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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 0-28072
WEST COAST ENTERTAINMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 04-3278751
(I.R.S. EMPLOYER IDENTIFICATION
(STATE OR OTHER JURISDICTION OF NUMBER)
INCORPORATION OR ORGANIZATION)
ROUTE 413 AND DOUBLE WOODS ROAD, LANGHORNE, PENNSYLVANIA 19047
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 968-4318
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS)
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Indicate by check mark whether (1) the Registrant 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or an
amendment to this Form 10-K. [X]
The aggregate market value as of April 13, 1998 of Common Stock held by
non-affiliates of the Registrant was approximately $27,272,000.
The number of shares of Common Stock outstanding as of April 13, 1998 was
13,933,662.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended January 31,
1998. Portions of such Proxy Statement are incorporated by reference in Part III
of this Annual Report on Form 10-K.
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WEST COAST ENTERTAINMENT CORPORATION
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Executive Officers.......................................... 13
PART II
Item 5. Market for the Registrants' Common Stock and Related
Stockholder Matters......................................... 14
Item 6. Selected Consolidated Financial Data........................ 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 46
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 46
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 47
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PART I
ITEM 1. BUSINESS
GENERAL
West Coast Entertainment Corporation (the "Company") is one of the largest
owners, operators and franchisors of video retail specialty stores in the United
States in terms of system-wide revenues and historical and pro forma Company
revenues. The Company competes directly against major regional and national
video rental stores in most of its markets and believes it is the leading video
specialty retailer, in terms of number of stores, in many of the major markets
in which Company-owned stores operate. At January 31, 1998, the Company owned
and operated 286 video specialty stores and franchised 217 video specialty
stores located in 22 states, principally in the Northeast and Midwest.
The Company's goal is to be a leading video specialty retailer with a
distinctive approach to operations and growth. The Company's stores are designed
and managed to create an atmosphere that enhances the appreciation of movies,
children's video programming and video games. In general the Company's stores
rent and sell videocassettes, rent video games and sell certain popular
electronic accessories along with a variety of confectionery items. Sites for
the Company's stores within each designated trade area are selected on the basis
of such factors as visibility, ready accessibility (particularly for evening
drivetime parking), signage and adaptability of existing structures to the
Company's requirements, as well as cost considerations. The Company's stores
vary in layout and inventory according to local market needs. The Company's
stores range in size from 1,250 square feet to 12,000 square feet and generally
carry a comprehensive selection of 7,000 to 17,000 prerecorded videocassettes.
System-wide, a substantial majority of the Company's stores are currently
operated under the West Coast Video(R) name; the remainder are operated under
names such as Videosmith(R). The Company's capital expenditure plan provides for
the integration of the West Coast Video(R) name and logo and its registered
trademark The Movie Buff's Movie Store(R) into its stores which currently
operate under other trade names and to install certain distinctive West Coast
Video(R) layout and fixtures in such stores at a rate of at least 50 stores per
year at a cost of approximately $32,000 per store. At present, 100 stores have
been so rebranded and 30 stores are being converted during the first two
quarters of the current year.
As described in more detail below, the Company's long term strategy is to
expand its presence by developing new stores, expanding its franchise system
through acquisitions and area development agreements and by selectively
acquiring independently owned stores as well as stores owned by existing West
Coast Video(R) franchisees, all within the scope of financing available to the
Company.
INDUSTRY OVERVIEW
According to Paul Kagan Associates ("Paul Kagan"), the United States
videocassette rental and sales industry has grown from $9.8 billion in revenue
in 1990 to approximately $15.6 billion in revenue in 1996, and is expected to
reach $18.6 billion in 2001. The video retail industry is highly fragmented, and
in recent years has been characterized by increased consolidation as larger
superstore chains, including the Company, have continued to increase market
share by opening new stores and acquiring smaller, local operators. According to
the Video Software Dealers Association ("VSDA"), the video retailing industry
association, the number of video specialty stores was 27,000 in 1996. The
Company believes that this consolidation will continue as the video retail
industry evolves from smaller, local stores to regional and national superstore
chains. The Company believes that although video specialty store revenues will
continue to grow as consumers rent and purchase prerecorded videos, a greater
rate of growth will occur among those operators engaged in acquisition.
Paul Kagan reports that the video retail industry represented the single
largest source of revenue to movie studios and accounted for approximately $4.5
billion, or 45%, of the $9.9 billion of estimated domestic studio revenue in
1996. Of the hundreds of movies produced and released by the major studios each
year in the U.S., relatively few are profitable for the movie studios based on
box office revenue alone. According to the Motion Picture Association of America
("MPAA"), between 1990 and 1996 only 7% of all movies released generated in
excess of $20 million in U.S. theater revenue for studios. Over the same period,
members of the MPAA
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reported that the average production, advertising and distribution cost per
movie increased from $38.8 million to $59.7 million. The Company believes its
customers are more likely to rent or purchase "non-hit" movies on videocassette
than on any other medium because video retail stores provide a compelling
opportunity to shop and make an impulse choice among a very broad selection of
new title releases. As a result, video retail stores, including those operated
by the Company, selectively purchase movies on videocassette regardless of
whether the movies were successful at the box office, thus providing the
independent and major movie studios a reliable source of revenue for almost all
of the hundreds of movies produced each year. Thus, the Company believes movie
studios have many compelling reasons to protect this unique and significant
source of revenue.
The U.S. video retail industry includes both rentals and sales of
prerecorded videocassettes. Movie studios determine the suggested retail prices
to both consumers and video rental stores and, through that pricing, influence
the relative levels of videocassette rental and sales. Videocassettes released
at a relatively high price, typically $60 to $65 wholesale, are generally
purchased by video retail stores and promoted primarily as rental titles and
then later re-released by the studios at a lower price, typically $10 to $20
wholesale, to promote sales directly to consumers ("sell-through"). Select high
grossing box office films, generally with box office revenue in excess of $100
million, are released on videocassette at a relatively low initial price,
typically $12 to $17 wholesale, and are generally purchased by video retailers,
mass merchants, grocery stores and other retailers and promoted both as rental
titles and for sell-through.
Historically, new technologies have led to the creation of additional
distribution channels for movie studios. Movie studios seek to maximize their
revenue by releasing movies in sequential release date "windows" to various
distribution channels. These distribution channels include, in the customary
order of release date: movie theaters; airlines and hotels; video specialty
stores; pay-per-view satellite and cable television systems ("Pay-Per-View");
premium cable television; basic cable television and, finally, network and
syndicated television. The Company believes that this method of sequential
release has allowed movie studios to increase their total revenue with
relatively little adverse effect on the revenue derived from previously
established distribution channels and it is anticipated that movie studios will
continue the practice of sequential release even as near video on demand
("NVOD") and, eventually, video on demand ("VOD") become more readily available
to the consumer. According to Paul Kagan, most movie studios release hit movie
videocassettes to the home video market from 30 to 80 days (extending up to 120
days for certain titles priced for sale rather than rental) prior to the
Pay-Per-View release date. According to the VSDA, the movie windows are being
extended during 1998 by an average of 10 days.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks, trade names and service marks
including West Coast Video(R), The Movie Buff's Movie Store(R), Game Power
Headquarters(TM), net.spot(TM), The Projector(TM), Spotlight on Video(TM) as
well as Videosmith(R) and other trade names under which certain recently
acquired stores are currently conducting business pending their transition to
the West Coast Video(R) name and signage. The Company has acquired an exclusive
licensing arrangement to reproduce and utilize graphically enhanced versions of
Bernard of Hollywood(TM) (a trademark of Renaissance Road Productions, Inc.)
photographs of legendary actors and actresses which are currently utilized
inside the Company's stores and may also be utilized for other promotional
purposes and on merchandise produced by the Company to be sold in its stores.
COMPETITIVE STRENGTHS
The Company's strategy is to strengthen its position as an industry leader
while maximizing revenues and operating cash flow. The key elements of the
Company's operating strategy are:
- Building a Strong Presence in Selected Markets. The Company seeks to
concentrate its stores in chosen markets where it believes that prime
video locations are difficult to obtain and where it ranks among the two
leading video retailers. In each of the New York-New Jersey Metro,
Boston, Philadelphia, Dayton and Louisville metropolitan areas, the
Company believes that it has more outlets
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than all, or all but one, of its competitors. This concentration enables
the Company to conduct highly targeted marketing programs to maximize
penetration within its selected markets, to maximize operating
efficiencies in inventory management, training and store supervision and
to promote accessibility to customers. The Company also expects to expand
through new store openings, acquisitions and area development agreements
in a manner consistent with its general policy of achieving concentration
in targeted markets and the scope of financing available to it.
- Capitalizing on Economies of Scale. Due to its size, the Company enjoys
key operating efficiencies, including substantial discounts in purchasing
video products and advertising media. The Company has developed
sophisticated in-house capabilities in marketing, purchasing, management
information systems ("M.I.S.")/telecommunications, retailing and other
areas of operations which provide critical management support services to
its stores. The Company employs software systems for the purposes of
monitoring and managing store inventory, sales, purchases and customer
memberships. These combined management systems have enabled the Company
to integrate the operating cash flow of stores acquired by the Company
from smaller chains or individual owners. In evaluating acquisition
candidates, the Company seeks to identify stores with the potential for
improved profitability.
- Customizing Purchasing for Local Demographics. The Company's in-house
purchasing department tailors its selection of newly released titles and
video games to the specific demographics of each Company-owned store and,
through its proprietary monthly publication, "The Projector," suggests
specific purchase quantities on a title-by-title basis for franchised
stores having varying demographic profiles and sales volumes.
- Employing New Store Design. As of January 31, 1998, the Company
completed nearly two years of design and testing of a new store format
that it believes provides video customers with the premier retailing
experience in the industry. Elements of this new design were chosen to
receive the Mobius Award, an international advertising design award, in
the Company's fourth quarter. Two new initial test stores opened
utilizing this format have operated at a revenue level substantially in
excess of the Company's current average revenue per store. The Company
plans to utilize selected aspects of this new store design during the
year ending January 31, 1999 in 50 new, relocated and expanded stores,
subject to the availability of financing.
- Providing Comprehensive Customer Service. The Company believes that it
builds customer loyalty and promotes additional store visits and product
rentals by offering superior customer service through a highly trained
sales force having comprehensive product knowledge. The Company's
approach is epitomized by its slogan The Movie Buff's Movie Store.(R) The
Company believes its sales force's appreciation and understanding of
movies, children's video programming and interactive electronic
entertainment products can result in a higher level of service than most
of its competitors. An important criterion used in the Company's
recruitment and selection of employees is their general knowledge in
regard to movies and electronic games. In addition, employees undergo
continuous training to increase their knowledge about the store's video
titles and about cinema and electronic games in general. The Company
believes that the implementation of this strategy in the stores which it
acquires can result in higher sales per customer, higher overall customer
satisfaction, higher customer loyalty, lower employee turnover levels and
higher catalog title inventory turnover.
The key elements of the Company's growth strategy are:
- Selectively Developing New Stores. The Company plans to open, expand and
relocate video retail stores in locations where extensive store location
studies indicate a substantial probability of success. Most of these
locations will be within the Company's existing areas of geographic
concentration.
- Expanding the Company's Franchise System through Area Development
Agreements and Acquisitions. The Company intends to continue to enter
into area development agreements which contemplate the establishment of
20 or more stores within a given territory by a single developer. See
"-- Franchising." The Company also intends to expand the geographic scope
of its franchise system. The Company
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believes that it can grow its franchise system without significant
additional capital expenditure and without significant general and
administrative overhead.
- Pursuing Acquisitions in Fragmented Industry. The Company believes that
one of its most significant opportunities for growth over the next
several years, subject to the availability of financing, will continue to
be the acquisition of existing video retailers. The industry remains
fragmented with approximately 27,000 video retailers in the United
States, many of which operate one or two stores. Existing video retailers
typically have an established customer base and favorable location. The
criteria for acquisition candidates includes store location and
demographics, profitability, store sales volume, store size and
management personnel. In addition, the Company seeks acquisition
candidates that have the potential to realize expense reductions and
improved store management through integration into the Company's
information and inventory management systems and marketing and
advertising programs. The Company believes that there are a significant
number of attractive acquisition candidates, including West Coast
Video(R) franchisees, available in its selected markets.
- Continuing to Acquire West Coast Franchisee Stores. The Company intends
to pursue the acquisition of individual or small chains of video
specialty stores within the West Coast Video(R) franchising system. As
franchisor, the Company maintains a right of first refusal to purchase
these stores and intends to selectively acquire these stores in the
future at prices which it considers to be reasonable. Consistent with
this strategy, in the years ended January 31, 1997 and 1998, the Company
acquired 39 video retail stores located primarily in Massachusetts,
Pennsylvania and New Jersey which had theretofore been owned and operated
by franchisees.
OPERATIONS
The Company's operating systems have been developed and tested over many
years. Management believes that these systems will allow the Company to grow
without incurring substantial incremental general and administrative expense. At
January 31, 1998, the West Coast corporate staff included 82 professionals
working in the following capacities:
MARKETING/MOVIES & GAMES MANAGEMENT. The Company currently has in place a
centralized professional marketing department supporting all of the Company's
video specialty stores. The Company's in-house art department provides the
resources of a full service agency and utilizes an integrated computerized
system for in house scanning, page layout and mechanical production,
illustrations and color printing. Management believes this in-house creative
capacity has resulted in substantial cost savings and enhanced production
efficiencies for the Company's owned and operated stores and franchised stores.
The Company develops an extensive quarterly marketing campaign several
months in advance of its implementation period. The store managers' kits for
these campaigns provide national and regional promotions and media flight
schedules in a format that is designed to facilitate local store customization.
The campaigns have earned a wide variety of national awards from the Video
Software Dealers Association in the past six years, including "Best Overall
Campaign," "Best Community Service" and "Best Special Media/Special Events."
These campaigns have increased the familiarity of existing and potential
customers with the Company and are also intended to increase customer rental and
purchase transactions and frequency of visits.
The Company uses radio and newspaper advertising and direct mail
solicitation to promote its business in the markets in which the Company
competes and uses television advertising in those metropolitan areas where the
Company is a dominant player. The marketing department has a dedicated staff
that publishes and distributes a proprietary, full color monthly consumer
magazine, "Spotlight on Video(TM)," which promotes new releases and special
offers exclusive to the Company.
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The costs of the Company's marketing department are funded in part by a
contribution from West Coast's domestic franchisees that is required to be
devoted to advertising and marketing. Such contribution is equal to 1% of the
franchisees' gross revenues. Another 1% contribution is required to be devoted
to local advertising. In addition to these contributions, the Company offsets
the costs of its advertising with cooperative advertising funds and market
development funds made available by movie studios and suppliers to promote
certain videocassettes. The Company expects that it will receive increased
amounts of these third-party funds as the Company grows.
PURCHASING. The Company believes that the consistent selection of movies
that appeal to the consumer is a significant feature of its operations. The
Company's movie and electronic entertainment purchasers each have, on average,
over eight years of industry experience. The rental entertainment purchasers use
computerized purchasing models that analyze data in regard to the sales and
rental performance of individual titles from the Company's stores on-line
through the Company's Point of Sale ("POS") systems. The Company also publishes
a proprietary monthly publication, "The Projector(TM)," for owned and operated
stores and franchised stores that projects suggested purchase quantities on a
title-by-title basis for stores of varying demographic profiles and rental
volume levels. The Company believes its purchasing department has considerable
specific expertise in evaluating, finding distribution sources for and
purchasing independent, arthouse, foreign and other highly entertaining films
that are frequently not noticed or are ignored by other video specialty chains.
M.I.S./TELECOMMUNICATIONS. The Company utilizes POS software systems with
continuous inventory and customer database and extensive management reporting
capabilities. Nearly all of its franchisees utilize compatible POS software. In
1998 the Company intends to upgrade its POS system in an effort to make more
detailed data available more quickly on a system-wide basis. In addition, the
Management Information Systems department provides a broad range of services to
management as well as to owned and operated stores and franchised stores. Such
services include: management of various relational databases which aid in movie
and interactive electronic entertainment products purchasing; store site
evaluation and selection and customer profiling and targeting; on-line POS and
other store and corporate software maintenance, service and repair; technical
support for the installation of store computer hardware and software;
maintenance of hardware support agreements; on-line verification of franchisee
revenues for royalty audit purposes; Company and franchisee staff POS system
training; and enhancement and upgrading of POS software.
RETAIL OPERATIONS. The Company has developed comprehensive retail
operations policy and procedure manuals to achieve standardization among its
Company-owned stores, as well as its franchisees. In addition, the Company's
retail operations group works directly with both corporate and franchisee stores
to provide assistance on a broad range of operational issues including:
competitive strategies; product pricing; revenue enhancement; expense
management; risk management; loss prevention for security and safety systems;
new site analysis and selection; remerchandising and renovation plans and
analysis. The retail operations group provides training and orientation as well
as ongoing training programs to corporate store personnel as well as
franchisees. The retail operations group has also developed a detailed timetable
and manual and provides direct assistance in the opening of Company owned and
operated stores as well as new franchised stores, including obtaining
permits/licenses, providing opening checklists and store configuration options,
formulating construction guidelines, initiating vendor contacts, helping to
manage and meet exterior signage specifications, wage and hiring guidelines, and
developing professional service and vendor contacts.
DEVELOPMENT OF THE COMPANY
West Coast Entertainment Corporation is a Delaware corporation established
by Ralph W. Standley III and T. Kyle Standley in February 1995 (originally under
the name RKT Acquisition Co.) for two purposes: (i) to combine four corporations
(the "Predecessor Corporations") through which the Standley family had
theretofore conducted their video store business and (ii) to acquire
substantially all of the operating assets relating to franchise operations of
West Coast Video Entertainment, Inc., an unrelated third party, and its four
affiliated corporations. In July 1995 each of the four Predecessor Corporations,
Giant Video Corporation ("GVC"), Nostalgia Ventures, Inc. ("NVI"), G.V.
Management Corp. ("GVMC") and Videosmith (DE)
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Incorporated ("VDI"), merged with and into the Company ("the Merger"). As a
result of the Merger, the former stockholders of the four Predecessor
Corporations became stockholders of the Company. Simultaneously, the Company,
through its wholly-owned subsidiary West Coast Franchising Company, Inc., a
Delaware corporation, acquired substantially all of the franchise-related
operating assets of the West Coast Entertainment Incorporated Companies, which
had previously conducted a video store franchising business under independent
ownership in Philadelphia, Pennsylvania.
The four Predecessor Corporations that were merged into the Company had
previously conducted their respective operations under substantially common
ownership. See Notes 1 and 11 to the Company's Consolidated Financial
Statements. GVC, an Ohio corporation, was incorporated in 1989 and opened its
first video specialty store in Dayton, Ohio in June 1989. In April 1993 all of
the outstanding stock of NVI, an Ohio corporation with seven stores in the
Greater Dayton area, was acquired by the controlling stockholders of GVC from
unrelated third parties. In August 1994 the controlling stockholders of NVI,
together with certain other investors, acquired from an unrelated third party
through VS Acquisition Corp., a newly formed Delaware corporation ("VSAC"), all
of the outstanding stock of VDI, the parent of Videosmith Incorporated, a
Massachusetts corporation with 14 stores in Massachusetts. Shortly thereafter,
VSAC merged with and into VDI. In May 1992 the controlling stockholders of GVC
formed an Ohio corporation, GVMC, which provided management services to certain
of the other corporations.
The Company's growth since 1995 is described under "-- Prior Acquisitions"
and "-- June, 1997 Acquisitions."
On May 17, 1996, West Coast Entertainment Corporation completed an initial
public offering which consisted of 5,400,000 shares of common stock at $13.00
per share (the "Offering"). The net proceeds of the Offering after deducting
applicable issuance costs and expenses, were $60.8 million. The proceeds were
used to fund certain of the acquisitions discussed below and to repay
approximately $9.6 million in long-term debt.
ACQUISITIONS
PRIOR ACQUISITIONS
May 1996 Acquisitions
On May 17, 1996, the Company acquired 172 video specialty stores (the "May
1996 Acquisitions"), including 13 stores owned by franchisees of the Company.
Taking into account certain adjustments and calculation of certain contingent
payments, the aggregate consideration of $83.9 million was paid consisting of
the following: $53.0 million in cash, approximately $26.2 million in shares of
common stock (2.1 million shares), and approximately $4.7 million of acquisition
costs. Of these amounts, approximately $0.4 million represents remaining minimum
contingent consideration (of which approximately $0.1 million and $0.3 million
(20,000 shares) is to be paid in cash and stock, respectively) as of January 31,
1997 and 1998. These common shares to be issued have been considered outstanding
as of January 31, 1997 and 1998 as their issuance is dependent only on the
passage of time.
Early Fall 1996 Acquisitions
Between August 26 and October 25, 1996, the Company acquired the assets of
21 video specialty stores (the "Early Fall 1996 Acquisitions"). Aggregate
consideration of $13.6 million was paid, consisting of the following: $8.2
million in cash and $4.9 million in shares of common stock (519,000 shares).
Approximately $0.5 million of acquisition costs was also paid. The shares
(465,000) associated with one of these acquisitions were issued in the year
ended January 31, 1998 in three equal installments (six, twelve and eighteen
months from the acquisition date) and the number of shares issued was increased
by the difference between the share price at issuance date and the formulaic
common share price calculated as of the date of acquisition. Additionally,
92,000 shares associated with another Early Fall 1996 Acquisition are to be
issued. In both instances these common shares and other common shares to be
issued in installments have been considered outstanding as of January 31, 1997
and 1998 as their issuance is dependent only on the passage of time.
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Late Fall 1996 Acquisitions
Between November 15 and December 3, 1996, the Company acquired the assets
of 47 video specialty stores (the "Late Fall 1996 Acquisitions"), including 19
stores owned by franchisees of the Company, for aggregate consideration of $27.7
million consisting of the following: $14.4 million in cash and $11.0 million in
shares of common stock (1.0 million shares) and approximately $2.3 million of
acquisition costs. Additionally, 243,000 and 25,000 shares were to be issued as
of January 31, 1997 and 1998, respectively. These common shares to be issued
have been considered outstanding as of January 31, 1997 and 1998 as their
issuance is dependent only on the passage of time.
JUNE, 1997 ACQUISITIONS
On June 16, 1997, and June 24, 1997 the Company acquired a total of 38
video specialty stores (the "June 1997 Acquisitions"), including 5 stores owned
by a franchisee of the Company, for aggregate consideration of $17.9 million
consisting of $17.2 million in cash and approximately $0.7 million of
acquisition costs.
STORES ACQUIRED. The following table briefly describes each of the
acquisitions made during the year ended January 31, 1998:
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NUMBER OF OWNED PURCHASE
SELLER(S) AND OPERATED STORES LOCATION ACQUISITION DATE PRICE(2)
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Reel Entertainment, Inc. ("Reel
Entertainment #3")(1)............. 1 LA March 1997 $ 425,000
West Coast Video franchisees(1)..... 6 NJ and MA April and June 1997 3,283,761(3)
Choices Entertainment, Inc.
("Choices")....................... 9 PA, NJ and DE June 1997 2,483,836
Video King Enterprises, Inc. and
certain affiliates ("Video
King")............................ 23 NY and PA June 1997 11,475,007
Reel Entertainment, Inc. ("Reel
Entertainment #4")................ 1 LA June 1997 425,000
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Totals.......................... 40 $18,092,604
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(1) Acquisitions of one store in March 1997 and one store in April 1997 not
included in June 1997 Acquisitions.
(2) Subject, in some cases, to subsequent post-closing adjustments based upon
the amount by which each Seller's working capital, as defined, or cash
available at closing, or the amount of certain prepaid rentals, insurance
premiums and other prepaid expenses exceeded or was less than a specified
amount.
(3) Excludes $316,350 paid, or to be paid, to the former owner and two former
executive officers of West Coast Entertainment, Inc., West Coast Video
Enterprises, Inc., West Coast Services, Inc., Premier Advertising, Inc. and
Game Power Headquarters, Inc. (the "WCEI Companies") pursuant to the terms
of the Company's acquisition of the franchise-related operating assets of
the WCEI Companies in July 1995.
PUTS, CALLS OR COMMITMENTS ON ADDITIONAL STORES.
The Company has entered into agreements with several area developers in
which upon development of certain stores the developer has the option to "put"
the stores to the Company. Moreover, such agreements further grant the Company
the option to "call" these stores within specified time frames. These options
extend for one to three year periods and become exercisable at various times
from 1998 to 2002. As of January 31, 1998, the Company has such options on 51
stores, which are contingent on the stores meeting positive net operating cash
flow. As of January 31, 1998, 14 of such stores were built and are operating.
The purchase price for each store is determined based upon a multiple of store
net operating cash flow for the twelve months preceding the acquisition. As of
January 31, 1998, 2 out of 9 stores developed by one franchisee have generated
positive net operating cash flow in the appropriate time period. The Company
believes, however,
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that since the store development requirements have not been fulfilled, the
Company is not required to accept the "put" option. The "put" and "call" options
associated with the remaining 5 stores (developed by another franchisee) are not
exercisable until the period beginning on September 1, 2001 and March 1, 2002,
respectively.
STORE LOCATIONS
The following table lists the number of stores owned and franchised by the
Company in each state or foreign country at January 31, 1998.
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NUMBER OF
OWNED AND NUMBER OF TOTAL
STATE OR FOREIGN COUNTRY OPERATED STORES FRANCHISED STORES STORES
- ------------------------ --------------- ----------------- ------
<S> <C> <C> <C>
Pennsylvania.......................................... 57 72 129
New Jersey............................................ 66 55 121
Ohio.................................................. 38 10 48
Massachusetts......................................... 32 14 46
New York.............................................. 34 4 38
Kentucky.............................................. 15 1 16
Louisiana............................................. 5 11 16
Indiana............................................... 12 1 13
Virginia.............................................. 11 1 12
Florida............................................... 5 6 11
Maryland.............................................. -- 11 11
Illinois.............................................. -- 8 8
Arkansas.............................................. 5 -- 5
Mississippi........................................... -- 5 5
Canada................................................ -- 5 5
Delaware.............................................. 1 3 4
Oklahoma.............................................. 3 -- 3
Texas................................................. 2 -- 2
Minnesota............................................. -- 2 2
Connecticut........................................... -- 2 2
Peru.................................................. -- 2 2
California............................................ -- 1 1
Maine................................................. -- 1 1
Curacao............................................... -- 1 1
New Hampshire......................................... -- 1 1
--- --- ---
Total............................................... 286 217 503
=== === ===
</TABLE>
PRODUCTS AND PRICING
The Company's primary source of revenue is the rental of videocassettes.
The Company's stores feature between 7,000 and 17,000 videocassettes. At
present, the Company's stores generally rent new release titles overnight,
depending on the age and popularity of the title, while catalog titles rent for
four to six nights. The Company regularly reviews and determines its rental
prices for titles based on the length of time each title has been available on
videocassette and the frequency of rentals for each title. Movie titles are
classified into a variety of thematic categories, including certain categories
which are custom tailored to local tastes and demographic profiles and are
displayed alphabetically within those categories. The Company attempts to keep
available within each store sufficient numbers of current popular titles, as
well as a significant selection of catalog titles, to satisfy customer demand.
9
<PAGE> 11
The Company also offers videocassettes for sale. Generally, previously
viewed videocassettes are sold beginning 6 to 12 weeks after a new title is
released to video specialty stores depending on the popularity of the product.
Sales of new videocassettes are generally priced at $10.99 to $20.99. As a
result of improvements in the Company's videocassette sales merchandising and
inventory management, the Company has substantially grown its per store sales of
new (and, to a lesser extent, used) videocassettes.
In addition to video rentals and sales, the Company also rents and sells
video game products compatible with various game hardware platforms and personal
computers. Media consultant and economist Wilkofsky Gruen Associates, Inc.
("Gruen Associates") has estimated that domestic interactive electronic
entertainment software revenue will increase from approximately $5.7 billion in
1995 to approximately $8.8 billion in 2002. The Company expects per store rental
revenue of interactive electronic entertainment products to increase because of
an overall rise in the popularity of new hardware formats. As a result, the
Company believes that its interactive electronics will experience significant
growth in the next several years.
SUPPLIERS
The Company purchases approximately 50% of its rental videocassette and
video game products from Ingram Entertainment, Inc. ("Ingram"). The Company
currently receives marketing funds and an advertising allowance from Ingram
based upon a percentage of the Company's videocassette and video game purchases.
Other major suppliers of products include Baker & Taylor and Star Video. The
Company is contractually obligated to purchase from Ingram at least 50% of its
annual requirements for products through August 19, 1998, the lesser of 30% of
its annual requirements or $25 million through July 12, 2000 and the lesser of
25% of its annual requirements or $25 million through July 12, 2002. Ingram may
terminate this contract at any time for any reason upon 90 days prior written
notice. If the relationship with Ingram were terminated, the Company believes
that it could readily obtain its required inventory of videocassettes and video
games from alternative suppliers at prices and on terms comparable to those with
Ingram.
FRANCHISING
The Company's existing franchise agreements call for the Company to receive
approximately 7% of each franchisee's monthly gross revenues, subject to stated
monthly minimum royalties. Of this amount, the Company is required to devote an
amount equal to 2% of such monthly gross revenues to direct and indirect
advertising and marketing programs. The Company also receives a one-time fee
upon execution of the franchise agreement. Franchisees are not required to
purchase their initial inventory or supplies from the Company, although they
sometimes do so. Thereafter, franchisees purchase virtually all of their movie
and interactive game product from unaffiliated suppliers.
Franchisees are entitled to develop West Coast Video(R) stores at approved
locations within a specified geographic area under the terms of a standard
franchise agreement. The exclusivity accorded to a franchisee generally does not
extend beyond a radius of three miles from each franchised location, with
franchisees in urban locations often being limited to a one-half to one mile
radius. Franchises are typically awarded for a term of ten years, subject to the
franchisee's right to renew for additional ten-year periods.
The Company provides training for the franchisee's managers and other store
personnel. Franchisees are required to meet the Company's quality control
standards in regard to store appearance and size of videocassette inventory,
among other things. The Company provides advice about title selection, initial
promotional advertising, posters and brochures.
Each franchise owner has sole responsibility for all operational decisions
and financing commitments relating to the store, including monthly rent,
utilities and payroll. Franchisees are required to indemnify the Company against
claims arising from the franchisee's operations and to provide specified amounts
of insurance coverage. The Company does not currently provide any form of credit
enhancement for any of its franchisees' operations.
The franchise agreement requires the Company's express written agreement to
any transfer of a franchise or any sale of a controlling interest in a
franchisee. The agreement also authorizes the Company at any time to
10
<PAGE> 12
inspect and monitor the franchisee's operations and audit its books and records.
The Company is entitled to terminate a franchise for a material breach of the
terms of the franchise agreement, subject to compliance with certain state laws
regarding termination for cause, prior notice and similar matters. During the
year ended January 31, 1998, the Company has terminated 24 franchise agreements
and an additional 20 franchise agreements have expired.
AREA DEVELOPMENT AGREEMENTS. The Company has developed and executed area
development agreements which allow a franchisee the right to develop a
significant number of stores within a specified time period in specific
geographic locations. Further details about such agreements are contained in the
Company's Annual Report on Form 10-K for the year ended January 31, 1997.
COMPETITION AND TECHNOLOGICAL OBSOLESCENCE
The Company competes with all forms of entertainment and leisure activities
including other local, regional and national video retail stores, including the
Blockbuster Entertainment division of Viacom, Inc. ("Blockbuster"), and with
other businesses offering prerecorded videocassettes. Some of the Company's
competitors have significantly greater financial and marketing resources, market
share and name recognition than the Company. The Company believes that neither
the Company nor any other domestic video specialty store chains, apart from
Blockbuster, account for 3% or more of domestic industry-wide revenues.
The Company believes the principal competitive factors in the video retail
industry are store location and visibility, title selection, the number of
copies of popular titles available, customer service and convenience of store
access. The Company does not believe that pricing is a competitive factor
amongst video retailers, although it is a significant factor relative to
competition with other forms of entertainment. In addition, as a result of
direct competition with Blockbuster and a trend toward obtaining product via
revenue sharing agreements, rental pricing of videocassettes and greater
availability of new releases may become a more significant competitive factor in
the Company's business, which could have an adverse impact on the results of
operations of the Company. The Company is currently negotiating to obtain
similar copy depth via new revenue sharing agreements and other studio
purchasing programs which it believes will more than compensate for financial
effects of these programs by its competitors, however, there can be no assurance
that such agreements will be consummated.
The Company competes with several delivery systems including cable,
satellite and pay-per-view cable television systems, in which subscribers pay a
fee to see a movie selected by the subscriber. Current pay-per-view services
offer a limited number of channels and movies and are only available to
households with a direct broadcast satellite (DBS) receiver or a cable converter
to unscramble incoming signals. Digital compression technology and other
developing technologies are enabling cable companies, direct broadcast satellite
companies, telephone companies and other telecommunications companies to
transmit a much greater number of movies to homes at more frequently scheduled
intervals throughout the day on demand. Select cable and other
telecommunications companies have tested "video on demand" service in some
markets. Video on demand service would allow a viewer to pause, rewind and fast
forward movies. Based upon published information, the Company believes these
tests have been unsuccessful. The Company also believes movie studios have a
significant interest in maintaining a viable movie rental business because the
sale of videocassettes to video retail stores represents the studios' largest
source of revenue. As a result, the Company believes movie studios will continue
to make movie titles available to cable television or other distribution
channels only after revenues have been derived from the sale of videocassettes
to video stores.
The Company also believes substantial technological advances will need to
be developed in order to allow pay-per-view television to match the low price,
viewing convenience and selection available through video rental and substantial
capital expenditures will be necessary to implement these systems. In contrast,
according to Adams Media Research, 78.8 million, or 82%, of all U.S. television
households own a VCR. Currently the Company does not believe that these
competitive technologies represent a near term competitive threat to its
business. However, technological advances or changes in the manner in which
movies are marketed, including the earlier release of movie titles to
pay-per-view, including direct broadcast satellite,
11
<PAGE> 13
cable television or other distribution channels, could make these technologies
more attractive and economical, which could have a material adverse effect on
the business of the Company.
Movies recorded on digital videodiscs ("DVD") were introduced in March of
1997, as a new product format with significant potential for the industry.
Because of the ease of use and durability of DVD, it is anticipated that
consumers will be receptive to the introduction of DVD as a new product format
for viewing movies and other in home entertainment. Currently, the Company
offers DVD for rental and sale in approximately 60 stores in primarily
metropolitan markets. The Company expects to expand its DVD software
availability to other markets once the installed base will support such an
investment. In the near term, however, retail prices on DVD players are expected
to remain high, and the option to allow recordability to DVD, at a
consumer-level price point, is still several years away. In addition, only a
fraction of the titles available on video are available on DVD, and new releases
are typically available on videotape at an earlier date than on DVD. At this
date DVD has not yet attained universal support from movie studios.
EMPLOYEES
At January 31, 1998, the Company had 2,640 employees, including 2,558 in
retail stores and the remainder in corporate administrative and warehousing
operations. Of such employees, 1,117 were full-time and 1,523 were part-time.
Staffing requirements for the Company's stores range from 6 to 12 employees,
depending on size and location, and typically include one store manager and one
or two assistant managers. Store managers report directly either to a Regional
Vice President (of which the Company currently has ten) or, in regions with many
stores, to a district manager who, in turn, reports to a Regional Vice
President. The Company believes that its employee relations are good. None of
the Company's employees are represented by a labor union.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS. Certain statements in this
Annual Report on Form 10-K, under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere relate to future events and expectations and as such constitute
"forward-looking statements." The Company desires to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 and
in that regard is cautioning the readers of this Report that the following
important factors, among others, could affect the Company's actual results of
operations and may cause changes in the Company's strategy with the result that
the Company's operations and results may differ materially from those expressed
in any forward looking statements made by, or on behalf of, the Company. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following considerations, as well as those factors set forth under the caption
"Factors Affecting Future Results" in Item 7 below.
The Company's rapid growth could strain the Company's ability to manage
operations, integrate newly acquired stores into its systems and effectively
pursue its growth strategy. The Company competes with many others, including
Blockbuster, having significantly greater financial and marketing resources,
market share and name recognition than the Company. Further developments in
competing technologies could have a material adverse effect upon the video
retail industry and the Company's financial condition and results of operations.
Industry and Company revenues are somewhat seasonal and may be affected by many
factors, including variations in the acceptance of new release titles available
for rental and sale, the extent of marketing and promotional programs, weather,
special or unusual events and other factors that may affect retailers in
general. There can be no assurance that stores already acquired or acquired in
the future will perform as expected or that the prices paid for such stores will
prove to be advantageous. The Company's growth will be constrained by
limitations under the financing agreements.
12
<PAGE> 14
ITEM 2. PROPERTIES
In January 1997, the Company moved into its new corporate headquarters,
located at One Summit Square, Suite 200, Route 413 & Double Woods Road,
Langhorne, Pennsylvania, which consists of approximately 17,000 square feet of
office space. This facility is rented under a lease which expires in April 2002.
The Company has one extension option for a five-year period and certain early
termination rights.
In August 1997, the company moved its distribution services to a new 32,000
square foot warehouse facility located at 180 Wheeler Court, Suite B, in
Langhorne, Pennsylvania. This facility is rented under a lease that expires
August, 2000 (excluding renewals and extensions).
The Company also rents approximately 15,400 square feet of office space and
warehouse space for its regional operations in Union, New Jersey; Boston,
Massachusetts; Dayton, Ohio; and Southlake, Texas, under leases which typically
run for five or ten years with options for renewal ranging from one to five
years.
The Company leases all of its video specialty stores. The leases for the
Company's stores generally have an initial term of five to ten years or more and
provide one or more options to renew for additional terms of similar lengths.
The leases with respect to the remaining stores generally have an initial term
of five years and provide one or two options to renew for an additional term of
three to five years. Rents for the renewal terms are typically at pre-negotiated
rates. The majority of the leases contain percentage rental provisions which
only apply based upon high thresholds of in-store gross sales revenues. The
Company has not to date paid material amounts of percentage rentals. The Company
is responsible for taxes, insurance and utilities under most leases. The Company
expects that future stores will also occupy leased premises.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation that is incidental to the operation
of its business. The Company believes that the outcome of such litigation will
not materially affect the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS
The executive officers and other key executives of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ralph W. Standley, III........... 59 Chairman of the Board of Directors
T. Kyle Standley................. 34 President, Chief Executive Officer and Director
Richard G. Kelly................. 44 Chief Financial Officer
Donald Weiss..................... 56 Executive Vice President, Franchising
Jerry L. Misterman............... 51 Executive Vice President, Chief Accounting Officer
M. Trent Standley................ 33 Vice President, Secretary and Director
</TABLE>
Ralph W. Standley III has served as the Chairman of the Board of the
Company and its principal predecessors for the past five years. He also served
as President of two such predecessors, NVI and VDI, and as Secretary of two
other predecessors, GVI and GVMC, from the date of their inception or
acquisition by the Company through July 1995. Ralph W. Standley III is the
father of T. Kyle Standley and M. Trent Standley.
T. Kyle Standley has served as the President and Chief Executive Officer
and a Director of the Company and its predecessors since its inception in
February 1995. Previously, he served as an executive officer of two of the
Company's predecessors, GVC and GVMC, commencing in 1991. Mr. Standley was
director of research at Colliers International Property Consultants from 1989 to
1991, and prior thereto was a financial analyst at Paine Webber Incorporated.
13
<PAGE> 15
Mr. Kelly joined the Company as Chief Financial Officer in July 1996. From
January 1994 to June 1996, Mr. Kelly was a shareholder and served as a Director
of Moore, Stephens, Reilly, PC and was a shareholder and Vice President of
Gerald T. Reilly & Co., Certified Public Accountants, Inc. Mr. Kelly served as
Director of Gillis & Kelly, P.C., from 1990 to 1993, at which time the firm
merged with Gerald T. Reilly & Co., Certified Public Accountants, Inc. Mr. Kelly
is a Certified Public Accountant whose responsibilities included direction of
mergers and acquisitions as well as tax and audit related functions.
Mr. Weiss has served as Executive Vice President, Franchising of the
Company since September 1996. From May 1996 to August 1996, Mr. Weiss served as
Vice President -- Franchise Development of the Company. From November of 1992
until April 1996, he served as Vice President -- Franchising Development of
WCEI. From August 1991 to October 1992, Mr. Weiss served as Vice
President -- Franchising Development of West Coast Enterprises, Inc., and from
March 1989 to July 1991, he served as Executive Director of Franchise
Development of West Coast Enterprises, Inc.
Mr. Misterman has served as Executive Vice President -- Finance of the
Company since mid-July 1995 and as Chief Financial Officer of WC Franchise since
the acquisition by WC Franchise of certain franchise-related operating assets in
July 1995. Prior to July 1995, Mr. Misterman served as Chief Financial Officer
of each of the WCEI Companies, of Sorbee International, a manufacturer of
sugar-free candies, from March 1989, and of Medical Products Labs, a
manufacturer and distributor of fluoride-related sugar-free dental products,
from March 1990. Prior to 1990, Mr. Misterman's experience included serving as
the Chief Financial Officer of the Seven-Up Bottling Group of Philadelphia Inc.,
Corporate Controller and Assistant Treasurer of Aydin Corporation, a
manufacturer of electronic communications systems and equipment, and also as
Chief Financial Officer of Providers Benefit Company, a manager and operator of
several primary health care facilities and a finance company.
M. Trent Standley has served as a Vice President, Secretary and a Director
of the Company since May 1995. He also served as President of one of the
Company's predecessors, GVI, from 1989 to 1995, as Vice President of two other
predecessors, VDI from 1994 to 1995 and GVMC from 1992 to 1995, and as Secretary
of a fourth predecessor, NVI, from 1993 to 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER'S MATTERS
The Company's common stock is traded and quoted on the Nasdaq National
Market under the symbol "WCEC". The following table shows the high and low sales
prices of the common stock since the common stock began trading publicly on May
14, 1996, as reported through January 31, 1998, the end of the Company's most
recent fiscal year. The price to the public in the Initial Public Offering was
$13.00 per share.
<TABLE>
<CAPTION>
COMMON
STOCK PRICE
---------------
HIGH LOW
------ -----
<S> <C> <C>
Quarter ended July 31, 1996 (from May 14, 1996)............. $13.50 $9.25
Quarter ended October 31, 1996.............................. 11.50 7.63
Quarter ended January 31, 1997.............................. 11.75 8.00
Quarter ended April 30, 1997................................ 9.25 5.50
Quarter ended July 31, 1997................................. 6.00 3.25
Quarter ended October 31, 1997.............................. 3.75 1.63
Quarter ended January 31, 1998.............................. 2.31 1.00
</TABLE>
As of April 13, 1998, there were 180 holders of record and approximately
700 beneficial owners of the Company's common stock. On such date, approximately
7,541,101 shares were held by brokers, dealers and their nominees on behalf of
the beneficial owners.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its common
stock. For the foreseeable future, the Company expects to retain its earnings to
finance the development of its business. The payment of dividends is within the
discretion of the Company's Board of Directors and will depend on the earnings,
capital
14
<PAGE> 16
requirements, restrictions in future credit agreements and the operating and
financial condition of the Company, among other factors. The Company's current
bank credit facility contains a covenant prohibiting the payment of dividends
without the lender's consent. There can be no assurance that the Company will
ever pay dividends in the future.
RECENT SALES OF UNREGISTERED SECURITIES
The Company did not make any issuances of unregistered securities in the
year ended January 31, 1998.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical financial data presented under the captions
Statement of Operations Data and Balance Sheet Data as of and for the years
ended January 31, 1994, 1995, 1996, 1997, and 1998 was derived from the
consolidated financial statements of the Company, formerly the combined
companies of Giant Video Corporation, Nostalgia Ventures, Inc., Videosmith,
Inc., and G.V. Management Corporation. Such financial statements were audited by
Price Waterhouse LLP, independent certified public accountants. The Selected
Financial Data set forth below should be read in conjunction with the financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
filing.
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $2,520 $6,503 $14,719 $ 73,293 $123,753
Operating income (loss).................... (44) 385 1,216 8,053 423
Net income (loss) before extraordinary
item.................................... (72) 204 334 3,710 (3,570)
Net income (loss).......................... (72) 204 334 3,466 (3,570)
Net income (loss) before extraordinary item
per common share -- basic and
diluted(1).............................. $(0.09) $ 0.12 $ 0.07 $ 0.35 $ (0.26)
Net income (loss) per common share -- basic
and diluted(1).......................... $(0.09) $ 0.12 $ 0.07 $ 0.33 $ (0.26)
Weighted average number of shares.......... 843 1,693 4,756 10,554 13,817
OPERATING DATA:
Increase (decrease) in same store
revenues(2)............................. (6.1)% 14.2% 4.8% 5.3% 0.8%
Store Data:
Company-owned stores at end of period... 14 28 28 264 286
Franchised stores at end of period...... -- -- 304 267 217
------ ------ ------- -------- --------
Total stores at end of period ..... 14 28 332 531 503
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 12 $ 45 $ 611 $ 1,311 $ 2,604
Videocassette rental inventory, net........ 388 1,464 1,509 24,598 32,005
Total assets............................... 770 3,631 16,515 159,964 187,236
Long-term debt, less current portion....... 332 738 7,101 32,802 65,006
Total liabilities.......................... 1,338 3,266 15,972 52,829 83,555
Equity (deficit)........................... (568) 365 543 107,135 103,681
</TABLE>
- ---------------
(1) Income (loss) per common share and income (loss) per common share data has
been calculated in accordance with Statements of Financial Accounting
Standards No. 128; see Note 2 to the Consolidated Financial Statements.
(2) The increase (decrease) in same store revenues compares revenues from stores
owned by the Company at the end of each period that were open throughout
that period and the corresponding period for the prior year.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company has experienced rapid growth in revenue primarily as a result
of acquiring video specialty store chains. It has also increased existing store
revenues. After acquiring the Videosmith(R) chain in 1994, the Company owned and
operated 28 stores in Ohio and Massachusetts. The acquisition of a total of 280
owned and operated stores during the years ended January 31, 1997 and 1998
significantly increased the Company's market penetration within New Jersey, New
York, Pennsylvania, Ohio and certain other states and expanded the Company's
operations to reach a total of 22 states.
Revenues. Historically, the Company's revenues have been derived primarily
from the rental of videocassettes and video games together with sales of
previously viewed videocassettes ("rental revenues"), while lesser amounts have
been derived from payments from franchisees ("franchise fees") and sales of new
videocassettes, miscellaneous merchandise and other sales ("merchandise and
other sales"). Acquisitions of franchised stores and stores with differing
levels of merchandise and other sales compared with rental revenues have had,
and may in the future have, an effect on the Company's mix of revenue
components.
The Company believes that convenience, selection, customer service, weather
and price are the most significant factors in determining rental volumes.
Significant increases in rental revenues largely depend upon the appeal of new
releases coming from motion picture producers and video game developers.
Management plans and executes various buying, marketing and operating strategies
so as to take maximum advantage of such competitive factors as are under its
control.
The franchise arrangement calls for the Company to receive franchise fee
payments monthly in arrears from its franchised stores. The franchise fee
payment due from most domestic franchisees is equal to 7% of the aggregate
revenues from all of the franchisees' stores for the prior month, of which 2% of
such aggregate revenues is required to be devoted to paying marketing and
advertising costs.
Merchandise and other sales are derived primarily from new videocassettes
sold directly to customers, sales of supplies to franchisees, video game sales
and the sale of confectionery and other movie-related merchandise.
Expenses. Store operating expenses generally consist of expenses incurred
at the store level, including amortization of videocassette and video game
rental inventory ("rental inventory"), personnel expense, lease expense, utility
expense and depreciation. For purposes of this "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Rental Inventory
amortization expense has been removed from store operating expenses and
discussed separately. Rental Inventory amortization expense is a substantial
component of total expenses. The Company believes that its method of
amortization results in an appropriate matching of amortization expense with the
revenue received from the associated rental of such inventory.
Cost of goods sold is a smaller component of total expenses consisting
primarily of costs associated with purchasing videocassettes and video games to
be sold directly to customers, supplies to be sold to franchisees, video games
and confectionery items. Selling, general and administrative expenses are
non-store level expenses and include general corporate expenses such as
marketing and advertising, personnel, administration, legal and accounting.
These functions are primarily performed at the Company's headquarters in
Langhorne, Pennsylvania. Interest expense reflects the extent to which the
Company borrows funds. Intangible assets are primarily comprised of franchise
rights and goodwill. Franchise rights are amortized on a straight-line basis
over 15 years, the estimated economic life of such rights. Goodwill is amortized
over 20 years on a straight-line basis.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated statement of
operations data and other data expressed as a percentage of total revenue and
the number of stores open at the end of each period.
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1997
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues........................................... 62.6% 80.1% 82.4%
Merchandise and other sales............................... 15.6 13.4 15.6
Franchise fees............................................ 21.8 6.5 2.0
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
----- ----- -----
Costs and expenses:
Store operating expenses(1)............................... 42.2 43.5 46.3
Cost of goods sold........................................ 9.5 8.9 11.0
Amortization of videocassette and video game rental
Inventory(2)........................................... 13.6 15.4 21.0
Selling, general and administrative....................... 25.2 16.7 12.2
Amortization of intangible assets......................... 1.3 4.6 5.0
Debt offering write-off................................... -- -- 4.2
----- ----- -----
Total costs and expenses.......................... 91.8 89.1 99.7
----- ----- -----
Income from operations.................................... 8.2 10.9 0.3
Interest expense and other................................ 4.1 1.5 4.0
----- ----- -----
Income (loss) before provision for income taxes and
extraordinary Item..................................... 4.1 9.4 (3.7)
Provision (benefit) for income taxes...................... 2.0 4.4 (0.8)
----- ----- -----
Income (loss) before extraordinary item................... 2.1% 5.0% (2.9)%
===== ===== =====
OTHER DATA:
Purchases of videocassette rental inventory............... 13.6% 25.2% 24.6%
STORE DATA:
Increase in same store revenues(3)........................ 4.8% 5.3% 0.8%
Company-owned stores at end of period..................... 28 264 286
Franchised stores at end of period........................ 304 267 217
----- ----- -----
Total stores at end of period............................. 332 531 503
===== ===== =====
</TABLE>
- ---------------
(1) Exclusive of amortization of Rental Inventory.
(2) The Company's amortization policy for Rental Inventory is described in Note
2 to the Consolidated Financial Statements.
(3) The increase in same store revenues compares revenues from stores owned by
the Company at the end of each period that were open throughout that period
and the for the prior year.
Year ended January 31, 1998 compared to Year ended January 31, 1997
Revenues. Revenues increased $50.4 million, or 68.8%, from $73.3 million
for the year ended January 31, 1997 to $123.7 million for the year ended January
31, 1998. This change reflected an increase of $43.2 million in rental revenues,
an increase of $9.5 million in merchandise sales and a decrease of $2.3 million
in franchise fee revenue. The increases in rental and merchandise sales revenues
are partially attributable to the 40 video specialty stores acquired in 1997
which were not included in revenue for the year ended January 31, 1997 but were
included for part of the year ended January 31, 1998 (1 on March 21, 1997, 1 on
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April 10, 1997, 37 on June 16, 1997 and 1 on June 24, 1997) and partially
attributable to the timing of acquisitions of stores for the year ended January
31, 1997: 172 stores acquired on May 17, 1996 were included in revenues for only
eight and one-half months in the year ended January 31, 1997, but for the full
year ended January 31, 1998; 5 stores acquired on August 26, 1996 were included
in revenues for only five months in the year ended January 31, 1997 but for all
twelve months in the year ended January 31, 1998; 15 stores acquired between
September 30 and October 1, 1997 were included in revenues for only four months
in the year ended January 31, 1997, but for all 12 months of the year ended
January 31,1998; and 45 stores acquired on November 15, 1996 were included in
revenues for only two and one-half months in the year ended January 31, 1997,
but for the full year ended January 31,1998. Three other store acquisitions
complete the Company's acquisition of 280 stores since the Offering: 1 on
October 25, 1996; 1 on December 1, 1996 and 1 on December 3, 1996. Revenues for
these three stores were included for only three, two, and two months,
respectively, for the year ended January 31, 1997, as compared to all twelve
months of the year ended January 31,1998 The remaining increase is due to the
increase in per store average revenues.
Rental revenues increased $43.2 million, or 73.6%, from $58.7 million for
the year ended January 31, 1997 to $101.9 million for the year ended January 31,
1998. This increase is primarily attributable to the revenues generated by the
40 video specialty stores acquired in the year ended January 31, 1998 and
revenues from stores acquired during and owned for only a portion of the year
ended January 31, 1997 but owned for the full year ended January 31, 1998 as
described above. The remaining increase in rental revenues is due to an increase
in rental revenues for stores owned by the Company for the full twelve months in
both of the years ended January 31, 1998 and 1997.
Merchandise and other sales increased $9.5 million, or 96.9%, from $9.8
million for the year ended January 31, 1997 to $19.3 million for the year ended
January 31, 1998 primarily attributable to the merchandise sales contributed by
the 40 video specialty stores purchased in the year ended January 31, 1998 and
the merchandise sales from stores owned for only a portion of the year ended
January 31, 1997 but for the full year ended January 31, 1998 as described
above. In addition, the Company has expanded its inventory levels to increase
sales of new movies.
Franchise fee revenues decreased $2.3 million, or 47.9%, from $4.8 million
for the year ended January 31, 1997 to $2.5 million for the year ended January
31, 1998. Approximately $0.7 million of this decrease is the net effect of the
acquisition of 39 franchised stores among the total of 280 stores purchased by
the Company since May 17, 1996. The remaining $1.6 million decrease is
attributable to the closing or termination of franchised stores, many of which
did not meet image and appearance criteria, a decline in the number of royalty
payments received from franchisees due to a decline in their business and a
decline in the number of franchisees who make required payments since January
31, 1997.
As a result of the Company's acquisition activities and other developments
described above the mix of revenue sources changed to approximately 82.4%
rental, 15.6% merchandising and 2.0% franchising during the year ended January
31, 1998 from approximately 80.1%, 13.4%, and 6.5%, respectively, during the
year ended January 31, 1997.
Store Operating Expenses. Store operating expenses increased $25.4
million, or 79.6%, from $31.9 million for the year ended January 31, 1997 to
$57.3 million for the year ended January 31, 1998. This $25.4 million increase
in dollars is primarily related to the acquisition of new stores as described
above. As a percentage of total revenues, store operating expenses increased 2.8
percentage points from 43.5% for the year ended January 31, 1997 to 46.3% for
the year ended January 31, 1998. Except as discussed below this increase was
caused by the decrease from the year ended January 31, 1997 to the year ended
January 31, 1998 in the relative significance of the Company's franchise
operations (as measured by the decrease in franchise revenues as a percentage of
total revenues), since the franchise business involves virtually no store
operating expenses. As a percentage of rental revenues and merchandise sales,
store operating costs increased 0.7 percentage points from 46.6% for the year
ended January 31, 1997 to 47.3% for the year ended January 31, 1998. This
increase is primarily due to higher rent costs and payroll costs. Since the
initial acquisition of 172 stores on May 17, 1996, most of the additional 108
stores acquired are located in larger metropolitan areas which generally have
higher occupancy costs. Store salaries increased due to an increase in store man
hours. In
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September 1997, management implemented steps to begin to reverse this trend in
man hours and during the fourth quarter ended January 31, 1998, store payroll
costs were substantially less than management's goals.
Cost of Goods Sold. Costs of goods sold increased $7.1 million, or 109.2%,
from $6.5 million for the year ended January 31, 1997 to $13.6 million for the
year ended January 31, 1998, primarily as a result of an increase in
merchandising sales volume due to the acquisition of the 280 video specialty
stores since May 17, 1996. As a percentage of merchandising sales, cost of goods
sold increased by 4.2 percentage points from 66.3% for the year ended January
31, 1997 to 70.5% for the year ended January 31, 1998. This increase was
primarily due to a change in sales mix caused by the acquisition of the 280
video specialty stores and the sale of more sell-thru titles which have a lower
margin.
Amortization of Videocassette and Video Game Rental Inventory.
Amortization of rental inventory increased $14.7 million, or 130.1%, from $11.3
million for the year ended January 31, 1997 to $26.0 million for the year ended
January 31, 1998, primarily as a result of the acquisition of the 280 video
specialty stores since May 17, 1996. As a percentage of rental revenues this
amortization increased 6.2 percentage points from 19.3% for the year ended
January 31, 1997 to 25.5% for the year ended January 31, 1998. This is primarily
due to the net effects of purchase accounting for acquired stores and by an
$803,000 charge resulting from the adoption of the new method of amortization of
rental inventory as described in Notes 2 and 3 to the Consolidated Financial
Statements.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased $2.9 million, or 23.8%, from $12.2 million for
the year ended January 31, 1997 to $15.1 million for the year ended January 31,
1998. The increase is primarily related to an increase in Corporate personnel
hired in anticipation of the Proposed Private Placement (see Note 16 to the
Consolidated Financial Statements) and related acquisitions. Because of the
indefinite delay in the Company's Proposed Private Placement of debt securities
and related acquisitions, the Company has sharply reduced its general and
administrative costs from the levels reached in contemplation of expansion. The
effects of these changes were partially reflected in the financial results of
the fourth quarter of the year ended January 31, 1998 and should be fully
realized in future financial results. As a percentage of total revenues,
however, general and administrative expenses decreased 4.5 percentage points
from 16.7% for the year ended January 31, 1997 to 12.2% for the year ended
January 31, 1998 primarily reflecting the ability of the Company's
administrative staff to operate an increasing number of corporate stores and, to
a lesser extent, the change in the mix of rental revenues, merchandise sales and
franchise fees. Franchising has higher associated general and administrative
costs than rental revenues and merchandise sales.
Amortization of Intangible Assets. Intangible amortization expense
increased $2.8 million, or 82.4%, from $3.4 million for the year ended January
31, 1997 to $6.2 million for the year ended January 31, 1998. As a percentage of
total revenues, intangible amortization increased 0.4 percentage points from
4.6% for the year ended January 31, 1997 to 5.0% for the year ended January 31,
1998. These increases are entirely related to amortization of goodwill
associated with the acquisition of 280 video specialty stores since May 17,
1996.
