5(c) or 5(d) hereof, except as expressly contemplated therein.
(f) Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of New York,
without regard to principles of conflict of laws. The parties hereby consent to
the jurisdiction of any federal or state court sitting in the State of New York
having jurisdiction over disputes involving this Agreement. Any action to
enforce or interpret this Agreement must be brought in any federal or state
court sitting in the State of New York. The parties hereby consent to the
exclusive jurisdiction of the courts sitting in the State of New York,
notwithstanding the place of residence of Executive or where a dispute
concerning this Agreement arose. The parties hereby further consent to the
service of process in any such action by certified or registered mailing of the
summons and complaint therein directed to Executive at the address as provided
in Section 8(m) hereof and to the Company's designated agent for service of
process (which initially shall be GT Interactive Software Corp., 417 Fifth
Avenue, New York, New York 10016, Attention: President, which agent may be
changed by the Company upon thirty (30) days' prior written notice to
Executive).
(g) Entire Agreement. This Agreement and the Noncompetition
Agreement contain the entire agreement between the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings between them relating thereto, including, but not limited, to the
Original Employment Agreement.
(h) Amendment. This Agreement may be amended only by a writing
which makes express reference to this Agreement as the subject of such amendment
and which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(i) Severability. If any term or provision of this Agreement
or the application thereof shall be held to be invalid, unenforceable or
excessive in scope, the remainder of this Agreement and such term or provision
shall remain in full force and effect, and any such invalid or unenforceable
term or provision shall be deemed, without further action on the part of the
parties hereto, modified, amended and limited to the extent necessary to render
the same and the remainder of this Agreement valid and enforceable. In
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<PAGE> 10
this regard, Executive acknowledges that the provisions of Sections 4 and 6
hereof are reasonable and necessary for the protection of the Company.
(j) Construction. The headings and captions of this Agreement
are provided for convenience only and are intended to have no effect in
construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation". As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 hereof or otherwise. As used herein, the
words "day" or "days" shall mean a calendar day or days.
(k) Nonwaiver. Neither any course of dealing nor any failure
or neglect of either party hereto in any instance to exercise any right, power
or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(l) Remedies for Breach. (i) The parties hereto agree that
Executive is obligated under this Agreement to render personal services during
the Agreement Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement peculiar value, and, in the event of a
breach or threatened breach of any covenant of Executive herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that (A) the provisions of this
Agreement are reasonable and necessary for the protection of the Company and
that each provision, and the period or periods of time and types and scope of
restrictions on the activities specified herein are, and are intended to be,
divisible, and (B) the Company shall be entitled to specific performance,
injunctive relief or any other equitable remedy against Executive, without the
posting of a bond, in the event of any breach or threatened breach of any
provision of this Agreement by Executive (including, without limitation,
Sections 4 and 6 hereof). Without limiting the generality of the foregoing, if
Executive breaches Sections 4 or 6 hereof, such breach will entitle the Company
to enjoin Executive from disclosing any Confidential Information to any
Competing Business, to enjoin such Competing Business from receiving Executive
or using any such Confidential Information and/or to enjoin Executive from
rendering personal services to or in connection with such Competing Business.
The rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall
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<PAGE> 11
in no way preclude such party from pursuing, at the same time or subsequently,
any and all other rights and remedies available to it.
(ii) The Company agrees that if Executive voluntarily
resigns or retires or is terminated for Cause prior to the end of the Agreement
Term, it shall not seek damages from the Executive for such resignation,
retirement or termination. In no event shall this clause (ii) or any other
provision of this Agreement limit in any way whatsoever the remedies of specific
performance, injunctive relief and other equitable remedies available to the
Company pursuant to this or any other agreement between Executive and the
Company, in respect of a breach of Sections 4 or 6 of this Agreement.
(m) Notices. All notices and other communications pursuant to
this Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
Executive's residence (as reflected in the Company's records or as otherwise
designated by Executive on thirty (30) days' prior written notice to the
Company) with a copy to Timothy M. Barnett, Esq., Winthrop & Weinstine, 3000
Dain Bosworth Plaza, 60 South Sixth Street, Minneapolis, Minnesota 55402-4430,
or to the Company's principal executive office, attention: President (with
copies to the Director, Legal Affairs), as the case may be. All such notices and
other communications shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of a telecopy,
when the party receiving such copy shall have confirmed receipt of the
communication, (c) in the case of delivery by nationally-recognized overnight
courier, on the business day following dispatch, and (d) in the case of mailing,
on the third business day following such mailing.
(n) Assistance in Proceedings, Etc. Executive shall, without
additional compensation, during and after expiration of the Agreement Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party.
(o) Survival. Cessation or termination of Executive's
employment with the Company shall not result in termination of this Agreement.
The respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder. This Agreement shall not terminate upon, and
shall remain in full force and effect following, expiration of the Agreement
Term and all rights and obligations of the parties hereto as and to the extent
provided herein shall survive such expiration.
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Employment Agreement
to be duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ DAVID CHEMEROW
------------------------------------
Name: David Chemerow
Title: President and Chief Operating
Officer
EXECUTIVE:
/s/ CHARLES F. BOND
------------------------------------
Name: Charles F. Bond
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<PAGE> 13
SCHEDULE A
Preliminary Job Description: Subject to change as set forth in Section 2(b),
Executive shall be responsible for mass merchant operations and, with respect to
the value-priced operations, distribution, non-published budget products and
close-outs.
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all exhibits hereto, the "Agreement"),
made in New York, New York on August 18, 1998, between GT INTERACTIVE SOFTWARE
CORP., a Delaware corporation having its executive offices and principal place
of business in New York, New York (the "Company"), and JACK J. CAYRE, the
undersigned individual ("Executive").
IN CONSIDERATION of the mutual covenants and agreements hereinafter
set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the three-year period
commencing on August 18, 1998 and ending on August 17, 2001 (the "Agreement
Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be employed
by the Company for the Agreement Term upon the terms and subject to the
conditions set forth in this Agreement. Executive shall serve as Executive
Vice-President, Mass Market and Product Acquisition, of the Company and shall
have such duties as are set forth in Schedule A.
(b) Performance of Duties. Throughout the Agreement Term,
Executive shall faithfully and diligently perform Executive's duties in
conformity with the directions of the Company and serve the Company to the best
of Executive's ability. Executive shall devote Executive's entire working time,
attention and energies to the business and affairs of the Company, subject to
three weeks' vacation per year and personal and sick leave in accordance with
Company policy. Executive shall have the title set forth in Section 2(a) hereof
and shall report to such person as is determined by the Chief Executive Officer
of the Company.
(c) Place of Performance. During the Agreement Term, Executive
shall be based at the Company's principal executive offices in New York, New
York and, in this regard, Executive shall maintain Executive's personal
residence in such city or such other location(s) within reasonable access to
Executive's place of employment.
<PAGE> 2
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive for
employment hereunder a base salary ("Base Salary") at the annual rate of
$300,000 for the year ended December 31, 1998, subject to annual review during
the Agreement Term and increases in such Base Salary of not less than five (5)
percent per year, but otherwise in the discretion of the Company.
(b) Benefits and Prerequisites; Bonus. (i) Executive shall be
entitled to participate in, to the extent Executive is otherwise eligible under
the terms thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to executives of the same level and
responsibility as Executive. Nothing in this Agreement shall preclude the
Company from terminating or amending from time to time any employee benefit plan
or program. Except as otherwise provided in this Agreement, Executive may
receive bonuses and be entitled to receive stock options at the sole discretion
of the Board of Directors, provided, that Executive shall participate in the
Company's senior executive bonus plan with a target bonus of 40% of Base Salary.
(ii) Executive shall receive an allowance of $2,000 per
month toward rental and/or expenses of owning/leasing and maintaining an
automobile.
(c) Travel and Business Expenses. Upon submission of itemized
expense statements in the manner specified by the Company, Executive shall be
entitled to reimbursement for reasonable travel and other reasonable business
expenses duly incurred by Executive in the performance of Executive's duties
under this Agreement in accordance with the policies and procedures established
by the Company from time to time for executives of the same level and
responsibility as Executive.
(d) Life Insurance. The Company shall pay for and maintain a
term life insurance policy on Executive's life, payable to his estate or other
beneficiary directed by Executive, in the face amount of $1,000,000, and shall
reimburse Executive for all taxes payable by him, if any, as a result of such
premium payment, net of any taxes payable by him as a result of such
reimbursement. Executive shall provide documentation reasonably satisfactory to
the Company to support such reimbursement of taxes.
(e) No Other Compensation or Benefits; Payment. The
compensation and benefits specified in Sections 3 and 5 of this Agreement shall
be in lieu of any and all other compensation and benefits. Payment of all
compensation and benefits to Executive hereunder shall be made in accordance
with the relevant Company policies in effect from time to time, including normal
payroll practices, and shall be subject to all applicable employment and
withholding taxes.
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<PAGE> 3
(f) Cessation of Employment. In the event Executive shall
cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
4. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the period of
Executive's employment with the Company, Executive shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except that Executive shall be entitled to attend to personal affairs and
investments in a manner which does not unreasonably interfere with his
responsibilities hereunder, and except as otherwise approved in advance in
writing by the Chief Executive Officer or the Board of Directors of the Company;
or (ii) accept any other full-time or substantially full-time employment,
whether as an executive or consultant or in any other capacity, and whether or
not compensated therefor.
(b) No Competition. Without limiting the generality of the
provisions of Sections 2(b) or 4(a), during a period ending on the later of (i)
the end of the Agreement Term, (ii) the end of the Severance Period described in
Section 5(d)(i) hereof if severance payments are required to be made to the
Executive under any provision of Section 5(d), and (iii) the end of any period
during which payments are made to the Executive under Section 5(c) hereof;
Executive shall not, directly or indirectly, own, manage, operate, join,
control, participate in, invest in or otherwise be connected or associated with,
in any manner, including as an officer, director, employee, partner, consultant,
advisor, agent, proprietor, trustee or investor, any Competing Business;
provided, however, that if Executive's employment hereunder is terminated by the
Company under Section 5(d) or Executive voluntarily resigns for Good Reason as
provided in Section 5(d), then the provisions of this Section 4(b) shall remain
in effect only so long as (and during the period in which) the Company continues
to pay to Executive amounts as severance pursuant to Section 5(d).
For purposes of this Section 4(b), the term "Competing Business"
shall mean any business or venture which develops, manufactures, publishes,
licenses, sells, distributes or supplies entertainment, educational or
"edutainment" computer software or video games for commercial use, whether for
retail distribution, by direct marketing, electronically, by license to others,
or otherwise; or any other business which is substantially similar to the whole
or any significant part of the business conducted by the Company, provided that
ownership of 2% or less of the stock or other securities of a corporation, the
stock of which is listed on a national securities exchange or is quoted on The
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<PAGE> 4
NASDAQ Stock Market, shall not constitute a breach of this Section 4, so long as
Executive does not in fact have the power to control, or direct the management
of, or is not otherwise associated with, such corporation. Notwithstanding
anything in this Agreement to the contrary, if the Executive's employment with
the Company shall not have terminated prior to the happening of a Change of
Control (as defined in Section 5(d)(iii) hereof), then the Executive's
obligation pursuant to this Section 4(b) shall be limited to a period equal to
the greater of (A) two (2) years from the date of the happening of such Change
of Control, and (B) the period during which Executive remains in the employ of
the Company or its successor and parent company, if any.
(c) No Solicitation of Employment. During the Agreement Term
and for a period of two years thereafter, Executive shall not solicit or
encourage any other employee to leave the Company for any reason.
(d) Company Customers. Executive shall not, during the period
which is coincident with the Executive's obligation not to compete under Section
4(b) hereof, directly or indirectly, contact, solicit or do business with (i)
Wal-Mart Corporation, Target Stores, Caldor, Phar-mor, Best Buy, Office Depot,
Comp U.S.A., Kmart, or any of their respective affiliated operations, for the
purpose of selling entertainment, educational or "edutainment" computer
software, video games or any other product (which is an integral product in a
material product line of the Company) then sold by the Company to such customers
or proposed to be sold to such customers at the time of termination of
Executive's employment hereunder; (ii) any "customers" (as defined below) of the
Company for the purpose of selling entertainment, educational or "edutainment"
computer software, video games or any other product (which is an integral
product in a material product line of the Company) then sold by the Company to
such customers or proposed to be sold to such customers at the time of
termination of Executive's employment hereunder; or (iii) any supplier, licensor
or licensee of the Company (or any such supplier, licensor or licensee solicited
by the Company within eight months prior to the expiration or termination of
this Agreement) with respect to licensing computer software, video games or
other intellectual property (which is related to computer software, video games
or any other material product line of the Company) from such person.
For the purposes of the provisions of this Section 4(d), "customer" shall
include any entity that purchased computer software, video games or any other
product from the Company within eight months prior to the termination of
Executive's employment hereunder, without regard to the reason for such
termination. The term "customer" also includes any former customer or potential
customer of the Company which the Company has solicited within eight months
prior to such termination, for the purpose of selling computer software or any
other product then sold by the Company.
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<PAGE> 5
5. Termination of Employment.
(a) Termination. The Company may terminate Executive's
employment for Cause (as defined below), in which case the provisions of Section
5(b) shall apply. The Company may also terminate Executive's employment in the
event of Executive's Disability (as defined below), in which case the provisions
of Section 5(c) shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 5(d) shall apply. If Executive's employment is
terminated by reason of Executive's death, retirement or voluntary resignation,
the provisions of Section 5(b) shall apply.
(b) Termination for Cause; Termination by Reason of Death or
Retirement or Voluntary Resignation. In the event that Executive's employment
hereunder is terminated during the Agreement Term (x) by the Company for Cause
(as defined below), (y) by reason of Executive's death or retirement or (z) by
reason of Executive's voluntary resignation (other than voluntary resignation
with Good Reason (as hereinafter defined) or following a Change of Control as
permitted by Section 5(d)(iii))), then the Company shall pay to Executive,
within thirty (30) days of the date of such termination, only the Base Salary
and car allowance through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
engaging in any substantiated act involving moral turpitude; (iii) gross neglect
or misconduct in the performance of Executive's duties hereunder; (iv) willful
failure or refusal to perform such material duties as may be delegated to
Executive commensurate with Executive's position and responsibilities as set
forth in Section 2 hereof; or (v) breach of any material provision of this
Agreement by Executive; provided, however, that with respect to clause (iii),
clause (iv) and clause (v), Executive shall have received written notice from
the Company setting forth the manner in which he has been grossly negligent or
engaged in misconduct, he has willfully failed to perform his duties prior to
such notice or has materially breached any provision of this Agreement, and
Executive shall not have cured such gross neglect, misconduct, willful failure
or refusal to perform or breach, to the extent curable, within 10 business days
of such notice; provided, however, Executive's good faith inability to perform
shall not constitute Executive's willful failure to perform or a material breach
of any provision of this Agreement. For purposes hereof, the term "Good Reason"
shall mean (i) the modification of Executive's duties or responsibilities as set
forth on Schedule A, or the assignment to Executive of a position or title other
than, Executive Vice-President, Mass Merchant and Product Acquisition of the
Company or its successor and parent company, if any, or (ii) any requirement
that the Executive report to any person other than President of the Value Price
and Distribution
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<PAGE> 6
Division, the President and Chief Operations Officer or the Chief Executive
Officer of the Company or its successor and parent company, if any, or (iii) any
requirement that Executive perform services in any office of the Company or any
successor or parent company located more than 30 miles from the Company's
executive offices in New York City at the date hereof, or (iv) the failure by
the Company, or its successor or parent company, if any, to pay compensation or
provide benefits or perquisites to Executive as and when required by the terms
of this Agreement.
(c) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from Executive's
duties hereunder on a full time basis for either (i) one hundred twenty (120)
days within any three hundred sixty-five (365) day period, or (ii) ninety (90)
consecutive days, and within thirty (30) days after written notice of
termination is given shall not have returned to the performance of Executive's
duties hereunder on a full time basis, the Company may terminate Executive's
employment hereunder for "Disability". In that event, the Company shall pay to
Executive, within thirty (30) days, of the date of such termination, only the
Base Salary and car allowance through such date of termination. During any
period that Executive fails to perform Executive's duties hereunder as a result
of incapacity due to physical or mental illness (a "Disability Period"),
Executive shall continue to receive the compensation and benefits provided by
Section 3 hereof until Executive's employment hereunder is terminated; provided,
however, that the amount of compensation and benefits received by Executive
during the Disability Period shall be reduced by the aggregate amounts, if any,
payable to Executive under disability benefit plans and programs of the Company
or under the Social Security disability insurance program covering the same
period of time.
In addition, in the event that the Company shall terminate this
Agreement pursuant to this Section 5(c), the Company shall thereafter pay to
Executive or his estate, severance pay equal to the Base Salary that Executive
would have otherwise received if the terms of this Agreement were in effect
during a period of two years following the date of such termination, commencing
with the date of such termination and payable at the times and in the amounts
such Base Salary would have been so paid, reduced by the aggregate amounts, if
any, payable to Executive under disability benefit plans and programs of the
Company or under the Social Security disability insurance program covering the
same period of time.
(d) Termination By Company For Any Other Reason; Voluntary
Resignation for Good Reason; Change of Control.
(i) In the event that (A) Executive's employment
hereunder is terminated by the Company during the Agreement Term for any reason
other than as provided in Sections 5(b) or 5(c) hereof, or (B) Executive
voluntarily resigns for
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<PAGE> 7
Good Reason, as defined in Section 5(b), then the Company shall pay to
Executive, within thirty (30) days of the date of such termination or
resignation, the Base Salary and car allowance through such date of termination
or resignation and, in lieu of any further compensation and benefits for the
balance of the Agreement Term, severance pay equal to the Base Salary that
Executive would have otherwise received if the terms of this Agreement were in
effect during a period equal to the greater of (A) the remainder of the
Agreement Term, and (B) two years from the date of such termination or
resignation (the "Severance Period"), plus an amount per annum for the remainder
of the Severance Period (pro-rated where appropriate for part of a year, if any)
equal to 40% of such Base Salary in lieu of bonus, in each case from the
effective date of such termination or resignation, commencing with such date of
termination or resignation and payable at the times and in the amounts such Base
Salary would have been so paid and, in the case of such amount in lieu of bonus,
one half thereof on each July 1 and January 1 following the date of such
termination or resignation. Under such circumstances, except as set forth below,
for the balance of the Severance Period, Executive shall also continue to
participate in and receive the benefits and perquisites provided for in Sections
3(b) and 3(c) hereof (excluding any bonus (other than the amount in lieu of
bonus provided for in this Section 5(d)) and stock options) to the same extent
as if Executive's employment hereunder had not been terminated or he had not
resigned; provided, however, that in the event that Executive shall breach
Sections 4 or 6 hereof, in addition to any other remedies the Company may have
in the event Executive breaches this Agreement, the Company's obligation
pursuant to this Section 5(d) to continue such salary, benefits and perquisites
shall cease and Executive's rights thereto shall terminate and shall be
forfeited.
(ii) In addition to any severance amounts payable
hereunder, in the event (A) the Executive's employment is terminated by the
Company or its successor or parent company, if any, for any reason other than
properly for Cause as provided in Section 5(b), (B) Executive's employment is
terminated for Disability, (C) Executive dies or (D) Executive voluntarily
resigns for Good Reason, as defined in Section 5(b), then all options previously
granted to Executive pursuant to the Company's 1995 Stock Incentive Plan, 1997
Stock Incentive Plan or otherwise shall immediately vest and be exercisable by
Executive in full, and Executive (or his estate in the event of death) shall
thereafter be entitled to exercise such options until the earlier of (x) the
expiration date of the options pursuant to the applicable stock option agreement
by and between the Company and Executive or (y) the expiration of three months
following such termination, except that such three month period shall be
increased to one year if the termination is by reason of Executive's death or
Disability.
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<PAGE> 8
(iii) Upon the happening of a Change of Control, as
hereinafter defined, then all options previously granted to Executive pursuant
to the Company's 1995 Stock Incentive Plan, 1997 Stock Incentive Plan or
otherwise shall immediately vest and be exercisable by Executive in full, and
Executive shall thereafter be entitled to exercise such options until the
earlier of (A) the expiration date of such options pursuant to the applicable
stock option agreement by and between the Company and Executive, or (B) the
expiration of three months from the termination of Executive's employment with
the Company or any subsidiary or successor for any reason whatsoever following
such Change of Control, except that such three month period shall be increased
to one year if the termination is by reason of Executive's death or Disability.
In addition, if, following a Change of Control, (1) there occurs Good Reason, as
defined in Section 5(b), (2) Executive is not an Executive Vice-President of the
Company or its successor and parent company, if any, with responsibilities
similar to those set forth on Schedule A, or (3) Executive's employment is
terminated by the Company or its successor or parent company, if any, for any
reason other than as provided in Sections 5(b) or (c), then in any such case, at
any time within ninety (90) days of any event specified in clauses (1) or (2),
Executive may voluntarily resign from employment with the Company or its
successor and parent company, and thereupon (or following the happening of the
event specified in clause (3)), the Company and its successor and parent company
shall be obligated to make severance payments and provide benefits and
perquisites as provided in Section 5(d)(i) hereof with the same effect as if the
Company terminated the employment of Executive as contemplated by the provisions
of Section 5(d)(i) or the Executive voluntarily resigned for Good Reason;
provided that following such voluntarily resignation (or termination of
Executive's employment as specified in clause (3)) and during the applicable
Severance Period described in Section 5(d)(i) hereof (but subject to the
limitations contained in the last sentence of Section 4(b)), Executive shall be
bound by the provisions of Section 4(b) hereof so long as the Company, or its
successor and parent company, if any, continue to make the severance payments
required by this Section 5(d).
For purposes hereof, Change of Control shall mean any of the
following occurrences:
(1) any "person" as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934 ("Exchange Act") (other than (A) the
Company or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, (B) Joseph Cayre, Stanley
Cayre, Kenneth Cayre and their respective spouses or children or
trusts for such children, (C) General Atlantic Partners or any
entity managed or controlled by General Atlantic Partners ((A), (B)
and (C) together or individually, a "Current Owner"), or (D) any
entity more than 50% of whose voting and equity interests are
- 8 -
<PAGE> 9
owned beneficially by a Current Owner), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding securities (other than as a result of a
merger or consolidation covered by clause (3)(i) below in connection
with a merger involving the Company which would result in voting
securities of the Company outstanding immediately prior thereto
continuing to represent more than 50% of the combined voting power
of the voting securities of the Company or the surviving entity (or
its parent) outstanding immediately after such merger or
consolidation);
(2) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Company, and any new director (other than a director designated by a
person who has entered into an agreement with the Company to effect
a transaction described in clause (1), (3) or (4) of this
definition) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(3) the stockholders of the Company approve a merger or consolidation of
the Company with any other entity, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the
combined voting power of the voting securities of the Company or
such surviving entity (or its parent) outstanding immediately after
such merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 5
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<PAGE> 10
shall operate to fully discharge and release the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives from any further obligation or liability
with respect to Executive's employment and termination of employment. Other than
paying Executive's Base Salary and car allowance through the date of termination
of Executive's employment and making any severance payment and continuing
benefits and perquisites pursuant to and in accordance with this Section 5 (as
applicable), the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives shall
have no further obligation or liability to Executive or any other person under
this Agreement. The Company shall have the right to condition the payment of any
severance or other amounts pursuant to Sections 5(c) or 5(d) hereof upon the
delivery by Executive to the Company of a release in form and substance
satisfactory to the Company of any and all claims Executive may have against the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives arising out of or
related to Executive's employment by the Company and termination of such
employment.
6. Confidential Information.
(a) Existence of Confidential Information. The Company owns
and has developed and compiled, and will develop and compile, certain
proprietary techniques and confidential information which have great value to
its business (referred to in this Agreement, collectively, as "Confidential
Information"). Confidential Information includes not only information disclosed
by the Company to Executive, but also information developed or learned by
Executive during the course or as a result of employment with the Company, which
information shall be the property of the Company. Confidential Information
includes all information that has or could have commercial value or other
utility in the business in which the Company is engaged or contemplates
engaging, and all information of which the unauthorized disclosure could be
detrimental to the interests of the Company, whether or not such information is
specifically labelled as Confidential Information by the Company. By way of
example and without limitation, Confidential Information includes any and all
information developed, obtained, licensed by or to or owned by the Company
concerning trade secrets, techniques, know-how (including designs, plans,
procedures, merchandising, marketing, distribution and warehousing know-how,
processes, and research records), software, computer programs, and any other
intellectual property created, used or sold (through a license or otherwise) by
the Company, Electronic Data Information know-how and processes, innovations,
discoveries, improvements, research, development, test results, reports,
specifications, data, formats, marketing data and plans, business plans,
strategies, forecasts, unpublished financial information, orders, agreements and
other forms of documents, price and cost information,
- 10 -
<PAGE> 11
merchandising opportunities, expansion plans, store plans, budgets, projections,
customer, supplier, licensee, licensor and subcontractor identities,
characteristics, agreements and operating procedures, and salary, staffing and
employment information. Notwithstanding the foregoing, Confidential Information
shall not include information which (a) is or becomes generally available to the
public or is now or later enters the public domain other than as a result of a
disclosure by Executive, (b) was available to Executive on a non-confidential
basis prior to the date of this Agreement, (c) becomes available to Executive
from a source other than the Company, its agents or representatives (or former
agents or representatives) or (d) is required to be disclosed pursuant to law;
provided, that Executive shall provide the Company with prompt notice of such
required disclosure to, and Executive shall fully cooperate with the Company to,
enable the Company to seek a protective order; provided, further, that in the
case of (c) above, the source of such information was not bound by a
confidentiality agreement with the Company.
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of duties hereunder the Company
discloses to and entrusts Executive with Confidential Information which is the
exclusive property of the Company and which Executive may possess or use only in
the performance of duties for the Company. Executive also acknowledges that
Executive is aware that the unauthorized disclosure of Confidential Information,
among other things, may be prejudicial to the Company's interests, an invasion
of privacy and an improper disclosure of trade secrets. Executive shall not,
without the prior written consent of the Chief Executive Officer, directly or
indirectly, use, make available, sell, disclose or otherwise communicate to any
corporation, partnership, individual or other third party, other than in the
course of Executive's assigned duties and for the benefit of the Company, any
Confidential Information, either during the Agreement Term or thereafter. In the
event Executive desires to publish the results of Executive's work for or
experiences with the Company through literature, interviews or speeches,
Executive will submit requests for such interviews or such literature or
speeches to the Chief Executive Officer of the Company at least fourteen (14)
days before any anticipated dissemination of such information for a
determination of whether such disclosure is in the best interests of the
Company, including whether such disclosure may impair trade secret status or
constitute an invasion of privacy. Executive agrees not to publish, disclose or
otherwise disseminate such information without the prior written approval of the
Chief Executive Officer of the Company.
(c) Delivery of Records, Etc. In the event Executive's
employment with the Company ceases for any reason, Executive will not remove
from the Company's premises without its prior written consent any records,
files, drawings, documents, equipment, materials and writings received from,
created for or
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<PAGE> 12
belonging to the Company, including those which relate to or contain
Confidential Information, or any copies thereof. Upon request or when employment
with the Company terminates, Executive will immediately deliver the same to the
Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of and
be enforceable by, and may be assigned by the Company to, any purchaser of all
or substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise). The Company will require any such
purchaser, successor or assignee to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such purchase, succession or assignment had taken
place.
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
8. Miscellaneous.
(a) Other Obligations. Executive represents and warrants that
neither Executive's employment with the Company nor Executive's performance of
Executive's obligations hereunder will conflict with or violate or otherwise are
inconsistent with any other obligations, legal or otherwise, which Executive may
have.
(b) Nondisclosure; Other Employers. Executive will not
disclose to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Executive represents and warrants that Executive has returned all property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(c) Cooperation. Following termination of employment with the
Company, Executive shall cooperate with the Company, as reasonably requested by
the Company, to affect a transition of Executive's responsibilities and to
ensure that the Company is aware of all matters being handled by Executive.
(d) No Duty to Mitigate. Executive shall be under no duty to
mitigate with respect to any severance or other amounts payable pursuant to
Sections 5(c) or 5(d) hereof.
- 12 -
<PAGE> 13
(e) Protection of Reputation. During the Agreement Term and
thereafter, Executive and the Company each agree that he or it will take no
action which is intended, or would reasonably be expected, to harm the other's
reputation or which would reasonably be expected to lead to unwanted or
unfavorable publicity to the other.
(f) Governing Law. This Agreement, including the validity,
interpretation, construction and performance of this Agreement, shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in such state without regard
to such state's conflicts of law principles. All actions and proceedings
relating directly or indirectly to this Agreement shall be litigated in any
state court or federal court located in New York, New York. The parties hereto
expressly consent to the jurisdiction of any such court and to venue therein and
consent to the service of process in any such action or proceeding by certified
or registered mailing of the summons and complaint therein directed to Executive
at the address as provided in Section 8(m) hereof and to the Company's
designated agent for service of process (which initially shall be GT Interactive
Software Corp., 417 Fifth Avenue, New York, New York 10016, Attention:
Secretary, which agent may be changed by the Company upon thirty (30) days'
prior written notice to Executive).
(g) Entire Agreement. This Agreement (including the Exhibits
hereto) and that certain side letter, of even date herewith, from the Company to
Executive contains the entire agreement and understanding between the parties
hereto in respect of the subject matter hereof and supersedes, cancels and
annuls any prior or contemporaneous written or oral agreements, understandings,
commitments and practices between them respecting the subject matter hereof,
including all prior employment agreements, if any, between the Company and
Executive, which agreement(s) hereby are terminated and shall be of no further
force or effect.
(h) Amendment. This Agreement may be amended only by a writing
which makes express reference to this Agreement as the subject of such amendment
and which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(i) Severability. If any term, provision, covenant or
condition of this Agreement or part thereof, or the application thereof to any
person, place or circumstance, shall be held to be invalid, unenforceable or
void, the remainder of this Agreement and such term, provision, covenant or
condition shall remain in full force and effect, and any such invalid,
unenforceable or void term, provision, covenant or condition shall be deemed,
without further action on the part of the parties hereto, modified, amended and
limited to the extent necessary to render the same and the remainder of this
Agreement valid, enforceable and lawful. In this regard, Executive
- 13 -
<PAGE> 14
acknowledges that the provisions of Sections 4 and 6 are reasonable and
necessary for the protection of the Company.
(j) Construction. The headings and captions of this Agreement
are provided for convenience only and are intended to have no effect in
construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation". As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 hereof or otherwise. As used herein, the
words "day" or "days" shall mean a calendar day or days.
(k) Nonwaiver. Neither any course of dealing nor any failure
or neglect of either party hereto in any instance to exercise any right, power
or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(l) Remedies for Breach. The parties hereto agree that
Executive is obligated under this Agreement to render personal services during
the Agreement Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement peculiar value, and, in the event of a
breach or threatened breach of any covenant of Executive herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by Executive (including
Sections 4 and 6 hereof). Without limiting the generality of the foregoing, if
Executive breaches Sections 4 or 6 hereof, such breach will entitle the Company
to enjoin Executive from disclosing any Confidential Information to any
Competing Business, to enjoin such Competing Business from receiving Executive
or using any such Confidential Information and/or to enjoin Executive from
rendering personal services to or in connection with such Competing Business.
The rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure
- 14 -
<PAGE> 15
performance of the obligations and duties of the other under this Agreement, and
the enforcement of one or more of such rights and remedies by a party shall in
no way preclude such party from pursuing, at the same time or subsequently, any
and all other rights and remedies available to it.
(m) Notices. Any notice, request, consent or approval required
or permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, with postage prepaid, to Executive's residence (as
reflected in the Company's records or as otherwise designated by Executive on
thirty (30) days' prior written notice to the Company) or to the Company's
principal executive office, attention: President (with copies to the General
Counsel), as the case may be. All such notices, requests, consents and approvals
shall be effective upon being deposited in the United States mail. However, the
time period in which a response thereto must be given shall commence to run from
the date of receipt on the return receipt of the notice, request, consent or
approval by the addressee thereof. Rejection or other refusal to accept, or the
inability to deliver because of changed address of which no notice was given as
provided herein, shall be deemed to be receipt of the notice, request, consent
or approval sent.
(n) Assistance in Proceedings, Etc. Executive shall, without
additional compensation, during and after expiration of the Agreement Term, upon
reasonable notice and at reasonable times, furnish such information and proper
assistance to the Company as may reasonably be required by the Company in
connection with any legal or quasi-legal proceeding, including any external or
internal investigation, involving the Company or any of its affiliates or in
which any of them is, or may become, a party.
(o) Insurance and Indemnification. Executive shall be covered
under any director and officer insurance policy obtained by the Company, if any,
and shall be entitled to benefit from any officer indemnification arrangements
adopted by the Company, if any, to the same extent as other senior executive
officers of the Company (including the right to such coverage or benefit
following Executive's employment to the extent such policy or benefit covers
former employees); provided, however that Executive acknowledges and agrees that
the Company shall not be obligated, in any way, to obtain such insurance
coverage or to adopt any such indemnification arrangements for such officers.
(p) Survival. This Agreement and the respective obligations,
rights and benefits of the Company and the Executive as set forth herein shall
survive the cessation or termination of Executive's employment with the Company
and the termination of the Agreement Term in accordance with the terms set forth
herein. In addition, the provisions of Sections 3(d) and 5(d)(iii) hereof shall
survive the expiration of the Agreement Term if Executive remains employed by
the Company, but only until such employment
- 15 -
<PAGE> 16
is terminated by the Company, by the Executive, or for any other reason.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
GT Interactive Software Corp. EXECUTIVE:
By: /s/ HARRY Z. GLANTZ /s/ JACK J. CAYRE
----------------------------- -----------------------------
Name: Harry Z. Glantz Jack J. Cayre
Title: VP, Human Resources
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<PAGE> 17
Schedule A
Duties and Responsibilities
Subject to the direction of the person to whom he reports, Executive shall
have the following direct responsibility with respect to the Company's
mass-merchant operations:
Product acquisition, third party sales' relationships with mass
merchants, and merchandising (including inventory planning and product pricing).
- 17 -
<PAGE> 1
Exhibit 10.3
================================================================================
CREDIT AGREEMENT
dated as of September 11, 1998,
by and among
GT INTERACTIVE SOFTWARE CORP.,
as Borrower,
the Lenders referred to herein,
NATIONSBANC MONTGOMERY SECURITIES, LLC,
as Syndication Agent,
FLEET BANK, N.A.,
as Documentation Agent
and
FIRST UNION NATIONAL BANK,
as Administrative Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.........................................................1
SECTION 1.1 Definitions.....................................................1
SECTION 1.2 General........................................................18
SECTION 1.3 Other Definitions and Provisions...............................18
ARTICLE II REVOLVING CREDIT FACILITY.........................................19
SECTION 2.1 Loans..........................................................19
SECTION 2.2 Procedure for Advances of Loans................................19
SECTION 2.3 Repayment of Loans.............................................20
SECTION 2.4 Notes..........................................................22
SECTION 2.5 Permanent Reduction of the Aggregate Commitment................22
SECTION 2.6 Termination of Credit Facility.................................23
SECTION 2.7 Use of Proceeds................................................23
ARTICLE III LETTER OF CREDIT FACILITY........................................23
SECTION 3.1 L/C Commitment.................................................23
SECTION 3.2 Procedure for Issuance of Letters of Credit....................24
SECTION 3.3 Commissions and Other Charges..................................24
SECTION 3.4 L/C Participations.............................................25
SECTION 3.5 Reimbursement Obligation of the Borrower.......................26
SECTION 3.6 Obligations Absolute...........................................26
SECTION 3.7 Effect of Application..........................................27
ARTICLE IV GENERAL LOAN PROVISIONS...........................................27
SECTION 4.1 Interest.......................................................27
SECTION 4.2 Notice and Manner of Conversion or Continuation of Loans.......29
SECTION 4.3 Fees...........................................................30
SECTION 4.4 Manner of Payment..............................................31
SECTION 4.5 Crediting of Payments and Proceeds.............................32
SECTION 4.6 Adjustments....................................................32
SECTION 4.7 Nature of Obligations of Lenders Regarding Extensions
of Credit; Assumption by the Administrative Agent ..........32
SECTION 4.8 Changed Circumstances..........................................33
SECTION 4.9 Indemnity......................................................35
SECTION 4.10 Capital Requirements...........................................35
SECTION 4.11 Taxes..........................................................36
SECTION 4.12 Security.......................................................37
SECTION 4.13. Mandatory Redenomination of Alternative Currency Loans.........37
SECTION 4.14. Regulatory Limitation..........................................38
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<PAGE> 3
ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING.......................39
SECTION 5.1 Closing........................................................39
SECTION 5.2 Conditions to Closing and Initial Extensions of Credit.........39
SECTION 5.3 Conditions to All Extensions of Credit.........................42
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER....................42
SECTION 6.1 Representations and Warranties.................................42
SECTION 6.2 Survival of Representations and Warranties, Etc................49
ARTICLE VII FINANCIAL INFORMATION AND NOTICES................................49
SECTION 7.1 Financial Statements and Projections...........................50
SECTION 7.2 Certificates...................................................51
SECTION 7.3 Accountants' Certificate.......................................51
SECTION 7.4 Other Reports..................................................51
SECTION 7.5 Notice of Litigation and Other Matters.........................51
ARTICLE VIII AFFIRMATIVE COVENANTS...........................................52
SECTION 8.1 Preservation of Corporate Existence and Related Matters........52
SECTION 8.2 Maintenance of Property........................................53
SECTION 8.3 Insurance......................................................53
SECTION 8.4 Accounting Methods and Financial Records.......................53
SECTION 8.5 Payment and Performance of Obligations.........................53
SECTION 8.6 Compliance With Laws and Approvals.............................53
SECTION 8.7 Environmental Laws.............................................53
SECTION 8.8 Compliance with ERISA..........................................54
SECTION 8.9 Compliance With Agreements.....................................54
SECTION 8.10 Conduct of Business............................................54
SECTION 8.11 Visits and Inspections.........................................54
SECTION 8.12 Additional Subsidiaries; Collateral............................55
SECTION 8.13 Year 2000 Compatibility........................................56
SECTION 8.14 Borrower Assets................................................57
SECTION 8.15 Further Assurances.............................................57
ARTICLE IX FINANCIAL COVENANTS...............................................57
SECTION 9.1 Leverage Ratio.................................................57
SECTION 9.2 Interest Coverage Ratio........................................57
SECTION 9.3 Minimum Tangible Net Worth.....................................57
ARTICLE X NEGATIVE COVENANTS.................................................58
SECTION 10.1 Limitations on Debt............................................58
SECTION 10.2 Limitations on Guaranty Obligations............................59
SECTION 10.3 Limitations on Liens...........................................59
SECTION 10.4 Limitations on Loans, Advances,
Investments and Acquisitions.................................60
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<PAGE> 4
SECTION 10.5 Limitations on Mergers and Liquidation.........................62
SECTION 10.6 Limitations on Sale of Assets..................................63
SECTION 10.7 Limitations on Dividends and Distributions.....................63
SECTION 10.8 Transactions with Affiliates...................................63
SECTION 10.9 Certain Accounting Changes.....................................64
SECTION 10.10 Amendments; Payments and Prepayments
of Subordinated Debt.........................................64
SECTION 10.11 Restrictive Agreements.........................................64
ARTICLE XI DEFAULT AND REMEDIES..............................................64
SECTION 11.1 Events of Default..............................................64
SECTION 11.2 Remedies.......................................................66
SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc................67
SECTION 11.4. Judgment Currency..............................................68
ARTICLE XII THE ADMINISTRATIVE AGENT.........................................68
SECTION 12.1 Appointment....................................................68
SECTION 12.2 Delegation of Duties...........................................68
SECTION 12.3 Exculpatory Provisions.........................................68
SECTION 12.4 Reliance by the Administrative Agent...........................69
SECTION 12.5 Notice of Default..............................................69
SECTION 12.6 Non-Reliance on the Administrative Agent and Other Lenders.....70
SECTION 12.7 Indemnification................................................70
SECTION 12.8 The Administrative Agent in Its Individual Capacity............71
SECTION 12.9 Resignation of the Administrative Agent;
Successor Administrative Agent...............................71
SECTION 12.10 Syndication Agent and Documentation Agent......................71
ARTICLE XIII MISCELLANEOUS...................................................71
SECTION 13.1 Notices........................................................71
SECTION 13.2 Expenses; Indemnity............................................72
SECTION 13.3 Set-off........................................................73
SECTION 13.4 Governing Law..................................................73
SECTION 13.5 Consent to Jurisdiction........................................73
SECTION 13.6 Binding Arbitration; Waiver of Jury Trial......................74
SECTION 13.7 Reversal of Payments...........................................75
SECTION 13.8 Injunctive Relief; Punitive Damages............................75
SECTION 13.9 Accounting Matters.............................................76
SECTION 13.10 Successors and Assigns; Participations.........................76
SECTION 13.11 Amendments, Waivers and Consents...............................79
SECTION 13.12 Performance of Duties..........................................79
SECTION 13.13 All Powers Coupled with Interest...............................80
SECTION 13.14 Survival of Indemnities........................................80
SECTION 13.15 Titles and Captions............................................80
SECTION 13.16 Severability of Provisions.....................................80
SECTION 13.17 Counterparts...................................................80
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<PAGE> 5
SECTION 13.18 Term of Agreement..............................................80
SECTION 13.19 Inconsistencies with Other Documents;
Independent Effect of Covenants..............................80
SECTION 13.20 EMU; Continuity of Contract....................................81
EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Account Designation
Exhibit D - Form of Notice of Repayment
Exhibit E - Form of Notice of Conversion/Continuation
Exhibit F - Form of Officer's Compliance Certificate
Exhibit G - Form of Assignment and Acceptance
Exhibit H - Form of Borrowing Base Certificate
Exhibit I - Form of Guaranty Agreement
Exhibit J - Form of Pledge Agreement
Exhibit K - Form of Security Agreement
Exhibit L - Form of Joinder Agreement
Exhibit M - Form of Investment Account Control Agreement
SCHEDULES
Schedule 1.1(a) - Lenders and Commitments
Schedule 1.1(b) - Mandatory Cost Rate
Schedule 6.1(a) - Jurisdictions of Organization and Qualification
Schedule 6.1(b) - Subsidiaries and Capitalization
Schedule 6.1(g) - Intellectual Property
Schedule 6.1(h) - Environmental Matters
Schedule 6.1(i) - ERISA Plans
Schedule 6.1(l) - Material Contracts
Schedule 6.1(m) - Labor and Collective Bargaining Agreements
Schedule 6.1(t) - Debt
Schedule 6.1(u) - Litigation
Schedule 10.3 - Existing Liens
Schedule 10.4 - Existing Loans, Advances and Investments
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<PAGE> 6
CREDIT AGREEMENT, dated as of the 11th day of September, 1998 by and among
GT INTERACTIVE SOFTWARE CORP., a Delaware corporation (the "Borrower"), the
Lenders who are or may become a party to this Agreement, NATIONSBANC MONTGOMERY
SECURITIES, LLC, as syndication agent (the "Syndication Agent"), FLEET BANK,
N.A., as Documentation Agent (the "Documentation Agent") and FIRST UNION
NATIONAL BANK, as Administrative Agent for the Lenders.
STATEMENT OF PURPOSE
The Borrower has requested, and the Lenders have agreed, to extend certain
credit facilities to the Borrower on the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms when used in this Agreement
shall have the meanings assigned to them below:
"Account Control Agreement" means the Investment Account Control Agreement
to be executed in connection with the Subordinated Debt permitted pursuant to
Section 10.1(c), whereby the transfer agent of the account in which the Excess
Subordinated Debt Proceeds are maintained acknowledges the Administrative
Agent's security interest in such account and agrees to maintain such account
for the benefit of the Administrative Agent (as amended, restated supplemented
or modified from time to time, substantially in the form of Exhibit M attached
hereto).
"Account Debtor" means any Person who is or may become obligated under or
on account of an Account.
"Accounts" means collectively, all rights to payment for goods sold or
leased or for services rendered or to be rendered, whether or not earned by
performance, and all sums of money or other proceeds due or becoming due
thereon, including, without limitation, "Accounts" as defined in the UCC,
whether secured or unsecured, now existing or hereafter created.
"Administrative Agent" means First Union in its capacity as Administrative
Agent hereunder, and any successor thereto appointed pursuant to Section 12.9.
"Administrative Agent's Correspondent" means First Union National Bank,
London Branch, or any other financial institution designated by the
Administrative Agent to act as its correspondent hereunder with respect to the
distribution and payment of Alternative Currency Loans.
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"Administrative Agent's Office" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of Section
13.1(c).
"Affiliate" means, with respect to any Person, any other Person (other than
a Subsidiary) which directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such first
Person or any of its Subsidiaries. The term "control" means (a) the power to
vote ten percent (10%) or more of the securities or other equity interests of a
Person having ordinary voting power, or (b) the possession, directly or
indirectly, of any other power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any time or
from time to time pursuant to the terms hereof. On the Closing Date, the
Aggregate Commitment shall be One Hundred Twenty-Five Million Dollars
($125,000,000.00).
"Agreement" means this Credit Agreement, as amended, restated or otherwise
modified.
"Alternative Currency" means Australian Dollars, Canadian Dollars, French
Francs, Deutsche Marks, Pounds Sterling or Japanese Yen, and, with the prior
written consent of the Administrative Agent and the Lenders, any other lawful
currency (other than Dollars) which is freely transferable and convertible into
Dollars in the United States currency market and freely available to all of the
Lenders in the London interbank deposit market.
"Alternative Currency Amount" means with respect to each Loan made or
continued (or to be made or continued) in an Alternative Currency, the amount of
such Alternative Currency which is equivalent to the principal amount in Dollars
of such Loan at the most favorable spot exchange rate determined by the
Administrative Agent to be available to it at approximately 11:00 a.m.
(Charlotte time) two (2) Business Days before such Loan is made or continued (or
to be made or continued). When used with respect to any other sum expressed in
Dollars, "Alternative Currency Amount" shall mean the amount of such Alternative
Currency which is equivalent to the amount so expressed in Dollars at the most
favorable spot exchange rate determined by the Administrative Agent to be
available to it at the relevant time.
"Alternative Currency Commitment" means Ten Million Dollars
($10,000,000.00), as such amount may be reduced or modified at any time or from
time to time pursuant to the terms hereof.
"Alternative Currency Loan" means any Loan denominated in an Alternative
Currency.
"Applicable Law" means all applicable provisions of constitutions, laws,
statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals
and orders of courts or Governmental Authorities and all orders and decrees of
all courts and arbitrators.
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"Applicable Margin" shall have the meaning assigned thereto in Section
4.1(c); provided that with respect to each LIBOR Rate Loan made in an
Alternative Currency, the Applicable Margin shall include the Mandatory Cost
Rate, as determined pursuant to the formula set forth on the attached Schedule
1.1(b).
"Application" means an application, in the form specified by the Issuing
Lender from time to time, requesting the Issuing Lender to issue a Letter of
Credit.
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 13.10.
"Available Commitment" means, as to any Lender at any time, an amount equal
to (a) the lesser of (i) such Lender's Commitment or (ii) such Lender's
Commitment Percentage of the Borrowing Base less (b) the Dollar Amount of such
Lender's Extensions of Credit.
"Base Rate" means, at any time, the higher of (a) the Prime Rate and (b)
the sum of (i) the Federal Funds Rate plus (ii) 1/2 of 1%; each change in the
Base Rate shall take effect simultaneously with the corresponding change or
changes in the Prime Rate or the Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate based upon the
Base Rate as provided in Section 4.1(a).
"Borrower" means GT Interactive Software Corp., a Delaware corporation, in
its capacity as borrower hereunder.
"Borrowing Base" means as of any date of determination, an amount equal to
the sum of (a) fifty-five percent (55%) of the aggregate actual invoice amount
of Eligible Accounts from the Closing Date through November 30, 1998 and fifty
percent (50%) thereafter plus (b) the lesser of (i) twenty-five percent (25%) of
the aggregate cost of Eligible Inventory and (ii) $30,000,000; provided, that
the percentages set forth in paragraphs (a) and (b) above may be adjusted in a
manner satisfactory to the Borrower and the Administrative Agent (with the
consent of all Lenders).
"Borrowing Base Certificate" shall have the meaning assigned thereto in
Section 7.2(b).
"Business Day" means (a) for all purposes other than as set forth in clause
(b) below, any day other than a Saturday, Sunday or legal holiday on which banks
in Charlotte, North Carolina and New York, New York, are open for the conduct of
their domestic or international commercial banking business, as applicable and
(b) with respect to all notices and determinations in connection with, and
payments of principal and interest on, any LIBOR Rate Loan, any day (i) that is
a Business Day described in clause (a) and that is also a day for trading by and
between banks in deposits for the applicable Permitted Currency in the London
interbank market and (ii) on which banks are open for the conduct of their
domestic and international banking business in the place where the
Administrative Agent or the Administrative Agent's Correspondent shall make
available Loans in such Permitted Currency.
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"Capital Asset" means, with respect to the Borrower and its Subsidiaries,
any asset that should, in accordance with GAAP, be classified and accounted for
as a capital asset on a Consolidated balance sheet of the Borrower and its
Subsidiaries.
"Capital Lease" means, with respect to the Borrower and its Subsidiaries,
any lease of any property that should, in accordance with GAAP, be classified
and accounted for as a capital lease on a Consolidated balance sheet of the
Borrower and its Subsidiaries.
"Change in Control" shall have the meaning assigned thereto in Section
11.1(i).
"Closing Date" means the date of this Agreement or such later Business Day
upon which each condition described in Section 5.1 and Section 5.2 shall be
satisfied or waived in all respects in a manner acceptable to the Administrative
Agent, in its sole discretion.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended, supplemented or otherwise modified.
"Commitment" means, as to any Lender, the obligation of such Lender to make
Loans to and issue or participate in Letters of Credit issued for the account of
the Borrower hereunder in an aggregate principal or face amount at any time
outstanding not to exceed the amount set forth opposite such Lender's name on
Schedule 1.1(a) hereto, as the same may be reduced or modified at any time or
from time to time pursuant to the terms hereof.
"Commitment Percentage" means, as to any Lender at any time, the ratio of
(a) the amount of the Commitment of such Lender to (b) the Aggregate Commitment
of all of the Lenders.
"Consolidated" means, when used with reference to financial statements or
financial statement items of the Borrower and its Subsidiaries, such statements
or items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.
"Credit Facility" means the collective reference to the Revolving Credit
Facility and the L/C Facility.
"Debt" means, with respect to the Borrower and its Subsidiaries at any date
and without duplication, the sum of the following calculated in accordance with
GAAP: (a) all liabilities, obligations and indebtedness for borrowed money
including but not limited to obligations evidenced by bonds, debentures, notes
or other similar instruments of any such Person, (b) all obligations to pay the
deferred purchase price of property or services of any such Person, except
accrued expenses and trade payables arising in the ordinary course of business
not more than ninety (90) days past due including but not limited to all
obligations under non-competition agreements, (c) all obligations of any such
Person as lessee under Capital Leases, (d) all Debt of any other Person secured
by a Lien on any asset of any such Person, (e) all Guaranty Obligations of any
such Person, (f) all obligations, contingent or otherwise, of any such Person
relative to the face amount of letters of credit, whether or not drawn,
including without limitation any Reimbursement Obligation, and banker's
acceptances issued for the account of any such Person,
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(g) all obligations of any such Person to redeem, repurchase, exchange, defease
or otherwise make payments in respect of capital stock or other securities of
such Person and (h) all obligations incurred by any such Person pursuant to
Hedging Agreements.
"Default" means any of the events specified in Section 11.1 which with the
passage of time, the giving of notice or any other condition, would constitute
an Event of Default.
"Documentation Agent" means Fleet Bank, N.A., in its capacity as
Documentation Agent hereunder.
"Dollar Amount" means (a) with respect to each Loan made or continued (or
to be made or continued) in Dollars, the principal amount thereof and (b) with
respect to each Loan made or continued (or to be made or continued) in an
Alternative Currency, the amount of Dollars which is equivalent to the principal
amount of such Loan at the most favorable spot exchange rate determined by the
Administrative Agent at approximately 11:00 a.m. (Charlotte time) two (2)
Business Days before such Loan is made or continued (or to be made or
continued). When used with respect to any other sum expressed in an Alternative
Currency, "Dollar Amount" shall mean the amount of Dollars which is equivalent
to the amount so expressed in such Alternative Currency at the most favorable
spot exchange rate determined by the Administrative Agent to be available to it
at the relevant time.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"Domestic Subsidiary" means any Subsidiary of the Borrower organized under
the laws of any state of the United States or the District of Columbia.
"EBIT" means, for any period, the sum of the following determined on a
Consolidated basis, without duplication, for the Borrower and its Subsidiaries
in accordance with GAAP: (a) Net Income for such period plus (b) the sum of the
following to the extent deducted in determining Net Income: (i) income and
franchise taxes and (ii) Interest Expense less (c) interest income and any
extraordinary gains; provided that EBIT shall be adjusted by adding back the
following for the Fiscal Year ending December 31, 1997: (i) the royalty advance
write-downs in an amount equal to $73,821,000.00, as described in the Borrower's
10K filed for the Fiscal Year 1997 (the "Royalty Write-Downs") and (ii) the
purchase, research and development write-downs made in connection with the
SingleTrac Entertainment Technologies, Inc. transaction in an amount equal to
$11,008,000.00, (the "R and D Write-Downs").
"EBITDA" means, for any period, the sum of the following determined on a
Consolidated basis, without duplication, for the Borrower and its Subsidiaries
in accordance with GAAP: (a) Net Income for such period plus (b) the sum of the
following to the extent deducted in determining Net Income: (i) income and
franchise taxes; (ii) Interest Expense, and (iii) amortization, depreciation and
other non-cash charges (including, without limitation, the Royalty Write-Downs
and the R and D Write-Downs) less (c) interest income and any extraordinary
gains.
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"Eligible Accounts" means all Accounts created or acquired and owned by the
Borrower or any Guarantor that satisfy and continue to satisfy (as determined by
the Administrative Agent in its sole discretion) each of the following
requirements and that are otherwise satisfactory to the Administrative Agent, in
its sole discretion:
(a) Any warranty or representation contained in this Agreement or any
of the other Loan Documents applicable either to Accounts in general or to
any specific Account remains true and correct in all material respects with
respect to such Accounts;
(b) The Account is a bona fide existing obligation of the named
Account Debtor arising from the sale and delivery of merchandise or the
rendering of services to such Account Debtor in the ordinary course of the
Borrower's or such Guarantor's business and is owing to the Borrower or
such Guarantor and is not contingent for any reason (except as may
otherwise be permitted by this definition), and the Borrower or such
Guarantor has lawful and absolute title to such Account and the unqualified
right to grant a security interest therein to the Administrative Agent;
(c) The Account is not evidenced by chattel paper or an instrument
(each as defined in the UCC) of any kind, unless such chattel paper or
instrument is duly endorsed to and is in the possession of the
Administrative Agent;
(d) The subject merchandise has been shipped or delivered on open
account to the named Account Debtor on an absolute sale basis and not on
consignment or on approval;
(e) The Account is a valid, legally enforceable obligation of the
Account Debtor and no material offset (including without limitation
discounts, counterclaims or contra accounts) or other defense on the part
of such Account Debtor or any claim on the part of such Account Debtor
denying liability thereunder (or under any other Account) has been
asserted; provided that Accounts which are deemed to be ineligible by
reason of this clause (e) shall be considered Eligible Accounts to the
extent of the amount thereof not affected by such offset, discounts,
counterclaim, contra accounts or other defenses;
(f) The Account is not subject to any Lien, except for the
Administrative Agent's Lien, and a currently effective UCC financing
statement or other equivalent filing perfecting the security interests of
the Lenders filed by the Administrative Agent against the Borrower or any
Guarantor covering such Account is on file in all appropriate filing
locations for the Borrower's or any Guarantor's places of business and
records concerning such Account;
(g) The Account Debtor is solvent and not the subject of any
bankruptcy or insolvency proceeding of any kind and the Administrative
Agent, in its reasonable judgement, has not determined that such Account
may not be paid by reason of the Account Debtor's financial inability to
pay;
(h) The Account does not arise out of transactions with an employee,
officer, agent, director or other Affiliate of the Borrower or such
Guarantor;
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(i) The Account is not due from an Account Debtor whose Accounts that
are not Eligible Accounts hereunder exceed fifty percent (50%) of such
Account Debtor's total indebtedness to the Borrower and the Guarantors;
(j) The Account does not arise out of a contract with the United
States of America, or any department, agency, subdivision or
instrumentality thereof, or any State or municipality, or any agency or
unit thereof, unless the Borrower or such Guarantor has complied with the
Assignment of Claims Act of 1940 (31 U.S.C. Section 3727 et seq.) or other
applicable similar state or local law;
(k) The Account Debtor is not located in any state that requires that
the Borrower or any Guarantor, in order to sue any Account Debtor in such
state's courts, either (i) qualify to do business in such state or (ii)
file an annual or similar report with the taxation department of such
state, or, if the Account Debtor is located in any such state, the Borrower
or Guarantor, as applicable, has either qualified as a foreign corporation
authorized to transact business in such state, or has filed appropriate
reports with the taxation division on a timely basis or the Account Debtor
is otherwise amenable to suit in another convenient jurisdiction or the
creditworthiness of the Account Debtor is otherwise approved in writing by
the Required Lenders;
(l) The Administrative Agent or the Lenders shall not be subjected to
any material adverse tax consequences (other than taxes measured by the
income of the Administrative Agent or Lenders) as a result of taking any
enforcement action or lending against such Account;
(m) The Account does not arise from the retail sale of goods to a
Person who is purchasing such goods primarily for personal, family or
household purposes; and
(n) With respect to any Account in connection with which the Borrower
has been issued a credit insurance policy, the Administrative Agent is the
beneficiary of such credit insurance policy.
"Eligible Assignee" means, with respect to any assignment of the rights,
interest and obligations of a Lender hereunder, a Person that is at the time of
such assignment (a) a commercial bank organized under the laws of the United
States or any state thereof, having combined capital and surplus in excess of
$500,000,000, (b) a commercial bank organized under the laws of any other
country that is a member of the Organization of Economic Cooperation and
Development, or a political subdivision of any such country, having combined
capital and surplus in excess of $500,000,000, (c) a finance company, insurance
company or other financial institution which in the ordinary course of business
extends credit of the type extended hereunder and that has total assets in
excess of $1,000,000,000, (d) already a Lender hereunder (whether as an original
party to this Agreement or as the assignee of another Lender) or an Affiliate of
a Lender, (e) the successor (whether by transfer of assets, merger or otherwise)
to all or substantially all of the commercial lending business of the assigning
Lender, or (f) any other Person that has been approved in writing as an Eligible
Assignee by the Borrower and the Administrative Agent, such approval not to be
unreasonably withheld.
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"Eligible Inventory" means seventy-five percent (75%) of the Inventory of
the Borrower or any Guarantor that satisfies and continues to satisfy (as
determined by the Administrative Agent in its sole discretion) each of the
following requirements and that is otherwise satisfactory to the Administrative
Agent in its sole discretion:
(a) Any warranty or representation contained in this Agreement or any
of the other Loan Documents applicable either to Inventory in general or to
any specific Inventory remains true and correct in all material respects
with respect to such Inventory;
(b) The Inventory is (i) located at the place of business of the
Borrower or any Guarantor set forth or referenced in the Security Agreement
which is located in a jurisdiction where all necessary UCC filings or other
equivalent filings perfecting the security interests of the Lenders have
been made to perfect the Lien of the Administrative Agent under the
Security Agreement or (ii) located at such other place of business which is
reported to the Administrative Agent pursuant to the Security Agreement and
which is located in a jurisdiction where all necessary UCC filings or other
equivalent filings perfecting the security interests of the Lenders have
been made to perfect the Lien of the Administrative Agent under the
Security Agreement, or (iii) in transit from one such place of business to
another such place of business;
(c) If such Inventory is located in a public warehouse or at a leased
location, the Administrative Agent shall have received a bailee letter or
landlord agreement on or before the required date of delivery of any such
letter or agreement, in form and substance reasonably satisfactory to the
Administrative Agent, as the case may be;
(d) Such Inventory is not work-in-process and consists of finished
products;
(e) Such Inventory is not under consignment to or from any Person;
(f) Such Inventory is free from defects which would materially and
adversely affect the market value thereof;
(g) Such Inventory meets in all material respects all standards
imposed by any Governmental Authority having regulatory authority over such
Inventory, its use or sale, and is either currently useable or currently
saleable in the normal course of the Borrower's or any Guarantor's
business;
(h) Such Inventory is not obsolete or currently unfit for use or sale
in the ordinary course of the business of the Borrower or any Guarantor;
(i) Such Inventory is not subject to any Lien, except for the
Administrative Agent's first priority perfected Lien; and
(j) If such Inventory has been purchased with a trade letter of
credit, such trade letter of credit has been paid in full.
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"Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of the Borrower
or any ERISA Affiliate or (b) has at any time within the preceding six years
been maintained for the employees of the Borrower or any current or former ERISA
Affiliate.
"EMU Event" means an event associated with economic and monetary union in
the European Community, including, without limitation, each (and any
combination) of the following:
(a) the introduction of, changeover to or operation of a single or
unified European currency (whether known as the Euro or otherwise);
(b) the fixing of conversion rates between a member state's currency
and the new currency or between the currencies of member states;
(c) the substitution of that new currency for the Ecu as the unit of
account of the European Community;
(d) the introduction of that new currency as lawful in a member state;
(e) the withdrawal from legal tender of any currency that, before the
introduction of the new currency, was lawful currency in one of the member
states; or
(f) the disappearance or replacement of a relevant rate option or
other price source for the Ecu or the national currency of any member
state, or the failure of the agreed sponsor (or a successor sponsor) to
publish or display a relevant rate, index, price, page or screen.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals and
orders of courts or Governmental Authorities, relating to the protection of
human health or the environment, including, but not limited to, requirements
pertaining to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation, handling, reporting, licensing, permitting,
investigation or remediation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and the
rules and regulations thereunder, each as amended, supplemented or otherwise
modified.
"ERISA Affiliate" means any Person who together with the Borrower is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"Eurodollar Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or
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<PAGE> 15
emergency reserves) in respect of eurocurrency liabilities or any similar
category of liabilities for a member bank of the Federal Reserve System in New
York City.
"Event of Default" means any of the events specified in Section 11.1,
provided that any requirement for passage of time, giving of notice, or any
other condition specified in that Section, has been satisfied.
"Excess Subordinated Debt Proceeds" means the difference between (a) the
Net Cash Proceeds received by the Borrower from the Subordinated Debt permitted
pursuant to Section 10.1(c) and (b) the amount of such Net Cash Proceeds
utilized by the Borrower within thirty (30) Business Days after the receipt
thereof, such excess amount to be maintained in an account, such account to be
pledged to the Administrative Agent, for the benefit of itself and the Lenders,
pursuant to the Pledge Agreement.
"Extensions of Credit" means, as to any Lender at any time, an amount equal
to the sum of (a) the aggregate principal amount of all Loans made by such
Lender then outstanding and (b) such Lender's Commitment Percentage of the L/C
Obligations then outstanding.
"FDIC" means the Federal Deposit Insurance Corporation, or any successor
thereto.
"Federal Funds Rate" means, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Administrative Agent and confirmed in
Federal Reserve Board Statistical Release H.15 (519) or any successor or
substitute publication selected by the Administrative Agent. If, for any reason,
such rate is not available, then "Federal Funds Rate" shall mean a daily rate
which is determined, in the opinion of the Administrative Agent, to be the rate
at which federal funds are being offered for sale in the national federal funds
market at 9:00 a.m. (Charlotte time). Rates for weekends or holidays shall be
the same as the rate for the most immediate preceding Business Day.
"Fee Letter" means the separate letter agreement dated as of July 2, 1998
by the Borrower, the Administrative Agent and First Union Capital Markets, a
division of Wheat First Securities, Inc.
"First Tier Subsidiaries" means Humongous Entertainment, Inc., WizardWorks
Group, Inc., SingleTrac Entertainment Technologies, Inc., Swan Acquisition
Corp., Candel Inc. and any other Subsidiaries created or acquired after the date
hereof and directly owned by the Borrower.
"First Union" means First Union National Bank, a national banking
association, and its successors.
"Fiscal Year" means (i) the fiscal year of the Borrower and its
Subsidiaries ending on March 31; or (ii) with respect to only the fiscal years
prior to and including the calendar year ending December 31, 1997, the fiscal
year of the Borrower ended December 31.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not a
Domestic Subsidiary.
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"GAAP" means generally accepted accounting principles, as recognized by the
American Institute of Certified Public Accountants and the Financial Accounting
Standards Board, consistently applied and maintained on a consistent basis for
the Borrower and its Subsidiaries throughout the period indicated and consistent
with the prior financial practice of the Borrower and its Subsidiaries.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantor" means any Subsidiary or other Person who is or becomes party to
the Guaranty Agreement pursuant to Section 8.12 hereof or otherwise.
"Guaranty Agreement" means the unconditional Guaranty Agreement executed by
the Guarantors from time to time as required pursuant to Section 8.12, in favor
of the Administrative Agent, for the benefit of itself and the Lenders, as
amended, modified or supplemented from time to time, substantially in the form
of Exhibit I attached hereto.
"Guaranty Obligation" means, with respect to the Borrower and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of any such Person (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, that the term Guaranty
Obligation shall not include endorsements for collection or deposit in the
ordinary course of business.
"Hazardous Materials" means any substances or materials which are regulated
or limited by any Governmental Authority or are included in the definition of
"Hazardous Substances" in Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 USC ss.9601 et seq., including
friable asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation,
petroleum hydrocarbons, petroleum derived substances or waste, crude oil,
nuclear fuel, natural gas or synthetic gas.
"Hedging Agreement" means any agreement entered into by the Borrower in the
ordinary course of business and not for the purpose of speculation or taking a
"market view" with respect to an interest rate swap, collar, cap, floor or a
forward rate agreement, currency swap
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agreements, currency futures or option contracts or other agreement regarding
the hedging of interest rate risk exposure executed in connection with hedging
the interest rate exposure of the Borrower, and any confirming letter executed
pursuant to such hedging agreement and other similar agreements, all as amended,
restated or otherwise modified.
"Interest Expense" means, for any period, total interest expense
(including, without limitation, interest expense attributable to Capital Leases)
determined on a Consolidated basis, without duplication, for the Borrower and
its Subsidiaries in accordance with GAAP.
"Interest Period" shall have the meaning assigned thereto in Section
4.1(b).
"Inventory" means all "inventory" as defined in the UCC wherever located,
including without limitation, all goods manufactured or acquired for sale or
lease and all raw materials, work-in-process and finished goods, and all
supplies and goods, used or consumed in the operation of the business of the
Borrower or any Guarantor, whether now or hereafter acquired.
"Investment Account" shall have the meaning assigned thereto in the Pledge
Agreement.
"Issuing Lender" means First Union, in its capacity as issuer of any Letter
of Credit, or any successor thereto.
"L/C Commitment" means the lesser of (a) twenty-five million dollars
($25,000,000.00), (b) the Aggregate Commitment or (c) the Borrowing Base.
"L/C Facility" means the letter of credit facility established pursuant to
Article III hereof.
"L/C Obligations" means at any time, an amount equal to the sum of (a) the
aggregate undrawn and unexpired amount of the then outstanding Letters of Credit
and (b) the aggregate amount of drawings under Letters of Credit which have not
then been reimbursed pursuant to Section 3.5.
"L/C Participants" means the collective reference to all the Lenders other
than the Issuing Lender.
"Lender" means each Person executing this Agreement as a Lender set forth
on the signature pages hereto and each Person that hereafter becomes a party to
this Agreement as a Lender pursuant to Section 13.10.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Commitment Percentage of the Loans.
"Letters of Credit" shall have the meaning assigned thereto in Section 3.1.
"Leverage Ratio" means the ratio determined in accordance with Section 9.1.
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"LIBOR" means the rate of interest per annum determined on the basis of the
rate for deposits in Dollars in minimum amounts of at least $5,000,000 (or the
Alternative Currency Amount thereof with respect to a borrowing to be made in an
Alternative Currency) for a period equal to the applicable Interest Period which
appears on the Dow Jones Markets screen 3750 at approximately 11:00 a.m. (London
time) two (2) Business Days prior to the first day of the applicable Interest
Period (rounded upward, if necessary, to the nearest one-hundredth of one
percent (1/100%)). If, for any reason, such rate does not appear on Dow Jones
Markets screen 3750, then "LIBOR" shall be determined by the Administrative
Agent to be the arithmetic average (rounded upward, if necessary, to the nearest
one-hundredth of one percent (1/100%)) of the rate per annum at which deposits
in the Permitted Currency in which the applicable Loan is denominated would be
offered by first class banks in the London interbank market to the
Administrative Agent (or the Administrative Agent's Correspondent) at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the first
day of the applicable Interest Period for a period equal to such Interest Period
and in an amount substantially equal to the amount of the applicable Loan. Each
calculation by the Administrative Agent of the LIBOR Rate shall be conclusive
and binding for all purposes, absent manifest error.
"LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to the
next higher 1/100th of 1%) determined by the Administrative Agent pursuant to
the following formula:
LIBOR Rate = LIBOR
----------------------------------
1.00-Eurodollar Reserve Percentage
"LIBOR Rate Loan" means any Loan bearing interest at a rate based upon the
LIBOR Rate as provided in Section 4.1(a).
"Lien" means, with respect to any asset, any mortgage, lien pledge, charge,
security interest or encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, a Person shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, Capital Lease or other title
retention agreement relating to such asset.
"Loans" means any revolving loan denominated in Dollars and includes any
Alternative Currency Loan made to the Borrower pursuant to Section 2.1, and all
such revolving loans collectively as the context requires.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Applications, any Hedging Agreement with any Lender or any Affiliate thereof
(which such Hedging Agreement is permitted or required hereunder), the Guaranty
Agreement (once executed), the Security Agreement, the Pledge Agreement, the
Account Control Agreement (once executed) and each other document, instrument
and agreement executed and delivered by the Borrower or any of its Subsidiaries
in connection with this Agreement, all as may be amended, restated or otherwise
modified.
"Material Adverse Effect" means, with respect to the Borrower and its
Subsidiaries, a material adverse effect on the properties, business, operations
or condition (financial or
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otherwise) of the Borrower and its Subsidiaries, taken as a whole, or on the
ability of the Borrower and its Subsidiaries to perform their respective
obligations under the Loan Documents to which they are a party.
"Material Contract" means (a) any contract or other agreement, written or
oral, to which the Borrower or any of its Subsidiaries is a party involving
monetary liability of or to any Person in a face amount in excess of $2,000,000
per annum, or (b) any other contract or agreement, written or oral, of the
Borrower or any of its Subsidiaries the failure to comply with which could
reasonably be expected to have a Material Adverse Effect.
"Material Subsidiary" shall have the meaning assigned thereto in Section
8.12(b).
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or
is accruing, or has made or accrued, an obligation to make, contributions within
the preceding six years.
"Net Cash Proceeds" means, as applicable, (a) with respect to any sale or
other disposition of assets, the gross cash proceeds received by the Borrower or
any of its Subsidiaries from such sale less the sum of (i) all income taxes and
other taxes assessed by a Governmental Authority as a result of such sale and
any other fees and expenses incurred in connection therewith and (ii) the
principal amount of, premium, if any, and interest on any Debt secured by a Lien
on the asset (or a portion thereof) sold, which Debt is required to be repaid in
connection with such sale, (b) with respect to any offering of capital stock or
issuance of Debt, the gross cash proceeds received by the Borrower or any of its
Subsidiaries therefrom less all legal, underwriting and other fees and expenses
incurred in connection therewith and (c) with respect to any payment under an
insurance policy or in connection with a condemnation proceeding, the amount of
cash proceeds received by the Borrower or its Subsidiaries from an insurance
company or Governmental Authority, as applicable, net of all expenses of
collection.
"Net Income" means, with respect to the Borrower and its Subsidiaries, for
any period of determination, the net income (or loss) of the Borrower and its
Subsidiaries for such period, determined on a Consolidated basis in accordance
with GAAP; provided that there will be excluded (a) the net income (or loss) of
any Person, other than a Subsidiary, in which the Borrower or any of its
Subsidiaries has a joint interest with a third party except to the extent of the
amount of dividends or distributions actually paid to the Borrower or any of its
Subsidiaries during such period, (b) except to the extent included pursuant to
the foregoing clause (a), the net income (or loss) of any Person accrued prior
to the date it becomes a Subsidiary of such Person or is merged into or
consolidated with such Person or any of its Subsidiaries or that Person's assets
are acquired by such Person or any of its Subsidiaries, (c) the net income (if
positive) of any Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary to the Borrower or any of
its Subsidiaries of such net income (i) is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute rule or governmental regulation applicable to such
Subsidiary or (ii) would be subject to any taxes payable on such dividends or
distributions and (d) any gains or losses attributable to asset sales, as
determined in accordance with GAAP, including any related tax effects on such
Person.
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"Notes" means the collective reference to the Notes made by the Borrower
payable to the order of each Lender, substantially in the form of Exhibit A
attached hereto, evidencing the Revolving Credit Facility, and any amendments
and modifications thereto, any substitutes therefor, and any replacements,
restatements, renewals or extension thereof, in whole or in part; "Note" means
any of such Notes.
"Notice of Account Designation" shall have the meaning assigned thereto in
Section 2.2(b).
"Notice of Borrowing" shall have the meaning assigned thereto in Section
2.2(a).
"Notice of Conversion/Continuation" shall have the meaning assigned thereto
in Section 4.2.
"Notice of Repayment" shall have the meaning assigned thereto in Section
2.3(c).
"Obligations" means, in each case, whether now in existence or hereafter
arising: (a) the principal of and interest on (including interest accruing after
the filing of any bankruptcy or similar petition) the Loans, (b) the L/C
Obligations, (c) all payment and other obligations owing by the Borrower to any
Lender or any Affiliate thereof under any Hedging Agreement (which such Hedging
Agreement is permitted or required hereunder), and (d) all other fees and
commissions (including reasonable attorney's fees), charges, indebtedness,
loans, liabilities, financial accommodations, obligations, covenants and duties
owing by the Borrower to the Lenders or the Administrative Agent under or in
respect of this Agreement, any Note, any Letter of Credit or any of the other
Loan Documents of every kind, nature and description, direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, and whether or not evidenced by any note.
"Officer's Compliance Certificate" shall have the meaning assigned thereto
in Section 7.2(a).
"Other Taxes" shall have the meaning assigned thereto in Section 4.11(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of
the Code and which (a) is maintained for employees of the Borrower or any ERISA
Affiliates or (b) has at any time within the preceding six years been maintained
for the employees of the Borrower or any of their current or former ERISA
Affiliates.
"Permitted Currency" means Dollars or any Alternative Currency, or each
such currency, as the context requires.
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"Person" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"Pledge Agreement" means the Pledge Agreement of even date herewith
executed by the Borrower in favor of the Administrative Agent, for the benefit
of itself and the Lenders, as amended, modified or supplemented from time to
time, substantially in the form of Exhibit J attached hereto.
"Prime Rate" means, at any time, the rate of interest per annum publicly
announced from time to time by First Union as its prime rate. Each change in the
Prime Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. The parties hereto acknowledge that the rate
announced publicly by First Union as its Prime Rate is an index or base rate and
shall not necessarily be its lowest or best rate charged to its customers or
other banks.
"Register" shall have the meaning assigned thereto in Section 13.10(d).
"Reimbursement Obligation" means the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Required Lenders" means, at any date, any combination of Lenders who hold
at least fifty-one percent (51%) of the aggregate unpaid principal amount of the
Notes, or if no amounts are outstanding under the Notes, any combination of
Lenders whose Commitment Percentages aggregate at least fifty-one percent (51%).
"Responsible Officer" means any of the following: the chief executive
officer, chief operating officer, chief financial officer or vice president of
the Borrower or any other officer of the Borrower reasonably acceptable to the
Administrative Agent.
"Revolving Credit Facility" means the revolving credit facility established
pursuant to Article II hereof.
"Revolving Credit Termination Date" means the earliest of the dates
referred to in Section 2.6.
"Security Agreement" means the Security Agreement of even date herewith
executed by the Borrower in favor of the Administrative Agent, for the benefit
of itself and the Lenders as amended, modified or supplemented from time to
time, substantially in the form of Exhibit K attached hereto.
"Security Documents" means the collective reference to the Security
Agreement, the Pledge Agreement, the Account Control Agreement (once executed),
the Guaranty Agreement (once executed) and each other agreement or writing
pursuant to which the Borrower or any Subsidiary thereof purports to pledge or
grant a security interest in any property or assets
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securing the Obligations or any such Person purports to guaranty the payment
and/or performance of the Obligations.
"Solvent" means, as to the Borrower and its Subsidiaries on a particular
date, that any such Person (a) has capital sufficient to carry on its business
and transactions and all business and transactions in which it is about to
engage and is able to pay its debts as they mature, (b) owns property having a
value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (c) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.
"Subordinated Debt" means the collective reference to Debt on Schedule
6.1(t) hereof designated as Subordinated Debt and any other Debt of the Borrower
or any Subsidiary subordinated in right and time of payment to the Obligations
and containing such other terms and conditions, all as reasonably satisfactory
to the Required Lenders.
"Subsidiary" means as to any Person, any corporation, partnership, limited
liability company or other entity of which more than fifty percent (50%) of the
outstanding capital stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other managers of such
corporation, partnership, limited liability company or other entity is at the
time, directly or indirectly, owned by or the management is otherwise controlled
by such Person (irrespective of whether, at the time, capital stock or other
ownership interests of any other class or classes of such corporation,
partnership, limited liability company or other entity shall have or might have
voting power by reason of the happening of any contingency). Unless otherwise
qualified, references to "Subsidiary" or "Subsidiaries" herein shall refer to
those of the Borrower.
"Syndication Agent" means NationsBanc Montgomery Securities, LLC, in its
capacity as Syndication Agent.
"Tangible Net Worth" means, with respect to the Borrower and its
Subsidiaries at any date, stockholders' equity of the Borrower and its
Subsidiaries less intangible assets (including, without limitation, goodwill),
determined on a Consolidated basis for the Borrower and its Subsidiaries, all
calculated in accordance with GAAP.
"Taxes" shall have the meaning assigned thereto in Section 4.11(a).
"Termination Event" means: (a) with respect to any Pension Plan, a
"Reportable Event" described in Section 4043 of ERISA (unless the 30-day notice
requirement with respect to such event has been waived by the PBGC), or (b) the
withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (c) the termination of a Pension Plan, the filing of a
notice of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a termination under Section 4041 of ERISA, or (d) the institution
of proceedings to terminate, or the appointment of a trustee with respect to,
any Pension Plan by the PBGC, or (e) any other event or condition which would
constitute grounds under Section 4042(a) of ERISA for the
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termination of, or the appointment of a trustee to administer, any Pension Plan,
or (f) the partial or complete withdrawal of the Borrower or any ERISA Affiliate
from a Multiemployer Plan, or (g) the imposition of a Lien pursuant to Section
412 of the Code or Section 302 of ERISA, or (h) any event or condition which
results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA, or (i) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"Uniform Customs" the Uniform Customs and Practice for Documentary Credits
(1994 Revision), International Chamber of Commerce Publication No. 500.