Debt Offering Write-Off. A debt offering write-off of $5.1 million was
incurred for the year ended January 31, 1998. The entire $5.1 million represents
expense associated with the Proposed Private Placement and related acquisitions
due to the Company's decision to indefinitely delay such offering. A debt
offering write-off was not incurred for the year ended January 31, 1997.
Interest Expense and Other. Net interest expense and other increased $3.9
million, or 354.5%, from $1.1 million for the year ended January 31, 1997 to
$5.0 million for the year ended January 31, 1998. Interest expense comprises
almost all this net amount. As a percentage of total revenues, interest expense
increased 2.2 percentage points from 1.8% for the year ended January 31, 1997 to
4.0% for the year ended January 31, 1998. The increase is substantially
attributable to additional interest expense incurred in connection with
borrowings related to the acquisitions.
Extraordinary Item. For the year ended January 31, 1998 no extraordinary
items were incurred. For the year ended January 31, 1997 the Company incurred an
extraordinary item of $0.4 million ($0.2 million net of taxes) in conjunction
with the early extinguishment of a portion of the previously outstanding
subordinated
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debt. The Company was required by terms of the debt agreement to pay a
prepayment penalty of $0.4 million upon completion of the Offering.
Net Income (Loss). As a result of the foregoing, net income decreased $7.1
million, from $3.5 million of net income for the year ended January 31, 1997 to
a $3.6 million net loss for the year ended January 31, 1998. Carving out the
one-time charge of $5.1 million resulting from the Debt Offering Write-Off and
adjusting for the $0.8 million charge resulting from a change in method of
amortization of the video rental inventory (see Note 2 to the Consolidated
Financial Statements), the loss for the year would have been eliminated.
Year ended January 31, 1997 compared to Year ended January 31, 1996
Revenues. Revenues increased $58.6 million, or 398.6%, from $14.7 million
for the year ended January 31, 1996 to $73.3 million for the year ended January
31, 1997. Most of this increase was composed of a $49.5 million increase in
rental revenues and a $7.5 million increase in merchandise and other sales
primarily due to the acquisition of 240 video specialty stores on the following
dates: 172 stores on May 17, 1996, 5 on August 26, 1996, 14 on September 30,
1996, 1 on October 1, 1996, 1 on October 25, 1996, 45 on November 15, 1996, 1 on
December 1, 1996, and 1 on December 3, 1996.
Rental revenues increased $49.5 million, or 538.0%, from $9.2 million for
the year ended January 31, 1996 to $58.7 million for the year ended January 31,
1997, primarily due to $49.2 million of rental revenues contributed by the 240
stores acquired since May 17, 1996 as described above. The remaining increase in
rental revenues of $0.3 million is due an increase in rental revenues for the 28
stores owned by the Company for the full twelve months in both 1996 and 1997.
Merchandise and other sales increased $7.5 million, or 326.1%, from $2.3
million for the year ended January 31, 1996 to $9.8 million for the year ended
January 31, 1997, primarily due to $6.7 million of merchandise and other sales
contributed by the 240 video specialty stores purchased since May 17, 1996. Of
the difference, $0.6 million relates to the franchise business whose merchandise
and other sales only contributed approximately 6.5 months of revenues in the
year ended January 31, 1996 as compared to all 12 months in the year ended
January 31, 1997. The remaining increase in merchandise and other sales of $0.2
million is due to same store sales increases for the original 28 stores.
Franchise fee revenues increased $1.6 million, or 50.0%, from $3.2 million
for the year ended January 31, 1996 to $4.8 million for the year ended January
31, 1997. Because the franchise business was acquired on July 12, 1995, it was
included in the Company's accounts for all 12 months in the year ended January
31, 1997 but only for approximately 6.5 months in the year ended January 31,
1996. Average monthly franchise fee revenues decreased approximately 19% from
the year ended January 31, 1996 to the year ended January 31, 1997.
Approximately 20% of the decrease is due to the acquisition of franchised stores
which were purchased since May 17, 1996. Another 20% of the decrease is related
to a decrease in average monthly royalty payments received from franchisees due
to a decline in their business. The remaining 60% of the decline is due to a
slow down in royalty payments from franchisees.
As a result of the Company's acquisition activities, the mix of its revenue
sources changed to approximately 80.1% rental, 13.4% merchandising and 6.5%
franchising during the year ended January 31, 1997 from 62.6%, 15.6% and 21.8%,
respectively, during the year ended January 31, 1996.
Store Operating Expenses. Store operating expenses increased $25.7
million, or 414.5%, from $6.2 million for the year ended January 31, 1996 to
$31.9 million for the year ended January 31, 1997. As a percentage of total
revenues, store operating expenses increased 1.3 percentage points from 42.2%
for the year ended January 31, 1996 to 43.5% for the year ended January 31,
1997. This increase was caused primarily by the decrease from 1996 to 1997 in
the relative significance of the Company's franchise operations (as measured by
the decrease in franchise revenues as a percentage of total revenues), since the
franchise business involves virtually no store operating expenses. However, as a
percentage of rental revenues and merchandise and other sales, store operating
costs decreased 7.3 percentage points from 53.9% for the year ended January 31,
1996 to
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46.6% for the year ended January 31, 1997. This decrease reflects lower
operating costs as a percentage of revenue for the 240 video specialty stores
purchased since May 17, 1996.
Cost of Goods Sold. Cost of goods sold increased $5.1 million, or 364.3%,
from $1.4 million for the year ended January 31, 1996 to $6.5 million for the
year ended January 31, 1997, primarily as a result of an increase in sales
volume of merchandise and other sales due to the acquisition of the franchise
business on July 12, 1995 and the acquisition of the 240 video specialty stores
since May 17, 1996. As a percentage of merchandise and other sales, cost of
goods sold increased by 5.4 percentage points from 60.9% for the year ended
January 31, 1996 to 66.3% for the year ended January 31, 1997. This was
primarily due to a change in sales mix.
Amortization of Videocassette and Video Game Rental
Inventory. Amortization of rental inventory increased by $9.3 million, or
465.0%, from $2.0 million for the year ended January 31, 1996 to $11.3 million
for the year ended January 31, 1997, primarily as a result of the acquisition of
the 240 video specialty stores since May 17, 1996. As a percentage of rental
revenues this amortization decreased 2.4 percentage points from 21.7% for the
year ended January 31, 1996 to 19.3% for the year ended January 31, 1997. This
is primarily due to the effects of purchase accounting in conjunction with the
240 video specialty stores acquired since May 17, 1996 as explained in Note 3 to
the Consolidated Financial Statements.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased $8.5 million, or 229.7%, from $3.7 million for
the year ended January 31, 1996 to $12.2 million for the year ended January 31,
1997. The increase is primarily related to the additional personnel and
non-store operating costs which were absorbed from the acquisitions of the 240
video specialty stores and the franchise business. As a percentage of total
revenues, however, selling, general and administrative expenses decreased 8.5
percentage points from 25.2% for the year ending January 31, 1996 to 16.7% for
the year ending January 31, 1997 reflecting the ability of the Company's
administrative staff to operate an increasing number of corporate stores, as
well as a change in the mix of rental revenues, merchandise and other sales and
franchise fees. In addition, franchise fees have higher selling, general and
administrative costs than rental revenues and merchandise and other sales.
Amortization of Intangible Assets. Intangible amortization expense
increased $3.2 million, from $0.2 million for the year ended January 31, 1996 to
$3.4 million for the year ended January 31, 1997. As a percentage of total
revenues, intangible amortization increased 3.3 percentage points from 1.3% for
the year ended January 31, 1996 to 4.6% for the year ended January 31, 1997.
These increases are entirely related to amortization of goodwill associated with
the acquisition of the 240 video specialty stores since May 17, 1996.
Interest Expense and Other. Net interest expense and other increased $0.5
million, or 83.3%, from $0.6 million for the year ended January 31, 1996 to $1.1
million for the year ended January 31, 1997. Interest expense comprises almost
all of this net amount. However, as a percentage of total revenues, interest
expense and other decreased 2.6 percentage points from 4.1% for the year ended
January 31, 1996 to 1.5% for the year ended January 31, 1997. The increase in
dollars is substantially attributable to additional interest expense incurred in
connection with the acquisition of the franchise business and the acquisitions
of video specialty stores.
Extraordinary Item. For the year ended January 31, 1997, the Company
incurred an extraordinary item of $0.4 million ($0.2 million net of taxes)
because, in conjunction with the early extinguishment of a portion of the
previously outstanding subordinated debt, the Company was required by terms of
the debt agreement to pay a prepayment penalty of $0.4 million upon completion
of the Initial Public Offering. No extraordinary items were incurred during the
year ended January 31, 1996.
Net Income. As a result of the foregoing, net income increased $3.2
million, or 1066.7% for the year ended January 31, 1997 from $0.3 million for
the year ended January 31, 1996 to $3.5 million for the year ended January 31,
1997.
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LIQUIDITY AND CAPITAL RESOURCES
For the year ended January 31, 1998, the Company had net cash provided by
operating activities of $26.7 million, net cash used in investing activities of
$57.1 million (consisting primarily of cash used to purchase videocassette
rental inventory of $30.4 million, and $19.3 million of net cash paid for the
acquisitions of new video specialty stores acquired in such year) and net cash
provided by financing activities of $31.6 million (consisting primarily of $32.2
million of net borrowings from the Credit Facility, as described in Note 7 to
the Consolidated Financial Statements), resulting in a net increase in cash and
cash equivalents of $1.3 million.
During the current fiscal year, the Company has financed its operations,
capital expenditures and acquisitions primarily through available operating cash
and borrowings under the Credit Facility described in Note 7 to the Consolidated
Financial Statements.
The Company's decision to prepare for, then indefinitely delay its Proposed
Private Placement of debt securities (Note 16 to the Consolidated Financial
Statements) greatly affected the Company's financial results in the nine months
ended October 31, 1997. Immediately following its decision to postpone, the
Company instituted cost-cutting measures, which included downsizing its general
and administrative costs from the levels reached in contemplation of the
proposed acquisitions and the Proposed Private Placement. The effects of these
cost cutting measures were only partially reflected in the financial results of
the fourth quarter of the year ended January 31, 1998 and should be fully
realized in the year ending January 31, 1999. While there can be no assurance,
the Company expects these modifications to be sufficient to cause its current
operating cash flow to support its current operations and growth plans over the
next year.
In the future, the Company may seek debt refinancing, additional debt
financing or equity capital through additional private or public offerings of
securities. The availability of debt refinancing, additional debt financing or
equity capital will depend upon prevailing market conditions, the market price
of the Company's common stock and other factors over which the Company has no
control, as well as the Company's financial condition and results of operations.
The number of shares of common stock, if any, to be issued to sellers in
connection with future acquisitions will also be affected by such factors, since
the number will be determined in accordance with a formula based on trading
prices of the common stock.
On January 16, 1998, the Company entered into an interest-rate agreement in
order to manage its exposure to interest-rate fluctuations associated with the
Amended Facility. See Notes 2 and 7 to the Consolidated Financial Statements.
Capital Commitments and Contingencies. The remaining aggregate costs of
upgrading the Company's management information systems are expected to be
approximately $1.8 million over the next 12-18 months.
Subject to the availability of sufficient funds under the Credit Facility,
the Company's capital expenditure plan provides for continuing to convert the
stores acquired in various prior acquisitions to West Coast Video(R) signage and
format and installing certain West Coast Video(R) layout and features at a rate
of up to 50 stores per year at an estimated cost of $32,000 per store; the
Company also has immediate plans to relocate and open up to 50 stores. Build-out
costs for new stores are expected to range from $325,000 to $375,000 per store
and build-out costs for relocated stores are expected to range from $175,000 to
$225,000 per store.
Under certain cross-purchase and area development agreements, the Company
will be entitled to acquire (and, subject to certain conditions, will be
required to acquire, if the owners elect to put) all of the assets of up to 51
stores operated or to be operated by such owners at specified times between 1998
and 2002. In conjunction with such agreements, the Company is subject to puts
during the next 12 months; however, there can be no assurance that the puts will
be exercised. The purchase prices will be equal to specified multiples of the
stores' net operating cash flow; the purchase prices of 24 such stores will be
payable in cash or in shares of common stock, at the Company's election.
Rental inventories are treated as noncurrent assets under generally
accepted accounting principles because they are not assets which are reasonably
expected to be completely realized in cash or sold in the normal business cycle.
Although the rental of this inventory generates the major portion of the
Company's
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revenue, the classification of these assets as noncurrent results in their
exclusion from working capital. The aggregate amount payable for this inventory,
however, is reported as a current liability until paid and, accordingly, is
included in the computation of working capital. Consequently, the Company
believes working capital is not an appropriate measure of its liquidity.
GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY
The Company's results of operations are generally affected by economic
trends in its market area but results to date have not been impacted by
inflation or wage increases.
A concentration of new store openings and the related pre-opening costs in
any particular fiscal quarter could have an adverse impact on the financial
results for that quarter, leading to fluctuating quarterly financial results,
which could adversely impact the Company's common stock price.
The videocassette and interactive electronic entertainment products rental
business is somewhat seasonal, with revenues in early Spring generally being
lower due in part to the change in Daylight Savings Time and improved weather,
and revenues in early Fall generally being lower due in part to the start of
school, the football season and the new television season.
FACTORS AFFECTING FUTURE RESULTS
The future operating results of the Company remain difficult to predict.
The Company continues to face many risks and uncertainties which could affect
its operating results, including, without limitation, those described below.
The video retail industry is highly competitive. The Company competes with
other video specialty stores, including stores operated by regional and national
chains, as well as other businesses, such as supermarkets, pharmacies,
convenience stores, bookstores, mass merchants, mail order operations and other
retailers, that offer videocassettes and interactive electronic entertainment
products. Many of the Company's stores compete with stores operated by
Blockbuster, the dominant video specialty retailer in the United States.
Blockbuster and certain of the Company's other competitors have significantly
greater financial and marketing resources, market share and name recognition
than the Company. In addition, the Company's stores compete with other
leisure-time activities, including movie theaters, network and cable television,
direct broadcast satellite television, live theater, sporting events, family
entertainment centers and Internet-related activities. The Company's failure to
compete effectively would have a material adverse effect on its financial
condition and results of operations. See "Item 1 -- Competition."
The Company competes with pay-per-view cable television systems
("Pay-Per-View"), in which cable television subscribers pay a fee to see a movie
or other program selected by the subscriber. Existing Pay-Per-View services
offer a limited number of channels and programs and are generally available only
to households with a converter to unscramble incoming signals. Recently
developed technologies, however, permit certain cable companies, direct
broadcast satellite companies, telephone companies and other telecommunications
companies to transmit a much greater number of movies to homes in more markets
as frequently as every five minutes. Ultimately, further improvements in these
technologies or the development of other similar technologies could lead to the
availability of a broad selection of movies to consumers on demand, which could
have a material adverse effect on the Company's financial condition and results
of operations. See "Item 1 -- Competition." Changes in the manner in which
movies are marketed by movie studios, including an earlier release by movie
studios of movie titles to cable television or other distribution channels,
could substantially decrease the demand for video rentals, which could have a
material adverse effect on the Company's financial condition and results of
operations. See "Item 1 -- Video Industry Overview" and "-- Competition."
Rental and sales volumes for video games have fluctuated considerably in
recent fiscal periods, both industry-wide and for the Company, as a result of
technological changes and the introduction (or delay in introduction) of new
products. Similar fluctuations may occur in future periods. Revenues from the
videocassette and video game rental portions of the Company's business are
somewhat seasonal and may be affected by many factors, including variations in
the number and timing of theatrical movie releases and
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releases to video specialty stores, the public acceptance of new release titles
available for rental and sale, the extent of marketing and promotional programs
sponsored by distributors of videocassettes and video games and changes in
wholesale prices of videocassettes and Pay-Per-View formatted movies. Demand for
the Company's products may also be affected by weather, special or unusual
events and other factors that may affect retailers in general.
On January 31, 1998, the Company had 118 franchisees operating 217
franchised stores. No assurance can be given that the Company will operate its
franchise operations at profitable levels or continue to market and sell new
franchises. In addition, no assurance can be given that desirable locations and
acceptable leases can be obtained for new franchisees. The Company monitors
franchisees' revenue reporting and compliance with ongoing obligations on the
basis of monthly revenue and ordered inventory reports. The Company's standard
franchise agreement generally also grants the Company the right to inspect the
franchised store and the right to audit the books and records of franchisees at
any time. No assurance can be given, however, that all franchisees will operate
their stores in accordance with the Company's operating guidelines and in
compliance with all material provisions of the franchise agreement, and the
failure of franchisees to so operate their stores could have a material adverse
effect on the Company's business. The Company has recently experienced a
significant reduction and slowdown in franchise fee receipts.
The Company's recent rapid growth challenges the Company's ability to
manage operations, integrate newly acquired stores into its systems and
effectively pursue its growth strategy. The success of the Company's growth
strategy is dependent upon its ability to achieve cost savings in connection
with acquisitions and otherwise successfully integrate acquired operations into
the Company's management information, telecommunications, management, marketing,
finance and accounting, entertainment purchasing, distribution, retail
operations and merchandising systems. There can be no assurance, however, that
the Company will be able to achieve such savings or successfully integrate
acquired operations into its existing operations. There can be no assurance that
such acquisitions will not have a material adverse effect upon the Company's
operating results while the operations of the acquired businesses are being
integrated into the Company's. Once integrated, acquired operations may not
achieve levels of revenues or profitability comparable to those achieved by the
Company's existing operations or otherwise perform as expected. Future expansion
will require the Company's existing management personnel to, among other things,
identify and analyze new markets and new site locations; locate and negotiate
with numerous potential acquires; consummate acquisitions; negotiate acceptable
real estate leases and related agreements for existing stores and for stores to
be acquired or opened and develop cost-effective transition plans for acquired
stores; hire, train and assimilate store managers and other store personnel; and
address the other specific risks described in more detail below.
In consummating acquisitions, the Company has relied and will rely upon
certain representations, warranties and indemnities made by the sellers with
respect to each of the acquisitions, as well as its own due diligence
investigation. There can be no assurance that such representations and
warranties will be true and correct, that the Company's due diligence will
uncover all material adverse facts relating to the operations and financial
condition of the stores acquired or that all of the conditions to the Company's
obligations to consummate acquisitions will be satisfied. Any material
misrepresentations could have a material adverse effect on the Company's
financial condition and results of operations.
The Company intends to finance any future acquisitions, as well as new
store openings, primarily from borrowings under the Credit Facility, from the
net proceeds from the sale of other debt or equity securities, and from cash
from operations. Acquisitions may also be made by issuing common stock or other
Company securities to the sellers. At present, the Credit Facility contains
substantial limitations on growth. See Note 7 to the Consolidated Financial
Statements. Issuing common stock to sellers is not practical at present in light
of current market prices. There can be no assurance that the Company will at
some future date be able to sell debt or equity securities on reasonable terms.
Continued inability to raise sufficient cash and issue sufficient stock could
inhibit implementation of the Company's long-term growth strategy.
There can be no assurance that the Company will be able to identify
suitable acquisition targets and complete acquisitions in either existing or new
markets. In addition, certain of the Company's competitors may seek to acquire
some of the same video specialty stores that the Company seeks to acquire. Such
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competition for acquisitions would increase acquisition prices and related costs
and result in fewer acquisition opportunities, which could have a material
adverse effect on the Company's growth.
The amount of borrowings available under the Company's Credit Facility may
decrease during the year ending January 31, 1999 if the Company does not attain
certain debt-to-operating cash flow ratios (as defined); see Note 7 to the
Consolidated Financial Statements.
In addition, the Company is subject to the Federal Trade Commission's Trade
Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures" (the "FTC Franchise Rule") and
state laws and regulations that govern the offer and sale of franchises. In
order to offer and sell franchises, the Company is required by the FTC Franchise
Rule to furnish each prospective franchisee a current franchise offering
circular prior to the sale of a franchise. Furthermore, 12 states at present
require a franchisor to comply with registration or filing requirements prior to
offering a franchise in the state and to provide a prospective franchisee with a
current franchise offering circular complying with the state's laws, prior to
the sale of the franchise, and six other states require written notice prior to
the offer of a franchise (collectively, the "Registration States"). The Company
is currently registered in all of the Registration States and is currently
entitled to sell franchises in all other states in compliance with the FTC
Franchise Rule. The Company is in the process of filing all of its renewal
registrations in the Registration States, to reflect its latest franchise
offering. Violations of the FTC Franchise Rule and the franchise offering
requirements of the Registration States could result in civil penalties against
the Company and civil and criminal penalties against the executive officers of
the Company.
The Company has conducted a review of its computer systems to identify the
systems that are affected by the year 2000. The year 2000 problem is the result
of computer programs being written using two digits rather than four to define
the applicable year. The Company intends to upgrade its POS systems over the
next 12-18 months in an effort to make more detailed data available on a system
wide basis in a timely manner at a cost of approximately $1.8 million. Such
costs will be capitalized and amortized over the useful life of the new
software. The Company believes that with modifications to existing software and
conversions to the new POS system, the year 2000 issue will not pose significant
operational problems for the Company's computer systems. The Company will
continue to address any further year 2000 issues and believes that any costs
relating to such issues will not be material to the Company's financial
condition or results of operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements of West Coast Entertainment
Corporation, listed in the index appearing under Item 14(a)(1) and (2) are filed
as part of the Annual Report on Form 10-K.
25
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
West Coast Entertainment Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders' equity present fairly, in all material respects, the financial
position of West Coast Entertainment Corporation (the "Company"), formerly the
combined companies of Giant Video Corporation, Nostalgia Ventures, Inc.,
Videosmith, Inc., and G.V. Management Corporation, at January 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, effective
August 1, 1997, the Company changed its method of accounting for the
amortization of its videocassette rental inventory.
PRICE WATERHOUSE LLP
/s/ PRICE WATERHOUSE LLP
April 2, 1998
Boston, Massachusetts
26
<PAGE> 28
WEST COAST ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------------
1997 1998
------------- -------------
(IN THOUSANDS, EXCEPT PAR VALUE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,311 $ 2,604
Accounts receivable and other receivables (net of
allowance for doubtful accounts of $233 and $123 at
January 31, 1997 and 1998, respectively)............... 1,899 1,629
Merchandise inventories................................... 6,333 8,216
Income taxes receivable................................... -- 441
Deferred tax asset (Note 8)............................... 160 820
Market development funds and co-op receivable............. 1,138 2,124
Receivable from officers (Note 9)......................... 141 341
Prepaid expenses and other current assets................. 908 652
-------- --------
Total current assets.............................. 11,890 16,827
Videocassette rental inventory, net (Note 3)................ 24,598 32,005
Furnishings, equipment and leasehold improvements, net (Note
4)........................................................ 11,285 18,953
Intangible assets (net of accumulated amortization of $3,764
and $10,003 at January 31, 1997 and 1998, respectively)... 109,193 117,047
Other assets (Note 5)..................................... 2,998 2,404
-------- --------
Total assets...................................... $159,964 $187,236
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 7)................ $ 19 $ 8
Accounts payable.......................................... 12,941 11,719
Accrued expenses (Note 6)................................. 4,647 4,926
Income taxes payable...................................... 1,555 --
-------- --------
Total current liabilities......................... 19,162 16,653
Long-term debt (Note 7)..................................... 32,802 65,006
Deferred tax liability (Note 8)............................. 566 1,741
Other long-term liabilities................................. 299 155
-------- --------
Total liabilities................................. 52,829 83,555
Commitments and contingencies (Notes 14 and 15)............. -- --
Stockholders' equity:
Common stock ($0.01 par value; 13,770 shares at January
31, 1997, of which 12,988 shares were outstanding and
782 shares were to be issued and 13,843 shares as of
January 31, 1998, of which 13,706 shares were
outstanding and 137 shares were to be issued (Note
11).................................................... 138 138
Preferred stock ($0.01 par value, 2,000 shares authorized,
no shares issued) (Note 13)............................ -- --
Additional paid-in capital................................ 103,947 104,063
Accumulated surplus/(deficit)............................. 3,050 (520)
-------- --------
Total stockholders' equity........................ 107,135 103,681
-------- --------
Total liabilities and stockholders' equity........ $159,964 $187,236
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 29
WEST COAST ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------
1996 1997 1998
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Rental revenue............................................ $ 9,209 $58,728 $101,934
Merchandise sales......................................... 2,299 9,795 19,312
Franchise fees............................................ 3,211 4,770 2,507
------- ------- --------
14,719 73,293 123,753
------- ------- --------
Costs and expenses:
Store operating expenses.................................. 6,234 31,912 57,346
Cost of goods sold........................................ 1,384 6,527 13,596
Amortization of videocassette and video game rental
inventory (Note 3) .................................... 1,972 11,265 25,959
Selling, general and administrative....................... 3,659 12,116 15,065
Amortization of intangible assets......................... 254 3,420 6,239
Debt offering write-off (Note 16)......................... -- -- 5,125
------- ------- --------
13,503 65,240 123,330
------- ------- --------
Income from operations...................................... 1,216 8,053 423
Interest expense............................................ 640 1,294 4,927
Other expense (income)...................................... -- (178) 128
------- ------- --------
Income (loss) before provision (benefit) for income taxes
and extraordinary item.................................... 576 6,937 (4,632)
Provision (benefit) for income taxes........................ 242 3,227 (1,062)
------- ------- --------
Income (loss) before extraordinary item..................... 334 3,710 (3,570)
Extraordinary item (net of income tax benefit of $156)...... -- 244 --
------- ------- --------
Net income (loss)........................................... $ 334 $ 3,466 $ (3,570)
------- ------- --------
Income per common share data:
Income (loss) before extraordinary item -- basic and
diluted................................................ $ .07 $ .35 $ (.26)
Extraordinary item (net of tax) -- basic and diluted...... -- (.02) --
------- ------- --------
Net income (loss) -- basic and diluted.................... $ .07 $ .33 $ (.26)
------- ------- --------
Weighted average number of shares outstanding............... 4,756 10,554 13,817
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 30
WEST COAST ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------
1996 1997 1998
------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 334 $ 3,466 $ (3,570)
Adjustments to reconcile net income (loss) to cash flows
provided by operating activities:
Amortization of debt financing costs.................. -- 128 224
Amortization of videocassette rental inventory........ 1,972 11,265 25,959
Depreciation and amortization of furnishings,
equipment and leasehold improvements................ 359 898 2,471
Amortization of intangible assets..................... 254 3,420 6,239
Deferred taxes........................................ (121) 686 456
Changes in assets and liabilities:
Accounts receivable................................... (262) (294) 270
Merchandise inventories............................... 64 (2,992) (1,447)
Prepaid expenses and other assets..................... (3,522) (2,597) (792)
Accounts payable...................................... 115 5,415 (1,222)
Accrued expenses and other liabilities................ 3,575 (757) 135
Income taxes.......................................... 363 795 (1,996)
------- --------- --------
Net cash provided by operating activities............. 3,131 19,433 26,727
------- --------- --------
Cash flows related to investing activities:
Acquisition of businesses, net of cash acquired ...... (3,453) (80,453) (19,301)
Purchases of property and equipment................... (95) (3,141) (7,306)
Purchases of videocassette rental inventory........... (2,002) (18,469) (30,449)
------- --------- --------
Net cash used in investing activities............... (5,550) (102,063) (57,056)
------- --------- --------
Cash flows related to financing activities:
Proceeds from long-term debt.......................... 5,565 33,600 32,200
Repayments of long-term debt.......................... (2,352) (10,200) (7)
Repayments from advances from stockholders............ (5) -- --
Proceeds from issuance of common stock................ -- 60,832 116
Change in other assets related to debt financing
costs............................................... -- (902) (687)
Shareholder distributions............................. (223) -- --
------- --------- --------
Net cash provided by financing activities................ 2,985 83,330 31,622
------- --------- --------
Net increase in cash and cash equivalents................ 566 700 1,293
------- --------- --------
Cash and cash equivalents, beginning of period........... 45 611 1,311
------- --------- --------
Cash and cash equivalents, end of period................. $ 611 $ 1,311 $ 2,604
======= ========= ========
Supplemental cash flow data:
Interest paid......................................... $ 332 $ 1,339 $ 4,619
======= ========= ========
Income taxes paid..................................... -- $ 1,746 $ 749
======= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 31
WEST COAST ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED STOCK-
------------------- PAID-IN SURPLUS HOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- ------ ---------- ----------- --------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1995................ 7,272,801 $ 73 $ 819 $ (527) $ 365
Shares issued -- West Coast Entertainment
Corporation.............................. 6,727,200 67 -- -- 67
Net income................................. -- -- -- 334 334
S Corporation distribution................. -- -- -- (223) (223)
---------- ---- -------- ------- --------
Balance at January 31, 1996................ 14,000,001 140 819 (416) 543
May 14, 1996 0.340-1 reverse stock split... (9,243,713) (92) 92 -- 0
Shares issued -- public offering........... 5,400,000 54 60,778 -- 60,832
Shares issued or to be issued -- 1996
acquisitions............................. 3,614,174 36 42,258 -- 42,294
Net income................................. -- -- -- 3,466 3,466
---------- ---- -------- ------- --------
Balance at January, 31 1997................ 13,770,462 138 103,947 3,050 107,135
Shares issued -- Employee Stock Purchase
Plan..................................... 36,567 -- 116 -- 116
Shares issued -- 1996 acquisitions......... 36,077 -- -- -- --
Net (loss)................................. -- -- -- (3,570) (3,570)
---------- ---- -------- ------- --------
Balance at January 31, 1998................ 13,843,106 $138 $104,063 $ (520) $103,681
========== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 32
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND BUSINESS
West Coast Entertainment Corporation (the "Company") was incorporated in
the State of Delaware in February 1995 for the purpose of conducting business as
an owner and operator as well as a franchisor of videocassette rental stores.
Upon incorporation, 10,000 shares were issued to the Company's then existing
shareholders. On July 12, 1995, in connection with an anticipated initial public
offering, Giant Video, Inc., G.V. Management Corporation, Nostalgia Ventures,
Inc. and Videosmith, Inc. were merged into the Company (the "Merger"). These
four entities were individually formed or acquired over the past several years
and were under substantial common ownership and common day-to-day management
prior to the merger. In accordance with the plan of merger, the Company declared
a 672.72-for-1 stock split with respect to its 10,000 shares issued and
outstanding and issued and exchanged 7,272,801 shares of its common stock for
all of the outstanding common stock of the above four entities. In addition, the
stockholders of the above four entities owned all of the Company's shares of
common stock outstanding (14,000,001) prior to the Offering. The financial
statements of the above four entities have been combined and included in the
accompanying consolidated financial statements from the date of the respective
entity's acquisition or inception, at its historical cost, determined as of such
date. The par value and number of shares outstanding have been retroactively
adjusted to appropriately reflect the merger transaction as well as the fact
that the entities were acquired or formed at various times during the past
several years.
As of January 31, 1997, the Company owned and operated 264 video rental
stores and was a franchisor of a chain of 267 video stores. As of January 31,
1998, the Company owned and operated 286 video rental stores and 217 franchised
stores.
On May 17, 1996, West Coast Entertainment Corporation completed an initial
public offering which consisted of 5,400,000 shares of common stock at $13.00
per share (the "Offering"). The net proceeds of the Offering after deducting
applicable issuance costs and expenses, were $60.8 million. The proceeds were
used to fund certain of the acquisitions discussed in Note 11 and to repay
approximately $9.6 million in long-term debt.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Consolidation
All significant intercompany balances and transactions have been eliminated
in the accompanying consolidated financial statements.
Reclassification
Certain prior year balances have been reclassified to conform with current
year classifications.
31
<PAGE> 33
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
Financial instruments which may subject the Company to concentration of
credit risk at January 31, 1998 and 1997 consist primarily of franchise
receivables. The Company obtains franchise-related revenues from an initial fee
and ongoing fees and royalties based on a percentage of franchisees' gross
revenue, as reported monthly by the franchisees to the Company. No assurance can
be given that the Franchisees will continue to operate at levels sufficient to
remit amounts due under these arrangements.
Business Risk
The Company competes with pay-per-view cable and satellite television
systems ("Pay-Per-View"), in which cable television subscribers pay a fee to see
a movie or other programs selected by the subscriber. Existing Pay-Per-View
services offer a limited number of channels and programs and are generally
available only to limited households. Recently developed technologies have
allowed rapid transmission of a larger number of movies to a broader base of
homes. Ultimately, further improvements in these technologies or the development
of other similar technologies could lead to a broader selection of movies to
consumers on demand, which could have a material adverse effect on the Company's
financial condition and results of operations.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
other receivables, accounts payable and notes payable meeting the definition of
a financial instrument approximate fair value at January 31, 1997 and 1998.
Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less at date of purchase to be cash equivalents. At January 31,
1997 and 1998, the Company did not hold any cash equivalents.
Merchandise Inventory
Merchandise inventory, consisting primarily of videocassettes and video
games, is stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.
Videocassette Rental Inventory
Prior to August 1, 1997, videocassette rental inventory, which includes
video games, was stated at cost and was amortized over its estimated economic
life with no provision for salvage value. Videocassettes that were considered
base stock (the first three copies of a title in a particular store) were
amortized over 36 months on a straight-line basis. New release videocassettes
were amortized as follows: the first through third copies of each title per
store were amortized as base stock and the fourth and succeeding copies of each
title per store were amortized over nine months on a straight-line basis. The
unamortized cost, if any, of videocassette rental inventory that was sold is
charged to operations at the time of the sale.
Effective August 1, 1997, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. Under this new method
videocassette rental inventory base stock is amortized over its economic life of
36 months, to its estimated salvage value of $6. New release base stock, less
the $6 salvage value, is amortized 50% in the first six months, then amortized
on a straight-line basis to the $6 salvage value over the remaining 30 months.
All copies of new release videocassette rental inventory in excess of three
copies per store are amortized on a straight-line basis during the first nine
months to $10, and the balance is
32
<PAGE> 34
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized on a straight-line basis over the remaining 27 months to the $6
salvage value. The unamortized cost, if any, of videocassette rental inventory
that was sold is charged to operations at the time of the sale.
The new method of amortization was adopted because the Company believes
accelerated expense recognition for new release videocassettes during the first
six months more closely matches the typically higher revenue generated following
a title's release, and believes $6 represents a reasonable salvage value for all
tapes after 36 months.
The new method of amortization has been applied to videocassette rental
inventory that was held in inventory at August 1, 1997. The adoption of the new
method of amortization has been accounted for as a change in accounting estimate
effected by a change in accounting principle and, accordingly, the Company
recorded an $803,000 pre-tax charge to operating expense in the quarter ended
October 31, 1997 and the year ended January 31, 1998.
Intangible Assets
Intangible assets, net of accumulated amortization, are primarily comprised
of goodwill ($110,843,000 and $102,369,000 at January 31, 1998 and 1997,
respectively) and franchise rights ($5,926,000 and $6,526,000 at January 31,
1998 and 1997, respectively). Franchise rights are amortized on a straight-line
basis over 15 years, the estimated economic life of such rights. Goodwill
resulting from acquisitions accounted for using the purchase method is amortized
on a straight line basis over 20 years. Total amortization expense related to
intangible assets was $254,000, $3,420,000 and $6,239,000 for the years ended
January 31, 1996, 1997 and 1998, respectively. The Company has adopted Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of Long
Lived Assets and Long Lived Assets to Be Disposed Of", effective February 1,
1996. The carrying value of long-lived assets, including goodwill and franchise
rights, is evaluated whenever changes in circumstances indicate the carrying
amount of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the undiscounted expected future cash flows
to the carrying value of long-lived assets and identifiable intangibles. If the
anticipated undiscounted future cash flows are less than the carrying amount of
such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the asset and their estimated fair value. The
Company has determined that there has been no impairment to any long lived
assets as of January 31, 1997 and 1998.
Furnishings, Equipment and Leasehold Improvements
Furnishings, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives (3 to 10 years) of furnishings and equipment and, for
leasehold improvements, over the lesser of the estimated useful lives or lease
terms (primarily 5 to 10 years). Repair and maintenance costs are expensed as
incurred.
Deferred Rent
Most of the Company's operating leases have lease terms which contain fixed
increases of the minimum lease rates. In accordance with SFAS No. 13,
"Accounting for Leases," the Company recognizes rental expense for these leases
on a straight-line basis and records the difference between the amount actually
paid and the amount charged to expense as deferred rent.
Income Taxes
Income taxes for financial reporting purposes are recorded in accordance
with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
33
<PAGE> 35
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
differences between the carrying amounts and the tax bases of the Company's
assets and liabilities. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance.
Prior to the effective date of the merger transaction discussed in Note 1,
Nostalgia Ventures, Inc. and Videosmith, Inc. were subject to tax as C
corporations, while Giant Video, Inc., and G.V. Management Corporation had
elected to be treated as S corporations for federal and state income tax
purposes. Under the provisions of Subchapter S, a pro rata portion of each
entity's taxable income is allocated to each individual shareholder.
Accordingly, no provision for income taxes relating to Giant Video, Inc., and
G.V. Management Corporation is included in the accompanying consolidated
statement of operations for any period prior to the effective date of the
merger.
Concurrent with the merger transaction, the merged S corporations became
subject to C corporation tax. As such, the income tax expense included in the
accompanying consolidated statement of operations subsequent to the effective
date of the merger includes normal corporate level federal and state income
taxes.
Revenue Recognition
Revenue is recognized at the time of rental or sale of a videocassette or
video game. Franchise fees, related to the sale of franchises are recognized
when the stores are opened for business. Post-sale franchise fees are recognized
based on stated percentages of franchisee revenue as defined in the franchise
agreements.
Franchising Costs
Direct costs relating to franchise sales for which revenue has not been
recognized are deferred until the related revenue is recognized. Such amounts
were not material at January 31, 1997 and 1998.
Advertising
Advertising costs are recorded net of any cooperative and market
development fund reimbursements due from suppliers and are expensed as incurred.
Earnings Per Share
In February 1997, Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share" ("SFAS 128"), which establishes standards for computing and
presenting earning per share. SFAS 128 requires presentation of both basic and
diluted earnings per share. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed in a similar manner except that
the weighted average number of common shares is increased for dilutive potential
common shares. Potentially dilutive common shares for the 1997 computation of
diluted earnings per share were considered immaterial. Potentially dilutive
common shares are excluded from the diluted earnings per share calculation at
January 31, 1996 and 1998 because the effect would be anti-dilutive. All prior
year earnings per share in this report have been recalculated to reflect the
provisions of SFAS No. 128.
All per share amounts and number of shares have been restated to reflect
the 0.340-for-1 reverse stock split.
Accounting for Stock Based Compensation
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), was issued. This statement requires the fair value of stock
options and other stock-based compensation issued to employees to either be
recognized as compensation expense in the income statement, or be disclosed as a
pro forma effect on net income and earnings per share in the footnotes to the
Company's financial statements. The
34
<PAGE> 36
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has elected to adopt SFAS 123 on a disclosure basis only (Note 12).
Accordingly, implementation of SFAS 123 is not expected to impact the Company's
consolidated balance sheet or statement of operations.
Interest Rate Swap
The Company has entered into interest-rate swap agreements in order to
manage its exposure to interest-rate fluctuations. The swap agreements are
contracts to exchange floating rate for fixed rate interest payments
periodically over the life of the agreements without the exchange of the
underlying notional amounts. The notional amounts of interest-rate agreements
are used to measure interest to be paid or received and do not represent the
amount of exposure to credit loss. In the unlikely event that a counterparty
fails to meet the terms of an interest-rate swap agreement, the Company's
exposure is limited to the interest rate differential on the notional amount.
The Company does not anticipate nonperformance by any of the counterparties. Net
interest differentials to be paid or received related to interest-rate swap
agreements are accrued and ultimately recognized as an adjustment to interest
expense over the life of the agreements. The fair values of interest-rate swap
agreements are the estimated amounts that the Company would receive or pay to
terminate the agreements at the reporting date, taking into account current
interest rates and the current creditworthiness of the counterparties.
3. VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory and related amortization are as follows (in
thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Videocassette rental inventory......................... $ 35,891 $ 69,257
Accumulated amortization............................... (11,293) (37,252)
-------- --------
$ 24,598 $ 32,005
======== ========
</TABLE>
Amortization expense related to videocassette rental inventory totaled
$1,972,000, $11,265,000 and $25,959,000 for the years ended January 31, 1996,
1997 and 1998, respectively. Videocassette inventory amortization expense was
increased by $803,000 for the year ended January 31, 1998 as a result of the
change in amortization method as described in Note 2. Videocassette inventory
amortization expense resulting from the allocation of purchase price to
videocassette rental tapes of the acquired entities is based on current
replacement cost for bulk purchases of used tapes. As discussed in Note 2, base
stock is assigned a three-year amortizable life which serves to extend the
remaining economic useful lives of videocassette rental tapes acquired.
Replacement cost for bulk purchases of used tapes is significantly less than the
cost of new tape purchases. As a result, future amortization relating to these
tapes, on a per tape basis, will be significantly less than the amortization
relating to new tape purchases. The favorable effects resulting from purchase
accounting will diminish with the passage of time and will not extend beyond the
three-year period subsequent to acquisition which is the period over which these
tapes will be amortized.
Also, as discussed in Note 2, effective August 1, 1997, new release
videocassettes in excess of 3 copies are amortized on a straight-line basis
during the first nine months to $10, and the balance is amortized on a
straight-line basis over the remaining 27 months to the $6 salvage value. To the
extent the acquired tapes have book values lower than newly purchased tapes,
sales of the acquired tapes should result in higher operating income than sales
of new tape purchases.
35
<PAGE> 37
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FURNISHINGS, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furnishings, equipment and leasehold improvements comprise the following
(in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Furniture and fixtures................................. $ 6,851 $ 14,790
Computer equipment and vehicles........................ 1,608 2,978
Leasehold improvements................................. 4,634 5,464
-------- --------
13,093 23,232
Accumulated depreciation and amortization.............. (1,808) (4,279)
-------- --------
$ 11,285 $ 18,953
======== ========
</TABLE>
Depreciation and amortization totaled $359,000, $898,000 and $2,471,000 for
the years ended January 31, 1996, 1997 and 1998, respectively.
5. NON-CURRENT OTHER ASSETS
Non-current other assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Deferred expenses relating to the Offering and pending
acquisitions......................................... $ 1,095 $ --
Store lease and utility deposits....................... 999 1,117
Deferred loan origination fees......................... 774 1,237
Other.................................................. 130 50
-------- --------
$ 2,998 $ 2,404
======== ========
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses is comprised of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Accrued wages and taxes................................ $ 988 $ 1,097
Sales taxes............................................ 598 998
Deferred rent.......................................... 518 949
Accrued professional fees.............................. 990 382
Purchase price liabilities............................. 707 430
Other.................................................. 846 1,070
-------- --------
$ 4,647 $ 4,926
======== ========
</TABLE>
36
<PAGE> 38
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Revolving credit facility.............................. $ 32,800 $ 65,000
Various notes payable due in monthly installments with
interest rates varying from prime plus 2% to prime
plus 4%.............................................. 21 14
-------- --------
32,821 65,014
Less: current portion.................................. (19) (8)
-------- --------
$ 32,802 $ 65,006
======== ========
</TABLE>
In connection with the Offering in May 1996, the Company prepaid the
remaining balance of the debt that was outstanding on January 31, 1996. On March
5, 1996, the Company entered into an $800,000, 12% secured note payable. The
balance of this note was also prepaid with proceeds from the Offering, as
mandated by terms of the note. A penalty of $400,000 ($244,000 net of income tax
benefit) was assessed at the time of prepayment in accordance with the
provisions of the note. For the year ended January 31, 1997 the amount was
classified as an extraordinary item due to the early extinguishment of debt.
In conjunction with the 11% subordinated secured notes payable outstanding
as of January 31, 1996, the Company issued a detachable warrant entitling the
holder to purchase 192,308 shares of the Company's common stock at $9.10 per
share. The warrant became exercisable as of the date of the Offering and expires
on July 12, 2000. The Company has determined that the value of the warrant was
insignificant at the date of issuance.
On May 17, 1996, the Company obtained a $60,000,000 Credit Facility (the
"Credit Facility") from a bank, which consists of a 17 month revolving credit
facility followed by a three-year term loan. In association with the borrowing,
the Company paid a fee of $700,000 on May 17, 1996 which has been recorded in
other long-term assets and will be amortized over the term of the Credit
Facility. Borrowings under the Credit Facility are available for working
capital, capital expenditures, refinancing of existing indebtedness, and for
certain permitted acquisition financing. The Credit Facility was increased to
$65,000,000 by an amendment dated August 5, 1996. The amendment generated
additional fees of $202,000, which will be amortized over the term of the
amended Credit Facility. As of January 31, 1997, the Company had $32,800,000
outstanding under the Credit Facility. The interest rate for the Credit Facility
ranged from 7.75% to 8.0% at January 31, 1997.
On December 15, 1997 the Company signed an amendment increasing the
Facility to $70,000,000 with current commitments from the participating banks
for $65,000,000 (the "Amended Facility"). The Amended Facility has a three year
term ending December 14, 2000 with two one year options to extend the term to
December 14, 2002. If the Company attains certain total debt to operating cash
flow ratios, as defined, the commitment reduces quarterly commencing June 15,
1999 and continuing through the end of the term. If such total debt to operating
cash flow ratios are not attained, the quarterly commitment reductions start on
December 15, 1998 whereby a $3 million reduction occurs for the year ended
January 31, 1999. Any amounts in excess of the commitments, as it may be reduced
from time to time, must be repaid.
Borrowings under the Amended Facility are limited to a multiple of
operating cash flow, as defined, over the previous four quarters. At January 31,
1998, this multiple was 4.30 times operating cash flow, and reduces over the
next three fiscal quarters to a low of 3.25 times operating cash flow on October
31, 1998 and thereafter. Interest rates vary from either the Bank's base rate,
as defined, to 1.5% above such base rate, or from the Eurodollar rate, as
defined, to 5.0% above such Eurodollar rate. On January 14, 1998, the Company
entered into an interest rate swap agreement with the bank for $30,000,000 of
the Amended Facility. As of
37
<PAGE> 39
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
January 31, 1998, the bank estimates that it would have received $74,000 to
terminate the agreements. The interest rate swap agreement is for a three year
period ending on January 16, 2001 and fixes the Eurodollar rate to 5.62%. The
Company's weighted average borrowing rate under the Amended Facility, which was
effective November 1, 1997, was 9.01% for the three months ended January 31,
1998. Additionally, the Amended Facility provides for a commitment fee payable
quarterly, computed at up to 0.5% of the unused portion of the available Amended
Facility during the previous quarter.
The Credit and Amended Facility is secured by a first security interest in
substantially all of the Company's assets, including the stock of its
subsidiaries and provides for certain restrictive covenants including, among
others, compliance with certain financial tests and ratios and dividend
restrictions. As of January 31, 1998, the Company had $65,000,000 outstanding
under the Amended Facility.
Principal due on long-term debt for each of the years following January 31,
1998 is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
<S> <C>
1999........................................................ $ 8
2000........................................................ 5,006
2001........................................................ 60,000
-------
$65,014
=======
</TABLE>
8. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------
1996 1997 1998
----- ------ -------
<S> <C> <C> <C>
Current:
Federal ....................................... $ 176 $1,760 $ (817)
State.......................................... 187 781 211
----- ------ -------
363 2,541 (606)
----- ------ -------
Deferred:
Federal........................................ (112) 584 (44)
State.......................................... (9) 102 (412)
----- ------ -------
(121) 686 (456)
----- ------ -------
Tax provision.................................... $ 242 $3,227 $(1,062)
===== ====== =======
</TABLE>
38
<PAGE> 40
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws. The temporary differences which give rise
to deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
----------------
1997 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Recognized built-in loss carryforward................... $ 225 $ 207
Allowance for doubtful accounts......................... 74 41
Expense accruals........................................ 292 578
Federal and State NOL carryforward...................... -- 966
----- -------
$ 591 $ 1,792
----- -------
Deferred tax liabilities:
Intangible amortization................................. (231) (1,872)
Videocassette rental inventory amortization............. (631) (45)
Furnishings, equipment and leasehold improvement
depreciation ........................................ (135) (796)
----- -------
(997) (2,713)
----- -------
Net deferred tax liability................................ $(406) $ (921)
===== =======
</TABLE>
As a result of a change in ownership of Videosmith, Inc. at August 4, 1994,
there is an annual limitation on the use of net unrealized built-in losses. Such
limitation applies only to those built-in losses recognized for income tax
purposes in the five-year period beginning with the date of the ownership
change. The use of such losses is limited to approximately $45,000 per year for
the carryforward period, generally 15 years subsequent to the year recognized,
and are subject to certain consolidated tax return limitations, including
Videosmith's separate company taxable income.
In the year ended January 31, 1997, management has reassessed the potential
to fully realize deferred tax assets related to the Videosmith deductible
temporary differences discussed above. Given the generation of sufficient
taxable income over the past two years and completion of the Offering on May 17,
1996, management believes the Videosmith deferred tax assets relating to
built-in losses will be fully realized. The resulting reduction in valuation
allowance related to these deferred tax assets was recorded as an adjustment of
acquired Videosmith fixed assets ($353,000) and videocassette rental inventory
($134,000) as of January 31, 1997.
39
<PAGE> 41
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the provision for income taxes and the amount
determined by applying the U.S. federal statutory rate to income before income
taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------
1996 1997 1998
---- ------ -------
<S> <C> <C> <C>
Income tax at statutory rate of 34%....................... $196 $2,354 $(1,575)
State tax expense, net of federal benefit............... 58 583 (133)
Amount not subject to federal income tax due to S
Corporation status................................... (33) -- --
Change in valuation allowance........................... 47 (76) --
Nondeductible intangible amortization................... 11 359 593
Deferred tax asset due to conversion to C Corporation
status............................................... (72) -- --
Reserve for contingency................................. 22 -- --
Other................................................... 13 7 53
---- ------ -------
$242 $3,227 $(1,062)
==== ====== =======
</TABLE>
9. RELATED PARTY TRANSACTIONS
At January 31, 1998 and 1997, the Company has recorded amounts receivable
from certain officers. The amounts recorded are $341,000 and $141,000 at January
31, 1998 and 1997, respectively. Interest has been accrued at a rate of 10% on
these receivables for the year ended January 31, 1998.
10. LEASE COMMITMENTS
The Company leases its facilities under operating leases extending until
2007. Minimum future rental payments under these leases as of January 31, 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
<S> <C>
1999....................................................... $17,098
2000....................................................... 13,986
2001....................................................... 10,122
2002....................................................... 7,357
2003....................................................... 5,079
Thereafter................................................. 7,390
-------
Future minimum payments.................................... $61,032
=======
</TABLE>
Rent expense totaled approximately $1,947,000, $11,130,000 and $19,060,710
for the years ended January 31, 1996, 1997 and 1998, respectively.
11. ACQUISITIONS
All acquisitions have been accounted for as purchases; operations of the
companies and businesses acquired have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
Videosmith, Inc.
On August 4, 1994, V.S. Acquisition Corporation acquired 100% of the
outstanding stock of Xtra-vision Corporation and its wholly owned subsidiary,
Videosmith, Inc. The purchase price of $2,042,000 was paid in
40
<PAGE> 42
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash. V.S. Acquisition Corporation, Xtra-vision Corporation and Videosmith Inc.,
merged on September 20, 1994 to form Videosmith Inc.
West Coast Franchising Company
On July 12, 1995, West Coast Franchising Company, a wholly-owned subsidiary
of the Company, acquired the business, assets and certain liabilities of West
Coast Entertainment, Inc., West Coast Video Enterprises, Inc., West Coast
Services, Inc., Game Power Headquarters, Inc., and Premier Advertising, Inc.
(the "Acquired Businesses"). West Coast Franchising Company operates as a
franchisor under the trade name of West Coast Video involved in the sale and
rental of videocassettes, recorders, related equipment and supplies.
The cost of the Acquired Businesses was approximately $8.7 million
comprising cash of $4 million, a $2 million second subordinated secured
convertible note payable, a $2 million second subordinated note payable, a
$500,000 non-interest bearing note, and acquisition costs of $200,000. In
addition, in connection with the acquisition, the Company entered into an
arrangement to pay the former owner and certain key executives of the Acquired
Businesses a fee in the event that the Company purchases the assets or stock of
any Franchisee of the Acquired Businesses. Such fees amounted to $2.3 million
and $0.3 million for acquisitions made during the fiscal years ending January
31, 1997, and 1998, respectively.
May 1996 Acquisitions
On May 17, 1996, the Company acquired 172 video specialty stores (the "May
1996 Acquisitions"), including 13 stores owned by franchisees of the Company.
Taking into account certain adjustments and calculation of certain contingent
payments, the aggregate consideration of $83.9 million was paid consisting of
the following: $53.0 million in cash, approximately $26.2 million in shares of
common stock (2.1 million shares), and approximately $4.7 million of acquisition
costs. Of these amounts, approximately $0.4 million represents remaining minimum
contingent consideration (of which approximately $0.1 million and $0.3 million
(20,000 shares) is to be paid in cash and stock, respectively) as of January 31,
1997 and 1998. These common shares to be issued have been considered outstanding
as of January 31, 1997 and 1998 as their issuance is dependent only on the
passage of time.
Early Fall 1996 Acquisitions
Between August 26 and October 25, 1996, the Company acquired the assets of
21 video specialty stores (the "Early Fall 1996 Acquisitions"). Aggregate
consideration of $13.6 million was paid, consisting of the following: $8.2
million in cash and $4.9 million in shares of common stock (519,000 shares).
Approximately $0.5 million of acquisition costs was also paid. The shares
(465,000) associated with one of these acquisitions were issued in the year
ended January 31, 1998 in three equal installments (six, twelve and eighteen
months from the acquisition date) and the number of shares issued was increased
by the difference between the share price at issuance date and the formulaic
common share price calculated as of the date of acquisition. Additionally,
92,000 shares associated with another Early Fall 1996 Acquisition are to be
issued. In both instances these common shares and other common shares to be
issued in installments have been considered outstanding as of January 31, 1997
and 1998 as their issuance is dependent only on the passage of time.
Late Fall 1996 Acquisitions
Between November 15 and December 3, 1996, the Company acquired the assets
of 47 video specialty stores (the "Late Fall 1996 Acquisitions"), including 19
stores owned by franchisees of the Company for aggregate consideration of $27.7
million consisting of the following: $14.4 million in cash and $11.0 million in
shares of common stock (1.0 million shares) and approximately $2.3 million of
acquisition costs. Additionally, 243,000 and 25,000 shares were to be issued as
of January 31, 1997 and 1998, respectively. These common
41
<PAGE> 43
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares to be issued have been considered outstanding as of January 31, 1997 and
1998 as their issuance is dependent only on the passage of time.
June, 1997 Acquisitions
On June 16, 1997, and June 24, 1997 the Company acquired a total of 38
video specialty stores (the "June, 1997 Acquisitions"), including 5 stores owned
by a franchisee of the Company for aggregate consideration of $17.9 million
consisting of $17.2 million in cash and approximately $0.7 million of
acquisition costs.
The allocation of the purchase price associated with the above acquisitions
and two additional stores acquired on March 21, 1997 and April 10, 1997,
respectively, is summarized as follows for each of the years ended January 31,
1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------
1996 1997 1998
------ -------- -------
<S> <C> <C> <C>
Working Capital....................................... $1,075 $ (3,326) $ 439
Videocassette rental inventory........................ -- 16,019 2,917
Furnishings, equipment, and leasehold improvements.... 200 7,915 2,833
Intangible assets..................................... 7,421 105,323 13,146
Other................................................. 86 (756) --
------ -------- -------
$8,782 $125,175 $19,335
====== ======== =======
</TABLE>
The excess of the cost over the fair value of the assets acquired of $119.5
million for the two years ended January 31, 1998, inclusive of certain
adjustments totaling $1.0 million recorded during the year ended January 31,
1998, will be amortized over 20 years on a straight line basis.
The following unaudited pro forma information presents the results of
operations as though (i) the May 1996 Acquisitions, the Early Fall 1996
Acquisitions, Late Fall 1996 Acquisitions and June, 1997 Acquisitions had
occurred as of the beginning of the periods presented, (ii) each entity included
in the consolidated statement of operations had been included in the Company's
consolidated income tax returns and subject to corporate income taxation as a C
corporation during all periods presented, (iii) the repayment of all previously
existing outstanding debt had occurred as of the beginning of the periods
reported, and (iv) the borrowings under the Credit Facility had occurred as of
the beginning of the periods presented.
The following unaudited pro forma net income (loss) per share for the years
ended January 31, 1997 and 1998 was calculated by dividing the respective
unaudited pro forma net income (loss) by the pro forma weighted average number
of shares of common stock outstanding after giving effect to (i) the 0.340-for-1
reverse stock split approved by the Board of Directors on May 14, 1996, and the
shares issued in conjunction with the Offering, (ii) issuance of shares in
connection with the May 1996, Early Fall 1996 and Late Fall 1996 Acquisitions,
(iii) repayment of outstanding debt at the date of the Offering, and (v) the
impact of a detachable warrant with a primary supplier of videocassettes and a
portion of a convertible note which was converted into shares of the Company's
common stock as if the transactions had occurred on the first day of the periods
presented. The pro forma weighted average number of common shares used to
calculate pro forma net income (loss) per share was 13,999,000 and 13,843,000
for the years ended January 31, 1997 and 1998, respectively.
42
<PAGE> 44
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
YEARS ENDED JANUARY 31,
--------------------------
1997 1998
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Pro forma revenues.......................................... $131,378 $130,044
Pro forma net income (loss) before extraordinary item....... $ 7,933 $ (3,219)
Extraordinary item (net of income tax benefit).............. $ 244 $ --
Pro forma net income (loss)................................. $ 7,689 $ (3,219)
Pro forma income (loss) per share before extraordinary item
basic and diluted......................................... $ .57 $ (.23)
Extraordinary item -- basic and diluted..................... $ (.02) $ --
Pro forma net income (loss) per share basic and diluted..... $ .55 $ (.23)
</TABLE>
12. STOCKHOLDERS' EQUITY
Stock Compensation Plan:
Equity Incentive Plan: The Company's Equity Incentive Plan was adopted by
the Board of Directors and approved by the Stockholders in July 1995 and as
amended in April 1997 (the "Equity Plan"). The Equity Plan enables the Company
to grant options to purchase common stock to officers, employees, employee
directors of and consultants to the Company. The Plan authorizes the issuance of
up to 850,000 shares. The options granted are unvested at the date of grant, and
become fully vested five years subsequent to the date of grant. The fixed
exercise price associated with the shares subject to option is the fair value of
the Company's stock at the date of grant. The options expire ten years after the
date of grant. During the year ended January 31, 1997, 73,137 options were
granted. As of January 31, 1998, 8,137 options are outstanding. No options have
been exercised for the years ended January 31, 1997 and 1998.
Director Stock Option Plan: The Company's Director Stock Option Plan (the
"Director Option Plan") enables the Company to grant options to purchase common
stock to outside directors of the Company. The Plan authorizes the issuance of
up to 50,000 shares. The options are unvested at the time of grant, and vest
over a three-year period, provided the optionholder continues to serve as a
director of the Company, and will expire ten years from the date of grant. The
fixed exercise price associated with the shares subject to option is the fair
value of the Company's stock at the date of grant. Commensurate with the
Offering, the Company granted an option to purchase 3,000 shares of common stock
to three non-employee directors. Each non-employee director is eligible to
receive at the discretion of the Company a subsequent grant of an option for
1,000 shares on the date of each Annual Meeting of Stockholders, at which such
director is reelected as a director of the Company, beginning with the Annual
Meeting for the year ended January 31, 1998. As of January 31, 1998, 6,000
options are outstanding. No options have been exercised for the years ended
January 31, 1997 and 1998.
43
<PAGE> 45
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common shares subject to option under these plans are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------------------
1997 1998
------------------- -------------------
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at February 1 ..................... -- -- 82,137 $11.06
Granted........................................ 82,137 $11.06 -- --
Exercised...................................... -- -- -- --
Terminated/Canceled............................ -- -- 68,000 12.85
------ ------ ------ ------
Options outstanding at January 31.............. 82,137 $11.06 14,137 $10.54
====== ======
Options exercisable at January 31.............. -- -- -- --
====== ======
</TABLE>
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock option plan.
Accordingly, no compensation expense has been recognized for the outstanding
stock option awards. As discussed in Note 2, the Company adopted the disclosure
requirements of SFAS No. 123 during fiscal 1997. The pro forma information below
is presented as if the Company had adopted the recognition provisions of SFAS
123.
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Weighted average fair value of options granted -- calculated
using the Black-Scholes option-pricing model.............. $ 4.63 $ 4.63
Range of exercise price per share........................... $8.75-$13.00 $8.75-$13.00
Pro Forma:
Net income (loss) (in thousands).......................... $ 3,431 $ (3,601)
Earnings (loss) per share, basic and diluted.............. $ .33 $ (.26)
Assumptions:
Weighted average dividend yield........................... -- --
Weighted average volatility............................... 35% 35%
Weighted average risk free interest rate.................. 6.58% 6.58%
Weighted average expected life (years).................... 5 5
</TABLE>
Employee Stock Purchase Plan: The Company's Employee Stock Purchase Plan
(the "Purchase Plan") authorizes the issuance of up to a total of 125,000 shares
of common stock to participating employees through a series of semiannual
offerings. Offering periods will commence on each November 1, beginning November
1, 1996, and May 1 and terminate on the following April 30 and October 31,
respectively. The maximum number of shares available in each offering is 25,000
shares. Eligible employees may direct 1%-10% of their total compensation in a
Plan period to the Plan, at a price equal to 85% of the lower of the closing
price of the common stock on the first business day of the plan or the last
business day of the plan. As of January 31, 1997 and 1998, the Company had
issued 0 and 36,567 shares, respectively, related to the Plan.
13. PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
an aggregate of 2,000,000 shares of preferred stock, in one or more series. Each
such series of preferred stock shall have such number of shares, designations,
preferences, voting powers, qualifications and special or relative rights or
privileges as shall be determined by the Board of Directors, which may include,
among others, dividend rights, voting rights, redemption and
44
<PAGE> 46
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sinking fund provisions, liquidation preferences, conversion rights and
preemptive rights. The rights of the holders of common stock will be subject to
the rights of holders of any preferred stock issued in the future. The issuance
of preferred stock could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, a
majority of the outstanding voting stock of the Company. The Company has not
issued any shares of preferred stock as of January 31, 1997 or 1998.
14. COMMITMENTS
Purchase Commitments
On July 12, 1995, with an Amendment on August 20, 1997, the Company entered
into a contract with a supplier of video rental products that requires the
Company to purchase, at a discount, its requirements for such products over the
ensuing seven year period as follows:
<TABLE>
<S> <C>
July 12, 1995-August 19, 1998........ 50% of annual requirements
August 20, 1998-July 12, 2000........ Lesser of 30% of annual requirements or $25 million
July 13, 2000-July 12, 2002.......... Lesser of 25% of annual requirements or $25 million
</TABLE>
Acquisition Commitments
The Company has entered into agreements with several area developers in
which upon development of certain stores the developer has the option to "put"
the stores to the Company. Moreover, such agreements further grant the Company
the option to "call" these stores within specified time frames. These options
extend for one to three year periods and become exercisable at various times
from 1998 to 2002. As of January 31, 1998, the Company has such options on 51
stores, which are contingent on the stores meeting positive net operating cash
flow. As of January 31, 1998, 14 of such stores were built and operating. The
purchase price for each store is determined based upon a multiple of store net
operating cash flow for the twelve months preceding the acquisition. As of
January 31, 1998, 2 out of 9 stores developed by one franchisee have generated
positive net operating cash flow in the appropriate time period. The Company
believes, however, that since the store development requirements have not been
fulfilled, the Company is not required to accept the "put" option. The "put" and
"call" options associated with the remaining 5 stores (developed by another
franchisee) are not exercisable until the period beginning on September 1, 2001
and March 1, 2002, respectively.
15. LITIGATION
The Company is involved in litigation that is incidental to the operation
of its business. The Company believes that the outcome of such litigation will
not materially affect the Company's financial position or results of operations.
16. DEBT OFFERING WRITE-OFF
On July 1, 1997 the Company's private placement of debt securities (the
"Proposed Private Placement") and related acquisitions were indefinitely delayed
due to market conditions. The Company wrote off $5.1 million in costs during the
year ended January 31, 1998 that were incurred in connection with the Proposed
Private Placement and related acquisitions.
45
<PAGE> 47
WEST COAST ENTERTAINMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA
Quarterly financial information is as follows
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------
APRIL JULY OCTOBER JANUARY
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Year ended January 31, 1998
Total revenues.............................. $27,392 $29,465 $30,027 $36,869
Income (loss) from operations............... 1,696 (4,736) (977) 4,440
Net income (loss)........................... 535 (4,082) (1,637) 1,614
Net income (loss) per share -- basic and
diluted................................... .04 (.30) (.12) .12
Year ended January 31, 1997
Total revenues.............................. 4,722 17,677 19,964 30,930
Income from operations...................... 451 2,276 1,110 4,216
Net income before extraordinary item........ 101 1,183 531 1,895
Net income.................................. 101 939 531 1,895
Net income per share before extraordinary
item -- basic and diluted................. .02 .11 .04 .14
Net income per share basic and diluted...... .02 .09 .04 .14
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Election of Directors" and "Security
Ownership of Certain Beneficial Holders and Management" in the Registrant's
Proxy Statement for its 1998 Annual Meeting of Stockholders is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" and "Certain
Transactions" in the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders is incorporated herein by reference. The information under the
caption "Executive Officers of the Company" in Part I of this Annual Report on
Form 10-K is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain Beneficial
Holders and Management" in the Registrant's Proxy Statement for its 1998 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" in the
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders is
incorporated herein by reference.
46
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
<TABLE>
<S> <C>
Report of Independent Accountants........................... 26
Consolidated Balance Sheet at January 31, 1998 and 1997..... 27
Consolidated Statement of Operations for the fiscal years
ended January 31, 1998, 1997 and 1996..................... 28
Consolidated Statement of Cash Flows for the fiscal years
ended January 31, 1998, 1997 and 1996..................... 29
Consolidated Statement of Stockholders' Equity for the
fiscal years ended January 31, 1998, 1997 and 1996........ 30
Notes to the Consolidated Financial Statements.............. 31
</TABLE>
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
47
<PAGE> 49
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*3.1 Certificate of Incorporation
*3.2 First Amendment of Certificate of Incorporation
*3.3 Second Amendment of Certificate of Incorporation
*3.4 Certificate of Correction Filed to Correct a Certain Error
in the Second Certificate of Amendment of Certificate of
Incorporation
*3.5 Form of Third Certificate of Amendment of Certificate of
Incorporation
*3.6 Restated By-Laws
*3.7 Amendment to Restated By-Laws
*4.1 Specimen certificate for shares of the Registrant's Common
Stock
*10.1 Shareholders Agreement dated July 12, 1995 among T. Kyle
Standley, Ralph W. Standley, III, M. Trent Standley, the
Ralph W. Standley, III Irrevocable Trust dated May 18, 1995
and certain investors in the Registrant named therein
*10.2 Warrant to Purchase Shares of Common Stock issued July 12,
1995 by the Registrant to Resource Holdings, Inc.
*10.3 Registration Rights Agreement dated July 12, 1995 between
the Registrant and Resource Holdings Inc.
*10.4 Stockholders Voting Agreement dated July 12, 1995 among
Resource Holdings, Inc., T. Kyle Standley, Ralph W.
Standley, III and M. Trent Standley
*10.5 Customer Group Purchasing Contract dated as of July 12, 1995
between the Registrant together with its subsidiaries, and
Ingram Entertainment, Inc., and the first amendment thereto
dated as of March 1, 1996
*10.6 Asset Purchase Agreement dated May 26, 1995 by and among
BSMS Acquisition Co., Inc. (now West Coast Franchising
Company), certain of its affiliates and West Coast Video
Enterprises, Inc. and certain of its affiliates
*10.7 Letter Agreement dated July 12, 1995 regarding the payment
of a fee to West Coast Video Enterprises, Inc., West Coast
Entertainment, Inc., West Coast Services, Inc., Game Power
Headquarters, Inc., Premier Advertising, Inc., Jules Gardner
and Kenneth Graffeo upon the purchase by West Coast
Franchising Company of Existing Franchises
*10.8 Non-Competition Agreement dated July 12, 1995 between the
Registrant and Elliot Stone
*10.9 Development Agreement dated February 17, 1995 by and between
Jorge Del Pino Woll and the Registrant, as assignee of West
Coast Entertainment, Inc.
*10.10 Registration Rights Agreement dated May 1, 1996 by and
between the Registrant and the Purchasers named therein
**10.11 Cross-Purchase Agreement dated August 23, 1996 between the
Registrant and Charles Johnson with respect to additional
stores.
***10.12 Area Development Agreement dated October 1, 1996 between
West Coast Franchising Company and Reel Entertainment, Inc.
***10.13 Retail Store Option Agreement dated October 1, 1996 between
the Registrant and Reel Entertainment, Inc.
10.14 Area Development Agreement dated November 15, 1996 by and
between West Coast Franchising Company and H.B. Associates
L.L.C.
10.15 Retail Store Option Agreement dated November 15, 1996 by and
between the Registrant and H.B. Associates L.L.C.
+*10.16 1995 Equity Incentive Plan, as amended
+*10.17 1995 Director Stock Option Plan, as amended
+*10.18 1995 Employee Stock Purchase Plan, as amended
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*10.19 Form of Standard Franchise Agreement, pursuant to which
certain existing franchisees of the Registrant (excluding
those franchisees of Palmer West Coast Corporation)
currently operate
*10.20 Form of Standard Franchise Agreement pursuant to which
certain franchisees of the Registrant currently operate and
to be executed between the Registrant and future franchisees
*10.21 Form of Standard Franchise Agreement pursuant to which
existing franchisees of Palmer Corporation currently operate
10.22 Lease Agreement dated as of November 1996 by and among the
Registrant and Summit Square Investors, L.P.
10.23 Agreement dated as of October 17, 1997 by and between Baker
& Taylor Inc. and the Registrant
10.24 Consignment Agreement dated as of October 17, 1997 by and
between Baker & Taylor Inc. and the Registrant
10.25 Letter Agreement dated July 12, 1995 by and between Ingram
Entertainment Inc. and the Registrant, as amended on March
1, 1996 and August 26, 1997
+*10.29 Form of Employment Agreement for Regional Vice Presidents
10.30 Credit Agreement among West Coast Entertainment Corporation,
Videosmith, Incorporated, Palmer West Coast Corporation,
Palmer Video Corporation, Palmer Investment Corporation,
Casablanca Distributing Corporation, RKT Merger Co.,
Showtime, Inc., Video Giant Inc., Video King of Broome
County, Inc., King Video Enterprises, Inc., West Coast
Financing Corporation, West Coast Licensing Corporation, and
West Coast Franchising Company as Borrowers, the Several
Lenders from time to time Parties hereto and PNC Bank,
National Association, as Agent, dated as of December 15,
1997, relating to a $65,000,000 Credit Facility.
10.31 Pledge Agreement, dated as of December 15, 1997, made by
West Coast Entertainment Corporation in favor of PNC Bank,
National Association, as Agent for the banks and other
financial institutions parties to the Credit Agreement.
10.32 Pledge Agreement, dated as of December 15, 1997, made by
Palmer West Coast Corporation in favor of PNC Bank, National
Association, as Agent for the banks and other financial
institutions parties to the Credit Agreement.
10.33 Pledge Agreement, dated as of December 15, 1997, made by
West Coast Franchising Company in favor of PNC Bank,
National Association, as Agent for the banks and other
financial institutions parties to the Credit Agreement.
10.34 Pledge Agreement, dated as of December 15, 1997, made by
Palmer Video Corporation in favor of PNC Bank, National
Association, as Agent for the banks and other financial
institutions parties to the Credit Agreement.
10.35 Security Agreement among West Coast Entertainment
Corporation, Videosmith, Incorporated, West Coast
Franchising Company, Palmer West Coast Corporation, Palmer
Video Corporation, Palmer Investment Corporation, Casablanca
Distributing Corporation, RKT Merger Co., Showtime, Inc.,
Video Giant Inc., Video King of Broome County, Inc., King
Video Enterprises, Inc., West Coast Financing Corporation,
and West Coast Licensing Corporation, and PNC Bank, National
Association, as Agent for the banks and other financial
institutions from time to time parties to the Credit
Agreement, dated as of December 15, 1997.
10.36 Form of Tranche A Notes and Tranche B Notes by West Coast
Entertainment Corporation, Videosmith, Incorporated, West
Coast Franchising Company, Palmer West Coast Corporation,
Palmer Video Corporation, Palmer Investment Corporation,
Casablanca Distributing Corporation, RKT Merger Co.,
Showtime, Inc., Video Giant Inc., Video King of Broome
County, Inc., King Video Enterprises, Inc., West Coast
Financing Corporation, and West Coast Licensing Corporation
to the order of each Bank, dated December 15, 1997.
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
27.2 Restated Financial Data Schedule for the Fiscal Year Ended
January 31, 1997
</TABLE>
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-00272)
** Incorporated by reference to the Registrant's Current Report on Form 8-K
dated May 17, 1996
*** Incorporated by reference to the Registrant's Current Report on Form 8-K
dated October 15, 1996
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K
50
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 1, 1998
WEST COAST ENTERTAINMENT
CORPORATION
By: /s/ T. KYLE STANDLEY
------------------------------------
T. Kyle Standley
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ T. KYLE STANDLEY (Principal executive officer and a May 1, 1998
- --------------------------------------------------- Director)
T. Kyle Standley
/s/ RICHARD G. KELLY (Principal financial officer) May 1, 1998
- ---------------------------------------------------
Richard G. Kelly
/s/ JERRY L. MISTERMAN (Principal accounting officer) May 1, 1998
- ---------------------------------------------------
Jerry L. Misterman
/s/ RALPH W. STANDLEY III (Director) May 1, 1998
- ---------------------------------------------------
Ralph W. Standley III
/s/ M. TRENT STANDLEY (Director) May 1, 1998
- ---------------------------------------------------
M. Trent Standley
/s/ C. STEWART FORBES (Director) May 1, 1998
- ---------------------------------------------------
C. Stewart Forbes
/s/ WESLEY F. HOAG (Director) May 1, 1998
- ---------------------------------------------------
Wesley F. Hoag
</TABLE>
<PAGE> 1
Exhibit 10.14
DEVELOPMENT AGREEMENT
THIS AGREEMENT (herein "Agreement"), made and entered effective on
this __________________________, 1996, by and between WEST COAST FRANCHISING
COMPANY, a Delaware corporation, with its principal offices at 9990 Global Road,
Philadelphia, Pennsylvania 19115 (herein "FRANCHISOR") and HB ASSOCIATES, L.L.C,
with a principal business office at 76 Lafayette Street, Salem, Massachusetts
01970 (herein "DEVELOPER").
BACKGROUND
FRANCHISOR, its predecessors and its affiliates have expended
considerable time, skill, effort and money to originate and develop a unique and
proprietary plan, design, method and system (herein the "WEST COAST SYSTEM") for
offering to the public from distinctive retail facilities the rental and sale of
a wide range of video products, including from time to time, by way of
illustration and not limitation, prerecorded and blank videocassette tapes,
video software products, video, electronic and computer games, laser discs and
related technologically advanced products (herein collectively "Video
Products"). These Video Products are offered to the public in conjunction with
related or complementary accessories, products, supplies and services (herein
collectively "Accessories") and promotional materials, products and supplies
bearing FRANCHISOR's proprietary marks (herein collectively "Proprietary
Supplies"). The distinguishing characteristics of the WEST COAST SYSTEM include,
by way of illustration and not limitation, standards and specifications for
Video Products, Accessories and Proprietary Supplies, inventory and equipment
layout, distinctive design and decor, proprietary software, distinctive formats
and operating procedures, record keeping and reporting, promotion and
advertising, management training, proprietary marks and proprietary information,
all of which may be changed, improved and further developed by FRANCHISOR from
time to time.
FRANCHISOR identifies the WEST COAST SYSTEM by means of certain
proprietary trademarks, service marks, trade names, logos, photographs and other
indicia of origin including, but not limited to, the service mark "WEST COAST
VIDEO(R)", and such other indicia of origin as FRANCHISOR may from time to time
designate (herein collectively "Proprietary Marks"). These Proprietary Marks are
designed to identify to the public the source of goods and services offered by
the WEST COAST SYSTEM and to represent to the public high and uniform standards
of quality, service and appearance.
FRANCHISOR grants to certain qualified persons or entities who meet
FRANCHISOR's qualifications, the right to establish and operate a specified
number of retail facilities using the WEST COAST SYSTEM and the Proprietary
Marks (herein "FRANCHISED STORES") with a defined geographic area, subject to
and in accordance with the terms and provisions of this Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises herein contained and for other good and valuable
<PAGE> 2
consideration, acknowledged by each of them to be satisfactory and adequate, and
each of said parties intending to be legally bound hereby, agree as follows:
1. DEVELOPMENT RIGHTS.
1.1 Grant of Development Rights. FRANCHISOR hereby grants to
DEVELOPER and DEVELOPER hereby accepts, the right to establish and operate
twenty (20) FRANCHISED STORES using the WEST COAST SYSTEM, as it may be changed,
improved, modified or further developed from time to time, upon the terms and
subject to the provisions of this Agreement. The location of each FRANCHISED
STORE (herein "Location") shall be approved in advance by FRANCHISOR as provided
in Section 4.1 of this Agreement. Each Franchised Store shall be established and
operated pursuant to FRANCHISOR's Franchise Agreement (herein the "Franchise
Agreement") attached hereto as Exhibit A and incorporated herein by reference
and the addendum with respect to each FRANCHISED STORE (herein the "Addendum"),
as provided in Section 4.2 hereof. This Agreement does not grant to DEVELOPER
any right to use in any manner FRANCHISOR's Proprietary Marks or System.
DEVELOPER shall have no right under this Agreement to license others to use in
any manner the Proprietary Marks or WEST COAST SYSTEM.
1.2 Development Area. DEVELOPER shall establish and operate
its FRANCHISED STORES solely in the geographic area set forth on Exhibit B
attached hereto and incorporated herein by reference (the "Development Area").
DEVELOPER acknowledges and agrees that DEVELOPER is not granted any rights to
develop or operate FRANCHISED STORES outside of the Development Area.
1.3 Development Schedule. Recognizing that TIME IS OF THE
ESSENCE, DEVELOPER hereby acknowledges and agrees that DEVELOPER's rights in and
to the Development Area and the grant of development rights set forth in this
Agreement are expressly conditioned upon the establishment and continuous
operation of a minimum number of FRANCHISED STORES within the Development Area
as set forth on Exhibit C attached hereto and incorporated herein by reference
(the "Development Schedule").
In the event that DEVELOPER fails to meet the specified goals set
forth on Exhibit C attached hereto, in any stated period, all of DEVELOPER's
rights in and to territorial protection in the Development Area permanently
cease and FRANCHISOR may, in its sole discretion, grant other DEVELOPER rights
within the Development Area, otherwise franchise within the Development Area; or
establish and generate (by itself or through affiliates) company-owned video
retail facilities within the Development Area; provided however, in the event
this Agreement is terminated for breach of Section 1.3 hereof, DEVELOPER shall
continue to operate the then-established FRANCHISED STORES in accordance with
the Franchise Agreement and all Addenda thereto, as provided in Section 4.2
hereof, then existing between FRANCHISOR and DEVELOPER.
-2-
<PAGE> 3
1.4 Territorial Rights. Except as otherwise provided in this
Section 1, and provided that DEVELOPER is in full compliance with this Agreement
and the Franchise Agreement including all Addenda thereto, FRANCHISOR shall not,
during the "Term" of this Agreement (as defined in Section 2 hereof), operate
itself or grant others the right to operate FRANCHISED STORES within the
Development Area.
1.5 Best Efforts. DEVELOPER agrees that during the term of
this Agreement, it will continuously exert its best efforts to develop and
establish FRANCHISED STORES within the Development Area.
1.6 Retail Sale and Rental Restrictions. DEVELOPER is
restricted solely to the retail sale or rental of all WEST COAST SYSTEM Video
Products, Accessories and Proprietary Supplies at the FRANCHISED STORES. Without
FRANCHISOR's prior written consent, to be exercised in FRANCHISOR's sole
discretion, DEVELOPER is expressly prohibited from engaging in the wholesale
business or distribution of any such product sold or rented at the FRANCHISED
STORES including Video Products, Accessories and Proprietary Supplies. Further,
the rights herein granted to DEVELOPER are specifically limited to the
FRANCHISED STORES within the Development Area and DEVELOPER agrees that it will
not use any aspect of the WEST COAST SYSTEM, including the Proprietary Marks, at
any other facility or location, either within or outside of the Development
Area. DEVELOPER shall not solicit, promote or advertise for business outside of
its Development Area through the use of any toll free number, the internet or
any site thereon, direct mail or other advertising method.
1.7 Rights Reserved by FRANCHISOR. Except as set forth in
Section 1.4 hereof, DEVELOPER understands and expressly acknowledges and agrees
that, both within and outside of the Development Area, FRANCHISOR (and its
affiliates) reserve at its or their sole option the rights to offer, sell, rent
and distribute all Video Products, Accessories and Proprietary Supplies which
comprise, or may in the future comprise, a part of the WEST COAST SYSTEM and all
other products and services regardless of whether such products or services are
authorized for sale as part of the WEST COAST SYSTEM, under the Proprietary
Marks licensed hereunder, or otherwise. The rights expressly retained by
FRANCHISOR include, without limitation, (i) the right to operate itself or grant
others the right to operate retail facilities offering Video Products,
Accessories and Proprietary Supplies to the public anywhere outside the
Development Area regardless of its proximity to the FRANCHISED STORES and on
such terms and conditions as FRANCHISOR, in its sole discretion, deems
appropriate; (ii) the right, and the right to grant others the right, to
develop, manufacture, market, distribute and/or sell Video Products,
Accessories, and Proprietary Supplies, through any channel of distribution
including mail order catalogs, computerized (such as the internet), telephone or
other electronic ordering systems capable of accepting orders placed from within
or outside the Development Area; and (iii) the right, subject to Section 1.8
hereof, to acquire and operate a business owning and/or operating a retail
facility within the Development Area offering for sale or rental Video Products
and Accessories (herein the "Acquired Video Store").
-3-
<PAGE> 4
1.8 Acquired Video Stores. During the term hereof, in the
event that FRANCHISOR purchases an Acquired Video Store in the Development Area,
FRANCHISOR shall, except as otherwise prohibited by law or contract, offer to
sell the Acquired Video Store to DEVELOPER for the price paid (or as reasonably
allocated in the case of a multi-store purchase) by FRANCHISOR for such Acquired
Video Store. DEVELOPER must own and operate the Acquired Video Store as a
FRANCHISED STORE in accordance with FRANCHISOR's then-current Franchise
Agreement. DEVELOPER shall have a period of thirty (30) days from the date of
receipt of written notice from the FRANCHISOR to accept or reject this offer. In
the event DEVELOPER rejects or fails to timely accept such offer, FRANCHISOR (or
its affiliates) shall have the right to own and operate the Acquired Video Store
in the Development Area and DEVELOPER shall have no rights or claims whatsoever
to the Acquired Video Store; provided, however, that for a period of one (1)
year following acquisition of the Acquired Video Store, FRANCHISOR shall not
utilize the WEST COAST VIDEO(R) service mark as the trade name of the Acquired
Video Store.
1.9 Principal Owners Guaranty. An "Owner" for purposes of this
Agreement is defined as each person or entity holding direct or indirect, legal
or beneficial Ownership Interests in DEVELOPER, and each person who has other
direct or indirect property rights in DEVELOPER or this Agreement. "Ownership
Interests" for purposes of this Agreement is defined to mean in relation to (i)
a corporation, the legal or beneficial ownership of shares in the corporation;
(ii) a partnership, the legal or beneficial ownership of a general or limited
partnership interest; (iii) a limited liability company, the legal or beneficial
ownership of units or membership interests in the limited liability company; or
(iv) a trust, the ownership of a beneficial interest of such trust. A "Principal
Owner" for purposes of this Agreement is an owner which
1.9.1 is a general partner in DEVELOPER; or
1.9.2 has a direct or indirect equity interest
in DEVELOPER of five percent (5%) or more (regardless of whether such owner
is entitled to vote therein); or
1.9.3 is designated as a Principal Owner in
Exhibit D of this Agreement.
All Principal Owners of DEVELOPER shall be disclosed on Exhibit D to this
Agreement. DEVELOPER shall cause all Principal Owners and their spouses as of
the date of this Agreement to execute and deliver to FRANCHISOR concurrently
with the execution of this Agreement the form of Guaranty and Assumption of
DEVELOPER's Obligations attached hereto as Exhibit E and incorporated herein by
reference (the "Guaranty"). All persons or entities that become Principal Owners
following the date of this Agreement and their spouses shall promptly execute
and deliver to FRANCHISOR, the Guaranty.
2. TERM.
-4-
<PAGE> 5
Unless sooner terminated in accordance with the terms and
provisions of this Agreement, the term of this Agreement and all rights granted
hereunder shall expire on the earlier of: (1) the last date specified in the
Development Schedule; or (2) the date when DEVELOPER has open and in operation
all of the FRANCHISED STORES required by the Development Schedule set forth at
Exhibit C. Thereafter, FRANCHISOR shall be entitled to establish and operate,
and license others to establish and operate FRANCHISED STORES or FRANCHISOR (or
its affiliates) owned retail video facilities whether or not using the WEST
COAST SYSTEM in the Development Area, except as may otherwise be provided under
the Franchise Agreement and all Addenda thereto, which have been executed
between the FRANCHISOR and DEVELOPER.
3. DEVELOPMENT FEE.
In consideration of the development rights granted herein,
DEVELOPER shall pay to FRANCHISOR, upon execution of this Agreement, a
development fee of One Hundred Thousand Dollars ($100,000.00) (herein the
"Development Fee"), receipt of which is hereby acknowledged by FRANCHISOR. The
Development Fee is hereby deemed fully earned and non-refundable upon execution
of this Agreement in consideration of the administrative and other expenses
incurred by the FRANCHISOR and for the development opportunities lost or
deferred as a result of the rights granted DEVELOPER herein.
4. DUTIES OF DEVELOPER.
4.1 Site Selection and Leases.
4.1.1 Site Selection. DEVELOPER shall comply with
FRANCHISOR's then-current specifications regarding site selection for each of
the Locations of the FRANCHISED STORES. DEVELOPER hereby acknowledges and agrees
that FRANCHISOR's approval of each of the Locations does not constitute an
assurance, representation or warranty of any kind, expressed or implied, as to
the suitability of the Locations for FRANCHISED STORES or for any other purpose.
FRANCHISOR's approval of Locations indicates only that FRANCHISOR believes a
Location complies with acceptable minimum criteria established by FRANCHISOR
solely for its purposes as of the time of evaluation. DEVELOPER and FRANCHISOR
acknowledge that application of criteria that have been effective with respect
to other locations may not be predictive of potential for the FRANCHISED STORES;
and that, subsequent to FRANCHISOR's approval of a Location, demographic and/or
economic factors, such as competition from other similar businesses, included in
or excluded from FRANCHISOR's criteria could change, thereby altering the
potential of a Location. Such factors are unpredictable and are beyond
FRANCHISOR's control. FRANCHISOR shall not be responsible for the failure of a
Location to meet DEVELOPER's expectations as to revenue or operational
performance. DEVELOPER further acknowledges and agrees that its acceptance of a
particular site for the operation of a FRANCHISED STORE at a Location is based
on its own independent investigation of the suitability of the Location.
FRANCHISOR will approve or disapprove sites by delivery of written notice to
DEVELOPER.
-5-
<PAGE> 6
FRANCHISOR agrees to exert its reasonable best efforts to deliver such
notification to DEVELOPER within thirty (30) days following receipt by
FRANCHISOR of complete information with respect to a particular site, as
required by FRANCHISOR.
4.1.2 Leases. Any and all leases, subleases or
other agreements entered into by DEVELOPER to secure the Locations of FRANCHISED
STORES must, at a minimum, meet with FRANCHISOR's prior written approval and any
such lease or purchase document must be conditional upon such approval, which
approval shall not be unreasonably withheld by FRANCHISOR. The following
provisions shall be in DEVELOPER's lease or purchase agreement with respect to
each FRANCHISED STORE:
4.1.2.1 A minimum lease term of five (5)
years, with a minimum renewal term, at lessee's option of an additional five (5)
years.
4.1.2.2 In the event of the unauthorized
transfer, expiration or termination of the Franchise Agreement and Addendum
thereto with respect to a FRANCHISED STORE, for any reason, FRANCHISOR shall
have the option for thirty (30) days to assume the obligations under said lease,
and at any time thereafter to reassign the lease to another franchisee (which
lessor, sublessor or renter shall reasonably approve);
4.1.2.3 The lessor, sublessor or renter
will furnish to FRANCHISOR written notice specifying any default and the method
of curing any such default (except that if default is in the nature of
nonpayment of rent, FRANCHISOR shall have but thirty (30) days from receipt of
such notice to cure said default) and succeed to DEVELOPER's interest in such
lease;
4.1.2.4 The lessor, sublessor or renter
will accept FRANCHISOR or its designee (which lessor, sublessor or renter shall
reasonably approve) as a substitute tenant under the terms and provisions of the
lease upon notice from FRANCHISOR that it is exercising its right to succeed to
the interest of DEVELOPER in such lease;
4.1.2.5 Any lease entered into by
DEVELOPER shall provide that it may not be modified or amended without
FRANCHISOR's prior written consent which shall not be unreasonably withheld, and
that FRANCHISOR shall be promptly provided with copies of all such proposed
modifications or amendments and, when executed, true and correct copies of such
executed modifications or amendments; and
4.1.2.6 All of the foregoing constitute
rights but not obligations on the part of FRANCHISOR to assume the rights and
responsibilities of DEVELOPER under any lease, sublease or other rental
arrangement.
4.2 Execution of Addendum to Franchise Agreement. Upon
approval of a site by FRANCHISOR for the Location of a FRANCHISED STORE,
FRANCHISOR shall send to DEVELOPER
-6-
<PAGE> 7
the Addendum to Franchise Agreement in the form of Exhibit F, attached hereto
and incorporated herein by reference, any supporting agreements in form for
execution by DEVELOPER and a copy of the FRANCHISOR's then-current Offering
Circular. The Addendum to Franchise Agreement shall provide that all of the
terms and provisions of the Franchise Agreement attached as Exhibit A to this
Agreement govern the relationship of FRANCHISOR and DEVELOPER with respect to
the FRANCHISED STORE. DEVELOPER shall execute and return to FRANCHISOR, within
twenty (20) days following FRANCHISOR's delivery thereof, a fully executed
Addendum to Franchise Agreement, any supporting agreements, together with a
fully executed receipt for the Offering Circular and the fees required to be
paid upon execution of the Addendum to Franchise Agreement. In no event may a
FRANCHISED STORE be opened for business prior to FRANCHISOR's receipt of the
fully executed Addendum to Franchise Agreement, all supporting agreements, the
Offering Circular receipt and all required payments.
4.3 Store Design Specifications. FRANCHISOR shall furnish to
DEVELOPER specifications of FRANCHISOR's then-current requirements for
construction, design, decoration and layout for FRANCHISED STORES (herein the
"Store Design Specifications"). DEVELOPER acknowledges and agrees that the Store
Design Specifications are an integral part of the WEST COAST SYSTEM and form a
part of the trade dress of the WEST COAST SYSTEM and that, therefore, the
FRANCHISED STORES will be developed, constructed and designed in accordance with
the then-current Store Design Specifications. With respect to each of the
FRANCHISED STORES, DEVELOPER shall (i) submit to FRANCHISOR detailed
construction plans and specifications and space plans for each of the FRANCHISED
STORES that comply with the Store Design Specifications and all applicable
ordinances, building codes, permit requirements, and lease requirements and
restrictions; (ii) obtain all required zoning changes, planning consents,
building, utility, sign, health, sanitation and business permits, licenses and
approvals and any other required permits and licenses; (iii) construct all
required improvements in compliance with construction plans and specifications
approved by FRANCHISOR; and (iv) decorate and layout the FRANCHISED STORES in
compliance with Store Design Specifications and plans and specifications
approved by FRANCHISOR. DEVELOPER shall at its own expense obtain and be
responsible for qualified architectural and engineering services as may be
required to adapt FRANCHISOR's Store Design Specifications to the FRANCHISED
STORES and to applicable local or state laws, regulations or ordinances.
DEVELOPER shall also bear the cost of preparing, for FRANCHISOR's approval, any
plans containing material deviations or modifications from the Store Design
Specifications. In that event, DEVELOPER shall be charged an hourly
architectural fee for FRANCHISOR's designated architect to review such plans.
4.4 Opening Inventory. In connection with the opening of each
of the FRANCHISED STORES, DEVELOPER shall purchase an opening inventory of Video
Products, Accessories and Proprietary Supplies only from approved suppliers and
in accordance with FRANCHISOR's inventory specifications (herein the "Opening
Inventory") for the FRANCHISED STORES.
4.5 Training.
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4.5.1 Prior to opening of the first FRANCHISED
STORE, DEVELOPER and DEVELOPER's manager shall attend and complete to
FRANCHISOR's satisfaction an initial training program conducted by FRANCHISOR.
In the event that DEVELOPER designates itself as a manager, then DEVELOPER shall
also designate one other employee as an assistant manager who shall also attend
and complete to FRANCHISOR's satisfaction the initial training program.
Thereafter, with respect to each FRANCHISED STORE, DEVELOPER must designate a
manager who shall attend and complete to FRANCHISOR's satisfaction an initial
training program conducted by FRANCHISOR;
4.5.2 DEVELOPER shall be solely responsible for all
costs and expenses incurred on its own behalf and by its employees in
connection with the training programs;
4.5.3 At FRANCHISOR's request, any person employed
by DEVELOPER as a manager or assistant manager subsequent to the opening of each
of the FRANCHISED STORES shall be required to attend FRANCHISOR's initial
training program. DEVELOPER shall pay to FRANCHISOR a training fee at the
then-current rate imposed by FRANCHISOR for the initial training of such
managers or assistant manager subsequently employed by DEVELOPER. Such training
fee shall be in addition to any other training costs to be borne by DEVELOPER as
provided herein;
4.5.4 DEVELOPER shall employ sufficient qualified
personnel to operate the FRANCHISED STORES. All employees shall wear the
then-current WEST COAST uniform, as designated by FRANCHISOR. DEVELOPER agrees
to maintain, and assure that all of its employees maintain, the highest quality
standards of professionalism and integrity in the operation of the FRANCHISED
STORES. DEVELOPER agrees to screen carefully all of its employees prior to
employment and to employ only those who have sufficient work experience or
training and who meet such other requirements as may be reasonably prescribed by
FRANCHISOR; and
4.5.5 DEVELOPER and other employees reasonably
designated by FRANCHISOR shall attend such courses, seminars and other training
and re-training or refresher programs as FRANCHISOR may from time to time
reasonably require and DEVELOPER and its other employees shall meet all
reasonable performance standards in connection with such programs as established
from time to time by FRANCHISOR.
4.6 Operations Manual. At the commencement of the initial
training program as set forth in Section 4.5 hereof, FRANCHISOR shall provide on
loan to DEVELOPER one copy of its proprietary operations manual (herein the
"Operations Manual") for each of the FRANCHISED STORES. DEVELOPER shall operate
the FRANCHISED STORE in conformity with the standards, specifications,
techniques and procedures as FRANCHISOR may from time to time reasonably
prescribe in the Operations Manual, or as otherwise directed in writing by
FRANCHISOR to DEVELOPER. The Operations Manual shall at all times
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remain FRANCHISOR's property. FRANCHISOR may, from time to time, revise the
content of said Operations Manual and DEVELOPER expressly agrees to comply with
each changed requirement after notice thereof from FRANCHISOR.
4.7 Operations of the FRANCHISED STORES.
4.7.1 Compliance with Applicable Laws. DEVELOPER
shall obtain all required government licenses and permits for the establishment
and operation of the FRANCHISED STORES and maintain such licenses and permits in
full force and effect throughout the term of this Agreement. DEVELOPER shall
operate the FRANCHISED STORES in compliance with all applicable local, state and
federal statutes, rules, ordinances and regulations and shall take prompt and
immediate action to correct any violation set forth in any notice issued by any
governmental or municipal authority, with respect to the establishment and/or
operation of the FRANCHISED STORES.
4.7.2 Video Products, Accessories and Proprietary
Supplies. DEVELOPER shall offer for retail sale or rental at all times only such
Video Products, Accessories and Proprietary Supplies as conform with
FRANCHISOR's standards and specifications, and not deviate by offering
non-conforming products of any kind at the FRANCHISED STORES without
FRANCHISOR's prior written consent.
4.8 Approved Suppliers. DEVELOPER shall purchase or lease all
products, supplies, services and equipment required for the operation of the
FRANCHISED STORES (including Video Products, Accessories and Proprietary
Supplies) solely from suppliers who demonstrate to the continuing reasonable
satisfaction of FRANCHISOR, the ability to meet FRANCHISOR's reasonable
standards and specifications; who possess adequate quality controls and capacity
to supply DEVELOPER's needs promptly and reliably; and who have been approved in
writing by FRANCHISOR and not thereafter disapproved. FRANCHISOR shall furnish
to DEVELOPER a list of approved suppliers. If DEVELOPER desires to purchase or
lease any unapproved product, supplies, service or equipment or purchase or
lease any approved product, supplies, service or equipment from an unapproved
supplier, DEVELOPER shall notify FRANCHISOR in writing and request approval.
FRANCHISOR shall have the right to require that its representatives be permitted
to inspect the proposed supplier's facilities and test or evaluate the proposed
supplier's product, supplies, service or equipment. FRANCHISOR shall have the
right to request that samples be delivered to it or to an independent testing
facility chosen by FRANCHISOR. A charge not to exceed the reasonable cost of the
inspection and the actual cost of the test shall be paid by DEVELOPER or the
supplier. FRANCHISOR will, within thirty (30) days of its receipt of a completed
request and completion of the evaluation and testing, notify DEVELOPER in
writing of its approval or disapproval of the supplier and/or the proposed
product, supplies, service or equipment. FRANCHISOR reserves the right, at its
option, to reinspect the facilities of any such approved supplier and to re-test
or re-evaluate any previously approved products, supplies, service or equipment
and to revoke its approval
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upon the supplier's failure to continue to meet any of FRANCHISOR's
then-existing supplier, product, equipment or service criteria, or as otherwise
reasonably determined by FRANCHISOR.
4.9 Insurance.
DEVELOPER agrees to secure, prior to the opening of
each of the FRANCHISED STORE and to maintain in full force and effect during the
term of this Agreement, at DEVELOPER's expense, insurance policies protecting
DEVELOPER, FRANCHISOR as an additional insured, and their respective officers,
directors, shareholders and employees, against any loss, liability, personal
injury, death, property damage or expense whatsoever arising or occurring in
connection with this Agreement and the operations of each of the FRANCHISED
STORES, as well as such other insurance as FRANCHISOR may reasonably require.
5. FEES.
5.1 Initial Franchise Fees. DEVELOPER shall pay to FRANCHISOR
an Initial Franchise Fee of One Thousand ($ 1,000.00) Dollars, for each of the
FRANCHISED STORES granted pursuant to this Agreement, payable upon execution of
each Addendum to Franchise Agreement, as set forth in Section 4.2 hereof.
5.2 Continuing Royalty Fees. DEVELOPER shall pay to FRANCHISOR
continuing monthly royalty fees, continuing monthly national marketing fund
payments and such other payments for each of the FRANCHISED STORES in accordance
with FRANCHISOR's payment requirements as set forth in the Franchise Agreement.
6. PROPRIETARY MARKS.
6.1 DEVELOPER shall use only the Proprietary Marks designated
by FRANCHISOR and shall use them only in the manner authorized and permitted
pursuant to the Franchise Agreement and by FRANCHISOR.
6.2 DEVELOPER shall use the Proprietary Marks only in
conjunction with the operation of the FRANCHISED STORES and in accordance with
the Operations Manual.
6.3 DEVELOPER's right to use the Proprietary Marks is limited
to such uses as are authorized under the Franchise Agreement, and any
unauthorized use thereof shall constitute an infringement of FRANCHISOR's
rights.
6.4 DEVELOPER shall not make use of the Proprietary Marks,
including the mark, WEST COAST or any part thereof, in its corporate name or in
any other business or legal entity.
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6.5 In the event that litigation by a third party involving
the Proprietary Marks is instituted or threatened against DEVELOPER, DEVELOPER
shall promptly notify FRANCHISOR and shall cooperate fully in defending or
settling such litigation. In the event FRANCHISOR undertakes the defense or
prosecution of any litigation pertaining to the Proprietary Marks, DEVELOPER
agrees to execute any and all documents and do such acts and things as may, in
the opinion of FRANCHISOR's counsel, be necessary or appropriate in the
litigation. FRANCHISOR shall have the sole right and discretion to take such
action as it deems appropriate. Provided DEVELOPER is in compliance with this
Agreement, FRANCHISOR will defend DEVELOPER, at FRANCHISOR's expense, against
any third party claim, suit or demand involving the Proprietary Marks and
arising out of DEVELOPER's authorized use thereof.
6.6 DEVELOPER expressly acknowledges and agrees that:
6.6.1 FRANCHISOR has the sole and exclusive rights
and interest in and to the Proprietary Marks and the goodwill associated
thereto.
6.6.2 DEVELOPER will not, directly or indirectly,
contest the validity or the ownership of the Proprietary Marks.
6.6.3 DEVELOPER acquires no right, title or interest
in the Proprietary Marks, except for the non-exclusive license to use the
Proprietary Marks pursuant to the Franchise Agreement and all Addenda thereto.
6.6.4 Any and all goodwill arising from DEVELOPER's
use of the Proprietary Marks pursuant to the Franchise Agreement and all Addenda
thereto shall inure solely and exclusively to the benefit of FRANCHISOR. Upon
expiration or termination of this Agreement, no monetary amount shall be
assigned, for any reason and for any purpose whatsoever, to any goodwill in
connection with DEVELOPER's use of the Proprietary Marks pursuant to the
Franchise Agreement.
7. CONFIDENTIAL OPERATIONS MANUAL, CONFIDENTIAL INFORMATION AND
NON-DISCLOSURE.
7.1 Confidential Manuals.
7.1.1 DEVELOPER shall at all times treat the
Operations Manual and other manuals created for or approved for use in the
establishment and operation of the FRANCHISED STORES, and the information
contained therein as confidential, and shall use all reasonable efforts to
maintain such information as secret and confidential (herein collectively the
"Confidential Manuals"). DEVELOPER shall not, at any time, without FRANCHISOR's
prior written consent, copy, duplicate, record or otherwise reproduce the
Confidential Manuals, in whole or in part, nor otherwise make the same available
to any unauthorized person.
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7.1.2 DEVELOPER shall conduct the operation of the
FRANCHISED STORE in accordance with FRANCHISOR's methods and procedures as
prescribed from time to time in the Confidential Manuals and in all supplemental
bulletins and notices, which shall be deemed a part thereof.
7.1.3 The Confidential Manuals may be modified from
time to time to reflect changes in the image, decor, design, format, appearance,
methods, standards and specifications and operating procedures approved or
required for FRANCHISED STORES, and all such modifications shall be binding upon
DEVELOPER upon being mailed or otherwise delivered to it, as if originally set
forth therein; provided, however, that such modifications shall not impose any
obligations that are materially more onerous or costly than those imposed by the
Franchise Agreement.
7.1.4 DEVELOPER will maintain the Confidential
Manuals strictly confidential and will not at any time copy any part of the
Confidential Manuals, disclose any information contained in the Confidential
Manuals to others (except to the extent such information is otherwise lawfully
publicly known or available) or permit others access to the Confidential
Manuals, except as may be required to DEVELOPER's employees, provided that such
employees have signed FRANCHISOR's form of non-disclosure and non-competition
agreement, as set forth in an exhibit to the Franchise Agreement.
7.1.5 The Confidential Manuals shall at all times
remain FRANCHISOR's exclusive property and shall be returned to FRANCHISOR
promptly upon termination or expiration of this Agreement for any reason
whatsoever. DEVELOPER understands and agrees that it is of substantial value and
importance to FRANCHISOR and other franchisees, as well as to the DEVELOPER,
that the WEST COAST SYSTEM developed by FRANCHISOR establish and maintain a
common identity. DEVELOPER agrees and acknowledges that compliance with the WEST
COAST SYSTEM and the Confidential Manuals are essential to preserve, maintain
and enhance the reputation, trade demand and goodwill built up by the WEST COAST
SYSTEM, and the Proprietary Marks used in connection therewith; and that failure
of DEVELOPER to operate the FRANCHISED STORES in accordance with the WEST COAST
SYSTEM and the Confidential Manuals will cause irreparable damage to FRANCHISOR
and its other franchisees, as well as to DEVELOPER.
7.2 Confidential Information.
DEVELOPER, for itself and all of its agents and
employees, shall not, during the term of this Agreement or at any time
thereafter, communicate, divulge or use for the benefit of any other person,
persons, partnership, association or corporation, any confidential information,
knowledge, or know-how concerning the methods of operation of the WEST COAST
SYSTEM which may be communicated to DEVELOPER, or of which DEVELOPER may be
apprised, pursuant to the terms of this Agreement or the Franchise Agreement.
DEVELOPER shall divulge such confidential
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information only to such of its employees as must have access to it in order to
operate the FRANCHISED STORES.
7.3. Nondisclosure.
DEVELOPER shall not, at any time, either during or
after the term of this Agreement, copy or duplicate, or permit the copying or
duplication, nor publish, disclose or in any manner reveal, or permit the
publication, disclosure or revelation in any manner, to any person or entity,
except employees of DEVELOPER any portion of the Confidential Manuals,
supplements, addenda or amendments thereto, or any other information or material
supplied by FRANCHISOR to DEVELOPER and designated as confidential information.
DEVELOPER hereby recognizes and agrees that these materials and information are
proprietary trade secrets of FRANCHISOR and will be disclosed to DEVELOPER in
strict confidence solely for use in the development and operation of the
FRANCHISED STORES during the term of this Agreement and on the condition that
DEVELOPER will not use these trade secrets in any other business or capacity.
DEVELOPER acknowledges and agrees that it will not acquire any interest in the
trade secrets, other than the right to utilize them in the operation of the
FRANCHISED STORES during the term hereof and that DEVELOPER will maintain the
confidentiality of these trade secrets during and after the term of this
Agreement.
7.4 Confidentiality Agreements.
All persons affiliated with DEVELOPER, including
Owners, Principal Owners, directors, officers, partners, shareholders and
managers, and other key employees who have access to the Confidential Manuals,
shall execute the Confidentiality and Restrictive Covenant Agreement set forth
as Exhibit "G" hereto and incorporated herein by reference.
8. RECORD KEEPING, MODEM REPORTING AND REPORTING
8.1 Record Keeping. During the term of this Agreement,
DEVELOPER shall maintain and preserve, for at least six (6) years from the date
of their preparation, full, complete and accurate books, records and accounts
with respect to DEVELOPER. DEVELOPER shall establish and maintain in accordance
with good business practices, complete books of account and records from which
Gross Revenues of the FRANCHISED STORES may be determined as of the close of
business of each month during the term of this Agreement. DEVELOPER shall send
FRANCHISOR monthly, along with its payment of the Royalty Fees, a written report
showing the Gross Revenues of the FRANCHISED STORES during the preceding month
and such other information as requested by FRANCHISOR on a report form
prescribed by FRANCHISOR. Such report shall include such forms, reports,
records, software information and other data as FRANCHISOR may reasonably
require.
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8.2 FRANCHISOR Access by Modem. FRANCHISOR shall have the
right, at all times, to access its proprietary software through a modem, or
otherwise for purposes of ensuring DEVELOPER's compliance with this Agreement
and for reporting of information required to be submitted to FRANCHISOR with
respect to each of the FRANCHISED STORES.
8.3 Annual Reports. DEVELOPER shall submit to FRANCHISOR
annually, within ninety (90) days after the end of each fiscal year of
DEVELOPER, financial statements covering the previous twelve (12) month's
operation of DEVELOPER and each of the FRANCHISED STORES certified as true and
correct by an executive officer of DEVELOPER, prepared on a review basis by a
certified public accountant reasonably acceptable to FRANCHISOR in accordance
with generally accepted accounting principles, applied on a consistent basis and
in accordance with customary industry practices and in sufficient detail to
provide accurate and complete information covering each of the FRANCHISED
STORES, during such fiscal year. In addition, such information shall be on both
a combined basis and on a per FRANCHISED STORE basis in a format determined by
FRANCHISOR.
8.4 Inspection of Records. FRANCHISOR or its designated agents
shall have the right at all reasonable times and on reasonable notice to
examine, at its expense, the books, records, and tax returns of DEVELOPER with
respect to each of the FRANCHISED STORES including all documents in the care,
custody, possession or control of DEVELOPER in connection with the operations of
each of the FRANCHISED STORES. FRANCHISOR shall also have the right, at any
time, and at its own expense, to have an audit made of the books of DEVELOPER.
If FRANCHISOR's accountants indicate that there has been an understatement of
Gross Revenues in any given period with respect to any of the FRANCHISED STORES,
then DEVELOPER shall immediately pay to FRANCHISOR the amount understated in
addition to interest from the date such amount was due until paid at a rate
equal to eighteen (18%) percent per annum, or, if less, at the maximum rate
permitted by law. If any understatement of Gross Revenues is in the amount of
three (3%) percent or more, or if FRANCHISOR's audit reveals any material or
willful violation of this Agreement, the Franchise Agreement, or any Addenda
thereto, DEVELOPER shall, in addition, reimburse FRANCHISOR for any and all
costs and expenses connected with the inspection (including, without limitation,
travel expenses, compensation to FRANCHISOR's representatives and reasonable
accounting fees). The foregoing remedies shall be in addition to any other
remedies FRANCHISOR may have, including the right to terminate this Agreement,
of the Franchise Agreement and Addenda thereto.
9. CONDITIONS OF TRANSFER OF INTEREST.
9.1 Transfer by DEVELOPER.
Developer understands and acknowledges that the
rights and duties set forth in this Agreement are unique to DEVELOPER, and are
granted in
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reliance upon the business skill, financial capacity and personal character of
DEVELOPER and each of its Principal Owners. Therefore, neither DEVELOPER nor any
immediate or remote successor to any part of DEVELOPER'S interest in this
Agreement, nor any individual, partnership, corporation or other legal entity
which directly or indirectly controls DEVELOPER, shall sell, assign, transfer,
convey, sublease, pledge, mortgage or otherwise encumber the following without
the prior written consent of FRANCHISOR:
9.1.1 any right or interest created by this
Agreement, the Franchise Agreement or any Addenda thereto;
9.1.2 any of the FRANCHISED STORES, including any
portion of the assets therein;
9.1.3 any of the ownership interests in DEVELOPER; or
9.1.4 this Agreement.
9.2 Requirements of Transfer. FRANCHISOR shall not
unreasonably withhold its consent to a transfer of any ownership interests in
DEVELOPER provided that DEVELOPER shall have been in full compliance with this
Agreement, the Franchise Agreement and Addenda thereto, and that all of the
following conditions are met prior to the time of the proposed transfer:
9.2.1 All of DEVELOPER's accrued monetary
obligations to FRANCHISOR, shall have been satisfied including all such
obligations arising under the Franchise Agreement and Addenda thereto;
9.2.2 The transferor shall have first offered to
sell such interest to FRANCHISOR pursuant to Section 9.4 hereof.
9.2.3 The transferor's right to receive compensation
will be subordinated and secondary to obligations owed to FRANCHISOR or other
outstanding obligations due to FRANCHISOR from the transferor, or DEVELOPER;
9.2.4 The transferor shall have executed a general
release, in a form satisfactory to FRANCHISOR, of any and all claims against
FRANCHISOR, and its officers, directors, shareholders, affiliates,
representatives, agents and employees, in their corporate and individual
capacities;
9.2.5 The transferee shall enter into a written
assignment, in a form satisfactory to FRANCHISOR, assuming and agreeing to
discharge all of DEVELOPER's obligations under this Agreement;
9.2.6 The transferee shall demonstrate to
FRANCHISOR's satisfaction that it meets FRANCHISOR's educational, managerial and
business standards, possesses a good aptitude, moral character, business
reputation and ability
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as may be evidenced by prior related business experience or otherwise; has
adequate financial resources and capital to fulfill the obligations of
DEVELOPER. DEVELOPER shall provide FRANCHISOR with such information as
FRANCHISOR may require in its then-current franchise application form, in order
to make such determination concerning each such proposed transferee, including
by way of illustration and not limitation, a ten (10) year employment history,
financial statements and tax returns for the most recent three (3) year period
and three (3) references, one of which must be a bank reference. FRANCHISOR may
reasonably object to a proposed transferee if the proposed transfer would harm
the WEST COAST SYSTEM or place FRANCHISOR at a competitive disadvantage with
respect to its proprietary information and the WEST COAST SYSTEM;
9.2.6 DEVELOPER shall pay FRANCHISOR a transfer fee
which shall be Twenty-Five Thousand ($25,000.00) Dollars to cover administrative
and other expenses, in connection with the transfer.
9.3 Securities Offerings. All materials required for any offer
or sale of securities of DEVELOPER by federal or state law shall be submitted to
FRANCHISOR for review, approval, and consent prior to their being filed with any
government agency; and any materials to be used in any exempt offering shall be
submitted to the FRANCHISOR for review, approval and consent prior to their use.
No DEVELOPER offering shall imply (by use of the Proprietary Marks or otherwise)
that FRANCHISOR is participating as an underwriter, issuer, or offeror of
DEVELOPER's or FRANCHISOR's securities; and the FRANCHISOR's review of any
offering shall be limited solely to the subject of the relationship between
DEVELOPER and FRANCHISOR. DEVELOPER and the other participants in the offering
must fully indemnify FRANCHISOR in connection with the offering (subject to such
limitations which are customary in offerings of this nature). For each proposed
offering, DEVELOPER shall pay to FRANCHISOR a non-refundable fee of Five
Thousand Dollars ($5,000.00), or such greater amount necessary to reimburse
FRANCHISOR for its reasonable costs and expenses associated with reviewing the
propose offering, including, without limitation, legal and accounting fees. If
the documentation with respect to any such offer or sale is significantly less
than what would normally be required in the case of such an offering, then the
fee DEVELOPER shall pay to FRANCHISOR for its costs and expenses shall be
adjusted downward in order to reflect the amount of time actually expended in
connection with such review. DEVELOPER shall give FRANCHISOR written notice at
least ninety (90) days prior to the date of commencement of any such offering.
Any such offering shall be subject to FRANCHISOR's right of first refusal, as
set forth in Section 9.4 hereof.
9.4 Right of First Refusal. If any party holding any interest
in DEVELOPER, in this Agreement, in the DEVELOPER's business, or in
substantially of the DEVELOPER's assets (the transfer of which interest would
have the effect of transferring this Agreement, a controlling interest in
DEVELOPER, DEVELOPER's business, or in substantially all of DEVELOPER's assets),
or if DEVELOPER desires to accept any bona fide offer from a third party to
purchase such interest, the seller shall notify FRANCHISOR in writing of the
terms of
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such offer, and shall provide such information and documentation relating to the
offer as FRANCHISOR may require; and FRANCHISOR shall have the right and option,
exercisable within thirty (30) days after receipt of such written notification,
to send written notice to the seller that FRANCHISOR intends to purchase the
seller's interest on the same terms and conditions offered by the third party.