"UCC" means the Uniform Commercial Code as in effect in the State of North
Carolina, as amended, restated or otherwise modified.
"United States" means the United States of America.
"Upfront Fee" means the fee described in Section 4.3(c).
"Wholly-Owned" means, with respect to a Subsidiary, that all of the shares
of capital stock or other ownership interests of such Subsidiary are, directly
or indirectly, owned or controlled by the Borrower and/or one or more of its
Wholly-Owned Subsidiaries.
SECTION 1.2 General. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Any reference herein to "Charlotte time" shall refer to
the applicable time of day in Charlotte, North Carolina.
SECTION 1.3 Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Notes and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) Miscellaneous. The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
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ARTICLE II
REVOLVING CREDIT FACILITY
SECTION 2.1 Loans. Subject to the terms and conditions of this Agreement,
each Lender severally agrees to make Loans to the Borrower in a Permitted
Currency from time to time from the Closing Date through the Revolving Credit
Termination Date as requested by the Borrower in accordance with the terms of
Section 2.2; provided, that (a) the Dollar Amount of the aggregate principal
amount of all outstanding Loans (after giving effect to any amount requested)
shall not exceed the lesser of (i) the Aggregate Commitment less the sum of the
Dollar Amount of all outstanding L/C Obligations and (ii) the Borrowing Base
less the sum of the Dollar Amount of all outstanding L/C Obligations, (b) the
Dollar Amount of the aggregate principal amount of all Loans made in an
Alternative Currency shall not exceed the Alternative Currency Commitment and
(c) the Dollar Amount of the aggregate principal amount of outstanding Loans
from any Lender to the Borrower shall not at any time exceed such Lender's
Available Commitment. Each Loan by a Lender shall be in a principal amount equal
to such Lender's Commitment Percentage of the aggregate principal amount of
Loans requested on such occasion. Loans to be made in an Alternative Currency
shall be funded in an amount equal to the Alternative Currency Amount of such
Loan. Subject to the terms and conditions hereof, the Borrower may borrow, repay
and reborrow Loans hereunder until the Revolving Credit Termination Date.
SECTION 2.2 Procedure for Advances of Loans.
(a) Requests for Borrowing The Borrower shall give the Administrative Agent
irrevocable prior written notice in the form attached hereto as Exhibit B (a
"Notice of Borrowing") not later than 11:00 a.m. (Charlotte time) (i) on the
same Business Day as each Base Rate Loan, (ii) at least three (3) Business Days
before each LIBOR Rate Loan denominated in Dollars and (iii) at least four (4)
Business Days before each LIBOR Rate Loan denominated in an Alternative
Currency, of its intention to borrow, specifying (A) the date of such borrowing,
which shall be a Business Day, (B) whether the Loans are to be LIBOR Rate Loans
or Base Rate Loans, (C) whether the Loan shall be denominated in Dollars or an
Alternative Currency; provided that, all Loans denominated in an Alternative
Currency shall be LIBOR Rate Loans, (D) the amount of such borrowing, which
shall be in an amount equal to the amount of the Aggregate Commitment or
Alternative Currency Commitment, if applicable, then available to the Borrower,
or if less, (x) with respect to Base Rate Loans in an aggregate minimum
principal amount of $500,000 or a whole multiple of $250,000 in excess thereof,
(y) with respect to LIBOR Rate Loans denominated in Dollars, in an aggregate
minimum principal amount of $3,000,000 or a whole multiple of $1,000,000 in
excess thereof, and (z) with respect to LIBOR Rate Loans denominated in an
Alternative Currency, in an aggregate minimum principal amount of $3,000,000 or
a whole multiple of $1,000,000 in excess thereof and (E) in the case of a LIBOR
Rate Loan, the duration of the Interest Period applicable thereto. Notices
received after 11:00 a.m. (Charlotte time) shall be deemed received on the next
Business Day. The Administrative Agent shall promptly notify the Lenders of each
Notice of Borrowing.
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(b) Disbursement of Loans Denominated in Dollars. Not later than 2:00 p.m.
(Charlotte time) on the proposed borrowing date for any loan denominated in
Dollars, each Lender will make available to the Administrative Agent in Dollars
in funds immediately available to the Administrative Agent, for the account of
the Borrower, at the office of the Administrative Agent in funds immediately
available to the Administrative Agent, such Lender's Commitment Percentage of
the Loans to be made on such borrowing date. The Borrower hereby irrevocably
authorizes the Administrative Agent to disburse the proceeds of each borrowing
requested pursuant to this Section 2.2 in immediately available funds by
crediting or wiring such proceeds to the deposit account of the Borrower
identified in the most recent notice substantially in the form of Exhibit C
attached hereto (a "Notice of Account Designation") delivered by the Borrower to
the Administrative Agent or as may be otherwise agreed upon by the Borrower and
the Administrative Agent from time to time. Subject to Section 4.7 hereof, the
Administrative Agent shall not be obligated to disburse the portion of the
proceeds of any Loan requested pursuant to this Section 2.2 to the extent that
any Lender has not made available to the Administrative Agent its Commitment
Percentage of such Loan.
(c) Disbursement of Alternative Currency Loans. Not later than 11:00 a.m.
(the time of the Administrative Agent's Correspondent) on or before the proposed
borrowing date for any Alternative Currency Loan, each Lender will make
available to the Administrative Agent for the account of the Borrower at the
office of the Administrative Agent's Correspondent, in the requested Alternative
Currency in funds immediately available to the Administrative Agent, such
Lender's Commitment Percentage of the Alternative Currency Amount of such
requested borrowing. The Borrower hereby irrevocably authorizes the
Administrative Agent to disburse the proceeds of each borrowing requested
pursuant to this Section 2.2 in immediately available funds by crediting or
wiring such proceeds to the deposit account of the Borrower identified in the
most recent Notice of Account Designation delivered by the Borrower to the
Administrative Agent or may be otherwise agreed upon by the Borrower and the
Administrative Agent from time to time. Subject to Section 4.7, the
Administrative Agent shall not be obligated to disburse the portion of the
proceeds of any Loan requested pursuant to this Section 2.2 to the extent that
any Lender has not made available to the Administrative Agent its Commitment
Percentage of such Loan.
SECTION 2.3 Repayment of Loans.
(a) Repayment on Termination Date. The Borrower shall repay the outstanding
principal amount of all Loans in full on the Revolving Credit Termination Date,
with all accrued but unpaid interest thereon.
(b) Mandatory Repayment of Excess Loans.
(i) Aggregate Commitment. If at any time (as determined by the
Administrative Agent under Section 2.3(b)(iv)), (A) solely because of
currency fluctuation, the aggregate outstanding principal Dollar Amount of
all Loans denominated in an Alternative Currency plus the sum of the Dollar
Amounts of all outstanding L/C Obligations exceeds one hundred and five
percent (105%) of the lesser of (I) the Aggregate Commitment or (II) the
Borrowing Base or (B) for any other reason, the aggregate outstanding
principal Dollar Amount
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of all Loans plus the sum of the Dollar Amounts of all outstanding L/C
Obligations exceeds the lesser of (I) the Aggregate Commitment or (II) the
Borrowing Base, then the Borrower shall repay immediately upon notice from
the Administrative Agent, by payment to the Administrative Agent for the
account of the Lenders, Extensions of Credit in a Dollar Amount equal to
the Dollar Amount of such excess with each such repayment applied first, to
the outstanding principal Dollar Amount of outstanding Loans and second,
with respect to any Letters of Credit then outstanding, a payment of cash
collateral into a cash collateral account opened by the Borrower with the
Administrative Agent, for the benefit of the Lenders (such cash collateral
to be applied in accordance with Section 11.2(b)).
(ii) Excess Alternative Currency Loans. If at any time and for any
reason the outstanding principal Dollar amount of all outstanding
Alternative Currency Loans exceeds the lesser of (A) the Aggregate
Commitment less the sum of the outstanding principal amount of all Loans
denominated in Dollars less the sum of the outstanding principal Dollar
Amount of all L/C Obligations, (B) the Borrowing Base less the sum of the
outstanding principal amount of all Loans denominated in Dollars less the
sum of the outstanding principal Dollar Amount of all L/C Obligations and
(C) the Alternative Currency Commitment, such excess shall be immediately
repaid, in the currency in which such Alternative Currency Loan or
Alternative Currency Loans were initially funded, by the Borrower to the
Administrative Agent for the account of the Lenders.
(iii) Excess L/C Obligations. If at any time and for any reason the
aggregate outstanding principal amount of the L/C Obligations exceeds the
lesser of (A) the Aggregate Commitment less the sum of the Dollar Amount of
the aggregate principal amount of all outstanding Loans, (B) the Borrowing
Base less the sum of the Dollar Amount of the aggregate principal amount of
all outstanding Loans and (C) the L/C Commitment, then the Borrower shall
deposit an amount equal to such excess with the Administrative Agent to be
held as cash collateral in accordance with Section 11.2(b).
(iv) Compliance and Payments. The Borrower's compliance with this
Section 2.3(b) shall be tested from time to time by the Administrative
Agent at its sole discretion, but in any event on each day an interest
payment is due under Section 4.1(e). Each such repayment pursuant to this
Section 2.3(b) shall be accompanied by any amount required to be paid
pursuant to Section 4.9 hereof.
(c) Optional Repayments. The Borrower may at any time and from time to time
repay the Loans, in whole or in part, without premium or penalty, except for
payments required pursuant to Section 2.3(d) below, upon at least four (4)
Business Days' irrevocable notice to the Administrative Agent with respect to
LIBOR Rate Loans denominated in an Alternative Currency, upon at least three (3)
Business Days' irrevocable notice to the Administrative Agent with respect to
LIBOR Rate Loans denominated in Dollars and same Business Day prior to 11:00
a.m. Charlotte, North Carolina time, irrevocable notice with respect to Base
Rate Loans, in the form attached hereto as Exhibit D (a "Notice of Repayment")
specifying the date and amount of repayment and whether the repayment is of
LIBOR Rate Loans denominated in an Alternative Currency, LIBOR Rate Loans
denominated in Dollars, Base Rate Loans or a combination thereof, and, if of a
combination thereof, the amount allocable to each. Upon receipt of such
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Notice of Repayment, the Administrative Agent shall promptly notify each Lender.
If any such Notice of Repayment is given, the amount specified in such notice
shall be due and payable on the date set forth in such notice. Partial
repayments shall be in an aggregate amount of $500,000 or a whole multiple of
$250,000 in excess thereof with respect to Base Rate Loans, and $3,000,000 or a
whole multiple of $1,000,000 in excess thereof with respect to LIBOR Rate Loans;
provided, that with respect to Alternative Currency Loans, partial repayments
shall be made in an Alternative Currency Amount equal to $3,000,000 or a whole
multiple of $1,000,000 in excess thereof. Each such repayment shall be
accompanied by any amount required to be paid pursuant to Section 4.9 hereof.
(d) Limitation on Repayment of LIBOR Rate Loans. The Borrower may not repay
any LIBOR Rate Loan on any day other than on the last day of the Interest Period
applicable thereto unless such repayment is accompanied by any amount required
to be paid pursuant to Section 4.9 hereof.
SECTION 2.4 Notes. Each Lender's Loans and the obligation of the Borrower
to repay such Loans shall be evidenced by a separate Note executed by the
Borrower payable to the order of such Lender representing the Borrower's
obligation to pay such Lender's Commitment or, if less, the aggregate unpaid
principal amount of all Loans made and to be made by such Lender to the Borrower
hereunder, plus interest and all other fees, charges and other amounts due
thereon. Each Note shall be dated the date hereof and shall bear interest on the
unpaid principal amount thereof at the applicable interest rate specified in
Section 4.1.
SECTION 2.5 Permanent Reduction of the Aggregate Commitment.
(a) Voluntary Reduction. The Borrower shall have the right at any time and
from time to time, upon at least five (5) Business Days prior written notice to
the Administrative Agent, to permanently reduce, without premium or penalty, (i)
the entire Aggregate Commitment at any time or (ii) portions of the Aggregate
Commitment, from time to time, in an aggregate principal amount not less than
$5,000,000 or any whole multiple of $5,000,000 in excess thereof. To the extent
that the Aggregate Commitment is reduced to an amount below the Alternative
Currency Commitment, there shall be a corresponding permanent reduction of the
Alternative Currency Commitment, to the amount of the Aggregate Commitment as so
reduced.
(b) Mandatory Permanent Reduction. The Aggregate Commitment shall be
permanently reduced by the following amounts: (i) 100% of the Net Cash Proceeds
received by the Borrower or any of its Subsidiaries from any issuance of Debt
for borrowed money (other than Debt permitted pursuant to Section 10.1), (ii)
100% of the Net Cash Proceeds received by the Borrower or any of its
Subsidiaries in connection with any sale of assets (including its equity
ownership in any Person) not permitted pursuant to Section 10.6 (a) through (d);
provided, that this clause (ii) shall not apply to the first $2,000,000 of any
such Net Cash Proceeds received in any Fiscal Year, and (iii) 100% of the Net
Cash Proceeds received by the Borrower or any of its Subsidiaries under any
policy of insurance of such Person or in connection with any condemnation
proceeding involving property of such Person, unless, so long as no Default or
Event of Default has occurred and is continuing, such Net Cash Proceeds are
utilized by the Borrower within three hundred sixty-five (365) days of receipt
of such Net Cash Proceeds to
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replace or repair any of its assets damaged in connection with the related claim
or proceeding; provided, that this clause (iii) shall not apply to the first
$2,000,000 of any such Net Cash Proceeds received in any Fiscal Year.
(c) Each permanent reduction permitted or required pursuant to this Section
2.5 shall be accompanied by a payment of principal sufficient to reduce the
aggregate outstanding Extensions of Credit of the Lenders after such reduction
to the Aggregate Commitment as so reduced and if the Aggregate Commitment as so
reduced is less than the aggregate amount of all outstanding Letters of Credit,
the Borrower shall be required to deposit in a cash collateral account opened by
the Borrower with the Administrative Agent, for the benefit of the
Administrative Agent and the Lenders, an amount equal to the aggregate then
undrawn and unexpired amount of such Letters of Credit. Any reduction of the
Aggregate Commitment to zero shall be accompanied by payment of all outstanding
Obligations (and furnishing of cash collateral satisfactory to the
Administrative Agent for all L/C Obligations) and shall result in the
termination of the Commitments and Credit Facility. Such cash collateral shall
be applied in accordance with Section 11.2(b). If the reduction of the Aggregate
Commitment requires the repayment of any LIBOR Rate Loan, such repayment shall
be accompanied by any amount required to be paid pursuant to Section 4.9 hereof.
SECTION 2.6 Termination of Credit Facility. The Credit Facility shall
terminate on the earliest of (a) September __, 2001, (b) the date of termination
by the Borrower pursuant to Section 2.5(a), and (c) the date of termination by
the Administrative Agent on behalf of the Lenders pursuant to Section 11.2(a).
SECTION 2.7 Use of Proceeds. The Borrower shall use the proceeds of the
Extensions of Credit to refinance existing Debt, and for working capital and
general corporate requirements of the Borrower and its Subsidiaries, including
acquisitions permitted hereunder and the payment of fees and expenses incurred
in connection with the transactions.
ARTICLE III
LETTER OF CREDIT FACILITY
SECTION 3.1 L/C Commitment. Subject to the terms and conditions hereof, the
Issuing Lender, in reliance on the agreements of the other Lenders set forth in
Section 3.4(a), agrees to issue documentary and standby letters of credit
("Letters of Credit") for the account of the Borrower on any Business Day from
the Closing Date through but not including the Revolving Credit Termination Date
in such form as may be approved from time to time by the Issuing Lender;
provided, that the Issuing Lender shall have no obligation to issue any Letter
of Credit if, after giving effect to such issuance, (a) the L/C Obligations
would exceed the lesser of (i) the L/C Commitment or (ii) the Aggregate
Commitment less the sum of the Dollar Amount of the aggregate principal amount
of all outstanding Extensions of Credit or (b) the Available Commitment of any
Lender would be less than zero. Each Letter of Credit shall (i) if standby, be
denominated in Dollars in a minimum amount of $100,000 and if commercial, be
denominated in Dollars in a minimum amount of $25,000, (ii) be a standby or
documentary letter of credit issued
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to support obligations of the Borrower or any of its Subsidiaries, contingent or
otherwise, incurred in the ordinary course of business, (iii) expire on a date
satisfactory to the Issuing Lender, which date shall be no later than the
earlier of (A) one year from the date of issuance and (B) the Revolving Credit
Termination Date (provided that the Letter of Credit in the amount of $1,000,000
issued in favor of Polester Fifth Property Associates shall expire on 12/20/99)
and (iv) be subject to the Uniform Customs and, to the extent not inconsistent
therewith, the laws of the State of North Carolina. The Issuing Lender shall not
at any time be obligated to issue any Letter of Credit hereunder if such
issuance would conflict with, or cause the Issuing Lender or any L/C Participant
to exceed any limits imposed by, any Applicable Law. References herein to
"issue" and derivations thereof with respect to Letters of Credit shall also
include extensions or modifications of any existing Letters of Credit, unless
the context otherwise requires.
SECTION 3.2 Procedure for Issuance of Letters of Credit. The Borrower may
from time to time request that the Issuing Lender issue a Letter of Credit, on
behalf of the Borrower or on behalf of any of its Subsidiaries; provided that
for any Letter of Credit issued on behalf of any of its Subsidiaries, the
Borrower shall be the applicant with the Subsidiary as the co-applicant, by
delivering to the Issuing Lender at the Administrative Agent's address, an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
shall process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall, subject to Section 3.1 and Article V hereof,
promptly issue the Letter of Credit requested thereby (but in no event shall the
Issuing Lender be required to issue any Letter of Credit earlier than two (2)
Business Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as
otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing
Lender shall furnish to the Borrower a copy of such Letter of Credit and notify
each Lender of the issuance of such Letter of Credit and upon request from any
Lender, furnish to such Lender a copy of such Letter of Credit and the amount of
each Lender's L/C Participation therein, all promptly following the issuance of
such Letter of Credit.
SECTION 3.3 Commissions and Other Charges.
(a) The Borrower shall pay to the Administrative Agent, for the account of
the Issuing Lender and the L/C Participants, a letter of credit commission with
respect to each Letter of Credit in an amount equal to the face amount of such
Letter of Credit multiplied by the Applicable Margin (determined on a per annum
basis). Such commission shall be payable quarterly in arrears on the last
Business Day of each calendar quarter and on the Revolving Credit Termination
Date.
(b) The Administrative Agent shall, promptly following its receipt thereof,
distribute to the Issuing Lender and the L/C Participants all such commissions
in accordance with the following: (i) to the Issuing Lender an amount equal to
the face amount of each Letter of Credit multiplied by 0.125% (determined on a
per annum basis) and (ii) to the Issuing Lender and the L/C Participants, the
remainder to be distributed ratably among them.
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(c) In addition to the foregoing commissions, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, effecting payment
under, amending or otherwise administering any Letter of Credit.
SECTION 3.4 L/C Participations.
(a) The Issuing Lender irrevocably agrees to grant and hereby grants to
each L/C Participant, and, to induce the Issuing Lender to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Commitment Percentage in
the Issuing Lender's obligations and rights under each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Lender thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit for which the Issuing
Lender is not reimbursed in full by the Borrower in accordance with the terms of
this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand
at the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Commitment Percentage of the amount of such draft, or any
part thereof, which is not so reimbursed.
(b) Upon becoming aware of any amount required to be paid by any L/C
Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any Letter
of Credit, the Issuing Lender shall notify each L/C Participant of the amount
and due date of such required payment and such L/C Participant shall pay to the
Issuing Lender the amount specified on the applicable due date. If any such
amount is paid to the Issuing Lender after the date such payment is due, such
L/C Participant shall pay to the Issuing Lender on demand, in addition to such
amount, the product of (i) such amount, times (ii) the daily average Federal
Funds Rate as determined by the Administrative Agent during the period from and
including the date such payment is due to the date on which such payment is
immediately available to the Issuing Lender, times (iii) a fraction the
numerator of which is the number of days that elapse during such period and the
denominator of which is 360. A certificate of the Issuing Lender with respect to
any amounts owing under this Section 3.4(b) shall be conclusive in the absence
of manifest error. With respect to payment to the Issuing Lender of the
unreimbursed amounts described in this Section 3.4(b), if the L/C Participants
receive notice that any such payment is due (A) prior to 1:00 p.m. (Charlotte
time) on any Business Day, such payment shall be due that Business Day, and (B)
after 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be due
on the following Business Day.
(c) Whenever, at any time after the Issuing Lender has made payment under
any Letter of Credit and has received from any L/C Participant its Commitment
Percentage of such payment in accordance with this Section 3.4, the Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise), or any payment of interest on account thereof,
the Issuing Lender will distribute to such L/C Participant its pro rata share
thereof; provided, that in the event that any such payment received by the
Issuing Lender
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shall be required to be returned by the Issuing Lender, such L/C Participant
shall return to the Issuing Lender the portion thereof previously distributed by
the Issuing Lender to it.
SECTION 3.5 Reimbursement Obligation of the Borrower. The Borrower agrees
to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft or drawing paid under
any Letter of Credit for the amount of (a) such draft or drawing, as applicable,
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in
Dollars and in immediately available funds. Interest shall be payable on any and
all amounts remaining unpaid by the Borrower under this Article III from the
date such amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate which would be payable on any
outstanding Base Rate Loans which were then overdue. If the Borrower fails to
timely reimburse the Issuing Lender on the date the Borrower receives the notice
referred to in this Section 3.5, the Borrower shall be deemed to have timely
given a Notice of Borrowing hereunder to the Administrative Agent requesting the
Lenders to make a Base Rate Loan on such date in an amount equal to the amount
of such drawing and, regardless of whether or not the conditions precedent
specified in Article V have been satisfied, the Lenders shall make Base Rate
Loans in such amount, the proceeds of which shall be applied to reimburse the
Issuing Lender for the amount of the related drawing and costs and expenses.
SECTION 3.6 Obligations Absolute. The Borrower's obligations under this
Article III (including without limitation the Reimbursement Obligation) shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender or any beneficiary of a Letter of Credit.
The Borrower also agrees with the Issuing Lender that the Issuing Lender shall
not be responsible for, and the Borrower's Reimbursement Obligation under
Section 3.5 shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged, or any
dispute between or among the Borrower and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred or
any claims whatsoever of the Borrower against any beneficiary of such Letter of
Credit or any such transferee. The Issuing Lender shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions caused by the Issuing Lender's gross
negligence or willful misconduct. The Borrower agrees that any action taken or
omitted by the Issuing Lender under or in connection with any Letter of Credit
or the related drafts or documents, if done in the absence of gross negligence
or willful misconduct and in accordance with the standards of care specified in
the Uniform Customs and, to the extent not inconsistent therewith, the UCC shall
be binding on the Borrower and shall not result in any liability of the Issuing
Lender to the Borrower. The responsibility of the Issuing Lender to the Borrower
in connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.
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SECTION 3.7 Effect of Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Article III, the provisions of this Article III shall apply.
ARTICLE IV
GENERAL LOAN PROVISIONS
SECTION 4.1 Interest.
(a) Interest Rate Options. Subject to the provisions of this Section 4.1,
at the election of the Borrower, the aggregate principal balance of (i) the
Loans or any portion thereof denominated in Dollars shall bear interest at (A)
the Base Rate or (B) the LIBOR Rate plus the Applicable Margin as set forth in
Section 4.1(c) and (ii) the Loans, or any portion thereof, denominated in an
Alternative Currency shall bear interest at the LIBOR Rate plus the Applicable
Margin as set forth in Section 4.1(c); provided that the LIBOR Rate shall not be
available until three (3) Business Days after the Closing Date. The Borrower
shall select the rate of interest and Interest Period, if any, applicable to any
Loan at the time a Notice of Borrowing is given pursuant to Section 2.2 or at
the time a Notice of Conversion/Continuation is given pursuant to Section 4.2.
Each Loan or portion thereof bearing interest based on the Base Rate shall be a
"Base Rate Loan", each Loan or portion thereof bearing interest based on the
LIBOR Rate shall be a "LIBOR Rate Loan." Any Loan or any portion thereof as to
which the Borrower has not duly specified an interest rate as provided herein
shall be deemed a Base Rate Loan denominated in Dollars.
(b) Interest Periods. In connection with each LIBOR Rate Loan, the
Borrower, by giving notice at the times described in Section 4.1(a), shall elect
an interest period (each, an "Interest Period") to be applicable to such Loan,
which Interest Period shall be a period of one (1), two (2), three (3), or six
(6) months with respect to each LIBOR Rate Loan; provided that:
(i) the Interest Period shall commence on the date of advance of or
conversion to any LIBOR Rate Loan and, in the case of immediately
successive Interest Periods, each successive Interest Period shall commence
on the date on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, that if any Interest Period with respect
to a LIBOR Rate Loan would otherwise expire on a day that is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
(iii) any Interest Period with respect to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of the relevant
calendar month at the end of such Interest Period;
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(iv) no Interest Period shall extend beyond the Revolving Credit
Termination Date; and
(v) there shall be no more than six (6) Interest Periods outstanding
at any time.
(c) Applicable Margin. The Applicable Margin provided for in Section 4.1(a)
with respect to Libor Rate Loans (the "Applicable Margin") shall (i) on the
Closing Date equal the percentages set forth in the certificate delivered
pursuant to Section 5.2(e)(ii); and (ii) for each fiscal quarter thereafter be
determined by reference to the Leverage Ratio as of the end of the fiscal
quarter immediately preceding the delivery of the applicable Officer's
Compliance Certificate as follows:
Leverage Applicable
Ratio Margin
----- ------
Greater than or equal to 2.00 to 1.00 1.50%
Less than 2.00 to 1.00 but greater 1.375%
than or equal to 1.50 to 1.00
Less than 1.50 to 1.00 but greater 1.250%
than or equal to 1.00 to 1.00
Less than 1.00 to 1.00 1.125%
Adjustments, if any, in the Applicable Margin shall be made by the
Administrative Agent on the fifth (5th) Business Day after receipt by the
Administrative Agent of the financial statements required pursuant to Section
7.1 or 7.2, as the case may be, for the Borrower and its Subsidiaries and the
accompanying Officer's Compliance Certificate setting forth the Leverage Ratio
of the Borrower and its Subsidiaries as of the most recent fiscal quarter end.
Subject to Section 4.1(d), in the event the Borrower fails to deliver such
financial statements and certificate within the time required by Sections 7.1
and 7.2 hereof, the Applicable Margin shall be the highest Applicable Margin set
forth above until the fifth (5th) Business Day after receipt by the
Administrative Agent of such financial statements and certificate.
Notwithstanding any of the foregoing to the contrary, the Applicable Margin
shall be recalculated and adjusted by the Administrative Agent on the fifth
(5th) Business Day following the date of any withdrawal by the Borrower of funds
from the Investment Account permitted by the Pledge Agreement.
(d) Default Rate. Subject to Section 11.3, at the discretion of the
Administrative Agent and Required Lenders, upon the occurrence and during the
continuance of an Event of Default, (i) the Borrower shall no longer have the
option to request LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall
bear interest at a rate per annum two percent (2%) in excess of the rate then
applicable to LIBOR Rate Loans, as applicable, until the end of the applicable
Interest Period and thereafter at a rate equal to two percent (2%) in excess of
the rate then applicable to Base Rate Loans, and (iii) all outstanding Base Rate
Loans shall bear interest at a rate per annum equal to two percent (2%) in
excess of the rate then applicable to Base Rate
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Loans. Interest shall continue to accrue on the Notes after the filing by or
against the Borrower of any petition seeking any relief in bankruptcy or under
any act or law pertaining to insolvency or debtor relief, whether state, federal
or foreign.
(e) Interest Payment and Computation. Interest on each Base Rate Loan shall
be payable in arrears on the last Business Day of each calendar quarter
commencing September 30, 1998; and interest on each LIBOR Rate Loan shall be
payable on the last day of each Interest Period applicable thereto, and if such
Interest Period extends over three (3) months, at the end of each three (3)
month interval during such Interest Period. Interest on LIBOR Rate Loans (except
for Alternative Currency Loans denominated in Pounds Sterling which shall be
computed on the basis of 365/366-day year) and all fees payable hereunder shall
be computed on the basis of a 360-day year and assessed for the actual number of
days elapsed and interest on Base Rate Loans shall be computed on the basis of a
365/66-day year and assessed for the actual number of days elapsed.
(f) Maximum Rate. In no contingency or event whatsoever shall the aggregate
of all amounts (including all fees) deemed interest hereunder or under any of
the Notes charged or collected pursuant to the terms of this Agreement or
pursuant to any of the Notes exceed the highest rate permissible under any
Applicable Law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that such a court determines
that amounts (including all fees) that the Lenders have charged or received that
are deemed to be interest hereunder exceed the highest applicable rate, the rate
in effect hereunder shall automatically be reduced to the maximum rate permitted
by Applicable Law and the Lenders shall at the Administrative Agent's option (i)
promptly refund to the Borrower any amounts (including fees) that are deemed to
be interest and received by Lenders in excess of the maximum lawful rate or (ii)
shall apply such excess to the principal balance of the Obligations. It is the
intent hereof that the Borrower not pay or contract to pay, and that neither the
Administrative Agent nor any Lender receive or contract to receive, directly or
indirectly in any manner whatsoever, any amounts (including all fees) that are
deemed to be interest in excess of that which may be paid by the Borrower under
Applicable Law.
SECTION 4.2 Notice and Manner of Conversion or Continuation of Loans.
Provided that no Event of Default has occurred and is then continuing, the
Borrower shall have the option to (a) convert, at any time following the third
Business Day after the Closing Date, all or any portion of its outstanding Base
Rate Loans in a principal amount equal to $3,000,000 or any whole multiple of
$1,000,000 in excess thereof into one or more LIBOR Rate Loans denominated in
Dollars, (b) upon the expiration of any Interest Period, convert all or any part
of its outstanding LIBOR Rate Loans denominated in Dollars in a principal amount
equal to $500,000 or a whole multiple of $250,000 in excess thereof into Base
Rate Loans or (c) upon the expiration of any Interest Period, continue any LIBOR
Rate Loan denominated in any Permitted Currency in a principal amount of
$3,000,000 or any whole multiple of $1,000,000 in excess thereof (or with
respect to LIBOR Rate Loans denominated in an Alternative Currency, the
Alternative Currency Amount in each case thereof) as a LIBOR Rate Loan in the
same Permitted Currency. Whenever the Borrower desires to convert or continue
Loans as provided above, the Borrower shall give the Administrative Agent
irrevocable prior written notice in the form attached as Exhibit E (a "Notice of
Conversion/Continuation") not later than 11:00 a.m.
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(Charlotte time) four (4) Business Days (with respect to any Loan denominated in
an Alternative Currency) and three (3) Business Days (with respect to any Loan
denominated in Dollars) before the day on which a proposed conversion or
continuation of such Loan is to be effective specifying (A) the Loans to be
converted or continued the Permitted Currency in which such Loan is denominated,
and, in the case of any LIBOR Rate Loan to be converted or continued, the last
day of the Interest Period therefor, (B) the effective date of such conversion
or continuation (which shall be a Business Day), (C) the principal amount of
such Loans to be converted or continued, and (D) the Interest Period to be
applicable to such converted or continued LIBOR Rate Loan. The Administrative
Agent shall promptly notify the Lenders of such Notice of
Conversion/Continuation.
SECTION 4.3 Fees.
(a) Commitment Fee. Commencing on the Closing Date, the Borrower shall pay
to the Administrative Agent, for the account of the Lenders, a non-refundable
commitment fee at a rate per annum on the average daily unused portion of the
Aggregate Commitment, determined for each fiscal quarter by reference to the
Leverage Ratio as shown on the Officer's Compliance Certificate for the
immediately preceding fiscal quarter or Fiscal Year end, as applicable, (or,
with respect to the commitment fee for the period from the closing date through
and including September 30, 1998, by reference to the Leverage Ratio set forth
in the certificate provided by the Borrower pursuant to Section 5.2(e)(ii)) as
follows:
Leverage Ratio Commitment Fee
-------------- --------------
Greater than or equal to 2.00 to 1.00 0.325%
Less than 2.00 to 1.00 but greater 0.300%
than or equal to 1.50 to 1.00
Less than 1.50 to 1.00 but greater 0.275%
than or equal to 1.00 to 1.00
Less than 1.00 to 1.00 0.250%
The commitment fee shall be payable in arrears on the last Business Day of each
calendar quarter during the term of this Agreement commencing with the payment
due on September 30, 1998 and on the Revolving Credit Termination Date.
Adjustments, if any, in the commitment fee shall be made by the Administrative
Agent on the fifth (5th) Business Day after receipt by the Administrative Agent
of quarterly financial statements for the Borrower and its Subsidiaries and the
accompanying Officer's Compliance Certificate setting forth the Leverage Ratio
of the Borrower and its Subsidiaries as of the most recent fiscal quarter end.
In the event the Borrower fails to deliver such financial statements and
certificate within the time required by Sections 7.1 and 7.2 hereof, the
commitment fee shall be the highest commitment fee set forth above until the
fifth (5th) Business Day after receipt by the Administrative Agent of such
financial statements and certificate. Such commitment fee shall be distributed
by the Administrative Agent to the Lenders pro rata in accordance with the
Lenders' respective Commitment Percentages.
(b) Upfront Fee. To compensate the Lenders for making the Commitments to
the Credit Facility, the Borrower agrees to pay to the Administrative Agent, for
the ratable benefit of the Lenders, the "Upfront Fee" described in the Fee
Letter.
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(c) Administrative Agent's and Other Fees. In order to compensate the
Administrative Agent and its Affiliates for structuring and syndicating the
Loans and for its obligations hereunder, the Borrower agrees to pay to the
Administrative Agent, for the account of itself and its Affiliates, the fees set
forth in the Fee Letter.
SECTION 4.4 Manner of Payment.
(a) Loans Denominated in Dollars. Each payment (including repayments
described in Article II) by the Borrower on account of the principal of or
interest on the Loans denominated by Dollars or of any fee, commission or other
amounts (including the Reimbursement Obligation) payable to the Lenders under
this Agreement or any Note (except as set forth in Section 4.4(b)) shall be made
in Dollars not later than 1:00 p.m. (Charlotte time) on the date specified for
payment under this Agreement to the Administrative Agent at the Administrative
Agent's Office for the account of the Lenders (other than as set forth below)
pro rata in accordance with their respective Commitment Percentages (other than
as specified below in Section 4.4(c)), in immediately available funds and shall
be made without any set-off, counterclaim or deduction whatsoever. Any payment
received after such time but before 2:00 p.m. (Charlotte time) on such day shall
be deemed a payment on such date for the purposes of Section 11.1, but for all
other purposes shall be deemed to have been made on the next succeeding Business
Day. Any payment received after 2:00 p.m. (Charlotte time) shall be deemed to
have been made on the next succeeding Business Day for all purposes.
(b) Alternative Currency Loans. Each payment (including repayments
described in Article II) by the Borrower on account of the principal of or
interest on the Loans denominated in any Alternative Currency shall be made in
such Alternative Currency not later than 11:00 a.m. (the time of the
Administrative Agent's Correspondent) on the date specified for payment under
this Agreement to the Administrative Agent's account with the Administrative
Agent's Correspondent for the account of the Lenders (other than as set forth
below) pro rata in accordance with their respective Commitment Percentages
(other than as set forth below in Section 4.4(c)) in immediately available
funds, and shall be made without any set-off, counterclaim or deduction
whatsoever. Any payment received after such time but before 12:00 noon (the time
of the Administrative Agent's Correspondent) on such day shall be deemed a
payment on such date for the purposes of Section 11.1, but for all other
purposes shall be deemed to have been made on the next succeeding Business Day.
Any payment received after 12:00 noon (the time of the Administrative Agent's
Correspondent) shall be deemed to have been made on the next succeeding Business
Day for all purposes.
(c) Pro Rata Treatment. Upon receipt by the Administrative Agent of each
such payment, the Administrative Agent shall distribute to each Lender at its
address for notices set forth herein its pro rata share of such payment in
accordance with such Lender's Commitment Percentage (except as specified below)
and shall wire advice of the amount of such credit to each Lender. Each payment
to the Administrative Agent of the Issuing Lender's fees or L/C Participants'
commissions shall be made in like manner, but for the account of the Issuing
Lender or the L/C Participants, as the case may be. Each payment to the
Administrative Agent of Administrative Agent's fees or expenses shall be made
for the account of the Administrative
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Agent and any amount payable to any Lender under Sections 4.8, 4.9, 4.10, 4.11
or 13.2 shall be paid to the Administrative Agent for the account of the
applicable Lender. Subject to Section 4.1(b)(ii) in any payment under this
Agreement or any Note shall be specified to be made upon a day which is not a
Business Day, it shall be made on the next succeeding day which is a Business
Day and such extension of time shall in such case be included in computing any
interest if payable along with such payment.
SECTION 4.5 Crediting of Payments and Proceeds. In the event that the
Borrower shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 11.2, all payments received by the
Lenders upon the Notes and the other Obligations and all net proceeds from the
enforcement of the Obligations shall be applied first to all expenses then due
and payable by the Borrower hereunder, then to all indemnity obligations then
due and payable by the Borrower hereunder, then to all Administrative Agent's
and Issuing Lender's fees then due and payable, then to all commitment and other
fees and commissions then due and payable, then to accrued and unpaid interest
on the Notes, the Reimbursement Obligation and any termination payments due in
respect of a Hedging Agreement with any Lender or any Affiliate thereof (which
such Hedging Agreement is permitted or required hereunder) (pro rata in
accordance with all such amounts due), then to the principal amount of the Notes
and Reimbursement Obligation and then to the cash collateral account described
in Section 11.2(b) hereof to the extent of any L/C Obligations then outstanding,
in that order.
SECTION 4.6 Adjustments. If any Lender (a "Benefited Lender") shall at any
time receive any payment of all or part of the Obligations owing to it, or
interest thereon, or if any Lender shall at any time receive any collateral in
respect to the Obligations owing to it (whether voluntarily or involuntarily, by
set-off or otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect of the Obligations
owing to such other Lender, or interest thereon, such Benefited Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Extensions of Credit, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary
to cause such Benefited Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, that if all
or any portion of such excess payment or benefits is thereafter recovered from
such Benefited Lender, such purchase shall be rescinded, and the purchase price
and benefits returned to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of another Lender's
Extensions of Credit may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
SECTION 4.7 Nature of Obligations of Lenders Regarding Extensions of
Credit; Assumption by the Administrative Agent. The obligations of the Lenders
under this Agreement to make the Loans and issue or participate in Letters of
Credit are several and are not joint or joint and several. Unless the
Administrative Agent shall have received notice from a Lender prior to a
proposed borrowing date that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of the amount to be borrowed
on such date (which notice shall not release such Lender of its obligations
hereunder), the Administrative
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Agent may assume that such Lender has made such portion available to the
Administrative Agent on the proposed borrowing date in accordance with Section
2.2(b) and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If such amount is
made available to the Administrative Agent on a date after such borrowing date,
such Lender shall pay to the Administrative Agent on demand an amount, until
paid, equal to (a) with respect to a Loan denominated in Dollars, the product of
(i) the amount not made available by such Lender in accordance with the terms
hereof, times (ii) the daily average Federal Funds Rate during such period as
determined by the Administrative Agent, times (iii) a fraction the numerator of
which is the number of days that elapse from and including such borrowing date
to the date on which such amount not made available by such Lender in accordance
with the terms hereof shall have become immediately available to the
Administrative Agent and the denominator of which is 360 and (b) with respect to
a Loan denominated in an Alternative Currency the amount not made available by
such Lender in accordance with the terms hereof and interest thereon at a rate
per annum equal to the Administrative Agent's aggregate marginal cost (including
the cost of maintaining any required reserves or deposit insurance and of any
fees, penalties, overdraft charges or other costs or expenses incurred by the
Administrative Agent as a result of the failure to deliver funds hereunder) of
carrying such amount. A certificate of the Administrative Agent with respect to
any amounts owing under this Section shall be conclusive, absent manifest error.