In the event that FRANCHISOR elects to purchase the seller's interest, no
material change in any offer and no other offers by a third party for such
interest shall be considered with respect to FRANCHISOR's right of first
refusal. In the event that FRANCHISOR elects to purchase the seller's interest,
closing on such purchase must occur within ninety (90) days from the date of
notice to the seller of the election to purchase by FRANCHISOR. In the event
that FRANCHISOR has elected not to purchase the seller's interest, any material
change in the terms of any offer prior to closing by any third party shall
constitute a new offer subject to the same rights of first refusal by FRANCHISOR
to exercise the option afforded by this Section 9.4 shall not constitute a
waiver of any other provision of this Agreement, including all of the
requirements of this Section 9.4 with respect to a proposed transfer. In the
event the consideration, terms, and/or conditions offered by a third party are
such that FRANCHISOR may not reasonably be required to furnish the same
consideration, terms, and/or conditions, then FRANCHISOR may purchase the
interest in the DEVELOPER's business proposed to be sold for the reasonable
equivalent in cash. If the parties cannot agree within a reasonable time on the
reasonable equivalent in cash of the consideration, terms, and/or conditions
offered by the third party, an independent appraiser shall be designated by
mutual agreement of FRANCHISOR and DEVELOPER, and his determination shall be
binding. If FRANCHISOR and DEVELOPER cannot agree upon the selection of a single
appraiser, then each party shall designate one (1) such appraiser and the two
(2) designated appraisers, in turn, shall designate a third party appraiser and
the determination of the three (3) appraisers shall be binding.
9.5 Death, Disability or Incompetency.
Upon the death, disability or mental incompetency of
any person with a controlling interest in this Agreement or in DEVELOPER, the
transfer of which requires the consent of the FRANCHISOR as provided in Section
9.2 hereof, the executor, administrator, personal representative, guardian, or
conservator of such person shall transfer such interest within six (6) months
after such death, disability or mental incompetency to a third party approved by
FRANCHISOR. Such transfers, including, without limitation, transfers by devise
or inheritance, shall be subject to the same conditions as any inter vivos
transfer. However, in the case of transfer by devise or inheritance, if the
heirs or beneficiaries of any such person are unable to meet the conditions of
this Section 9, the personal representative of the deceased person shall have a
reasonable time to dispose of the deceased's interest, which disposition shall
be subject to all the terms and conditions for transfers contained in this
Agreement. If the interest is not disposed of within a reasonable time not to
exceed nine (9) months, FRANCHISOR may terminate this Agreement.
9.6 Written Consent of FRANCHISOR.
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Any purported assignment, transfer, conveyance or encumbrance of any right or
interest created herein, any ownership interests in DEVELOPER, or this
Agreement, without the prior written consent of FRANCHISOR, shall be null and
void, and shall result in termination of this Agreement, as set forth below in
Section 10.2.9 hereof.
9.7 Non-Waiver by FRANCHISOR. FRANCHISOR's consent to a
transfer of any interest granted herein shall not constitute a waiver of any
claims FRANCHISOR may have against the transferring party, nor shall it be
deemed a waiver of FRANCHISOR's rights to demand exact compliance with any of
the terms of this Agreement by the transferee.
9.8 Intra-Corporate Non-Controlling Transfer. The principals
of DEVELOPER including the Principal Owners of DEVELOPER may agree among
themselves as to the purchase of a principal's interest in DEVELOPER. A transfer
of a minority interest in DEVELOPER (whether voting stock, securities
convertible thereto, partnership or proprietary interests) pursuant to such an
agreement will not be subject to the terms and conditions applicable to an
inter-vivos transfer set forth in this Section 9; provided, however, that the
interest of the transferring principal of DEVELOPER is not to be transferred to
a party not owning an interest in DEVELOPER immediately prior to the transfer.
9.9 Transfer by FRANCHISOR.
FRANCHISOR shall have the right to transfer or
assign this Agreement, including all or any part of its rights and obligations
herein to any person or legal entity.
10. DEFAULT AND TERMINATION.
10.1 No Cure Period. Except as otherwise provided by
applicable law, DEVELOPER shall be deemed to be in default under this Agreement,
and this Agreement and all rights granted herein shall automatically terminate
without opportunity to cure and without notice by FRANCHISOR to DEVELOPER, in
the event that DEVELOPER files any petition in bankruptcy, voluntary or
involuntary.
10.2 Optional Cure Period. Except as otherwise provided by
applicable law, DEVELOPER shall be deemed in default under this Agreement and
FRANCHISOR may, at its option, terminate this Agreement and all rights granted
herein without affording DEVELOPER any opportunity to cure the default, with
such termination to be effective immediately upon the sending of the notice of
termination to DEVELOPER as set forth in the notice provisions of Section 14
hereof, or, FRANCHISOR may, at its option, suspend all FRANCHISOR support of
DEVELOPER pursuant to this Agreement, or otherwise, upon the occurrence of any
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of the following events:
10.2.1 DEVELOPER becomes insolvent;
10.2.2 DEVELOPER makes an assignment for the benefit
of its creditors;
10.2.3 DEVELOPER admits in writing its inability to
pay its debts generally as they become due;
10.2.4 DEVELOPER suffers temporary or permanently
appointed receivership;
10.2.5 DEVELOPER has against it a final judgment
which remains unsatisfied for thirty days or longer;
10.2.6 A suit is brought against DEVELOPER to
foreclose any lien or mortgage against any of the FRANCHISED STORES or against
any products in connection with the FRANCHISED STORES, and such suit is not
dismissed within thirty days;
10.2.7 DEVELOPER ceases to operate any of the
FRANCHISED STORES or otherwise abandons said business for five (5) or more
consecutive days;
10.2.8 DEVELOPER is convicted of a felony or any
other crime or offense that is reasonably likely, in the sole opinion of
FRANCHISOR, to adversely effect FRANCHISOR, the Proprietary Marks, or the
goodwill associated with the Proprietary Marks;
10.2.9 DEVELOPER attempts to, or purports to,
transfer any rights or obligations under this Agreement, or otherwise, to any
third party, contrary to the terms and provisions of Section 10 hereof;
10.2.10 DEVELOPER fails to comply with the covenants
set forth in Section 12 hereof;
10.2.11 DEVELOPER fails to comply with the
Development Schedule set forth at Exhibit C hereof.
10.3 Cure Period and Termination. Except as set forth in
Sections 10.1 and 10.2 hereof, and except as otherwise provided by applicable
law, DEVELOPER shall have thirty (30) days after its receipt in any manner set
forth in Section 14 hereof from FRANCHISOR of a written notice of default within
which to remedy a default of any of the terms of this Agreement, as set forth in
such written notice of default, and provide written evidence thereof to the
satisfaction of FRANCHISOR.
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<PAGE> 20
If any such default is not cured within said thirty (30) day
period (or such longer period as applicable law may otherwise require),
FRANCHISOR may, at its option, terminate this Agreement and all rights granted
herein without affording DEVELOPER any further opportunity to cure the default,
with such termination to be effective immediately upon the sending of the notice
of termination to DEVELOPER in any manner set forth in Section 14 hereof, or,
FRANCHISOR may, at its option, suspend all FRANCHISOR support of DEVELOPER
pursuant to this Agreement, or otherwise.
10.4 Cross-Default. Any default by DEVELOPER under the terms
and conditions of this Agreement or any other agreement between FRANCHISOR and
DEVELOPER, including the Franchise Agreement, and any Addenda thereto, shall be
deemed to be a default of each and every agreement between FRANCHISOR and
DEVELOPER. Furthermore, in the event of termination, for any cause, of this
Agreement or any other such agreement between the parties hereto, FRANCHISOR
may, at its option, terminate any or all other agreements.
11. OBLIGATIONS UPON TERMINATION.
11.1 DEVELOPER Obligations. Upon the termination of this
Agreement by either DEVELOPER or FRANCHISOR, by operation of law, or upon
expiration of this Agreement because of lapse of time, this Agreement and all
rights granted herein to DEVELOPER shall automatically terminate; provided,
however, that the obligations of DEVELOPER as set forth in this Section 11 and
in Sections 12 and 13 hereof shall survive the termination of this Agreement.
11.2 DEVELOPER shall promptly pay all sums owing to
FRANCHISOR. FRANCHISOR shall have the right to set off any or all amounts due to
DEVELOPER under this Agreement. DEVELOPER shall also pay all damages, costs and
expenses, incurred by FRANCHISOR as a result of a default by DEVELOPER which
resulted in termination of this Agreement, including all fees and costs and
reasonable attorney's fees in obtaining injunctive or other relief for the
enforcement of DEVELOPER's obligations in this Section 11 and in Section 12
hereof. DEVELOPER does hereby irrevocably authorize and empower FRANCHISOR or
any officer of FRANCHISOR to execute, as DEVELOPER's attorney-in-fact, coupled
with an interest, all documents or orders as may be necessary for completion of
the post-termination obligations set forth in this Section 11.
11.3 DEVELOPER must continue to comply with the continuing
obligations set forth in this Agreement, including the post-termination
obligations set forth in Sections 11 and 12 hereof.
11.4 The covenants contained in this Section 11 shall be
construed as independent of any other provision of this Agreement and the
existence of any claim or cause of action of DEVELOPER against FRANCHISOR,
whether
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predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by FRANCHISOR of the covenants set forth in this Section 11 or
in Section 12 hereof.
12. NON-COMPETITION.
12.1 Covenants Not to Compete.
12.1.1 In consideration of FRANCHISOR's execution of
this Agreement and the confidential disclosure by FRANCHISOR of unique valuable
information to DEVELOPER, DEVELOPER and each of its Principal Owners shall not
(other than as provided in this Agreement), during the term of this Agreement
and for two years after its termination, expiration, transfer, assignment, sale
or nonrenewal:
12.1.2.1 Divert or attempt to divert any
business or customer from any of the FRANCHISED STORES to any competitor, by
direct or indirect inducement or otherwise, or do or perform, directly or
indirectly, any other act injurious or prejudicial to the WEST COAST SYSTEM or
the goodwill associated with the Proprietary Marks; or
12.1.2.2 Have any interest, directly or
indirectly, in any business competitive with the business of the FRANCHISED
STORES; or
12.1.2.3 Own, maintain, engage in, or
have any interest in, either directly or indirectly (including through a member
of the immediate family of any of the Principal Owners of DEVELOPER), as a
proprietor, partner, investor, lender, guarantor, shareholder, director,
officer, employee, principal, agent, advisor, independent contractor, or
consultant to, any business which specializes in whole or in part in the
development, establishment or operation of any retail facilities which sell or
rent video movies and related products, in the Development Area or within five
(5) miles of any retail video store operating under the WEST COAST SYSTEM
(whether company-owned, franchised or otherwise established); or
12.1.2.4 Employ or seek to employ any
person who is at that time currently employed by FRANCHISOR (or its affiliates),
or directly or indirectly induce such person to leave his or her employment
without the prior written consent of FRANCHISOR.
12.2 Effect of Unenforceability of Covenants. The parties
hereto agree that the foregoing covenants shall be construed as independent of
any other covenants or provisions of this Agreement and the existence of any
claim or cause of action of DEVELOPER against FRANCHISOR, shall not constitute a
defense to the enforcement by FRANCHISOR of such covenants. In the event that
all or any portion of any provisions set forth in this Section 12 are held
unreasonable or unenforceable by a court or agency having valid jurisdiction in
an unappealed final decision to which FRANCHISOR is a party,
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<PAGE> 22
DEVELOPER expressly agrees to be bound by any lessor covenants subsumed within
the terms of such covenant that imposes the maximum duty permitted by law, as if
the resulting covenant were separately stated in and made a part of this Section
12, or as otherwise amended by the court or agency.
12.3 Injunctive Relief. DEVELOPER acknowledges that FRANCHISOR
would be irreparably injured and without an adequate remedy at law in the event
DEVELOPER violates any provision of this Section 12 and that in such event
FRANCHISOR will therefore be entitled to a temporary restraining order,
preliminary injunction and/or permanent injunction without need to show monetary
damages or to post a bond or other security, as well as actual costs and
attorneys' fees incurred in enforcing the restrictive covenants set forth in
Section 12 hereof.
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION.
13.1 Independent Contractor. It is understood and agreed by
the parties hereto that this Agreement does not create a fiduciary relationship
between or among them, that DEVELOPER shall be an independent contractor, and
that nothing in this Agreement is intended to constitute or construe DEVELOPER
as an agent, legal representative, subsidiary, joint venturer, partner,
affiliate, employee or servant of FRANCHISOR for any purpose whatsoever. It is
understood and agreed that nothing in this Agreement authorizes DEVELOPER to
make any contract, agreement, warranty or representation on FRANCHISOR's behalf,
or to incur any debt or other obligation in FRANCHISOR's name, and that
FRANCHISOR shall in no event assume liability for, or be deemed liable
hereunder, as a result of, any such action, or by reason of any act or omission
of DEVELOPER, its employees or agents, in its conduct pursuant to this Agreement
or of the FRANCHISED STORES.
13.2 DEVELOPER Indemnification. DEVELOPER agrees to indemnify
FRANCHISOR, including its officers, directors, employees and stockholders and
save and hold FRANCHISOR harmless from, against, for and in respect of any and
all damages, losses, obligations, liabilities, claims, deficiencies, costs and
expenses, including, without limitation, reasonable attorney's fees and other
costs and expenses incident to any suit, action, investigation, claim or
proceeding (herein referred to as "FRANCHISOR's Losses") suffered, sustained,
incurred or required to be paid by FRANCHISOR, by reason of any representation,
act, commission or omission of DEVELOPER, its agents, servants, employees, with
respect to, or in connection with, DEVELOPER's obligations the establishment and
operation of each of the FRANCHISED STORES, including any injury to, or loss of
property of, any customer or employee of any of the FRANCHISED STORES, or any
failure by DEVELOPER to observe or perform its covenants and obligations as set
forth in this Agreement; provided, however, that this indemnification obligation
shall not arise to the extent FRANCHISOR's losses result from FRANCHISOR's
(including its agents' or employees') negligent or wrongful act or failure
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<PAGE> 23
to act. All of FRANCHISOR's Losses shall be satisfied by cash payments from
DEVELOPER to FRANCHISOR. DEVELOPER shall, in writing, notify FRANCHISOR
immediately as to any suit, action, investigation, claim or proceeding for which
indemnification might be claimed by FRANCHISOR. Upon receipt of any notice of
suit, action, investigation, claim or proceeding for which indemnification might
be claimed by FRANCHISOR, FRANCHISOR shall be entitled promptly to defend,
prosecute, settle, contest or otherwise protect itself, by counsel of its own
choosing, at DEVELOPER's sole cost and expense. DEVELOPER shall have the right
to select its own counsel, provided, that attorneys' fees and costs for such
counsel are paid by DEVELOPER. FRANCHISOR shall be entitled to control the
defense or prosecution thereof, unless FRANCHISOR has consented in writing to
allow DEVELOPER to control the litigation.
14. NOTICES.
Any and all notices required or permitted under this Agreement
shall be in writing and shall be (a) personally delivered (and deemed received
when delivered and acknowledgment of receipt is given), or (b) mailed by
certified or registered mail, return receipt requested (and deemed received
three (3) days after delivery to the U.S. Postal Service, whether or not
accepted by addressee), or (c) by telecopy (and deemed received when sent and
confirmation of receipt is made), or (d) by Federal Express or other recognized
overnight courier service guaranteeing delivery within twenty four (24) hours
(and deemed received on the scheduled date of delivery), and addressed to the
respective parties at the following addresses unless and until a different
address has been designated by written notice to the other party:
Notices to FRANCHISOR:
West Coast Franchising Company
9990 Global Road
Philadelphia, Pennsylvania 19115
Attention: Office of the President
Notices to DEVELOPER:
Michael and Daniel Hubbard
HB Associates, L.L.C.
76 Lafayette Street
Salem, MA 01970
15. ENTIRE AGREEMENT.
This Agreement, the documents referred to herein, and the
Exhibits hereto, constitute the entire, full and complete Agreement between
FRANCHISOR and DEVELOPER concerning the subject matter hereof, and supersede all
prior agreements. There are no representations, inducements, promises,
agreements, arrangements or undertakings, oral or written, between the parties
other than those set forth in this Agreement. No amendment, change or variance
from this Agreement shall be binding on either party unless mutually agreed to
in writing by the parties and
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<PAGE> 24
executed by their authorized officers or agents in writing.
16. SEVERABILITY AND CONSTRUCTION; WAIVER; MISCELLANEOUS.
16.1 Severability. Except as expressly provided to the
contrary herein, each section, part, term and/or provision of this Agreement
shall be considered severable; and if, for any reason, any section, part, term
and/or provision herein is determined to be invalid and contrary to, or in
conflict with, any existing or future law or regulation by a court or agency
having valid jurisdiction, such shall not impair the operation of, or have any
other effect upon, such other portions, sections, parts, terms and/or provisions
of this Agreement as may remain otherwise intelligible, and the latter shall
continue to be given full force and effect and bind the parties hereto; and said
invalid sections, parts, terms and/or provisions shall be deemed not to be a
part of this Agreement.
16.2 No Third Party Benefits. Except as otherwise set forth in
this Agreement, nothing in this Agreement is intended, nor shall be deemed, to
confer upon any person or legal entity other than the parties hereto, and such
of their respective successors and assigns as permitted herein, any rights or
remedies under or by reason of this Agreement.
16.3 Captions. All captions in this Agreement are intended
solely for the convenience of the parties, and none shall be deemed to affect
the meaning or construction of any provisions hereof.
16.4 Gender References. All references herein to the
masculine, neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, where applicable.
16.5 Execution of Agreement. This Agreement may be executed in
duplicate, and each copy so executed shall be deemed an original.
16.6 Absence of Warranties. Except as otherwise provided
herein, FRANCHISOR does not make any warranties or guarantees upon which
DEVELOPER may rely, and assumes no liability or obligation to DEVELOPER, by
providing any waiver, approval, consent or suggestion to DEVELOPER in connection
with this Agreement, or by reason of any neglect, delay or denial or any request
therefor.
16.7 Anti-Waiver. No delay, waiver, omission or forbearance on
the part of FRANCHISOR, to exercise any right, option, duty or power arising out
of any breach or default by DEVELOPER or by any other WEST COAST developer, of
any of the terms, provisions or covenants hereof, shall constitute a waiver by
such party to enforce any such right, option or power as against DEVELOPER or as
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<PAGE> 25
to subsequent breach or default by DEVELOPER. Subsequent acceptance by
FRANCHISOR of any payments due to it hereunder shall not be deemed to be a
waiver of any preceding breach by DEVELOPER of any terms, covenants or
conditions of this Agreement.
16.8 Force Majure. Except for the obligations of DEVELOPER to
pay any fees or other payments hereunder, neither party will be liable to the
other party for failure to perform under this Agreement, in whole or in part,
when such failure is due to governmental restrictions, failure of utilities,
strikes, labor troubles, riots, storms, fires, explosions, floods, wars,
embargoes, blockades, legal restrictions, insurrections, acts of God or any
other cause similar thereto which is beyond the reasonable control of the
parties. In the event of such delay, the time for performance will be extended
by a period of time equal to such delay if such extension is reasonably needed.
17. APPLICABLE LAW; JURISDICTION AND VENUE; LIMITATION OF . CLAIMS;
INJUNCTIVE RELIEF; WAIVERS
17.1 Effect. This Agreement takes effect upon acceptance and
signing by FRANCHISOR in Philadelphia, Pennsylvania.
17.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY,
INTERPRETED AND CONSTRUED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
THE PARTIES HERETO AGREE THAT ANY ACTION BROUGHT BY ANY ONE OF THEM, WHETHER
FEDERAL OR STATE, OR ANY ARBITRATION PROCEEDING, SHALL BE BROUGHT WITHIN THE
COMMONWEALTH OF PENNSYLVANIA. DEVELOPER WAIVES ANY OBJECTIONS TO PERSONAL
JURISDICTION, FORUM NON CONVENIENS, AND VENUE WITH RESPECT TO ANY ACTION OR
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
17.3 Limitations of Claims. EXCEPT WITH REGARD TO DEVELOPER'S
OBLIGATIONS TO MAKE PAYMENTS TO FRANCHISOR PURSUANT TO THIS AGREEMENT, ANY AND
ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF
DEVELOPER AND FRANCHISOR IN CONNECTION WITH DEVELOPER'S OPERATION OF ANY OF THE
FRANCHISED STORES SHALL BE BARRED UNLESS AN ACTION OR PROCEEDING IS COMMENCED
WITHIN ONE (1) YEAR FROM THE DATE ON WHICH DEVELOPER OR FRANCHISOR KNEW OR
SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE DILIGENCE, OF THE FACTS GIVING
RISE TO SUCH CLAIMS.
17.4 Waiver of Punitive Damages and Jury Trial. FRANCHISOR AND
DEVELOPER HEREBY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO OR
CLAIM FOR
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<PAGE> 26
ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT IN THE EVENT
OF A DISPUTE BETWEEN THEM, EXCEPT AS OTHERWISE PROVIDED HEREIN, EACH SHALL BE
LIMITED TO THE RECOVERY OF ACTUAL DAMAGES SUSTAINED BY IT. FRANCHISOR AND
DEVELOPER HEREBY IRREVOCABLY WAIVE TRIAL BY JURY ON ANY ACTION, PROCEEDING OR
COUNTERCLAIM, WHETHER AT LAW OR EQUITY, BROUGHT BY EITHER OF THEM.
17.5 Injunctive Relief. Nothing in this Agreement shall bar
FRANCHISOR's right to seek specific performance of the provisions of this
Agreement and injunctive relief against threatened conduct that will cause it
loss or damages under customary equity rules, including applicable rules for
obtaining restraining orders and preliminary injunctions. DEVELOPER agrees that
FRANCHISOR may obtain such injunctive relief in addition to such further or
other relief as may be available at equity or law for (i) any dispute involving
the Proprietary Marks; (ii) termination of this Agreement; (iii) any dispute
involving enforcement of the confidentiality provisions set forth in this
Agreement; and (iv) any dispute involving enforcement of the covenants not to
compete set forth in Section 12 of this Agreement. DEVELOPER agrees that
FRANCHISOR will not be required to post a bond to obtain any injunctive relief
and that DEVELOPER's only remedy if an injunction is entered against DEVELOPER
will be the dissolution of that injunction, if warranted, upon due hearing (all
claims for damages by reason of the wrongful issuance of such injunction being
expressly waived hereby).
18. ACKNOWLEDGEMENTS.
18.1 DEVELOPER ACKNOWLEDGES THAT IT HAS CONDUCTED AN
INDEPENDENT INVESTIGATION OF FRANCHISOR, AND THE STATUS AND REPUTATION OF WEST
COAST VIDEO FRANCHISES, GENERALLY, AND RECOGNIZES THAT THE BUSINESS VENTURE
CONTEMPLATED BY THIS AGREEMENT INVOLVES BUSINESS RISKS AND THAT ITS SUCCESS IS
PRIMARILY DEPENDENT UPON THE ABILITY OF DEVELOPER AS AN INDEPENDENT
BUSINESSPERSON AND NOT UPON FRANCHISOR. FRANCHISOR EXPRESSLY DISCLAIMS THE
MAKING OF, AND DEVELOPER ACKNOWLEDGES THAT IT HAS NOT RECEIVED, ANY WARRANTY OR
GUARANTEE, EXPRESS OR IMPLIED, AS TO THE POTENTIAL VOLUME, PROFITS OR SUCCESS OF
THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT. FURTHER, DEVELOPER
ACKNOWLEDGES, WARRANTS AND REPRESENTS TO FRANCHISOR THAT NO REPRESENTATION HAS
BEEN MADE BY FRANCHISOR, OR ANY EMPLOYEE, AGENT OR SALES PERSON OF FRANCHISOR,
AND RELIED UPON BY DEVELOPER AS TO THE FUTURE OR PAST INCOME, EXPENSES, SALES
VOLUME OR POTENTIAL PROFITABILITY, EARNINGS OR INCOME OF THE FRANCHISED STORES .
18.2 DEVELOPER ACKNOWLEDGES THAT IT RECEIVED A COPY OF THIS
AGREEMENT AND ALL EXHIBITS THERETO AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO THE
DATE ON WHICH THIS AGREEMENT WAS
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EXECUTED, OR AS OTHERWISE PROVIDED BY APPLICABLE STATE LAW. DEVELOPER FURTHER
ACKNOWLEDGES THAT IT HAS RECEIVED THE DISCLOSURE DOCUMENT REQUIRED BY THE TRADE
REGULATION RULE OF THE FEDERAL TRADE COMMISSION ENTITLED "DISCLOSURE
REQUIREMENTS AND PROHIBITIONS CONCERNING FRANCHISING AND BUSINESS OPPORTUNITY
VENTURES," OR AS OTHER APPLICABLE LAW MAY REQUIRE, AT LEAST TEN (10) BUSINESS
DAYS PRIOR TO THE DATE ON WHICH THIS AGREEMENT WAS EXECUTED.
18.3 DEVELOPER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD
THIS AGREEMENT, THE ATTACHMENTS HERETO, IF ANY, AND AGREEMENTS RELATING THERETO,
IF ANY, AND THAT FRANCHISOR HAS ACCORDED DEVELOPER AMPLE TIME AND OPPORTUNITY TO
CONSULT WITH ADVISORS OF ITS OWN CHOOSING ABOUT THE POTENTIAL BENEFITS AND RISKS
OF ENTERING INTO THIS AGREEMENT.
19. MEDIATION. Except as set forth in Section 17.5 of this
Agreement, the parties agree that if any dispute between them, or any claim by
one or more of them, concerning this Agreement, any related agreement, including
the Franchise Agreement and any Addendum thereto, or any of the FRANCHISED
STORES, cannot be settled through negotiation, after diligent effort, they will
first attempt in good faith to settle the dispute or claim by submitting the
matter to private and confidential mediation pursuant to the CPR Procedure for
Resolution of Franchise Disputes, a copy of which is attached hereto as Exhibit
H and incorporated herein by reference.
20. ARBITRATION.
20.1 Except as set forth in Sections 17.5 and 19 of this
Agreement, any controversy, claim, cause of action or dispute arising out of, or
relating to any of the FRANCHISED STORES or this Agreement including, but not
limited to (i) any claim by DEVELOPER, or any person in privity with or claiming
through, on behalf of or in the right of DEVELOPER, concerning the entry into,
performance under, or termination of, this Agreement or any other agreement
entered into by FRANCHISOR, or its subsidiaries or affiliates, and DEVELOPER,
(ii) any claim against a past or present employee, officer, director or agent of
FRANCHISOR, (iii) any claim of breach of this Agreement, and (iv) any claims
arising under state or federal laws, shall be submitted to final and binding
arbitration as the sole and exclusive remedy for any such controversy or
dispute. Unless prohibited by applicable law, any claim shall be made by filing
a written demand for arbitration within one (1) year following the conduct, act
or other event or occurrence first giving rise to the claim; otherwise, the
right to any remedy shall be deemed forever waived and lost. Persons in privity
with or claiming through, on behalf of or in the right of DEVELOPER include, but
are not limited to, spouses and other family members, heirs, executors,
representatives, successors and assigns.
20.2 The right and duty of the parties to this Agreement to
resolve any disputes by arbitration shall be governed exclusively by the Federal
Arbitration Act,
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as amended, and arbitration shall be conducted pursuant to the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association (herein
"AAA"). The arbitration shall be held at the office of the AAA closest to
FRANCHISOR's principal place of business. Any dispute as to the arbitration of
any controversy, claim, cause of action or dispute shall also be determined by
arbitration.
20.3 Three arbitrator(s) shall be selected from a panel of
neutral arbitrators provided by the AAA and shall be chosen by the striking
method. The parties each shall bear all of their own costs (including attorney's
fees) of arbitration; however, the fees of the arbitrators shall be divided
equally between the parties. The arbitrators shall have no authority to amend or
modify the terms of this Agreement.
20.4 Each party further agrees that, unless such a limitation
is prohibited by applicable law, the other party shall not be liable for
punitive or exemplary damages and the arbitrators shall have no authority to
award the same. The award or decision by a majority of the arbitrators shall be
final and binding on the parties without right of appeal and may be enforced by
judgment or order of a court having subject matter jurisdiction in the state
where the arbitration took place. The arbitration panel shall have absolutely no
authority to award punitive or exemplary damages to any party.
20.5 No arbitration under this Agreement shall include, by
consolidation, joinder or in any other manner, any person other than the
DEVELOPER and FRANCHISOR and any person in privity with or claiming through, in
the right of or on behalf of DEVELOPER or FRANCHISOR, unless both parties
consent in writing. To the extent permitted by applicable law, no issue of fact
or law shall be given preclusive or collateral estoppel effect in any
arbitration hereunder, except to the extent such issue may have been determined
in another proceeding between FRANCHISOR and DEVELOPER or any person in privity
with or claiming through, in the right of or on behalf of DEVELOPER or
FRANCHISOR.
20.6 Except as and to the extent expressly provided to the
contrary by law, FRANCHISOR and DEVELOPER shall maintain all aspects of the
arbitration proceeding in confidence, and shall not disclose any information
about the proceeding to any third party other than legal counsel who shall be
required to maintain the confidentiality hereof.
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed
and delivered this Agreement in duplicate on the day and year first above
written.
WEST COAST FRANCHISING COMPANY
By:________________________________
Title:________________________________
HB ASSOCIATES, L.L.C
By:________________________________
Title:_________________________________
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EXHIBIT "A"
TO DEVELOPMENT AGREEMENT
FORM OF FRANCHISE AGREEMENT
Attached hereto is the current form of Franchise Agreement used by
FRANCHISOR in the offer and grant of franchises for the ownership and
operation of WEST COAST VIDEO FRANCHISED STORES. This Franchise Agreement
shall govern all FRANCHISED STORES.
WEST COAST FRANCHISING COMPANY HB ASSOCIATES, L.L.C
By:_______________________________
By:__________________________
Title:____________________________ Title:_______________________
[EXHIBIT C-1 TO OFFERING CIRCULAR]
<PAGE> 31
EXHIBIT "B"
TO DEVELOPMENT AGREEMENT
DEVELOPMENT AREA
That portion of the State of Massachusetts North of Route 128 and East of
Route 3, including Beverly, Massachusetts and the States of New Hampshire and
Maine, excluding Watertown, Massachusetts and excluding all existing units owned
or franchised by Franchisor or its affiliates, including its parent, West Coast
Entertainment Corp. as set forth below:
(1) Videosmith (2) West Coast Video #1057
375 Cabot Street 850 Chelmsford Street
Beverly, MA 01905 Lowell, MA 01851
(3) West Coast Video #1128 (4) West Coast Video #1320
1190 Forest Avenue 1140 Lakeview Avenue
Portland, ME 04103 Dracut, MA 01826
(5) West Coast Video #1636 (6) West Coast Video #1647
10 Elm Street 278 South Broadway
Danvers, MA 01923 Lawrence, MA 01843
(7) Video Headquarters
305 Boston Road
Bilerica, MA 01862
<PAGE> 32
[EXHIBIT C-2 TO OFFERING CIRCULAR]
<PAGE> 33
EXHIBIT "C"
TO DEVELOPMENT AGREEMENT
DEVELOPMENT SCHEDULE
<TABLE>
<CAPTION>
Cumulative Total of
FRANCHISED STORES to
be opened and in
By (Date) DEVELOPER's FRANCHISED STORES Continuous Operation
- --------- ----------------------------- --------------------
<S> <C> <C>
______________, 1997 6 Franchised Stores 6
______________, 1998 6 Additional Franchised Stores 12
______________, 1999 6 Additional Franchised Stores 18
______________, 2000 2 Additional Franchised Stores 20
</TABLE>
[EXHIBIT C-3 TO OFFERING CIRCULAR]
<PAGE> 34
EXHIBIT "D"
TO DEVELOPMENT AGREEMENT
PRINCIPAL OWNERS AND OTHER OWNERS
L. PRINCIPAL OWNERS: Listed below are the full name and mailing address of
each person or entity who is a Principal Owner of DEVELOPER, and a description
of the nature of such Principal Owner's direct or indirect equity or voting
interest in DEVELOPER:
Name: Michael Hubbard Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: _____________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name: Daniel Hubbard Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name: Robert Hubbard Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name:_________________________ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
[EXHIBIT C-4 TO OFFERING CIRCULAR]
<PAGE> 35
2. OTHER OWNERS: Listed below are the full name and mailing address of
each person or entity, other than the Principal Owners, who directly or
indirectly owns an equity or voting interest in DEVELOPER and a description of
the nature of the interest (attach additional sheet if required):
Name:_________________________ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name:_________________________ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
HB ASSOCIATES, L.L.C
By: ____________________________
Title: _________________________
<PAGE> 36
EXHIBIT "E"
TO DEVELOPMENT AGREEMENT
GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS
THIS GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS is given this
____________________________, 1996, by the undersigned.
DEVELOPER: HB ASSOCIATES, L.L.C
DATE OF DEVELOPMENT AGREEMENT: __________________________, 1996
In consideration of, and as an inducement to, the execution of the
above-mentioned West Coast Development Agreement (the "Agreement") by West Coast
Franchising Company ("FRANCHISOR"), each of the undersigned and any other
parties who sign counterparts of this guaranty (referred to herein individually
as a "Guarantor" and collectively as "Guarantors") hereby personally and
unconditionally: (a) guarantees to FRANCHISOR, and its successors and assigns,
for the term of the Agreement and thereafter as provided in the Agreement, that
DEVELOPER shall punctually pay and perform each and every undertaking, agreement
and covenant set forth in the Agreement; and (b) agrees to be personally bound
by, and personally liable for the breach of, each and every provision in the
Agreement, both monetary obligations and other obligations, including without
limitation, the obligation to pay costs and legal fees as provided in the
Agreement and the obligation to take or refrain from taking specific actions or
to engage or refrain from engaging in specific activities, including without
limitation the provisions of the Agreement relating to competitive activities.
Each Guarantor waives:
1. acceptance and notice of acceptance by FRANCHISOR of the
foregoing undertakings; and
2. notice of demand for payment of any indebtedness or
nonperformance of any obligations hereby guaranteed; and
3. protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
[EXHIBIT C-5 TO OFFERING CIRCULAR]
<PAGE> 37
4. any right he may have to require that an action be brought
against DEVELOPER or any other person as a condition of liability; and
5. until such time as FRANCHISOR is paid in full, all rights to
payments and claims for reimbursement or subrogation which he may have against
DEVELOPER arising as a result of his execution of and performance under this
guaranty by the undersigned (including by way of counterparts); and
Each Guarantor consents and agrees that:
(A) his direct and immediate liability under this guaranty shall be
joint and several not only with DEVELOPER, but also among the Guarantors; and
(B) he shall render any payment or performance required under the
Agreement upon demand if DEVELOPER fails or refuses punctually to do so; and
(C) such liability shall not be contingent or conditioned upon
pursuit by FRANCHISOR of any remedies against DEVELOPER or any other person; and
(D) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Agreement or by any
extension of time, credit or other indulgence which FRANCHISOR may from time to
time grant to DEVELOPER or to any other person, including, without limitation,
the acceptance of any partial payment or performance, or the compromise or
release of any claims, none of which shall in any way modify or amend this
guaranty, which shall be continuing and irrevocable throughout the term of the
Agreement and for so long thereafter as there are any monies or obligations
owing by DEVELOPER to FRANCHISOR under the Agreement; and
(E) the written acknowledgment of DEVELOPER, accepted in writing by
FRANCHISOR, or the judgment of any court or arbitration panel of competent
jurisdiction establishing the amount due from DEVELOPER shall be conclusive and
binding on the undersigned as guarantors.
If FRANCHISOR is required to enforce this guaranty in a judicial or
arbitration proceeding, and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', attorneys' assistants', arbitrators' and
expert witness fees, costs of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for or in contemplation of the filing of any such proceeding.
<PAGE> 38
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature on
the same day and year as the Agreement was executed.
GUARANTOR(S)
- ------------------------------
Michael Hubbard
- ------------------------------
Daniel Hubbard
- ------------------------------
Robert Hubbard
- ------------------------------
- ------------------------------
- ------------------------------
<PAGE> 39
EXHIBIT "F"
TO DEVELOPMENT AGREEMENT
ADDENDUM TO FRANCHISE AGREEMENT
This Addendum Agreement is made and entered into this __________ day of
________________ 19___, by and between WEST COAST FRANCHISING COMPANY, a
Delaware corporation ("FRANCHISOR") and HB ASSOCIATES, L.L.C. (DEVELOPER").
BACKGROUND OF AGREEMENT
FRANCHISOR and DEVELOPER are parties to a Development Agreement dated
_____________________, 19_____ (the "Development Agreement") in which DEVELOPER
was granted the right to establish and operate "FRANCHISED STORES" in the
"DEVELOPMENT AREA" (as such quoted terms are defined in the Development
Agreement). Each of the FRANCHISED STORES must be established and operated
pursuant to the Franchise Agreement attached as Exhibit A to the Development
Agreement. DEVELOPER has requested and FRANCHISOR has approved a site for a
FRANCHISED STORE to be established and operated by DEVELOPER at
__________________________ ___________________________ (the
"_____________________ FRANCHISED STORE"). FRANCHISOR and DEVELOPER intend to
set forth herein their agreement with respect to the establishment and operation
of the ______________________ FRANCHISED STORE.
NOW THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises herein contained, and for other good and valuable
consideration, acknowledged by each of them to be satisfactory and adequate, and
each of said parties intending to be legally bound hereby, agree as follows:
1. FRANCHISOR hereby approves the establishment and operation of the
_____________ FRANCHISED STORE pursuant to the terms and conditions of the
Franchise Agreement. DEVELOPER hereby accepts and acknowledges that the
________________ FRANCHISED STORE shall be established and operated pursuant to
the terms and conditions of the Franchise Agreement.
2. The Designated Territory of the __________________ FRANCHISED
STORE, as provided for in Section 1.3 of the Franchise Agreement, shall be:
________________________________________________________________________________
_____________.
[EXHIBIT C-6 TO OFFERING CIRCULAR]
<PAGE> 40
3. All terms and conditions of the Franchise Agreement are
incorporated herein by reference as if fully set forth. The relationship of
FRANCHISOR and DEVELOPER with respect to the _____________________ FRANCHISED
STORE shall be governed by the Franchise Agreement.
IN WITNESS WHEREOF, the duly authorized representatives of the
parties hereto have executed this Addendum to Franchise Agreement on the day and
year first mentioned above.
WEST COAST FRANCHISING COMPANY
By: __________________________
Title: _______________________
HB ASSOCIATES, L.L.C
By: __________________________
Title: _______________________
<PAGE> 41
EXHIBIT "G"
TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AND RESTRICTIVE
COVENANT AGREEMENT
NAME: MICHAEL HUBBARD
HOME ADDRESS: ___________________________________________
___________________________________________
HOME TELEPHONE: ____________________________________________
CLASSIFICATION: Principal
(PRINCIPAL, OWNER, SHAREHOLDER, PARTNER,
OFFICER, DIRECTOR, MANAGER, EMPLOYEE
OF DEVELOPER)
* * * *
THIS AGREEMENT is made this _____ day of ______________, 19___, by
and between HB Associates, L.L.C. (the "DEVELOPER") and Michael Hubbard, the
person whose name, address, telephone number and affiliation with the DEVELOPER
are set forth above.
BACKGROUND
DEVELOPER has been granted certain development rights from WEST
COAST FRANCHISING COMPANY ("FRANCHISOR"). DEVELOPER's development rights are
within the following area: that portion of the State of Massachusetts North of
Route 128 and East of Route 3, including Beverly and the States of New Hampshire
and Maine (the "Development Area"). As a result of DEVELOPER'S agreement with
FRANCHISOR, DEVELOPER is in possession of certain proprietary information,
knowledge and know-how about FRANCHISOR's unique and proprietary plan, design,
method and system (the "WEST COAST SYSTEM") for offering to the public the
rental and sale of a wide range of video products and related accessories and
supplies.
DEVELOPER, for itself and all of its agents and employees, is
required by FRANCHISOR to keep confidential and not communicate, divulge or use
for the benefit of any other person or entity, any of the confidential
information concerning the WEST COAST SYSTEM. To evidence its compliance with
its obligations to FRANCHISOR to keep such proprietary information confidential
and not to allow for unauthorized use of such information, DEVELOPER is required
to execute and to have certain others execute this Agreement.
[EXHIBIT C-7 TO OFFERING CIRCULAR]
<PAGE> 42
NOW, THEREFORE, in consideration of the grant of development rights
by FRANCHISOR to DEVELOPER and/or my employment or continued employment by
DEVELOPER, and for other good and valuable consideration, receipt of which is
acknowledged, and intending to be legally bound, DEVELOPER and I make the
following agreement:
I do hereby agree that during the term of my ownership in,
employment by, association with or service to DEVELOPER, or at any time
thereafter, I shall not communicate, divulge or use for the benefit of any other
person, persons, partnership, association, corporation or entity any
confidential information, knowledge or know-how concerning the WEST COAST
SYSTEM, including but not limited to, systems or methods of operations, pricing,
suppliers, promotions and marketing, purchasing, or methods which may be
communicated to me, nor shall I divert any business to competitors of DEVELOPER
and/or FRANCHISOR.
Any and all information, knowledge, know-how, techniques and
customer information which DEVELOPER or FRANCHISOR or their officers designate
as confidential shall be deemed confidential for the purposes of this Agreement
except information which I can demonstrate came to my attention prior to
disclosure thereof or which had become or becomes a part of the public domain
through publication or communication by others.
I specifically understand that the following has been deemed to
constitute confidential information: the proprietary information with respect to
systems or methods of operation, pricing, suppliers, promotions and marketing;
purchasing; any and all written materials containing such proprietary
information; training materials; promotional brochures; business forms; general
operations materials; personnel materials; revenue reports; customer lists;
payroll procedures; training and accounting materials; advertising formats;
additions to, deletions from, and modifications and variations of the components
constituting the systems and methods of operations which are, or may in the
future be employed by DEVELOPER or FRANCHISOR. This listing of confidential
information is illustrative only, and does not include all matters considered
confidential by FRANCHISOR.
I shall not at any time copy, duplicate, record or otherwise
reproduce any of the foregoing materials, in whole or in part, nor otherwise
make the same available to any unauthorized person. Upon the expiration or other
termination for any reason of my employment, association, or service, I shall
return all materials, books, brochures, forms, reports, records, customer and/or
supplier lists and manuals in my possession.
I agree that during the term of my ownership in, employment by,
service to, or affiliation with, DEVELOPER and for a period of two (2) years
thereafter, I will not, either directly or indirectly (including through an
immediate family member), own, maintain, engage in, or have any interest in,
either as a proprietor, partner, investor, lender, guarantor, shareholder,
director, officer, employee, principal, agent, advisor, independent contractor
or consultant, in any business which specializes, in whole or in part, in the
sale or rental of video movies and related products, and such business is
located within:
(a) the "Development Area"; or
(b) five (5) miles of any retail video store operating under
the WEST COAST SYSTEM (whether Company-owned, franchised or otherwise
established) either now
<PAGE> 43
or hereafter operated.
It is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as consultation for
any competitive businesses, service as an independent contractor for such
competitive business, or any assistance or transmission of information of any
kind or nature whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent me from owning for investment purposes
up to an aggregate of five (5%) percent of the capital stock of any publicly
held corporation.
If all or any portion of this covenant not to compete is held
unreasonable, void, vague or illegal by any court or agency having valid
jurisdiction in an unappealed final decision to which DEVELOPER is a party, the
court or agency shall be empowered to revise and/or construe said covenant so as
to fall within permissible legal limits and shall not by necessity invalidate
the entire covenant. I expressly agree to be bound by any lesser covenant
subsumed within the terms of this Agreement as if the resulting covenant were
separately stated in and made a part hereof.
I understand that FRANCHISOR is also relying on this Agreement and
acknowledge that FRANCHISOR is intended to be a third party beneficiary of this
Agreement and shall have the right to enforce this Agreement against me as if it
were a party to the same. This Agreement shall be enforced and construed under
the laws of the State in which DEVELOPER's principal place of business is
located.
I ACKNOWLEDGE THAT I HAVE THOROUGHLY READ AND UNDERSTAND THIS
AGREEMENT AND THAT I HAVE RECEIVED A COPY OF SAME. I FURTHER ACKNOWLEDGE AND
UNDERSTAND THAT BREACH OF THIS AGREEMENT BY ME SHALL ENTITLE DEVELOPER AND/OR
FRANCHISOR TO SEEK A COURT INJUNCTION PROHIBITING ANY SUCH VIOLATIONS AS WELL AS
ANY FUTURE VIOLATIONS AND TO RECOVER ATTORNEYS FEES AND COSTS.
Witnessed by:
_________________________________ By:______________________________________
MICHAEL HUBBARD
Accepted by:
HB ASSOCIATES, L.L.C.
_________________________________
Name
_________________________________
Title
<PAGE> 44
EXHIBIT "G"
TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AND RESTRICTIVE
COVENANT AGREEMENT
NAME: DANIEL HUBBARD
HOME ADDRESS: ___________________________________________
___________________________________________
HOME TELEPHONE: ___________________________________________
CLASSIFICATION: Principal
(PRINCIPAL, OWNER, SHAREHOLDER, PARTNER,
OFFICER, DIRECTOR, MANAGER, EMPLOYEE
OF DEVELOPER)
* * * *
THIS AGREEMENT is made this _____ day of ______________, 19___, by
and between HB Associates, L.L.C. (the "DEVELOPER") and Daniel Hubbard, the
person whose name, address, telephone number and affiliation with the DEVELOPER
are set forth above.
BACKGROUND
DEVELOPER has been granted certain development rights from WEST
COAST FRANCHISING COMPANY ("FRANCHISOR"). DEVELOPER's development rights are
within the following area: that portion of the State of Massachusetts North of
Route 128 and East of Route 3, including Beverly and the States of New Hampshire
and Maine (the "Development Area"). As a result of DEVELOPER'S agreement with
FRANCHISOR, DEVELOPER is in possession of certain proprietary information,
knowledge and know-how about FRANCHISOR's unique and proprietary plan, design,
method and system (the "WEST COAST SYSTEM") for offering to the public the
rental and sale of a wide range of video products and related accessories and
supplies.
DEVELOPER, for itself and all of its agents and employees, is
required by FRANCHISOR to keep confidential and not communicate, divulge or use
for the benefit of any other person or entity, any of the confidential
information concerning the WEST COAST SYSTEM. To evidence its compliance with
its obligations to FRANCHISOR to keep such proprietary information confidential
and not to allow for unauthorized use of such information, DEVELOPER is required
to execute and to have certain others execute this Agreement.
[EXHIBIT C-7 TO OFFERING CIRCULAR]
<PAGE> 45
NOW, THEREFORE, in consideration of the grant of development rights
by FRANCHISOR to DEVELOPER and/or my employment or continued employment by
DEVELOPER, and for other good and valuable consideration, receipt of which is
acknowledged, and intending to be legally bound, DEVELOPER and I make the
following agreement:
I do hereby agree that during the term of my ownership in,
employment by, association with or service to DEVELOPER, or at any time
thereafter, I shall not communicate, divulge or use for the benefit of any other
person, persons, partnership, association, corporation or entity any
confidential information, knowledge or know-how concerning the WEST COAST
SYSTEM, including but not limited to, systems or methods of operations, pricing,
suppliers, promotions and marketing, purchasing, or methods which may be
communicated to me, nor shall I divert any business to competitors of DEVELOPER
and/or FRANCHISOR.
Any and all information, knowledge, know-how, techniques and
customer information which DEVELOPER or FRANCHISOR or their officers designate
as confidential shall be deemed confidential for the purposes of this Agreement
except information which I can demonstrate came to my attention prior to
disclosure thereof or which had become or becomes a part of the public domain
through publication or communication by others.
I specifically understand that the following has been deemed to
constitute confidential information: the proprietary information with respect to
systems or methods of operation, pricing, suppliers, promotions and marketing;
purchasing; any and all written materials containing such proprietary
information; training materials; promotional brochures; business forms; general
operations materials; personnel materials; revenue reports; customer lists;
payroll procedures; training and accounting materials; advertising formats;
additions to, deletions from, and modifications and variations of the components
constituting the systems and methods of operations which are, or may in the
future be employed by DEVELOPER or FRANCHISOR. This listing of confidential
information is illustrative only, and does not include all matters considered
confidential by FRANCHISOR.
I shall not at any time copy, duplicate, record or otherwise
reproduce any of the foregoing materials, in whole or in part, nor otherwise
make the same available to any unauthorized person. Upon the expiration or other
termination for any reason of my employment, association, or service, I shall
return all materials, books, brochures, forms, reports, records, customer and/or
supplier lists and manuals in my possession.
I agree that during the term of my ownership in, employment by,
service to, or affiliation with, DEVELOPER and for a period of two (2) years
thereafter, I will not, either directly or indirectly (including through an
immediate family member), own, maintain, engage in, or have any interest in,
either as a proprietor, partner, investor, lender, guarantor, shareholder,
director, officer, employee, principal, agent, advisor, independent contractor
or consultant, in any business which specializes, in whole or in part, in the
sale or rental of video movies and related products, and such business is
located within:
(a) the "Development Area"; or
(b) five (5) miles of any retail video store operating under
the WEST COAST SYSTEM (whether Company-owned, franchised or otherwise
established) either now or hereafter operated.
<PAGE> 46
It is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as consultation for
any competitive businesses, service as an independent contractor for such
competitive business, or any assistance or transmission of information of any
kind or nature whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent me from owning for investment purposes
up to an aggregate of five (5%) percent of the capital stock of any publicly
held corporation.
If all or any portion of this covenant not to compete is held
unreasonable, void, vague or illegal by any court or agency having valid
jurisdiction in an unappealed final decision to which DEVELOPER is a party, the
court or agency shall be empowered to revise and/or construe said covenant so as
to fall within permissible legal limits and shall not by necessity invalidate
the entire covenant. I expressly agree to be bound by any lesser covenant
subsumed within the terms of this Agreement as if the resulting covenant were
separately stated in and made a part hereof.
I understand that FRANCHISOR is also relying on this Agreement and
acknowledge that FRANCHISOR is intended to be a third party beneficiary of this
Agreement and shall have the right to enforce this Agreement against me as if it
were a party to the same. This Agreement shall be enforced and construed under
the laws of the State in which DEVELOPER's principal place of business is
located.
I ACKNOWLEDGE THAT I HAVE THOROUGHLY READ AND UNDERSTAND THIS
AGREEMENT AND THAT I HAVE RECEIVED A COPY OF SAME. I FURTHER ACKNOWLEDGE AND
UNDERSTAND THAT BREACH OF THIS AGREEMENT BY ME SHALL ENTITLE DEVELOPER AND/OR
FRANCHISOR TO SEEK A COURT INJUNCTION PROHIBITING ANY SUCH VIOLATIONS AS WELL AS
ANY FUTURE VIOLATIONS AND TO RECOVER ATTORNEYS FEES AND COSTS.
Witnessed by:
_________________________________ By:______________________________________
DANIEL HUBBARD
Accepted by:
HB ASSOCIATES, L.L.C.
_________________________________
Name
_________________________________
Title
<PAGE> 47
EXHIBIT "G"
TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AND RESTRICTIVE
COVENANT AGREEMENT
NAME: ROBERT HUBBARD
HOME ADDRESS: ___________________________________________
___________________________________________
HOME TELEPHONE: _________________________________________
CLASSIFICATION: Principal
(PRINCIPAL, OWNER, SHAREHOLDER, PARTNER,
OFFICER, DIRECTOR, MANAGER, EMPLOYEE
OF DEVELOPER)
* * * *
THIS AGREEMENT is made this _____ day of ______________, 19___, by
and between HB Associates, L.L.C. (the "DEVELOPER") and Robert Hubbard, the
person whose name, address, telephone number and affiliation with the DEVELOPER
are set forth above.
BACKGROUND
DEVELOPER has been granted certain development rights from WEST
COAST FRANCHISING COMPANY ("FRANCHISOR"). DEVELOPER's development rights are
within the following area: that portion of the State of Massachusetts North of
Route 128 and East of Route 3, including Beverly and the States of New Hampshire
and Maine (the "Development Area"). As a result of DEVELOPER'S agreement with
FRANCHISOR, DEVELOPER is in possession of certain proprietary information,
knowledge and know-how about FRANCHISOR's unique and proprietary plan, design,
method and system (the "WEST COAST SYSTEM") for offering to the public the
rental and sale of a wide range of video products and related accessories and
supplies.
DEVELOPER, for itself and all of its agents and employees, is
required by FRANCHISOR to keep confidential and not communicate, divulge or use
for the benefit of any other person or entity, any of the confidential
information concerning the WEST COAST SYSTEM. To evidence its compliance with
its obligations to FRANCHISOR to keep such proprietary information confidential
and not to allow for unauthorized use of such information, DEVELOPER is required
to execute and to have certain others execute this Agreement.
[EXHIBIT C-7 TO OFFERING CIRCULAR]
<PAGE> 48
NOW, THEREFORE, in consideration of the grant of development rights
by FRANCHISOR to DEVELOPER and/or my employment or continued employment by
DEVELOPER, and for other good and valuable consideration, receipt of which is
acknowledged, and intending to be legally bound, DEVELOPER and I make the
following agreement:
I do hereby agree that during the term of my ownership in,
employment by, association with or service to DEVELOPER, or at any time
thereafter, I shall not communicate, divulge or use for the benefit of any other
person, persons, partnership, association, corporation or entity any
confidential information, knowledge or know-how concerning the WEST COAST
SYSTEM, including but not limited to, systems or methods of operations, pricing,
suppliers, promotions and marketing, purchasing, or methods which may be
communicated to me, nor shall I divert any business to competitors of DEVELOPER
and/or FRANCHISOR.
Any and all information, knowledge, know-how, techniques and
customer information which DEVELOPER or FRANCHISOR or their officers designate
as confidential shall be deemed confidential for the purposes of this Agreement
except information which I can demonstrate came to my attention prior to
disclosure thereof or which had become or becomes a part of the public domain
through publication or communication by others.
I specifically understand that the following has been deemed to
constitute confidential information: the proprietary information with respect to
systems or methods of operation, pricing, suppliers, promotions and marketing;
purchasing; any and all written materials containing such proprietary
information; training materials; promotional brochures; business forms; general
operations materials; personnel materials; revenue reports; customer lists;
payroll procedures; training and accounting materials; advertising formats;
additions to, deletions from, and modifications and variations of the components
constituting the systems and methods of operations which are, or may in the
future be employed by DEVELOPER or FRANCHISOR. This listing of confidential
information is illustrative only, and does not include all matters considered
confidential by FRANCHISOR.
I shall not at any time copy, duplicate, record or otherwise
reproduce any of the foregoing materials, in whole or in part, nor otherwise
make the same available to any unauthorized person. Upon the expiration or other
termination for any reason of my employment, association, or service, I shall
return all materials, books, brochures, forms, reports, records, customer and/or
supplier lists and manuals in my possession.
I agree that during the term of my ownership in, employment by,
service to, or affiliation with, DEVELOPER and for a period of two (2) years
thereafter, I will not, either directly or indirectly (including through an
immediate family member), own, maintain, engage in, or have any interest in,
either as a proprietor, partner, investor, lender, guarantor, shareholder,
director, officer, employee, principal, agent, advisor, independent contractor
or consultant, in any business which specializes, in whole or in part, in the
sale or rental of video movies and related products, and such business is
located within:
(a) the "Development Area"; or
(b) five (5) miles of any retail video store operating under
the WEST COAST SYSTEM (whether Company-owned, franchised or otherwise
established) either now or hereafter operated.
<PAGE> 49
It is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as consultation for
any competitive businesses, service as an independent contractor for such
competitive business, or any assistance or transmission of information of any
kind or nature whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent me from owning for investment purposes
up to an aggregate of five (5%) percent of the capital stock of any publicly
held corporation.
If all or any portion of this covenant not to compete is held
unreasonable, void, vague or illegal by any court or agency having valid
jurisdiction in an unappealed final decision to which DEVELOPER is a party, the
court or agency shall be empowered to revise and/or construe said covenant so as
to fall within permissible legal limits and shall not by necessity invalidate
the entire covenant. I expressly agree to be bound by any lesser covenant
subsumed within the terms of this Agreement as if the resulting covenant were
separately stated in and made a part hereof.
I understand that FRANCHISOR is also relying on this Agreement and
acknowledge that FRANCHISOR is intended to be a third party beneficiary of this
Agreement and shall have the right to enforce this Agreement against me as if it
were a party to the same. This Agreement shall be enforced and construed under
the laws of the State in which DEVELOPER's principal place of business is
located.
I ACKNOWLEDGE THAT I HAVE THOROUGHLY READ AND UNDERSTAND THIS
AGREEMENT AND THAT I HAVE RECEIVED A COPY OF SAME. I FURTHER ACKNOWLEDGE AND
UNDERSTAND THAT BREACH OF THIS AGREEMENT BY ME SHALL ENTITLE DEVELOPER AND/OR
FRANCHISOR TO SEEK A COURT INJUNCTION PROHIBITING ANY SUCH VIOLATIONS AS WELL AS
ANY FUTURE VIOLATIONS AND TO RECOVER ATTORNEYS FEES AND COSTS.
Witnessed by:
_________________________________ By:______________________________________
ROBERT HUBBARD
Accepted by:
HB ASSOCIATES, L.L.C.
_________________________________
Name
_________________________________
Title
<PAGE> 50
AMENDMENT TO DEVELOPMENT AGREEMENT
1. Section 5.2 is hereby amended to provide that Developer shall not
be required to make monthly royalty payments and monthly national marketing fund
payments for the period covering the first four (4) months of operation of each
of the FRANCHISED STORES.