If such Lender's Commitment Percentage of such borrowing is not made available
to the Administrative Agent by such Lender within three (3) Business Days of
such borrowing date, the Administrative Agent shall be entitled to recover such
amount made available by the Administrative Agent with interest thereon at the
rate per annum applicable to Base Rate Loans hereunder, on demand, from the
Borrower. The failure of any Lender to make available its Commitment Percentage
of any Loan requested by the Borrower shall not relieve it or any other Lender
of its obligation, if any, hereunder to make its Commitment Percentage of such
Loan available on the borrowing date, but no Lender shall be responsible for the
failure of any other Lender to make its Commitment Percentage of such Loan
available on the borrowing date.
SECTION 4.8 Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate and Alternative Currency
Availability. If with respect to any Interest Period the Administrative Agent or
any Lender (after consultation with the Administrative Agent) shall determine
that (i) by reason of circumstances affecting the foreign exchange and interbank
markets generally, deposits in eurodollars or an Alternative Currency in the
applicable amounts are not being quoted via Dow Jones Markets screen 3750 or
offered to the Administrative Agent or such Lender for such Interest Period,
(ii) a fundamental change has occurred in the foreign exchange or interbank
markets with respect to any Alternative Currency (including, without limitation,
changes in national or international financial, political or economic conditions
or currency exchange rates or exchange controls) or (iii) it has become
otherwise materially impractical for the Administrative Agent or the Lenders to
make such Loan in an Alternative Currency, then the Administrative Agent shall
forthwith give notice thereof to the Borrower. Thereafter, until the
Administrative Agent notifies the Borrower that such circumstances no longer
exist, the obligation of the Lenders to make LIBOR Rate Loans or Alternative
Currency Loan, as applicable, and the right of the Borrower to convert any Loan
to or continue any Loan as a LIBOR Rate Loan or Alternative Currency Loan, as
applicable, shall
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be suspended, and the Borrower shall repay in full (or cause to be repaid in
full) the then outstanding principal amount of each such LIBOR Rate Loan or
Alternative Currency Loan, as applicable, together with accrued interest
thereon, on the last day of the then current Interest Period applicable to such
LIBOR Rate Loan or Alternative Currency Loan, as applicable, or convert the then
outstanding principal amount of each such LIBOR Rate Loan or Alternative
Currency Loan, as applicable, to a Base Rate Loan as of the last day of such
Interest Period.
(b) Laws Affecting LIBOR Rate and Alternative Currency Availability. If,
after the date hereof, the introduction of, or any change in, any Applicable Law
or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any of
their respective Lending Offices) with any request or directive (whether or not
having the force of law) of any such Governmental Authority, central bank or
comparable agency, shall make it unlawful or impossible for any of the Lenders
(or any of their respective Lending Offices) to honor its obligations hereunder
to make or maintain any LIBOR Rate Loan or any Alternative Currency Loan, such
Lender shall promptly give notice thereof to the Administrative Agent and the
Administrative Agent shall promptly give notice to the Borrower and the other
Lenders. Thereafter, until the Administrative Agent notifies the Borrower that
such circumstances no longer exist, (i) the obligations of the Lenders to make
LIBOR Rate Loans or Alternative Currency Loans, as applicable, and the right of
the Borrower to convert any Loan or continue any Loan as a LIBOR Rate Loan or
Alternative Currency Loans, as applicable, shall be suspended and thereafter the
Borrower may select only Base Rate Loans hereunder, and (ii) if any of the
Lenders may not lawfully continue to maintain a LIBOR Rate Loan or Alternative
Currency Loans, as applicable, to the end of the then current Interest Period
applicable thereto as a LIBOR Rate Loan or Alternative Currency Loans, as
applicable, the applicable LIBOR Rate Loan or Alternative Currency Loans, as
applicable, shall immediately be converted to a Base Rate Loan for the remainder
of such Interest Period.
(c) Increased Costs. If, after the date hereof, the introduction of, or any
change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any of the
Lenders (or any of their respective Lending Offices) with any request or
directive (whether or not having the force of law) of such Governmental
Authority, central bank or comparable agency:
(i) shall subject any of the Lenders (or any of their respective
Lending Offices) to any tax, duty or other charge with respect to any Note,
Letter of Credit or Application or shall change the basis of taxation of
payments to any of the Lenders (or any of their respective Lending Offices)
of the principal of or interest on any Note, Letter of Credit or
Application or any other amounts due under this Agreement in respect
thereof (except for changes in the rate of tax on the overall net income of
any of the Lenders or any of their respective Lending Offices imposed by
the jurisdiction in which such Lender is organized or is or should be
qualified to do business or such Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System),
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special deposit, insurance or capital or similar requirement against assets
of, deposits with or for the account of, or credit extended by any of the
Lenders (or any of their respective Lending Offices) or shall impose on any
of the Lenders (or any of their respective Lending Offices) or the foreign
exchange and interbank markets any other condition affecting any Note;
and the result of any of the foregoing is to increase the costs to any of the
Lenders of maintaining any LIBOR Rate Loan or Alternative Currency Loan as
applicable, or issuing or participating in Letters of Credit or to reduce the
yield or amount of any sum received or receivable by any of the Lenders under
this Agreement or under the Notes in respect of a LIBOR Rate Loan or Alternative
Currency Loan, as applicable, or Letter of Credit or Application, then such
Lender shall promptly notify the Administrative Agent, and the Administrative
Agent shall promptly notify the Borrower of such fact and demand compensation
therefor and, within fifteen (15) days after such notice by the Administrative
Agent, the Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender or Lenders for such increased cost or reduction.
The Administrative Agent will promptly notify the Borrower of any event of which
it has knowledge which will entitle such Lender to compensation pursuant to this
Section 4.8(c), provided, that the Administrative Agent shall incur no liability
whatsoever to the Lenders or the Borrower in the event it fails to do so. The
amount of such compensation shall be determined, in the applicable Lender's sole
discretion, based upon the assumption that such Lender funded its Commitment
Percentage of the LIBOR Rate Loans or Alternative Currency Loans, as applicable
in the London interbank market and using any reasonable attribution or averaging
methods which such Lender deems appropriate and practical. A certificate of such
Lender setting forth the basis for determining such amount or amounts necessary
to compensate such Lender shall be forwarded to the Borrower through the
Administrative Agent and shall be conclusively presumed to be correct save for
manifest error.
SECTION 4.9 Indemnity. The Borrower hereby indemnifies each of the Lenders
against any loss or expense (including without limitation any foreign exchange
costs) which may arise or be attributable to each Lender's obtaining,
liquidating or employing deposits or other funds acquired to effect, fund or
maintain any Loan (a) as a consequence of any failure by the Borrower to make
any payment when due of any amount due hereunder in connection with a LIBOR Rate
Loan, (b) due to any failure of the Borrower to borrow on a date specified
therefor in a Notice of Borrowing or Notice of Continuation/Conversion or (c)
due to any payment, prepayment or conversion of any LIBOR Rate Loan on a date
other than the last day of the Interest Period therefor. The amount of such loss
or expense shall be determined, in the applicable Lender's sole discretion,
based upon the assumption that such Lender funded its Commitment Percentage of
the LIBOR Rate Loans in the London interbank market and using any reasonable
attribution or averaging methods which such Lender deems appropriate and
practical. A certificate of such Lender setting forth the basis for determining
such amount or amounts necessary to compensate such Lender shall be forwarded to
the Borrower through the Administrative Agent and shall be conclusively presumed
to be correct save for manifest error.
SECTION 4.10 Capital Requirements. If either (a) the introduction of, or
any change in, or in the interpretation of, any Applicable Law or (b) compliance
with any guideline or request from any central bank or comparable agency or
other Governmental Authority (whether or not having the force of law), has or
would have the effect of reducing the rate of
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return on the capital of, or has affected or would affect the amount of capital
required to be maintained by, any Lender or any corporation controlling such
Lender as a consequence of, or with reference to the Commitments and other
commitments of this type, below the rate which the Lender or such other
corporation could have achieved but for such introduction, change or compliance,
then within five (5) Business Days after written demand by any such Lender, the
Borrower shall pay to such Lender from time to time as specified by such Lender
additional amounts sufficient to compensate such Lender or other corporation for
such reduction. A certificate as to such amounts submitted to the Borrower and
the Administrative Agent by such Lender, shall, in the absence of manifest
error, be presumed to be correct and binding for all purposes.
SECTION 4.11 Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrower hereunder
or under the Notes or the Letters of Credit shall be made free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholding, and all liabilities with respect thereto
excluding, (i) in the case of each Lender and the Administrative Agent, income
and franchise taxes imposed by the jurisdiction under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or is or
should be qualified to do business or any political subdivision thereof and (ii)
in the case of each Lender, income and franchise taxes imposed by the
jurisdiction of such Lender's Lending Office or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note or Letter of Credit to any Lender or the
Administrative Agent, (A) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.11) such Lender or the
Administrative Agent (as the case may be) receives an amount equal to the amount
such party would have received had no such deductions been made, (B) the
Borrower shall make such deductions, (C) the Borrower shall pay the full amount
deducted to the relevant taxing authority or other authority in accordance with
applicable law, and (D) the Borrower shall deliver to the Administrative Agent
evidence of such payment to the relevant taxing authority or other authority in
the manner provided in Section 4.11(d).
(b) Stamp and Other Taxes. In addition, the Borrower shall pay any present
or future stamp, registration, recordation or documentary taxes or any other
similar fees or charges or excise or property taxes, levies of the United States
or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the Letters of Credit, the other Loan Documents, or the perfection of any
rights or security interest in respect thereto (hereinafter referred to as
"Other Taxes").
(c) Indemnity. The Borrower shall indemnify each Lender and the
Administrative Agent for the full amount of Taxes and Other Taxes (including,
without limitation, any Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 4.11) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
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penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Such indemnification shall be made within thirty (30) days from the date such
Lender or the Administrative Agent (as the case may be) makes written demand
therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 13.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.
(e) Delivery of Tax Forms. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
the Borrower, with a copy to the Administrative Agent, on the Closing Date or
concurrently with the delivery of the relevant Assignment and Acceptance, as
applicable, (i) two United States Internal Revenue Service Forms 4224 or Forms
1001, as applicable (or successor forms) properly completed and certifying in
each case that such Lender is entitled to a complete exemption from withholding
or deduction for or on account of any United States federal income taxes, and
(ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form,
as the case may be, to establish an exemption from United States backup
withholding taxes. Each such Lender further agrees to deliver to the Borrower,
with a copy to the Administrative Agent, a Form 1001 or 4224 and Form W-8 or
W-9, or successor applicable forms or manner of certification, as the case may
be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, certifying in the case of a Form
1001 or 4224 that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes (unless in any such case an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders such forms inapplicable or
the exemption to which such forms relate unavailable and such Lender notifies
the Borrower and the Administrative Agent that it is not entitled to receive
payments without deduction or withholding of United States federal income taxes)
and, in the case of a Form W-8 or W-9, establishing an exemption from United
States backup withholding tax.
(f) Survival. Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section 4.11 shall survive the payment in full of the Obligations and
the termination of the Commitments.
SECTION 4.12 Security. The Obligations of the Borrower shall be secured as
provided in the Security Documents.
SECTION 4.13. Mandatory Redenomination of Alternative Currency Loans.
(a) If any LIBOR Rate Loan is required to be converted to a Base Rate Loan
pursuant to Section 4.1(d), Section 4.8 or any other applicable provision
hereof, such Loan shall be funded in Dollars in an amount equal to the Dollar
Amount of such Loan, all subject to the provisions of
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Section 2.3(c). The Borrower shall reimburse the Lenders upon any such
conversion for any amounts required to be paid under Section 4.9 hereof.
(b) If, as result of the implementation of the European economic and
monetary union ("EMU), (i) any Alternative Currency ceases to be lawful currency
of the nation issuing such currency and is replaced by a European common
currency (the "Euro") or (ii) any Alternative Currency and the Euro are at the
same time recognized by any governmental authority of the nation issuing such
Alternative Currency as lawful currency of such nation, then any amount payable
hereunder by the Borrower in such Alternative Currency shall instead be payable
in the Euro and the amount so payable shall be determined by translating the
amount so payable in such other Alternative Currency to the Euro at the exchange
rate recognized by the European central bank (or such other governmental or
regulatory authority designated by the EMU for establishing such exchange rate)
for the purpose of implementing the EMU. Prior to the occurrence of the event or
events described in clause (i) or (ii) of the preceding sentence, each amount
payable hereunder in any Alternative Currency will, except as otherwise provided
herein, continue to be payable only in that Alternative Currency.
(c) The terms and provision of this Agreement will be subject to such
reasonable changes of construction as determined by the Administrative Agent
(acting reasonably and in consultation with the Borrower) to reflect such
implementation of the Euro and to put the Lenders and the Borrower in the same
position, so far as possible, that they would have been if such implementation
had not occurred. Except as provided in the foregoing provisions of this Section
4.13, no such implementation nor any economic consequences resulting therefrom
shall give rise to any right to terminate, contest, cancel, modify or
renegotiate the provisions of this Agreement.
SECTION 4.14. Regulatory Limitation. In the event, as a result of increases
in the value of Alternative Currencies against the Dollar or for any other
reason, the obligation of any of the Lenders to make Loans (taking into account
the Dollar Amount of the Obligations and all other indebtedness required to be
aggregated under 12 U.S.C.A. ss.84, as amended, the regulations promulgated
thereunder and any other Applicable Law) is determined by such Lender to exceed
its then applicable legal lending limit under 12 U.S.C.A. ss.84, as amended, and
the regulations promulgated thereunder, or any other Applicable Law, the amount
of additional Extensions of Credit such Lender shall be obligated to make or
issue or participate in hereunder shall immediately be reduced to the maximum
amount which such Lender may legally advance (as determined by such Lender), the
obligation of each of the remaining Lenders hereunder shall be proportionately
reduced, based on their applicable Commitment Percentages and, to the extent
necessary under such laws and regulations (as determined by each of the Lenders,
with respect to the applicability of such laws and regulations to itself), and
the Borrower shall reduce, or cause to be reduced, complying to the extent
practicable with the remaining provisions hereof, the Obligations outstanding
hereunder by an amount sufficient to comply with such maximum amounts.
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ARTICLE V
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 5.1 Closing. The closing shall take place at the offices of Kramer,
Levin, Naftalis & Frankel, in New York, New York at 10:00 a.m. on September 11,
1998, or on such other date as the parties hereto shall mutually agree.
SECTION 5.2 Conditions to Closing and Initial Extensions of Credit. The
obligation of the Lenders to close this Agreement and to make the initial Loan
or issue the initial Letter of Credit is subject to the satisfaction or waiver
by the Administrative Agent and each of the Lenders party to the Credit
Agreement on the Closing Date of each of the following conditions:
(a) Executed Loan Documents. This Agreement, the Notes, the Guaranty
Agreement (if any), the Pledge Agreement and the Security Agreement shall
have been duly authorized, executed and delivered to the Administrative
Agent by the parties thereto, shall be in full force and effect and no
Default shall exist thereunder, and the Borrower shall have delivered
original counterparts thereof to the Administrative Agent.
(b) Closing Certificates; etc.
(i) Officer's Certificate of the Borrower. The Administrative
Agent shall have received a certificate from a Responsible Officer, in
form and substance reasonably satisfactory to the Administrative
Agent, to the effect that all representations and warranties of the
Borrower contained in this Agreement and the other Loan Documents are
true, correct and complete in all material respects; that the Borrower
is not in violation of any of the covenants contained in this
Agreement and the other Loan Documents; that, after giving effect to
the transactions contemplated by this Agreement, no Default or Event
of Default has occurred and is continuing; and that the Borrower has
satisfied each of the closing conditions, unless any condition not
satisfied has been waived by the Administrative Agent and each of the
Lenders party to the Credit Agreement on the Closing Date.
(ii) Certificate of Secretary of the Borrower. The Administrative
Agent shall have received a certificate of the secretary or assistant
secretary of the Borrower certifying as to the incumbency and
genuineness of the signature of each officer of the Borrower executing
Loan Documents to which it is a party and certifying that attached
thereto is a true, correct and complete copy of (A) the articles of
incorporation (or equivalent thereof) of the Borrower and all
amendments thereto, certified as of a recent date by the appropriate
Governmental Authority in its jurisdiction of incorporation, (B) the
bylaws (or equivalent thereof) of the Borrower as in effect on the
date of such certifications, (C) resolutions duly adopted by the Board
of Directors of the Borrower authorizing with respect to the Borrower,
the borrowings contemplated hereunder and with respect to the Borrower
the execution, delivery and performance of this Agreement and the
other Loan Documents to which it is a party, and (D) each certificate
required to be delivered pursuant to Section 5.2(b)(iii).
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(iii) Certificates of Good Standing. To the extent requested by
the Administrative Agent, the Administrative Agent shall have received
long-form certificates (or equivalent thereof) as of a recent date of
the good standing of the Borrower under the laws of its jurisdiction
of organization and each other jurisdiction where the Borrower is
qualified to do business, and the Borrower shall use its reasonable
efforts to obtain a certificate of the relevant taxing authorities of
such jurisdictions certifying that the Borrower has filed required tax
returns and owes no delinquent taxes.
(iv) Opinions of Counsel. The Administrative Agent shall have
received favorable opinions of counsel to the Borrower, addressed to
the Administrative Agent and the Lenders with respect to the Borrower,
the Loan Documents and such other matters as the Lenders shall
reasonably request.
(v) Tax Forms. The Administrative Agent shall have received
copies of the United States Internal Revenue Service forms required by
Section 4.11(e) hereof, if applicable.
(c) Collateral.
(i) Filings and Recordings. All filings and recordations that are
necessary to perfect the security interests of the Lenders in the
collateral described in the Security Documents shall have been, or
will simultaneously with the transactions contemplated herein be,
executed and delivered to the Administrative Agent for filing in all
appropriate locations.
(ii) Pledged Collateral. The Administrative Agent shall have
received, where applicable, original stock certificates or other
certificates evidencing the capital stock or other ownership interests
pledged pursuant to the Pledge Agreement, together with an undated
stock power for each such certificate duly executed in blank by the
registered owner.
(iii) Lien Search. The Administrative Agent shall have received
the results of a Lien search (including a search as to judgments,
pending litigation and tax matters) made against the Borrower under
the Uniform Commercial Code (or applicable judicial docket) as in
effect in any state in which any of its assets are located.
(iv) Hazard and Liability Insurance. The Administrative Agent
shall have received (i) a schedule of the Borrower's insurance
described in Section 8.3 and (ii) certificates of insurance and
evidence of payment of all insurance premiums for the current policy
year of each.
(d) Consents; Defaults.
(i) Governmental and Third Party Approvals. The Borrower shall
have obtained all necessary approvals, authorizations and consents of
any Person and of all Governmental Authorities and courts having
jurisdiction with respect to the transactions contemplated by this
Agreement and the other Loan Documents.
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(ii) No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before any Governmental Authority to enjoin, restrain, or
prohibit, or to obtain substantial damages in respect of, or which is
related to or arises out of this Agreement or the other Loan Documents
or the consummation of the transactions contemplated hereby or
thereby.
(iii) No Event of Default. No Default or Event of Default shall
have occurred and be continuing.
(e) Financial Matters.
(i) Financial Statements. The Administrative Agent shall have
received the most recent audited Consolidated financial statements of
the Borrower and its Subsidiaries, all in form and substance
satisfactory to the Administrative Agent.
(ii) Financial Condition Certificate. The Borrower shall have
delivered to the Administrative Agent a certificate, in form and
substance reasonably satisfactory to the Administrative Agent, and
certified as accurate by a Responsible Officer, that (A) the Borrower
and each of its Subsidiaries are each Solvent, (B) the Borrower's
payables are current and not more than sixty (60) days past due,
except for those payables that are being contested in good faith by
appropriate proceedings, so long as adequate reserves are maintained
with respect thereto in accordance with GAAP, (C) attached thereto is
a pro forma balance sheet of the Borrower and its Subsidiaries setting
forth on a pro forma basis the financial condition of the Borrower and
its Subsidiaries on a Consolidated basis as of June 30, 1998,
reflecting on a pro forma basis the effect of the transactions
contemplated herein, including all fees and expenses in connection
therewith, and evidencing compliance on a pro forma basis with the
covenants contained in Article IX hereof, (D) attached thereto are the
financial projections previously delivered to the Administrative Agent
representing the good faith opinions of the Borrower and senior
management thereof as to the projected results contained therein and
(E) attached thereto is a calculation of the Applicable Margin as of
the Closing Date.
(iii) Payment at Closing; Fee Letter. The Borrower shall have
paid the fees set forth or referenced in Section 4.3 and any other
accrued and unpaid fees or commissions due hereunder (including,
without limitation, reasonable legal fees and expenses) to the
Administrative Agent and Lenders, and to any other Person such amount
as may be due thereto in connection with the transactions contemplated
hereby, including all taxes, fees and other charges in connection with
the execution, delivery, recording, filing and registration of any of
the Loan Documents. The Administrative Agent shall have received duly
authorized and executed copies of the Fee Letter.
(f) Miscellaneous.
(i) Notice of Borrowing. The Administrative Agent shall have
received a Notice of Borrowing from the Borrower in accordance with
Section 2.2(a), and a
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Notice of Account Designation specifying the account or accounts to
which the proceeds of any Loans made after the Closing Date are to be
disbursed.
(ii) Proceedings and Documents. All opinions, certificates and
other instruments and all proceedings in connection with the
transactions contemplated by this Agreement shall be reasonably
satisfactory in form and substance to the Lenders. The Lenders shall
have received copies of all other instruments and other evidence as
the Lender may reasonably request, in form and substance reasonably
satisfactory to the Lenders, with respect to the transactions
contemplated by this Agreement and the taking of all actions in
connection therewith.
(iii) Existing Facility. The Existing Facility shall be repaid in
full and terminated and all collateral security therefor shall be
released, and the Administrative Agent shall have received a pay-off
letter in form and substance reasonably satisfactory to it evidencing
such repayment, termination, reconveyance and release.
(iv) Other Documents. The Borrower shall have delivered to the
Administrative Agent such other documents, certificates and opinions
as the Administrative Agent may reasonably request.
SECTION 5.3 Conditions to All Extensions of Credit. The obligations of the
Lenders to make any Extensions of Credit is subject to the satisfaction of the
following conditions precedent on the relevant borrowing or issue date, as
applicable:
(a) Continuation of Representations and Warranties. The
representations and warranties contained in Article VI shall be true and
correct on and as of such borrowing or issuance date with the same effect
as if made on and as of such date; except for any representation and
warranty made as of an earlier date, which representation and warranty
shall remain true and correct as of such earlier date.
(b) No Existing Default. No Default or Event of Default shall have
occurred and be continuing hereunder (i) on the borrowing date with respect
to such Loan or after giving effect to the Loans to be made on such date or
(ii) on the issue date with respect to such Letters of Credit or after
giving effect to such Letters of Credit on such date.
(c) Officer's Compliance Certificate; Additional Documents. The
Administrative Agent shall have received the current Officer's Compliance
Certificate and each additional document, instrument, legal opinion or
other item of information reasonably requested by it.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 6.1 Representations and Warranties. To induce the Administrative
Agent and Lenders to enter into this Agreement and to induce the Lenders to make
Extensions of
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Credit, the Borrower hereby represents and warrants to the Administrative Agent
and Lenders that:
(a) Organization; Power; Qualification. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or formation, has the
corporate power and authority to own its properties and to carry on its
business as now being conducted and is duly qualified and authorized to do
business in each jurisdiction in which the character of its properties or
the nature of its business requires such qualification and authorization,
except where the failure to so qualify or be authorized could not
reasonably be expected to have a Material Adverse Effect. The jurisdictions
in which the Borrower and its Subsidiaries are organized and qualified to
do business as of the Closing Date are described on Schedule 6.1(a).
(b) Ownership. Each Subsidiary of the Borrower as of the Closing Date
is listed on Schedule 6.1(b). As of the Closing Date, the capitalization of
the Borrower and its Subsidiaries consists of the number of shares,
authorized, issued and outstanding, of such classes and series, with or
without par value, described on Schedule 6.1(b). All outstanding shares
have been duly authorized and validly issued and are fully paid and
nonassessable. The shareholders of the Subsidiaries of the Borrower and the
number of shares owned by each as of the Closing Date are described on
Schedule 6.1(b). As of the Closing Date, there are no outstanding stock
purchase warrants, subscriptions, options, securities, instruments or other
rights of any type or nature whatsoever, which are convertible into,
exchangeable for or otherwise provide for or permit the issuance of capital
stock of the Borrower or its Subsidiaries, except as described on Schedule
6.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowing. Each of
the Borrower and its Subsidiaries has the corporate power and authority and
has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and each of the other Loan
Documents to which it is a party in accordance with their respective terms.
This Agreement and each of the other Loan Documents have been duly executed
and delivered by the duly authorized officers of the Borrower and each of
its Subsidiaries party thereto, and each such document constitutes the
legal, valid and binding obligation of the Borrower or its Subsidiary party
thereto, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar state or federal debtor relief laws from time to time
in effect which affect the enforcement of creditors' rights in general and
the availability of equitable remedies.
(d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance by the Borrower and its
Subsidiaries of the Loan Documents to which each such Person is a party, in
accordance with their respective terms, the borrowings hereunder and the
transactions contemplated hereby do not, (i) require any Governmental
Approval or violate any Applicable Law relating to the Borrower or any of
its Subsidiaries, (ii) conflict with, result in a breach of or constitute a
default under (A) the articles of incorporation, bylaws or other
organizational documents of the Borrower or any of its Subsidiaries or (B)
any indenture, agreement or other instrument to which such Person is a
party or by which any of its properties may be bound or any Governmental
Approval relating to such
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Person, with respect to this clause (B), the conflict or breach of which
could reasonably be expected to have a Material Adverse Effect, or (iii)
result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by such Person
other than Liens arising under the Loan Documents.
(e) Compliance with Law; Governmental Approvals. Each of the Borrower
and its Subsidiaries (i) has all Governmental Approvals required by any
Applicable Law for it to conduct its business as currently conducted, each
of which is in full force and effect, is final and not subject to review on
appeal and is not the subject of any pending or, to the best of its
knowledge, threatened legal proceeding or action, and (ii) is in compliance
with each Governmental Approval applicable to it and in compliance with all
other Applicable Laws relating to it or any of its respective properties,
except, with respect to both clauses (i) and (ii), where such noncompliance
could not reasonably be expected to have a Material Adverse Effect.
(f) Tax Returns and Payments. Each of the Borrower and its
Subsidiaries has duly filed or caused to be filed all material federal,
state, local and other tax returns required by Applicable Law to be filed,
and has paid, or made adequate provision for the payment of, all material
federal, state, local and other taxes, assessments and governmental charges
or levies upon it and its property, income, profits and assets which are
due and payable. No Governmental Authority has asserted any Lien or other
claim against the Borrower or Subsidiary thereof with respect to unpaid
material taxes which has not been discharged or resolved, other than those
contested in good faith and for which adequate reserves have been
established in accordance with GAAP. The charges, accruals and reserves on
the books of the Borrower and any of its Subsidiaries in respect of
federal, state, local and other taxes for all Fiscal Years and portions
thereof since the organization of the Borrower and any of its Subsidiaries
are in the judgment of the Borrower adequate, and the Borrower does not
anticipate any additional taxes or assessments for any of such years.
(g) Intellectual Property Matters. Except as set forth on Schedule
6.1(u), each of the Borrower and its Subsidiaries owns or possesses
sufficient rights to use all material franchises, licenses, copyrights,
copyright applications, patents, patent rights or licenses, patent
applications, trademarks, trademark rights, trade names, trade name rights,
copyrights and rights with respect to the foregoing, which are required to
conduct its business as currently conducted. Except as set forth on
Schedule 6.1(g), to the Borrower's knowledge, no event has occurred which
permits, or after notice or lapse of time or both would permit, the
revocation or termination of any such rights, and neither the Borrower nor
any Subsidiary thereof is liable to any Person for infringement under
Applicable Law with respect to any such rights as a result of its business
operations as currently conducted.
(h) Environmental Matters. Except for matters existing on the Closing
Date and disclosed on Schedule 6.1(h) and matters which either individually
or in the aggregate could not reasonably be expected to have a Material
Adverse Effect:
(i) The properties owned or operated by the Borrower and its
Subsidiaries do not contain any Hazardous Materials in amounts or
concentrations which (A)
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constitute or constituted a violation of applicable Environmental Laws
or (B) could give rise to liability under applicable Environmental
Laws;
(ii) Such properties and all operations conducted by the Borrower
and its Subsidiaries in connection therewith are in compliance, and
have been in compliance, with all applicable Environmental Laws;
(iii) Neither the Borrower nor any Subsidiary thereof has
received any written notice of violation, alleged violation,
non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with
regard to any of their properties or the operations conducted by the
Borrower or any of its Subsidiaries, or to the knowledge of the
Borrower, any third party, in connection therewith, nor does the
Borrower or any Subsidiary thereof have knowledge that any such notice
will be received or is being threatened;
(iv) Neither the Borrower nor any Subsidiary has transported or
disposed of any Hazardous Materials from the properties of the
Borrower and its Subsidiaries in violation of, or in a manner or to a
location which could give rise to liability under, Environmental Laws,
nor have any Hazardous Materials been generated, treated, stored or
disposed of at, on or under any of such properties in violation of, or
in a manner that could give rise to liability under, any applicable
Environmental Laws; and
(v) No judicial proceedings or governmental or administrative
action is pending, or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower or any Subsidiary
thereof is named as a party with respect to such properties or
operations conducted in connection therewith, nor are there any
consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to
such properties or such operations.
(i) ERISA. Except for matters which either individually or in the
aggregate could not reasonably be expected to result in a Material Adverse
Effect:
(i) As of the Closing Date, neither the Borrower nor any ERISA
Affiliate maintains or contributes to, or has any obligation under,
any Employee Benefit Plans other than those identified on Schedule
6.1(i);
(ii) The Borrower and each ERISA Affiliate is in compliance with
all applicable provisions of ERISA and the Code and the regulations
and published interpretations thereunder with respect to all Employee
Benefit Plans except for any required amendments for which the
remedial amendment period as defined in Section 401(b) of the Code has
not yet expired. Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified, and each trust related to
such plan has been determined to be exempt under Section 501(a) of the
Code. No liability has been incurred by the Borrower or any ERISA
Affiliate which remains unsatisfied for any taxes or penalties with
respect to any Employee Benefit Plan or any Multiemployer Plan;
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(iii) No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the Code)
been incurred (without regard to any waiver granted under Section 412
of the Code), nor has any funding waiver from the Internal Revenue
Service been received or requested with respect to any Pension Plan,
nor has the Borrower or any ERISA Affiliate failed to make any
contributions or to pay any amounts due and owing as required by
Section 412 of the Code, Section 302 of ERISA or the terms of any
Pension Plan prior to the due dates of such contributions under
Section 412 of the Code or Section 302 of ERISA, nor has there been
any event requiring any disclosure under Section 4041(c)(3)(C) or
4063(a) of ERISA with respect to any Pension Plan;
(iv) Neither the Borrower nor any ERISA Affiliate has: (A)
engaged in a nonexempt prohibited transaction described in Section 406
of the ERISA or Section 4975 of the Code with respect to any Employee
Benefit Plan, (B) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums and there are no
premium payments which are due and unpaid, (C) failed to make a
required contribution or payment to a Multiemployer Plan, or (D)
failed to make a required installment or other required payment under
Section 412 of the Code;
(v) No Termination Event has occurred or is reasonably expected
to occur; and
(vi) No proceeding, claim, lawsuit and/or investigation other
than routine claims for benefits is existing or, to the knowledge of
the Borrower, threatened concerning or involving any (A) employee
welfare benefit plan (as defined in Section 3(1) of ERISA) currently
maintained or contributed to by the Borrower or any ERISA Affiliate,
(B) Pension Plan or (C) to the knowledge of the Borrower, no
proceeding, claim, lawsuit, and/or investigation is existing or
threatened concerning or involving any Multiemployer Plan.
(j) Margin Stock. Neither the Borrower nor any Subsidiary thereof is
engaged principally or as one of its activities in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" (as each such term is defined or used in Regulation U of the Board
of Governors of the Federal Reserve System). No part of the proceeds of any
of the Loans or Letters of Credit will be used for purchasing or carrying
margin stock or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulation T, U or X of such Board of
Governors.
(k) Government Regulation. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an
"investment company" (as each such term is defined or used in the
Investment Company Act of 1940, as amended) and neither the Borrower nor
any Subsidiary thereof is, or after giving effect to any Extension of
Credit will be, subject to regulation under the Public Utility Holding
Company Act of 1935 or the Interstate Commerce Act, each as amended, or any
other Applicable Law which limits its ability to incur or consummate the
transactions contemplated hereby.
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(l) Material Contracts. Schedule 6.1(l) sets forth a complete and
accurate list of all Material Contracts, which have not been listed on any
other Schedule hereto, to which the Borrower and its Subsidiaries are a
party, and such Material Contracts are in effect as of the Closing Date;
other than as set forth in Schedule 6.1(l), each such Material Contract is,
and after giving effect to the consummation of the transactions
contemplated by the Loan Documents will be, in full force and effect in
accordance with the terms thereof. The Borrower and its Subsidiaries have
made available to the Administrative Agent copies of each Material Contract
required to be listed on Schedule 6.1(l) or any other Schedule hereto.
(m) Employee Relations. Each of the Borrower and its Subsidiaries has
not been and is not, as of the Closing Date, party to any collective
bargaining agreement nor has any labor union been recognized as the
representative of its employees except as set forth on Schedule 6.1(m). The
Borrower knows of no pending or threatened strikes, work stoppage or other
collective labor disputes involving its employees or those of its
Subsidiaries.
(n) Burdensome Provisions. Neither the Borrower nor any Subsidiary
thereof is a party to any indenture, agreement, lease or other instrument,
or subject to any corporate or partnership restriction, Governmental
Approval or Applicable Law which is so unusual or burdensome as in the
foreseeable future could be reasonably expected to have a Material Adverse
Effect.
(o) Financial Statements. The (i) Consolidated balance sheets of the
Borrower and its Subsidiaries as of December 31, 1997 and the related
statements of income and retained earnings and cash flows for the Fiscal
Years then ended and (ii) unaudited Consolidated balance sheet of the
Borrower and its Subsidiaries as of June 30, 1998 and related unaudited
interim statements of revenue and retained earnings, copies of which have
been furnished to the Administrative Agent and each Lender, are complete
and correct and fairly present in all material respects the assets,
liabilities and financial condition of the Borrower and its Subsidiaries as
at such dates, and the results of the operations and changes of financial
condition for the periods then ended. All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP. The Borrower and its Subsidiaries have no Debt,
obligation or other unusual forward or long-term commitment which is not
fairly reflected in the foregoing financial statements or in the notes
thereto.
(p) No Material Adverse Change. Since December 31, 1997, there has
been no material adverse change in the properties, business, operations or
condition (financial or otherwise) of the Borrower and its Subsidiaries
(taken as a whole) and no event has occurred or condition arisen that could
reasonably be expected to have a Material Adverse Effect.
(q) Solvency. As of the Closing Date and after giving effect to each
Extension of Credit made hereunder, the Borrower and each of its
Subsidiaries will be Solvent.
(r) Titles to Properties. Each of the Borrower and its Subsidiaries
has such title to the real property owned by it as is necessary or
desirable to the conduct of its business, as currently conducted, and valid
and legal title to all of its personal property and assets, including, but
not limited to, those reflected on the balance sheets of the Borrower and
its Subsidiaries delivered
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pursuant to Section 6.1(o), except those which have been disposed of by the
Borrower or its Subsidiaries subsequent to such date which dispositions
have been in the ordinary course of business or as otherwise expressly
permitted hereunder.
(s) Liens. None of the properties and assets of the Borrower or any
Subsidiary thereof is subject to any Lien, except Liens permitted pursuant
to Section 10.3. No financing statement under the Uniform Commercial Code
of any state which names the Borrower or any Subsidiary thereof or any of
their respective trade names or divisions as debtor and which has not been
terminated, has been filed in any state or other jurisdiction and neither
the Borrower nor any Subsidiary thereof has signed any such financing
statement or any security agreement authorizing any secured party
thereunder to file any such financing statement, except to perfect those
Liens permitted by Section 10.3 hereof.
(t) Debt. Schedule 6.1(t) is a complete and correct listing of all
Debt of the Borrower and its Subsidiaries as of the Closing Date in excess
of $1,000,000 to any Person or in excess of $5,000,000 in the aggregate.
The Borrower and its Subsidiaries have performed and are in compliance with
all of the terms of such Debt and all instruments and agreements relating
thereto, except where such non performance or non-compliance could not
reasonably be expected to have a Material Adverse Effect.
(u) Litigation. Except for matters existing as of the Closing Date and
set forth on Schedule 6.1(u) and matters which individually or in the
aggregate could not reasonably be expected to result in a Material Adverse
Effect, there are no actions, suits or proceedings pending nor, to the
knowledge of the Borrower, threatened against or in any other way relating
adversely to or affecting the Borrower or any Subsidiary thereof or any of
their respective properties in any court or before any arbitrator of any
kind or before or by any Governmental Authority.
(v) Absence of Defaults. No event has occurred or is continuing (i)
which constitutes a Default or an Event of Default, or (ii) which
constitutes, or which with the passage of time or giving of notice or both
would constitute, a default or event of default by the Borrower or any
Subsidiary thereof under any Material Contract or judgment, decree or order
to which the Borrower or its Subsidiaries is a party or by which the
Borrower or its Subsidiaries or any of their respective properties may be
bound that could reasonably be expected to have a Material Adverse Effect
or which would require the Borrower or its Subsidiaries to make any payment
thereunder prior to the scheduled maturity date therefor, except for
scheduled payments thereunder.
(w) Accuracy and Completeness of Information. All written information,
reports and other papers and data, taken as a whole, produced by or on
behalf of the Borrower or any Subsidiary thereof and furnished to the
Lenders were, at the time the same were so furnished, complete and correct
in all material respects to the extent necessary to give the recipient a
true and accurate knowledge of the subject matter. No document furnished or
written statement made to the Administrative Agent or the Lenders by the
Borrower or any Subsidiary thereof in connection with the negotiation,
preparation or execution of this Agreement or any of the Loan Documents
contains any untrue statement of a fact material to the creditworthiness of
the Borrower or its Subsidiaries or omits or will omit to state a fact
necessary in order to make the
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statements contained therein, taken as a whole, not misleading in any
material respect. The Borrower is not aware of any facts which it has not
disclosed in writing to the Administrative Agent having a Material Adverse
Effect, or insofar as the Borrower can now foresee, could reasonably be
expected to have a Material Adverse Effect.
(x) Year 2000 Compliance. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business
and operations (including those affected by suppliers, vendors and
customers) that could be adversely affected by the "Year 2000 Problem"
(that is, the risk that computer applications used by the Borrower or any
of its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timetable for
addressing the Year 2000 Problem on a timely basis, and (iii) to date, used
its best efforts to implement such plan in accordance with such timetable.
Based on the foregoing, the Borrower believes that all computer
applications that are material to its or any of its Subsidiaries' business
and operations are reasonably expected on a timely basis to be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "year 2000 compliant"), except to the extent
that a failure to do so could not reasonably be expected to have Material
Adverse Effect.
The Borrower has and will continue to use its best efforts to determine
whether its material suppliers, vendors and customers will prevent the Borrower
from being year 2000 complaint, the Borrower is not aware that any material
supplier, vendor or customer will prevent the Borrower from being year 2000
complaint.
Nothing in this Section 6.1(x) shall obligate the Borrower or any
Subsidiary thereof to ensure that computer based systems of its suppliers,
vendors or customers are able to operate and effectively process data which
includes dates on and after January 1, 2000.
SECTION 6.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article VI and all
representations and warranties contained in any certificate delivered to the
Administrative Agent or any Lender hereunder, or any of the Loan Documents
(including but not limited to any such representation or warranty made in or in
connection with any amendment thereto) shall constitute representations and
warranties made under this Agreement. All representations and warranties made
under this Agreement shall be made or deemed to be made at and as of the Closing
Date, shall survive the Closing Date and shall not be waived by the execution
and delivery of this Agreement, any investigation made by or on behalf of the
Lenders or any borrowing hereunder.
ARTICLE VII
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner set forth
in Section 13.11 hereof, the Borrower will furnish or cause to be furnished to
the Administrative Agent (with sufficient
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copies for each of the Lenders, and the Administrative Agent will promptly
forward to each of the Lenders) at 50 Main Street, 11th Floor, White Plains, New
York, 10606, Attention Mr. David Ring, or such other office as may be designated
by the Administrative Agent from time to time:
SECTION 7.1 Financial Statements and Projections.
(a) Quarterly Financial Statements. As soon as practicable and in any event
within forty-five (45) days after the end of each of the first three (3) fiscal
quarters of each Fiscal Year, an unaudited Consolidated balance sheet of the
Borrower and its Subsidiaries as of the close of such fiscal quarter and
unaudited Consolidated statements of income, retained earnings and cash flows
for the fiscal quarter then ended and that portion of the Fiscal Year then
ended, including the notes thereto, all in reasonable detail setting forth in
comparative form the corresponding figures for the preceding Fiscal Year and
prepared by the Borrower in accordance with GAAP and, if applicable, containing
disclosure of the effect on the financial position or results of operations of
any change in the application of accounting principles and practices during the
period, and certified by the chief financial officer of the Borrower to present
fairly in all material respects the financial condition of the Borrower and its
Subsidiaries as of their respective dates and the results of operations of the
Borrower and its Subsidiaries for the respective periods then ended, subject to
normal year end adjustments.
(b) Annual Financial Statements. As soon as practicable and in any event
within ninety (90) days after the end of each Fiscal Year, an audited
Consolidated balance sheet of the Borrower and its Subsidiaries (and audited
consolidating balance sheet of the Borrower with regard to its First Tier
Subsidiaries) as of the close of such Fiscal Year and audited Consolidated
statements of income, retained earnings and cash flows (and audited
consolidating statements of income, retained earnings and cash flows for the
Borrower with respect to its First Tier Subsidiaries) for the Fiscal Year then
ended, including the notes thereto, all in reasonable detail setting forth in
comparative form the corresponding figures for the preceding Fiscal Year and
prepared by an independent certified public accounting firm reasonably
acceptable to the Administrative Agent in accordance with GAAP and, if
applicable, containing disclosure of the effect on the financial position or
results of operation of any change in the application of accounting principles
and practices during the year, and accompanied by a report thereon by such
certified public accountants that is not qualified with respect to scope
limitations imposed by the Borrower or any of its Subsidiaries or with respect
to accounting principles followed by the Borrower or any of its Subsidiaries not
in accordance with GAAP.
(c) Annual Business Plan and Financial Projections. As soon as practicable
and in any event within forty-five (45) days of the end of each Fiscal Year, a
business plan of the Borrower and its Subsidiaries for the ensuing four (4)
fiscal quarters in form and substance similar to those plans delivered by the
Borrower to the Administrative Agent prior to the Closing Date.
(d) Accounts Aging and Schedule of Inventory. As soon as practicable and in
any event within forty-five (45) days after the end of each fiscal quarter, an
updated accounts aging report accompanied by an updated schedule of inventory,
each in form and substance reasonably
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acceptable to the Administrative Agent and the Borrower and as further described
in the Security Agreement.
SECTION 7.2 Certificates.
(a) Officer's Compliance Certificate. At each time financial statements are
delivered pursuant to Sections 7.1(a) or (b) and at such other times as the
Administrative Agent shall reasonably request, a certificate of a Responsible
Officer in the form of Exhibit F attached hereto (an "Officer's Compliance
Certificate").
(b) Borrowing Base Certificate. As soon as practicable and in any event
within fifteen (15) Business Days after the end of each fiscal month and at such
other times as the Administrative Agent shall reasonably request, a certificate
of the chief financial officer or the treasurer of the Borrower in the form of
Exhibit H attached hereto (a "Borrowing Base Certificate").
SECTION 7.3 Accountants' Certificate. At each time financial statements are
delivered pursuant to Section 7.1(b), a certificate of the independent public
accountants certifying such financial statements addressed to the Administrative
Agent for the benefit of the Lenders:
(a) stating that in making the examination necessary for the
certification of such financial statements, they obtained no knowledge of
any Default or Event of Default as a result of any non-compliance with any
covenant contained in Articles IX or X or, if such is not the case,
specifying such Default or Event of Default and its nature and period of
existence; and
(b) including the calculations prepared by such accountants required
to establish whether or not the Borrower and its Subsidiaries are in
compliance with the financial covenants set forth in Article IX hereof as
at the end of each respective period.
SECTION 7.4 Other Reports.
(a) Promptly upon receipt thereof, copies of all reports, if any, submitted
to the Borrower or its Board of Directors by its independent public accountants
in connection with their auditing function, including, without limitation, any
management report and any management responses thereto; and
(b) Such other information regarding the operations, business affairs and
financial condition of the Borrower or any of its Subsidiaries as the
Administrative Agent or any Lender may reasonably request.
SECTION 7.5 Notice of Litigation and Other Matters. Prompt (but in no event
later than ten (10) days after a Responsible Officer of the Borrower obtains
knowledge thereof) telephonic and written notice of:
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(a) the commencement of all proceedings and investigations by or
before any Governmental Authority and all actions and proceedings in any
court or before any arbitrator against or involving the Borrower or any
Subsidiary thereof or any of their respective properties, assets or
businesses, which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect;
(b) any written notice of any violation received by the Borrower or
any Subsidiary thereof from any Governmental Authority including, without
limitation, any written notice of violation of Environmental Laws which in
any such case could reasonably be expected to have a Material Adverse
Effect;
(c) any labor controversy that has resulted in, or, to the knowledge
of the Borrower, threatens to result in, a strike against the Borrower or
any Subsidiary thereof;
(d) any attachment, judgment, lien, levy or order exceeding $3,000,000
that may be assessed against or threatened against the Borrower or any
Subsidiary thereof;
(e) (i) any Default or Event of Default, or (ii) any event which
constitutes or which with the passage of time or giving of notice or both
would constitute a default or event of default under any Material Contract
to which the Borrower or any of its Subsidiaries is a party or by which the
Borrower or any Subsidiary thereof or any of their respective properties
may be bound, which could reasonably be expected to have a Material Adverse
Effect; and
(f) (i) any letter from the Internal Revenue Service indicating that
it intends to disqualify an Employee Benefit Plan (ii) all notices received
by the Borrower or any ERISA Affiliate of the PBGC's intent to terminate
any Pension Plan or to have a trustee appointed to administer any Pension
Plan, (iii) all notices received by the Borrower or any ERISA Affiliate
from a Multiemployer Plan sponsor concerning the imposition or amount of
withdrawal liability pursuant to Section 4202 of ERISA and (iv) the
Borrower obtaining knowledge or reason to know that the Borrower or any
ERISA Affiliate has filed or intends to file a notice of intent to
terminate any Pension Plan under a distress termination within the meaning
of Section 4041(c) of ERISA.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner provided
for in Section 13.11, the Borrower will, and will cause each of its Subsidiaries
to:
SECTION 8.1 Preservation of Corporate Existence and Related Matters. Except
as permitted by Section 10.5, preserve and maintain its separate corporate
existence and all rights, franchises, licenses and privileges necessary to the
conduct of its business, as currently conducted, and qualify and remain
qualified as a foreign corporation and authorized to do
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business in each jurisdiction where the nature and scope of its activities
require it to so qualify under Applicable Law, except where the failure to so
qualify or be authorized could not reasonably be expected to have a Material
Adverse Effect.
SECTION 8.2 Maintenance of Property. In addition to the requirements of any
of the Security Documents, protect and preserve all properties which, in the
Borrower's business judgment, are useful in and material to its business,
including copyrights, patents, trade names and trademarks; maintain in good
working order and condition all buildings, equipment and other tangible real and
personal property, subject to ordinary wear and tear; and from time to time make
or cause to be made all renewals, replacements and additions to such property
necessary for the conduct of its business.
SECTION 8.3 Insurance. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses and as may be required by
Applicable Law and as are required by any Security Documents, and on the Closing
Date and from time to time thereafter deliver to the Administrative Agent upon
its request a schedule of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, the dates of the
expiration thereof and the properties and risks covered thereby.
SECTION 8.4 Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete in all material respects) as may be required or as may be necessary to
permit the preparation of financial statements in accordance with GAAP.
SECTION 8.5 Payment and Performance of Obligations. Pay and perform when
due all Obligations under this Agreement and the other Loan Documents, and pay
or perform when due (a) all material taxes, assessments and other governmental
charges that may be levied or assessed upon it or any of its property, and (b)
all other material indebtedness, obligations and liabilities in accordance with
customary trade practices; provided, that the Borrower or such Subsidiary may
contest any item described in clauses (a) or (b) of this Section 8.5 in good
faith so long as adequate reserves are maintained with respect thereto in
accordance with GAAP.
SECTION 8.6 Compliance With Laws and Approvals. Observe and remain in
compliance with all Applicable Laws and maintain in full force and effect all
Governmental Approvals, in each case applicable to the conduct of its business
as currently conducted, except where such non-compliance or failure to so
maintain could not reasonably be expected to have a Material Adverse Effect.
SECTION 8.7 Environmental Laws. In addition to and without limiting the
generality of Section 8.6, (a) comply in all material respects with, and use
best efforts to ensure such compliance by all tenants and subtenants with all
applicable Environmental Laws and obtain and comply with in all material
respects and maintain, and use best efforts to ensure that all tenants and
subtenants obtain and comply with in all material respects and maintain, any and
all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws, (b) conduct and complete all investigations,
studies, sampling and testing,
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and all remedial, removal and other actions required under Environmental Laws,
and promptly comply in all material respects with all lawful orders and
directives of any Governmental Authority regarding Environmental Laws, and (c)
defend, indemnify and hold harmless the Administrative Agent and the Lenders,
and their respective parents, Subsidiaries, Affiliates, employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or nature
known or unknown, contingent or otherwise, arising out of, or in any way
relating to the violation of, noncompliance with or liability under any
Environmental Laws applicable to the operations of the Borrower or such
Subsidiary, or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, reasonable attorney's and
consultant's fees, investigation and laboratory fees, response costs, court
costs and reasonable litigation expenses, except to the extent that any of the
foregoing directly result from the gross negligence or willful misconduct of the
party seeking indemnification therefor.
SECTION 8.8 Compliance with ERISA. In addition to and without limiting the
generality of Section 8.6, (a) comply with all applicable provisions of ERISA
and the regulations and published interpretations thereunder with respect to all
Employee Benefit Plans, (b) not take any action or fail to take action the
result of which could be a liability to the PBGC or to a Multiemployer Plan, (c)
not participate in any prohibited transaction that could result in any civil
penalty under ERISA or tax under the Code imposed on the Borrower or any of its
Subsidiaries or which could result in liability on the part of the Borrower or
any of its Subsidiaries, (d) operate each Employee Benefit Plan in such a manner
that will not incur any tax liability under Section 4980B of the Code or any
liability to any qualified beneficiary as defined in Section 4980B of the Code
and (e) furnish to the Administrative Agent upon the Administrative Agent's
request such additional information about any Employee Benefit Plan as may be
reasonably requested by the Administrative Agent, except in each case to the
extent that such action or inaction, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 8.9 Compliance With Agreements. Comply in all material respects
with each material term, condition and provision of all leases, agreements and
other instruments entered into by the Borrower or such Subsidiary in the conduct
of its business including, without limitation, any Material Contract; provided,
that the Borrower or such Subsidiary may contest any such lease, agreement or
other instrument in good faith through applicable proceedings so long as
adequate reserves are maintained in accordance with GAAP.
SECTION 8.10 Conduct of Business. Engage only in businesses in
substantially the same fields as the businesses conducted on the Closing Date
and in lines of business reasonably related thereto.
SECTION 8.11 Visits and Inspections. Permit representatives of the
Administrative Agent (at the expense of the Administrative Agent and the
Lenders; provided that upon and during the continuance of an Event of Default,
such visits and inspections may also be made by any Lender and shall be at the
cost and expense of the Borrower), from time to time, on reasonable notice and
during normal business hours, to visit and inspect its properties; inspect,
audit and make extracts from its books, records and files, including, but not
limited to,
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management letters prepared by independent accountants; and discuss
with its principal officers, and its independent accountants, its business,
assets, liabilities, financial condition, results of operations and business
prospects.
SECTION 8.12 Additional Subsidiaries; Collateral.
(a) Foreign Subsidiaries; Landlord Consents.
(i) Not later than fifteen (15) days after the Closing Date, cause to
be executed and delivered to the Administrative Agent landlord consents in
form and substance reasonably acceptable to the Administrative Agent with
respect to all inventory located at facilities not owned by the Borrower,
and
(ii) Not later than thirty (30) days after the Closing Date, cause to
be executed and delivered to the Administrative Agent (A) a Pledge
Agreement or other appropriate documentation under the laws of the
applicable jurisdiction, executed by the Borrower pledging sixty-five
percent (65%) of the total outstanding capital stock or other ownership
interest of each Foreign Subsidiary directly owned by the Borrower and a
consent thereto executed by such Foreign Subsidiary (including, without
limitation, if applicable, original stock certificates evidencing the
capital stock of such Foreign Subsidiary, together with an appropriate
undated stock power for each certificate duly executed in blank by the
registered owner thereof, if applicable under the laws of the appropriate
jurisdiction), (B) the closing documents and certificates reasonably
required by the Administrative Agent to be delivered, including, without
limitation, officers' certificates, financial statements, opinions of
counsel, board resolutions, charter documents, certificates of existence
and authority to do business and any other closing certificates and
documents described in Section 5.2, if applicable under the laws of the
appropriate jurisdiction), and (C) such other documents reasonably
requested by the Administrative Agent, all in form and substance reasonably
acceptable to the Administrative Agent.
(b) Material Subsidiary. From and after such time as of which the assets
(determined at book value) of any Domestic Subsidiary of the Borrower exceed ten
percent (10%) of the aggregate assets (determined at book value) of the Borrower
and all of its Subsidiaries (such Domestic Subsidiary, a "Material Subsidiary"),
with respect to each such Material Subsidiary, cause to be executed and
delivered to the Administrative Agent (i) a Joinder Agreement in the form of
Exhibit L attached hereto executed by such Material Subsidiary pursuant to which
such Material Subsidiary shall become a party to the Guaranty Agreement and the
Security Agreement, (ii) the closing documents and certificates reasonably
required by the Administrative Agent to be delivered, including, without
limitation, officers' certificates, financial statements, opinions of counsel,
board resolutions, charter documents, certificates of existence and authority to
do business and any other closing certificates and documents described in
Section 5.2, and (iii) such other documents reasonably requested by the
Administrative Agent, all in form and substance reasonably acceptable to the
Administrative Agent, in order that such Material Subsidiary shall become bound
by all of the terms, covenants and agreements contained in the Guaranty
Agreement and its applicable assets shall become collateral for the Obligations.
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(c) Additional Subsidiaries. From and after the creation or acquisition of
any Subsidiary, cause to be executed and delivered to the Administrative Agent
(i) a Pledge Agreement, Joinder Agreement or other appropriate documentation
under the laws of the applicable jurisdiction, executed by the Borrower (or the
applicable Subsidiary) pledging up to one hundred percent (100%) of the total
outstanding capital stock or other ownership interests of a Domestic Subsidiary
or sixty-five percent (65%) of the total outstanding capital stock or other
ownership interest of a Foreign Subsidiary owned by the Borrower (or the
applicable Subsidiary) and a consent thereto executed by such Subsidiary
(including, without limitation, if applicable, original stock certificates
evidencing the capital stock of such Subsidiary, together with an appropriate
undated stock power for each certificate duly executed in blank by the
registered owner thereof (with respect to a Foreign Subsidiary only if
applicable under the laws of the appropriate jurisdiction)), (ii) if such
Subsidiary is a Material Subsidiary, a Joinder Agreement in the form of Exhibit
L attached hereto, executed by such Material Subsidiary, pursuant to which such
Material Subsidiary shall become party to the Guaranty Agreement and the
Security Agreement, (iii) the closing documents and certificates reasonably
required by the Administrative Agent to be delivered, including, without
limitation, officers' certificates, financial statements, opinions of counsel,
board resolutions, charter documents, certificates of existence and authority to
do business and any other closing certificates and documents described in
Section 5.2 (with respect to a Foreign Subsidiary, only if applicable under the
laws of the appropriate jurisdiction), and (iv) such other documents reasonably
requested by the Administrative Agent, all in form and substance reasonably
acceptable to the Administrative Agent.
SECTION 8.13 Year 2000 Compatibility.
(a) Borrower Systems. Take all actions reasonably necessary to assure that
the Borrower's computer based systems (other than computer related products
provided to the Borrower by independent contractors or third party product
vendors for direct or indirect sale or resale to customers of the Borrower or
any Subsidiary thereof) which are primarily responsible for processing date
related data in the normal conduct of the Borrower's business are able to
operate and effectively process data which includes dates on and after January
1, 2000. At the reasonable request of the Administrative Agent, the Borrower
shall provide reasonable assurances satisfactory to the Administrative Agent of
the Borrower's Year 2000 compatibility or plans therefor.
(b) Product Vendor Systems. Request that all of the Borrower's material
third party product vendors and independent contractors of computer related
products which are primarily responsible for processing date related data in the
ordinary use of such systems and are intended for direct or indirect sale or
resale to customers of the Borrower or any Subsidiary thereof (i) certify that
such systems are able to operate and effectively process data which includes
dates on and after January 1, 2000 or (ii) provide a description of such third
party vendor's plans to be able to deliver the certification described in clause
(i) above. At the reasonable request of the Administrative Agent, the Borrower
shall provide copies of any plans delivered by third party product vendors
pursuant to clause (ii) above.
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Nothing in this Section 8.13 shall obligate the Borrower or any Subsidiary
thereof to ensure that computer based systems of its customers are able to
operate and effectively process data which includes dates on and after January
1, 2000.
SECTION 8.14 Borrower Assets . Hold and maintain, at all times, at least
sixty-five percent (65%) of the Consolidated assets of the Borrower and its
Subsidiaries in the Borrower and the Guarantors.
SECTION 8.15 Further Assurances. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Administrative
Agent or any Lender may reasonably require to document and consummate the
transactions contemplated hereby and to vest completely in and ensure the
Administrative Agent and the Lenders their respective rights under this
Agreement, the Notes, the Letters of Credit and the other Loan Documents.
ARTICLE IX
FINANCIAL COVENANTS
Until all of the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner set forth
in Section 13.11 hereof, the Borrower and its Subsidiaries on a Consolidated
basis will not:
SECTION 9.1 Leverage Ratio: As of any fiscal quarter end, permit the ratio
of (a) the difference between (i) the Consolidated Debt of the Borrower and its
Subsidiaries, minus (ii) the Excess Subordinated Debt Proceeds (if any), each
calculated as of such date, to (b) EBITDA for the period of four (4) consecutive
fiscal quarters ending on or immediately prior to such date, to be greater than
2.75 to 1.0.
SECTION 9.2 Interest Coverage Ratio: As of any fiscal quarter end, permit
the ratio of (a) EBIT for the period of four (4) consecutive fiscal quarters
ending on or immediately prior to such date to (b) Interest Expense for such
period to be less than (i) 4.5 to 1.0 for the quarters ending September 30, 1998
and December 31, 1998, and (ii) 5.0 to 1.0 for each fiscal quarter thereafter.
SECTION 9.3 Minimum Tangible Net Worth: Permit Tangible Net Worth as of any
fiscal quarter end to be less than the sum of (a) $85,000,000.00 for the fiscal
quarter ending September 30, 1998, and $90,000,000.00 for each fiscal quarter
thereafter plus (b) 50% of cumulative quarterly Consolidated Net Income
commencing October 1, 1998.
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ARTICLE X
NEGATIVE COVENANTS
Until all of the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner set forth
in Section 13.11 hereof, the Borrower has not and will not permit any of its
Subsidiaries to:
SECTION 10.1 Limitations on Debt. Create, incur, assume or suffer to exist
any Debt except:
(a) the Obligations;
(b) Debt incurred in connection with a Hedging Agreement with (i) a
Lender, (ii) an Affiliate of any Lender or (iii) with any other
counterparty and (with respect to this clause (iii) only) upon terms and
conditions (including interest rate) reasonably satisfactory to the
Administrative Agent;
(c) Unsecured Subordinated Debt in an aggregate amount not to exceed
$150,000,000; provided that the Excess Subordinated Debt Proceeds therefrom
shall be placed in an account which is pledged to the Administrative Agent
for the ratable benefit of the Lenders pursuant to the Pledge Agreement and
the transfer agent of such account executes and delivers the Account
Control Agreement to the Administrative Agent.
(d) Debt of the Borrower and its Subsidiaries existing on the Closing
Date and not otherwise permitted under this Section 10.1, as set forth on
Schedule 6.1(t) (or as specifically permitted to be excluded from such
Schedule) and the renewal and refinancing (but not the increase at the
aggregate principal amount thereof) thereof on terms and conditions no more
restrictive than the terms and conditions contained in such original
existing debt;
(e) Debt of the Borrower and its Subsidiaries incurred in connection
with Capitalized Leases in an aggregate amount not to exceed $3,000,000 on
any date of determination;
(f) purchase money Debt of the Borrower and its Subsidiaries in an
aggregate amount not to exceed $3,000,000 on any date of determination;
(g) Debt of the Borrower and its Subsidiaries consisting of Guaranty
Obligations permitted by Section 10.2;
(h) intercompany Debt permitted pursuant to subsections 10.4(e) and
(f); and
(i) Debt assumed in connection with the acquisition of a Subsidiary;
provided that (i) such Debt shall not have been incurred in contemplation
of such acquisition and (ii) immediately after such acquisition, (A) no
Default or Event of Default exists and (B) if required pursuant to Section
8.12, such new Subsidiary is joined as a party to the Loan Documents;
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provided, that none of the Debt permitted to be incurred by this Section shall
restrict, limit or otherwise encumber (by covenant or otherwise) the ability of
any Subsidiary of the Borrower to make any payment to the Borrower or any of its
Subsidiaries (in the form of dividends, intercompany advances or otherwise) for
the purpose of enabling the Borrower to pay the Obligations.
SECTION 10.2 Limitations on Guaranty Obligations. Create, incur, assume or
suffer to exist any Guaranty Obligations except:
(a) Guaranty Obligations in favor of the Administrative Agent for the
benefit of the Administrative Agent and the Lenders;
(b) Guaranty Obligations with respect to Debt permitted pursuant to
Section 10.1;
(c) Guaranty Obligations existing on the Closing Date and not
otherwise permitted under this Section 10.2, as set forth on Schedule
6.1(t) (and the renewal and refinancing but not the increase thereof) on
terms and conditions no more restrictive than the terms contained in such
original existing Guaranty Obligations; and
(d) Guaranty Obligations in an amount not to exceed $3,000,000 in the
aggregate on any date of determination.
SECTION 10.3 Limitations on Liens. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
without limitation shares of capital stock or other ownership interests), real
or personal, whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of
ERISA or Environmental Laws) not yet due or as to which the period of grace
(not to exceed thirty (30) days), if any, related thereto has not expired
or which are being contested in good faith and by appropriate proceedings
if adequate reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred
in the ordinary course of business, (i) which are not overdue for a period
of more than thirty (30) days or (ii) which are being contested in good
faith and by appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the ordinary
course of business in connection with, or to secure payment of, obligations
under workers' compensation, unemployment insurance or similar legislation;
(d) Liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of
real property, which in the aggregate are not substantial in amount and
which do not, in any case, materially detract from the value of such
property or materially impair the use thereof in the ordinary conduct of
business;
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(e) Liens of the Administrative Agent for the benefit of the
Administrative Agent and the Lenders;
(f) Liens not otherwise permitted by this Section 10.3 and in
existence on the Closing Date and described on Schedule 10.3;
(g) Liens securing Debt permitted under Section 10.1(e) and (f);
provided that (i) such Liens shall be created substantially simultaneously
with the acquisition or lease of the related asset, (ii) such Liens do not
at any time encumber any property other than the property financed by such
Debt, (iii) the amount of Debt secured thereby is not increased and (iv)
the principal amount of Debt secured by any such Lien shall at no time
exceed one hundred percent (100%) of the original purchase price or lease
payment amount of such property at the time it was acquired;
(h) Liens arising out of judgments or awards in respect of which the
Borrower or any of its Subsidiaries shall in good faith be prosecuting an
appeal or proceeding for review in respect to which there shall have been
secured a subsisting stay of execution pending such appeal or proceeding;
(i) Liens arising from precautionary Uniform Commercial Code financing
statement filings in any jurisdiction regarding operating leases;
(j) leases or sub-leases granted by the Borrower or any of its
Subsidiaries to other Persons in the ordinary course of business not
materially interfering with the conduct of the business of the Borrower and
any of its Subsidiaries or materially detracting from the value of the
assets of the Borrower and its Subsidiaries; and
(k) the replacement, extension or renewal of any Lien permitted
pursuant to this Section 10.3 with any substantially similar Lien; provided
that (i) such Lien shall not extend to any additional property of the
Borrower or such Subsidiary and (ii) the Debt secured by such Lien shall
not be increased unless otherwise permitted pursuant to Section 10.1 or
10.2.
SECTION 10.4 Limitations on Loans, Advances, Investments and Acquisitions.
Purchase, own, invest in or otherwise acquire, directly or indirectly, any
capital stock, interests in any partnership or joint venture (including without
limitation the creation or capitalization of any Subsidiary), evidence of Debt
or other obligation or security, substantially all or a portion of the business
or assets of any other Person or any other investment or interest whatsoever in
any other Person, or make or permit to exist, directly or indirectly, any loans,
advances or extensions of credit to, or any investment in cash or by delivery of
property in, any Person except:
(a) investments existing on the Closing Date and not otherwise
permitted by this Section 10.4 in Subsidiaries existing on the Closing Date
and the other existing loans, advances and investments not otherwise
permitted by this Section 10.4 and described on Schedule 10.4;
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(b) investments in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency
thereof maturing within 365 days from the date of acquisition thereof, (ii)
commercial paper maturing no more than 365 days from the date of creation
thereof and currently having at least "A2P2" rating obtainable from either
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. or Moody's Investors Service, Inc., (iii) certificates of
deposit maturing no more than 365 days from the date of creation thereof
issued by commercial banks incorporated under the laws of the United States
of America, each having combined capital, surplus and undivided profits of
not less than $500,000,000 and having a rating of "A" or better by a
nationally recognized rating agency; provided, that the aggregate amount
invested in such certificates of deposit shall not at any time exceed
$25,000,000 for any one such certificate of deposit and $25,000,000 for any
one such bank, or (iv) time deposits maturing no more than 30 days from the
date of creation thereof with commercial banks or savings banks or savings
and loan associations each having membership either in the FDIC or the
deposits of which are insured by the FDIC and in amounts not exceeding the
maximum amounts of insurance thereunder;
(c) investments by the Borrower or any Subsidiary in the form of
acquisitions of all or substantially all of the business or a line of
business (whether by the acquisition of capital stock, assets, any
combination thereof or any "pooling of interests") of any other Person if
each such acquisition meets all of the following requirements: (i) any
Person to be acquired shall engage in the business conducted by the
Borrower as of the Closing Date or any other business reasonably related to
the foregoing, (ii) a Wholly-Owned Subsidiary of the Borrower, the
appropriate percentage of the capital stock or other ownership interests of
which have been pledged to the Administrative Agent, for the benefit of
itself and the Lenders, or the Borrower shall be the surviving Person and
no Default or Event of Default shall have occurred and be continuing both
before and after giving effect to the acquisition, (iii) prior to
consummating the acquisition, the Borrower shall have provided evidence to
the Administrative Agent in form and substance reasonably satisfactory
thereto that the Borrower and its Subsidiaries are in pro forma compliance
with each covenant contained in Article IX and Article X hereof after
giving effect to the acquisition, (iv) the Fair Market Value of all
Consideration (as defined below) paid in connection with any one such
acquisition (or series of related acquisitions in the same Fiscal Year)
shall not exceed $30,000,000, and (v) the Fair Market Value of all
Consideration paid in connection with all such acquisitions shall not
exceed $100,000,000 in the aggregate as of any date of determination;
For the purposes of calculating compliance with clause (c) of this
Section 10.4, the "Fair Market Value of all Consideration" paid in
connection with any acquisition or investment shall include (1) any cash
consideration paid in connection with such acquisition or investment, (2)
the face amount of any seller financing issued in connection with such
acquisition or investment, (3) the face amount of any Debt assumed in
connection with such acquisition or investment, (4) the amount of any
commissions paid in connection with such acquisition or investment, and (5)
100% of the fair market value of any stock issued or transferred in a
pooling of interest or otherwise.
(d) loans and advances to employees incurred in the ordinary course of
business in an aggregate amount not to exceed $3,000,000 at any time;
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(e) investments, loans and advances by the Borrower or any of its
Subsidiaries in or to any other Subsidiary or to the Borrower; provided the
appropriate percentage of capital stock or other ownership interests of the
Subsidiary in which or to which such investment, loan or advance has been
made has been pledged to the Administrative Agent for the benefit of itself
and the Lenders;
(f) investments, loans and advances by the Borrower or any of its
Subsidiaries in or to any other Subsidiary or to the Borrower not permitted
pursuant to Section 10.4(e); provided that the aggregate amount of all
investments, loans and advances permitted by this Section 10.4(f) does not
exceed $5,000,000;
(g) advances to or investments in third party software developers or
manufacturers to fund development or production costs and to provide
royalty payments; and
(h) investments by the Borrower or any of its Subsidiaries in any
Person that is not wholly-owned by the Borrower or any of its Subsidiaries
(provided, that if such Person is a Subsidiary of the Borrower, the
appropriate percentage of capital stock or other ownership interests in
such Subsidiary shall have been pledged to the Administrative Agent for the
benefit of itself and the Lenders) in an aggregate amount not to exceed,
(i) for the Fiscal Year ending March 31, 1999, $15,000,000 and (ii) for any
Fiscal Year thereafter, the sum of (I) $15,000,000 and (II) twenty-five
percent (25%) of Consolidated Net Income for the previous Fiscal Year;
provided that the Borrower shall have demonstrated pro forma compliance
with the covenants set forth in Articles IX and X both immediately prior to
and after giving effect to any such investment.
SECTION 10.5 Limitations on Mergers and Liquidation. Merge, consolidate or
enter into any similar combination with any other Person or liquidate, wind-up
or dissolve itself (or suffer any liquidation or dissolution) except:
(a) any Domestic Subsidiary of the Borrower may merge with any other
Domestic Subsidiary of the Borrower or the Borrower;
(b) any Foreign Subsidiary may merge with any other Subsidiary of the
Borrower or the Borrower;
(c) any Wholly-Owned Subsidiary may merge into the Person such
Wholly-Owned Subsidiary was formed to acquire in connection with an
acquisition permitted by Section 10.4(c);
(d) any Domestic Subsidiary of the Borrower may wind-up into the
Borrower or any other Domestic Subsidiary of the Borrower; and
(e) any Foreign Subsidiary of the Borrower may wind-up into the
Borrower or any other Subsidiary of the Borrower.
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SECTION 10.6 Limitations on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, the sale of any receivables and leasehold
interests and any sale-leaseback or similar transaction), whether now owned or
hereafter acquired except:
(a) the sale of inventory in the ordinary course of business;
(b) the sale of obsolete assets or assets no longer used or usable in
the business of the Borrower or any of its Subsidiaries;
(c) the transfer of assets to the Borrower or any Subsidiary of the
Borrower pursuant to Section 10.5(d) or (e);
(d) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof;
(e) any lease or sub-lease may be granted to the extent permitted by
Section 10.3(j); and
(f) other sales, transfers and dispositions not otherwise permitted
hereunder; provided, that the Net Cash Proceeds in excess of $2,000,000
received in any Fiscal Year are applied in a manner consistent with Section
2.5(b).
SECTION 10.7 Limitations on Dividends and Distributions. Declare or pay any
dividends upon any of its capital stock; purchase, redeem, retire or otherwise
acquire, directly or indirectly, any shares of its capital stock, or make any
distribution of cash, property or assets among the holders of shares of its
capital stock, or make any change in its capital structure; provided that:
(a) the Borrower or any Subsidiary may pay dividends and distributions
in shares of its own capital stock; and
(b) any Subsidiary may pay cash dividends and distributions to the
Borrower or any Subsidiary of the Borrower.
SECTION 10.8 Transactions with Affiliates. Except as otherwise expressly
permitted hereunder, directly or indirectly (a) make any loan or advance to, or
purchase or assume any note or other obligation to or from, any of its officers,
directors, shareholders or other Affiliates, or to or from any member of the
immediate family of any of its officers, directors, shareholders or other
Affiliates, or subcontract any operations to any of its Affiliates (other than
the payment of fees and compensation to its officers and directors in the
ordinary course of business) or (b) enter into, or be a party to, any other
transaction with any of its Affiliates, except in each of case (a) and (b)
pursuant to the reasonable requirements of its business and upon fair and
reasonable terms which are no less favorable to it than it would obtain in a
comparable arm's length transaction with a Person not its Affiliate.
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SECTION 10.9 Certain Accounting Changes. Change its Fiscal Year end, or
make any change in its accounting treatment and reporting practices except as
permitted by GAAP.
SECTION 10.10 Amendments; Payments and Prepayments of Subordinated Debt.
Amend or modify in any material respect (or permit such modification or
amendment of) any of the terms or provisions of any Subordinated Debt, or cancel
or forgive, make any voluntary or optional payment or prepayment on, or redeem
or acquire for value (including without limitation by way of depositing with any
trustee with respect thereto money or securities before due for the purpose of
paying when due) any Subordinated Debt.
SECTION 10.11 Restrictive Agreements. Enter into any Debt which contains
any negative pledge on assets or any covenants more restrictive than the
provisions of Articles VIII, IX and X hereof, or which restricts, limits or
otherwise encumbers its ability to incur Liens on or with respect to any of its
assets or properties other than the assets or properties securing such Debt.
ARTICLE XI
DEFAULT AND REMEDIES
SECTION 11.1 Events of Default. Each of the following shall constitute an
Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
(a) Default in Payment of Principal of Loans and Reimbursement
Obligations. The Borrower shall default in any payment of principal of any
Loan, Note or Reimbursement Obligation when and as due (whether at
maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the payment
when and as due (whether at maturity, by reason of acceleration or
otherwise) of interest on any Loan, Note or Reimbursement Obligation or the
payment of any other Obligation, and such default shall continue unremedied
for five (5) Business Days.
(c) Misrepresentation. Any representation or warranty made or deemed
to be made by the Borrower or any of its Subsidiaries under this Agreement,
any Loan Document or any amendment hereto or thereto, shall at any time
prove to have been incorrect or misleading in any material respect when
made or deemed made.
(d) Default in Performance of Certain Covenants. The Borrower shall
default in the performance or observance of any covenant or agreement
contained in Sections 7.5(e)(i), 8.12(a) or Articles IX or X of this
Agreement.
(e) Default in Performance of Other Covenants and Conditions. The
Borrower or any Subsidiary thereof shall default in the performance or
observance of any term, covenant,
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condition or agreement contained in this Agreement (other than as
specifically provided for otherwise in this Section 11.1) or any other Loan
Document and such default shall continue for a period of thirty (30) days
after written notice thereof has been given to the Borrower by the
Administrative Agent.
(f) Hedging Agreement. Any termination payment shall be due by the
Borrower under any Hedging Agreement and such amount is not paid within
thirty (30) Business Days of the due date thereof.
(g) Debt Cross-Default. The Borrower or any of its Subsidiaries shall
(i) default in the payment of any Debt (other than the Notes or any
Reimbursement Obligation) the aggregate outstanding amount of which Debt is
in excess of $3,000,000 beyond the period of grace if any, provided in the
instrument or agreement under which such Debt was created, or (ii) default
in the observance or performance of any other agreement or condition
relating to any Debt (other than the Notes or any Reimbursement Obligation)
the aggregate outstanding amount of which Debt is in excess of $3,000,000
or contained in any instrument or agreement evidencing, securing or
relating thereto or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Debt (or a trustee or agent on behalf
of such holder or holders) to cause, with the giving of notice if required,
any such Debt to become due prior to its stated maturity (any applicable
grace period having expired).
(h) Other Cross-Defaults. The Borrower or any of its Subsidiaries
shall default in the payment when due, or in the performance or observance,
of any obligation or condition of any Material Contract unless, but only as
long as, the existence of any such default is being contested by the
Borrower or such Subsidiary in good faith by appropriate proceedings and
adequate reserves in respect thereof have been established on the books of
the Borrower or such Subsidiary to the extent required by GAAP or the
existence of any such default could not reasonably be expected to result in
a Material Adverse Effect.
(i) Change in Control. Any person or group of persons (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended) shall obtain ownership or control in one or more series of
transactions of more than thirty percent (30%) of the common stock or
thirty percent (30%) of the voting power of the Borrower entitled to vote
in the election of members of the board of directors of the Borrower or
there shall have occurred under any indenture or other instrument
evidencing any Debt in excess of $3,000,000 any "change in control" (as
defined in such indenture or other evidence of Debt) obligating the
Borrower to repurchase, redeem or repay all or any part of the Debt or
capital stock provided for therein (any such event, a "Change in Control").
(j) Voluntary Bankruptcy Proceeding. The Borrower or any Subsidiary
thereof shall (i) commence a voluntary case under the federal bankruptcy
laws (as now or hereafter in effect), (ii) file a petition seeking to take
advantage of any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition for adjustment of
debts, (iii) consent to or fail to
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contest in a timely and appropriate manner any petition filed against it in
an involuntary case under such bankruptcy laws or other laws, (iv) apply
for or consent to, or fail to contest in a timely and appropriate manner,
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, or liquidator of itself or of a substantial part of its property,
domestic or foreign, (v) admit in writing its inability to pay its debts as
they become due, (vi) make a general assignment for the benefit of
creditors, or (vii) take any corporate action for the purpose of
authorizing any of the foregoing.
(k) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against the Borrower or any Subsidiary thereof in any
court of competent jurisdiction seeking (i) relief under the federal
bankruptcy laws (as now or hereafter in effect) or under any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or adjustment of debts, or (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like for the Borrower or any
Subsidiary thereof or for all or any substantial part of their respective
assets, domestic or foreign, and such case or proceeding shall continue
without dismissal or stay for a period of sixty (60) consecutive days, or
an order granting the relief requested in such case or proceeding
(including, but not limited to, an order for relief under such federal
bankruptcy laws) shall be entered.