WEST COAST FRANCHISING COMPANY
By:________________________________
Title:________________________________
HB ASSOCIATES, L.L.C
By:________________________________
Title:_________________________________
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
1. DEVELOPMENT RIGHTS......................................................... 2
1.1 Grant of Development Rights........................................... 2
1.2 Development Area...................................................... 2
1.3 Development Schedule.................................................. 2
1.4 Territorial Rights.................................................... 2
1.5 Best Efforts.......................................................... 3
1.6 Retail Sale and Rental Restrictions................................... 3
1.7 Rights Reserved by FRANCHISOR......................................... 3
1.8 Acquired Video Stores................................................. 3
1.9 Principal Owners Guaranty............................................. 4
2. TERM....................................................................... 4
3. DEVELOPMENT FEE............................................................ 5
4. DUTIES OF DEVELOPER........................................................ 5
4.1 Site Selection and Leases............................................. 5
4.1.1 Site Selection................................................ 5
4.1.2 Leases........................................................ 5
4.2 Execution of Addendum to Franchise Agreement.......................... 6
4.3 Store Design Specifications........................................... 7
4.4 Opening Inventory..................................................... 7
4.5 Training.............................................................. 7
4.6 Operations Manual..................................................... 8
4.7 Operations of the FRANCHISED STORES................................... 8
4.7.1 Compliance with Applicable Laws............................... 8
4.7.2 Video Products, Accessories and Proprietary Supplies.......... 9
4.8 Approved Suppliers.................................................... 9
4.9 Insurance............................................................. 9
5. FEES....................................................................... 10
5.1 Initial Franchise Fees................................................ 10
5.2 Continuing Royalty Fees............................................... 10
6. PROPRIETARY MARKS.......................................................... 10
7. CONFIDENTIAL OPERATIONS MANUAL, CONFIDENTIAL INFORMATION AND
NON-DISCLOSURE............................................................. 11
7.1 Confidential Manuals.................................................. 11
7.2 Confidential Information.............................................. 12
7.3 Nondisclosure......................................................... 12
7.4 Confidentiality Agreements............................................ 13
</TABLE>
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
8. RECORD KEEPING, MODEM REPORTING AND REPORTING.............................. 13
8.1 Record Keeping........................................................ 13
8.2 FRANCHISOR Access by Modem............................................ 13
8.3 Annual Reports........................................................ 13
8.4 Inspection of Records................................................. 13
9. CONDITIONS OF TRANSFER OF INTEREST......................................... 14
9.1 Transfer by DEVELOPER................................................. 14
9.2 Requirements of Transfer.............................................. 14
9.3 Securities Offerings.................................................. 15
9.4 Right of First Refusal................................................ 16
9.5 Death, Disability or Incompetency..................................... 17
9.6 Written Consent of FRANCHISOR......................................... 17
9.7 Non-Waiver by FRANCHISOR.............................................. 17
9.8 Intra-Corporate Non-Controlling Transfer.............................. 17
9.9 Transfer by FRANCHISOR................................................ 17
10. DEFAULT AND TERMINATION.................................................... 18
10.1 No Cure Period....................................................... 18
10.2 Optional Cure Period................................................. 18
10.3 Cure Period and Termination.......................................... 19
10.4 Cross-Default........................................................ 19
11. OBLIGATIONS UPON TERMINATION............................................... 19
12. NON-COMPETITION............................................................ 20
12.1 Covenants Not to Compete............................................. 20
12.2 Effect of Unenforceability of Covenants.............................. 21
12.3 Injunctive Relief.................................................... 21
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION................................. 21
13.1 Independent Contractor............................................... 21
13.2 DEVELOPER Indemnification............................................ 21
14. NOTICES.................................................................... 22
15. ENTIRE AGREEMENT........................................................... 23
16. SEVERABILITY AND CONSTRUCTION; WAIVER; MISCELLANEOUS.............. 23
16.1 Severability......................................................... 23
16.2 No Third Party Benefits.............................................. 23
16.3 Captions............................................................. 23
16.4 Gender References.................................................... 23
16.5 Execution of Agreement............................................... 23
</TABLE>
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
16.6 Absence of Warranties................................................ 23
16.7 Anti-Waiver.......................................................... 24
16.8 Force Majure......................................................... 24
17. APPLICABLE LAW; JURISDICTION AND VENUE; LIMITATION OF CLAIMS;
INJUNCTIVE RELIEF; WAIVERS................................................. 24
17.1 Effect............................................................... 24
17.2 Governing Law........................................................ 24
17.3 Limitations of Claims................................................ 24
17.4 Waiver of Punitive Damages and Jury Trial............................ 25
17.5 Injunctive Relief.................................................... 25
18. ACKNOWLEDGEMENTS........................................................... 25
19. MEDIATION.................................................................. 26
20. ARBITRATION................................................................ 26
</TABLE>
EXHIBITS
A - FRANCHISE AGREEMENT WITH ATTACHMENTS
B - DEVELOPMENT AREA
C - DEVELOPMENT SCHEDULE
D - PRINCIPAL OWNERS AND OTHER OWNERS
E - GUARANTY AND ASSUMPTION AGREEMENT
F - ADDENDUM TO FRANCHISE AGREEMENT
G - CONFIDENTIALITY AND RESTRICTIVE COVENANT AGREEMENT
H - CPR PROCEDURE FOR RESOLUTION OF FRANCHISE DISPUTE
<PAGE> 54
AMENDMENT TO DEVELOPMENT AGREEMENT
Franchisor has delivered to Developer its Uniform Franchise Offering
Circular, dated August 15, 1996 (the "UFOC") containing Franchisor's standard
form franchise documents, including, without limitation, the Franchise Agreement
and the Development Agreement (collectively, the "Franchise Documents").
Franchisor and Developer, in consideration of the promises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, do hereby agree to modify the
Franchise Documents as provided herein. The Franchised Documents for each
FRANCHISED STORE developed or operated by Developer shall be operated pursuant
to the Franchise Documents, modified as provided by this Amendment. In the event
of any conflict, inconsistency or issue of interpretation between any of the
terms and conditions of this Amendment and any of the terms and conditions of
the Franchise Documents, the terms and conditions of this Amendment shall
govern. Without limiting the foregoing, it is agreed that any action or omission
by DEVELOPER which constitutes compliance with, or a permissible action or
omission by DEVELOPER under either the Franchise Agreement or the Development
Agreement, shall be deemed permissible under, or in compliance with, the other.
The modifications to the Franchise Documents are as follows:
1. Section 1.4 of the Development Agreement is revised to add the
words "in all material respects" in the second line prior to the words "full
compliance". In addition, following the word "FRANCHISOR" in the third line, the
words "and affiliates" shall be inserted.
2. Section 1.5 of the Development Agreement is revised to add the
following words to the end of the sentence "as provided in Exhibit C attached
hereto". In addition, Sections 1.3 and 1.5 of the Development Agreement are
revised to provide that (a) DEVELOPER's obligations are excused in the event
FRANCHISOR is declared or adjudicated bankrupt, (b) in the event of a
combination by merger or otherwise of Movie Gallery, Inc. (or its successor)
with FRANCHISOR's parent, West Coast Entertainment Corporation ("WCEC")(or its
successor), DEVELOPER shall have the option for a period of one hundred twenty
(120) days from the date of closing of such transaction to exercise the right to
be excused from further development obligations of FRANCHISED STORES under the
Development Agreement and, (c) in the event of a commencement of a bankruptcy
proceeding by or against FRANCHISOR (or its successor), which is not discharged
or otherwise resolved within six (6) months, DEVELOPER's further development
obligations under Sections 1.3 and 1.5 are delayed until such time as either a
plan of reorganization is approved or as otherwise directed by the bankruptcy
court.
3. The following additional language shall be added at the end of
Section 1.6: "Notwithstanding the foregoing, Section 1.6 of the Development
Agreement and Section 1.4 of the Franchise Agreement are revised to permit
DEVELOPER to wholesale at the FRANCHISED STORES Video Products for purposes of
removing used Video Products (such as those Video Products purchased in bulk by
acquisition of inventory) in the ordinary course of its business. Such sales
would be subject to the Continuing Royalty Fees and National Marketing Fund
payments as set forth in the Development Agreement and the
<PAGE> 55
Franchise Agreement. In addition, promotional activities, including group or
cooperative advertising may be broadcast outside the Development Area with the
prior consent of FRANCHISOR, which consent shall not unreasonably withheld.
4. Section 1.8 of the Development Agreement is revised to include
proposed purchases of Acquired Video Stores by FRANCHISOR or its affiliates,
including, WCEC. In addition, Section 1.8 shall provide that in the event the
DEVELOPER exercises its right to purchase the Acquired Video Store, then such
FRANCHISED STORE shall be governed by the Franchise Agreement attached as an
exhibit to the Development Agreement as modified by the Amendment, as opposed to
the then-current Franchise Agreement. Further, Section 1.8 is revised to provide
that in the event FRANCHISOR or its affiliates proposes to purchase an Acquired
Video Store for the stock of WCEC, in whole or in part, such stock shall be
valued for purposes of Section 1.8 as of the closing date of the acquisition of
the Acquired Video Store.
5. Section 1.9.2 of the Development Agreement and Section 1.7 of the
Franchise Agreement are revised to delete "five percent (5%)" and insert therein
"twenty percent (20%)". In addition, the following sentence shall be added at
the end of Section 1.9: "Notwithstanding the foregoing, passive institutional
investors shall be excluded from the requirements of this Section 1.9."
Additionally, Section 1.9 of the Development Agreement and Section 1.7 of the
Franchise Agreement are revised to delete to any reference to spouses, as well
as applicable Exhibits.
6. Section 2 of the Development Agreement is revised to provide the
following: Three months prior to the expiration of the Term, as provided herein,
FRANCHISOR and DEVELOPER shall negotiate in good faith with respect to any
additional Development Agreement. In the event that no subsequent Development
Agreement is entered into during this period, then DEVELOPER shall have right of
first refusal through May 31, 2000 with respect to any Development deals (that
is, multi-unit FRANCHISED STORES agreements) proposed to be entered into by
FRANCHISOR and a third party within the Development Area.
7. Section 3.1.1 of the Franchise Agreement is deleted.
8. Section 4.1 of the Development Agreement and Section 3.1 of the
Franchise Agreement are revised to provide as follows:
(a) FRANCHISOR'S approval process with respect to site
selection shall be conducted in a reasonable manner;
(b) With respect to Leases of FRANCHISED STORES, DEVELOPER
shall be required only to use its best efforts to obtain the required lease
provisions set forth in Section 4.1.2 of the Development Agreement and Section
3.1.2 of the Franchise Agreement, such provisions being subject to the lessor's
reasonable approval.
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<PAGE> 56
(c) Section 4.1.2.5 shall be revised to provide that
FRANCHISOR shall not unreasonably reject any modifications or amendments to the
lease, which do not materially affect FRANCHISOR'S rights. FRANCHISOR shall also
respond to any request for consents to modifications or amendments within thirty
(30) days of the receipt of such request.
9. Section 4.8 of the Development Agreement and Section 3.10 of the
Franchise Agreement with respect to Approved Suppliers (and Section 3.8 of the
Franchise Agreement with respect to Grand Opening) are revised to provide as
follows: "Approved Suppliers, as set forth in these referenced sections shall be
applicable to Proprietary Supplies, and equipment, fixtures, furnishings and
signs with respect to buildouts of FRANCHISED STORES that conform with
FRANCHISOR'S then-current buildout package. With respect to Video Products and
Accessories, DEVELOPER does not need to seek prior approval from FRANCHISOR with
respect to its suppliers, but FRANCHISOR expressly reserves the right to inquire
as to all of DEVELOPER's suppliers and to reasonably object to any of
DEVELOPER's suppliers, if such suppliers fail to meet FRANCHISOR'S reasonable
specifications.
10. Section 4.5 of the Development Agreement and Section 3.4 of the
Franchise Agreement are revised to provide that DEVELOPER's existing FRANCHISED
STORES managers need not attend the FRANCHISOR'S Initial Training Program. All
new managers, however, shall be required to attend such Program as provided in
these referenced sections. In addition, in the event that there are material
system changes with respect to FRANCHISOR'S System, then DEVELOPER and each of
its key managers shall attend and complete to FRANCHISOR'S satisfaction a
training program with respect to such System changes. With respect to training,
the maximum that shall be charged by FRANCHISOR as a training fee to DEVELOPER
shall be $200.00 per day, with a five (5) day maximum at $1,000.00 per person.
11. Section 4.6 of the Development Agreement and Section 3.5 of the
Franchise Agreement shall be revised to insert the word "material" before the
word "conformity".
12. Section 3.6.2 of the Franchise Agreement is revised to provide
that any upgrading requirement shall not occur more than once every three years.
13. Section 3.6.3 of the Franchise Agreement is revised to state as
follows: "Notwithstanding the foregoing, FRANCHISEE may use UBS Software with
respect to operation of the FRANCHISED STORE. It is understood and agreed by and
between FRANCHISOR and DEVELOPER that this revision to the Franchise Agreement
shall apply to all FRANCHISED STORES. Moreover, in the event that DEVELOPER
wishes to utilize any other software, other than UBS, such software must be
approved by FRANCHISOR prior to use in any of the FRANCHISED STORES.
14. Section 3.6.4 of the Franchise Agreement is revised to add the
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<PAGE> 57
following sentence after the first full sentence: "The requirement with respect
to implementation of the system shall be imposed reasonably by FRANCHISOR, both
with respect to expense and with respect to the frequency of the request."
15. Section 3.9.1 of the Franchise Agreement is revised to add the
word "material" before the word "compliance" in the fifth line of this section.
16. Section 3.9.2 of the Franchise Agreement is revised to add the
word "reasonably" before the word "prescribe".
17. Section 3.9.3 of the Franchise Agreement is revised to add the
following: "Provided that FRANCHISED STORE has been reasonably maintained as
provided herein, such changes as requested by FRANCHISOR, as provided in this
Section 3.9.3 shall not be over and above $10,000.00 per FRANCHISED STORE in any
year during the Term of the Franchise Agreement.
18. Section 3.9.4.3 of the Franchise Agreement is revised to add the
following language at the end of such section: "(other than a reasonable time to
liquidate such items);".
19. Section 3.9.4.6 of the Franchise Agreement is revised to add the
following language at the end of the section: "(other than a reasonable time to
liquidate such items);".
20. Section 3.9.4.7 of the Franchise Agreement is revised to add the
following language at the beginning of the section: "Offer for sale or".
21. Section 4.9 of the Development Agreement and Section 3.13 of the
Franchise Agreement are revised to delete the following: "and their respective
officers, directors, shareholders and employees" and to add "as an additional
insured FRANCHISOR'S parent, West Coast Entertainment Corporation". In addition,
such sections shall be revised to add the following: "Notwithstanding the
foregoing, such insurance policies shall be those that are reasonably
commercially available to DEVELOPER with respect to the FRANCHISED STORES, as
required under the Franchise Agreement.
22. Section 5.1 of the Franchise Agreement is revised to provide
that the Initial Franchise Fee shall be $1,000.00.
23. Section 5.2 of the Development Agreement and Sections 5.3 and
7.3 of the Franchise Agreement are revised to provide the DEVELOPER's continuing
monthly National Marketing Fund payments with respect to each of the FRANCHISED
STORES shall be one (1%) percent of "Gross Revenues" with respect to each of the
FRANCHISED STORES, not two (2%) percent.
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24. Section 5.4 of the Franchise Agreement is revised to add the
following provision: Accrued late fees for tape rentals shall not be considered
sales on credit, but rather "Gross Revenue" upon receipt by FRANCHISEE.
25. Section 5.5 of the Franchise Agreement is revised to provide
that the interest on overdue amounts shall be "the lesser of either the rate of
twelve (12%) percent per annum or the maximum rate permitted by law".
26. Section 6.4 of the Development Agreement and Section 6.4 of the
Franchise Agreement are revised to provide that FRANCHISEE may, however, utilize
the Proprietary Mark, West Coast Video(R) for purposes of a d/b/a, pursuant to
local law.
27. Section 6.5 of the Development Agreement is revised to provide
that FRANCHISOR'S obligation to defend will be so long as DEVELOPER is in
compliance with the Franchise Agreement and Addenda thereto. Assuming such
compliance, FRANCHISEE'S cooperation with respect to the litigation will be at
FRANCHISOR'S expense.
28. The following language shall be added to the beginning of
Section 6.7.4 of the Franchise Agreement: "Except as may be otherwise agreed
between FRANCHISOR and FRANCHISEE with respect to the sale of the FRANCHISED
STORE,".
29. Section 7.1 of the Franchise Agreement, in the second line,
shall be revised to delete the reference to "forty-five (45) days" and to insert
therein "twenty (20) days". In addition, FRANCHISOR'S restrictions of use of the
Proprietary Marks in any advertising medium shall be conducted in a reasonable
manner.
30. Section 7.2 of the Franchise Agreement with respect to
FRANCHISEE'S cooperation in securing photographs shall be "at FRANCHISOR'S
expense" and FRANCHISEE'S efforts to obtain consent shall be "best efforts".
31. Section 7.4 of the Franchise Agreement is revised to add the
following: "FRANCHISOR and DEVELOPER agree that DEVELOPER's FRANCHISED STORES in
New Hampshire and Maine shall not be required to join a Cooperative in
Massachusetts or outside of the Development Area and that DEVELOPER's stores in
Massachusetts shall be included in any Cooperative reasonably requested by
FRANCHISOR."
32. Section 8.1.3 of the Franchise Agreement shall be revised to add
the words "which are sent to FRANCHISEE" following the word "notices".
33. Section 8.1.6 of the Franchise Agreement, at page 24, on the
third line, shall be revised to add the word "material" prior to the word
"accordance".
34. Section 8.2 of the Franchise Agreement is revised to insert the
word "confidential" prior to the word "knowledge" and the words "know how".
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<PAGE> 59
35. Section 8.3 of the Franchise Agreement is revised at the end of
the first sentence to add the following: "(which is not publicly known or
available)". In addition, in the second sentence of Section 8.3, the word
"confidential" shall be inserted prior to the word "information".
36. Section 8.4 of the Franchise Agreement is revised to provide
that passive institutional investors need not sign Confidentiality Agreements.
37. Section 8.4 of the Development Agreement is revised to provide
that DEVELOPER is not required to pay FRANCHISOR'S inspection or audit expenses,
if DEVELOPER's violation of the Franchise Agreement is unrelated to DEVELOPER's
payment obligations and such violation is not willful and material. In addition,
DEVELOPER's reimbursement obligations in Section 8.4 are limited to FRANCHISOR's
reasonable costs and expenses.
38. Section 9.1 of the Franchise Agreement is revised to add the
following words at the end of such section: "in accordance with this Agreement".
39. Section 10.2.7 of the Franchise Agreement is deleted.
40. Section 9 of the Development Agreement and, to the extent if
applicable, Section 10 of the Franchise Agreement are revised as follows:
(a) Section 9.1.2 of the Development Agreement is revised to
insert the word "substantial" prior to the word "portion";
(b) Section 9.2.3 of the Development Agreement is revised to
add the word "then" prior to the word "owed";
(c) Section 9.2.4 of the Development Agreement is revised to
add the words "upon reasonable terms" following the word "release";
(d) Section 9.3 of the Development Agreement is revised to
provide that FRANCHISOR'S review, approval and consent of any offering by
DEVELOPER shall be limited solely to the subject of the relationship between
DEVELOPER and FRANCHISOR. Moreover, the indemnification requirement set forth in
Section 9.3 shall be limited to DEVELOPER. In addition, Section 9.3 is revised
to provide that DEVELOPER shall pay to FRANCHISOR its reasonable cost and
expenses associated with reviewing the proposed offering, including, without
limitation, legal and accounting fees. Finally, Section 9.3 is revised to
provide that DEVELOPER shall give FRANCHISOR written notice of at least "thirty
(30)" and not "ninety (90)" days written notice with respect to the proposed
commencement of any offering.
(e) Section 9.5 of the Development Agreement is revised to
delete
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<PAGE> 60
the words "not to exceed nine (9) months".
(f) Section 9.6 of the Development Agreement is revised to add
the words "to the extent required hereunder" after the word "FRANCHISOR".
(g) Section 9.8 of the Development Agreement is revised to
provide that permitted intra-corporate transfers of will not be limited to
inter-vivos transfers, but will also include any transfers among the Principal
Owners of DEVELOPER which occur by reason of the death or disability of one of
the Principal Owners and transfers upon the death of a Principal Owner to his
estate or a trust for the benefit of his immediate family provided that the
interests, when transferred, are without voting rights except as required by
applicable law, or pursuant to any buy/sell agreements between the Principal
Owners of DEVELOPER, or as otherwise agreed between them. Section 9.8 shall
supercede the provisions of Section 9.5, in the event of any inconsistencies
between such sections.
(h) There shall be a new Section 9.10 of the Development
Agreement which shall state as follows:
"Notwithstanding anything herein to the contrary in
Section 9, DEVELOPER may transfer, up to thirty (30%) percent of the Ownership
Interests in DEVELOPER (as such term is defined in Section 1.9 of the
Development Agreement) to outside investors or other entities (such as passive
institutional investors) and pledge, collateralize, mortgage or otherwise
encumber the assets of DEVELOPER in the ordinary course of obtaining financing
from banks or other institutional lenders, without triggering the terms and
conditions applicable to transfers set forth in Section 9 of the Development
Agreement; provided that such transfers will not be made to either competitors
of FRANCHISOR or any of its affiliates or to unacceptable parties, who for
business reasons, as reasonably determined by the Board of Directors of
FRANCHISOR, are not acceptable to FRANCHISOR as transferees. In addition, any
such transfer shall not operate to transfer a controlling interest in DEVELOPER
to any person who is currently not a member of DEVELOPER with respect to
DEVELOPER. "Controlling Interest" is defined as such percentage of the
membership interests of DEVELOPER as shall permit determination of the outcome
on any issue or shall grant any person, group, combination or entity (that is,
other than a member of DEVELOPER as of the date hereof) from blocking voting
control on any issue or exercising any veto power.
41. Section 11 of the Franchise Agreement with respect to rights of
first refusal is superseded by the Option Agreement to be executed between
DEVELOPER and FRANCHISOR'S parent, West Coast Entertainment Corporation.
42. Section 10.2.5 of the Development Agreement is revised to insert
the word "material" before the word "judgement".
43. Section 10.2.6 of the Development Agreement is revised to insert
the word "material" before the word "suit", the first time such word appears.
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44. Section 10.2.7 of the Development Agreement is revised by adding
the following words as the beginning of such section: "Except as provided in
Section 16.8,".
45. Section 12.2.12 of the Franchise Agreement is revised to delete
the words: "or to submit required reports on the specified due dates", to add
the words "within ten (10) days of the due date" following the words "timely
payments" and to add the word "intentionally" after the word "underreports".
46. Section 12.2.6 of the Franchise Agreement is revised to add the
word "material" before the word "mortgage".
47. Section 12.2.13 of the Franchise Agreement is revised to add the
words "without fault or delay on the part of FRANCHISOR" following the word
"fails".
48. Section 10.4 of the Development Agreement is revised to provide
that a failure to comply with Exhibit C of the Development Agreement will not
trigger FRANCHISOR'S right to terminate the Franchise Agreement and any Addenda
thereto with respect to each of the FRANCHISED STORES.
49. Section 11.2 of the Development Agreement is revised to delete
the payment of FRANCHISOR'S attorneys' fees.
50. Section 13.1.6 of the Franchise Agreement is revised to add the
following words at the end of the Section: "and FRANCHISOR should assume all
prospective obligations to the telephone company when such number is
transferred".
51. Section 13.2 of the Franchise Agreement is deleted.
52. Section 12 of the Development Agreement and Section 14 of the
Franchise Agreement are revised to delete any references to DEVELOPER or
FRANCHISEE having no prior experience in the retail video industry. In addition,
passive institutional investors need not sign the non-competition provisions in
either the Development Agreement or Franchise Agreement. It is understood and
agreed between DEVELOPER and FRANCHISOR, however, that Daniel, Robert and
Michael Hubbard will execute the Confidentiality and Restrictive Covenant
Agreement set forth as Exhibit G to the Development Agreement.
53. Section 14.1.2.3 of the Franchise Agreement is revised to add
the word "knowingly" at the start of such Section.
54. There shall be added a new Section 12.4 of the Development
Agreement and Section 14.4 of the Franchise Agreement which shall state as
follows:
"Notwithstanding anything herein to the contrary, the
non-competition
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<PAGE> 62
provisions set forth in this Agreement shall not be applicable in the event that
FRANCHISOR has been adjudged by a court having competent jurisdiction over the
matter, after all periods of appeal have expired, to have unlawfully terminated
the Development Agreement.
55. The following sentence should be added to Section 13.2 of the
Development Agreement: "FRANCHISOR'S losses as referred to in here are those
which derive from DEVELOPER's indemnification obligations hereunder.
56. Section 17.5 of the Development Agreement is revised to delete
subsection "(ii)" and to delete all words following "injunctive relief" in the
last sentence of Section 17.5.
57. Section 15.2 of the Franchise Agreement is revised to provide
that indemnification shall not include any "lost profits" of the FRANCHISOR in
the absence of negligence or gross or willful misconduct on the part of the
DEVELOPER. In addition, any settlement to be entered into by FRANCHISOR shall be
with FRANCHISEE'S consent, which shall not be unreasonably withheld.
HB ASSOCIATES, L.L.C
By: __________________________
Name: _________________________
Title: ________________________
WEST COAST FRANCHISING COMPANY
By: __________________________
Name: _________________________
Title: ________________________
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<PAGE> 1
EXHIBIT 10.15
RETAIL STORE OPTION AGREEMENT
AGREEMENT made as of November 15, 1996, by and among HB Associates
L.L.C., a Massachusetts limited liability company, ("Developer") and West Coast
Entertainment Corporation, a Delaware corporation with its principal office at
9990 Global Road, Philadelphia, Pennsylvania 19115 ("Buyer").
WHEREAS, the Developer is party to a Development Agreement (the
"Development Agreement") of even date herewith with West Coast Franchising
Company, a Delaware corporation and wholly-owned subsidiary of the Buyer
("WCFC"), pursuant to which the Developer has certain rights to establish and
operate West Coast Video Franchise Stores (each, a "Retail Store" and
collectively, "Retail Stores") pursuant to the terms of a Franchise Agreement
between the Developer and WCFC; and
WHEREAS, the execution and delivery of this Agreement is a condition to
the execution of the Development Agreement by the parties thereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Developer and the Buyer hereby
agree as follows:
1. Definitions. As used herein, each of the following terms shall have
the respective meaning set forth below:
(a) "Asset Purchase Agreement" shall mean the form of asset
purchase agreement attached hereto as Exhibit A and executed by the Buyer and
Developer after the exercise of a Buy Option or Sell Option.
(b) "Buy Option" shall mean the right of the Buyer, exercised
by written notice to the Developer, to cause the Developer to transfer and sell
to the Buyer, and the Buyer to purchase from the Developer, pursuant to the
Asset Purchase Agreement substantially all of the assets of the Developer.
Unless the Buyer elects in its own discretion to pay the Purchase Price, as
adjusted, in cash, the Buyer may not exercise a Buy Option in the event at the
time of exercise there shall be pending against the Buyer any proceeding under
the United States Bankruptcy Code or any other federal or state bankruptcy,
reorganization, receivership, insolvency or other similar law.
(c) "Net Operating Cash Flow" shall mean with respect to a
Retail Store an amount equal to the pre-tax income from the Retail Store during
the 12-month period (or, if the Retail Store has been open for less than 12
months, then for the period since such store has been open) ending on the last
day of the calendar
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month preceding the delivery of the Buy Option or Sell Option, as applicable,
plus all non-store operating administrative costs applicable to the Retail
Store, to the extent previously expensed, plus all debt-related interest expense
and depreciation and amortization expenses attributable to the Retail Store for
such 12-month period, less all rental product purchases reasonably attributable
to the Retail Store during such 12-month period (including revenue sharing
expenses if not previously expensed), less all earned income interest reasonably
attributable to the Retail Store for such 12-month period, less all royalty
expenses attributable to the Retail Store during such 12-month period (if not
already expensed). The Net Operating Cash Flow shall be determined in accordance
with generally accepted accounting principles applied consistently with the
Developer's past practice.
(d) "Prospectus" shall mean the prospectus included in an
effective Registration Statement filed by the Buyer with the Securities and
Exchange Commission relating to the registration of WCEC Shares under the
Securities Act of 1933, as amended.
(e) "Purchase Price" shall mean with respect to the assets of
the Developer to be purchased an amount equal to the product of (x) 4.0
multiplied by (y) the aggregate amount of the Net Operating Cash Flow for each
Retail Store.
(f) "Sell Option" shall mean the right of the Developer,
exercised by written notice to the Buyer, to cause the Buyer to purchase from
the Developer, and the Developer to transfer and sell to the Buyer, pursuant to
the Asset Purchase Agreement substantially all of the assets of the Developer.
(g) "Financial Statements" shall mean (i) the balance sheet as
of the three most recent calendar year ends and the related statements of
income, retained earnings and changes in financial condition for each of the two
most recent years then ended for the Developer on a combined basis
(collectively, the "Annual Financials") and (ii) the balance sheet as of the
most recent month end and the related statements of income, retained earnings
and changes in financial condition for the period beginning on the previous
January 1 and ended on such most recent month end (collectively, the "Stub
Financials"). The Annual Financials shall be prepared in accordance with
generally accepted accounting principles applied consistently with past practice
and certified without qualification by the Developer's independent public
accountants (which shall be licensed to practice before the Securities and
Exchange Commission), and the Stub Financials shall be reviewed by such
accountants and certified by the Developer's chief financial officer; provided,
however, that, at the election of the Developer, the Annual Financials delivered
to Buyer in connection with the exercise of a Buy Option may be reviewed by such
accountants and certified by the Developer's chief financial officer.
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(h) "WCEC Shares" shall mean shares of Common Stock, $.01 per
value per share, of Buyer.
2. Option to Sell. The Buyer hereby grants the Developer the right to
exercise a Sell Option during the period beginning September 1, 2001 (the "Sell
Option Commencement Date") and ending one year thereafter. Notwithstanding the
above, prior to exercising a Sell Option, the Developer shall provide to the
Buyer (no earlier than 75 days prior to the Sell Option Commencement Date) prior
notice of Developer's preliminary (and non-binding) intention to do so. Promptly
after receipt of such notice (but not later than 90 days thereafter), the Buyer
shall deliver to the Developer a then-current Prospectus (or such other
information as Buyer reasonably determines is required in order to comply with
applicable state and federal securities laws). No later than five (5) days
(which five-day period shall automatically extend up to 15 days provided the
Prospectus (or such other information) remains current) after receipt of such
Prospectus, the Developer may then exercise the Sell Option; provided, however,
that the Developer shall have no obligation to exercise a Sell Option (and its
failure to do so shall not preclude the Developer from providing any further
notice of its preliminary intention to exercise a Sell Option).
3. Option to Buy. The Developer hereby grants the Buyer the right to
exercise a Buy Option during the period beginning on March 1, 2002 and ending
one year thereafter.
4. Financial Statements. The Developer shall provide Financial
Statements within 30 days of the exercise of a Sell Option or a Buy Option.
5. Asset Purchase Agreement. Upon exercise of a Buy Option or Sell
Option, both Buyer and Developer shall diligently complete and execute and
deliver the form of asset purchase agreement attached hereto as Exhibit A. The
assets to be acquired by the Buyer upon the exercise of a Buy Option or Sell
Option shall include all assets (other than Excluded Assets (as defined in the
Asset Purchase Agreement) used in the operation of the business conducted by the
Retail Stores.
6. Determination of Purchase Price. Promptly following the delivery of
the Buy Option or Sell Option, as applicable, the Buyer shall cause independent
certified public accountants for the Buyer (the "Accountants"), to review the
books and records of the Developer. Not later than 20 days after the delivery of
the Financial Statements, the Buyer shall cause the Accountants to deliver a
statement to the Buyer and the Developer setting forth the Purchase Price (the
"Accountants' Report"). The Purchase Price shall be included in the Asset
Purchase Agreement.
In the event that the Buyer or the Developer dispute the calculation of
the Purchase Price, the disputing party shall
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notify the other party hereto in writing (the "Dispute Notice") of the amount,
nature and basis of such dispute, within 5 business days after delivery of the
Accountants' Report. In the event of such a dispute, the parties hereto shall
first use their best efforts to resolve such dispute among themselves. If the
parties are unable to resolve the dispute within 10 business days after delivery
of the Accountants' Report, the dispute shall be submitted to the Accountants
and, independent accountants for the Developer ("Developer's Accountants"), for
resolution. The Accountants and Developer's Accountants shall use their best
efforts to resolve the dispute within 5 business days after submission. If they
are unable to agree upon a resolution of the dispute within such 5-business day
period, the dispute shall be submitted to arbitration in accordance with Section
23.
The fees and expenses of the Accountants in connection with the
preparation of the Accountants' Report and the resolution of disputes pursuant
to the preceding paragraph shall be borne by the Buyer and the fees and expenses
of Developer's Accountants in connection with the resolution of disputes
pursuant to the preceding paragraph shall be borne by the Developer.
Promptly upon the expiration of the 5-business day period for giving
the Dispute Notice, if no Dispute Notice is given, or promptly upon the
resolution of disputes, if any, as provided above, the Closing shall occur.
7. The Closing. Following the exercise of a Buy Option or Sell Option,
the closing of the acquisition by the Buyer of the assets of the Developer (the
"Closing") shall take place within 60 days following the date of delivery of the
Financial Statements (or if later within 5 business days after resolution of any
dispute in accordance with Section 6 above) at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts, at such time or date as may be selected by
Buyer, on not less than five days prior notice to Developer (which notice may be
given orally), or at such other time and date as may be mutually agreed upon in
writing by the parties hereto.
8. Payment of Purchase Price. At each Closing, the Purchase Price shall
be paid in accordance with the Asset Purchase Agreement. The value of each WCEC
Share delivered to Developer as part of the payment of the Purchase Price shall
be equal to the average of the closing price per share of common stock of WCEC
as reported on the Nasdaq Stock Exchange (or if such shares are not then traded
on the Nasdaq Stock Exchange, such other exchange or service, if applicable) for
each of the fifteen trading days ending on the third business day immediately
preceding the Closing.
9. Assumption of Liabilities. The Buyer shall assume no liabilities of
the Developer other than (a) accounts payable that have been outstanding for 60
days or less at the Closing and that
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have been incurred in the ordinary course of business and/or (b) other
indebtedness. Such aggregate amount of payables and other indebtedness shall not
be greater than the amount of the Net Operating Cash Flow and shall reduce the
Purchase Price on a dollar-for-dollar basis. The assumption of liabilities, and
the amount thereof to be assumed, subject to the foregoing limitation on such
amount, shall be at the option of the Developer. All other liabilities of the
Developer shall be paid in full by Developer at or prior to the Closing (other
than liabilities which are disputed in good faith and for which funds have been
set aside for payment thereof, provided the same are not material in amount).
10. Restrictions on Transfer of Retail Stores. Developer hereby agrees
that, except as otherwise provided herein or the Development Agreement
(notwithstanding the expiration of the term thereof), it shall not, without
Buyer's prior written consent (which may be granted or denied in Buyer's sole
and absolute discretion), sell, transfer or dispose of, directly or indirectly,
by sale of stock, assets, merger, consolidation or otherwise, all or any portion
of, or any interest in, any Retail Store until such time as the Buy Options have
expired unexercised.
11. Representation of the Developer. The Developer hereby represents
and warrants to the Buyer that the execution and delivery of this Agreement by
the Developer, and the agreements provided for herein, and the consummation by
the Developer of all transactions contemplated hereby, have been duly authorized
by all requisite corporate (or other) and shareholder or member action; that
this Agreement and all such other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which the
Developer is a party constitute the valid and legally binding obligations of the
Developer, enforceable against the Developer in accordance with their respective
terms.
12. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or sent by telex,
federal express, registered or certified mail, postage prepaid, addressed as
follows or to such other address of which the parties may have given notice:
To the Developer: HB Associates, L.L.C.
460 Boston Street
Suite 1A-1, Box #9
Topsfield, MA 01983
With a copy to: Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attn: Gregory L. White, Esq.
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To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, Pennsylvania 19115
Attn: President
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally; (b) one
business day after delivery to an overnight courier, if sent by overnight
courier; or (c) three business days after being sent, if sent by registered or
certified mail.
13. Option to Liquidate. Notwithstanding any provision to the contrary
herein, if, upon the exercise of a Sell Option or Buy Option, the Purchase Price
is determined to be less than $1,500,000, the Developer, at its option, may
elect by written notice to Buyer within 30 days of such determination to
terminate the operation of all of the Retail Stores and liquidate the assets
thereof by selling or otherwise transferring such assets to an unaffiliated
third party no later than 120 days after such election. Such termination of
operation shall occur no later than 30 days after the date of such notice.
14. Termination of Development Agreement. In the event the Development
Agreement is terminated by the Buyer due to a material default thereof by the
Developer, then the period during which the Buyer may exercise the Buy Option
shall commence on the earlier of (a) 12 months after such termination (except
that the Buyer may exercise the Buy Option prior thereto with respect to all
Retail Stores that have been in operation for at least 12 months at the time of
exercise) or (b) the commencement date set forth in Section 3 above. In the
event of a combination by merger, sale of assets or otherwise of Movie Gallery,
Inc. (or its successor) and the Buyer (or its successor), then the period during
which the Developer may exercise the Sell Option shall commence on the earlier
of (x) 12 months after such combination or (y) the Sell Option Commencement
Date.
15. Arbitration.
(a) Any dispute, controversy or claim between the parties
arising out of or relating to this Agreement, a breach hereof or the
transactions contemplated hereby, shall be settled by arbitration in accordance
with the provisions of this Section. Any arbitration pursuant to this Section
shall be conducted by a single arbitrator appointed by the Boston, Massachusetts
office of the American Arbitration Association upon the request of either party.
The arbitrator shall have a minimum of five years
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of experience in the area of business relevant to the particular dispute. Each
party shall be permitted to submit only one proposal to the arbitrator, and the
arbitrator shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a resolution
notwithstanding the failure of a party to participate in the proceedings. Each
of the parties shall pay its own costs and expenses in connection with any such
arbitration, and the parties shall share equally in the fees and expenses of the
arbitrator.
(b) The parties agree that any such arbitration will occur in
Boston, Massachusetts, any such arbitration award shall be final and binding
upon the parties, may be entered in any court having jurisdiction and shall not
be appealable by either party in any court.
16. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Buyer and the Developer may not assign their respective
obligations hereunder without the prior written consent of the other party;
provided, however, that the Buyer may assign this Agreement, and its rights and
obligations hereunder (other than with respect to delivery of stock and
registration obligations related thereto), to a subsidiary or affiliate. Any
assignment in contravention of this provision shall be void.
17. Entire Agreement; Amendments; Attachments.
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties. The Buyer and the Developer may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Developer.
(b) If the provisions of any Schedule or Exhibit to this
Agreement are inconsistent with the provisions of this Agreement, the provision
of the Agreement shall prevail. The Exhibits and Schedules attached hereto or to
be attached hereafter are hereby incorporated as integral parts of this
Agreement.
18. Expenses. Except as otherwise expressly provided herein, the Buyer
and the Developer shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby.
19. Legal Fees. In the event that legal or arbitration proceedings are
commenced by the Buyer against the Developer, or
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by the Developer against the Buyer, in connection with this Agreement or the
transactions contemplated hereby, the party or parties which do not prevail in
such proceedings shall pay the reasonable attorneys' fees and other costs and
expenses, including investigation costs, incurred by the prevailing party in
such proceedings.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
21. Section Headings. The section headings are for the convenience of
the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
22. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of and on the date first above written.
DEVELOPER:
HB ASSOCIATES, L.L.C.
By: /s/ Michael Hubbard
-------------------------------------
Title:Manager
----------------------------------
BUYER:
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ T. Kyle Standley
-------------------------------------
Title:President and CEO
----------------------------------
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Exhibit 10.22
OFFICE LEASE
THIS LEASE, referred to as the "Lease" is made and entered into this 6th
day of November, 1996 between SUMMIT SQUARE INVESTORS, L.P., a Pennsylvania
limited partnership referred to as the "Landlord" and WEST COAST ENTERTAINMENT
CORPORATION, a Delaware corporation, referred to in this Lease as "Tenant". In
consideration of the mutual covenants and agreements set forth in this Lease,
and other good and valuable consideration, Landlord leases to Tenant, and
Tenant leases from Landlord, Suite 200, comprising 17,056 square feet of space,
located on the second floor of the One Summit Square Building, Route 413 and
Double Woods Roads, Langhorne, Middletown Township, Bucks County, Pennsylvania,
and more particularly described in Exhibit A attached to this Lease. These
premises are referred to in this Lease as the "Premises". The One Summit Square
Building is referred to in this Lease as the "Building", and the area on which
the Building is constructed, together with surrounding areas such as the
parking lot and so forth, are referred to as the "Land".
ARTICLE 1. TERM
SECTION 1.1 LEASE TERM
The term of this Lease, referred to as the "Term", shall commence on the
date Tenant occupies the Premises referred to as the "Commencement Date" and end
on the date which is 62 months following the later of (a) February 1, 1997 or
(b) the date that is 45 days after the date on which Landlord delivers the
Premises to Tenant in accordance with this Section 1.1, referred to as the
"Expiration Date", unless sooner terminated or extended as provided in this
Lease. Tenant's obligation to pay Minimum Rent shall commence on the later of
(a) February 1, 1997 or (b) on the date which is 45 days after the day on which
Landlord's Work is completed and Tenant's occupancy commences.
Landlord shall improve the Premises for Tenant's occupancy in accordance
with the plans described in Schedule 1.1 (the "Plans"). Landlord and Tenant
agree that the Plans have been reviewed and accepted by Landlord and Tenant.
Promptly following execution of this Lease by Landlord and Tenant Landlord,
through contractors employed by Landlord for such purpose, shall commence the
improvements in accordance with the Plans (such work, "Landlord's Work") and
shall proceed diligently so as to complete Landlord's Work such that the
Premises may be occupied by Tenant for the conduct of business on or before
December 20, 1996, subject to completion of "punchlist items". All work
performed by Landlord shall be performed in a good and workmanlike manner and
in accordance with all building, safety and other governmental and
quasi-governmental laws, codes, ordinances and regulations applicable thereto.
If said improvements and changes as agreed between Landlord and Tenant are not
completed by March 1, 1997, this Lease may be terminated at the sole discretion
of the Tenant by written notice to Landlord at any time after March 1, 1997
while such failure persists.
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If Landlord fails to deliver possession of the Premises either (a) because
a certificate of occupancy has not been procured, (b) due to delays caused by
Tenant or (c) because a previous occupant is holding over, or (c) because of any
other cause or reason beyond the reasonable control of Landlord, then the
following provisions shall apply (provided the Lease shall not have been
terminated by Tenant): (i) the Term shall not commence on the date set forth
above but shall, instead, commence on a date fixed by Landlord in a notice to
Tenant, which notice shall state that the Premises is, or prior to the
commencement date fixed in such notice will be, completed and ready for
occupancy by Tenant; (ii) the Term shall end on a date (the ''Expiration Date'')
which shall be the last day of the sixty second (62nd) month after the Term
shall have commenced, unless sooner terminated as hereinafter provided; (iii)
neither the validity of this Lease nor the obligations of Tenant under this
Lease shall be affected by such failure to deliver possession, except that the
Term shall begin and end as provided in clauses (i) and (ii) aforesaid; and (iv)
Tenant shall have no claim against Landlord because of Landlord's failure to
deliver possession of the Premises on the date originally fixed therefor. None
of the foregoing shall be construed so as to limit Tenant's right to terminate
this Lease in the event Landlord's Work is not completed and the Premises
delivered on or before March 1, 1997.
Tenant shall have, as appurtenant to the Premises, the right to use, in
common with others entitled thereto, elevators, driveways, walkways, parking
areas, loading docks and other common areas and common facilities serving the
Premises and/or the Building or Land.
SECTION 1.2 OPTION TO EXTEND TERM
Tenant has the right to extend this Lease for one term of five (5) years
beyond the Expiration Date, on the following terms and conditions:
(a) Tenant shall not at the time of exercise be in default after expiration
of all applicable grace or cure periods. All the terms, covenants, and
provisions of the original Lease term shall apply to all extended lease terms.
(b) Tenant may exercise its option to extend this Lease by giving Landlord
notice of its intention to do so not later than nine (9) months prior to the
expiration of the Lease term. To constitute effective notice of an intention to
exercise an option under this Lease, the notice must be sent by certified or
registered mail to Landlord at the address provided in Section 11.1 of this
Lease and must be postmarked no later than the latest date provided in this
Section for Tenant's exercise of the option.
(c) Any option to renew shall be at the rate of ninety-five percent (95%)
of the fair market value of similar office space taking into account the
condition of the improvements in the Premises, such fair market value to be
determined in accordance with Schedule 1.2 attached hereto.
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SECTION 1.3 HOLDOVER
If Tenant holds over and continues in possession of the leased Premises
after the Expiration Date, other than as provided in Section 1.2, Tenant will be
deemed to be occupying the Premises on the basis of a month-to-month tenancy,
subject to all of the terms and conditions of this Lease. Minimum Rent shall
accrue at the rate of 150% of Minimum Rent otherwise payable hereunder.
Acceptance of any such payment by Landlord shall not constitute an acceptance by
Landlord of such holdover tenancy or result in a renewal.
SECTION 1.4 RIGHT OF TERMINATION
Provided Tenant shall not be in default, nor shall there exist any event
which with the passage of time or the giving of notice or both would constitute
an event of default hereunder. Tenant shall have the right to terminate this
Lease effective on each of the second, third and fourth anniversaries of the
date hereof provided Tenant shall have complied with the following terms and
conditions:
(a) Tenant shall have delivered written notice to Landlord of its
intention to exercise its right under this Section 1.4 (a "Termination
Notice") on the day which is two hundred seventy (270) days prior to the
second, third or fourth anniversary of the Commencement Date, as the case may
be. A Termination Notice shall be ineffective unless it is accompanied by a
certified check or wire transfer of funds in an amount equal to the sum of (i)
the unamortized portion of the total cost of completing Landlord's Work and
leasing commissions paid in connection herewith (as if amortized over a 5 year
term at 8% per annum interest rate) which total cost will be certified by
Landlord to Tenant within 90 days following the Commencement Date plus, if
Tenant exercises its termination right as to the second anniversary of the
Commencement Date; (ii) $170,560.02 plus (iii) if Tenant has exercised its
option under Section 1.5 the amount equal to six months Minimum Rent of any
Expansion Space (as defined in Section 1.5).
(b) Upon the giving of a Termination Notice, Landlord shall be
entitled to show the Premises to prospective tenants, notwithstanding the
provisions of Section 6.1.
(c) Upon the valid exercise of Tenant's termination right, the second,
third or fourth anniversary of the Commencement Date, as applicable, shall
become the Expiration Date hereof, and all terms and conditions of this Lease
relating to the termination or expiration of the Term hereof shall apply to such
date.
SECTION 1.5 OPTION FOR PNC MORTGAGE SPACE
Tenant shall have the option during the first year to lease space on the
first floor (the "Expansion Space") (currently occupied by or pursuant to a
lease with PNC Mortgage Corporation) on the following terms and conditions:
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(a) Tenant shall notify Landlord in writing of its intention to exercise
its option not later than the day which is 30 days following Landlord's written
notice to Tenant that the Expansion Space will be available for Tenant's
occupancy on a date to be specified in such notice.
(b) If Tenant elects to lease the Expansion Space, then Landlord and Tenant
will enter into an amendment to this Lease adding the Expansion Space to the
Premises under this Lease, and providing for the appropriate increase to
Tenant's Pro Rata Share. The Amendment will also provide that the annual Minimum
Rent for the Expansion Space will be $20.00 per square foot of such space, and
that the Landlord shall improve the Expansion Space at its sole cost and expense
for normal office use with leasehold improvements similar to improvements to the
Premises. The effectiveness of this Lease as to the Expansion Space shall
commence upon substantial completion of the tenant improvements therein.
SECTION 1.6 RIGHT OF FIRST OFFER
Tenant shall have a right of first offer with respect to all space in the
building which becomes vacant during the initial term of this Lease, on the
following terms and conditions:
(a) Landlord shall notify Tenant of the availability of any such space, as
well as the terms and conditions under which Landlord intends to offer such
space for lease.
(b) Within fifteen (15) days following receipt of such notice, Tenant shall
notify Landlord whether it intends to lease such space, on the terms set forth
in Landlord's offer. If Tenant declines (or fails to respond on a timely basis)
then Tenant's right of first offer will be void and of no further force and
effect and Landlord will be free to market the space on the terms specified in
Landlord's notice. In the event Landlord fails to lease the space on the terms
specified in Landlord's notice during the three month period immediately
following Tenant's rejection of the offer, then Tenant's right of first offer
for such space shall continue in force, except that the time which Tenant is
required to respond shall be reduced from fifteen days to five days.
ARTICLE 2. RENT
SECTION 2.1 MINIMUM RENT
Tenant will pay to Landlord without set-off, abatement or reduction of any
kind, except as otherwise set forth herein, the sum of $28,426.67 per month, or
$341,120.00 per year from the date specified in Section 1.1 for the commencement
of Minimum Rent and continuing throughout the original Lease term, in advance on
the first day of each month. This will be known as the "Minimum Rent." Rent for
any fractional month at the beginning or end of the Lease term shall be prorated
on a per diem basis based upon a 365-day year.
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If any payment of Minimum Rent or Additional Rent becomes overdue for
fifteen(15) days or more, Tenant agrees to pay forthwith an additional charge to
defray the costs incident to handling of the delinquent account in the amount of
five percent (5%) for each such overdue payment. It is understood, however, that
all monthly payments of rent are actually due and payable on the first day of
each month, as specified in Section 2.1, and that failure to pay on or before
the last day of any grace period shall constitute a default.
SECTION 2.2 ADJUSTMENT RENT
(a) In addition to the Minimum Rent reserved in Section 2.1 above,
commencing with calendar year 1998 and for each subsequent calendar year or
portion thereof thereafter during the Term, Tenant shall pay to the Landlord as
additional rent (the "Adjustment Rent") an amount equal to the Tenant's pro-rata
share (as hereinafter defined in subsection 2.2 (b)(iii)) of any increase in the
operating expenses (as hereinafter defined in subsection 2.2 (b)(iv)) as
reflected by the difference between the amount of such operating expenses for
the Current Lease Year (subject to adjustment as provided in subsection 2.2
(a)(i)) and the Base Amount (as hereinafter defined in subsection 2.2 (b)(i)).
If the Expiration Date of this Lease shall occur on a date other that the
last day of a calendar year, then the Tenant's share of Adjustment Rent for the
calendar year in which the Expiration Date falls shall be determined by
multiplying the Adjustment Rent for said calendar year by a fraction, the
numerator of which is the number of days from and including the first day of
such calendar year to and including the Expiration Date, and the denominator of
which is 365.
(b) For purposes of the foregoing, the following terms shall have the
following meanings:
(i) The term "Base Amount" shall mean the actual amount of operating
expenses for calendar year 1997, which the parties estimate for purposes of
current billings to be the sum of Four Hundred Fifty Thousand Dollars
($450,000.000). The "Base Amount" will be revised after the actual operating
expenses are determined for calendar year 1997.
(ii) The term "Current Lease Year" shall mean each calendar year or
part thereof during the Term, with respect to which a determination of
Adjustment Rent is being made.
(iii) The "Tenant's Pro Rata Share" shall be 25.272%. This percentage
is calculated by dividing Tenant's net rentable space in the Premises (17,056
square feet) by the total rentable space in the Building (67,489 square feet).
(iv) The term "operating expenses" shall mean the following actual
costs or expenses paid or incurred by the Landlord in connection with the
servicing, operation, maintenance and repair of the Building and related
exterior appurtenances to, and parking
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facilities for, the Building: the cost of utilities, insurance, elevator
maintenance and service, general maintenance, painting, redecorating and repair
of the common areas and the exterior of the Building, janitorial services,
window washing, rubbish removal, security services, snow removal, sewer
charges, fuel, air conditioning, general landscape and parking area maintenance
and any other costs, charges and expenses which, under generally accepted
accounting principles and practice would be regarded as maintenance and
operating expenses including such costs, charges and expenses as would normally
be amortized over a period not exceeding five years; subject, however, to the
provisions of the following sentence hereof. "Operating expenses" shall also
include the actual cost of roof replacement and parking lot resurfacing,
amortized over the useful life of such improvements at a commercially
reasonable discount rate. The cost of any capital improvements made to the
Building after the Commencement Date that reduce other operating expenses or
are required under any governmental law or regulation that was not applicable
to the Building at the time it was constructed, such cost to be amortized over
the useful life of the item in question, together with interest on the
unamortized balance thereof at the rate of ten percent (10%) per annum or such
higher rate as may have been paid by Landlord on funds borrowed for the
purposes of constructing said capital improvement.
In addition, "operating expenses" shall specifically include all real
estate taxes which shall mean all taxes, general and special, levied or assessed
on the land owned by the Landlord on which the Building has been erected (the
"Land"), the Building, all improvements on the Land relating to the Building,
including parking facilities, and on the fully completed improvements to the
Building. Furthermore, should Bucks County or any governmental authority having
jurisdiction over the Premises or the Building and Land ever impose a tax and/or
assessment of any kind or nature upon, against or with respect to the rental
income of the Landlord derived from the Building or with respect to the
Landlord's ownership of the Land and/or Building either by way of substitution
for all or any part of the taxes and assessments levied or assessed against the
Land or Building or in addition thereto, then in such event, such tax,
assessment and/or surcharge shall be deemed to constitute "real estate taxes".
Real estate taxes for the Base Amount and any calendar year shall be deemed to
be the taxes payable in the Base Amount or calendar year in question, even
though the levy or assessment may be for a different fiscal year.
Operating expenses specifically exclude expenses for painting, redecorating
or other work which the Landlord performs for any tenant of the Building;
expenses for repairs or other work occasioned by fire, windstorm or other
insured casualties; costs incurred in leasing space within the Building, or in
procuring new tenants; legal expenses incurred in enforcing the terms or
conditions of any lease; ground rents, interest or amortization payments on any
mortgage or obligation in the nature of a mortgage; amounts received by Landlord
through proceeds of insurance, tenants, condemnation awards, warranties or any
other source; brokerage commissions; taxes other than real estate taxes (except
for taxes in lieu of real estate taxes); costs in the nature of fees, fines or
penalties arising out of the breach of any obligation, contractual or at law, by
Landlord or its contractors, employees or agents, including attorneys' fees;
tenant buildout expenses, including permit, license and inspection costs
relating thereto; costs or expenses relating to correction of latent defects in
the Building (provided that normal
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maintenance expenses will not be excluded) or non-compliance of the Building
with laws in effect as of the date hereof; costs relating to environmental
compliance or remediation; capital expenditures, except to the extent included
above; reserves for future expenditures not yet incurred; attorneys' fees and
other costs and expenses incurred in connection with negotiations or disputes
with present or prospective tenants of the Building; expenses in connection with
services not offered to Tenant; overhead and profit increment paid to Landlord
or any of its affiliates to the extent the same exceed market rates; advertising
and promotional expenditures; and depreciation.
(c) Following the end of each calendar year, the Landlord shall
furnish the Tenant with a statement (herein called the "Tenant's Adjustment Rent
Statement"), setting forth the amount of Adjustment Rent payable by the Tenant
pursuant to subsection 2(b), above, for the Lease Year immediately preceding the
Lease Year in which the Tenant's Adjustment Rent Statement is issued, by reason
of (i) any increase in real estate taxes and (ii) any increase in operating
expenses over the Base Amount. Copies of real estate tax bills and a statement
of operating expenses of the Building prepared by the Landlord's accountants
shall be included with Tenant's Adjustment Rent Statement. Tenant shall have the
right to audit the applicable records of Landlord to confirm that the charges
billed to Tenant under this Lease are proper and conform to the provisions of
this Lease. Such right shall be exercisable by Tenant within one year after
Tenant's receipt of Tenant's Adjustment Rent Statement. Landlord shall cooperate
with Tenant in providing Tenant reasonable access to Landlord's books and
records during normal business hours to enable Tenant to audit Landlord's books
and records as they relate to any costs or expenses passed through to Tenant
pursuant to any provisions of this Lease. If the audit discloses any overpayment
on the part of Tenant, then Tenant shall be entitled to a credit on the next
succeeding installment of rent for an amount equal to the overcharge plus
interest on the amount of such overcharge from the date on which same was paid
by Tenant until the date refunded by Landlord at the prime rate published in the
Wall Street Journal, and such credit shall be extended to succeeding
installments of rent in the event such overcharge exceeds the amount of the next
succeeding such installment and, in the event the term of this Lease has expired
or been earlier terminated, then Tenant shall be entitled to a refund of such
excess from Landlord within thirty (30) days after such date or expiration or
earlier termination. In addition, in the event such audit by Tenant discloses
such an overcharge in excess of the five percent (5%) of the amount payable in
accordance with this Lease, then Landlord shall pay to Tenant the reasonable
costs and expenses of such audit. If the audit discloses an underpayment by
Tenant, Tenant will remit the amount of such underpayment within thirty
(30) days following receipt of a bill for such underpayment amount.
Unless the Landlord has exercised its election under the next
grammatical paragraph, the Tenant shall within thirty (30) days of receipt of
the Tenant's Adjustment Rent Statement pay the amount of Adjustment Rent shown
thereon. Prior to the Expiration Date the Landlord shall submit to the Tenant an
estimate of the Tenant's Adjustment Rent Statement for the calendar year in
which the Expiration Date falls, and the Tenant shall pay to the Landlord within
thirty (30) days of receipt of such statement the estimated Adjustment Rent.
After the end of such calendar year the Landlord shall submit to the Tenant the
final Tenant's Adjustment Rent Statement and an appropriate adjustment shall be
made between the Landlord and the Tenant based on the amount of Adjustment Rent
theretofore paid by the Tenant for the period from the first day of such
calendar year to and including the Expiration Date.
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At the election of the Landlord, the Tenant shall pay to the Landlord on
account of Adjustment Rent for any calendar year on the first day of each month
during such calendar year an amount equal to one-twelfth (1/12) of the
Landlord's estimate of the Tenant's Adjustment Rent for such calendar year.