(l) Failure of Agreements. At any time after the execution and
delivery thereof, any material provision of this Agreement or of any other
Loan Document shall for any reason cease to be valid and binding on the
Borrower or Subsidiary party thereto or any such Person shall so state in
writing, or the Security Documents shall for any reason cease to create a
valid and perfected first priority Lien on, or security interest in, any of
the collateral covered thereby, in each case other than in accordance with
the express terms thereof and subject to the liens permitted pursuant to
subsections 10.3(a), (e) and (f) hereof.
(m) Termination Event. The occurrence of any of the following events:
(i) the Borrower or any ERISA Affiliate fails to make full payment when due
of all amounts which, under the provisions of any Pension Plan or Section
412 of the Code, the Borrower or any ERISA Affiliate is required to pay as
contributions thereto, (ii) an accumulated funding deficiency in excess of
$3,000,000 occurs or exists, whether or not waived, with respect to any
Pension Plan, (iii) a Termination Event or (iv) the Borrower or any ERISA
Affiliate as employers under one or more Multiemployer Plan makes a
complete or partial withdrawal from any such Multiemployer Plan and the
plan sponsor of such Multiemployer Plans notifies such withdrawing employer
that such employer has incurred a withdrawal liability requiring payments
in an amount exceeding $3,000,000.
(n) Judgment. A judgment or order for the payment of money (not paid
or fully covered by a reputable insurance company) which causes the
aggregate amount of all such judgments to exceed $3,000,000 in any Fiscal
Year shall be entered against the Borrower or any of its Subsidiaries by
any court and such judgment or order shall continue without discharge or
stay for a period of thirty (30) days.
SECTION 11.2 Remedies. Upon the occurrence of an Event of Default, with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Borrower:
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(a) Acceleration; Termination of Facilities. Declare the principal of
and interest on the Loans, the Notes and the Reimbursement Obligations at
the time outstanding, and all other amounts owed to the Lenders and to the
Administrative Agent under this Agreement or any of the other Loan
Documents (other than any Hedging Agreement) (including, without
limitation, all L/C Obligations, whether or not the beneficiaries of the
then outstanding Letters of Credit shall have presented the documents
required thereunder) and all other Obligations (other than obligations
owing under any Hedging Agreement), to be forthwith due and payable,
whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in this Agreement or the other Loan Documents to
the contrary notwithstanding, and terminate the Credit Facility and any
right of the Borrower to request borrowings or Letters of Credit
thereunder; provided, that upon the occurrence of an Event of Default
specified in Section 11.1(j) or (k), the Credit Facility shall be
automatically terminated and all Obligations (other than obligations owing
under any Hedging Agreement) shall automatically become due and payable.
(b) Letters of Credit. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time
of an acceleration pursuant to the preceding paragraph, require the
Borrower at such time to deposit in a cash collateral account opened by the
Administrative Agent an amount equal to the aggregate then undrawn and
unexpired amount of such Letters of Credit. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the
payment of drafts drawn under such Letters of Credit, and the unused
portion thereof after all such Letters of Credit shall have expired or been
fully drawn upon, if any, shall be applied to repay the other Obligations.
After all such Letters of Credit shall have expired or been fully drawn
upon, the Reimbursement Obligation shall have been satisfied and all other
Obligations shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrower.
(c) Rights of Collection. Exercise on behalf of the Lenders all of its
other rights and remedies under this Agreement, the other Loan Documents
and Applicable Law, in order to satisfy all of the Borrower's Obligations.
SECTION 11.3 Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Administrative Agent and the
Lenders set forth in this Agreement is not intended to be exhaustive and the
exercise by the Administrative Agent and the Lenders of any right or remedy
shall not preclude the exercise of any other rights or remedies, all of which
shall be cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter exist in law
or in equity or by suit or otherwise. No delay or failure to take action on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Event of Default. No course of dealing
between the Borrower, the Administrative Agent and the Lenders or their
respective agents or employees shall be effective to change, modify or discharge
any provision of this Agreement or any of the other Loan Documents or to
constitute a waiver of any Event of Default.
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SECTION 11.4. Judgment Currency. The obligation of the Borrower to make
payments of the principal of and interest on the Notes and the obligation of any
such Person to make payments of any other amounts payable hereunder or pursuant
to any other Loan Document in the currency specified for such payment shall not
be discharged or satisfied by any tender, or any recovery pursuant to any
judgment, which is expressed in or converted into any other currency, except to
the extent that such tender or recovery shall result in the actual receipt by
each of the Administrative Agent and Lenders of the full amount of the
particular Permitted Currency expressed to be payable pursuant to the applicable
Loan Document. The Administrative Agent shall, using all amounts obtained or
received from the Borrower pursuant to any such tender or recovery in payment of
principal of and interest on the Obligations, promptly purchase the applicable
Permitted Currency at the most favorable spot exchange rate determined by the
Administrative Agent to be available to it. The obligation of the Borrower to
make payments in the applicable Permitted Currency shall be enforceable as an
alternative or additional cause of action solely for the purpose of recovering
in the applicable Permitted Currency the amount, if any, by which such actual
receipt shall fall short of the full amount of the Permitted Currency expressed
to be payable pursuant to the applicable Loan Document.
ARTICLE XII
THE ADMINISTRATIVE AGENT
SECTION 12.1 Appointment. Each of the Lenders hereby irrevocably designates
and appoints First Union as Administrative Agent of such Lender under this
Agreement and the other Loan Documents for the term hereof and each such Lender
irrevocably authorizes First Union as Administrative Agent for such Lender, to
take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Administrative Agent by the terms of this Agreement
and such other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement or such other Loan Documents, the Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against the Administrative Agent. Any reference to the Administrative Agent in
this Article XII shall be deemed to refer to the Administrative Agent solely in
its capacity as Administrative Agent and not in its capacity as a Lender.
SECTION 12.2 Delegation of Duties. The Administrative Agent may execute any
of its respective duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by the Administrative Agent with reasonable care.
SECTION 12.3 Exculpatory Provisions. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates shall be
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(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or the other Loan Documents
(except for actions occasioned solely by its or such Person's own gross
negligence or willful misconduct), or (b) responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
the Borrower or any of its Subsidiaries or any officer thereof contained in this
Agreement or the other Loan Documents or in any certificate, report, statement
or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or the other
Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the other Loan Documents or
for any failure of the Borrower or any of its Subsidiaries to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Borrower or any
of its Subsidiaries.
SECTION 12.4 Reliance by the Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with Section 13.10 hereof. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement and the other Loan Documents unless it shall first receive such advice
or concurrence of the Required Lenders (or, when expressly required hereby or by
the relevant other Loan Document, all the Lenders) as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action except for its own gross negligence or
willful misconduct. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
Notes in accordance with a request of the Required Lenders (or, when expressly
required hereby, all the Lenders), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Notes.
SECTION 12.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless it has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, it shall promptly give notice
thereof to the Lenders. The Administrative Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; provided that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
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best interests of the Lenders, except to the extent that other provisions of
this Agreement expressly require that any such action be taken or not be taken
only with the consent and authorization or the request of the Lenders or
Required Lenders, as applicable.
SECTION 12.6 Non-Reliance on the Administrative Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor any
of its respective officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates has made any representations or warranties to it and
that no act by the Administrative Agent hereinafter taken, including any review
of the affairs of the Borrower or any of its Subsidiaries, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and its Subsidiaries and made its own decision to make its Loans and
issue or participate in Letter of Credit hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Administrative Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and its Subsidiaries. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder or by the other Loan Documents, the Administrative Agent shall not
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial and other
condition or creditworthiness of the Borrower or any of its Subsidiaries which
may come into the possession of the Administrative Agent or any of its
respective officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates.
SECTION 12.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such and (to the extent not reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to the respective amounts of their Commitment Percentages,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Notes or any Reimbursement Obligation) be
imposed on, incurred by or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or the other Loan Documents, or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's bad faith, gross negligence or willful misconduct. The agreements in
this Section 12.7 shall survive the payment of the Notes, any Reimbursement
Obligation and all other amounts payable hereunder and the termination of this
Agreement.
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SECTION 12.8 The Administrative Agent in Its Individual Capacity. The
Administrative Agent and its respective Subsidiaries and Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
the Borrower as though the Administrative Agent were not an Administrative Agent
hereunder. With respect to any Loans made or renewed by it and any Note issued
to it and with respect to any Letter of Credit issued by it or participated in
by it, the Administrative Agent shall have the same rights and powers under this
Agreement and the other Loan Documents as any Lender and may exercise the same
as though it were not an Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
SECTION 12.9 Resignation of the Administrative Agent; Successor
Administrative Agent. Subject to the appointment and acceptance of a successor
as provided below, the Administrative Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Administrative
Agent, which successor shall have minimum capital and surplus of at least
$500,000,000. If no successor Administrative Agent shall have been so appointed
by the Required Lenders and shall have accepted such appointment within thirty
(30) days after the Administrative Agent's giving of notice of resignation, then
the Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent (with, so long as no Default or Event of Default shall have
occurred and be continuing, the approval of the Borrower, such approval not to
be unreasonably withheld or delayed), which successor shall have minimum capital
and surplus of at least $500,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Administrative Agent,
and the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Section 12.9 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
SECTION 12.10 Syndication Agent and Documentation Agent. The Syndication
Agent and Documentation Agent, in their respective capacities as syndication
agent and documentation agent, shall have no duties or responsibilities and no
liabilities under this Agreement or any other Loan Documents.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party hereto (i) on the date of delivery if delivered by hand
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or sent by telecopy, (ii) on the next Business Day if sent by recognized
overnight courier service and (iii) on the third Business Day following the date
sent by certified mail, return receipt requested. A telephonic notice to the
Administrative Agent as understood by the Administrative Agent will be deemed to
be the controlling and proper notice in the event of a discrepancy with or
failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at the
following addresses, or any other address as to which all the other parties are
notified in writing.
If to the Borrower: GT Interactive Software Corp.
417 Fifth Avenue, 8th Floor
New York, New York 10016
Attention: Mr. Andrew Gregor
Telephone No.: (212) 726-6572
Telecopy No.: (212) 726-6590
With copies to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022-3903
Attention: David P. Levin, Esq.
Telephone No.: (212) 715-9217
Telecopy No.: (212) 715-8000
If to First Union as First Union National Bank
Administrative Agent: One First Union Center, TW-10
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone No.: (704) 374-2698
Telecopy No.: (704) 383-0288
If to any Lender: To the Address set forth on Schedule 1 hereto
(c) Administrative Agent's Office. The Administrative Agent hereby
designates its office located at the address set forth above, or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrower and Lenders, as the Administrative Agent's Office referred to herein,
to which payments due are to be made and at which Loans will be disbursed and
Letters of Credit issued.
SECTION 13.2 Expenses; Indemnity. The Borrower will (a) pay all reasonable
out-of-pocket expenses of the Administrative Agent in connection with (i) the
preparation, execution and delivery of this Agreement and each other Loan
Document, whenever the same shall be executed and delivered, including without
limitation all out-of-pocket syndication and due diligence expenses and
reasonable fees and disbursements of counsel for the Administrative
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Agent and (ii) the preparation, execution and delivery of any waiver, amendment
or consent by the Administrative Agent relating to this Agreement or any other
Loan Document, including without limitation reasonable fees and disbursements of
counsel for the Administrative Agent, (b) pay all reasonable out-of-pocket
expenses of the Administrative Agent and each Lender actually incurred in
connection with the administration and enforcement of any rights and remedies of
the Administrative Agent and each of the Lenders under the Credit Facility,
including consulting with appraisers, accountants, engineers, attorneys and
other Persons concerning the nature, scope or value of any right or remedy of
the Administrative Agent or any Lender hereunder or under any other Loan
Document or any factual matters in connection therewith, which expenses shall
include without limitation the reasonable fees and disbursements of such
Persons, and (c) defend, indemnify and hold harmless the Administrative Agent
and each of the Lenders, and their respective parents, Subsidiaries, Affiliates,
employees, Administrative Agents, officers and directors, from and against any
losses, penalties, fines, liabilities, judgments, settlements, damages, costs
and expenses, suffered by any such Person in connection with any claim,
investigation, litigation or other proceeding (whether or not the Administrative
Agent or any Lender is a party thereto) and the prosecution and defense thereof,
arising out of or in any way connected with the Agreement, any other Loan
Document or the Loans, including without limitation reasonable attorney's and
consultant's fees, except to the extent that any of the foregoing directly
result from the gross negligence or willful misconduct of the party seeking
indemnification therefor.
SECTION 13.3 Set-off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon and
after the occurrence of any Event of Default and during the continuance thereof,
the Lenders and any assignee or participant of a Lender in accordance with
Section 13.10 are hereby authorized by the Borrower at any time or from time to
time, without notice to the Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all deposits (general or special, time or demand, including, but not limited
to, indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by the Lenders,
or any such assignee or participant to or for the credit or the account of the
Borrower against and on account of the Obligations irrespective of whether or
not (a) the Lenders shall have made any demand under this Agreement or any of
the other Loan Documents or (b) the Administrative Agent shall have declared any
or all of the Obligations to be due and payable as permitted by Section 11.2 and
although such Obligations shall be contingent or unmatured. Further, if the
Obligations are in different currencies, the Lenders and any assignee or
participant of a Lender may convert any Obligation at a market rate of exchange
in its usual course of business for the purpose of the set-off provided for in
this Section 13.3.
SECTION 13.4 Governing Law. This Agreement, the Notes and the other Loan
Documents, unless otherwise expressly set forth therein, shall be governed by,
construed and enforced in accordance with the laws of the State of North
Carolina, without reference to the conflicts or choice of law principles
thereof.
SECTION 13.5 Consent to Jurisdiction. The Borrower hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg
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County, North Carolina, in any action, claim or other proceeding arising out of
any dispute in connection with this Agreement, the Notes and the other Loan
Documents, any rights or obligations hereunder or thereunder, or the performance
of such rights and obligations. The Borrower hereby irrevocably consents to the
service of a summons and complaint and other process in any action, claim or
proceeding brought by the Administrative Agent or any Lender in connection with
this Agreement, the Notes or the other Loan Documents, any rights or obligations
hereunder or thereunder, or the performance of such rights and obligations, on
behalf of itself or its property, in the manner specified in Section 13.1.
Nothing in this Section 13.5 shall affect the right of the Administrative Agent
or any Lender to serve legal process in any other manner permitted by Applicable
Law or affect the right of the Administrative Agent or any Lender to bring any
action or proceeding against the Borrower or its properties in the courts of any
other jurisdictions.
SECTION 13.6 Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. Upon demand of any party, whether made before or
after institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to the Notes or any other Loan
Documents ("Disputes"), between or among parties to the Notes or any other Loan
Document shall be resolved by binding arbitration as provided herein.
Institution of a judicial proceeding by a party does not waive the right of that
party to demand arbitration hereunder. Disputes may include, without limitation,
tort claims, counterclaims, claims brought as class actions, claims arising from
Loan Documents executed in the future, or claims concerning any aspect of the
past, present or future relationships arising out of or connected with the Loan
Documents. Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in Charlotte, North Carolina. The expedited procedures set
forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims
of less than $1,000,000. All applicable statutes of limitation shall apply to
any Dispute. A judgment upon the award may be entered in any court having
jurisdiction. Notwithstanding anything foregoing to the contrary, any
arbitration proceeding demanded hereunder shall begin within ninety (90) days
after such demand thereof and shall be concluded within one-hundred and twenty
(120) days after such demand. These time limitations may not be extended unless
a party hereto shows cause for extension and then such extension shall not
exceed a total of sixty (60) days. The panel from which all arbitrators are
selected shall be comprised of licensed attorneys. The single arbitrator
selected for expedited procedure shall be a retired judge from the highest court
of general jurisdiction, state or federal, of the state where the hearing will
be conducted. The parties hereto do not waive any applicable Federal or state
substantive law except as provided herein. Notwithstanding the foregoing, this
paragraph shall not apply to any Hedging Agreement that is a Loan Document.
(b) Jury Trial. THE ADMINISTRATIVE AGENT, EACH LENDER AND THE BORROWER
HEREBY ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY
WAIVED THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM
OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
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<PAGE> 80
AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS
HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
(c) Preservation of Certain Remedies. Notwithstanding the preceding binding
arbitration provisions, the parties hereto and the other Loan Documents
preserve, without diminution, certain remedies that such Persons may employ or
exercise freely, either alone, in conjunction with or during a Dispute. Each
such Person shall have and hereby reserves the right to proceed in any court of
proper jurisdiction or by self help to exercise or prosecute the following
remedies: (i) all rights to foreclose against any real or personal property or
other security by exercising a power of sale granted in the Loan Documents or
under applicable law or by judicial foreclosure and sale, (ii) all rights of
self help including peaceful occupation of property and collection of rents, set
off, and peaceful possession of property, (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and in filing an involuntary bankruptcy
proceeding, and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
SECTION 13.7 Reversal of Payments. To the extent the Borrower makes a
payment or payments to the Administrative Agent for the ratable benefit of the
Lenders or the Administrative Agent receives any payment or proceeds of the
collateral which payments or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds repaid, the Obligations or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment or proceeds had not been received by the Administrative
Agent.
SECTION 13.8 Injunctive Relief; Punitive Damages.
(a) The Borrower recognizes that, in the event the Borrower fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to the Lenders.
Therefore, the Borrower (on behalf of itself and its Subsidiaries) agrees that
the Lenders, at the Lenders' option, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
(b) The Administrative Agent, Lenders and Borrower (on behalf of itself and
its Subsidiaries) hereby agree that no such Person shall have a remedy of
punitive or exemplary damages against any other party to a Loan Document and
each such Person hereby waives any right or claim to punitive or exemplary
damages that they may now have or may arise in the future in connection with any
Dispute, whether such Dispute is resolved through arbitration or judicially.
(c) The parties agree that they shall not have a remedy of punitive or
exemplary damages against any other party in any Dispute and hereby waive any
right or claim to punitive
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<PAGE> 81
or exemplary damages they have now or which may arise in the future in
connection with any Dispute whether the Dispute is resolved by arbitration or
judicially.
SECTION 13.9 Accounting Matters. All financial and accounting calculations,
measurements and computations made for any purpose relating to this Agreement,
including, without limitation, all computations utilized by the Borrower or any
Subsidiary thereof to determine compliance with any covenant contained herein,
shall, except as otherwise expressly contemplated hereby or unless there is an
express written direction by the Administrative Agent to the contrary agreed to
by the Borrower, be performed in accordance with GAAP as in effect on the
Closing Date. In the event that changes in GAAP shall be mandated by the
Financial Accounting Standards Board, or any similar accounting body of
comparable standing, or shall be recommended by the Borrower's certified public
accountants, to the extent that such changes would modify such accounting terms
or the interpretation or computation thereof, such changes shall be followed in
defining such accounting terms only from and after the date the Borrower and the
Lenders shall have amended this Agreement to the extent necessary to reflect any
such changes in the financial covenants and other terms and conditions of this
Agreement.
SECTION 13.10 Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall be binding upon and inure to
the benefit of the Borrower, the Administrative Agent and the Lenders, all
future holders of the Notes, and their respective permitted successors and
assigns, except that the Borrower shall not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender.
(b) Assignment by Lenders. Each Lender may, with the consent of the
Borrower (so long as no Default or Event of Default has occurred and is
continuing) and the consent of the Administrative Agent, which consents shall
not be unreasonably withheld (provided, that no such consents shall be required
in connection with an assignment to an Affiliate of a Lender), assign to one or
more Eligible Assignees all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Extensions of Credit at the time owing to it and the Notes held
by it); provided that:
(i) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Lender's rights and obligations under this
Agreement;
(ii) if less than all of the assigning Lender's Commitment is to be
assigned, the Commitment so assigned shall not be less than $5,000,000;
(iii) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance in the form of Exhibit G attached hereto (an
"Assignment and Acceptance"), together with any Note or Notes subject to
such assignment;
(iv) such assignment shall not, without the consent of the Borrower,
require the Borrower to file a registration statement with the Securities
and Exchange
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Commission or apply to or qualify the Loans or the Notes under the blue sky
laws of any state; and
(v) the assigning Lender shall pay to the Administrative Agent an
assignment fee of $3,000 upon the execution by such Lender of the
Assignment and Acceptance; provided that no such fee shall be payable upon
any assignment by a Lender to an Affiliate thereof.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective
date shall be at least five (5) Business Days after the execution thereof,
(A) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations
of a Lender hereby and (B) the Lender thereunder shall, to the extent
provided in such assignment, be released from its obligations under this
Agreement.
(c) Rights and Duties Upon Assignment. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.
(d) Register. The Administrative Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders and the amount of the Extensions of
Credit with respect to each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Administrative Agent and the Lenders may treat each person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrower
or Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Issuance of New Notes. Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an Eligible Assignee together with any Note
or Notes subject to such assignment and the written consent to such assignment,
the Administrative Agent shall, if such Assignment and Acceptance has been
completed and is substantially in the form of Exhibit G:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the Register;
(iii) give prompt notice thereof to the Lenders and the Borrower; and
(iv) promptly deliver a copy of such Assignment and Acceptance to the
Borrower.
Within ten (10) Business Days after receipt of notice, the Borrower shall
execute and deliver to the Administrative Agent, in exchange for the surrendered
Note or Notes, a new Note or Notes to
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<PAGE> 83
the order of such Eligible Assignee in amounts equal to the Commitment assumed
by it pursuant to such Assignment and Acceptance and a new Note or Notes to the
order of the assigning Lender in an amount equal to the Commitment retained by
it hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the assigned Notes delivered to the
assigning Lender. Each surrendered Note or Notes shall be canceled and returned
to the Borrower.
(f) Participations. Each Lender may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Extensions of Credit and the Notes held by it); provided that:
(i) each such participation shall be in an amount not less than
$5,000,000;
(ii) such Lender's obligations under this Agreement (including,
without limitation, its Commitment) shall remain unchanged;
(iii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of the Notes held by it for
all purposes of this Agreement;
(v) the Borrower, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement;
(vi) such Lender shall not permit such participant the right to
approve any waivers, amendments or other modifications to this Agreement or
any other Loan Document other than waivers, amendments or modifications
which would reduce the principal of or the interest rate on any Loan or
Reimbursement Obligation, extend the term or increase the amount of the
Commitment, reduce the amount of any fees to which such participant is
entitled, extend any scheduled payment date for principal of any Loan or,
except as expressly contemplated hereby or thereby, release substantially
all of the collateral or release any Security Document; and
(vii) any such disposition shall not, without the consent of the
Borrower, require the Borrower to file a registration statement with the
Securities and Exchange Commission to apply to qualify the Loans or the
Notes under the blue sky law of any state.
(g) Disclosure of Information; Confidentiality. The Administrative Agent
and the Lenders shall hold all non-public information with respect to the
Borrower or any of its Subsidiaries (such information, "Confidential
Information") obtained pursuant to the Loan Documents in accordance with their
customary procedures for handling confidential information and in accordance
with safe and sound banking practices and shall not disclose such Confidential
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<PAGE> 84
Information to any Person without the prior consent of the Borrower; provided,
that the Administrative Agent may disclose information relating to this
Agreement to Gold Sheets and other similar bank trade publications, such
information to consist of deal terms and other information customarily found in
such publications, and provided further, that the Administrative Agent and
Lenders may disclose any such Confidential Information to any Affiliate thereof
to the extent such disclosure is required by law or requested by any regulatory
authority. Any Lender may, in connection with any assignment, proposed
assignment, participation or proposed participation pursuant to this Section
13.10, disclose to the Eligible Assignee, participant, proposed assignee or
proposed participant, any Confidential Information; provided, that prior to any
such disclosure, each such Eligible Assignee, proposed assignee, participant or
proposed participant shall agree with the Borrower or such Lender to preserve
the confidentiality of any such Confidential Information relating to the
Borrower or any of its Subsidiaries received from such Lender.
(h) Certain Pledges or Assignments. Nothing herein shall prohibit any
Lender from pledging or assigning any Note to any Federal Reserve Bank in
accordance with Applicable Law.
SECTION 13.11 Amendments, Waivers and Consents. Except as set forth
below, any term, covenant, agreement or condition of this Agreement or any of
the other Loan Documents (other than any Hedging Agreement, the terms and
conditions of which may be amended, modified or waived by the parties thereto)
may be amended or waived by the Lenders, and any consent given by the Lenders,
if, but only if, such amendment, waiver or consent is in writing signed by the
Required Lenders (or by the Administrative Agent with the consent of the
Required Lenders) and delivered to the Administrative Agent and, in the case of
an amendment, signed by the Borrower; provided, that no amendment, waiver or
consent shall (a) increase the amount or extend the time of the obligation of
the Lenders to make Loans or issue or participate in Letters of Credit
(including without limitation pursuant to Section 2.6), (b) extend the
originally scheduled time or times of payment of the principal of any Loan or
Reimbursement Obligation or the time or times of payment of interest or fees on
any Loan or Reimbursement Obligation, (c) reduce the rate of interest or fees
payable on any Loan or Reimbursement Obligation, (d) reduce the principal amount
of any Loan or Reimbursement Obligation, (e) permit any subordination of the
principal or interest on any Loan or Reimbursement Obligation, (f) release all
or substantially all of the collateral or release any Guarantor or Security
Document (other than as specifically permitted or contemplated in this Agreement
or the applicable Security Document), (g) amend the definition of Alternative
Currency, (h) permit an assignment of this Agreement or any of the Loan
Documents by the Borrower or any of its Subsidiaries or (i) amend the provisions
of this Section 13.11 or the definition of Required Lenders, without the prior
written consent of each Lender. In addition, no amendment, waiver or consent to
the provisions of (a) Article XII shall be made without the written consent of
the Administrative Agent and (b) Article III without the written consent of the
Issuing Lender.
SECTION 13.12 Performance of Duties. The Borrower's obligations under this
Agreement and each of the Loan Documents shall be performed by the Borrower (or
its agent) at its sole cost and expense.
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SECTION 13.13 All Powers Coupled with Interest. All powers of attorney and
other authorizations granted to the Lenders, the Administrative Agent and any
Persons designated by the Administrative Agent or any Lender pursuant to any
provisions of this Agreement or any of the other Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or the Credit Facility has not been
terminated.
SECTION 13.14 Survival of Indemnities. Notwithstanding any termination of
this Agreement, the indemnities to which the Administrative Agent and the
Lenders are entitled under the provisions of this Article XIII and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Administrative Agent and the Lenders against
events arising after such termination as well as before.
SECTION 13.15 Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 13.16 Severability of Provisions. Any provision of this Agreement
or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 13.17 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
SECTION 13.18 Term of Agreement. This Agreement shall remain in effect from
the Closing Date through and including the date upon which all Obligations shall
have been indefeasibly and irrevocably paid and satisfied in full. No
termination of this Agreement shall affect the rights and obligations of the
parties hereto arising prior to such termination.
SECTION 13.19 Inconsistencies with Other Documents; Independent Effect of
Covenants.
(a) In the event there is a conflict or inconsistency between this
Agreement and any other Loan Document, the terms of this Agreement shall
control; provided, that any provision of the Security Documents which imposes
additional burdens on any party or further restricts the rights of the Borrower
or its Subsidiaries or gives the Administrative Agent or Lenders additional
rights shall not be deemed to be in conflict or inconsistent with this Agreement
and shall be given full force and effect.
(b) The Borrower expressly acknowledges and agrees that each covenant
contained in Articles VIII, IX, or X hereof shall be given independent effect.
Accordingly, the Borrower shall not engage in any transaction or other act
otherwise permitted under any covenant contained in
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Articles VIII, IX, or X if, before or after giving effect to such transaction or
act, the Borrower shall or would be in breach of any other covenant contained in
Articles VIII, IX, or X.
SECTION 13.20 EMU; Continuity of Contract. The parties hereto confirm that
the occurrence or non-occurrence of an EMU Event will not have the effect of
altering any term of, or discharging or excusing performance under, this
Agreement or any other Loan Document, give any party the right unilaterally to
alter or terminate this Agreement or any other Loan Document or, in and of
itself, give rise to an Event of Default, provided, however, that no currency
shall be included as an Alternative Currency within the meaning of the
definition thereof if the Administrative Agent or any Lender reasonably believes
that it is impracticable or impossible for any Lender to fund Loans in such
currency.
[Signature pages to follow]
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<PAGE> 87
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first written above.
[CORPORATE SEAL] GT INTERACTIVE SOFTWARE CORP.,
as Borrower
By: /s/ ANDREW GREGOR
------------------------------
Name: Andrew Gregor
Title: CFO and Senior VP, Finance
and Administration
<PAGE> 88
FIRST UNION NATIONAL BANK,
as Administrative Agent and Lender
By: /s/ JAMES J. McKENNA
---------------------------
Name: James J. McKenna
Title: Executive Vice President
<PAGE> 89
NATIONAL BANK OF CANADA, as Lender
By: /s/ TIMOTHY J. SMITH
------------------------------
Name: Timothy J. Smith
Title: VP and Manager
By: /s/ KAREN A. GREXA
-------------------------------
Name: Karen A. Grexa
Title: Vice President
<PAGE> 90
THE BANK OF NOVA SCOTIA, as Lender
By: /s/ STEPHEN E. LOCKHART
--------------------------------
Name: Stephen E. Lockhart
Title: Vice President
<PAGE> 91
NATIONSBANK, N.A., as Lender
By: /s/ YOUSUF OMAR
------------------------------
Name: Yousuf Omar
Title: Senior Vice President
<PAGE> 92
FLEET BANK, N.A., as Lender and
Documentation Agent
By: /s/ BETH GOODMAN
--------------------------------
Name: Beth Goodman
Title: Vice President
<PAGE> 93
EAB, as Lender
By: /s/ KRISTEN BURKE
----------------------------
Name: Kristen Burke
Title: VP
<PAGE> 94
Schedule 1.1(a)
(Lenders and Commitments)
- --------------------------------------------------------------------------------
LENDER COMMITMENT COMMITMENT
PERCENTAGE
- --------------------------------------------------------------------------------
First Union National Bank
One First Union Center, TW-10
301 South College Street 24% $30,000,000
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone No.: (704) 374-2698
Telecopy No.: (704) 383-0288
- --------------------------------------------------------------------------------
NationsBank, N.A.
901 Main Street, 14th Floor
Dallas, Texas 75202 24% $30,000,000
Attention: James Payne
Telephone No.: (214) 508-0592
Telecopy No.: (214) 290-9417
- --------------------------------------------------------------------------------
Fleet Bank, N.A.
1185 Sixth Avenue, 3rd Floor
New York, NY 10036 20% $25,000,000
Attention: Edna Cockett
Telephone No.: (212) 819-5748
Telecopy No.: (212) 819-4141
- --------------------------------------------------------------------------------
National Bank of Canada
Post Office Plaza
50 Division Street, Suite 201 12% $15,000,000
Somerville, NJ 08876
Attention: Anita Smallfence
Telephone No.: (908) 575-9777
Telecopy No.: (908) 575-0777
- --------------------------------------------------------------------------------
EAB
335 Madison Avenue
New York, NY 10017 12% $15,000,000
Attention: Jan Richardson
Telephone No.: (212) 503-2565
Telecopy No.: (212) 503-2667
- --------------------------------------------------------------------------------
The Bank of Nova Scotia
One Liberty Plaza
New York, NY 10006 8% $10,000,000
Attention: Peter Colletta
Telephone No.: (212) 225-5069
Telecopy No.: (212) 225-5145
- --------------------------------------------------------------------------------
<PAGE> 95
Schedule 1.1(b)
MANDATORY COST RATE
(1) The Mandatory Cost Rate for an Alternative Currency Loan for its Interest
Period(s) is the rate per annum determined by the Administrative Agent to
be the rate calculated by it in accordance with the following formula;
(a) In relation to an Alternative Currency Loan denominated in Pounds
Sterling:
BY + S(Y - Z) + F x 0.01% per annum
-----------------------------------
100 - (B + S)
(b) in relation to any other Alternative Currency Loan in an Alternative
Currency;
F x 0.01% per annum
-------------------
300
(c) where on the date of calculation:
B is the average of the percentage of eligible liabilities (in excess of
any stated minimum) which the Bank of England then requires each of
the Lenders to maintain on a non-interest bearing account in
accordance with its cash ratio requirements;
Y is LIBOR for the Interest Period of the relevant Loan;
S is the average percentage of eligible liabilities which the Bank of
England requires each Lender to place as a special deposit;
Z is the interest rate per annum allowed by the Bank of England on
special deposits; and
F is the average of the percentage of the charges payable by the Lenders
to the Financial Services Authority under paragraph 2.02 or 2.03 (as
appropriate) of the Fees Regulations (but where for the purpose of
this calculation, any minimum amount required to be paid to the
Financial Services Authority under paragraph 2.02b or 2.03b will not
be deemed to apply) expressed in pounds per (pound)1 million of the
average of percentage of the fee bases of the Lenders.
(2) For the purposes of this Schedule 1.1(b):
(a) "eligible liabilities" and "special deposits" have the meanings given
to them at the time of application of the formula by the Bank of
England;
(b) "fee base" has the meaning given to it in the Fees Regulations; and
<PAGE> 96
(c) "Fees Regulations" means:
(i) prior to 31st of March, 1999 the Banking Supervision (Fees)
Regulations 1998; and
(ii) on and after 31st of March 1999, any regulations governing the
payment of fees for banking supervision;
and any reference to a paragraph or specific provision in The Fees
Regulations in force at the date of this Agreement shall be deemed to
be a reference to any replacement provision in any superceding
regulations under paragraph (2) above
(3) In the application of the formula, B,Y,S and Z are included in the formula
as figures and not as percentages e.g., if B = 0.05% and Y = 15%, BY is
calculated as 0.05 x 15.
(4) (a) The formula is applied on the date the interest rate is determined for
the relevant Interest Period of the Loan.
(b) Each rate calculated in accordance with the formula is, if necessary,
rounded upward to the nearest four decimal places
(5) If the Administrative Agent determines that a change in circumstances has
rendered or will render the formula inappropriate, the Administrative Agent
(after consultation with and by notice to the Lenders and the Borrower)
shall modify the manner in which the Mandatory Cost Rate will subsequently
be calculated and specify the date from which such modification will apply.
The manner of calculation so notified by the Administrative Agent shall in
the absence of manifest error be binding on all the parties hereto.
<PAGE> 1
Exhibit 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (as amended, restated, supplemented or
otherwise modified, this "Agreement"), dated as of September 11,1998 by and
among GT INTERACTIVE SOFTWARE CORP., a corporation organized under the laws of
the State of Delaware (the "Company") and the Subsidiaries of the Company
identified on the signature pages attached hereto (the "Subsidiary Grantors",
and together with the Company and each additional Grantor who executes a Joinder
Agreement to the Credit Agreement referred to below, the "Grantors", each
individually, a "Grantor"), and FIRST UNION NATIONAL BANK, a national banking
association, as administrative agent (the "Administrative Agent") for the
benefit of itself and the financial institutions (the "Lenders") as are, or may
from time to time become, parties to the Credit Agreement referred to below.
STATEMENT OF PURPOSE
Pursuant to the Credit Agreement of even date herewith (as amended,
restated, supplemented or otherwise modified, the "Credit Agreement"), by and
among the Company, as borrower (the "Borrower"), the Lenders, and the
Administrative Agent, the Lenders have agreed to make certain Extensions of
Credit to the Borrower as more particularly described therein.
The Extensions of Credit provided for under the Credit Agreement have
been and will be made for the purposes of, among other things, refinancing
existing Debt, funding ongoing working capital and general corporate
requirements, including acquisitions permitted under the Credit Agreement and
paying fees and expenses related to the transactions contemplated thereby. The
Grantors constitute one integrated financial enterprise, and thus all Extensions
of Credit to the Borrower shall benefit directly and indirectly each Grantor.
In connection with the transactions contemplated by the Credit
Agreement and as a condition precedent thereto, the Lenders have requested and
the Grantors have agreed to grant a continuing security interest in and to the
Collateral (as hereinafter defined) to secure the Secured Obligations (as
hereinafter defined).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and to induce the Lenders to enter into and make available
Extensions of Credit pursuant to the Credit Agreement, the parties hereto agree
as follows:
SECTION 1. Definitions. Terms defined in the Credit Agreement and not
otherwise defined herein, when used in this Agreement including its preamble and
recitals, shall have the respective meanings provided for in the Credit
Agreement. The following additional terms, when used in this Agreement, shall
have the following meanings:
"Account Debtor" means any Person who is or may become obligated to any
Grantor under, with respect to, or on account of, an Account.
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"Accounts" means collectively, all rights to payment for goods sold or
leased or for services rendered or to be rendered, whether or not earned by
performance, and all sums of money or other proceeds due or becoming due
thereon, including, without limitation, "Accounts" as defined in the UCC,
whether secured or unsecured, now existing or hereafter created, now or
hereafter owned or acquired by any Grantor or in which any Grantor now or
hereafter has or acquires any right or interest.
"Accounts Aging Report" means an aged trial balance of all Accounts
existing as of a specified date, in a form reasonably satisfactory to the
Administrative Agent, specifying the names, addresses, face value and dates of
invoices of each Account Debtor obligated on any Accounts so listed.
"Collateral" shall have the meaning given in Section 2(a) of this
Agreement.
"Collateral Account" means a cash collateral account established by the
Grantors with the Administrative Agent, in the name and under the exclusive
dominion and control of the Administrative Agent, pursuant to Section 6 hereof.
"Financing Statements" shall mean the Uniform Commercial Code Form
UCC-1 Financing Statements (or, with respect to any Foreign Subsidiary, any
filing required by the applicable foreign jurisdiction) executed by the Grantors
with respect to the Collateral and to be filed in the jurisdictions set forth in
the Perfection Certificate.
"Instruments" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) of any Grantor, including, without
limitation, instruments, chattel paper and letters of credit evidencing,
representing, arising from or existing in respect of, relating to, securing or
otherwise supporting the payment of, any of the Accounts, including (but not
limited to) promissory notes, drafts, bills of exchange and trade acceptances,
now or hereafter owned or acquired by such Grantor or in which such Grantor now
or hereafter has or acquires any right or interest.
"Inventory" means all "inventory" as defined in the UCC wherever
located, including without limitation, all goods manufactured or acquired for
sale or lease and all raw materials, work-in-process and finished goods, and all
supplies and goods, used or consumed in the operation of the business of the
Borrower or any Guarantor, whether now or hereafter owned or acquired by any
Grantor or in which such Grantor now or hereafter has or acquires any right or
interest.
"Perfection Certificate" means a certificate substantially in the form
of Exhibit A attached hereto, setting forth the corporate or other names, chief
executive office or principal place of business in each state and other current
locations of each Grantor and such other information as the Administrative Agent
deems reasonably necessary for the perfection of the security interests granted
hereunder, completed and supplemented with the schedules and attachments
contemplated thereby to the reasonable satisfaction of the Administrative Agent,
and certified by the Chief Executive Officer, President, any Executive Vice
President, Chief Financial Officer or Treasurer of each Grantor so authorized to
act.
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"Permitted Liens" means all Liens respecting the Collateral permitted
pursuant to Sections 10.3(a), (e), and (f) of the Credit Agreement.
"Proceeds" means all proceeds (as defined by the UCC) of, and all other
profits, rentals or receipts, in whatever form, arising from the collection,
sale, lease, exchange, assignment, licensing or other disposition of, or
realization upon, Collateral, including, without limitation, all claims of any
Grantor against third parties for loss of, damage to or destruction of, or for
proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, any Collateral, and any condemnation or requisition
payments with respect to any Collateral and all Collateral acquired with the
cash proceeds of any other Collateral.
"Schedule of Inventory" means a schedule of Inventory based upon each
Grantor's most recent physical inventory and its perpetual inventory records, in
a form reasonably satisfactory to the Administrative Agent.
"Secured Obligations" means the Obligations as defined in the Credit
Agreement and the Guaranteed Obligations as defined in the Guaranty Agreement
and any renewals or extensions of any of the obligations thereunder.
"Security Interests" means the security interests granted by the
Grantors to the Administrative Agent hereby in respect of the Collateral.
"UCC" means the Uniform Commercial Code as in effect in the State of
North Carolina; provided that, if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection of the Security
Interests in any Collateral is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than North Carolina, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or
non-perfection.
SECTION 2. The Security Interests.
(a) In order to secure the payment when due of the Secured Obligations,
each Grantor hereby grants to the Administrative Agent, for the ratable benefit
of itself and the Lenders, a continuing security interest in and to all of such
Grantor's estate, right, title and interest in and to all of the following
property, whether now or hereafter owned or acquired by such Grantor or in which
such Grantor now has or hereafter has or acquires any estate, right, title or
interest, and whenever located (collectively, along with any other property of
such Grantor which may from time to time secure the Secured Obligations pursuant
to the terms of this Agreement, the "Collateral"):
(i) Accounts;
(ii) Inventory;
(iii) The Collateral Account, all cash deposited therein from
time to time, the investments made pursuant to Section 6 and other
monies and property of any kind of any
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Grantor in the possession or under the control of the Administrative
Agent or any Lender; and
(iv) All products and Proceeds of all or any of the Collateral
described in clauses (i) through (iii) hereof.
(b) The Security Interests are granted as security only and shall not
subject the Administrative Agent or any Lender to, or transfer to the
Administrative Agent or any Lender, or in any way affect or modify, any
obligation or liability of any Grantor with respect to any of the Collateral or
any transaction in connection therewith.
SECTION 3. Representations and Warranties. Each Grantor represents and
warrants to the Administrative Agent and each Lender as follows:
(a) Such Grantor has the corporate power and authority and the legal
right to execute and deliver, to perform its obligations under, and to grant the
Security Interests in the Collateral owned by it pursuant to, this Agreement and
has taken all necessary corporate action to authorize its execution, delivery
and performance of, and grant of the Security Interests on the Collateral
pursuant to, this Agreement.
(b) This Agreement constitutes a legal, valid and binding obligation of
such Grantor enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies.
(c) Such Grantor is the sole owner of, and has valid and legal title
to, all of its respective Collateral owned by it, free and clear of any Liens,
other than Permitted Liens.
(d) Other than financing statements or other similar or equivalent
documents or instruments with respect to Permitted Liens, no financing
statement, mortgage, security agreement or similar or equivalent document or
instrument covering all or any part of the Collateral is on file or of record in
any jurisdiction. No Collateral of such Grantor is in the possession of any
Person (other than the Grantors) asserting any claim thereto or security
interest therein, except that the Administrative Agent or its designee may have
possession of Collateral as contemplated hereby and a bailee, warehouseman,
agent or processor may have possession of the Collateral as contemplated by, and
so long as, the Grantors have complied with, Section 4(c)(iii) and Section
4(c)(iv) hereof.
(e) All of the information set forth in the Perfection Certificate
relating to such Grantor is true and correct in all material respects as of the
date hereof.
(f) Such Grantor has, contemporaneously herewith, delivered to the
Administrative Agent possession of all originals of all negotiable Instruments
constituting Collateral currently owned or held by such Grantor, if any (duly
endorsed in blank, if requested by the Administrative Agent).
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(g) With respect to any Inventory of such Grantor: (i) all Inventory of
such Grantor is, and shall be at all times, located at places of business of
such Grantor listed in the Perfection Certificate or as to which such Grantor
has complied with the provisions of Section 4(a)(i) hereof, except Inventory in
transit from one such location to another such location; (ii) no Inventory is,
nor shall at any time or times be, subject to any Lien whatsoever, except for
Permitted Liens; (iii) no Inventory in aggregate value exceeding $1,000,000 at
any time is, nor shall at any time or times be, kept, stored or maintained with
a bailee, warehouseman, carrier or similar party (other than a carrier
delivering Inventory to a purchaser in the ordinary course of such Grantor's
business) unless the Administrative Agent shall have received prior written
notice of such storage and the such Grantor has complied with the provisions of
Section 4(c)(iii) hereof; and (iv) no Inventory in aggregate value exceeding
$1,000,000 at any time is, nor shall at any time or times be, kept, stored or
maintained with a consignee unless the Agent shall have received prior written
notice of such consignment and the applicable Grantor has complied with the
provisions of Section 4(c)(iii) hereof.
(h) The Financing Statements are in appropriate form and when filed in
the offices specified in the Perfection Certificate, the Security Interests will
constitute valid and perfected security interests in the Collateral, prior to
all other Liens and rights of others therein (to the extent that a security
interest therein may be perfected by filing pursuant to the UCC) and all filings
and other actions necessary or desirable to perfect and protect such Security
Interests have been duly taken.
SECTION 4. Further Assurances; Covenants.
(a) General.
(i) No Grantor will change the location of its chief executive
office or principal place of business in any state unless it shall have
given the Administrative Agent thirty (30) days prior written notice
thereof, executed and delivered to the Administrative Agent all
financing statements and financing statement amendments which the
Administrative Agent may request in connection therewith and, if
reasonably requested by the Administrative Agent, delivered an opinion
of counsel with respect thereto in accordance with Section 4(a)(v)
hereof. No Grantor shall change the locations where it keeps or holds
any Collateral or any records relating thereto from the applicable
location described in the Perfection Certificate unless such Grantor
shall have given the Administrative Agent thirty (30) days prior
written notice of such change of location, executed and delivered to
the Administrative Agent all financing statements and financing
statement amendments which the Administrative Agent may request in
connection therewith and, if reasonably requested by the Administrative
Agent, delivered an opinion of counsel with respect thereto in
accordance with Section 4(a)(v) hereof; provided, however, that any
Grantor may keep Inventory at, or in transit to, any location described
in the Perfection Certificate. No Grantor shall in any event change the
location of any Collateral if such change would cause the Security
Interests in such Collateral to lapse or cease to be perfected.
(ii) No Grantor will change its name, identity or corporate or
other structure in any manner unless it shall have given the
Administrative Agent thirty (30) days prior written notice thereof,
executed and delivered to the Administrative Agent all financing
statements
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and financing statement amendments which the Administrative Agent may
request in connection therewith, and, if reasonably requested by the
Administrative Agent, delivered an opinion of counsel with respect
thereto in accordance with Section 4 (a)(v) hereof.
(iii) The Grantors will maintain the Administrative Agent's
Lien on the Collateral as a first priority perfected Lien thereon,
except for the Permitted Liens. Each Grantor will, from time to time,
at its expense, execute, deliver, file and record any statement,
assignment, instrument, document, agreement or other paper and take any
other action (including, without limitation, any filings of financing
or continuation statements under the UCC) that from time to time may be
necessary, or that the Administrative Agent may reasonably request, in
order to create, preserve, upgrade in rank (to the extent required
hereby), perfect, confirm or validate the Security Interests or to
enable the Administrative Agent to exercise and enforce any of its
rights, powers and remedies hereunder with respect to any of the
Collateral. Prior to the irrevocable payment in full of the Secured
Obligations, to the extent required by the immediately preceding
sentence, each Grantor hereby authorizes the Administrative Agent, upon
the failure of any Grantor to so do within ten (10) Business Days after
receipt of notice in writing from the Administrative Agent, to execute
and file financing statements, financing statement amendments or
continuation statements without such Grantor's signature appearing
thereon. Each Grantor agrees that, except as otherwise required by law,
a carbon, photographic, photostatic or other reproduction of this
Agreement or of a financing statement is sufficient as a financing
statement. The Grantors shall pay the reasonable costs of, or
incidental to, any recording or filing of the Financing Statements and
any other financing statements, financing statement amendments or
continuation statements concerning the Collateral required to be made
pursuant to this Section 4(a).
(iv) Each Grantor will, promptly upon request, provide to the
Administrative Agent all information and evidence the Administrative
Agent may reasonably request concerning the Collateral, and in
particular the Accounts, to enable the Administrative Agent to enforce
the provisions of this Agreement.
(v) Prior to each date on which any Grantor proposes to take
any action contemplated by Section 4(a)(i) or Section 4 (a)(ii) hereof,
if reasonably requested by the Administrative Agent, such Grantor
shall, at its cost and expense, cause to be delivered to the
Administrative Agent (with a copy for each Lender) an opinion of
counsel, satisfactory to the Administrative Agent, to the effect that
all financing statements and amendments or supplements thereto,
continuation statements and other documents required to be recorded or
filed in order to perfect and protect the Security Interests and
priority thereof against all creditors of and purchasers from such
Grantor have been filed in each filing office necessary or desirable
for such purposes and that all filing fees and taxes, if any, payable
in connection with such filings have been paid in full.
(vi) After the occurrence and during the continuation of an
Event of Default, from time to time upon request by the Administrative
Agent, each Grantor shall, at its cost and expense, cause to be
delivered to the Administrative Agent (with a copy for each lender) an
opinion or opinions of counsel, reasonably satisfactory to the
Administrative Agent, as to
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the enforceability of the Loan Documents and the Lien of the
Administrative Agent and Lenders on the Collateral and other property
of the Grantors and such other matters relating to the transactions
contemplated hereby as the Administrative Agent or the Required Lenders
may reasonably request.
(vii) Each Grantor will comply in all material respects with
all Applicable Laws applicable to the Collateral or any material part
thereof or to the operation of such Grantor's business.
(viii) Each Grantor will pay when due all material taxes,
assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as
all material claims of any kind (including, without limitation, claims
for labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if (A) the validity
thereof is being contested in good faith by appropriate proceedings,
(B) such proceedings do not involve any danger of the sale, forfeiture
or loss of, or creation of a Lien on, any of the Collateral or any
interest therein and (C) such charge is adequately reserved against on
such Grantor's books in accordance with GAAP.
(ix) The Grantors shall not
(1) sell, assign (by operation of law or otherwise)
or otherwise dispose of any of the Collateral, except as
permitted by the Credit Agreement or hereunder; or
(2) create or suffer to exist any Lien or other
charge or encumbrance upon or with respect to any of the
Collateral to secure indebtedness of any Person or entity
other than Permitted Liens.
(b) Accounts, Etc.
(i) Each Grantor shall use all reasonable efforts to cause to
be collected from its Account Debtors, as and when due, any and all
amounts owing under or on account of each Account (including, without
limitation, Accounts which are delinquent, such Accounts to be
collected in accordance with past practices) and to apply upon receipt
thereof all such amounts as are so collected to the outstanding balance
of such Account. The costs and expenses (including, without limitation,
attorney's fees) of collection of Accounts incurred by such Grantor or
the Administrative Agent shall be borne by such Grantor.
(ii) Upon the occurrence and during the continuance of an
Event of Default, upon request of the Administrative Agent or the
Required Lenders, each Grantor will promptly notify (and each Grantor
hereby authorizes the Administrative Agent so to notify) each Account
Debtor in respect of any Account that such Account has been assigned to
the Administrative Agent hereunder and that any payments due or to
become due in respect of such Account are to be made directly to the
Administrative Agent or its designee.
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(iii) Each Grantor will perform and comply in all material
respects with all of its material obligations in respect of its
Accounts and the exercise by the Administrative Agent of any of its
rights hereunder shall not release such Grantor from any of its duties
or obligations.
(iv) No Grantor will (A) amend, modify, terminate or waive any
material provision of any agreement giving rise to an Account in any
manner which could reasonably be expected to materially adversely
affect the value of the Collateral, (B) fail to exercise promptly and
diligently each and every material right which it may have under each
agreement giving rise to an Account (other than any right of
termination) which could reasonably be expected to materially adversely
affect the value of the Collateral or (C) fail to deliver to the
Administrative Agent a copy of each written material demand, notice or
document received by it which could reasonably be expected to
materially adversely affect the value of the Collateral relating in any
way to any material agreement giving rise to an Account.
(v) Other than in the ordinary course of business as generally
conducted by each Grantor, no Grantor will (A) grant any extension of
the time of payment of any of the Accounts with a face amount in excess
of $500,000 or (B) compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partially, any Person
liable for the payment thereof, or allow any credit or discount
whatsoever thereon.
(vi) At the times set forth in the Section 7.1(d) of the
Credit Agreement or, after the occurrence and during the continuance of
an Event of Default, from time to time, at the request of the
Administrative Agent or the Required Lenders, the Grantors shall
deliver to the Administrative Agent with a copy for each Lender an
Accounts Aging Report. Unless otherwise indicated thereon or in writing
by the Grantors, each Accounts Aging Report delivered by the Grantors
to the Administrative Agent shall constitute a representation by the
Grantors with respect to the Accounts listed thereon that: (A) such
Accounts are genuine, are not evidenced by a judgment and are evidenced
by invoices issued in respect thereof; (B) such Accounts represent
undisputed, bona fide transactions completed in accordance with the
terms and provisions contained in any documents related thereto or in
accordance with past practices; (C) the amounts of the face value
shown, and any invoices and statements delivered to the Administrative
Agent with respect to any Account are owing to the applicable Grantor
and are not contingent for any reason; (D) there are no setoffs,
counterclaims or disputes existing or asserted with respect to such
Accounts, and such Grantor has not made any agreement with any Account
Debtor thereunder for any deduction therefrom; (E) no Grantor has
knowledge that there are any facts, events, or occurrences which in any
way impair in any material respect the validity or enforceability of
any such Account or tend to reduce the amount payable thereunder from
the amount of the invoice face value shown on any Accounts Aging Report
and on all contracts, invoices and statements delivered to the
Administrative Agent with respect thereto; (F) no Grantor has knowledge
that any Account Debtor under any such Account did not have the
capacity to contract at the time any contract or other document giving
rise to the Account was executed; (G) the goods giving rise to such
Accounts are not, and were not at the time of the sale thereof, subject
to any Lien, except Permitted Liens; (H) no Grantor has any knowledge
of
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any fact or circumstance which would materially impair the validity or
collectability of any such Account; (I) to the applicable Grantor's
knowledge, there are no proceedings or actions which are pending or,
threatened against any Account Debtor under such Accounts which could
result in any material adverse change in such Account Debtor's
financial condition; (J) no security interest in such Accounts has been
granted to any Person other than that granted to the Administrative
Agent pursuant hereto and other Permitted Liens; and (K) each invoice
or other evidence of payment obligation furnished to Account Debtors
with respect to such Accounts is issued in the applicable Grantor's
corporate name.
(c) Inventory, Etc.
(i) At the times set forth in Section 7.1(d) of the Credit
Agreement and, after the occurrence and during the continuance of an
Event of Default, from time to time, at the request of the
Administrative Agent or Required Lenders, the Grantors shall deliver to
the Administrative Agent with a copy for each Lender a Schedule of
Inventory. Unless otherwise indicated thereon or in writing by the
Grantors, each Schedule of Inventory delivered by the Grantors to the
Administrative Agent shall constitute a representation with respect to
the Inventory listed thereon or referred to therein that: (A) all such
Inventory is located at places of business listed in the Perfection
Certificate or as to which the applicable Grantor has complied with the
provisions of Section 4(a)(i) hereof or on the premises identified on
the then current Schedule of Inventory or is Inventory in transit from
one such location to another such location; (B) no such Inventory is
subject to any Lien whatsoever, except for Permitted Liens; (C) no such
Inventory in aggregate value exceeding $1,000,000 at any time is, nor
shall at any time or times be, kept, stored or maintained with a
bailee, warehouseman, carrier or similar party (other than a carrier
delivering Inventory to a purchaser in the ordinary course of such
Grantor's business) unless the Administrative Agent has given its
consent and the applicable Grantor has complied with the provisions of
Section 4(c)(iii) hereof; and (D) no such Inventory in aggregate value
exceeding $1,000,000 is, nor shall at any time or times be, kept,
stored or maintained with a consignee unless the Administrative Agent
has given its consent and the applicable Grantor has complied with the
provisions of Section 4(c)(iii).
(ii) Each Grantor will cause the Administrative Agent, for the
ratable benefit of itself and the Lenders, to be named as loss payee on
each insurance policy covering risks relating to any of its Inventory,
as reasonably requested by the Administrative Agent. Each Grantor will
deliver to the Administrative Agent, upon request of the Administrative
Agent, copies of the insurance policies for such insurance. Each such
insurance policy shall provide that all insurance proceeds shall be
adjusted with and payable to the Administrative Agent, and provide that
no cancellation or termination thereof shall be effective until at
least thirty (30) days have elapsed after receipt by the Administrative
Agent of written notice thereof. The Administrative Agent agrees that,
as long as no Default or Event of Default has occurred and is
continuing, any such net cash proceeds received by it in an aggregate
amount of (i) less than $2,000,000 shall be promptly paid over to the
Grantors and (ii) greater than or equal to $2,000,000 shall be promptly
paid over to the Grantors who hereby agree to use such net cash
proceeds in a diligent manner to replace or restore the damaged
property to which such insurance proceeds relate within three hundred
and sixty-five (365)
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days of receipt of such proceeds. All such loss proceeds not so
utilized within such three hundred and sixty-five (365) day period
shall be applied to the Secured Obligations in accordance with Section
2.5(b)(ii) of the Credit Agreement. Any surplus shall be paid by the
Administrative Agent to the Grantor or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by the Grantor to
the Administrative Agent, on behalf of itself and the Lenders, on
demand.
(iii) If any Inventory exceeding in value $1,000,000 in the
aggregate is at any time in the possession or control of any
warehouseman, bailee (other than a carrier transporting Inventory to a
purchaser in the ordinary course of business), or any of any Grantor's
agents or processors, such Grantor shall notify in writing such
warehouseman, bailee, agent or processor of the Security Interests
created hereby, shall obtain such warehouseman's, bailee's, agent's or
processor's agreement in writing to hold all such Inventory for the
Administrative Agent's account subject to the Administrative Agent's
instructions, and shall cause such warehouseman, bailee, agent or
processor to issue and deliver to the Administrative Agent warehouse
receipts, bills of lading or any similar documents relating to such
Inventory in the Administrative Agent's name and in form and substance
reasonably acceptable to the Administrative Agent.
(iv) If at any time during the term of this Agreement, any
Inventory exceeding in value $1,000,000 is placed by any Grantor on
consignment with any consignee, such Grantor shall, prior to the
delivery of any such consigned Inventory: (A) provide the
Administrative Agent with a copy of all consignment agreements and
other instruments and documentation to be used in connection with such
consignment, all of which agreements, instruments and documentation
shall be reasonably acceptable in form and substance to the
Administrative Agent; (B) prepare, execute and file appropriate
financing statements with respect to any consigned Inventory showing
the consignee as debtor, the Grantor as secured party and the
Administrative Agent as assignee of secured party; (C) prepare, execute
and file appropriate financing statements with respect to any consigned
Inventory showing the Grantor as debtor and the Administrative Agent as
secured party; (D) after all financing statements referred to in
clauses (B) and (C) above shall have been filed, conduct a search of
all filings made against the consignee in all jurisdictions in which
the Inventory to be consigned is to be located while on consignment,
and deliver to the Administrative Agent copies of the results of all
such searches; (E) notify, in writing, all creditors of the consignee
which would be holders of security interests in the Inventory to be
consigned that the Grantor expects to deliver certain Inventory to the
Consignee, all of which Inventory shall be described in such notice by
item or type, and (F) if reasonably requested by the Administrative
Agent, deliver an opinion of counsel to the effect that all financing
statements and amendments or supplements thereto, continuation
statements and other documents required to be recorded or filed in
order to perfect and protect the Security Interests and priority
thereof against all creditors of and purchasers of the Grantor and such
consignee have been filed in each filing office necessary or desirable
for such purposes and that all filing fees and taxes, if any, payable
in connection with such filings have been paid in full.
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(d) Indemnification. Each Grantor agrees to pay, and to save the
Administrative Agent and the Lenders harmless from, any and all liabilities,
reasonable costs and expenses (including, without limitation, reasonable legal
fees and expenses) incurred by the Administrative Agent or any Lender (i) with
respect to, or resulting from, any and all excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral, (ii) with respect to, or resulting from, complying with any
Applicable Law applicable to any of the Collateral or (iii) in connection with
any of the transactions contemplated by this Agreement (except to the extent any
such liabilities, costs and expenses result from the gross negligence or willful
misconduct of the Administrative Agent or such Lenders). In any suit, proceeding
or action brought by the Administrative Agent under any Account for any sum
owing thereunder, or to enforce any provisions of any Account, each Grantor will
save, indemnify and keep the Administrative Agent and each Lender harmless from
and against all expense, loss or damage suffered by the Administrative Agent or
any Lender by reason of any defense, setoff, counterclaim, recoupment or
reduction or liability whatsoever of the Account Debtor or any other obligor
thereunder, arising out of a breach by any Grantor of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to or in favor of such Account Debtor or obligor or its successors from
any Grantor (except to the extent any such expense, loss or damage results from
the gross negligence or willful misconduct of the Administrative Agent or such
Lenders). The obligations of the Grantors under this Section 4(d) shall survive
the termination of the other provisions of this Agreement.
SECTION 5. Reporting and Recordkeeping. Each Grantor respectively
covenants and agrees with the Administrative Agent and the Lenders that from and
after the date of this Agreement and until the Commitments have terminated and
all Secured Obligations have been fully satisfied:
(a) Maintenance of Records Generally. Each Grantor will keep and
maintain at its own cost and expense adequate records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral in accordance with past practices. All chattel paper given to such
Grantor with respect to any Accounts will be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to the
security interest of First Union National Bank, as Administrative Agent". For
the Administrative Agent's and the Lenders' further security, each Grantor
agrees that upon the occurrence and during the continuation of any Event of
Default, upon the request of the Administrative Agent or the Required Lenders,
such Grantor shall deliver and turn over any such books and records directly to
the Administrative Agent or its designee. Each Grantor shall permit any
representative of the Administrative Agent to inspect such books and records in
accordance with Section 8.11 of the Credit Agreement and will provide
photocopies thereof to the Administrative Agent upon its reasonable request.
(b) Certain Provisions Regarding Maintenance of Records and Reporting
Re: Accounts.
(i) In the event any amounts due and owing in excess of
$500,000 individually or $1,000,000 in the aggregate are in dispute
between any Account Debtor and any Grantor, such Grantor shall provide
the Administrative Agent with written notice thereof promptly after
such Grantor's learning thereof, explaining the reason for the dispute,
all claims related thereto and the amount in controversy.
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(ii) Each Grantor will promptly notify the Administrative
Agent in writing if any Account or Accounts, the face value of which
exceeds $500,000 individually or $1,000,000 in the aggregate, arises or
arise out of a contract with the United States of America, or any
department, agency, subdivision or instrumentality thereof, or of any
state (or department, agency, subdivision or instrumentality thereof)
where such state has a state assignment of claims act or other law
comparable to the Federal Assignment of Claims Act. Each Grantor will
take any action required or requested by the Administrative Agent or
give notice of the Administrative Agent's Security Interest in such
Accounts under the provisions of the Federal Assignment of Claims Act
or any comparable law or act enacted by any state or local Governmental
Authority. Any notifications or other documents executed and delivered
to the Administrative Agent in connection with the Federal Assignment
of Claims Act or any comparable state law may be promptly filed with
the appropriate Governmental Authority by the Administrative Agent or
held by the Administrative Agent until the Administrative Agent or the
Required Lenders decide in its or their sole discretion to make any
such filing.
(iii) Each Grantor will promptly upon, but in no event later
than ten (10) Business Days after: (A) such Grantor's learning thereof,
inform the Administrative Agent, in writing, of any material delay in
such Grantor's performance of any of its obligations to any Account
Debtor and of any assertion of any claims, offsets or counterclaims by
any Account Debtor and of any allowances, credits and/or other monies
granted by such Grantor to any Account Debtor, in each case involving
amounts in excess of $500,000 for any single Account or Account Debtor
or in excess of $1,000,000 in the aggregate for all Accounts and
Account Debtors; and (B) such Grantor's receipt or learning thereof,
furnish to and inform the Administrative Agent of any adverse
information that, to the knowledge of such Grantor, could reasonably be
expected to materially adversely affect the financial condition of any
Account Debtor with respect to Accounts exceeding $500,000 individually
or $1,000,000 in the aggregate.
(c) Further Identification of Collateral. Each Grantor will, if so
reasonably requested by the Administrative Agent, furnish to the Administrative
Agent statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Administrative
Agent may reasonably request, all in reasonable detail.
(d) Notices. In addition to the notices required by Section 5(b)
hereof, each Grantor will advise the Administrative Agent promptly, in
reasonable detail, (i) of any material Lien or claim made or asserted against
any of the Collateral, (ii) of any material adverse change in the composition of
the Collateral, and (iii) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the Collateral or on
the validity, perfection or priority of the Security Interests.
SECTION 6. Collateral Account.
(a) There is hereby established with the Administrative Agent a
Collateral Account in the name and under the exclusive dominion and control of
the Administrative Agent. There shall be
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deposited from time to time into such account the cash proceeds of the
Collateral required to be delivered to the Administrative Agent pursuant to
Section 6(b) hereof or any other provision of this Agreement. Any income
received by the Administrative Agent with respect to the balance from time to
time standing to the credit of the Collateral Account, including any interest or
capital gains on investments of amounts on deposit in the Collateral Account,
shall remain, or be deposited, in the Collateral Account together with any
investments from time to time made pursuant to subsection (c) of this Section 6,
shall vest in the Administrative Agent, shall constitute part of the Collateral
hereunder and shall not constitute payment of the Secured Obligations until
applied thereto as hereinafter provided.
(b) Upon the occurrence and during the continuance of an Event of
Default, if requested by the Administrative Agent, each Grantor shall instruct
all Account Debtors and other Persons obligated in respect of all Accounts to
make all payments in respect of the Accounts either (i) directly to the
Administrative Agent (by instructing that such payments be remitted to a post
office box which shall be in the name and under the exclusive dominion and
control of the Administrative Agent) or (ii) to one or more other banks in any
state in the United States (by instructing that such payments be remitted to a
post office box which shall be in the name and under the exclusive dominion and
control of such bank) under a Lockbox Letter substantially in the form of Annex
I hereto duly executed by each Grantor and such bank or under other
arrangements, in form and substance reasonably satisfactory to the
Administrative Agent, pursuant to which such Grantor shall have irrevocably
instructed such other bank (and such other bank shall have agreed) to remit all
proceeds of such payments directly to the Administrative Agent for deposit into
the Collateral Account or as the Administrative Agent may otherwise instruct
such bank, and thereafter if the proceeds of any Collateral shall be received by
any of the Grantors, such Grantor will promptly deposit such proceeds into the
Collateral Account and until so deposited, all such proceeds shall be held in
trust by such Grantor for and as the property of the Administrative Agent, for
the benefit of itself and the Lenders and shall not be commingled with any other
funds or property of such Grantor. At any time after the occurrence and during
the continuance of an Event of Default, the Administrative Agent may itself so
instruct each Grantor's Account Debtors. All such payments made to the
Administrative Agent shall be deposited in the Collateral Account.
(c) Amounts on deposit in the Collateral Account shall be promptly
liquidated and applied to the payment of the Secured Obligations in the manner
specified in Section 10 hereof.
SECTION 7. General Authority.
(a) The Grantors hereby irrevocably appoint, after the occurrence and
during the continuance of an Event of Default, the Administrative Agent their
true and lawful attorney, with full power of substitution, in the name of each
Grantor, the Administrative Agent, the Lenders or otherwise, for the sole use
and benefit of the Administrative Agent and the Lenders, but at the Grantors'
expense, to exercise, at any time from time to time all or any of the following
powers:
(i) to file the Financing Statements and any financing
statements, financing statement amendments and continuation statements
referred to in Sections 4(a)(i), 4(a)(ii), 4(a)(iii) and 4(c)(iv)
hereof;
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(ii) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due with respect to any
Collateral or by virtue thereof;
(iii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect to any Collateral;
(iv) to sell, transfer, assign or otherwise deal in or with
the Collateral and the Proceeds thereof, as fully and effectually as if
the Administrative Agent were the absolute owner thereof; and
(v) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference to the
Collateral;
provided that the Administrative Agent shall not take any of the actions
described in this Section 7(a) except those described in clause (i) above unless
an Event of Default shall have occurred and be continuing and the Administrative
Agent shall give the Grantors not less than ten (10) Business Days' prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral, except any Collateral which is perishable or threatens
to decline speedily in value or is of a type customarily sold on a recognized
market. The Grantors agree that any such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC (to the extent
such Section is applicable).
(b) Ratification. The Grantors hereby ratify all that said attorney
shall lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to Section 7(a) is a power coupled with an interest and shall
be irrevocable.
(c) Other Powers. The Grantors also authorize the Administrative Agent,
after the occurrence and during the continuance of an Event of Default, at any
time and from time to time, to execute, in connection with the sale provided for
in Section 8 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
SECTION 8. Remedies Upon Event of Default.
(a) If any Event of Default has occurred and is continuing, the
Administrative Agent may, upon the request of the Required Lenders (and only
upon such request), exercise on behalf of itself and the Lenders all rights of a
secured party under the UCC (whether or not in effect in the jurisdiction where
such rights are exercised) and, in addition, the Administrative Agent may, upon
the request of the Required Lenders (and only upon such request), (i) withdraw
all cash, if any, in the Collateral Account and investments made with amounts on
deposit in the Collateral Account, and apply such monies, investments and other
cash, if any, then held by it as Collateral as specified in Section 10 hereof
and (ii) if there shall be no such monies, investments or cash or if such
monies, investments or cash shall be insufficient to pay the Secured Obligations
then outstanding in full, sell the Collateral or any part thereof at public or
private sale, for cash, upon credit or for future delivery, and at such price or
prices as the Administrative Agent may deem satisfactory. The Administrative
Agent or any Lender may be the purchaser of any or all of the Collateral so sold
at any public sale (or, if the Collateral is of a type customarily sold in a
recognized market or is of a
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type which is the subject of widely distributed standard price quotations or if
otherwise permitted under applicable law, at any private sale) and thereafter
hold the same, absolutely, free from any right or claim of whatsoever kind. Each
Grantor will execute and deliver such documents and take such other action as
the Administrative Agent deems reasonably necessary or advisable in order that
any such sale may be made in compliance with law. Upon any such sale the
Administrative Agent shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold (without warranty). Each purchaser at
any such sale shall hold the Collateral so sold to it absolutely, free from any
claim or right of whatsoever kind, including any equity or right of redemption
of any Grantor. To the extent permitted by law, each Grantor hereby specifically
waives all rights of redemption, stay or appraisal which it has or may have
under any law now existing or hereafter adopted. The notice of such sale shall
be given to the Grantors ten (10) Business Days prior to such sale and (A) in
case of a public sale, state the time and place fixed for such sale, and (B) in
the case of a private sale, state the day after which sale may be consummated.
Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Administrative Agent may fix
in the notice of such sale. At any such sale the Collateral may be sold in one
lot as an entirety or in separate parcels, as the Administrative Agent may
determine. The Administrative Agent shall not be obligated to make any such sale
pursuant to any such notice. The Administrative Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by the
Administrative Agent until the selling price is paid by the purchaser thereof,
but the Administrative Agent shall not incur any liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may again be sold upon like notice.
The Administrative Agent, instead of exercising the power of sale herein
conferred upon it, may proceed by a suit or suits at law or in equity to
foreclose the Security Interests and sell the Collateral, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction. The Grantors shall remain liable for any deficiency.
(b) For the purpose of enforcing any and all rights and remedies under
this Agreement, the Administrative Agent may (i) require each Grantor to, and
each Grantor agrees that it will, at its expense and upon the request of the
Administrative Agent, forthwith assemble all or any part of the Collateral as
directed by the Administrative Agent and make it available at a place designated
by the Administrative Agent which is, in the Administrative Agent's opinion,
reasonably convenient to the Administrative Agent and such Grantor, whether at
the premises of such Grantor or otherwise, (ii) to the extent permitted by
applicable law, enter, with or without process of law and without breach of the
peace, any premises where any of the Collateral is or may be located and,
without charge or liability to the Administrative Agent, seize and remove such
Collateral from such premises, (iii) have access to and use such Grantor's books
and records relating to the Collateral and (iv) prior to the disposition of the
Collateral, store or transfer such Collateral without charge in or by means of
any storage or transportation facility owned or leased by such Grantor, process,
repair or recondition such Collateral or otherwise prepare it for disposition in
any manner and to the extent the Administrative Agent deems appropriate.
SECTION 9. Limitation on Duty of Administrative Agent in Respect of
Collateral. Beyond reasonable care in the custody thereof, the Administrative
Agent shall have no duty as to any
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Collateral in its possession or control or in the possession or control of any
agent or bailee or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. The Administrative
Agent shall be deemed to have exercised reasonable care in the custody of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which it accords its own property, and the
Administrative Agent shall not be liable or responsible for any loss or damage
to any of the Collateral, or for any diminution in the value thereof, by reason
of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by the Administrative Agent in good
faith.
SECTION 10. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied by the
Administrative Agent in accordance with Section 4.5 of the Credit Agreement, and
then to payment to the Grantors or their successors or assigns, or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds. The Administrative Agent may make distribution hereunder in cash or in
kind or, on a ratable basis, in any combination thereof.
SECTION 11. Concerning the Administrative Agent. The provisions of
Article XII of the Credit Agreement shall inure to the benefit of the
Administrative Agent in respect of this Agreement and shall be binding upon the
parties to the Credit Agreement in such respect. In furtherance and not in
derogation of the rights, privileges and immunities of the Administrative Agent
therein set forth:
(a) The Administrative Agent is authorized to take all such
action as is provided to be taken by it as Administrative Agent
hereunder and all other action incidental thereto. As to any matters
not expressly provided for herein, the Administrative Agent may request
instructions from the Lenders and shall act or refrain from acting in
accordance with written instructions from the Required Lenders (or,
when expressly required by this Agreement or the Credit Agreement, all
the Lenders) or, in the absence of such instructions, in accordance
with its discretion.
(b) The Administrative Agent shall not be responsible for the
existence, genuineness or value of any of the Collateral or for the
validity, perfection, priority or enforceability of the Security
Interests, whether impaired by operation of law or by reason of any
action or omission to act on its part (other than any such action or
inaction constituting gross negligence or willful misconduct). The
Administrative Agent shall have no duty to ascertain or inquire as to
the performance or observance of any of the terms of this Agreement by
any Grantor.
SECTION 12. Appointment of Collateral Agents. At any time or times,
with, so long as no Default or Event of Default has occurred and is continuing,
the consent of the Grantors (which consent shall not be unreasonably withheld),
in order to comply with any legal requirement in any jurisdiction or in order to
effectuate any provision of the Loan Documents, the Administrative Agent may
appoint another bank or trust company or one or more other Persons, either to
act as collateral agent or agents, jointly with the Administrative Agent or
separately, on behalf of the Administrative Agent and the Lenders with such
power and authority as may be necessary for the
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effectual operation of the provisions hereof and specified in the instrument of
appointment (which may, in the discretion of the Administrative Agent, include
provisions for the protection of such collateral agent similar to the provisions
of Section 11 hereof).
SECTION 13. Expenses. In the event that the Grantors fail to comply
with the provisions of the Credit Agreement, this Agreement or any other Loan
Document, such that the value of any Collateral or the validity, perfection,
rank or value of the Security Interests are thereby diminished or potentially
diminished or put at risk, the Administrative Agent if requested by the Required
Lenders may, but shall not be required to, effect such compliance on behalf of
the Grantors, and the Grantors shall reimburse the Administrative Agent for the
reasonable costs thereof on demand. All insurance expenses and all reasonable
expenses of protecting, storing, warehousing, appraising, insuring, handling,
maintaining and shipping the Collateral, any and all excise, stamp, intangibles,
transfer, property, sales, and use taxes imposed by any state, federal, or local
authority or any other Governmental Authority on any of the Collateral, or in
respect of the sale or other disposition thereof, shall be borne and paid by the
Grantors; and if the Grantors fail promptly to pay any portion thereof when due,
the Administrative Agent or any Lender may, at its option, but shall not be
required to, pay the same and charge the Grantors' account therefor, and the
Grantors agree to reimburse the Administrative Agent or such Lender therefor on
demand. All sums so paid or incurred by the Administrative Agent or any Lender
for any of the foregoing and any and all other sums for which the Grantors may
become liable hereunder and all reasonable costs and expenses (including
reasonable attorneys' fees, legal expenses and court costs) incurred by the
Administrative Agent or any Lender in enforcing or protecting the Security
Interests or any of their rights or remedies hereunder shall be payable by the
Grantors on demand and shall bear interest (after as well as before judgment)
until paid at the rate then applicable to Base Rate Loans under the Credit
Agreement and shall be additional Secured Obligations hereunder.
SECTION 14. Notices. All notices, communications and distributions
hereunder shall be given or made in accordance with Section 13.1 of the Credit
Agreement.
SECTION 15. Release and Termination.
(a) Upon any sale, lease, transfer or other disposition of any item of
Collateral by any Grantor in accordance with the terms of the Loan Documents
(other than sales of Collateral in the ordinary course of business consistent
with past practices), the Administrative Agent will, at such Grantor's expense,
execute and deliver to such Grantor such documents as such Grantor shall request
to evidence the release of such item of Collateral from the assignment and
security interest granted hereby.
(b) This Agreement shall remain in effect from the Closing Date through
and including the date upon which all Secured Obligations shall have been
indefeasibly and irrevocably paid and satisfied in full and the Commitments
terminated and upon such date the Security Interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Grantors. Upon
any such termination, (i) the Administrative Agent shall promptly assign,
release, transfer and deliver to the Grantors the Collateral held by it
hereunder, all instruments of assignment executed in connection therewith,
together with all monies held by the Administrative Agent or any of its agents
hereunder, free and clear of the Liens hereof and (ii) the Administrative Agent
and the Lenders will promptly
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execute and deliver to the Grantors such documents and instruments (including
but not limited to appropriate UCC termination statements) as the Grantors shall
request to evidence such termination in each such case at the expense of the
Grantors.
SECTION 16. Waivers, Non-Exclusive Remedies. No failure on the part of
the Administrative Agent or any Lender to exercise, and no delay in exercising
and no course of dealing with respect to, any right under the Credit Agreement,
this Agreement or any other Loan Document shall operate as a waiver thereof or
hereof; nor shall any single or partial exercise by the Administrative Agent or
any Lender of any right under the Credit Agreement, this Agreement or any other
Loan Document preclude any other or further exercise thereof, and the exercise
of any rights under this Agreement, the Credit Agreement and the other Loan
Documents are cumulative and are not exclusive of any other remedies provided by
law. This Agreement is a Loan Document executed pursuant to the Credit
Agreement.
SECTION 17. Successors and Assigns. This Agreement is for the benefit
of the Administrative Agent and the Lenders and their successors and assigns (as
permitted by the Credit Agreement), and in the event of an assignment of all or
any of the Secured Obligations, the rights hereunder, to the extent applicable
to the indebtedness so assigned, may be transferred with such indebtedness. This
Agreement shall be binding on the Grantors and their successors and assigns;
provided, that the Grantors may not assign any of their rights or obligations
hereunder without the prior written consent of the Administrative Agent and the
Lenders.
SECTION 18. Changes in Writing. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Grantors and the Administrative Agent with the
consent of the Required Lenders (or, when expressly required by this Agreement
or the Credit Agreement, all of the Lenders).
SECTION 19. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
SECTION 20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAWS PRINCIPLES
THEREOF.