Landlord's estimate of the Tenant's Adjustment Rent shall not exceed 105% of the
prior year's Adjustment Rent. After the end of such calendar year and the
delivery of the Tenant's Adjustment Rent Statement, if the amount paid by the
Tenant during such calendar year shall exceed the actual amount set forth in
said statement, such excess shall be credited against the next installment of
Adjustment Rent due from the Tenant to the Landlord hereunder. If, on the other
hand, the amount shown in the Tenant's Adjustment Rent Statement shall be
greater than the aggregate amount paid by the Tenant as an estimate on account
of such Adjustment Rent for the calendar year in question, the Tenant shall pay
to the Landlord the difference between the amount theretofore paid by the Tenant
and the actual amount of such Adjustment Rent within thirty (30) days after the
receipt of the Landlord's estimated payment statement; provided that, if at any
time or times it appears to Landlord in its reasonable discretion that the real
estate taxes for the then current fiscal year of the taxing authority shall vary
from Landlord's estimate therefor by more than 5%, Landlord may, by notice to
Tenant, revise its estimate for such year, and subsequent payments of Rent by
Tenant shall be based upon such revised estimate.
Notwithstanding the foregoing, the Tenant shall pay directly to the utility
all utility expenses incurred in the operation of the separately metered air
conditioning/heat pump unit which serves the Premises, to be determined monthly
by reference to the meter which measures the utility usage of said unit.
ARTICLE 3. USE OF PREMISES
SECTION 3.1 PERMITTED USE
Tenant will use the leased Premises only for general office purposes,
unless Landlord shall give Tenant prior written consent for a different use.
SECTION 3.2 WASTE, NUISANCE, OR ILLEGAL USES
Tenant shall not use the Premises or permit them to be used in any manner
that results in waste of the Premises or constitutes nuisance. Tenant shall not
use the Premises or permit them to be used for any illegal purpose. Tenant at
its own expense will comply, and will cause its officers, employees, agents, and
invitees to comply, with all applicable laws and ordinances, and with all
applicable rules and regulations of governmental agencies concerning the use of
the Premises; provided, however, Tenant shall not be responsible for compliance
with any such laws, regulations, or the like requiring (i) structural repairs or
modifications or (ii) repairs or modifications to the utility or building
service equipment or (iii) installation of new building service equipment, such
as fire detection or suppression equipment, unless such repairs,
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modifications, or installations shall (a) be due to Tenant's particular manner
of use of the Premises (as opposed to normal office use generally), or (b) be
due to the negligence or willful misconduct of Tenant or any agent, employee,
or contractor of Tenant. Tenant will not store or use hazardous substances or
materials on the Premises, other than ordinary office and cleaning supplies.
Tenant shall be permitted to use materials and substances which are customary
to normal office use. Notwithstanding the foregoing, any materials or
substances governed by the laws and regulations of the United States or of any
state or municipality, or of any agency thereof shall be handled, controlled,
managed and disposed of by Tenant in accordance with such laws and regulations
and Tenant agrees to indemnify and hold Landlord harmless from any and all
losses, damages, fines, penalties and causes of action resulting from Tenant's
breach of its obligations under this section.
SECTION 3.3 USE OF COMMON AREAS
Restrooms, elevators, stairs, hallways, parking facilities, and other
common areas may be used by the tenant and its employees, as long as said use
is reasonable and in accordance with reasonable and uniformly enforced rules
and regulations as may be promulgated by Landlord from time to time and imposed
on all tenants throughout the Building. Landlord will not alter or reconfigure
the common areas of the Building so as to materially and adversely affect
Tenant's conduct of business at the Premises.
SECTION 3.4 SERVICES
The Landlord shall furnish electric current sufficient for general office
purposes, water, lavatory supplies, building standard fluorescent tube
replacements and automatically operated elevator service during normal business
hours, and normal and usual cleaning and janitorial service in accordance with
the specifications therefor set forth in Schedule 3.4 after business hours,
without additional cost to the Tenant except as otherwise provided herein; the
Landlord further agrees to furnish heat and air-conditioning during the
appropriate seasons of the year, consistent with temperatures maintained in
other first rate office buildings in the area, between the hours of 8:00 A.M.
and 6:00 P.M. on Monday through Friday and from 8:00 A.M. to 1:00 P.M. on
Saturday (exclusive of holidays); provided, however, that the Landlord shall not
be liable for failure to furnish, or for suspension or delays in furnishing,
any of such services caused by breakdown, maintenance or repair work or strike,
riot, civil commotion, or any cause or reason whatsoever beyond the control of
the Landlord. Notwithstanding any of the foregoing to the contrary, in the
event Tenant is not reasonably able to use the Premises or the parking areas
serving the same on account of work, repairs or alterations made by Landlord or
a cessation or reduction in any utilities or services necessary for use of the
Premises or such parking areas for which prior consent has not been received,
Minimum Rent shall be abated equitably hereunder from and after the date that
is five (5) days after the date upon which Tenant became unable to use the
Premises or such parking areas until the date Tenant is again reasonably able
to use the Premises and such parking areas. Landlord shall be responsible to
maintain the common areas, including without limitation, the hallways, lobby,
public restrooms, parking lot and driveways provided that Landlord shall not be
liable for temporary inaccessibility
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of common areas caused by maintenance or repaid work or strike, riot, civil
commotion or any other cause or reason whatsoever beyond the control of
Landlord. Tenant may request heat and air conditioning during other hours, upon
24 hour notice to Landlord, for which Tenant will pay $25 per hour of said
additional heat and air conditioning. Holidays are: New Year's Day, Memorial
Day, Independence Day (July 4th), Labor Day, Thanksgiving Day, and Christmas.
SECTION 3.5 ADDITIONAL RENT
In the event the Landlord is entitled under the terms of this Lease to
collect any sum of money from the Tenant, or the Tenant is required to pay to
the Landlord any sum of money, other than the Minimum Rent and Adjustment Rent,
such sum or amount shall be regarded as additional rent and, at the election of
the Landlord, shall be payable on demand, on the due date of the next monthly
installment of Minimum Rent. The Landlord shall be entitled to treat the
failure to pay additional rent in the same manner as a default in the payment
of Minimum Rent. This provision shall be construed as an additional remedy
granted to the Landlord and not in limitation of any other rights and remedies
which the Landlord has or may have arising from the Tenant's failure to make a
payment to the Landlord.
SECTION 3.6 MAINTENANCE AND SURRENDER BY TENANT
Except as provided in Section 3.4, Tenant shall maintain the leased
Premises throughout the Lease term and any extensions of that term, and keep
them free from waste or nuisance. At the termination of the Lease, Tenant shall
deliver the Premises in as good a condition and state of repair as they were in
at the time Landlord delivered possession to Tenant, except for reasonable wear
and tear and damage by fire, flood, or other casualty. In the event Tenant
should neglect to reasonably maintain the leased Premises, Landlord shall have
the right, but not the obligation, after written notice to Tenant stating
Landlord's intention to exercise self-help remedies, other than in any
emergency situation, in which case notice will be given when practicable, to
cause repairs or corrections to be made, and any reasonable costs incurred for
such repairs or corrections for which Tenant is responsible under this Section
shall be payable by Tenant to Landlord as Additional Rent with the next monthly
installment of Minimum Rent.
SECTION 3.7 TENANT'S AGREEMENT
Tenant further agrees that the only sign, advertisement or notice which
shall be inscribed, painted or affixed on any part of the inside of the
Premises or Building, including the directories and doors of offices, shall be
installed and paid for by Landlord and designed by Tenant and approved by
Landlord. Tenant further agrees that no sign, advertisement or notice may be
affixed to the outside of the Building. Landlord shall have the right to
prohibit any advertisement of any Tenant which in the Landlord's opinion tends
to impair the reputation of the Building or its desirability as a Building for
offices or for financial, insurance or other institutions and businesses of
like nature, and upon written notice from the Landlord, Tenant shall refrain
from and discontinue such advertisement; that the Landlord shall have the right
to prescribe the weight, method of installation and position of safes or other
heavy fixtures or
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equipment and Tenant will not install on the Premises any fixtures, equipment or
machinery that will place a load upon any floor exceeding the floor load per
square foot area which such floor was designated to carry; that all damage done
to the Building or the Premises by taking in or removing a safe or any other
article of Tenant's office equipment, or due to its being in the Premises, shall
be repaired at the expense of the Tenant. For purposes of this Lease, the
maximum permissible floor load per square foot is 250 lbs. No freight, furniture
or other bulky matter of any description will be received into the Building or
carried in the elevators, except as approved by the Landlord. All moving of
furniture, material and equipment shall be under the direct control and
supervision of the Landlord, who shall, however, not be responsible for any
damage to or charges for moving the same. Tenant agrees promptly to remove from
the public area adjacent to the Building any of Tenant's merchandise there
delivered or deposited.
SECTION 3.8 SPECIAL EQUIPMENT
The Tenant will not install or operate in the Premises any electrically
operated equipment or other machinery, other than typewriters, adding machines
and other such electrically operated office machinery and equipment, including
computers and date processing equipment normally used in modern offices, without
first obtaining the prior written consent of the Landlord, who may condition
such consent upon the payment by the Tenant of additional rent as compensation
for such excess consumption of water and/or electricity as may be occasioned by
the operation of said equipment or machinery. The Tenant shall not install any
other equipment of any kind or nature whatsoever which will or may necessitate
any changes, replacements or additions to or require the use of the water
system, plumbing system, heating system, air-conditioning system, or the
electrical system of the Premises without the prior written consent of the
Landlord. All amounts paid pursuant to this Section 3.8 as additional rent shall
be paid in addition to any amounts paid pursuant to Section 3.6 above.
SECTION 3.9 TENANT EQUIPMENT
Maintenance and repair of equipment such as kitchen fixtures, separate
air-conditioning equipment, or any other type of special equipment, whether
installed by Tenant or by Landlord on behalf of Tenant, shall be the sole
responsibility of Tenant and Landlord shall have no obligation in connection
therewith.
SECTION 3.10 USE OF ASBESTOS IN PREMISES
Tenant each agrees to indemnify and hold Landlord harmless from and against
liability arising out of the presence of asbestos or other hazardous substances
at the Premises resulting from the actions of Tenant.
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ARTICLE 4. TAXES AND LANDLORD COVENANTS
SECTION 4.1 PERSONAL PROPERTY TAXES
Tenant shall be liable for all taxes levied or assessed against personal
property, furniture, or fixtures placed by Tenant in or on the Premises. If any
such taxes for which Tenant is liable are levied or assessed against Landlord or
Landlord's property, and if Landlord elects to pay them, or if the assessed
value of Landlord's property is increased by inclusion of personal property,
furniture or fixtures placed by Tenant in the Premises, and Landlord elects to
pay the taxes based on such increase, Tenant shall pay to Landlord on demand
that part of the taxes for which Tenant is primarily liable under this Article.
SECTION 4.2 REAL PROPERTY TAXES AND ASSESSMENTS
Landlord shall pay and fully discharge all real property taxes, special
assignments, and governmental charges of every character imposed on the leased
Premises during the term of this Lease, including any special assessments
imposed on or against the Premises for the construction or improvement of public
works.
SECTION 4.3 INSURANCE
Landlord shall maintain in full force from the date upon which Tenant first
enters the Premises for any reason, throughout the Term, a policy of insurance
upon the Building insuring against all risks of physical loss or damage under an
All Risk coverage endorsement in an amount at least equal to the full
replacement value of the property insured, with an Agreed Amount endorsement to
satisfy co-insurance requirements, as well as insurance against breakdown of
boilers and other machinery as customarily insured against. Landlord shall
supply to Tenant from time to time upon request of Tenant certificates of all
such insurance issued by or on behalf of the insurers named therein by a duly
authorized agent. All policies of insurance maintained by Landlord shall contain
the same waiver of subrogation provisions for the benefit of Tenant as Tenant is
required to obtain in its insurance policies for the benefit of Landlord.
SECTION 4.4 COMPLIANCE WITH LAW
To the best of Landlord's knowledge, Landlord represents and warrants to
Tenant that the Land, Building and Premises are in material compliance with all
applicable zoning, land use and environmental laws and agreements and the
requirements of all easement and encumbrance documents and Landlord covenants
to keep the same in compliance throughout the Term.
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ARTICLE 5. ALTERATIONS, ADDITIONS,
IMPROVEMENTS, AND FIXTURES
SECTION 5.1 CONSENT OF LANDLORD
Tenant shall not make any alterations, additions, or improvements to the
leased Premises without the prior written consent of Landlord. Consent for
non-structural alterations, additions, or improvements shall not be unreasonably
withheld by Landlord, and shall not be required with respect to alterations,
additions and improvements costing less than $25,000.
SECTION 5.2 PROPERTY OF LANDLORD
All alterations, additions, or improvements made by Tenant shall become the
property of Landlord at the termination or expiration of this Lease. However, if
Landlord so elects, Tenant shall promptly remove all alterations, additions and
improvements, and any other property placed in or on the Premises by Tenant, and
Tenant shall repair any damage caused by such removal. Notwithstanding the first
sentence hereof, all initial buildout improvements will remain at the Premises
at the Expiration Date hereof. Landlord will inform Tenant at the making of any
other alterations, additions or improvements whether Tenant will be required to
remove such improvements upon termination or expiration of this Lease.
SECTION 5.3 TRADE FIXTURES
Tenant has the right at all times to erect or install furniture and
fixtures, provided that Tenant complies with all applicable governmental laws,
ordinances, and regulations. Tenant shall have the right to remove such items at
the termination of this Lease and the fixtures can be removed without structural
damage to the Premises. Prior to the termination of this Lease, Tenant must
repair any damage caused by removal of any fixtures. Any furniture or fixtures
that have not been removed by Tenant at the termination of this Lease shall be
deemed abandoned by Tenant and shall automatically become the property of
Landlord provided that the cost of restoring any damage to the Premises caused
by such removal will be paid by Tenant to Landlord as Additional rent.
SECTION 5.4 DAMAGE
All injury to the Premises or the Building caused by moving the property of
Tenant into, in or out of, the Building and all breakage done by Tenant, or the
agents, servants, employees and visitors of Tenant, shall be repaired by the
Tenant, at the expense of the Tenant. In the event that the Tenant shall fail to
do so, then the Landlord shall have the right to make such necessary repairs,
alterations and replacements (structural, non-structural or otherwise) and any
charge or cost so incurred by the Landlord shall be paid by the Tenant as
Additional Rent.
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SECTION 5.5 PERSONAL PROPERTY
All personal property of the Tenant in the Premises or in the
Building shall be at the sole risk of the Tenant. Tenant shall insure all
personal property of Tenant and all improvements to the Premises made by Tenant
against all risk of loss or damage in an amount to equal to the replacement
cost. Tenant shall provide Landlord with a Certificate of Insurance evidencing
such coverage within fourteen days of the Commencement Date. Except where caused
by the negligence of the Landlord, the Landlord shall not be liable for any
accident to or damage to the property of Tenant resulting from the use or
operation of elevators or of the heating, cooling, electrical or plumbing
apparatus. Landlord shall not, in any event, be liable for damages to property
resulting from water, steam or other causes. Tenant hereby expressly releases
Landlord from any liability incurred or claimed by reason of damage to Tenant's
property, except where due to Landlord's gross negligence or willful misconduct.
Landlord shall not be liable in damages for, nor shall this Lease be affected
by, conditions arising or resulting from, construction on property contiguous to
the Building, including other construction on the Land, and which may affect
the Building.
Landlord agreed to repair any malfunction or other defect within its
reasonable control in the electrical system of the Building, so that there is
furnished to Premises an uninterrupted supply of electricity, to the extent of
the electrical systems in the Building within Landlord's control.
SECTION 5.6 LIABILITY
The Landlord assumes no liability or responsibility whatsoever with
respect to the conduct and operation of the business to be conducted in the
Premises, except for maintenance of the structure and roof of the Building. The
Landlord shall not be liable for any accident to or injury to any person or
persons or property in or about the Premises which are caused by the conduct and
operation of said business or by virtue of equipment or property of the Tenant
or the acts of Tenant, its invitees, agents or employees in said Premises. The
Tenant agrees to hold the Landlord harmless against all such claims.
ARTICLE 6. INSPECTION BY LANDLORD
SECTION 6.1 RIGHT TO ENTER
Landlord and its officers, agents, employees, and representatives
shall have the right to enter the leased Premises at all reasonable hours,
whether or not during normal business hours, with reasonable advance written
notice, except in the event of an emergency, for purposes of inspection,
cleaning, maintenance, repairs, alterations, or additions as Landlord may deem
necessary (but Tenant assumes no obligation to make repairs in the leased
Premises except as expressly provided in this Lease), or to show the Premises to
prospective purchasers, or lenders
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or, during the last six (6) months of the Term, to prospective tenants, with
minimal disruption of tenant's business. Tenant shall not be entitled to any
abatement or reduction of rent by reason of the entry of Landlord or any of its
officers, agents, representatives, or employees pursuant to this article, nor
shall such entry be deemed an actual or constructive eviction.
ARTICLE 7. ALTERATIONS; MECHANICS' LIENS
SECTION 7.1 NO MECHANICS LIENS
Tenants shall not permit any mechanics' liens to be filed at any time
against the leased Premises or any part of the Premises in connection with any
work done by it or caused to be done by it. If any such lien should be filed,
Tenant shall promptly cause it to be discharged of record by payment, deposit,
bond, order of court, or otherwise.
SECTION 7.2 ALTERATIONS
All work consented to by Landlord, to be done or performed in or about the
Premises by Tenant, whether prior to the Commencement Date or thereafter, shall
comply with the architectural and mechanical requirements of the Building shall
be performed at Tenant's sole cost and expense in accordance with the plans and
specifications prepared by and at the expense of Tenant and reasonably
approved by Landlord, by bonded contractors, subcontractors and materialmen
approved by Landlord, in its reasonable discretion. During the course of
performance of said work. Tenant will carry or cause to be carried such
insurance as may from time to time be reasonably required by Landlord naming
the Landlord and Landlord's agent as additional insureds and further providing
that such insurance cannot be canceled without thirty (30) days prior written
notice to Landlord and Landlord's agent. Landlord shall require a standard
warranty by each of Tenant's prime contractors and materialmen for the benefit
of the Landlord, Tenant and such other parties as Landlord shall designate that
all work performed and materials and equipment furnished by such contractors
will conform to the requirements of the plans and specifications as to the
kind, quality, function of the equipment and characteristics of material and
workmanship and will remain so for a period of one year from the date that the
work has been completed, and in the event any deficiency, defects, faults
or imperfections of materials, equipment or workmanship shall appear prior to
the expiration of such period, the contractor, upon receiving written notice
thereof from Landlord or Tenant will immediately correct and repair the same at
the expense of such contractor; said warranty to be effective whether or not
any part of the aforesaid work has been subcontracted by the contractor.
SECTION 7.3 CONSENT
Any consent by Landlord permitting Tenant to do any or cause any work to be
done in or about the Premises shall be and hereby is conditioned upon Tenant's
work being performed by workmen and mechanics working in harmony and not
interfering with labor employed by Landlord, Landlord's mechanics or their
contractors or by any other Tenant or
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their contractors. If at any time any of the workmen or mechanics performing
any of Tenant's work shall be unable to work in harmony or shall interfere with
any labor employed by Landlord, other Tenants or their respective mechanics and
contractors, then the permission granted by Landlord to Tenant permitting Tenant
to do or cause any work to be done in or about the Premises, may be withdrawn by
Landlord upon forty-eight (48) hours written notice to Tenant.
ARTICLE 8. INDEMNITY
SECTION 8.1 TENANT TO HOLD LANDLORD HARMLESS
Tenant and Landlord each agree to indemnify and hold the other harmless
against any and all claims, demands, damages, costs, and expenses, including
reasonable attorneys' fees for the defense of such claims and demands arising
from the conduct or management of such party's business on the leased Premises
or the Building or Land or its use of the leased Premises or the Building or
Land, or from any breach on the part of either party of any conditions of the
Lease, or from any act or negligence of such party, its officers, agents,
contractors, employees, sublessees, or invitees in or about the leased Premises
or the Building or Land. In case of any action or proceeding brought against
either party by reason of any such claim, the indemnifying party agrees to
defend the actions or proceeding.
Tenant and Landlord, respectively, hereby release each other from any and
all liability or responsibility to the other for all claims of anyone claiming
by, through or under it or them by way of subrogation or otherwise for any loss
or damage to property covered by the Pennsylvania Standard Form of Fire
Insurance Policy with extended coverage endorsement, whether or not such
insurance is maintained by the other party. Tenant and Landlord agree to notify
their respective insurers of the extra release of the subrogation claims.
ARTICLE 9. ASSIGNMENT AND SUBLEASE
SECTION 9.1 SUBLETTING AND ASSIGNMENT
The Tenant shall not sublet the Premises or any part thereof or transfer
possession or occupancy thereof to any person, firm or corporation or transfer
or assign this Lease without the prior written consent of the Landlord and the
holder of any first mortgage encumbering the Premises (the ''Permanent
Lender''), nor shall any subletting or assignment hereof be effected by
operation of law or otherwise than by the prior written consent of the Landlord
and the Permanent Lender. The consents set forth in the previous sentence shall
not be unreasonably withheld, but may be conditioned upon Landlord's acceptance
of the creditworthiness of the Tenant. In the event Tenant desires to assign
this Lease or to sublet all or a substantial portion of the Premises, Tenant
shall give to the Landlord and the Permanent Lender thirty (30) days' written
notice of Tenant's intention so to do. Tenant's request shall include
information in reasonable detail relating to the proposed sublease transaction,
including
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the identity of the proposed sublessee. Within thirty (30) days after receipt
of said notice, Landlord shall have the right, at Landlord's sole election,
either (a) to withhold Landlord's consent (such consent not to be unreasonably
withheld as aforesaid) to such proposed assignment or sublease, or (b) to
consent to the proposed subletting. If Tenant desires to sublet all of the
Premises, Landlord shall also have the right (in addition to the foregoing
rights) to terminate this Lease on a date to be agreed upon by Landlord and
Tenant. Failure of the Landlord to respond to Tenant's notice within thirty
(30) days of receipt shall be deemed to be a withhold of consent by Landlord.
Upon receiving the written consent of the Landlord and the Permanent Lender,
Tenant may assign the Lease or sublet the demised Premises (as the case may
be). Upon assignment of the Lease or subletting of all or part of the
Premises, Tenant shall in all events remain liable for full performance under
the Lease.
Landlord agrees to use reasonable efforts to assist Tenant in obtaining the
consent of Permanent Lender to proposed assignments and subleases hereunder.
Notwithstanding any of the foregoing to the contrary, Tenant shall have the
right to assign its interest in the Premises or to sublet the whole or any part
of the Premises to any entity that controls, is controlled by, or is under
common control with Tenant, or, provided the successor entity has a
creditworthiness at least equal to that of Tenant on the date hereof, in
connection with the consolidation, merger or reorganization of Tenant or the
sale by Tenant of substantially all of its stock or assets, and in none of the
foregoing events shall the consent of Landlord or Permanent Lender be required.
Notwithstanding any provision to the contrary, Landlord shall not be required
or deemed to consent to any assignment, subletting or transfer of Tenant's
interest hereunder in the event the credit of the Tenant is in any way
diminished or impaired as a result thereof.
SECTION 9.2 DAMAGED BY FIRE OR CASUALTY
In the event of damage or destruction of the Premises by fire or any other
casualty, this Lease shall not be terminated, but the Premises shall be promptly
and fully repaired and restored as the case may be by the Landlord at its own
cost and expense. Due allowance, however, shall be given for reasonable time
required for adjustment and settlement of insurance claims, and for such other
delays as may result from government restrictions and controls on construction,
if any, and for strikes, national emergencies and other conditions beyond the
control of the Landlord. It is agreed that in any of the aforesaid events, this
Lease shall continue in full force and effect, but if the condition is such as
to make the entire Premises untenantable, then the rental which the Tenant is
obligated to pay hereunder shall abate as of the date of the occurrence until
the Premises have been fully and completely restored by the Landlord. Any
unpaid or prepaid rent for the month in which said condition occurs shall be
pro-rated. If the Premises are partially damaged or destroyed, then during the
period that Tenant is deprived of the use of the damaged portion of the
Premises, Tenant shall be required to pay rental covering only that part of the
Premises that it is able to occupy, based on that portion of the total rent
which the amount of square foot area remaining that can be occupied bears to the
total square foot area of all the Premises covered by this Lease. In the event
the Premises are substantially or totally destroyed by fire or other casualty so
as to be entirely untenantable and
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it shall require more than two hundred seventy (270) days for the Landlord to
restore the same, then either party hereto, upon written notice to the other
party, may terminate this Lease, in which case the rent shall be apportioned
and paid to the date of said fire or other casualty.
Landlord agrees that any damage caused to the Building by fire or casualty
shall be repaired, and a certificate of occupancy shall be obtained for the
premises within two hundred seventy (270) days of the date that said damage
occurred. Tenant shall have a right to cancel this Agreement if a certificate
of occupancy for the Premises is not obtained within two hundred seventy (270)
days of the date damage occurred, as aforesaid, unless the failure to repair
said damage and obtain said certificate is caused by a failure to cooperate or
act on the part of the Tenant.
Notwithstanding anything in this Agreement to the contrary, control and
application of all insurance proceeds shall be governed in accordance with and
subject to availability of proceeds under the terms and conditions of any first
mortgage covering the property of which the Premises is a part.
SECTION 9.3 CONDEMNATION
(a) If the whole of the Building or the Premises shall be acquired or
condemned for any public or quasi-public use or purpose (other than for
temporary use or occupancy) or transferred by a deed in lieu of condemnation,
this Lease and the Term shall end as of the date of the vesting of title with
the same effect as if such date were the Expiration Date. If only a part of the
Premises shall be so acquired, condemned or transferred, or if a portion of the
parking area of the Building is acquired, condemned or transferred and the
remaining portion of the parking area is insufficient to maintain full occupancy
of the Building, or cannot be replaced, then except as otherwise provided in
this Section, this Lease and the Term shall continue in force and effect, but
from and after the date of the vesting of title, the Minimum Rent shall be
reduced in the proportion which the area of the part of the Premises so
acquired, condemned or transferred bears to the total area of the Premises
immediately prior to such acquisition, condemnation or transfer and the Tenant's
pro rata share shall be reduced in the same proportion. Notwithstanding the
foregoing, Tenant shall have the option to terminate the Lease on the date of
acquisition, condemnation, or transfer if any portion of the Premises or Land or
Building is taken by condemnation, if said acquisition, condemnation or transfer
materially affects the occupancy of the Tenant. In the event of such
termination, no further rent or any other sums shall accrue or be due and
payable hereunder, and any prepaid rent or expenses shall be immediately
refunded to Tenant.
(b) If only a part of the Building shall be so acquired, condemned or
transferred, then (i) if the Premises shall be affected thereby, Landlord, at
Landlord's option, may give to Tenant, within 60 days next following the date
upon which Landlord shall have received notice of vesting of title, a 30 days'
notice of termination of this Lease; and (ii) if, by reason of such acquisition,
condemnation or transfer, Tenant no longer has reasonable means of access to the
Premises, Tenant, at Tenant's option, may give to Landlord, within 60 days next
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following the date upon which Tenant shall have been given notice of vesting of
title, a 30 days' notice of termination of this Lease. In the event any such 30
days' notice of termination is given by Landlord or Tenant, this Lease and the
Term shall come to an end and expire upon the expiration of such 30 days with
the same effect as if the date of expiration of such 30 days were the Expiration
Date. If a part of the Premises shall be so acquired, condemned or transferred
and this Lease and the Term shall not be terminated pursuant to the foregoing
provisions of this Article, Landlord, at Landlord's expense, shall restore that
part of the Premises not so acquired, condemned or transferred to a
self-contained rental unit. In the event of any termination of this Lease and
the Term pursuant to the provisions of this Section, the Minimum Rent,
Adjustment Rent, as well as all other amounts due from Tenant to Landlord under
this Lease, shall be apportioned as of the date on which possession must be
surrendered to the condemning authority and any prepaid portion of Minimum Rent
and Adjustment Rent, and such other amounts, if any, for any period after such
date shall be refunded by Landlord to Tenant.
(c) In the event of any such acquisition, condemnation or transfer of all
or any part of the Building, Landlord shall be entitled to receive the entire
award for any such acquisition, condemnation or transfer, Tenant shall have no
claim against Landlord, the condemning authority or the transferee for the value
of any unexpired portion of the Term and the Tenant hereby expressly assigns to
Landlord all of its rights in and to any such award. Nothing contained in this
subsection (c) shall be deemed to prevent Landlord from settling any threatened
or filed condemnation proceeding, nor shall anything herein contained be deemed
to prevent Tenant from independently making a claim against the condemning
authority for Tenant's moving expenses, and for the value of any items of
Tenant's property which are compensable in law as trade fixtures.
SECTION 9.4 TENANT'S CERTIFICATE
Tenant, at any time or from time to time upon not less than twenty (20)
days' prior written notice from Landlord, will execute, acknowledge and deliver
to Landlord a certificate of Tenant certifying:
(i) the Commencement Date and Expiration Date of this Lease;
(ii) that this lease is unmodified and in full force and effect (or, if
there have been modifications, that the same are in full force and effect as
modified, stating the modifications);
(iii) whether or not there are then existing any defenses against the
enforcement of any of the obligations of Tenant under this Lease (and, if so,
specifying the same);
(iv) whether or not, to Tenant's knowledge, there are then existing any
defaults by Landlord in the performance of its obligations under this Lease
(and, if so, specifying same);
<PAGE> 20
(v) the dates, if any, to which the Minimum Rent and Adjustment Rent
and other charges under this Lease have been paid; and
(vi) that all improvements to be constructed by the Landlord for the
Premises or other concessions have been fully completed or performed by the
Landlord in accordance with plans and specifications approved by the
Tenant, that the Tenant has accepted the Premises, and that the Tenant is
in full and complete possession of the Premises (or, if such improvements
have not been fully completed, or if Tenant has not so accepted the
Premises, specifying what improvements remain to be done and why Tenant has
not so accepted the Premises).
It is intended that any such certificate of Tenant delivered pursuant to
this Section 9.4 may be relied upon by any prospective purchaser, ground or
underlying lessor or mortgagee of the Land and Building.
SECTION 9.5 ASSIGNMENT BY LANDLORD
Landlord is expressly given the right to assign any or all of its interest
under the terms of this Lease, and upon any such assignment Landlord shall be
released of all further liability under the Lease; provided the assignee assumes
in writing Landlord's obligations under this Lease, including, without
limitation, Landlord's obligations relating to Landlord's Work.
SECTION 9.6 NEGATIVE COVENANTS OF TENANT
Tenant agrees that it will not do or suffer to be done, any act, matter or
thing objectionable to the fire insurance companies whereby the fire insurance
or any other insurance not in force or hereafter to be placed on the Premises or
any part thereof, or on the building of which the Premises amy be a part, shall
become void or suspended, or whereby the same shall be rated as a more hazardous
risk than at the date when Tenant receives possession hereunder. In case of a
breach of this covenant, in addition to all other remedies of Landlord
hereunder, Tenant agrees to pay to Landlord as additional rent, any and all
increase or increases in premiums or insurance carried by Landlord on the
Premises, or any part thereof, or on the building of which the Premises may be a
part, caused in any way by the occupancy of Tenant.
SECTION 9.7 SUBORDINATION
This Lease is subject and subordinate to any first mortgage hereafter
placed on the Premises or the Building, provided the holder of such first
mortgage enters into a nondisturbance agreement with Tenant reasonably
satisfactory to Tenant.
Tenant agrees to attorn to and to recognize the mortgagee or the purchaser
at foreclosure sale (alternatively, the "New Landlord") as Tenant's Landlord for
the balance of
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the term of this Lease subject to all of the terms and provisions hereof.
Tenant hereby agrees, however, that such mortgagee or the purchaser at
foreclosure sale shall not be:
(1) liable for any act or omission of Landlord;
(2) subject to any offsets or defenses which Tenant might have
against Landlord;
(3) bound by any rent or additional rent which Tenant may have
paid to Landlord for more than the current month;
(4) bound by any amendment or modification of this Lease made
without its consent. Tenant agrees to promptly execute any other agreement
submitted by Landlord in confirmation or acknowledgment of the foregoing.
ARTICLE 10. INTENTIONALLY OMITTED
ARTICLE 11. DEFAULT
Section 11.1 Tenant's Default
Each of the following events shall be deemed to be events of default by Tenant
under this lease:
(a) Tenant fails to pay any installment of rent within five (5)
days after notice that the same is due under this Lease.
(b) Tenant fails to comply with any term, provision, or
covenant of this Lease, other than the payment of Minimum Rent or Additional
Rent, and does not cure the failure within 30 days after written notice of the
failure is provided to Tenant, provided that if the nature of the default is
such that it is not capable of cure within such 30-day period, if Tenant fails
to commence cure within such 30-day period and diligently thereafter pursue such
cure to completion.
(c) Tenant makes an assignment for the benefit of creditors.
(d) Tenant deserts or vacates any substantial portion of the
Premises for a period of 15 or more days, unless (i) Tenant continues to pay all
Minimum Rent and Additional Rent and (ii) Tenant continues to maintain the
appearance of the Premises in a clean, safe and sightly manner.
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(e) The filing of a petition by or against Tenant for adjudication as
a bankrupt or insolvent or for its reorganization or for the appointment
pursuant to any local, state or federal bankruptcy or insolvency law of a
receiver or trustee of Tenant's property; or an assignment by Tenant for
the benefit of creditors; or the taking possession of the property of
Tenant by any local, state or federal governmental officer or agency or
court-appointed official for the dissolution or liquidation of Tenant or
for the operating, either temporary or permanent, or Tenant's business,
provided, however, that if any such action is commenced against Tenant the
same shall not constitute a default if Tenant causes the same to be stayed
or dismissed within sixty (60) days after the filing of same.
SECTION 11.2 REMEDIES FOR DEFAULT
On the occurrence of any event of default specified in Section 11.1.
Landlord shall have the option to pursue any one or more of the following
remedies:
(a) Landlord may terminate this Lease after at least 15 days' written
notice, in which event Tenant shall immediately surrender the Premises to
Landlord. Landlord may, without prejudice to any other remedy that it may have
for possession or arrearages in rent, enter on and take possession of the
Premises and remove all persons and property without being deemed guilty of
any manner of trespass, and may relet the Premises. or any part of the
Premises, for all or any part of the remainder of the Lease term to a party
satisfactory to Landlord at such monthly rental as Landlord with reasonable
diligence is able to secure. Tenant agrees to pay Landlord on demand the amount
of all loss and damage that Landlord suffers by reason of such termination,
whether through inability to relet the Premises on satisfactory terms or
otherwise.
(b) Landlord may enter on and take possession of the Premises, after at
least 15 days' written notice, and relet the premises for the benefit of Tenant
on such terms as Tenant deems advisable, and receive the rent for the reletting.
Tenant agrees to pay Landlord on demand any deficiency that may arise by reason
of such reletting.
(c) Landlord may enter on the Premises, without being liable for
prosecution or any claim for damages for such entry, and do whatever Tenant is
obligated to do under the terms of this Lease to correct the default. Tenant
agrees to reimburse Landlord on demand for any reasonable expenses that
Landlord may incur in effecting compliance with Tenant's obligations under this
Lease in this manner, and Tenant further agrees that Landlord shall not be
liable for any damages resulting to Tenant from such action.
No reentry or taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease, unless written
notice of such intention be given to Tenant. Notwithstanding any such reletting
or reentry or taking possession, Landlord may at any time thereafter elect to
terminate this Lease for a previous default. The loss or damage that Landlord
may suffer by reason of termination of this Lease or the deficiency from any
reletting as provided for above, shall include the expense of repossession.
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SECTION 11.3 LANDLORD'S DEFAULT
If Landlord defaults in the performance of any term, covenant, or
condition required to be performed by it under this agreement, Tenant may elect
to do either one of the following:
(a) After not less than 10 days notice to Landlord, Tenant may remedy
such default by any necessary action and, in connection with such remedy, may
pay expenses and employ counsel. All sums expended or obligations incurred by
Tenant in connection with remedying Landlord's default shall be paid by
Landlord to Tenant on demand and, on failure of such reimbursement, Tenant may
in addition to any other right or remedy that Tenant may have, deduct these
costs and expenses from rent subsequently becoming due under this Lease.
(b) Tenant may terminate this Lease on giving at least 45 days notice to
Landlord of such intention. In the event Tenant elects this option, the Lease
will be terminated on the date designated in Tenant's notice, unless Landlord
has cured the default prior to expiration of the 45-day period.
SECTION 11.4 CUMULATIVE REMEDIES
Pursuit of any of the remedies provided in this Lease by either Landlord
or Tenant shall not preclude pursuit of any of the other remedies provided in
this Lease or by law. Pursuit of any remedy provided in this Lease or by law by
either party shall not constitute a forfeiture or waiver of any damages
accruing to either party by reason of the violation of any of the terms,
provisions, and covenants contained in this Lease. Nor shall pursuit of any
remedies provided in this Lease by Landlord constitute a waiver of forfeiture
of any rent due to Landlord under this Lease.
SECTION 11.5 WAIVER OF DEFAULT
No waiver by either party of any default or violation or breach of any of
the terms, provision, or covenants contained in this Lease shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions, and covenants of the Lease. Forbearance by either party to
enforce one or more of the remedies provided in this Lease or by law on an event
of default shall not be deemed or construed to constitute a waiver of such
default. Landlord's acceptance of rent following an event of default under this
Lease shall not be construed as Tenant's waiver of the default.
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ARTICLE 12. NOTICES
SECTION 12.1 NOTICES
Any bills, statements, notices, demands, requests, consents, approvals
or other communications given or required to be given under this Lease shall be
effective only if rendered or given in writing, sent by hand or by registered or
certified mail (return receipt requested); United Parcel Service (UPS); or
FedEx, and addressed as follows:
(a) To Landlord at the following address:
One Summit Square Associates
c/o BR Management Corporation
50 West State Street
Trenton NJ 08608
or to such other person or address as Landlord may designate by
written notice to the Tenant.
(b) To Tenant at:
After the Commencement Date, at the Premises, with a copy to Hale and
Dorr at the address set forth below.
Prior to the Commencement Date, at:
9990 Global Road
Philadelphia, PA 19115
With a copy to:
John H. Chory, Esquire
Hale and Dorr
60 State Street
Boston, MA 02109
or to such other person or address as Tenant may designate by written
notice to the Landlord.
Any such bill, statement, notice, demand, request, consent, approval
or other communication shall be deemed to have been rendered or given on the
date when it shall have been received or refused.
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ARTICLE 13. MISCELLANEOUS
Section 13.1 Rules and Regulations
The Tenant covenants that the following rules and regulations, and
such other and further reasonable rules and regulations as the Landlord may
make and which in the Landlord's judgment are needful for the general
well-being, safety, care and cleanliness of the Premises and the Building
together with their appurtenances, shall be uniformly applied to all Tenants
and shall be faithfully kept, observed and performed by the Tenant, and by its
agents, servants, employees and guests unless waived in writing by the Landlord:
(a) The sidewalks, entries, passages, elevators, public corridors
and staircases and other parts of the Building which are not occupied by the
Tenant shall not be obstructed or used for any other purpose than ingress or
egress.
(b) The Tenant shall not install or permit the installation of any
awnings, shades, and the like other than those reasonably approved by the
Landlord in writing.
(c) The doors leading to the corridors or main halls shall be kept
closed during business hours except as they may be used for ingress or egress.
Landlord shall at all times have access to Tenant's Premises by providing keys
or access codes as required.
(d) The Tenant shall not construct, maintain, use or operate within
the Premises or elsewhere in the Building or on the outside of the Building,
any equipment or machinery which produces music, sound or noise which is
audible beyond the demised Premises.
(e) Electric and telephone floor distribution boxes must remain
accessible at all time.
(f) Bicycles, motor scooters or any other type of vehicle shall not
be brought into the lobby or elevators of the Building, or into the Premises.
(g) No food shall be prepared on the Premises other than incidental
food preparation for office workers in the Premises which does not result in
any odors discernible in the public areas of the Building or to other tenants
of the Building.
(h) Tenant is permitted to install microwave ovens in the Premises.
Tenant may also install vending machines in the Premises, if said installation
is not in conflict with any contract which Landlord has entered into with any
vending service provider.
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SECTION 13.2 SURRENDER OF PREMISES
Nothing done by Landlord or its agents during the Lease term shall be
deemed an acceptance of a surrender of the Premises, and no agreement to accept
a surrender of the Premises shall be valid unless in writing and subscribed by
Landlord.
SECTION 13.3 AMENDMENT
No amendment, modification, or alteration of the terms of this Lease shall
be binding unless in writing, dated subsequent to the date of this Lease, and
duly executed by the Landlord and Tenant.
SECTION 13.4 JOINT AND SEVERAL LIABILITY
If there is more than one Tenant, the obligations imposed on Tenants by
virtue of this Lease shall be joint and several. If there is a guarantor of
Tenant's obligations under this Lease, the obligations imposed on Tenant shall
be the joint and several obligations of Tenant and the guarantor. Landlord need
not first proceed against Tenant before proceeding against the guarantor, nor
shall any such guarantor be released from its guaranty for any reason
whatsoever.
SECTION 13.5 ATTORNEYS' FEES AND COSTS
If at any time during the term of this Lease either Landlord or Tenant shall
institute any action or proceeding against the other relating to the provisions
of this Lease, or any default of this Lease, then the unsuccessful party shall
reimburse the successful party for reasonable attorneys' fees and expenses
incurred to enforce the Lease.
SECTION 13.6 UNAVOIDABLE DELAY
Except with respect to Sections 1.2, 3.4, 9.2, neither Landlord nor Tenant
shall be required to perform any term, condition, or covenant in this Lease so
long as such performance is hindered or prevented by unavoidable delays. For
purposes of this Section, unavoidable delays shall be defined as natural
disasters: strikes, lockouts or labor disputes; governmental regulations,
restrictions, or controls; enemy or hostile government action; civil riot; fire,
floods, or nuclear accident; or any other cause not reasonably within the
control of Landlord or Tenant and that by the exercise of due diligence Landlord
or Tenant is unable, wholly or in part, to prevent or overcome.
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SECTION 13.7 BINDING SUCCESSORS AND ASSIGNS
All rights and liabilities given to, or imposed on, the
respective parties to this Lease shall extend to and bind the several respective
successors and assigns of the parties when otherwise permitted by this Lease.
SECTION 13.8 LANDLORD'S LIABILITY
Landlord shall have no personal liability under any of the
terms, conditions or covenants of this Lease and Tenant shall look solely to the
equity of the Landlord in the Building of which the Premises form a part for the
satisfaction of any claim, remedy or cause of action accruing to Tenant as a
result of the breach of any action of this Lease by Landlord.
SECTION 13.9 PENNSYLVANIA LAW TO APPLY
This Lease shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania. All obligations of the
parties created by this agreement are performable in Bucks County, Pennsylvania.
SECTION 13.10 LEGAL CONSTRUCTION
In the event any one or more of the provisions contained in
this agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of the agreement, and this agreement shall
be construed as if such invalid, illegal, or unenforceable provision had never
been included in the agreement.
SECTION 13.11 PRIOR AGREEMENTS SUPERSEDED
This Lease constitutes the only agreement between Landlord
and Tenant and supersedes any prior understandings or written or oral agreements
between the parties respecting the subject matter of this Lease.
SECTION 13.12 PRONOUNS
Feminine or neuter pronouns shall be substituted for those
of the masculine form, and the plural shall be substituted for the singular
number, in any place or places herein in which the context may require
substitution or substitutions. The Landlord herein for convenience has been
referred to in neuter form.
SECTION 13.13 BROKERS
Tenant and Landlord represent and warrant to the other that
T.P. Collins and Cushman and Wakefield are the only brokers and agents (other
than officers or employees
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of the Landlord) with whom either party has negotiated in bringing about this
Lease, and Landlord agrees to pay any and all commissions to such broker
pursuant to the separate agreement between Landlord and such broker. Landlord
and Tenant agree to indemnify and hold harmless the other against and from any
and all liabilities and expenses (including, without limitation, counsel fees
and disbursements in defending against such liabilities) which may accrue by
reason of, on account of, or growing out of, or resulting from a breach by the
indemnifying party of such warranty and representation.
SECTION 13.14 TIME OF ESSENCE
Time is of the essence of this agreement. The undersigned Landlord and
Tenant execute this agreement on the date set forth in the caption hereof, at
Langhorne, Bucks County, Pennsylvania.
IN WITNESS WHEREOF, the Landlord and Tenant have caused this Lease to be
duly executed as of the day and year first above written.
LANDLORD:
Witnessed: SUMMIT SQUARE INVESTORS, L.P.
By: Bergen of Newtown, Inc., general partner
/s/ Scott A. Williams
- ---------------------- By: ----------------------
Scott A. Williams
TENANT:
WEST COAST ENTERTAINMENT
CORPORATION, a Delaware corporation
/s/ Donald R. Thomas
By: ----------------------
Authorized Officer
Attest:
--------------------------
(Corporate Seal)
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Schedule 1.1
Plans dated October 31, 1996 prepared by John W. Gannon & Associates consisting
of 4 sheets as follows:
A-1 Floor Plan Layout
A-2 Reflected Ceiling Plan/Electrical
A-3 Reflected Ceiling Plan - Mechanical
A-4 As built/Demolition Reference Plan
(Notwithstanding any provision to the contrary in the Plans or in the Lease,
Landlord's Work will not include provision or installation of vinyl wall
coverings as shown on the Plans.)
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Schedule 1.2
Arbitration
The party demanding arbitration shall give notice thereof to the other
party and shall in such notice appoint and arbitrator. Within 15 days
thereafter, the other party shall be notice to the original party appoint at
arbitrator. If the second arbitrator shall not have been appointed as
aforesaid, the position taken by the party demanding arbitration shall be
deemed to be the Market Rent. The two arbitrators shall, within 15 days after
the sooner of the designation of the second arbitrator or the expiration of the
15-day period provided for such designation, shall designate a third
arbitrator. If the two arbitrators shall fail to agree upon the designation of
such third arbitrator within five days after the 15-day period described above,
then they or either of them shall give notice to such failure to agree to the
parties hereto and, if the parties hereto fail to agree upon the selection of
such third arbitrator within five days after the arbitrators appointed by the
parties give notice as aforesaid, then either party on behalf of both may apply
to a court of competent jurisdiction, for the designation of such third
arbitrator.
Upon the designation of the third arbitrator, the two parties shall submit
their respective position with respect to the disputed Market Rent to the three
arbitrators and the three arbitrators shall conduct such hearings and
investigations as they may deem appropriate and shall, within 10 days after the
date of the designation of third arbitrator, choose the position submitted to
the arbitrators which, in the view of a majority of the arbitrators, is closest
to the fair market rental value. The arbitrators shall give notice thereof to
the parties hereto and the choice by the three arbitrators shall be binding upon
the parties hereto.
All arbitrators shall be real estate brokers or consultants who shall have
had at least 10 continuous years experience acting as real estate agents or
brokers in the area in which the Premises are located. The parties shall be
entitled to present evidence to the arbitrators in support of their respective
positions. The arbitrators may not make any determination inconsistent with any
of the terms of this Lease or deprive any parties thereto of any right or
warranty reserved in this Lease or decide any matter other than the specific
issue of Market Rent referred to arbitration as herein provided. The arbitrators
shall not have the power to add to, modify or change any of the provisions of
this Lease. The determination of the arbitrator(s), as provided above, shall be
conclusive upon the parties and shall have the same force and effect as a
judgment made in a court of competent jurisdiction. Judgment on the
determination made by the arbitrator(s) under the foregoing provisions may be
entered in any court of competent jurisdiction. Each party shall pay the fees,
costs and expenses of the arbitrator appointed by such party and of the
attorneys and expert witnesses of such party, and one-half of the other fees,
costs and expenses of the arbitration properly incurred hereunder.
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EXHIBIT A
See plan entitled "A-1 Floor Plan Layout" described in Schedule 1.1.
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SCHEDULE 3.4
ONE SUMMIT SQUARE
CLEANING CONTRACT SPECIFICATIONS
A. SCOPE OF WORK
This facility may not be fully occupied at the start of the cleaning
services contract; however, the contractor will be expected to provide full
services for those portions that are occupied as of the commencement date
specified in the contract. The contractor will be given sufficient notice
as additional portions of the facility are occupied so that contract
services may be extended to these additional spaces. Until such time as
the facility is fully occupied, the contract price will be adjusted by
pro-rating the actual square feet occupied on a rentable basis compared to
the total occupiable square feet on a rentable basis, which is 67,489
rentable square feet.
The Contractor shall provide supervision, manpower, equipment and supplies
necessary to provide janitorial services as described herein. The building
areas to be serviced will be described in writing by the Property Manager
using estimates of area square footages. The Contractor is responsible for
verifying any such estimates by the Property Manager.
The Contractor may be required to supply all janitorial supplies including
all paper products, toilet tissue, hand towels, sanitary napkins and
tampons, hand soap, plastic wastebasket and trash can liners as determined
by the Property Manager.
The Contractor will not be required to provide separation services for
recyclable materials. However, the Contractor will be required to empty
all recycling containers throughout the facility and transport to a central
pick-up facility. The Contractor will also be required to coordinate the
pick-up of these materials with the appropriate entity. The following
items are expected to be segregated and recycled: 1) shredded paper, 2)
mixed paper, 3) glass bottles, 4) aluminum cans, 5) newspaper, 6)
corrugated paper. This list may be adjusted as regulations and conditions
dictate.
B. CLEANING SERVICES REQUIRED
The Contractors performance will be evaluated based upon the cleaning
requirements contained herein.
On normal work days, all cleaning of occupied spaces shall be performed
after 5:30 PM and prior to 10:00 PM with the exception of any tenant spaces
where specific alternate arrangements are made between the tenant, Property
Manager and Contractor. Performance frequency is described in subsequent
sections of this document.
1
<PAGE> 33
SCHEDULE 3.4
ONE SUMMIT SQUARE
CLEANING CONTRACT SPECIFICATIONS
DAILY REQUIREMENTS
1. Toilet Rooms: (Including private toilet rooms)
Floors and walls shall be cleaned utilizing cleaner-disinfectant. Floors
shall be damp mopped with disinfectant and detergent. The floors including
corners and baseboards shall be clean and dry and present an overall
appearance of cleanliness.
Ceramic tile wall surfaces shall be cleaned so as to leave no residue and
shall present a polished look.
Fixtures (toilets, urinals and sinks) shall be clean and bright. Toilets
and urinals shall be properly disinfected. There shall be no obvious dust,
stains, mold or encrustation.
Toilet partitions shall be wiped down with disinfectant as needed.
All mirrors shall be cleaned, leaving no streaks or residue.
All supply dispensers for paper towels and toilet paper shall be filled.
Waste and sanitary napkin receptacles shall be emptied, cleaned and
disinfected. Liner bags shall be replaced daily. Liner bags removed from
the sanitary napkin receptacles shall be collected in separate containers
for disposal. There shall be no obvious signs of dust on any surface.
2. Tenant Space:
All waste generated shall be collected and removed to the trash dumpster
area for removal by others. Ashtrays shall be free of stains and debris and
present a clean appearance.
All horizontal, vertical and under surfaces shall be free of obvious dust,
smudges or spots. Corners, crevices, moldings and ledges shall be free of
obvious dust. (In dusting horizontal surfaces, papers and other items
resting on those surfaces are not to be touched or disturbed).
All glass in sidelights or interior partition walls shall be clean and free
of dust, smudges or spots.
2
<PAGE> 34
Schedule 3.4
ONE SUMMIT SQUARE
CLEANING CONTRACT SPECIFICATIONS
Spots, smudges or other markings on wall and door surfaces shall be removed
without causing unsightly discoloration to the surfaces.
Carpeted surfaces shall be free of obvious dirt, dust and other debris and
shall be vacuumed. Non carpeted floor surfaces shall be clean and free of
debris or foreign matter. No dirt shall be left in corners or near
baseboards, behind doors, or under furniture. all spillages, dirt
accumulation or crust material shall be removed along with spots and
stains. When carpeted areas are spot cleaned, those areas shall blend with
the adjacent areas of the carpet.
Wastebaskets shall be maintained free of dust, debris and residue. Trash
can liners shall be replaced nightly.
3. Entrances, lobbies and Corridors: Floor surfaces shall be clean and free of
debris or foreign matter and be wet mopped. No dirt shall be left in
corners or near baseboards. The finished area shall have a uniform lustre
without unsightly build-up. Carpeted surfaces shall be free of obvious
dirt, dust and other debris and be vacuumed.
Metal surfaces shall be free of smears, smudges or stains. they shall be
clean, bright and polished to a uniform lustre.
Wood surfaces shall be free of dirt, dust or streaks. All horizontal,
vertical and under surfaces shall be free of obvious dust, smudges or
spots. Corners, crevices, moldings and ledges shall be free of obvious
dust.
Glass surfaces shall be clean and free from dust, smudges or spots.
Thresholds shall be clean and free of dirt and debris.
4. Stairways, Landings and Treads: Landing and tread surfaces shall be free of
dirt, dust and other foreign substances and shall present an overall
appearance of cleanliness. Railings, ledges, grilles, fire apparatus and
doors shall be free of dust and foreign substances. Any glass, metal or
wood surfaces shall be free of dust, smudges, stains or spots. These
surfaces shall be wet mopped once per week.
3
<PAGE> 35
SCHEDULE 3.4
ONE SUMMIT SQUARE
CLEANING CONTRACT SPECIFICATIONS
5. Trash Dumpster Area: The entire area shall be kept clean and free of
trash and debris.
6. Elevators: All vertical and horizontal surfaces and doors shall be clean and
free of dirt, dust and smudges. All metal surfaces shall be free of smears,
smudges or stains and shall be clean, bright and polished to a uniform lustre.
Floor tracks and carpets shall be free of dirt and debris. Carpets shall be
thoroughly vacuumed. No dirt shall be left in corners or near baseboards.
8. Ash Receptacles: Cigarette butts, matches and other discarded materials
shall be removed and the receptacle wiped so that it is free of dust, ashes,
odor, tar and streaks. If sand is used, it shall be refreshed or replaced as
necessary to maintain a clean appearance.
9. Drinking Fountains: The fixture surfaces shall be clean and bright, free of
dust, stains and streaks. Fountains shall be kept free of trash, etc. and
nozzles free of encrustation. Metal surfaces shall have a polished lustrous
appearance.
10. Public Telephones: All vertical and horizontal surfaces shall be clean and
free of dirt, dust, smudges or streaks.
11. Storage Space: Floors shall be clean and free of trash and foreign
substances. No dirt shall be left in corners or behind doors.
12. Windows and Glass: Glass in and surrounding exterior and vestibule doors and
lobbies on all floors shall be free of dirt, grime, streaks and moisture. Window
sashes, sills, woodwork and other surroundings of interior glass shall be wiped
clean.
13. Venetian Blinds: Both sides of all venetian blind slats shall be clean and
free of dust, dirt and water spots.
14. Floor Mats: Mats shall be clean and free of dirt, grime, stains and other
foreign matter and shall be thoroughly vacuumed.
4
<PAGE> 36
SCHEDULE 3.4
ONE SUMMIT SQUARE
CLEANING CONTRACT SPECIFICATIONS
Periodic Requirements
1. Restrooms:
a) Every Month: Damp wipe the surface area of all stall partitions, doors,
sills and wastepaper receptacles utilizing a multipurpose
(disinfectant-deodorizer) cleaner.
b) Semi-annually: Strip entire floor and apply appropriate floor finish.
2. Tenant Spaces:
Annually: Strip and apply appropriate floor finish to all non-carpeted
floors.
Monthly: Spray buff with appropriate spray buff solution.
3. High Cleaning:
Quarterly: Clean surfaces and objects in the building that are
approximately 70 inches or more above the floor. This includes but is not
limited to wall and ceiling areas, ventilating and air conditioning
outlets, transoms, clocks, ceiling moldings, tops of partitions, pictures,
plaques, wall or ceiling diffusers, bookcases, etc. Drapes shall be
vacuumed in place.
4. Carpet Cleaning:
Quarterly: All carpeted public corridor shall be cleaned by either dry or
wet extracted methods (as recommended by the carpet manufacturer),
including walk off mats.
5
<PAGE> 37
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made this 11th day of September, 1997 by
and between Summit Square Investors, L.P. ("Landlord") and West Coast
Entertainment Corporation ("Tenant").
BACKGROUND
WHEREAS Landlord and Tenant entered into a certain Office Lease (the
"Lease") dated November 6, 1996 relating to 17,056 square feet of office space
on the second floor of the One Summit Square Building, Route 413 and Double
Woods Road, Langhorne, Middletown Township, Bucks County, Pennsylvania (the
"Building"); and
WHEREAS, Tenant has been occupying 1,411 square feet of space on the first
floor of the Building (the "Temporary Space") on a month to month basis since
February 1, 1997 pursuant to a letter dated February 7, 1997 from Landlord's
general partner to Cushman & Wakefield of Pennsylvania, Inc.; and
WHEREAS, Tenant desires to continue occupying the Temporary Space until
December 31, 1997; and
WHEREAS, Landlord and Tenant desire to modify the Lease as set forth
herein.
NOW THEREFORE, intending to be legally bound, the parties agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Lease.
2. Temporary Space. Landlord hereby ratifies its grant to Tenant of the
right and privilege to occupy and use the Temporary Space in accordance with the
terms of the Lease until December 31, 1997.
3. Consideration. For and in consideration of this amendment, Sections 1.5
and 1.6 of the Lease are deleted in their entirety from the Lease and are of no
further force and effect.
4. Term. The term of the Lease as to the Temporary Space commenced on
February 1, 1997 and terminates on December 31, 1997.
<PAGE> 38
5. Rent. From and after the date hereof, Minimum Rent for the Temporary
Space shall continue to be $1,411.00 per month, payable in advance on the first
day of each month.
6. Ratification of Lease. The use of the Temporary Space by Tenant is
subject to all of the convenants, agreements, terms, provisions, and conditions
of the Lease, and, except as modified by this amendment, such covenants,
agreements, terms, provisions and conditions thereof shall remain in full force
and effect and are hereby ratified and affirmed. There are no amendments to the
Lease other than this amendment.
IN WITNESS WHEREOF, Landlord and Tenant have caused this First Amendment to
Lease to be executed as of the day and year first above written.
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Ralph W. Standley III
------------------------------
Attest:
---------------------------
SUMMIT SQUARE INVESTORS, L.P.