SECTION 21. Consent to Jurisdiction. Each Grantor hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg County, North Carolina, in any action, claim or other proceeding
arising out of or any dispute in connection with this Agreement, any rights or
obligations hereunder, or the performance of such rights and obligations. Each
Grantor hereby irrevocably consents to the service of a summons and complaint
and other process in any action, claim or proceeding brought by the
Administrative Agent or any Lender in connection with this Agreement, any rights
or obligations hereunder, or the performance of such rights and obligations, on
behalf of itself or its property, in the manner provided in Section 13.1 of the
Credit Agreement. Nothing in this Section 21 shall affect the right of the
Administrative Agent or Lender to serve legal process in any other manner
permitted by Applicable Law or affect the right of the Administrative Agent or
any Lender to bring any action or proceeding against any Grantor or its
properties in the courts of any other jurisdictions.
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SECTION 22. Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. Upon demand of any party hereto, whether made
before or after institution of any judicial proceeding, any claim or controversy
arising out of, or relating to this Agreement or any other Loan Document (a
"Dispute") between or among the parties to this Agreement or any other Loan
Document shall be resolved by binding arbitration conducted under and governed
by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules")
of the American Arbitration Association (the "AAA") and the Federal Arbitration
Act. Disputes may include, without limitation, tort claims, counterclaims,
disputes as to whether a matter is subject to arbitration, claims brought as
class actions, or claims arising from documents executed in the future. A
judgment upon the award may be entered in any court having jurisdiction.
(b) Special Rules. All arbitration hearings shall be conducted in
Charlotte, North Carolina. A hearing shall begin within 90 days of demand for
arbitration and all hearings shall be concluded within 120 days of demand for
arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of 60 days. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000. Arbitrators shall be licensed
attorneys selected from the Commercial Financial Dispute Arbitration Panel of
the AAA. The parties hereto do not waive applicable Federal or state substantive
law except as provided herein.
(c) Preservation and Limitation of Remedies.
(i) Notwithstanding the preceding binding arbitration
provisions, the parties hereto and to the other Loan Documents agree to
preserve, without diminution, certain remedies that any such Persons may
exercise before or after an arbitration proceeding is brought. Each such Person
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable: (i)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale or under applicable law by judicial foreclosure
including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment. Any
claim or controversy with regard to any party's entitlement to such remedies is
a Dispute.
(ii) Each party hereto and to the other Loan Documents agrees
that it shall not have a remedy of punitive or exemplary damages against any
other party hereto or any other Loan Document in any Dispute and hereby waives
any right or claim to punitive or exemplary damages such party has now or which
may arise in the future in connection with any Dispute, whether the Dispute is
resolved by arbitration or judicially.
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(d) JURY TRIAL. THE PARTIES HERETO AND TO THE OTHER LOAN DOCUMENTS
ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED
ANY RIGHT THEY MAY HAVE TO A JURY TRIAL WITH REGARD TO A DISPUTE.
SECTION 23. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Lenders in order to carry out the intentions of the parties hereto
as nearly as may be possible; and (b) the invalidity or unenforceability of any
provisions hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 24. Headings. The various headings of this Agreement are
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provisions hereof.
SECTION 25. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first written above.
[CORPORATE SEAL] GT INTERACTIVE SOFTWARE CORP., as
Grantor
By: /s/ ANDREW GREGOR
-----------------------------------
Name:
Title:
[Security Agreement]
<PAGE> 22
ADMINISTRATIVE AGENT:
FIRST UNION NATIONAL BANK, as
Administrative Agent
By: /s/ JAMES J. McKENNA
---------------------------------
Name:
Title:
[Security Agreement]
<PAGE> 23
[ADDITION OF NOTARIES, IF NECESSARY]
[Security Agreement: Notaries]
<PAGE> 24
ANNEX I
(to Security Agreement)
[FORM OF LOCKBOX LETTER]
_____________, _______
[Name and Address of Lockbox Bank)
Re: [CORPORATION]
Ladies and Gentlemen:
We hereby notify you that effective __________, ____, we have
transferred exclusive ownership and control of our lock-box account(s) no[s].
_____________________ (the "Lockbox Account[s]") maintained with you under the
terms of the [Lockbox Agreement] attached hereto as Exhibit A (the "Lockbox
Agreement[s]") to First Union National Bank, as Administrative Agent (the
"Administrative Agent").
We hereby irrevocably instruct you to make all payments to be made by
you out of or in connection with the Lockbox Account(s) (i) to the
Administrative Agent for credit to account no. ________ maintained by it at its
office at ________________________ or (ii) as you may otherwise be instructed by
the Administrative Agent.
We also hereby notify you that the Administrative Agent shall be
irrevocably entitled to exercise any and all rights in respect of or in
connection with the Lockbox Account(s), including, without limitation, the right
to specify when payments are to be made out of or in connection with the Lockbox
Account(s).
All funds deposited into the Lockbox Account(s) will not be subject to
deduction, set-off, banker's lien or any other right in favor of any other
person than the Administrative Agent, except that you may set-off against the
Lockbox Account(s) the face amount of any check deposited in and credited to
such Lockbox Account(s) which is subsequently returned for any reason. Your
compensation for providing the service contemplated herein shall be mutually
agreed between you and us from time to time and we will continue to pay such
compensation.
[Security Agreement: Annex I]
<PAGE> 25
Please confirm your acknowledgment of and agreement to the foregoing
instructions by signing in the space provided below
Very truly yours,
___________________________________________
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
Acknowledged and agreed
to as of this ________ day
of ____________, _____.
[LOCKBOX BANK]
By: _________________________
Name: _________________________
Title: _________________________
[Security Agreement: Annex I]
<PAGE> 1
Exhibit 10.5
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (as amended, restated, supplemented, or otherwise
modified, the "Pledge Agreement"), dated as of September 11, 1998, is made by GT
INTERACTIVE SOFTWARE CORP., a corporation organized under the laws of the State
of Delaware (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK, a national
banking association, as Administrative Agent (the "Administrative Agent"), for
the ratable benefit of itself and the financial institutions (the "Lenders")
that are, or may from time to time become, parties to the Credit Agreement
referred to below.
STATEMENT OF PURPOSE
Pursuant to the terms of the Credit Agreement of even date herewith (as
amended, restated, supplemented or otherwise modified, the "Credit Agreement")
by and among the Pledgor, as borrower (the "Borrower"), the Lenders who are or
may become party thereto, and the Administrative Agent, the Lenders have agreed
to make certain Extensions of Credit to the Borrower as more particularly
described therein.
The Pledgor is the record and beneficial owner of (a) the shares of
Pledged Stock (as hereinafter defined) issued by certain corporations as
specified on Schedule I attached hereto and incorporated herein by reference
(collectively, the "Issuers"), (b) the Partnership/LLC Interests (as hereinafter
defined) in the partnerships and limited liability companies listed on Schedule
I hereto (collectively, the "Partnerships/LLCs") and (c) any and all funds
maintained in the Investment Account (as hereinafter defined).
In connection with the transactions contemplated by the Credit
Agreement and as a condition precedent thereto, the Lenders have requested, and
the Pledgor has agreed to execute and deliver this Pledge Agreement together
with the Pledged Stock and the Partnership/LLC Interests to the Administrative
Agent, for the ratable benefit of itself and the Lenders.
NOW, THEREFORE, in consideration of the foregoing premises and to
induce the Administrative Agent and the Lenders to enter into and make available
Extensions of Credit pursuant to the Credit Agreement, the Pledgor hereby agrees
with the Administrative Agent, for the ratable benefit of itself and the
Lenders, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined, and
the following terms shall have the following meanings:
"Account Collateral" means all present and future assets held
as part of the Investment Account, including, without limitation,
investment securities whether in registered or bearer form, negotiable
instruments, promissory notes, and deposit accounts, certificates of
deposit or other cash equivalents, together with (a) any and all
accessions, renewals, replacements and substitutions, of all or any
part thereof and (b) all cash and non-cash proceeds and products
thereof and such additional
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property receivable or distributable in respect of or in exchange of
all or any of such assets.
"Code" means the Uniform Commercial Code as in effect in the
State of North Carolina; provided that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or
non-perfection of the security interests in any Collateral is governed
by the Uniform Commercial Code as in effect in a jurisdiction other
than North Carolina, "Code" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.
"Collateral" means the Stock Collateral, the Partnership/LLC
Collateral and the Account Collateral.
"Investment Account" means the account in which the Excess
Subordinated Debt Proceeds are maintained, as required pursuant to the
Credit Agreement, as further described on Schedule III attached hereto
and incorporated herein by reference.
"Obligations" means the Pledgor's obligations under the Credit
Agreement and each Loan Document to which the Pledgor is a party.
"Partnership/LLC Collateral" means all of the Partnership/LLC
Interests of the Pledgor in the Partnerships/LLCs and all Proceeds
therefrom.
"Partnership/LLC Interests" means the entire partnership or
membership interest of the Pledgor in each Partnership/LLC listed on
Schedule I hereto, including, without limitation, the Pledgor's capital
account, its interest as a partner or member in the net cash flow, net
profit and net loss, and items of income, gain, loss, deduction and
credit of the Partnerships/LLCs, its interest in all distributions made
or to be made by the Partnerships/LLCs to the Pledgor and all of the
other economic rights, titles and interests of the Pledgor as a partner
or member of the Partnerships/LLCs, whether set forth in the
partnership agreement or membership agreement of the Partnerships/LLCs,
by separate agreement or otherwise.
"Pledged Stock" means the shares of capital stock of each
Issuer listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by such Issuer to the Pledgor while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9-306(1) of the Code on the date hereof and, in any event,
shall include, without limitation, all dividends or other income from
the Pledged Stock and the Partnership/LLC Interests, collections
thereon, proceeds of sale thereof or distributions with respect
thereto.
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"Stock Collateral" means the Pledged Stock and all Proceeds
therefrom.
2. Pledge and Grant of Security Interest. The Pledgor hereby delivers
to the Administrative Agent, for the ratable benefit of itself and the Lenders,
all the Pledged Stock and hereby grants to the Administrative Agent, for the
ratable benefit of itself and the Lenders, a first priority security interest in
the Pledged Stock and all other Collateral, as collateral security for the
prompt and complete payment when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers; Register of Pledge. Concurrently with the delivery to
the Administrative Agent of each certificate representing one or more shares of
Pledged Stock (with respect to each Domestic Subsidiary, and, where applicable,
with respect to each Foreign Subsidiary), the Pledgor shall deliver an undated
stock power covering such certificate, duly executed in blank by the Pledgor
with, if the Administrative Agent so requests, signature guaranteed.
4. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable to perform all of its
duties and obligations as a partner or member of the Partnerships/LLCs to the
same extent as if this Pledge Agreement had not been executed, (b) the exercise
by the Administrative Agent or any Lender of any of its rights hereunder shall
not release the Pledgor from any of its duties or obligations as a partner or
member of the Partnerships/LLCs, and (c) neither the Administrative Agent nor
any Lender shall have any obligation or liability as a partner or member of the
Partnerships/LLCs by reason of this Pledge Agreement.
5. Account Control Agreement. Upon creation of the Investment Account,
as required pursuant to the Credit Agreement, the Pledgor hereby agrees to
deliver to the Administrative Agent an Account Control Agreement, substantially
in the form of Exhibit A attached hereto and incorporated herein by reference,
by and among the transfer agent of such Investment Account (the "Transfer
Agent"), the Pledgor, and the Administrative Agent, for the benefit of itself
and the Lenders.
6. Representations and Warranties. To induce the Administrative Agent
and the Lenders to execute the Credit Agreement and make any Extensions of
Credit and to accept the security contemplated hereby, the Pledgor hereby
represents and warrants to the Administrative Agent and the Lenders that:
(a) the Pledgor has the corporate power and authority to
execute and deliver, to perform its obligations under, and to grant the
Lien on the Collateral pursuant to, this Pledge Agreement and has taken
all necessary corporate action to authorize its execution, delivery and
performance of, and grant of the Lien on the Collateral pursuant to,
this Pledge Agreement;
(b) this Pledge Agreement constitutes a legal, valid and
binding obligation of the Pledgor enforceable against the Pledgor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or
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similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies;
(c) the execution, delivery and performance by the Pledgor of
this Pledge Agreement will not violate any provision of any (i)
Applicable Law relating to the Pledgor or (ii) material contractual
obligation of the Pledgor, the violation of which could reasonably be
expected to have a Material Adverse Effect, and will not result in the
creation or imposition of any Lien on any of the properties or the
revenues of the Pledgor pursuant to any Applicable Law or such
contractual obligation, except as contemplated hereby and by the Credit
Agreement;
(d) no consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any
stockholder or creditor of the Pledgor or any Issuer or any general or
limited partner or member of any Partnership/LLC), is required in
connection with the execution, delivery or performance by, or validity
or enforceability against, the Pledgor of this Pledge Agreement, except
(i) as may be required in connection with the disposition of the
Pledged Stock and the Partnership/LLC Interests by laws affecting the
offering and sale of securities generally, (ii) filings under the
Uniform Commercial Code, and (iii) the consent and acknowledgement of
the Transfer Agent pursuant to the Account Control Agreement referred
to in paragraph 5 above;
(e) no litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the
knowledge of the Pledgor, threatened by or against the Pledgor or
against any of its properties or revenues, in each case with respect to
this Pledge Agreement or any of the transactions contemplated hereby;
(f) the shares of Pledged Stock listed on Schedule I
constitute all of the issued and outstanding shares of all classes of
the capital stock of each Issuer that is a Domestic Subsidiary and
constitute sixty-five percent (65%) of all of the issued and
outstanding shares of all classes of capital stock of each Issuer that
is a Foreign Subsidiary, in each case owned by the Pledgor, and
Schedule I accurately reflects such Pledgor's Partnership/LLC Interest
in each of the Partnerships/LLCs and the Partnership/LLC Interests
pledged by the Pledgor constitute all of the outstanding ownership
interests in which the Pledgor has any right, title or interest in each
Partnership/LLC which is a Domestic Subsidiary and constitutes
sixty-five percent (65%) of the outstanding ownership interests in
which the Pledgor has any right, title and interest in each
Partnership/LLC which is a Foreign Subsidiary;
(g) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable and all of the
Partnership/LLC Interests have been duly and validly issued;
(h) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Stock and Partnership/LLC
Interests listed on Schedule I, free of any and all Liens or options in
favor of, or claims of, any other Person, except the Liens created by
this Pledge Agreement and the other Loan Documents;
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(i) the jurisdiction in which the Pledgor is located for
purposes of Section 9-103 and Section 9-401 of the Code is listed on
Schedule II hereto;
(j) upon delivery to the Administrative Agent of the stock
certificates evidencing the Pledged Stock and the filing of appropriate
financing statements (or, with respect to any Foreign Subsidiary, any
filing required by the applicable foreign jurisdiction) in the
jurisdictions listed on Schedule II and, with respect to the Investment
Account only, the execution and delivery of the Account Control
Agreement referred to in Paragraph 5 above, the Lien granted pursuant
to this Pledge Agreement will constitute a valid, perfected first
priority Lien on the Collateral, enforceable as such against all
creditors of the Pledgor and any Persons purporting to purchase any of
the Collateral from the Pledgor;
(k) the Pledgor has delivered to the Administrative Agent true
and complete copies of the partnership agreements and operating
agreements, as applicable, for each of the Partnerships/LLCs, which
partnership agreements and operating agreements are currently in full
force and effect and have not been amended or modified except as
disclosed to the Administrative Agent in writing; and
(l) Schedule III contains a true and complete summary of the
Investment Account as of the date of its creation, such Schedule III to
be updated on such date.
7. Certain Covenants. The Pledgor covenants and agrees with the
Administrative Agent, for the ratable benefit of itself and the Lenders, that,
from and after the date of this Pledge Agreement until the Obligations are paid
in full and the Commitments are terminated:
(a) The Pledgor agrees that as a partner or member in the
Partnerships/LLCs it will abide by, perform and discharge each and
every material obligation, covenant and agreement to be abided by,
performed or discharged by the Pledgor as and when required under the
terms of the partnership agreements and operating agreements, as
applicable, of the Partnerships/LLCs, at no cost or expense to the
Administrative Agent and the Lenders.
(b) If the Pledgor shall, as a result of its ownership of the
Collateral, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion of, or in
exchange for any of the Collateral, or otherwise in respect thereof,
the Pledgor shall accept the same as the agent of the Administrative
Agent, hold the same in trust for the Administrative Agent and deliver
the same forthwith to the Administrative Agent in the exact form
received, duly indorsed by the Pledgor to the Administrative Agent, if
required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor and with, if the
Administrative Agent so requests, signature guaranteed, to be held by
the Administrative Agent, subject to the terms hereof, as additional
collateral security for the Obligations; provided, that at no time
shall the Pledged Stock or Partnership/LLC Interests of any Issuer or
Partnership/LLC that is a Foreign
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Subsidiary exceed sixty-five percent (65%) of the Pledged Stock or
Partnership/LLC Interests of such Subsidiary owned by the Pledgor. In
addition, any sums paid upon or in respect of the Collateral upon the
liquidation or dissolution of any Issuer or Partnership/LLC shall be
held by the Administrative Agent as additional collateral security for
the Obligations.
(c) Without the prior written consent of the Administrative
Agent, the Pledgor will not (i) vote to enable, or take any other
action to permit, any Issuer or Partnership/LLC to issue any stock,
partnership interests, limited liability company interests or other
equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any
stock, partnership interests, limited liability company interests or
other equity securities of any nature of such Issuer or
Partnership/LLC, (ii) except as expressly provided to the contrary
herein, consent to any modification, extension or alteration of the
material terms of any partnership agreement or operating agreement of
the Partnerships/LLCs, (iii) accept a surrender of any partnership
agreement or operating agreement of any of the Partnerships/LLCs or
waive any material breach of or default under any partnership agreement
or operating agreement of any of the Partnerships/LLCs by any other
party thereto, (iv) sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Collateral, except
as permitted by the Loan Documents, or (v) create, incur or permit to
exist any Lien on or option in favor of, or any claim of any Person
with respect to, any of the Collateral, or any interest therein, except
for the Liens provided for by this Pledge Agreement and the other Loan
Documents and any Lien specifically permitted pursuant to the Account
Control Agreement. The Pledgor will defend the right, title and
interest of the Administrative Agent in and to the Collateral against
the claims and demands of all Persons whomsoever.
(d) On and after the date of the creation of the Investment
Account, the Pledgor shall (i) not withdraw any of the assets from the
Investment Account; provided, that the Pledgor shall be permitted to
withdraw assets once per calendar month so long as (A) the Pledgor
delivers (I) written notice of such withdrawal and (II) an Officer's
Compliance Certificate demonstrating pro forma compliance with each of
the covenants contained in Article IX of the Credit Agreement (based on
the most recent financial statements required to be delivered pursuant
to the Credit Agreement but adjusted to reflect such withdrawal) both
before and after giving effect to the proposed withdrawal at least one
(1) Business Day prior to such proposed withdrawal and (B) the
Administrative Agent consents to such proposed withdrawal, (ii) not
terminate the custodian/beneficiary relationship with the Transfer
Agent, (iii) not enter into any new agreements or contracts or make any
material modifications or amendments to any existing agreements or
contracts, between the Pledgor and the Transfer Agent with respect to
the possession or management of the Investment Account and (iv) within
thirty (30) days after the last day of each fiscal quarter, provide the
Administrative Agent with a quarterly summary of the market value of
the Investment Account as of the last day of such fiscal quarter,
certified as true and correct by the Transfer Agent.
(e) At any time and from time to time, upon the written
request of the Administrative Agent, and at the sole expense of the
Pledgor, the Pledgor will promptly and
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duly execute and deliver such further instruments and documents and
take such further actions as the Administrative Agent may reasonably
request for the purposes of obtaining or preserving the full benefits
of this Pledge Agreement and of the rights and powers herein granted.
If any amount payable under or in connection with any of the Collateral
shall be or become evidenced by any promissory note, other instrument
or chattel paper, such note, instrument or chattel paper shall be
immediately delivered to the Administrative Agent, duly endorsed in a
manner reasonably satisfactory to the Administrative Agent, to be held
as Collateral pursuant to this Pledge Agreement.
(f) The Pledgor agrees to pay when due, and to save the
Administrative Agent and the Lenders harmless from, any and all
liabilities with respect to, or resulting from any delay in paying
(except due to any delay caused by the gross negligence or willful
misconduct of the Administrative Agent or any Lender), any and all
applicable stamp, excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated
by this Pledge Agreement.
(g) On or prior to the formation or acquisition of any
Subsidiary of the Pledgor, the Pledgor agrees to execute the Joinder
Agreement, attached to the Credit Agreement (which among other things,
supplements this Pledge Agreement), and such other documents and
instruments as required pursuant to Section 8.12 of the Credit
Agreement.
8. Cash Dividends and Distributions; Voting Rights. Unless an Event of
Default shall have occurred and be continuing and the Administrative Agent shall
have given notice to the Pledgor of the Administrative Agent's intent to
exercise its rights pursuant to Paragraph 9 below, (a) the Pledgor shall be
permitted to receive all cash dividends and shareholder, partnership and
membership distributions paid in accordance with the terms of the Credit
Agreement in respect of the Collateral and to exercise all voting and corporate,
partnership or membership rights, as applicable, with respect to the Collateral;
provided, that no vote shall be cast or corporate, partnership or membership
right exercised or other action taken which, in the Administrative Agent's
reasonable judgment, would impair the Collateral or which would be inconsistent
with or result in any violation of any provision of the Credit Agreement, the
Notes, any other Loan Document or this Pledge Agreement and (b) the Pledgor
shall be entitled to establish and communicate investment objectives and
policies to the Transfer Agent. The Administrative Agent shall, at the sole cost
and expense of the Pledgor, execute and deliver all proxies and other
instruments as the Pledgor may reasonably request from time to time for the
purpose of enabling the Pledgor to exercise the voting and other rights that it
is entitled to exercise and to receive the dividends and distributions that it
is authorized to receive and retain pursuant to this Paragraph 8.
9. Rights of the Administrative Agent.
(a) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the Pledgor, (i) the Administrative Agent shall have the right to receive any
and all cash dividends paid in respect of the Pledged Stock, partnership and
membership distributions in respect of the Partnership/LLC Interests or any
distributions made in respect of the Account Collateral and make application
thereof to the
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Obligations in the order set forth in Section 4.5 of the Credit Agreement,
(ii) all shares of the Pledged Stock, the Partnership/LLC Interests and, if
applicable, any Account Collateral represented by instruments shall be
registered in the name of the Administrative Agent or its nominee, and the
Administrative Agent or its nominee may thereafter exercise (A) all voting,
corporate, partnership, membership and other rights pertaining to such
Collateral at any meeting of shareholders, partners or members of the applicable
entity or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
Collateral as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the
Collateral upon the merger, consolidation, reorganization, recapitalization or
other fundamental change in the corporate structure of the applicable entity, or
upon the exercise by the Pledgor or the Administrative Agent of any right,
privilege or option pertaining to such Collateral, and in connection therewith,
the right to deposit and deliver any and all of the Collateral with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine), all without liability except to
account for property actually received by it, but the Administrative Agent shall
have no duty to the Pledgor to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing and (iii)
the Administrative Agent shall have the right to notify the Transfer Agent of
such Event of Default and to direct the Transfer Agent to immediately cease and
terminate all distributions of the Investment Account (including current and
accrued income) to the Pledgor.
(b) The rights of the Administrative Agent and the Lenders hereunder
shall not be conditioned or contingent upon the pursuit by the Administrative
Agent or any Lender of any right or remedy against the Pledgor or against any
other Person which may be or become liable in respect of all or any part of the
Obligations or against any collateral security therefor, guarantee thereof or
right of offset with respect thereto. Neither the Administrative Agent nor any
Lender shall be liable for any failure to demand, collect or realize upon all or
any part of the Collateral or for any delay in doing so, nor shall the
Administrative Agent be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or any other Person or to take any
other action whatsoever with regard to the Collateral or any part thereof.
10. Remedies.
(a) If an Event of Default shall occur and be continuing, upon the
request of the Required Lenders, the Administrative Agent shall exercise, on
behalf of itself and the Lenders, all rights and remedies granted in this Pledge
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, and in addition thereto, all rights and remedies of
a secured party under the Code. Without limiting the generality of the foregoing
with regard to the scope of the Administrative Agent's remedies, the
Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by Applicable Law referred to below) to or upon the Pledgor, any
Issuer, any Partnership/LLC or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Administrative Agent or any
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Lender or elsewhere upon such terms and conditions as it may deem advisable and
at such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Administrative Agent or any Lender
shall have the right upon any such public sale or sales, and, to the extent
permitted by Applicable Law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity is hereby waived or released.
The Administrative Agent shall apply any Proceeds from time to time held by it
and the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred in respect thereof or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements of counsel thereto, to the payment
in whole or in part of the Obligations then outstanding, in the order set forth
in Section 4.5 of the Credit Agreement, and only after such application and
after the payment by the Administrative Agent of any other amount required by
any provision of Applicable Law, including, without limitation, Section
9-504(1)(c) of the Code, need the Administrative Agent account for the surplus,
if any, to the Pledgor. To the extent permitted by Applicable Law, the Pledgor
waives all claims, damages and demands it may acquire against the Administrative
Agent or any Lender arising out of the exercise by them of any rights hereunder.
Written notice of a proposed sale or other disposition of Collateral shall be
given to the Pledgor at least ten (10) Business Days before such sale or other
disposition and shall be deemed reasonable and proper if so given. To the extent
permitted by applicable law, the Pledgor further waives and agrees not to assert
any rights or privileges which it may acquire under Section 9-112 of the Code.
Nothing in this Section 10 or otherwise in this Pledge Agreement shall be
construed to require the Administrative Agent to give any notice of an action
not otherwise required by Applicable Law and the express provision of the Pledge
Agreement, the Credit Agreement or any other Loan Document.
(b) Effective upon the occurrence and during the continuance of an
Event of Default, the Pledgor hereby constitutes and appoints the Administrative
Agent as its true and lawful attorney-in-fact, with full power of substitution
and full power to do any and all things which the Administrative Agent deems
advisable or necessary to be done hereunder, or with respect to the Investment
Account, as fully and effectively as the Pledgor might or could do but for this
appointment and hereby ratifies all that said attorney-in-fact shall lawfully do
or cause to be done by virtue hereof. Neither the Administrative Agent nor any
of its agents shall be liable for any acts or omissions or for any error in
judgment or mistake of fact or law in its capacity as such attorney-in-fact,
except due to its gross negligence or willful misconduct. This power of attorney
is coupled with an interest and shall be irrevocable so long as any part of the
Extensions of Credit shall remain outstanding.
11. Indemnity and Expenses. The Pledgor will upon demand pay to the
Administrative Agent the amount of any and all reasonable out-of-pocket
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Administrative Agent may incur in connection with
(i) the administration of this Pledge Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, the
Investment Account or the Collateral, (iii) the exercise or enforcement of any
of the
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rights of the Lenders hereunder or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
12. Registration Rights; Private Sales.
(a) If the Administrative Agent shall determine to exercise its right
to sell any or all of the Pledged Stock pursuant to Paragraph 9 hereof, and if
in the opinion of the Administrative Agent it is necessary or advisable to have
the Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Pledgor will use its best efforts to cause the applicable Issuer to (i) execute
and deliver, and cause the directors and officers of the applicable Issuer to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts as may be, in the reasonable opinion of the
Administrative Agent, necessary or advisable to register the Pledged Stock, or
that portion thereof to be sold, under the provisions of the Securities Act,
(ii) to use its best efforts to cause the registration statement relating
thereto to become effective and to remain effective for a period of one year
from the date of the first public offering of the Pledged Stock, or that portion
thereof to be sold, or until all such Pledged Stock is sold and (iii) to make
all amendments thereto and/or to the related prospectus which, in the reasonable
opinion of the Administrative Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Pledgor agrees to use its best efforts to cause the applicable Issuer to comply
with the provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Administrative Agent shall designate and to make
available to its security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.
(b) The Pledgor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Administrative
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the applicable Issuer to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if the applicable Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Collateral pursuant to this Paragraph 11 valid and
binding and in compliance with any and all other Applicable Laws. The Pledgor
further agrees that a breach of any of the covenants contained in this Paragraph
11 will cause irreparable injury to the Administrative Agent and the Lenders not
compensable in damages, that the Administrative Agent and the Lenders have no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Paragraph 11
10
<PAGE> 11
shall be specifically enforceable against the Pledgor, and the Pledgor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no Event of Default has
occurred and is continuing under the Credit Agreement.
13. Amendments, etc. With Respect to the Obligations. The Pledgor shall
remain obligated hereunder, and the Collateral shall remain subject to the Lien
granted hereby, notwithstanding that, without any reservation of rights against
the Pledgor, and without notice to or further assent by the Pledgor, any demand
for payment of any of the Obligations made by the Administrative Agent or any
Lender may be rescinded by the Administrative Agent or such Lender, and any of
the Obligations continued, and the Obligations, or the liability of the Pledgor
or any other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered, or released by the Administrative Agent or any
Lender, and the Credit Agreement, the Notes, any other Loan Documents and any
other documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or part, as the Lenders (or the
Required Lenders, as the case may be) may deem advisable from time to time, and
any guarantee, right of offset or other collateral security at any time held by
the Administrative Agent or any Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Lender shall have any obligation to protect, secure, perfect or
insure any other Lien at any time held by it as security for the Obligations or
any property subject thereto. The Pledgor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Administrative Agent or any Lender upon this Pledge
Agreement; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance upon this Pledge
Agreement; and all dealings between the Pledgor, on the one hand, and the
Administrative Agent and the Lenders, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Pledge Agreement. To the extent permitted by Applicable Law, the Pledgor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Pledgor with respect to the Obligations.
14. No Subrogation. Notwithstanding any payment or payments made by the
Pledgor hereunder, or any setoff or application of funds of the Pledgor by the
Administrative Agent, or the receipt of any amounts by the Administrative Agent
with respect to any of the Collateral, the Pledgor shall not be entitled to be
subrogated to any of the rights of the Administrative Agent against any
guarantor or against any other collateral security held by the Administrative
Agent for the payment of the Obligations, nor shall the Pledgor seek any
reimbursement from any guarantor in respect of payments made by the Pledgor in
connection with the Collateral, or amounts realized by the Administrative Agent
in connection with the Collateral, until all amounts owing to the Administrative
Agent and the Lenders on account of the Obligations are paid in full and the
Credit Agreement is terminated. If any amount shall be paid to the Pledgor on
account of such subrogation rights at any time when all of the Obligations shall
not have been paid in full, such amount shall be held by the Pledgor in trust
for the Administrative Agent, segregated from other funds of the Pledgor, and
shall, forthwith upon receipt by the Pledgor, be turned over to the
Administrative Agent in the exact form received by the Pledgor (duly endorsed by
the Pledgor, if required) to be
11
<PAGE> 12
applied against the Obligations, whether matured or unmatured, in such order as
set forth in Section 4.5 of the Credit Agreement.
15. Limitation on Duties Regarding Collateral. The Administrative
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar securities and property for its own
account. Neither the Administrative Agent, any Lender nor any of their
respective directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or otherwise.
16. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral constitute irrevocable powers
coupled with an interest.
17. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. Paragraph Headings. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
19. No Waiver; Cumulative Remedies. Neither the Administrative Agent
nor any Lender shall by any act (except by a written instrument pursuant to
Paragraph 20 hereof) be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
20. Waivers and Amendments; Successors and Assigns; Governing Law. None
of the terms or provisions of this Pledge Agreement may be amended, supplemented
or otherwise modified except by a written instrument executed by the Pledgor and
the Administrative Agent; provided that any consent by the Administrative Agent
to any waiver, amendment, supplement or modification hereto shall be subject to
approval thereof by the Lenders or Required Lenders, as applicable, in
accordance with Section 13.11 of the Credit Agreement. This Pledge Agreement
shall be binding upon the successors and assigns of the Pledgor and shall inure
to the benefit of the Administrative Agent, the Lenders and their respective
permitted successors and assigns. This
12
<PAGE> 13
Pledge Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of North Carolina.
21. Notices. All notices and communications hereunder shall be given to
the addresses and otherwise in accordance with Section 13.1 of the Credit
Agreement.
22. Control Agreement; Acknowledgement by Issuers and Partnership/LLC.
(a) The Pledgor hereby authorizes and instructs each Issuer and Partnership/LLC
to comply, and each Issuer and Partnership/LLC hereby agrees to so comply, with
any instruction received thereby from the Administrative Agent in accordance
with the terms of this Pledge Agreement with respect to the Collateral, without
any consent or further instructions from the Pledgor (or other registered
owner), and the Pledgor agrees that such Issuer and Partnership/LLC shall be
fully protected in so complying. Each Partnership/LLC agrees that its agreement
set forth in the preceding sentence shall be sufficient to create in favor of
the Administrative Agent, for the benefit of the Lenders, "control" of the
Partnership/LLC Interests within the meaning of such term under Section 8-106(c)
of the Code. (Notwithstanding the foregoing, nothing in this Pledge Agreement is
intended or shall be construed to mean or imply that the Partnership/LLC
Interests constitute "securities" within the meaning of such term under Section
8-102(a)(15) of the Code or otherwise to limit or modify the application of
Section 8-103(c) of the Code. Rather, the Administrative Agent has requested
that this provision be included in this Pledge Agreement solely out of an
abundance of caution in the event the Partnership/LLC Interests are,
nevertheless, deemed to constitute "securities" under the Code.)
(b) Each Issuer and Partnership/LLC acknowledges receipt of a copy of
this Pledge Agreement and agrees to be bound thereby and to comply with the
terms thereof insofar as such terms are applicable to it. Each Issuer and
Partnership/LLC agrees to notify the Administrative Agent promptly in writing of
the occurrence of any of the events described in Section 7(c) of this Pledge
Agreement. Each Issuer and Partnership/LLC further agrees that the terms of
Section 11 of this Pledge Agreement shall apply to it with respect to all
actions that may be required of it under or pursuant to or arising out of
Section 10 of this Pledge Agreement.
23. Authority of Administrative Agent. The Pledgor acknowledges that
the rights and responsibilities of the Administrative Agent under this Pledge
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Pledgor, the
Administrative Agent shall be conclusively presumed to be acting as agent for
itself and the Lenders with full and valid authority so to act or refrain from
acting, and neither the Pledgor nor any Issuer or Partnership/LLC shall be under
any obligation, or entitlement, to make any inquiry respecting such authority.
24. Consent to Jurisdiction. The Pledgor hereby irrevocably consents to
the personal jurisdiction of the state and federal courts located in Mecklenburg
County, North Carolina, in any action, claim or other proceeding arising out of
or any dispute in connection with this Pledge
13
<PAGE> 14
Agreement, any rights or obligations hereunder, or the performance of such
rights and obligations. The Pledgor hereby irrevocably consents to the service
of a summons and complaint and other process in any action, claim or proceeding
brought by the Administrative Agent or any Lender in connection with this Pledge
Agreement, any rights or obligations hereunder, or the performance of such
rights and obligations, on behalf of itself or its property, in the manner
provided in Section 13.1 of the Credit Agreement. Nothing in this Paragraph 24
shall affect the right of the Administrative Agent or any Lender to serve legal
process in any other manner permitted by Applicable Law or affect the right of
the Administrative Agent or any Lender to bring any action or proceeding against
the Pledgor or its properties in the courts of any other jurisdictions.
25. Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. Upon demand of any party hereto, whether made
before or after institution of any judicial proceeding, any claim or controversy
arising out of, or relating to this Pledge Agreement or any other Loan Document
(a "Dispute") between or among the parties to this Pledge Agreement or any other
Loan Document shall be resolved by binding arbitration conducted under and
governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") and the
Federal Arbitration Act. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, or claims arising from documents executed in the
future. A judgment upon the award may be entered in any court having
jurisdiction.
(b) Special Rules. All arbitration hearings shall be conducted in
Charlotte, North Carolina. A hearing shall begin within 90 days of demand for
arbitration and all hearings shall be concluded within 120 days of demand for
arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of 60 days. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000. Arbitrators shall be licensed
attorneys selected from the Commercial Financial Dispute Arbitration Panel of
the AAA. The parties hereto do not waive applicable Federal or state substantive
law except as provided herein.
(c) Preservation and Limitation of Remedies.
(i) Notwithstanding the preceding binding arbitration
provisions, the parties hereto agree to preserve, without diminution, certain
remedies that any such Persons may exercise before or after an arbitration
proceeding is brought. Each such Person shall have the right to proceed in any
court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale or under
applicable law by judicial foreclosure including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Any claim or controversy with regard to any
party's entitlement to such remedies is a Dispute.
14
<PAGE> 15
(ii) Each party hereto agrees that it shall not have a remedy
of punitive or exemplary damages against any other party hereto or any other
Loan Document in any Dispute and hereby waives any right or claim to punitive or
exemplary damages such party has now or which may arise in the future in
connection with any Dispute, whether the Dispute is resolved by arbitration or
judicially.
(d) JURY TRIAL. THE PARTIES HERETO ACKNOWLEDGE THAT BY AGREEING TO
BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO A
JURY TRIAL WITH REGARD TO A DISPUTE.
26. Entire Agreement. This Pledge Agreement, together with the other
Loan Documents, constitutes the entire agreement with respect to the subject
matter hereof and supersedes all prior agreements with respect to the subject
matter hereof.
27. Release and Termination. (a) Upon any sale, lease, transfer or
other disposition of any item of Collateral permitted in accordance with the
terms of the Loan Documents, the Administrative Agent will, at the Pledgor's
expense, execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence the release of such item of Collateral from the
assignment and security interest granted hereby.
(b) This Pledge Agreement shall remain in effect from the Closing Date
through and including the date upon which all Obligations shall have been
indefeasibly and irrevocably paid and satisfied in full and the Commitments
terminated and upon such date the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Pledgor. Upon any
such termination, (i) the Administrative Agent shall promptly assign, release,
transfer and deliver to the Pledgor the Collateral pledged by it hereunder, all
instruments of assignment executed in connection therewith, and all stock
certificates or other certificates or instruments held by the Administrative
Agent in connection therewith, together with all monies held by the
Administrative Agent or any of its agents hereunder, free and clear of the Liens
hereof and (ii) the Administrative Agent and the Lenders will promptly execute
and deliver to the Pledgor such documents and instruments (including but not
limited to appropriate UCC termination statements) as the Pledgor shall
reasonably request to evidence such termination in each such case at the cost
and expense of the Pledgor.
[Signature Pages Follow]
15
<PAGE> 16
IN WITNESS WHEREOF, the undersigned have caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
[CORPORATE SEAL] GT INTERACTIVE SOFTWARE CORP.
By: /s/ ANDREW GREGOR
-----------------------------
Name:
Title:
Acknowledged and Agreed to:
[CORPORATE SEAL] HUMONGOUS ENTERTAINMENT, INC.
By: /s/ ALAN BEHR
-----------------------------
Name:
Title:
[CORPORATE SEAL] WIZARDWORKS GROUP, INC.
By: /s/ ALAN BEHR
-----------------------------
Name:
Title:
[CORPORATE SEAL] SINGLETRAC ENTERTAINMENT
TECHNOLOGIES, INC.
By: /s/ ALAN BEHR
-----------------------------
Name:
Title:
[CORPORATE SEAL] SWAN ACQUISITION CORP.
By: /s/ ALAN BEHR
-----------------------------
Name:
Title:
<PAGE> 17
[CORPORATE SEAL] CANDEL INC.
By: /s/ ALAN BEHR
----------------------------
Name:
Title:
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<ARTICLE> 5
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<S> <C>
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
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0
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