By: Bergen of Newtown, Inc.
By: /s/ Scott A. Williams
---------------------------
Attest:
-----------------------
2
<PAGE> 1
Exhibit 10.23
AGREEMENT
This agreement is made on the 17th day of October, 1997 between BAKER &
TAYLOR INC. (hereinafter "BTE") and WEST COAST ENTERTAINMENT CORPORATION
(hereinafter "WCE").
WHEREAS, BTE desires to sell and WCE desires to purchase certain video
products and related products, the parties agree as follows:
1. Superseding Previous Agreement
The parties had previously entered an agreement on this subject matter
dated October 28, 1996. This Agreement supersedes the agreement dated October
28, 1996 in its entirety.
2. Products and Pricing
a. WCE and BTE will mutually negotiate rental products pricing.
b. Catalog sell-thru products will be priced at 38% off the retail price.
c. New release, hit sell-thru titles will be priced and bid on a title by
title basis.
d. Accessories will be priced at BTE's dealer cost.
3. Payment Terms
WCE will pay BTE all invoices submitted hereunder within 60 days from
invoice date. Any different dating related to a special program such as catalog
orders for new store openings must be agreed to by both parties in writing
prior to shipment of product.
WCE shall pay interest at the rate of 15% per annum on any past due balance
which remains unpaid after 7 days written notification of such delinquency to
WCE.
4. Returns
a. WCE will be eligible to return up to 50% of all catalog sell-thru
purchased from BTE. Product must be eligible for return (ie. not on
moratorium, final sale). Returns must be requested quarterly, and unused
accruals do not roll forward from quarter to quarter.
b. To return product, WCE must call BTE's customer service department
within ninety (90) days of receipt of the product to be returned to
obtain a Return Authorization number (RA). The product must be returned
by WCE within thirty (30) days of receipt of the RA number.
c. WCE shall be allowed to return defective product not to exceed 1% of
any single video title. BTE's only obligation with respect to defective
product will be to issue a replacement to WCE.
1
<PAGE> 2
d. Returns will be processed by BTE and credit memos delivered to WCE
within sixty (60) days after BTE's receipt of the product returned in
accordance with Paragraph 4, A and B above, and must provide that the
credit issued therein may be taken immediately. No deductions from
payments are allowed prior to the issuance of a credit memo for returned
product.
e. WCE agrees that credits issued for the RA numbers listed on the
Attachment A will not be available for reduction of payments until the
4th quarter program is due to BTE (after all authorized returns have
been received and processed by BTE), estimated to be no later than
February 1, 1998.
f. All products returned by WCE to BTE must be with the original
manufacturer's shrink wrap intact (defective returns excepted) and free
of all stickers and other any other markings applied to the product by
WCE. Any product returned not in compliance with the preceding sentence
will be subject to a removal fee of $.15 per unit.
g. A full copy of BTE's return policy is attached hereto and incorporated
by reference herein. Should any inconsistencies exist between the terms
of BTE's return policy attached hereto and this agreement, the terms
contained within this agreement shall prevail.
5. Advertising
a. WCE & BTE will mutually negotiate advertising accruals, on a title per
title basis on net sales of rental product purchased from BTE prior to
the pre-order date published in BTE's Marquee. Fund performance periods
will be communicated for each title.
b. WCE will earn a 4% accrual, exclusive of MDF, on net sales of sell-thru
catalog from studios that offer catalog coop. Funds must be used no
later than ninety (90) days from allocation or according to studio
guidelines.
c. WCE agrees that credits issued for the 4th Quarter mailing as referenced
on Attachment B will not be available for reduction of payment until the
final 4th quarter program is due to BTE (after all authorized returns
have been received and processed by BTE), estimated to be no later than
February 1, 1998.
d. A copy of BTE's coop policy must be adhered to, a copy of which is
attached as Attachment B and incorporated by reference herein. (All
studio and BTE policies must be adhered to by WCE. Should any
inconsistencies exist between the terms of BTE's coop policy attached
hereto and this agreement, the terms contained within this agreement
shall prevail.
2
<PAGE> 3
e. Reimbursement will be made in the form of credit memos issued no later
than sixty (60) days from BTE's receipt and corresponding chargeback
of WCE's proper proof of performance as defined by BTE's coop policy.
f. No deductions from payment will be allowed for any coop advertising
claims prior to the issuance of a credit memo by BTE.
6. Ordering, Shipping and Handling
a. WCE shall contact the designated BTE telemarketing branch to place all
orders for product. However, WCE agrees that all replenishment of 4th
Quarter sell-thru product shall be placed via BTE's TalkMedia automated
order system.
b. BTE will pay all UPS Ground freight costs for all shipments from BTE
shipping warehouses directly to WCE store locations within the
continental US (as directed by WCE).
c. BTE will consolidate shipments using its build order system in order to
save freight and reduce paperwork. Consolidation rules will be jointly
established by WCE and BTE.
d. Under any and all circumstances, risk of loss shall be upon BTE until
the goods are delivered to WCE.
e. BTE will make commercially reasonable efforts to cause all shipment and
deliveries to be timely, subject to each studio's timely delivery of
product to BTE. WCE agrees that product will not be displayed and/or
sold of prior to the official street date as specified by each studio.
WCE agrees that it is responsible for any penalties imposed by any
studio associated with WCE displaying and/or sales of product prior to
street date.
7. Credit Line
BTE will periodically review WCE's financial information and other such
information as it deems appropriate to establish a credit line for WCE. BTE
reserves the right to change such credit line with prior written notice to
WCE.
8. Notices
All notices given by either party shall be in writing and shall be sent by
a nationally recognized overnight courier, by hand delivery, receipt
acknowledged, or by registered or certified mail, return receipt requested, to
the parties at the following addresses:
3
<PAGE> 4
If to BTE: Baker & Taylor, Inc.
c/o Baker & Taylor Entertainment
8140 N. Lehigh Avenue
Morton Grove, IL 60053
Attn: Vice President, Finance
If to WCE: West Coast Entertainment Corporation
One Summit Square, Suite 200
Rte. 413 & Doublewoods Road
Newton, PA 19047
Attn: Richard Kelly
All notices given by courier or by hand delivery will be deemed delivered
when actually delivered and all notices given by registered or certified mail
will be deemed delivered five (5) days after deposit with the US Postal Service.
Any change of address notice given by party will not be deemed given until
actually receive by the recipient party.
9. Term & Termination
a. The term of this Agreement shall be one year from the date of its
execution. This Agreement shall automatically renew for succeeding
additional one-year, terms provided however that this agreement may be
canceled by either party upon not less than sixty (60) days written
notice to the other party. The Agreement will be subject to any
revisions of terms which have been agreed upon by the parties not less
than thirty (30) days prior to any scheduled termination (and the
parties acknowledge that neither will have an obligation to agree to
terms).
b. Either party may cancel the agreement without cause given thirty (30)
days prior written notice.
c. In the event of a breach or default by either party, the other party
shall have the right to terminate this agreement immediately. The party
making such termination for cause shall send written notice of the
termination to the breaching or defaulting party.
d. Each party shall indemnify and hold the other harmless from and against
any and all direct and actual damages, losses, claims, costs and
expenses (including reasonable attorney's fees and interest at the rate
of 15% per annum on any amount in default) arising of or in connection
with any breach by the other of any of its obligations under this
Agreement (this indemnity shall survive the expiration or termination of
this Agreement). Neither party will be liable to the other for indirect
or consequential damages.
e. Termination of this agreement by either party, or upon the expiration of
this agreement will not effect: (1) the obligations of either party
already accrued prior to the effective date of expiration or termination
of the agreement (including obligations with respect to returned
product). (2) the rights of either
4
<PAGE> 5
party with respect to any breach of this Agreement, (3) WCE's rights to
market, promote, sell or return product, which were in WCE's inventory
at the time of expiration or termination, (4) those obligations of the
parties that, by their terms, survive termination or expiration of this
Agreement.
f. In the event of expiration or termination, WCE agrees to promptly
reconcile accounts payable with BTE. BTE and WCE agree to promptly
reconcile rebates, coop credits, returns and other credits and make
final payment in good funds within 60 days of the termination of this
agreement.
10. Compliance and Default
a. BTE shall be WCE's primary (1st source) supplier of sell-through catalog
product for all of its stores, including stores which are opened or
acquired during the term of this Agreement. Accordingly, all of WCE's
order for sell-through catalog product shall be made to BTE prior to
being requested from any other supplier. If BTE is unable to fill an
order for a particular title, in a reasonable period of time, WCE shall
order said title from another supplier. This provision may be limited by
the credit line established by BTE.
b. An event of default by either party is defined to mean:
(1) WCE failing to use BTE as its primary supplier of sell-through
catalog product as defined in the preceding paragraph, or
(2) Failure to make, observe or perform any condition or obligation as
required in this agreement, or
(3) The filing of a voluntary petition in bankruptcy by either party,
or
(4) The filing of an involuntary petition filed against either party,
the appointment of a receiver or trustee by either party, the
extension of an assignment for the benefit of credits of either
party.
c. In the event of a default by WCE, BTE shall have the right to eliminate
all discounts, free freight and coop privileges (excluding funds
previously accrued), such elimination to be effective as of the date of
default. WCE shall, within ten (10) business days of notification from
BTE reimburse BTE for any discounts, free freight or coop privileges
which are forfeited under this provision.
d. The option to terminate this Agreement shall be in addition to, and not
in lieu of any other remedy available to the terminating party under
this Agreement or at law equity, all such remedies being cumulative.
11. Miscellaneous
This agreement contains the entire understanding of the parties, and there
are no representations, warranties, convenants, or undertakings other than those
expressly set forth herein. All prior negotiations, commitments,
representations and undertakings of the parties on this subject matter are
merged in this Agreement.
5
<PAGE> 6
All provisions of this Agreement shall be binding upon the respective
successors, assigns, administrators and representatives of the parties.
Neither party may assign its rights under this Agreement without the prior
written consent of the other party.
This Agreement shall be deemed to have been jointly drafted, such that no
alleged ambiguity in the language of this Agreement shall be construed against
either of the parties.
Amendments or modifications to this Agreement must be in writing and signed
by both parties.
Neither party will be liable for any failure to perform, or delay in the
performance of any of its obligations hereunder (not will same constitute and
Event of Default) if and to the extent the failure or delay is caused, directly
or indirectly, by events beyond its control, such as acts of God, acts of the
public enemy; acts of any governmental body in its sovereign or contractual
capacity, fires, floods, epidemics, quarantine restrictions, strikes or other
labor disputes (except strikes or labor disputes that are not industry wide, but
are brought against WCE or BTE solely), freight embargoes and or unusually
severe weather. Lack of funds by either party will not excuse its timely
performance or its obligations hereunder. In the event of an occurrence
described in the first sentence, the non-performing party affected will be
excused from further performance or observance of the obligator(s) so affected
for as long as such circumstances prevail and if the party continues to use its
best efforts to recommence performance or observance whenever and to whatever
extent possible without delay.
This Agreement shall be construed in accordance with the laws and the State
of Illinois without giving effect to the choice of law rules thereof.
The Waiver or failure of either party to exercise in any respect any right
provided for herein will not be deemed a waiver of any further right hereunder.
The provisions of this Agreement shall be binding upon, and shall inure to
the benefit of the parties hereto and each of their respective successors and
assigns.
6
<PAGE> 7
Both parties warrant that the representatives who have signed below for
each of them, respectively, has the authority to bind the party for whom he or
she signs.
Entered the date written above.
BAKER & TAYLOR, INC.
By Baker & Taylor Entertainment
By: /s/ Sherri L. Sawyer [seal]
---------------------------------
Title: CFO
------------------------------
Printed Name: Sherri L. Sawyer
-----------------------
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Richard Kelly [seal]
----------------------------------
Title: CFO
------------------------------
Printed Name: RICHARD KELLY
------------------------
7
<PAGE> 1
Exhibit 10.24
NORTH CAROLINA
CONSIGNMENT AGREEMENT
MECKLENBURG COUNTY
THIS AGREEMENT is made this 17th day of October, 1997, by and between BAKER
& TAYLOR, INC. (hereinafter "Consignor") and WEST COAST ENTERTAINMENT
CORPORATION (hereinafter "Consignee");
The parties mutually agree as follows:
1. The Consignor agrees to deliver to Consignee on consignment and the
Consignee agrees to accept and receive on consignment certain merchandise
(hereinafter "Merchandise"), a list of which is attached hereto as Exhibit
A and incorporated herein by reference.
2. Title to the Merchandise shall remain in the Consignor until sold by the
Consignee as herein provided.
3. Consignee shall be responsible for the safekeeping of said Merchandise and
to answer to the Consignor for any loss or damage to the same while in
Consignee's actual or constructive possession (until the Merchandise is
sold by the Consignee as herein provided). The Consignee shall provide
insurance on the said Merchandise in an amount of at least $3.5 million,
although the coverage amount shall be allowed to be decreased in proportion
as payments from sales are made as provided herein and shall be increased
as necessary to insure the full value of any replenishment shipments.
Consignee shall instruct the insurer to list the Consignor as the
beneficiary, and Consignor shall be an intended creditor third party
beneficiary to the contract of insurance between the insurer and the
Consignee with full rights to enforce the contract for Consignor's own
benefit. Consignee shall provide verification of such insurance to the
Consignor prior to the Consignor's shipment of the Merchandise.
4. Consignee shall be allowed to sell the Merchandise at such prices and make
payment to Consignor as follows. Because the Consignee does not have a
point of sale system which would enable it to identify at any given time
exactly which items have been sold, the parties agree to the following
payment and commission schedule. Consignee shall be allowed to retain all
proceeds from the sale of Merchandise over and above the sum listed for
each item in Exhibit A as a commission for making such sale. The payment
schedule is based upon estimated sales for all payments except the final
payment. At the time of the final payment, the parties shall make
adjustments in the final payment amount to reflect the actual sales made,
actual shipments made to Consignee, and actual product returned by
Consignee to Consignor. The original shipment, estimated at $3.5 million,
shall be shipped the week ending October 24, 1997. Thereafter,
replenishment shipments.
<PAGE> 2
may be made during the term of this agreement, and such shipments shall be
governed by this agreement.
<TABLE>
<CAPTION>
Payment Returns
Week Ending Schedule Schedule
- ----------- -------- --------
<S> <C> <C>
24 Oct 97
31 Oct 97
07 Nov 97
14 Nov 97
21 Nov 97
28 Nov 97
05 Dec 97 $450,000
12 Dec 97
19 Dec 97 $900,000
26 Dec 97
02 Jan 98
09 Jan 98
16 Jan 98 $450,000
23 Jan 98 Return all unsold products
per terms of this agreement
30 Jan 98
06 Feb 98 Final payment equal to amount of
product shipped to Consignee under
this agreement less previous
payments made and less product
returned in accordance with this
agreement
</TABLE>
If at any point in time prior to a scheduled payment date above, the
replenishment shipments exceed the next scheduled payment, such payment shall
equal such replenishment total. For example, if replenishment shipments of
$500,000 are received before December 5, 1997, the amount due on December 5,
1997 shall be $500,000. Conversely, if replenishments received before December
5, 1997 are $400,000, then the amount due on December 5, 1997 shall be $450,000.
Consignee shall pay interest at the rate of 15% per annum on any balance
required to be paid by Consignee under this agreement, if and when such payments
by Consignee are past their due date. Interest at that rate shall continue to
accrue on the outstanding balance until paid in full.
<PAGE> 3
Payments shall be made by overnight delivery to the following address:
Baker & Taylor Entertainment
1615 Brett Road
New Castle, DE 19720
Attn: Citibank
Lockbox 8035
To return unsold Merchandise, Consignee shall contact a Baker & Taylor Customer
Service Representative for a Return Authorization Number prior to the week of
January 23, 1998. Consignee shall follow the return policy described in Exhibit
B which is attached hereto.
5. Upon the request of the Consignor, Consignee shall generate and provide to
Consignor an itemized and accurate record of the location of the
Merchandise. Consignee shall provide this record within 7 days of the
request from Consignor.
6. All of the Merchandise which remains unsold and the record required in
paragraph 5 shall at all times be subject to inspection by the Consignor or
its representative.
7. In the event of a breach or default by the Consignee, the Consignor shall
be permitted to enter the Consignee's premises (or locations under the
control of the Consignee) at any time to remove any unsold Merchandise and
any monies owned to it under this agreement. In that event, Consignor shall
be entitled to take and remove the amount of monies owned to it under this
Agreement from funds at the Consignee's premises or from any other
locations or accounts where the Consignee has control of funds or legal
title to funds, regardless whether such funds are the identifiable proceeds
of the sale of this Merchandise or not. In the event of a breach or default
by Consignee, Consignee waives any and all defenses to Consignor's removal
of Merchandise and/or to Consignor's collection of monies owed under this
agreement.
8. The parties agree to execute promptly such UCC forms and any other
documents as the other party requests to confirm the existence or terms of
this Agreement. The Consignor shall be entitled to require the Consignee to
sign UCC forms or other forms for public filing prior to Consignee taking
delivery of the Merchandise. Consignee shall pay all filing fees for UCC
forms and attachments (i.e., copies of this agreement attached to the UCC
form). If Consignor advances said filing fees, Consignee shall reimburse
Consignor within 15 days of receiving an invoice for the same.
9. Consignee warrants that this agreement is not in violation of any loan
documents or other financing agreements to which it is a party as of this
execution of this agreement. Both parties warrant that the agents who have
executed this agreement on behalf of each of them have the authority to
bind the respective corporations. Consignee warrants that it has made all
of its banks and financial institutions.
<PAGE> 4
(whether for deposit accounts or for financing) aware of this agreement.
Consignee shall hold Consignor harmless for any breach of these warranties
by Consignee.
10. Copies of records, and verification of insurance shall be delivered to the
Consignor to the following address: Baker & Taylor, Attention: Vice
President of Finance, 8140 N. Lehigh Ave., Morton Grove, IL 60053.
11. In the event the Consignor finds it necessary to take legal action to
enforce the rights under this agreement, Consignee shall be responsible for
all of Consignor's costs in such action, including a reasonable attorney's
fee.
12. This instrument contains the complete agreement of the parties on this
subject. In the event any part of this agreement is determined by a court to
be invalid, the remaining provisions shall remain in full force and effect.
Entered the date written above.
BAKER & TAYLOR, INC.
By Baker & Taylor Entertainment
By: /s/ Sherri L. Sawyer [SEAL]
---------------------------
Authorized Agent
Printed Name: Sherri L. Sawyer
Title: CFO
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Richard Kelly [SEAL]
---------------------------
Authorized Agent
Printed Name: Richard Kelly
Title: CFO
<PAGE> 1
Exhibit 10.25
[INGRAM ENTERTAINMENT LETTERHEAD]
August 26, 1997
Mr. Richard Kelly
Chief Financial Officer
West Coast Entertainment Corporation
One Summit Square, Suite 200
Newtown, PA 19047
Dear Richard:
As per our conversation, the following outlines the agreement reached August 20,
1997.
o AMENDMENT TO AGREEMENT: The July 12, 1995 letter agreement between Ingram
Entertainment Inc. and West Coast Entertainment Corporation (f/k/a RKT
Acquisition Co.), as amended on March 1, 1996 (the "Supply Agreement"), is
further amended as follows:
o Notwithstanding the first sentence of Paragraph 14 of the Supply
Agreement, effective from August 20, 1997 through August 19, 1998, West
Coast Entertainment Corporation agrees to purchase from Ingram
Entertainment Inc. a minimum of 50% of its yearly requirements for
prebooked video rental products, except to the extent it is prevented
from doing so as a result of an insufficient credit line being made
available by Ingram Entertainment Inc. or Ingram Entertainment Inc.'s
ability to fill particular orders.
RENTAL PRICING: Product will continue to be priced at 34.50% discount off
suggested retail on all rental products ($30.00 retail and higher).
ADVERTISING: Co-op on pre-recorded video rental titles will continue to
be handled "in-house" and will be allocated at a rate of 3% for titles
that accrue co-op, following studio guidelines.
GAME BUSINESS: Paragraph 4 of the Supply Agreement will be replaced with
the following:
Ingram Entertainment Inc. will receive a minimum of $2.4
million of Customer Group's game purchases from August 20,
1997 through August 19, 1998, at Ingram Entertainment Inc.'s
gross cost plus 5%. Game product subject to the preceding
sentence is defined as all first and third party releases
from Nintendo, Sony, and Sega and also includes any new game
hardware and software
<PAGE> 2
(Game Business continued)
platforms introduced to the market place by any vendor during the term
of this Agreement. In the event Ingram Entertainment Inc. is unable to
fill 100% of a Customer Group's prebook order for an individual title(s)
due to an allocation of product from a game supplier, Customer Group may
seek other avenues to secure the shortfall.
TERMS: Terms will continue to be as follows:
Payment terms will be net 60 days from invoice for all rental,
sell-through and game product purchases.
CREDIT LINE: $4,000,000.00, subject to adjustment from time-to-time in
accordance with Ingram Entertainment Inc. guidelines and policies.
- - DELINQUENT BALANCE $2,259,716: Ingram Entertainment Inc. has agreed to process
catalog sell-through returns for an amount not to exceed $1,259,716 as
outlined on the attached document (see West Coast Entertainment Corporation
"Catalog Product Returns"). Attached as Exhibit A is a list of invoices in the
total face amount of $1,000,000 (the "Invoice Balance"). West Coast
Entertainment Corporation represents and warrants to Ingram Entertainment Inc.
that each of those invoices is payable in full in the amount set out on
Exhibit A without deduction, setoff, counterclaim, credit, or reduction of any
kind or in any manner (collectively "deductions") and West Coast Entertainment
hereby waives the right to any such deductions which it may have presently or
at any time in the future. In consideration of and in exchange for that
waiver, and for other good and valuable consideration, Ingram Entertainment
Inc. and West Coast Entertainment Corporation agree that the Invoice Balance
will be paid as follows:
1. The $1,000,000 principal amount is payable weekly, beginning September
19, 1997, and continuing on the last day wire transfers may be made
during each subsequent week, in the amount of $19,230.77 per week,
together with interest on the outstanding principal balance at a rate of
3% per annum, calculated on the basis of a 360-day year to the extent
allowed by applicable law; provided, however, that in no event shall the
rate of interest payable on the Invoice Balance exceed the maximum rate
of interest allowed to be charged by applicable law (the "Maximum
Rate").
2. All principal and interest payments required hereunder shall be made by
wire transfer for receipt on the date due, sent per the wire
instructions attached as Exhibit B.
<PAGE> 3
3. All unpaid principal of the Invoice Balance, together with all accrued and
unpaid interest, shall be immediately due and payable in full on March 6,
1998 (the "Maturity Date"); provided, however, that if such payment is not
made in full on the Maturity Date, the Maturity Date will be automatically
extended to May 29, 1998; provided further that in the event of such
automatic extension, the interest rate payable as set out above will
increase to 9% per annum from 3% per annum.
4. The Invoice Balance may be prepaid, in whole or in part, at any time in
principal amounts which are an integral multiple of $10,000, upon two
business days prior notice. All such prepayments shall be applied first to
all accrued but unpaid interest, with the remainder, if any, being applied
to principal.
5. Any payment not received on its due date shall be subject to a late charge
of 2% of the amount due in order to cover the additional expenses incident
to the handling and processing of delinquent payments.
6. In the event there is a non-payment of any part of interest or principal
due under this Agreement; if West Coast Entertainment Corporation makes a
general assignment for the benefit of creditors, or files a voluntary
petition of bankruptcy, or a petition for reorganization under any
bankruptcy law; if a petition in bankruptcy is filed against West Coast
Entertainment Corporation; if a receiver or trustee is appointed for all or
any part of the property or assets of West Coast Entertainment Corporation;
or if any levy, attachment or garnishment is issued, or any lien filed,
against the property of West Coast Entertainment Corporation and not
satisfied or released within 30 days after filing; then in any such case,
the entire unpaid principal amount of the Invoice Balance, together with
all accrued by unpaid interest, shall, at the option of Ingram
Entertainment, Inc., without notice, become due and payable immediately,
and shall thereafter bear interest until paid at an annual rate (the
"Default Rate") equal to lesser of (a) 12.5% per annum, or (b) the Maximum
Rate, regardless of whether or not there has been an acceleration of the
payment of principal as set forth herein. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such
default. Failure to accelerate the maturity of the Invoice Balance, or
indulgence granted from time to time, shall in no event be considered as a
waiver of the right of acceleration or stop Ingram Entertainment Inc. from
exercising that right.
7. If for any reason whatsoever the interest of loan charges paid or
contracted to be paid in respect of the Invoice Balance shall exceed the
maximum amounts collectible under applicable laws in effect from time to
time, the obligation to pay such interest and/or loan charges shall be
reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected that exceed such maximum
amounts shall be applied to reduction of the principal of the Invoice
Balance remaining unpaid and/or
<PAGE> 4
refunded to West Coast Entertainment Corporation so that at no time
shall the interest or loan charges paid or payable in respect of the
Invoice Balance exceed the maximum amounts permitted from time to time
by applicable law.
8. The above provisions regarding the Invoice Balance shall be governed by
the laws of the State of Tennessee. All disputes regarding the Invoice
Balance shall be resolved in the federal or state courts sitting in
Nashville, Tennessee and the parties submit to the non-exclusive
jurisdiction of those courts. INGRAM ENTERTAINMENT INC. AND WEST COAST
ENTERTAINMENT CORPORATION WAIVE TRAIL BY JURY WITH RESPECT TO ANY SUCH
DISPUTE. In the event of litigation, the party not prevailing will pay
all reasonable attorneys fees and related expenses and all court costs
of the prevailing party.
In the event Ingram Entertainment Inc. does not find $1,259,716 worth of
acceptable catalog returns, West Coast Entertainment Corp. will make payment
on demand, in full, of the shortfall between the $1,259,716 return level and
the inventory Ingram Entertainment Inc. finds acceptable.
I believe this is an accurate representation of our discussion. This agreement
differs from the original supply agreement with respect to purchase volume
percentage (50%), adding 42.4 million minimum volume level on the game
business, and addressing the $2,259,716 delinquent balance. The amendments to
the Supply Agreement will remain effective through August 19, 1998, after which
date our supply and purchase relationship will be governed by the July 12,
1995 letter agreement as amended on March 1, 1996.
Please sign below acknowledging your acceptance of the changes set forth in this
document and return an original copy to may attention. If you have any
questions regarding this document please call me at your earliest convenience.
Sincerely,
/s/ Vern Fross
- ---------------
Vern Fross
Accepted by:
West Coast Entertainment Corporation
By: /s/ Richard Kelly
------------------
Richard Kelly
Chief Financial Officer
Date: 9/11/97
------------------
<PAGE> 5
WEST COAST ENTERTAINMENT CORPORATION
"CATALOG PRODUCT RETURNS"
* Maximum amount of returns to be processed $1,259,716.
* Return Authorization Numbers will be assigned to each location and must be
written on the outside of each box. Boxes must be marked 1 of X from each
location.
1. Individual stores will fax copies of the product being returned to our
Customer Service Department, at 515.254.7016, prior to shipment of
product. West Coast Entertainment will provide a list of stores returning
product and the estimated number of units.
* West Coast Entertainment agrees to the following:
1. All returns will be shipped from its retail locations no later than
September 15, 1997.
2. All returns will be shipped to Ingram Entertainment's Savage distribution
center.
Ingram Entertainment Inc.
8779 Greenwood Place
Savage, MD 20763
* Ingram Entertainment will process the returns received and identify the
product it will accept and that which it will reject to West Coast
Entertainment. Ingram Entertainment will accept product that can be
sold to other customers or returned to the manufacturers within a
reasonable amount of time. The decision to accept or reject product is
at the sole discretion of Ingram Entertainment.
* Product we will accept will be credited to your account at Ingram
Entertainment's replacement cost, product being rejected will be
returned to West Coast Entertainment's warehouse on completion of
processing.
* West Coast Entertainment will be responsible for freight charges on all
shipments to Ingram Entertainment and will reimburse Ingram
Entertainment for the freight charges on products returned to West
Coast Entertainment.
<PAGE> 6
WEST COAST CATALOG RETURNS
PAGE 2
3. West Coast Entertainment will not take deductions for these returns, due to
the special nature of this return.
4. Ingram Entertainment will issue credit at its replacement cost. The handling
fees outlined below will be charged back to West Coast Entertainment once
all of the returns have been completely processed:
* A restocking fee of 3% of Ingram Entertainment's replacement cost will be
charged for the product Ingram Entertainment keeps in its inventory.
* A restocking fee of 5% of Ingram Entertainment's replacement cost will be
charged for the product Ingram Entertainment rejects to West Coast
Entertainment.
* Restocking fee charges will be billed separately and spread out over a
five-month period.
Upon receipt of acceptance of the terms and conditions outlined, return
authorizations will be issued and returns will be accepted.
West Coast Entertainment Corporation
By: /s/ Richard Kelly
--------------------------------
Richard Kelly
Chief Financial Officer
Date: 7/11/97
<PAGE> 1
EXHIBIT 10.30
CREDIT AGREEMENT
AGREEMENT, dated as of December 15, 1997, among WEST COAST
ENTERTAINMENT CORPORATION, (the "Company"), VIDEOSMITH INCORPORATED, WEST COAST
FRANCHISING COMPANY, PALMER WEST COAST CORPORATION, PALMER VIDEO CORPORATION,
PALMER INVESTMENT CORPORATION, CASABLANCA DISTRIBUTING CORPORATION, RKT MERGER
CO., SHOWTIME, INC., VIDEO GIANT INC., VIDEO KING OF BROOME COUNTY, INC., KING
VIDEO ENTERPRISES, INC., WEST COAST FINANCING CORPORATION, WEST COAST LICENSING
CORPORATION, those certain direct or indirect subsidiaries of the Company which
from time to time may become parties hereto pursuant to subsection 5.13 (all of
the above, collectively, the "Borrowers"), the several banks and other financial
institutions from time to time parties hereto (the "Banks") and PNC BANK,
NATIONAL ASSOCIATION, as agent for the Banks hereunder (in such capacity, the
"Agent").
W I T N E S S E T H:
WHEREAS, certain of the Borrowers, the Banks and the Agent are
parties to the Existing Credit Agreement (as defined below); and
WHEREAS, the indebtedness outstanding under the Existing
Credit Agreement is being refinanced by this Agreement, which amends and
restates the Existing Credit Agreement.
NOW, THEREFORE, in consideration of the promises and the
agreements hereinafter set forth, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Affiliate": as to any Person, any other Person which,
directly or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person and
any member, director, officer or employee of any such Person. For
purposes of this definition, "control" shall mean the power, directly
or indirectly, either to (a) vote 10% or more of the securities having
ordinary voting power for the election of directors of such Person or
(b) direct or in effect cause the direction of the management and
policies of such Person whether by contract or otherwise.
<PAGE> 2
"Agreement": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Applicable Margin": on any date, for a Base Rate Tranche A
Loan, Base Rate Tranche B Loan, Eurodollar Tranche A Loan or Eurodollar
Tranche B Loan, the percentage per annum set forth below in the column
entitled Base Rate or Eurodollar Rate, as appropriate, opposite the
Total Debt/OCF Ratio shown on the last Total Debt/OCF Ratio Certificate
delivered by the Borrowers to the Agent pursuant to subsection 5.2(c)
prior to such date:
<TABLE>
<CAPTION>
Level Total Debt/OCF Ratio Base Rate Eurodollar Rate
----- -------------------- --------- ---------------
Tranche A Tranche B Tranche A Tranche B
Loans Loans Loans Loans
----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
I Less than 1.25 to 1 .25% 2.25% 1.75% 3.75%
II Less than 1.75 to 1 but greater .50% 2.50% 2.00% 4.00%
than or equal to 1.25 to 1
III Less than 2.25 to 1 but greater .75% 2.75% 2.25% 4.25%
than or equal to 1.75 to 1
IV Less than 3.00 to 1 but greater 1.00% 3.00% 2.50% 4.50%
than or equal to 2.25 to 1
V Less than 3.75 to 1 but greater 1.25% 3.25% 2.75% 4.75%
than or equal to 3.00 to 1
VI Greater than or equal to 3.75 1.50% 3.50% 3.00% 5.00%
to 1
</TABLE>
; provided, however, that (a) in the event that no Total Debt/OCF Ratio
Certificate has been delivered for a fiscal quarter prior to the last
date on which it can be delivered without violation of subsection
5.2(c), the Applicable Margin from such date until such Total Debt/OCF
Ratio Certificate is actually delivered shall be that applicable when
the Total Debt/OCF Ratio is equal to or greater than 3.75 to 1 (i.e.,
Level VI), (b) in the event that the actual Total Debt/OCF Ratio for
any fiscal period is subsequently determined to be greater than that
set forth in the Total Debt/OCF Ratio Certificate for such fiscal
period, the Applicable Margin shall be recalculated for the applicable
period based upon such actual Total Debt/OCF Ratio and (c) anything in
this definition to the contrary notwithstanding, until receipt by the
Agent of the Total Debt/OCF Ratio Certificate for the fiscal quarter
ended October 31, 1997, the Applicable Margin shall be that applicable
when the Total Debt/OCF Ratio is at Level VI. Any additional interest
on the Loans resulting from the operation of clause (b) above shall be
payable by the Borrowers jointly and severally to the Banks within five
(5) days after receipt of a written demand therefor from the Agent.
2
<PAGE> 3
"Application": in respect of each Letter of Credit issued by
an Issuing Bank, an application, in such form as such Issuing Bank may
specify from time to time, requesting issuance of such Letter of
Credit.
"Asset Sale": means any sale, lease, transfer or other
disposition of assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any Subsidiary (other
than a disposition by a Borrower to a different Borrower), other than
(a) dispositions of inventory in the ordinary course of business, (b)
dispositions of surplus or obsolete inventory or equipment, waste or
by-product material in the ordinary course of business and (c)
dispositions of Permitted Investments.
"Assignment and Acceptance": an assignment and acceptance
entered into by a Bank and a Purchasing Bank, and accepted by the
Agent, in the form of Exhibit B attached hereto, or such other form as
shall be approved by the Agent.
"Available Commitments": at any particular time, an amount
equal to the excess, if any, of (a) the Total Commitments at such time
over (b) the sum of (i) the aggregate unpaid principal amount of the
Loans outstanding at such time and (ii) the aggregate L/C Obligations
then outstanding.
"Available Tranche A Commitments": at any particular time, an
amount equal to the excess, if any, of the (a) Tranche A Commitments at
such time over (b) the sum of (i) the aggregate unpaid principal amount
of the Tranche A Loans outstanding at such time and (ii) the aggregate
L/C Obligations then outstanding.
"Available Tranche B Commitments": at any particular time, an
amount equal to the excess, if any, of the (a) Tranche B Commitments at
such time over (b) aggregate unpaid principal amount of the Tranche B
Loans outstanding at such time.
"Base Rate": for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any
reason the Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate for any reason, including the inability or
failure of the Agent to obtain sufficient quotations in accordance with
the definition of such term, the Base Rate shall be determined without
regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change
in the
3
<PAGE> 4
Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change
in the Prime Rate or the Federal Funds Effective Rate, as the case may
be.
"Base Rate Loan": a Loan bearing interest at a rate determined
by reference to the Base Rate. A Base Rate Loan shall either be a Base
Rate Tranche A Loan or a Base Rate Tranche B Loan.
"Base Rate Tranche A Loan": a Tranche A Loan which is a Base
Rate Loan.
"Base Rate Tranche B Loan": a Tranche B Loan which is a Base
Rate Loan.
"Borrowing Date": any Business Day on which a Loan is to be
made at the request of the Borrowers under this Agreement.
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in Philadelphia, Pennsylvania are
authorized or required by law to close; provided, however, that, when
used in connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in
dollar deposits in the London Interbank Market.
"Capital Expenditure": an expenditure for any fixed asset or
any improvements or additions thereto, including direct or indirect
acquisition of such asset, which expenditure is capitalized in
accordance with GAAP.
"Capital Expenditures Projection Letter": the letter dated the
Closing Date from the Company to the Agent setting forth the projected
capital expenditures of the Borrowers.
"Capital Lease": at any time, a lease with respect to which
the lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Lease Obligations": of any Person as of the date of
determination, the obligations of such Person to pay rent and other
amounts under any Capital Lease.
"Capital Stock": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
4
<PAGE> 5
"Cash Flow": for any period and with respect to any business
or segment acquired by a Borrower, the net income (or loss) before
income tax for such business or segment determined in accordance with
GAAP plus the amount of any interest expense, depreciation and
amortization deducted from earnings in determining such net income (or
loss) minus the greater of (a) the aggregate purchase price for all
rental video cassettes, rental digital video discs and rental game
inventory purchases (or like inventory purchases) (other than Core
Inventory Purchases) for such period by such business or segment and
(b) an amount equal to 22.5% of the gross revenue of such business or
segment derived in such period from the rental of videos, digital video
discs, game cassettes or any other similar merchandise as determined in
accordance with GAAP; provided that, there also shall be excluded from
such net income (or loss) (a) any addition for non-operating gains
during such period (including without limitation, extraordinary or
unusual gains, gains arising from the discontinuance of operations or
gains arising from the sale of capital assets) and (b) any subtraction
for non-operating losses during such period (including, without
limitation, extraordinary or unusual losses, losses from the
discontinuance of operations or losses arising from the sale of capital
assets).
"Change of Control": (a) any Person or group of Persons
(within the meaning of Sections 13(d) and 14(d) of the Exchange Act)
(other than any combination of Ralph W. Standley, III, M. Trent
Standley and/or T. Kyle Standley, the Company's existing executive
officers, the Company's Continuing Directors and trusts for the benefit
of themselves and their family members) shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Exchange Act) of 20% or
more of the outstanding shares of any class of outstanding common stock
of the Company or (b) Continuing Directors shall cease to constitute a
majority of the board of directors of the Company. "Continuing
Director" shall mean at any date a member of the Company's board of
directors who was either a member of such board on the Closing Date or
was nominated for election to such board by at least two-thirds of the
Continuing Directors then in office.
"Closing": as defined in subsection 4.3.
"Closing Date": as defined in subsection 4.3.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral": all property and interests in property and
proceeds thereof now owned or hereafter acquired by any Borrower or
Guarantor in or upon which a lien shall be
5
<PAGE> 6
created or purported to be created under any of the Security Documents.
"Commitment Holdback Amount": (a) for the period from November
1, 1998 to December 15, 1998, $3,000,000; (b) for the period from
February 1, 1999 to May 1, 1999, $2,000,000; and (c) for the period
from May 1, 1999 to June 15, 1999, $2,000,000.
"Commitments": as to any Bank, the Tranche A Commitment and
the Tranche B Commitment of such Bank.
"Commitment Fees": those certain fees payable to the Banks on
the Available Commitments as described in subsection 2.12(a) .
"Commitment Fee Rate": on each day during each fiscal quarter
of the Company, the percentage per annum set forth below opposite the
Total Debt/OCF Ratio shown on the last Total Debt/OCF Ratio Certificate
delivered to the Agent pursuant to subsection 5.2(c) prior to such
date:
<TABLE>
<CAPTION>
Level Total Debt/OCF Ratio Commitment Fee Rate
----- -------------------- -------------------
<S> <C> <C>
I Less than 1.25 to 1 .30%
II Less than 1.75 to 1 but
greater than or equal to
1.25 to 1 .35%
III Less than 2.25 to 1 but
greater than or equal to
1.75 to 1 .40%
IV Less than 3.00 to 1 but
greater than or equal to
2.25 to 1 .45%
V Less than 3.75 to 1 but
greater than or equal to
3.00 to 1 .50%
VI Greater than or equal to
3.75 to 1 .50%
</TABLE>
; provided, however, that, (a) in the event that no Total Debt/OCF
Ratio Certificate has been delivered prior to the last day on which it
can be delivered without violation of subsection 5.2(c), the Commitment
Fee Rate from such date until such Total Debt/OCF Ratio Certificate is
actually delivered shall be that applicable when the Total Debt/OCF
Ratio is equal to or greater than 3.75 to 1 (i.e., Level VI), (b) in
the event that the actual Total Debt/OCF Ratio for any
6
<PAGE> 7
fiscal period is subsequently determined to be greater than that set
forth in the Total Debt/OCF Ratio Certificate for such fiscal period,
the Commitment Fee Rate shall be recalculated for such fiscal period
based upon such actual Total Debt/OCF Ratio and (c) anything in this
definition to the contrary notwithstanding, until receipt by the Agent
of the Total Debt/OCF Ratio Certificate for the fiscal quarter ended
October 31, 1997, the Commitment Fee Rate shall be that applicable when
the Total Debt/OCF Ratio is at Level VI. Any additional Commitment Fees
that are due to the Banks resulting from the operation of clause (b)
above shall be payable by the Borrowers jointly and severally within
five (5) days after receipt of a written demand therefor from the
Agent.
"Commitment Percentage": as to any Bank at any time, the
percentage which such Bank's Commitments then constitutes of the Total
Commitments at such time (or, at any time after the Total Commitments
shall have expired or terminated, the percentage which the amount of
such Bank's Exposure constitutes of the Exposure of all of the Banks at
such time).
"Commitment Period": the period from and including the date
hereof to but not including the Termination Date, or such earlier date
on which the Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA or is part of a group which includes
the Company and which is treated as a single employer under Section
414(b), (c), (m) or (o) of the Code.
"Consolidated Fixed Charges": without duplication, for any
period, (a) Consolidated Interest Expense for such period, plus (b)
federal and state income taxes paid in cash with respect to such period
plus (c) scheduled principal payments of Indebtedness (including under
Capital Leases) in such period, all as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense": for any period, the amount of
cash interest expense paid or required to be paid by the Company and
its Subsidiaries for such period in accordance with GAAP.
"Consolidated Net Income": for any fiscal period, the net
income (or loss) after income taxes of the Company and its Subsidiaries
for such period determined on a consolidated basis in accordance with
GAAP.
7
<PAGE> 8
"Consolidated Net Worth": as of the date of determination, all
items which in conformity with GAAP would be included under
shareholders' equity on a consolidated balance sheet of the Company and
its Subsidiaries at such date.
"Contingent Obligation": as to any Person any guarantee of
payment or performance by such Person of any Indebtedness or other
obligation of any other Person, or any agreement to provide financial
assurance with respect to the financial condition, or the payment of
the obligations of, such other Person (including, without limitation,
purchase or repurchase agreements, reimbursement agreements with
respect to letters of credit or acceptances, indemnity arrangements,
grants of security interests to support the obligations of another
Person, keepwell agreements and take-or-pay or through-put
arrangements) which has the effect of assuring or holding harmless any
third Person against loss with respect to one or more obligations owed
to such third Person; provided, however, the term Contingent Obligation
shall not include endorsements of instruments for deposit or collection
in the ordinary course of business. The amount of any Contingent
Obligation of any Person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made and
(b) the maximum amount for which such contingently liable Person may be
liable pursuant to the terms of the instrument embodying such
Contingent Obligation, unless such primary obligation and the maximum
amount for which such contingently liable Person may be liable are not
stated or determinable, in which case the amount of such Contingent
Obligation shall be such contingently liable Person's maximum
reasonably anticipated liability in respect thereof as determined by
the Company in good faith.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or any provision of any agreement,
instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.
"Core Inventory Purchases": with respect to any Person, rental
video cassettes, rental digital video discs and rental game inventory
purchases (or like inventory purchases) by such Person to initially
stock new video stores opened by such Person (including relocated
stores) or to provide additional catalog title for just acquired stores
by such Person.
"Default": any of the events specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition precedent
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therein set forth, has been satisfied.
"Distribution": in respect of any corporation, (a) dividends
or other distributions on Capital Stock of the corporation (except
distributions in common stock of such corporation); (b) the redemption
or acquisition of such stock or of warrants, rights or other options to
purchase such stock (except when solely in exchange for common stock of
such corporation); and (c) any payment on account of, or the setting
apart of any assets for a sinking or other analogous fund for, the
purchase, redemption, defeasance, retirement or other acquisition of
any share of any class of Capital Stock of such corporation or any
warrants or options to purchase any such stock.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Environmental Laws": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or binding requirements of any Governmental
Authority, or binding Requirement of Law regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by
a member bank of such System.
"Eurodollar Base Rate": with respect to any Eurodollar Loan
for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/100th of 1%) equal to the rate determined
by the Agent in accordance with its usual procedures at which deposits
in Dollars approximately equal in principal amount to the Agent's
portion of such Eurodollar Loan for a maturity equal to the applicable
Interest Period are offered by banks in the London Interbank Market to
prime banks in immediately available funds in the London Interbank
Market at approximately 11:00 a.m., London Time, two Business Days
prior to the
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commencement of such Interest Period.
"Eurodollar Loan": a Loan bearing interest at a rate
determined by reference to the Eurodollar Rate. A Eurodollar Loan shall
either be a Eurodollar Tranche A Loan or a Eurodollar Tranche B Loan.
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche A Loan": a Tranche A Loan which is a
Eurodollar Loan.
"Eurodollar Tranche B Loan": a Tranche B Loan which is a
Eurodollar Loan.
"Event of Default": any of the events specified in Section 7,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Exchange Act": the Securities and Exchange Act of 1934, as
amended.
"Existing Credit Agreement": means the Credit Agreement, dated
as of May 17, 1996, among the Company, certain of the Borrowers, the
banks and other financial institutions parties thereto and PNC Bank,
National Association, as agent, as heretofore amended, supplemented or
otherwise modified.
"Existing Indebtedness": the collective reference to the
Existing Principal Indebtedness and the other amounts payable under the
Existing Credit Agreement by all or a portion of the Borrowers
immediately prior to the Closing, including accrued interest on the
Loans (as defined in the Existing Credit Agreement).
"Existing Notes": the Notes, as defined in the Existing Credit
Agreement.
"Existing Principal Indebtedness": the principal amount of the
Loans (as defined in the Existing Credit Agreement) outstanding
immediately prior to the Closing.
"Exposure": as to any Bank at any time, an amount
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equal to the sum of (a) the aggregate principal amount of the Loans
made by such Bank then outstanding and (b) such Bank's share of the L/C
Obligations then outstanding.
"Extensions of Credit": the collective reference to the Loans
made and Letters of Credit issued under this Agreement.
"Federal Funds Effective Rate": for any day, the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds
brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Fee Letter": the letter agreement between the Company, the
Agent and PNC Securities Corp. dated October 30, 1997 in which the
Company agrees, among other things, to pay such parties the fees
provided in such letter, as the same may be amended, supplemented or
otherwise modified from time to time.
"Form S-1": that certain Registration Statement of the Company
on Form S-1 (No. 333-00272) (including amendments thereto) initially
filed with the Securities and Exchange Commission on or about January
11, 1996.
"GAAP": at any time with respect to the determination of the
character or amount of any asset or liability or item of income or
expense, or any consolidation or other accounting computation,
generally accepted accounting principles as in effect on the date of,
or at the end of the period covered by, the financial statements from
which such asset, liability, item of income, or item of expense, is
derived, or, in the case of any such computation, as in effect on the
date when such computation is required to be determined.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee": a Guarantee executed and delivered after
the Closing Date by a Guarantor in favor of the Agent and the
Banks, substantially in the form of Exhibit E hereto, as the same may
be amended, supplemented or otherwise modified from time to time.
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"Guarantor": a Subsidiary of the Company which after the
Closing Date executes a Guarantee pursuant to subsection 5.13.
"Indebtedness": of any Person at any date:
(a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with
customary practices),
(b) any other indebtedness which is evidenced by a
note, bond, debenture or similar instrument,
(c) all Capital Lease Obligations of such Person,
(d) all obligations of such Person in respect of
outstanding letters of credit, acceptances and similar
obligations created for the account of such Person,
(e) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof,
(f) net liabilities of such Person under interest
rate cap agreements, interest rate swap agreements, foreign
currency exchange agreements, netting agreements and other
hedging agreements or arrangements (calculated on a basis
satisfactory to the Agent and in accordance with accepted
practice), and
(g) withdrawal liabilities of such Person or any
Commonly Controlled Entity under a Plan.
The Indebtedness of any Person shall include any Indebtedness of any
partnership in which such Person is the general partner.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": has the meaning ascribed thereto in
subsection 3.16.
"Interest Payment Date": (a) as to any Base Rate Loan, the
last day of each March, June, September and December while such Loan is
outstanding, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last
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day of such Interest Period, and (c) as to any Eurodollar Loan having
an Interest Period longer than three months, the day which is (i) three
months after the first day of such Interest Period and (ii) the last
day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially the period commencing on the borrowing
or conversion date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrowers in their notice of
borrowing or notice of conversion, given with respect thereto;
and
(b) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrowers by irrevocable notice
to the Agent not less than three Business Days prior to the
last day of the then current Interest Period with respect
thereto;
provided that, the foregoing provisions relating to Interest Periods
are subject to the following:
(i) if any Interest Period would end on a
day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next
preceding Business Day;
(ii) with respect to Eurodollar Loans, any
Interest Period 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 a
calendar month;
(iii) an Interest Period that would extend
beyond the Termination Date shall end on the Termination Date;
and
(iv) the Borrowers shall select Interest
Periods so as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period for such Loan.
"Interest Rate Hedge Agreement": as defined in subsection
5.14.
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"Issuing Bank:" PNC Bank, National Association and such other
Bank or Banks that may be designated by the Company from time to time
and approved by the Agent to be an Issuing Bank hereunder.
"Joinder Agreement": a Joinder Agreement, substantially in the
form of Exhibit F, executed and delivered by a Subsidiary of the
Company pursuant to subsection 5.13 pursuant to which such Subsidiary
shall become a Borrower hereunder, as such Joinder Agreement may be
amended, supplemented or otherwise modified from time to time.
"L/C Commitment": $1,000,000.
"L/C Fee Payment Date": the last day of each March, June,
September and December.
"L/C Obligations": at any time, an amount equal to the sum of
(a) 100% of the maximum amount available to be drawn under all Letters
of Credit outstanding at such time (determined without regard to
whether any conditions to drawing could be met at such time) and (b)
the aggregate amount of drawings under Letters of Credit which have not
then been reimbursed pursuant to Section 2.8(a).
"L/C Participant": in respect of each Letter of Credit, each
Bank (other than the Issuing Bank in respect of such Letter of Credit)
in its capacity as the holder of a participating interest in such
Letter of Credit.
"Letters of Credit": as defined in Section 2.4(a).
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Capital Lease having substantially the same
economic effect as any of the foregoing).
"Loan Documents": this Agreement, the Notes, the Applications,
the Joinders, the Security Agreements, the Pledge Agreements, the
Guarantees and any other Security Document executed from time to time
as each such document may be amended, supplemented or otherwise
modified from time to time.
"Loans": the collective reference to the Tranche A Loans and
the Tranche B Loans.
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"Material Adverse Effect": a material adverse effect on (a)
the business, operations, property or condition (financial or
otherwise) of the Company and the other Borrowers taken as a whole, (b)
the ability of the Company and the other Borrowers to perform their
obligations under this Agreement, the Notes or any other Loan Document
or (c) the validity or enforceability of this Agreement, the Notes, the
Applications or any of the other Loan Documents or the rights or
remedies of the Agent or the Banks hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls, and
ureaformaldehyde insulation.
"Moody's": Moody's Investors Services, Inc.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Proceeds": (a) with respect to any Asset Sale, the amount
equal to (i) the aggregate amount received in cash (including any cash
received by way of deferred payment pursuant to, or upon the
disposition, liquidation or conversion of, a note receivable, other
non-cash consideration or otherwise, but only as and when such cash is
so received) in connection with such sale or other disposition minus
(ii) the sum of (A) the principal amount of any Indebtedness which is
secured by the asset that is the subject of such Asset Sale (other than
Indebtedness assumed by the purchaser of such asset) and which is
required to be, and is, repaid in connection with such Asset Sale or
other disposition thereof (other than Indebtedness hereunder) and (B)
the reasonable fees, commissions, income taxes and other out-of-pocket
expenses incurred by the Company or such Subsidiary (other than to the
Company or any Affiliate thereof); and (b) with respect to the sale or
issuance of any Capital Stock by the Company or any of its
Subsidiaries, the net amount equal to (i) the aggregate amount received
in cash in connection with such sale or issuance minus (ii) the
reasonable fees, commissions and other out-of-pocket expenses incurred
by the Company or such Subsidiary in connection with such sale or
issuance other than to the Company or any Affiliate thereof.
"New Bank Joinder": a Joinder and Assumption Agreement
executed and delivered by a Proposed New Bank and consented to by the
Agent and the Company, in a form acceptable to the Agent in its
reasonable discretion.
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<PAGE> 16
"Notes": the collective reference to the Tranche A Notes and
the Tranche B Notes.
"Notice of Borrowing": with respect to a Loan of any Type, a
notice from the Borrowers in respect of such Loan, containing the
information in respect of such Loan and delivered to the Agent, in the
manner and by the time specified pursuant to the terms hereof. A form
of the Notice of Borrowing is attached hereto as Exhibit G.
"OCF": for any period, Consolidated Net Income for such
period, plus the amount of income taxes, interest expense, depreciation
and amortization deducted from earnings in determining such
Consolidated Net Income, plus for any period that includes the fiscal
quarter ended July 31, 1997, an amount equal to the aggregate amount of
any charges to Consolidated Net Income during such fiscal quarter, up
to in the aggregate $5,125,000, on account of the failed public debt
offerings of the Borrowers, including costs associated with the related
proposed bank credit facilities, plus for the period ended (a) October
31, 1997, $1,955,000, (b) January 31, 1998, $1,369,000, (c) April 30,
1998, $782,000 and (d) July 31, 1998, $196,000, in each case on account
of certain regional and executive salary and office expense reductions
previously documented to the Banks minus the greater of (x) the
aggregate purchase price for all rental video cassettes, rental digital
video discs and rental game inventory purchases (or like inventory
purchases) (other than Core Inventory Purchases) for such period and
(y) an amount equal to 22.5% of Rental Revenue for such period;
provided that, there also shall be excluded from Consolidated Net
Income (a) any addition for non-operating gains during such period
(including, without limitation, extraordinary or unusual gains, gains
from discontinuance of operations or gains arising from the sale of
capital assets) and (b) any subtraction for non-operating losses during
such period (including, without limitation, extraordinary or unusual
losses, losses from the discontinuance of operations or losses arising
from the sale of capital assets); provided, further, that, if during
such period a Borrower shall acquire the stock or assets of a Person
that operates a video retail business, OCF will be adjusted to include
the pro forma results of the acquired company or assets from the
beginning of such period taking into account any quantifiable cost
savings as a result of such stock or assets being acquired by a
Borrower as demonstrated by the Borrowers and agreed to by the Agent in
its reasonable discretion, which quantifiable expense reductions shall
be of a type reflected in the pro forma financial statements contained
in the Form S-1.
"Participant" as defined in subsection 9.6(f).
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"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Acquisition": an acquisition by a Borrower of the
stock or assets of a Person that operates a video rental business;
provided that (a) if the Total Debt/OCF Ratio shown on the last Total
Debt/OCF Ratio Certificate delivered by the Borrowers to the Agent
pursuant to subsection 5.2(c) prior to the date of such acquisition
shall (i) be less than 3.00 to 1.00, the Required Banks shall have
consented to the consummation of such acquisition in writing or (ii) be
greater than or equal to 3.00 to 1.00, all of the Banks shall have
consented to the consummation of such acquisition in writing; (b) at
the time that any definitive agreement is entered into in respect of
such acquisition, no Default or Event of Default shall exist or would
exist if such acquisition were consummated on such date (assuming for
purposes of the covenants contained in subsection 6.1 that pro forma
adjustments are made to the financial statements of the Borrowers
reflecting such acquisition); and (c) the Cash Flow for the prior
fiscal year of the business or segment which is being so acquired (with
such adjustments to Cash Flow to take into account any quantifiable
cost savings as a result of such business or segment being acquired by
such Borrower as demonstrated by the Borrowers and agreed to by the
Agent in its reasonable discretion, including any quantifiable expense
reductions of the type reflected in the pro forma financial statements
contained in the Form S-1) shall be greater than zero.
"Permitted Investments":
(i) direct obligations of the United States
of America or any agency or instrumentality thereof or
obligations backed by the full faith and credit of the United
States of America maturing in twelve months or less from the
date of acquisition;
(ii) commercial paper maturing in 180 days
or less rated not lower than A-1 by S&P or P-1 by Moody's on
the date of acquisition; and
(iii) demand deposits, time deposits or
certificates of deposit maturing within one year in commercial
banks whose obligations are rated A-1, A or the equivalent or
better by S&P or Moody's on the date of acquisition.
provided, that, in each case, such obligations are payable in Dollars.
"Permitted Liens" shall mean:
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(a) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business and which are not yet due
and payable;
(b) Pledges or deposits made in the ordinary course
of business to secure payment of workmen's compensation, or to
participate in any fund in connection with workmen's compensation,
unemployment insurance, old-age pensions or other social security
programs;
(c) Liens of mechanics, materialmen, warehousemen,
carriers, or other like Liens, securing obligations incurred in the
ordinary course of business that are not yet due and payable and Liens
of landlords securing obligations to pay lease payments that are not
yet due and payable or in default;
(d) Good faith pledges or deposits made in the
ordinary course of business to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases,
not in excess of the aggregate amount due thereunder, or to secure
statutory obligations, or surety, appeal, indemnity, performance or
other similar bonds required in the ordinary course of business;
(e) Encumbrances consisting of zoning restrictions,
easements or other restrictions on the use of real property, none of
which materially impairs the use of such property or the value thereof,
and none of which is violated in any material respect by existing or
proposed structures or land use;
(f) Liens created pursuant to the Security Documents;
(g) Any Lien existing on the date of this Agreement
and described on Schedule II hereto provided that the principal amount
secured thereby is not hereafter increased and no additional assets
become subject to such Lien;
(h) Purchase Money Security Interests or Liens
created pursuant to Capital Leases; provided that the aggregate amount
of (i) loans and deferred payments secured by all Purchase Money
Security Interests and (ii) the aggregate principal component of all
Capital Leases shall not exceed in the aggregate $2,000,000 (excluding
for the purpose of this computation any loans or deferred payments
secured by Liens described on Schedule II hereto); provided further
that, (i) such Liens shall be created simultaneously with the
acquisition of the property which is subject to such Lien, (ii) such
Liens do not at any time encumber any property other than such property
and (iii) the Liens are not modified
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to secure any Indebtedness other than that used to acquire such
Property;
(i) The following, (i) if the validity or amount
thereof is being contested in good faith by appropriate and lawful
proceedings diligently conducted so long as levy and execution thereon
have been stayed and continue to be stayed or (ii) if a final judgment
is entered and such judgment is discharged within thirty (30) days of
entry, and in either case they do not affect the Collateral or, in the
aggregate, materially impair the ability of the Borrowers to perform
their obligations hereunder or under the other Loan Documents:
(A) Claims or Liens for taxes, assessments
or charges due and payable and subject to interest or penalty,
provided that the Borrowers maintain such reserves or other
appropriate provisions as shall be required by GAAP and pay
all such taxes, assessments or charges forthwith upon the
commencement of proceedings to foreclose any such Lien;
(B) Claims, Liens or encumbrances upon, and
defects of title to, real or personal property, including any
attachment of personal or real property or other legal process
prior to adjudication of a dispute on the merits; or
(C) Claims or Liens of mechanics,
materialmen, warehousemen, carriers, or other statutory
nonconsensual Liens which are due and payable; and
(j) Uniform Commercial Code financing statements
filed by the lessor under an operating lease against property leased by
a Borrower under such operating lease.
"Person": an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which a Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledge Agreements": the collective reference to (a) the
Pledge Agreements to be executed by the Company and certain of the
other Borrowers on the Closing Date and (b) any other Pledge Agreement
executed and delivered by one or more Borrowers or Guarantors pursuant
to subsection 5.13,
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each substantially in the form of Exhibit C-1 or C-2 attached hereto,
as the same may be amended, supplemented or otherwise modified from
time to time.
"Prime Rate": the rate of interest per annum publicly
announced from time to time by PNC Bank, National Association as its
prime rate in effect at its principal office in Philadelphia,
Pennsylvania; each change in the Prime Rate shall be effective on the
date such change is publicly announced as effective.
"Properties": the collective reference to the facilities and
properties owned, leased or operated by the Company or any of its
Subsidiaries.
"Proposed New Bank": as defined in subsection 2.16(g).
"Purchase Money Security Interest": shall mean Liens upon
tangible personal property securing loans to one or more Borrowers or
deferred payments by one or more Borrowers for the purchase of such
tangible personal property.
"Purchasing Bank": as defined in subsection 9.6(b).
"Register": as defined in subsection 9.6(d).
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Regulation X": Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Reimbursement Obligation": in respect of each Letter of
Credit, the obligation of the Borrowers to reimburse the Issuing Bank
of such Letter of Credit in accordance with subsection 2.8(a) and the
Application related to such Letter of Credit for amounts drawn under
such Letter of Credit.
"Rental Revenue": for any period, the gross revenue of the
Company and its Subsidiaries derived in such period from the rental of
videos, game cassettes, digital video discs or any other similar
merchandise rented by the Company or its Subsidiaries, as determined in
accordance with GAAP.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in
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Section 4043(c)(1), (2), (4), (5), (6), (10) and (13) of ERISA.
"Required Banks": at any time, Banks the Commitment
Percentages of which at such time aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case binding upon such Person or any of its property
or to which such Person or any of its property is subject.
"Responsible Officer": with respect to any Borrower, the chief
executive officer, president or chief financial officer of such
Borrower. Unless otherwise qualified, all references to a "Responsible
Officer" in this Agreement shall refer to a Responsible Officer of the
Company.
"S&P": Standard & Poor's Rating Group, a division of
McGraw-Hill Corporation.
"Security": "security" as defined in Section 2(1) of the
Securities Act of 1933, as amended.
"Security Agreements": the collective reference to (a) the
Security Agreement to be executed by all of the Borrowers on the
Closing Date and (b) any other Security Agreement executed and
delivered after the Closing Date by one or more Borrowers or Guarantors
pursuant to subsection 5.13, each substantially in the form of Exhibit
D attached hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Security Documents": the Security Agreements, the Pledge
Agreements and all other documents executed after the Closing Date
granting or purporting to grant a Lien on Collateral.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Subordinated Debt": Indebtedness of a Borrower which is
subordinated in right of payment to all of the obligations of all of
the Borrowers to the Banks under the Loan Documents on terms
satisfactory to the Required Banks.
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a
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majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Company.
"Taxes": as defined in subsection 2.21.
"Termination Date": the earlier of (a) December 14, 2000, or
any anniversary of such date to which the Termination Date shall have
been extended pursuant to subsection 2.16(f) hereof and (b) the date
the Commitments are terminated as provided herein; provided that, in no
event shall the Termination Date be extended beyond December 14, 2002.
"Total Commitments": at any time, the aggregate amount of the
Banks' Commitments, as in effect at such time.
"Total Debt": at any date, without duplication, the sum of (a)
the aggregate of all Indebtedness (including Subordinated Debt, the
current portion of Indebtedness and the undrawn face amount of any
letters of credit then outstanding) of the Company and its
Subsidiaries, determined on a consolidated basis in accordance with
GAAP and (b) the aggregate amount of all Contingent Obligations of the
Company and its Subsidiaries, determined on a consolidated basis, in
each case as of such date.
"Total Debt/OCF Ratio": on any date, the ratio of Total Debt
on such date to OCF for the four consecutive fiscal quarters of the
Company most recently ended prior to such date.
"Total Debt/OCF Ratio Certificate": as defined in subsection
5.2(c).
"Tranche": the collective reference to Eurodollar Tranche A
Loans and Eurodollar Tranche B Loans, in each case whose Interest
Periods begin on the same date and end on the same later date (whether
or not such Loans originally were made on the same day), it being
understood that no single Tranche may include both Tranche A Loans and
Tranche B Loans.
"Tranche A Commitment": as to any Bank, the obligation of such
Bank to make Tranche A Loans and to issue and/or acquire participating
interests in Letters of Credit hereunder in an aggregate amount at any
one time outstanding not to exceed the amount set forth opposite such
Bank's name on Schedule I hereto under the caption "Tranche A
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Commitment," as such amount may be changed from time to time in
accordance with the provisions of this Agreement and/or any applicable
Assignment and Acceptance.
"Tranche A Exposure": as to any Bank at any time, an amount
equal to the sum of (a) the aggregate principal amount of the Tranche A
Loans made by such Bank then outstanding and (b) such Bank's share of
the L/C Obligations then outstanding.
"Tranche A Loan": the meaning ascribed thereto in subsection
2.1(a).
"Tranche A Notes": the meaning ascribed thereto in subsection
2.2, as the same may be amended, supplemented or otherwise modified
from time to time.
"Tranche B Commitment": as to any Bank, the obligation of such
Bank to make Tranche B Loans in an aggregate amount at any one time
outstanding not to exceed the amount set forth opposite such Bank's
name on Schedule I hereto under the caption "Tranche B Commitment," as
such amount may be changed from time to time in accordance with the
provisions of this Agreement and/or any applicable Assignment and
Acceptance.
"Tranche B Loan": the meaning ascribed thereto in subsection
2.1(b).
"Tranche B Notes": the meaning ascribed thereto in subsection
2.2, as the same may be amended, supplemented or otherwise modified
from time to time.
"Type": when used in respect of any Loan, shall refer to the
Rate by reference to which interest on such Loan is determined. For
purposes hereof, "Rate" shall include the Eurodollar Rate and the Base
Rate.
"Voting Stock": capital stock of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the directors (or
Persons performing similar functions).
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended, supplemented or
otherwise modified from time to time.
"Wholly-Owned Subsidiary": at any time, any Subsidiary one
hundred percent (100%) of all of the equity Securities (except
directors' qualifying shares) and voting Securities of which are owned
by any one or more of the Company and its
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other Wholly-Owned Subsidiaries at such time.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the Notes, the other Loan Documents or any certificate or
other document made or delivered pursuant hereto or thereto.
(b) As used herein and in the Notes and the other
Loan Documents, and any certificate or other document made or delivered pursuant
hereto or thereto, accounting terms relating to the Company and its Subsidiaries
not defined in subsection 1.1 and accounting terms partly defined in subsection
1.1, to the extent not defined, shall have the respective meanings given to them
under GAAP.
(c) 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, and
Section, subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(d) The meanings given to terms defined in this
Agreement shall be equally applicable to both the singular and plural forms of
such terms.
SECTION 2A. RESTRUCTURE OF EXISTING INDEBTEDNESS
2A.1. Restructure of Existing Indebtedness. (a) On the Closing
Date, and without the necessity of further action by any party, the Existing
Principal Indebtedness owed to each Bank as of immediately prior to the Closing
shall be converted into the following:
(i) Tranche A Loans by such Bank to the
Borrowers under this Agreement in a principal amount equal to such Bank's
Tranche A Commitment on the Closing Date; and
(ii) Tranche B Loans under this Agreement in
a principal amount equal to the difference between (x) the amount of such Bank's
Existing Principal Indebtedness as of immediately prior to the Closing and (y)
the amount of such Bank's Existing Principal Indebtedness which is converted
into Tranche A Loans pursuant to clause (i) of this subsection 2A.1(a).
(b) Each Loan converted into an obligation under this
Agreement as provided in subsection (a) above shall be deemed to have been made
under this Agreement and shall be governed by this Agreement and the other Loan
Documents for all purposes, including being secured by the Security Documents.
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(c) Each Loan converted under clause (a) of this
Section 2A.1 shall have the same initial Interest Period under this Agreement
that it had on the Closing Date under the Existing Credit Agreement and shall be
of the same initial Type under this Agreement as it was on the Closing Date
under the Existing Credit Agreement. However, in calculating interest on such
Loans, the applicable margin from and after the Closing Date shall be the
Applicable Margin under this Agreement.
(d) Notwithstanding any provision of this Agreement
to the contrary, any interest, facility fees, administrative fees or other fees
accrued as of the Closing Date under the Existing Credit Agreement shall be
carried over as interest payable, or fees payable, as the case may be, under
this Agreement, and shall payable under this Agreement on the same date that it
would have been payable under the Existing Credit Agreement.
2A.2. Existing Documents Superseded. (a) On the Closing Date,
the Existing Credit Agreement and the Existing Notes shall be superseded by this
Agreement, the Notes and the other Loan Documents and shall become of no further
force and effect.
(b) Notwithstanding the foregoing, it is not the
intention of any of the parties hereto that the restructuring of the Existing
Indebtedness provided in subsection 2A.1 constitute a payment or discharge of
the Existing Indebtedness. Accordingly, the Borrowers' obligation to pay the
Loans and other amounts payable hereunder in accordance with the terms of this
Agreement and the other Loan Documents shall be accepted by the Banks in renewal
and extension of (but not in substitution and exchange for or in payment of) the
Existing Indebtedness.
SECTION 2. LOANS AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions
hereof, each Bank severally agrees to make revolving credit loans (the "Tranche
A Loans") to the Borrowers on a joint and several basis from time to time during
the Commitment Period in an aggregate principal amount at any one time
outstanding not exceed the amount of such Bank's Tranche A Commitment; provided
that, no Tranche A Loan shall be made if, after giving effect to the making of
such Loan and the simultaneous application of the proceeds thereof, (i) the
aggregate amount of the Tranche A Exposure of all of the Banks would exceed the
aggregate amount of the Tranche A Commitments of all of the Banks, (ii) the
aggregate amount of the Exposure of all of the Banks would exceed the difference
between (A) the Total Commitments and (B) the Commitment Holdback Amount at such
time and (iii) the ratio of (A) Total Debt on such date to (B) OCF for the four
consecutive fiscal quarters of the Company as set forth in the most recent Total
Debt/OCF Ratio Certificate furnished to the Agent pursuant to
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subsection 5.2(c) shall exceed the Total Debt/OCF Ratio required at such time
pursuant to subsection 6.1(b) (e.g., for the period from the Closing Date to
January 30, 1998, 4.50 to 1.00; for the period from January 31, 1998 to April
29, 1998, 4.30 to 1.00; for the period from April 30, 1998 to July 30, 1998,
4.00 to 1.00; for the period from July 31, 1998 to October 30, 1998, 3.50 to
1.00; and thereafter, 3.25 to 1.00). The Tranche A Commitments may be terminated
or reduced from time to time pursuant to subsection 2.16. Within the foregoing
limits, the Borrowers may during the Commitment Period borrow, repay and
reborrow under the Tranche A Commitments, subject to and in accordance with the
terms and limitations hereof.
(b) Subject to the terms and conditions hereof, each
Bank severally agrees to make revolving credit loans (the "Tranche B Loans") to
the Borrowers on a joint and several basis from time to time during the
Commitment Period in an aggregate principal amount at any one time outstanding
not to exceed the amount of such Bank's Tranche B Commitment; provided that, no
Tranche B Loan shall be made if, after giving effect to the making of such Loan
and the simultaneous application of the proceeds thereof, (i) the aggregate
outstanding principal amount of Tranche B Loans of all of the Banks would exceed
the aggregate amount of the Trance B Commitments of all of the Banks, (ii) the
aggregate amount of the Exposure of all of the Banks would exceed the difference
between (A) the Total Commitments and (B) the Commitment Holdback Amount at such
time and (iii) the ratio of (A) Total Debt on such date to (B) OCF for the four
consecutive fiscal quarters of the Company as set forth in the most recent Total
Debt/OCF Ratio Certificate furnished to the Agent pursuant to subsection 5.2(c)
shall exceed the Total Debt/OCF Ratio required at such time pursuant to
subsection 6.1(b) (e.g., for the period from the Closing Date to January 30,
1998, 4.50 to 1.00; for the period from January 31, 1998 to April 29, 1998, 4.30
to 1.00; for the period from April 30, 1998 to July 30, 1998, 4.00 to 1.00; for
the period from July 31, 1998 to October 30, 1998, 3.50 to 1.00; and thereafter,
3.25 to 1.00); provided, further, that, notwithstanding anything to the contrary
herein, the Borrowers may not borrow Tranche B Loans unless at such time the
Tranche A Commitments shall be fully utilized. The Tranche B Commitments may be
terminated or reduced from time to time pursuant to subsection 2.16. Within the
foregoing limits, the Borrowers may during the Commitment Period borrow, repay
and reborrow under the Tranche B Commitments, subject to and in accordance with
the terms and limitations hereof.
(c) The Loans may from time to time be (i) Eurodollar
Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the
Borrowers and notified to the Agent in accordance with subsections 2.3 and 2.26;
provided that, no Loan shall be made as a Eurodollar Loan after the date that is
one month prior to the Termination Date.
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(d) The failure of any Bank to make any Loan shall
not relieve any other Bank of its obligation to lend hereunder (it being
understood, however, that no Bank shall be responsible for the failure of any
other Bank to make any Loan required to be made by such other Bank). Each Loan
shall be made in accordance with the procedures set forth in subsection 2.3.
2.2 Notes. (a) The Tranche A Loans made by each Bank shall be
evidenced by a promissory note of the Borrowers, substantially in the form of
Exhibit A-1, with appropriate insertions as to payee, date and principal amount
(a "Tranche A Note"), payable to the order of such Bank and in a principal
amount equal to the amount of the initial Tranche A Commitment of such Bank.
Each Bank is hereby authorized to record the date, Type and amount of each
Tranche A Loan made by such Bank, each continuation thereof, each conversion of
all or a portion thereof to another Type, the date and amount of each payment or
prepayment of principal thereof and, in the case of Eurodollar Tranche A Loans,
the length of each Interest Period with respect thereto, on the schedule annexed
to and constituting a part of its Tranche A Note and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded,
provided that the failure of any Bank to make such recordation (or any error in
such recordation) shall not affect the obligations of the Borrowers hereunder or
under such Tranche A Note. Each Tranche A Note shall (i) be dated the Closing
Date, (ii) be stated to mature on the Termination Date and (iii) provide for the
payment of interest in accordance with subsections 2.13 and 2.14.
(b) The Tranche B Loans made by each Bank shall be
evidenced by a promissory note of the Borrowers, substantially in the form of
Exhibit A-2, with appropriate insertions as to payee, date and principal amount
(a "Tranche B Note"), payable to the order of such Bank in a principal amount
equal to the amount of the initial Tranche B Commitment of such Bank. Each Bank
is hereby authorized to record the date, Type and amount of each Tranche B Loan
made by such Bank, each continuation thereof, each conversion of all or a
portion thereof to another Type, the date and amount of each payment or
prepayment of principal thereof and, in the case of Eurodollar Tranche B Loans,
the length of each Interest Period with respect thereto, on the schedule annexed
to and constituting a part of its Tranche B Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded,
provided that the failure of any Bank to make such recordation (or any error in
such recordation) shall not affect the obligations of the Borrowers hereunder or
under such Tranche B Note. Each Tranche B Note shall (i) be dated the Closing
Date, (ii) be stated to mature on the Termination Date and (iii) provide for the
payment of interest in accordance with subsections 2.13 and 2.14.
2.3 Procedure for Loans. (a) The Borrowers may borrow under
the Tranche A Commitments and the Tranche B
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Commitments during the Commitment Period on any Business Day. The Borrowers
shall give the Agent irrevocable notice (which notice must be received by the
Agent prior to 10:00 a.m., Philadelphia time, three Business Days prior to the
requested Borrowing Date, if all or any part of the requested Loans are to be
initially Eurodollar Loans, or prior to 11:00 a.m., Philadelphia time, on the
requested Borrowing Date if all of the requested Loans are to be initially Base
Rate Loans), specifying in the Notice of Borrowing (a) the amount to be
borrowed, (b) the requested Borrowing Date, (c) whether the borrowing is to be
of Eurodollar Loans, Base Rate Loans or a combination thereof, (d) if the
borrowing is to be entirely or partly of Eurodollar Loans, the amount of such
Loan(s) and the length of the initial Interest Period(s) therefor and (e)
whether the borrowing is to be of Tranche A Loans, Tranche B Loans, or a
combination thereof and, if a combination thereof, the amount allocated to each.
Each borrowing under the Commitments of Eurodollar Tranche A Loans shall be in
an amount equal to $2,500,000 or increments of $500,000 thereafter (or, if the
aggregate Available Tranche A Commitments at such time are less than $2,500,000,
such lesser amount). Each borrowing under the Commitments of Base Rate Tranche A
Loans shall be in an amount equal to $500,000 or increments of $100,000
thereafter (or, if the aggregate Available Tranche A Commitments at such time
are less than $500,000, such lesser amount). Each borrowing under the
Commitments of Eurodollar Tranche B Loans shall be in an amount equal to
$2,500,000 or increments of $500,000 thereafter (or, if the aggregate Available
TRANCHE B Commitments at such time are less than $2,500,000, such lesser
amount). Each borrowing under the Tranche B Commitments of Base Rate Loans shall
be in an amount equal to $500,000 or increments of $100,000 thereafter (or, if
the aggregate Available TRANCHE B Commitments at such time are less than
$500,000, such lesser amount).
Upon receipt of a Notice of Borrowing from the Borrowers, the
Agent shall promptly notify each Bank thereof. Each Bank will make the amount of
its pro rata share of each borrowing (based on its Commitment Percentage at that
time) available to the Agent for the account of the Borrowers at the office of
the Agent specified in subsection 9.2 prior to 2:00 p.m., Philadelphia time, on
the Borrowing Date requested by the Borrowers in funds immediately available to
the Agent. Such borrowing will then be made available to the Borrowers by the
Agent crediting the account of the Company on the books of such office with the
aggregate of the amounts made available to the Agent by the Banks and in like
funds as received by the Agent.
Unless the Agent shall have received notice from a Bank prior
to the date of any borrowing of Loans that such Bank will not make available to
the Agent such Bank's pro rata portion of such borrowing, the Agent may assume
that such Bank has made such portion available to the Agent on the date of such
borrowing in
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accordance with this subsection and the Agent may, in reliance upon such
assumption, make available to the Borrowers on such date a corresponding amount.
If and to the extent that such Bank shall not have made such portion available
to the Agent, such Bank and the Borrowers (without prejudice to the Borrowers'
rights against such Bank) severally agree to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrowers until the date such
amount is repaid to the Agent at (i) in the case of the Borrowers, the interest
rate applicable at the time to the Loans comprising such borrowing and (ii) in
the case of such Bank, the Federal Funds Effective Rate, provided, that, if such
Bank shall not pay such amount within three Business Days of such Borrowing
Date, the interest rate on such overdue amount shall, at the expiration of such
three-Business Day period, be the rate per annum applicable to Base Rate Tranche
B Loans. If such Bank shall repay to the Agent such corresponding amount, such
amount shall constitute such Bank's Loan as part of such borrowing for purposes
of this Agreement.
(b) If in a Notice of Borrowing no election as to the
Type of Loan is specified in any such notice, then the requested Loan shall be a
Base Rate Loan. If a Eurodollar Loan is requested but no Interest Period with
respect to such Loan is specified in any such notice, then the Borrowers shall
be deemed to have selected an Interest Period of one month's duration.
2.4 L/C Commitment. (a) Subject to the terms and conditions
hereof, each Issuing Bank, in reliance on the agreements of the other Banks set
forth in subsection 2.7(a), agrees to issue letters of credit ("Letters of
Credit") for the account of the Borrowers on any Business Day during the
Commitment Period in such form as may be approved from time to time by such
Issuing Bank; provided, that no Letter of Credit shall be issued if, after
giving effect thereto (i) the amount of the Tranche A Exposure would exceed the
aggregate amount of the Tranche A Commitments in effect at such time, (ii) the
aggregate amount of the Exposure of all of the Banks would exceed the difference
between (A) the Total Commitments and (B) the Commitment Holdback Amount at such
time, (iii) the aggregate amount of the L/C Obligations at such time would
exceed the L/C Commitment in effect at such time, or (iv) the ratio of (A) Total
Debt on such date to (B) OCF for the four consecutive fiscal quarters of the
Company as set forth in the most recent Total Debt/OCF Ratio Certificate
furnished to the Agent pursuant to subsection 5.2(c) shall exceed the Total
Debt/OCF Ratio required at such time pursuant to subsection 6.1(b) (e.g., for
the period from the Closing Date to January 30, 1998, 4.50 to 1.00; for the
period from January 31, 1998 to April 28, 1998, 4.30 to 1.00; for the period
from April 30, 1998 to July 30, 1998, 4.00 to 1.00; for the period from July 31,
1998 to October 30, 1998, 3.50 to 1.00; and thereafter, 3.25 to 1.00).
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(b) Each Letter of Credit shall;
(i) be denominated in Dollars and shall be a
standby letter of credit; and
(ii) expire no later than the earlier of (A)
360 days after its date of issuance and (B) 5 Business Days prior to
the Termination Date.
(c) Each Letter of Credit shall be subject to the
Uniform Customs and, to the extent not inconsistent therewith, the laws of the
Commonwealth of Pennsylvania.
(d) Each Issuing Bank shall not at any time be
obligated to issue any Letter of Credit hereunder if such issuance would
conflict with, or cause such Issuing Bank or any L/C Participant to exceed any
limits imposed by, any applicable Requirement of Law.
(e) Notwithstanding the provisions of this subsection
2.4, the Banks and the Borrowers hereby agree that an Issuing Bank may issue
upon the Borrowers' request, one or more Letter(s) of Credit which by its terms
may be extended for additional periods of up to one year each provided that (i)
the initial expiration date (or any subsequent expiration date) of each such
Letter of Credit is not later than the Termination Date, and (ii) renewal of
such Letters of Credit, at such Issuing Bank's discretion, shall be available
upon written request from the Borrowers to such Issuing Bank at least 30 days
(or such other time period as agreed by the Borrowers and the Agent) before the
date upon which notice of renewal is otherwise required.
2.5 Procedure for Issuance of Letters of Credit. The Borrowers
may from time to time request that an Issuing Bank issue a Letter of Credit by
delivering to such Issuing Bank at its office for notices specified herein an
Application therefor, completed to the satisfaction of such Issuing Bank, and
such other certificates, documents and other papers and information as such
Issuing Bank may reasonably request. Upon receipt by an Issuing Bank of any
Application, such Issuing Bank will 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,
after determining from the Agent that issuance of the Letter of Credit requested
thereby will be within the limits imposed by subsection 2.4(a), promptly issue
such Letter of Credit (but in no event shall an Issuing Bank be required to
issue any Letter of Credit earlier than five (5) 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 such
Issuing Bank and the Borrowers. Each Issuing Bank shall advise the Agent of the
terms of a Letter of Credit on the
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date of issuance thereof and shall promptly after issuing a Letter of Credit
furnish copies thereof to the Borrowers and the Agent. Each Issuing Bank shall
within ten days after the end of each month, send to the Agent, for distribution
to the Borrowers and each Bank, a schedule of outstanding Letters of Credit
issued by such Issuing Bank as of the end of the prior month detailing for each
such outstanding Letter of Credit (i) the face amount outstanding, (ii) its
issuance date, (iii) its maturity date, (iv) the name of the beneficiary and (v)
the identifying Letter of Credit number.
2.6 L/C Fees, Commissions and Other Charges. (a) The Borrowers
shall pay to the Agent, for the account of the Banks (including the Issuing
Banks) pro rata according to their respective Commitment Percentages, a letter
of credit commission with respect to each Letter of Credit, computed at a rate
equal to the then Applicable Margin for Eurodollar Tranche A Loans on the daily
average undrawn face amount of such Letter of Credit (computed on the basis of
the actual number of days such Letter of Credit is outstanding in a year of 360
days). Such commissions shall be payable in arrears on the last Business Day of
each March, June, September and December to occur after the date of issuance of
each Letter of Credit, and on the Termination Date or such earlier date as the
Commitments are terminated, and shall be nonrefundable. The Borrowers shall also
pay to each Issuing Bank, in respect of each Letter of Credit issued by such
Issuing Bank, a fronting fee for the period from and including the date of
issuance of such Letter of Credit to and including the date of termination of
such Letter of Credit computed at the rate of 1/8% per annum on the daily
average undrawn face amount of such Letter of Credit (computed on the basis of
the actual number of days such Letter of Credit is outstanding in a year of 360
days). The fees described in the preceding sentence shall be due and payable
quarterly in arrears on the last Business Day of each March, June, September and
December of each year and on the Termination Date or such earlier date as the
Commitments are terminated, and shall be nonrefundable.
(b) In addition to the foregoing fees and
commissions, the Borrowers shall pay or reimburse each Issuing Bank for such
normal and customary costs and expenses as are incurred or charged by such
Issuing Bank in issuing, effecting payment under, amending or otherwise
administering any Letter of Credit.
(c) The Agent shall, promptly following its receipt
thereof, distribute to the Issuing Banks and the Banks all fees and commissions
received by the Agent for their respective accounts pursuant to this subsection.
2.7 L/C Participations. (a) Each Issuing Bank irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce such
Issuing Banks to issue Letters of
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Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from such Issuing Bank, 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
such Issuing Bank's obligations and rights under each Letter of Credit issued by
such Issuing Bank hereunder and the amount of each draft paid by such Issuing
Bank thereunder. Each L/C Participant unconditionally and irrevocably agrees
with each Issuing Bank that, if a draft is paid under any Letter of Credit
issued by such Issuing Bank for which such Issuing Bank is not reimbursed in
full by the Borrowers in accordance with the terms of this Agreement, such L/C
Participant shall pay to such Issuing Bank upon demand at such Issuing Bank'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. Any action taken or omitted by an Issuing Bank under or in
connection with a Letter of Credit, if taken or omitted in the absence of gross
negligence or willful misconduct, shall neither create for such Issuing Bank any
resulting liability to any L/C Participant nor constitute a defense to an L/C
Participant's obligation to make the payments to such Issuing Bank required by
the immediately preceding sentence.
(b) If any amount required to be paid by any L/C
Participant to an Issuing Bank pursuant to subsection 2.7(a) in respect of any
unreimbursed portion of any payment made by such Issuing Bank under any Letter
of Credit is not paid to such Issuing Bank on the date such payment is due from
such L/C Participant, such L/C Participant shall pay to such Issuing Bank on
demand an amount equal to the product of (i) such amount, times (ii) the daily
average Federal Funds Effective Rate, as quoted by such Issuing Bank, during the
period from and including the date such payment is required to the date on which
such payment is immediately available to the Issuing Bank, 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 an Issuing Bank
submitted to any L/C Participant with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after an Issuing Bank has
made payment under any Letter of Credit and has received from any L/C
Participant its pro rata share of such payment in accordance with subsection
2.7(a), such Issuing Bank receives any payment related to such Letter of Credit
(whether directly from the Borrowers or otherwise, including by way of set-off
or proceeds of collateral applied thereto by such Issuing Bank), or any payment
of interest on account thereof, such Issuing Bank will distribute to such L/C
Participant its pro rata share thereof; provided, however, that in the event
that any such payment received by such Issuing Bank shall be required to be
returned by such Issuing Bank, such L/C Participant shall return to such
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Issuing Bank the portion thereof previously distributed by such Issuing Bank to
it.
2.8 Reimbursement Obligation of the Borrowers. (a) The
Borrowers jointly and severally agree to reimburse each Issuing Bank in respect
of a Letter of Credit on each date on which such Issuing Bank notifies the
Company of the date and amount of a draft presented under such Letter of Credit
and paid or to be paid by such Issuing Bank for the amount of (i) such draft so
paid and (ii) any taxes, fees, charges or other direct costs or expenses
incurred by such Issuing Bank in connection with such payment. Each such payment
shall be made to the applicable Issuing Bank at its office listed in Section 9.2
in Dollars and in immediately available funds.
(b) Interest shall be payable on any and all amounts
remaining unpaid by the Borrowers under this subsection from the date such
amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the per annum rate of the Base Rate plus
3.50% and shall be payable on demand by an Issuing Bank.
2.9 Obligations Absolute. (a) The obligations of the Borrowers
under subsections 2.6, 2.8 and 2.9 shall be absolute and unconditional under any
and all circumstances and irrespective of any set-off, counterclaim or defense
to payment which one or more Borrowers may have or have had against an Issuing
Bank or any beneficiary of a Letter of Credit or any other Person.
(b) The Borrowers agree with each Issuing Bank that
no Issuing Bank shall be responsible for, and the Borrowers' Reimbursement
Obligations under subsection 2.8(a) shall not be affected by, among other
things, (i) the validity or genuineness of any documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, provided, that reliance upon such documents by such
Issuing Bank shall not have constituted gross negligence or willful misconduct
by such Issuing Bank or (ii) any dispute between or among one or more Borrowers
and any beneficiary of any Letter of Credit or any other Person to which such
Letter of Credit may be transferred or (iii) any claims whatsoever of one or
more Borrowers against any beneficiary of such Letter of Credit or any such
transferee.
(c) Each Issuing Bank 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 such Issuing Bank's gross
negligence or willful misconduct.
(d) The Borrowers agree that any action taken or
omitted by an Issuing Bank under or in connection with any Letter of Credit or
the related drafts or documents, if done in the
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<PAGE> 34
absence of gross negligence or willful misconduct, shall be binding on the
Borrowers and shall neither result in any liability of such Issuing Bank to the
Borrowers nor constitute a defense to the Borrowers' obligation to reimburse
such Issuing Bank.
2.10 Letter of Credit Payments. If any draft shall be
presented for payment to an Issuing Bank under any Letter of Credit, such
Issuing Bank shall promptly notify the Company of the date and amount thereof.
The responsibility of an Issuing Bank to the Borrowers 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.
2.11 Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Agreement, the provisions of this Agreement shall apply.
2.12 Fees. (a) The Borrowers jointly and severally agree to
pay to the Agent for the account of each Bank, on each March 31, June 30,
September 30 and December 31 during the Commitment Period and on the date on
which the Commitments shall be permanently reduced or terminated as provided
herein, a commitment fee at a rate per annum equal to the Commitment Fee Rate in
effect from time to time on the average daily amount of the Available
Commitments during the preceding quarter (or shorter period commencing with the
date hereof or ending with the Termination Date or the date on which the
Commitments shall be terminated). In calculating the Available Commitments for
purposes of this subsection 2.12(a), no deduction shall be made for the
Commitment Holdback Amount and the Borrowers shall pay Commitment Fees on such
amounts. All Commitment Fees shall be computed on the basis of the actual number
of days elapsed in a year of 360 days and shall be paid in Dollars. The
Commitment Fee due to each Bank shall commence to accrue on the date hereof, and
shall cease to accrue on the Termination Date. The Agent shall distribute the
Commitment Fees among the Banks pro rata in accordance with their respective
Commitment Percentages.
(b) The Borrowers jointly and severally agree to pay
the Agent, for its own account, administrative and other fees at the times and
in the amounts set forth in the Fee Letter Agreement.
(c) The foregoing fees shall be paid in Dollars on
the dates due, in immediately available funds, to the Agent for distribution, if
and as appropriate, among the Banks. Once paid, none of the foregoing fees shall
be refundable under any circumstances.
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<PAGE> 35
2.13 Interest Rates and Payment Dates. (a) Subject to the
provisions of subsection 2.14, each Base Rate Tranche A Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be) at a rate per annum equal to the Base Rate plus
the Applicable Margin applicable to Base Rate Tranche A Loans. Subject to the
provisions of subsection 2.14, each Base Rate Tranche B Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be) at a rate per annum equal to the Base Rate plus
the Applicable Margin applicable to Base Rate Tranche B Loans.
(b) Subject to the provisions of subsection 2.14,
each Eurodollar Tranche A Loan shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum equal
to the Eurodollar Rate for the Interest Period in effect for such Eurodollar
Tranche A Loan plus the Applicable Margin applicable to Eurodollar Tranche A
Loans. Subject to the provisions of subsection 2.14, each Eurodollar Tranche B
Loan shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar
Rate for the Interest Period in effect for each Eurodollar Tranche B Loan plus
the Applicable Margin applicable to Eurodollar Tranche B Loans.
(c) Interest on each Loan shall be payable in arrears
on each Interest Payment Date applicable to such Loan and on the Termination
Date; provided that, interest accruing on overdue amounts pursuant to subsection
2.14 shall be payable on demand as provided in such subsection.
(d) As soon as practicable the Agent shall notify the
Company and the Banks of (i) each determination of a Eurodollar Rate and (ii)
the effective date and the amount of each change in the interest rate on a
Eurodollar Loan or Base Rate Loan. Each determination of an interest rate by the
Agent, pursuant to any provision of this Agreement (including subsections 2.13
and 2.14) shall be conclusive and binding on the Borrowers and the Banks in the
absence of clearly demonstrable error. At the request of the Borrowers, the
Agent shall deliver to the Company a statement showing the quotations used by it
in determining any interest rate pursuant to subsections 2.13(a) and (b).
2.14 Default Interest. If the Borrowers shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, the Borrowers, shall on demand from time to time pay interest on
any overdue payment of principal (in lieu of the interest otherwise payable on
such principal under subsection 2.13) and, to the extent permitted by law, on
overdue payments of interest and other amounts due hereunder up to the date of
actual payment (after as well as before judgment):
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<PAGE> 36
(a) in the case of overdue principal of a Base Rate
Loan or a Eurodollar Loan, at a rate determined by the Agent to be 2% per annum
above the rate which would otherwise be payable on such Loans in accordance with
the provisions hereof; and
(b) in the case of any other amount payable hereunder
(whether for interest, fees or otherwise), at a rate equal to 3.5% per annum
above the Base Rate.
2.15 Inability to Determine Interest Rate. In the event, and
on each occasion, that prior to the first day of the commencement of any
Interest Period for a Eurodollar Loan, the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrowers) that dollar
deposits in the principal amount of such Eurodollar Loan are not generally
available in the London Interbank Market, or that the rate at which such dollar
deposits are being offered will not adequately and fairly reflect the cost to
the Banks of making or maintaining the principal amount of such Eurodollar Loan
during such Interest Period, or that reasonable means do not exist for
ascertaining the Eurodollar Rate, the Agent shall, as soon as practicable
thereafter, give written, telegraphic or telephonic notice of such determination
to the Company and the Banks. After such notice shall have been given and until
the circumstances giving rise to such notice no longer exist, each request for a
Eurodollar Loan or for conversion to or maintenance of a Eurodollar Loan
pursuant to the terms of this Agreement shall be deemed to be a request for a
Base Rate Loan. Each determination by the Agent hereunder shall be conclusive
absent error in calculation.
2.16 Termination, Reduction, Extension and Increase of
Commitments. (a) The Commitments shall be automatically terminated on the
Termination Date whereupon the entire outstanding principal balance of the
Loans, plus all accrued and unpaid interest thereon, and any fees or other
amounts owed under the Loan Documents, shall be due and payable.
(b) Upon at least five Business Days' prior
irrevocable written (including telecopy) notice to the Agent, the Borrowers may
at any time in whole permanently terminate, or from time to time in part
permanently reduce, the Commitments; provided, however, that (i) each partial
reduction of the Commitments shall be in a minimum principal amount of
$1,000,000 or in a whole multiple thereof and (ii) the Commitments may not be
reduced or terminated if, after giving effect thereto and to any prepayments of
the Loans made on the effective date thereof, the aggregate Exposure at such
time would exceed the Total Commitments at such time.
(c) Any prepayment of the Loans pursuant to
subsection 2.18(a) shall permanently reduce the Commitments on a
dollar-for-dollar basis.
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<PAGE> 37
(d) The Commitments shall be automatically and
permanently reduced by the amounts and on the dates set forth below; provided
that, (i) the Commitment reductions set forth below occurring between February
1, 2001 and November 1, 2001 shall only occur if the Termination Date shall be
extended by one year pursuant to subsection 2.16(f) and (ii) the Commitment
reductions set forth below occurring after November 1, 2001 shall only occur if
the Termination Date shall be extended twice pursuant to subsection 2.16(f):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Commitment Reduction Date Amount of Reduction
<S> <C>
December 15, 1998 $3,000,000
May 1, 1999 $2,000,000
June 15, 1999 $2,000,000
August 1, 1999 $3,000,000
November 1, 1999 $2,500,000
February 1, 2000 $2,500,000
May 1, 2000 $3,000,000
August 1, 2000 $5,000,000
November 1, 2000 $3,000,000
February 1, 2001 $2,000,000
May 1, 2001 $3,500,000
August 1, 2001 $5,000,000
November 1, 2001 $3,500,000
February 1, 2002 $2,500,000
May 1, 2002 $4,000,000
August 1, 2002 $4,000,000
November 1, 2002 $4,000,000
December 14, 2002 Remaining Amount
- --------------------------------------------------------------------------------
</TABLE>
; provided, that, the Commitments shall also be reduced on August 1, 1998 by an
amount equal to the amount of any increase in the Total Commitments pursuant to
subsection 2.16(g).
Notwithstanding the foregoing, (i) if the Total Debt/OCF Ratio
shown on the Total Debt/OCF Ratio Certificate delivered by the Borrowers to the
Agent pursuant to subsection 5.2(c) for the period ending October 31, 1998 is
less than 3.00 to 1.00, then no Commitment reduction shall be required on
December 15, 1998 and the Commitment reduction otherwise due on December
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<PAGE> 38
15, 1998 shall be due on May 1, 1999 and each subsequent Commitment reduction
shall be due on the immediately following Commitment reduction date (e.g., the
Commitment reduction otherwise due on May 1, 1999 in the amount of $2,000,000
shall be due on June 15, 1999, the Commitment reduction otherwise due June 15,
1999 in the amount of $2,000,00 shall be due on August 1, 1999 and so on), (ii)
if the Total Debt/OCF Ratio shown on the Total Debt/OCF Ratio Certificate
delivered by the Borrowers to the Agent pursuant to subsection 5.2(c) for the
period ending January 31, 1999 is less than 3.00 to 1.00, then no Commitment
reduction shall be required on May 1, 1999 and the Commitment reduction
otherwise due on May 1, 1999 and each subsequent Commitment reduction shall be
due on the immediately following Commitment reduction date and (iii) if the
Total Debt/OCF Ratio shown on the Total Debt/OCF Ratio Certificate delivered by
the Borrowers to the Agent pursuant to subsection 5.2(c) for the period ending
April 30, 1999 is less than 3.00 to 1.00, then no Commitment reduction shall be
required on June 15, 1999 and the Commitment reduction otherwise due on June 15,
1999 and each subsequent Commitment reduction shall be due on the immediately
following Commitment reduction date; provided, further, that, in all events the
Total Commitments shall be reduced to zero on the Termination Date.
(e) The portion of the Commitments so terminated
pursuant to any of the provisions of this subsection 2.16 shall no longer be
available for borrowing. Any reduction of the Commitments pursuant to any of
provisions of this subsection 2.16 shall be applied first to the Tranche B
Commitments until the Tranche B Commitments have been reduced to zero and then
to the Tranche A Commitments. Simultaneously with each mandatory permanent
reduction pursuant to any of the provisions of this subsection 2.16, the
Borrowers shall make a payment of (i) the outstanding Tranche A Loans equal to
the excess, if any, of (x) the aggregate amount of the Tranche A Exposure of all
of the Banks at such time over (y) the Tranche A Commitments as so reduced and
(ii) the outstanding Tranche B Loans equal to the excess, if any, of (x) the
aggregate principal amount of the Tranche B Loans of all of the Banks then
outstanding over (y) the Tranche B Commitments as so reduced. All such
reductions and payments shall be without penalty or premium (except for amounts
owing pursuant to subsection 2.22, if any). Any and all Commitment reductions or
mandatory or voluntary prepayments made pursuant to any particular paragraph of
this subsection 2.16 or pursuant to subsections 2.17 or 2.18 shall be made in
addition to, and not in lieu of, any and all Commitment reductions and mandatory
and voluntary prepayments to be made pursuant to any other paragraph of this
subsection 2.16 or pursuant to subsections 2.17 or 2.18. All mandatory and
voluntary prepayments shall be applied (i) first to Tranche B Loans outstanding
and then to Tranche A Loans outstanding and (ii) to repay Base Rate Loans or
Eurodollar Loans, at the Borrower's option (to the extent not inconsistent with
clause (i) of this sentence), provided that the Borrower shall deliver written
notice of such election to the Banks prior to or simultaneously with such
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<PAGE> 39
prepayment. If no election is made by the Borrowers, then all such mandatory and
voluntary prepayments shall, unless otherwise inconsistent with the provisions
of this Agreement, be applied by the Agent to first repay Base Rate Loans, and
any excess shall be applied to repay Eurodollar Loans, with payments applied to
Eurodollar Loans being applied in order of next maturing Interest Periods. All
such mandatory and voluntary prepayments shall be accompanied by all accrued and
unpaid interest thereon. Each reduction in the Commitments hereunder shall be
made ratably among the Banks in accordance with their respective Commitment
Percentages. The Borrowers shall pay to the Agent for the account of the Banks
on the date of each termination or reduction of the Commitments, the Commitment
Fees on the amount of the Commitments so terminated or reduced accrued to the
date of such termination or reduction.
(f) During the period beginning ninety (90) days
prior to the first and second anniversary of the Closing Date and ending on such
anniversary, the Company may deliver to the Agent (which shall promptly transmit
to each Bank) a notice requesting that the Commitments be extended to the first
anniversary of the Termination Date then in effect. Within forty-five days after
its receipt of any such notice, each Bank shall notify the Agent of its
willingness or unwillingness so to extend its Commitments. Any Bank that shall
fail so to notify the Agent within such period shall be deemed to have declined
to extend its Commitments. If each (but only if each) Bank agrees to extend its
Commitments, the Agent shall so notify the Company and each Bank, whereupon (i)
the respective Commitments of the Banks shall, without further act by any party
hereto, be extended to the first anniversary of the Termination Date then in
effect and (ii) the term "Termination Date" shall thereafter mean the first
anniversary of the Termination Date then in effect. Any such extension shall be
evidenced by a written agreement among the Agent, the Banks and the Company,
such agreement to be in form and substance acceptable to the Agent and the
Banks. In the event that one or more Banks (each a "Non-Electing Bank") shall
have declined or been deemed to have declined to extend its or their Commitments
and Banks holding a majority in amount of the Total Commitments shall have
notified the Agent of their desire to extend their Commitments, the Borrowers
shall have the right, but not the obligation, at their own expense, upon notice
to each such Non-Electing Bank and the Agent, to replace all (but not less than
all) such Non-Electing Banks (in accordance with and subject to the restrictions
contained in Section 9.6) at any time before the thirtieth (30th) day prior to
the Termination Date with one or more assignees (each a "Replacement Bank")
willing to purchase the Non-Electing Banks' interests hereunder and to agree to
extend its or their Commitments in accordance with the notice referred to in the
first sentence of this clause (f). In such event, each Non-Electing Bank shall
promptly upon request transfer and assign without recourse (in accordance with
and subject to the restrictions contained in Section 9.6) all its interests,
rights and
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<PAGE> 40
obligations under this Agreement to the applicable Replacement Bank; provided,
however, that (i) no such assignment shall conflict with any law or any rule,
regulation or order of any Governmental Authority, (ii) the applicable
Replacement Bank shall pay to the applicable Non-Electing Bank in immediately
available funds on the date of such assignment the principal of and interest
accrued to the date of payment on the Loans made by such Non-Electing Bank
hereunder and all other amounts accrued for such Non-Electing Bank's account or
owed to it hereunder (including Commitment Fees and any unpaid costs or
expenses), and (iii) a Non-Electing Bank shall not be required to sell its
interests hereunder unless the Borrowers have arranged for one or more
Replacement Banks to acquire the interests of all other Non-Electing Banks. If,
as a result of the foregoing, each Bank (including Replacement Banks, but
excluding Non-Electing Banks whose interests have been purchased as provided
above) has agreed to extend its Commitments, the Commitments shall be extended
as provided in clause (i) of the fourth sentence of this paragraph and the term
Termination Date shall have the meaning set forth in clause (ii) in such fourth
sentence of this clause (f).
(g) (A) The Borrowers may at any time prior to July
1, 1998 request an increase in the Commitments of the Banks by sending a written
notice thereof to all of the Banks and the Agent. Such notice shall specify the
total amount of the increase request by the Borrowers (the "Requested Increase")
which amount shall not exceed $5,000,000. Each Bank shall respond in writing to
the Borrowers (with a copy simultaneously sent to the Agent), within the time
period requested by the Borrowers in the Requested Increase (provided that such
time period is acceptable to the Agent), stating the maximum amount, if any, by
which such Bank is willing to increase its Commitment (the "Offered Amount"). If
the total of the Offered Amount for all of the Banks is greater than the
Requested Increase, the Requested Increase shall be allocated amongst the
offering Banks in proportion to their respective Offered Amounts. If the total
of the Offered Amount for all of the Banks is equal to or less than the
Requested Increase, (x) each Bank's Commitment shall increase by its Offered
Amount and (y) the Borrowers may offer the difference to a new bank (a "Proposed
New Bank"). If the Borrowers request that a Proposed New Bank join this
Agreement and provide Commitments hereunder, the Borrowers shall at least seven
(7) days prior to the date on which such Proposed New Bank proposes to join this
Agreement notify the Agent of the name of the Proposed New Bank and the amount
of its proposed Commitments and deliver a duly completed New Bank Joinder with
respect to such Proposed New Bank. If the Agent consents to a Proposed New Bank
joining this Agreement (which consent shall not be unreasonably withheld), such
Proposed New Bank shall join this Agreement pursuant to the provisions of
subsection 9.6(j). No more than one Bank may be added pursuant to this
subsection 2.16(g).
(B) Following any increase in Commitments
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<PAGE> 41
pursuant to this Section 2.16(g), the Agent shall send to the Banks and the
Borrowers a revised Schedule I setting forth the new Commitments of the Banks.
Such schedule shall replace the existing Schedule I if no Bank objects thereto
within 10 days of its receipt thereof.
(C) Notwithstanding anything to the contrary
in this subsection 2.16(g), (I) the Borrowers may not request an increase in the
Commitments if at the time of such request a Default or Event of Default shall
exist and (II) no increase in the Commitments (including by way of the addition
of a Proposed New Bank) shall become effective if on the date that such increase
would become effective, a Default or Event of Default shall exist.
2.17 Optional Prepayment of Loans. (a) The Borrowers shall
have the right at any time and from time to time to prepay the Loans, in whole
or in part, without premium or penalty (but in any event subject to subsection
2.22), upon prior written, telecopy or telephonic notice to the Agent given, in
the case of Base Rate Loans, no later than 10:30 a.m., Philadelphia time, one
Business Day before any proposed prepayment, and in the case of Eurodollar
Loans, no later than 10:30 a.m., Philadelphia time, three Business Days before
any such proposed prepayment. In each case the notice shall specify the date and
amount of each such prepayment, whether the prepayment is of Eurodollar Loans or
Base Rate Loans, or a combination thereof, and, if a combination thereof, the
amount allocable to each; provided, however, that each such partial prepayment
shall be in the principal amount of at least (x) with respect to prepayments of
Base Rate Loans, $500,000 or in whole multiples of $100,000 in excess thereof
and (y) with respect to prepayments of Eurodollar Loans, $2,500,000 or in whole
multiples of $500,000 in excess thereof. Each such prepayment shall be applied
first to Tranche B Loans with any remainder being applied to Tranche A Loans.
(b) As provided in subsection 2.16(e), on the date of
any termination or reduction of the Commitments pursuant to subsection 2.16, the
Borrowers shall pay or prepay so much of the Loans as shall be necessary in
order that the Exposure at such time would not exceed the Commitments at such
time and each such prepayment shall be applied first to Tranche B Loans with any
remainder being applied to Tranche A Loans.
(c) Each notice of prepayment shall be irrevocable
and shall commit the Borrowers to prepay the amount specified in such notice.
(d) Upon receipt of any notice of prepayment, the
Agent shall promptly notify each Bank thereof.
2.18 Mandatory Prepayments. (a) Promptly upon receipt by the
Company or any of its Subsidiaries of any Net Proceeds from an Asset Sale, the
Borrowers shall pay to the Agent
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<PAGE> 42
100% of such Net Proceeds; provided that, (i) in each fiscal year of the
Borrowers, the Borrowers shall not be required (unless a Default shall exist
hereunder) to make any prepayments pursuant to this clause (a) until the Net
Proceeds in the aggregate from Asset Sales in such fiscal year (including with
respect to the fiscal year ending January 31, 1998, any such Net Proceeds
received between the beginning of such fiscal year and the Closing Date) shall
equal or exceed $250,000, whereupon the amount of Net Proceeds that must be
applied to the Loans pursuant to this paragraph shall equal 100% of all Net
Proceeds in such fiscal year in excess of $250,000. The Borrowers shall give the
Agent at least one Business Day's prior written notice of each prepayment
pursuant to this subsection 2.18(a) setting forth the date and expected amount
thereof.
(b) If on any date the ratio of Total Debt on such
date to OCF for the four consecutive fiscal quarters of the Company as set forth
on the most recent Total Debt/OCF Ratio Certificate furnished to the Agent
pursuant to subsection 5.2(c) shall exceed the Total Debt/OCF Ratio required at
such time pursuant to subsection 6.1(b) (e.g., for the period from the Closing
Date to January 30, 1998, 4.50 to 1.00; for the period from January 31, 1998 to
April 29, 1998, 4.30 to 1.00 etc.), the Borrowers shall, within two Business
Days of receiving notice thereof from the Agent, prepay so much of the Loans as
shall be necessary so that such ratio shall not exceed the Total Debt/OCF Ratio
required at such time pursuant to subsection 6.1(b). Amounts prepaid pursuant to
this clause (b) may be reborrowed subject to the terms and conditions hereof.
(c) If on any date the aggregate amount of the
Exposure at such date of all of the Banks shall exceed the difference between
(i) the Total Commitments at such date and (ii) the Commitment Holdback Amount
at such date, the Borrowers shall immediately prepay the Loans in a principal
amount equal to the amount of such excess.
(d) As provided in subsection 2.16(c), any
prepayments of the Loans pursuant to subsection 2.18(a) shall permanently reduce
the Commitments on a dollar-for-dollar basis.
(e) All prepayments under this subsection 2.18 shall
be applied first (i) to any Tranche B Loans then outstanding and the balance, if
any, to Tranche A Loans then outstanding, and (ii) to the extent not
inconsistent with clause (i) above, to Base Rate Loans then outstanding and the
balance, if any, to Eurodollar Loans then outstanding, with payments applied to
Eurodollar Loans being applied in order of next maturing Interest Periods. Any
prepayment of Eurodollar Loans shall be subject to subsection 2.22.
2.19 Illegality. Notwithstanding any other provision herein,
if any change in any Requirement of Law or in the
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<PAGE> 43
interpretation or application thereof shall make it unlawful for any Bank to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Bank hereunder to make Eurodollar Loans, continue Eurodollar
Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be
cancelled and (b) such Bank's Loans then outstanding as Eurodollar Loans, if
any, shall be converted automatically to Base Rate Loans on the respective last
days of the then current Interest Periods with respect to such Loans or within
such earlier period as required by law. If any such conversion of a Eurodollar
Loan occurs on a day which is not the last day of the then current Interest
Period with respect thereto, the Borrowers shall pay to such Bank such amounts,
if any, as may be required pursuant to subsection 2.22.
2.20 Requirements of Law. (a) In the event that any change in
any Requirement of Law or in the interpretation, or application thereof or
compliance by any Bank with any request or directive (whether or not having the
force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Bank to any tax of any
kind whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any Application or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Bank in respect thereof
(except for taxes covered by subsection 2.21 and changes in the rate of
tax on the net income of such Bank);
(ii) shall impose, modify or hold applicable
any reserve, special deposit, compulsory loan or similar requirement
against assets held by, deposits or other liabilities in or for the
account of, advances, loans, letters of credit or other extensions of
credit by, or any other acquisition of funds by, any office of such
Bank which is not otherwise included in the determination of the
interest rate on such Eurodollar Loan, as the case may be, hereunder;
or
(iii) shall impose on such Bank any other
condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans, maintaining any Commitment hereunder
or issuing or participating in Letters of Credit or to reduce any amount
receivable hereunder in respect thereof then, in any such case, the Borrowers
shall as promptly as practicable pay such Bank, upon its demand, any additional
amounts necessary to compensate such Bank for such increased cost or reduced
amount receivable. If any Bank becomes entitled to claim any additional amounts
pursuant to this subsection, it shall as promptly as practicable notify the
43
<PAGE> 44
Company, through the Agent, of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Bank, through the Agent, to the Company shall be
conclusive in the absence of clearly demonstrable error. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
(b) In the event that any Bank shall have determined
that any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Bank or any
corporation controlling such Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof does or shall have the effect of
reducing the rate of return on such Bank's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Bank or such corporation could have achieved but for
such change or compliance (taking into consideration such Bank's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Bank to be material, then from time to time, the Borrowers shall as
promptly as practicable pay such Bank, upon its demand, such additional amount
or amounts as will compensate such Bank for such reduction. If any Bank becomes
entitled to claim any additional amounts pursuant to this subsection, it shall
as promptly as practicable notify the Company, through the Agent, of the event
by reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this subsection setting forth the calculation of
such amounts in reasonable detail submitted by such Bank, through the Agent, to
the Company shall be conclusive in the absence of clearly demonstrable error.
This covenant shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.
(c) Each Bank agrees that it will use reasonable
efforts in order to avoid or to minimize, as the case may be, the payment by the
Borrowers of any additional amount under subsections 2.20(a) or (b); provided,
however, that no Bank shall be obligated to incur any expense, cost or other
amount in connection with utilizing such reasonable efforts. Any claim by any
Bank for payment from the Borrowers of any additional amounts under subsection
2.20(a) or (b) shall be made within one hundred and eighty (180) days after such
Bank becomes aware of the exact amount of any such claim.
2.21 Taxes. (a) All payments made by the Borrowers under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
44
<PAGE> 45
Governmental Authority (excluding, in the case of the Agent and each Bank, net
income taxes and franchise or gross receipts taxes imposed on the Agent or such
Bank, as the case may be, as a result of a present or former connection between
the jurisdiction of the government or taxing authority imposing such tax and the
Agent or such Bank (excluding a connection arising solely from the Agent or such
Bank having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or the Notes)) (all such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"). If any Taxes are required to be withheld from any
amounts payable to the Agent or any Bank hereunder or under the Notes, the
amounts so payable to the Agent or such Bank shall be increased to the extent
necessary to yield to the Agent or such Bank (after payment of all Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement and the Notes. Whenever any Taxes are
payable by the Borrowers, as promptly as possible thereafter the Borrowers shall
send to the Agent for its own account or for the account of such Bank, as the
case may be, a certified copy of an original official receipt received by the
Borrowers showing payment thereof. If the Borrowers fail to pay any Taxes when
due to the appropriate taxing authority or fail to remit to the Agent the
required receipts or other required documentary evidence, the Borrowers shall
indemnify the Agent and the Banks for any incremental taxes, interest or
penalties that may become payable by the Agent or any Bank as a result of any
such failure. The agreements in this subsection shall survive the termination of
this Agreement and the payment of the Notes and all other amounts payable
hereunder.
(b) Each Bank that is not incorporated under the laws
of the United States of America or a state thereof agrees that it will deliver
to the Company and the Agent (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. Each such Bank also agrees to deliver to the Company and the
Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms or other 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 Company, and such extensions or renewals
thereof as may reasonably be requested by the Company or the Agent, 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 all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with respect
to it and such Bank so advises the Company and the Agent. Each such Bank shall
certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive
payments under this
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Agreement without deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax.
(c) Notwithstanding the foregoing subsection 2.21(a),
the Borrowers shall not be required to pay any additional amounts to any Bank in
respect of United States withholding tax pursuant to such subsections if (i) the
obligation to pay such additional amounts would not have arisen but for a
failure by such Bank to comply with the requirements of subsection 2.21(b) or
(ii) such Bank shall not have furnished the Company with such forms listed in
subsection 2.21(b) and shall not have taken such other steps as reasonably may
be available to it under applicable tax laws and any applicable tax treaty or
convention to obtain an exemption from, or reduction (to the lowest applicable
rate) of, such United States withholding tax.
(d) Any claim by a Bank for payment from any Borrower
of any Taxes under this subsection 2.21 shall be made within one hundred and
eighty (180) days after such Bank becomes aware of the exact amount of any such
claim.
2.22 Indemnity. (a) The Borrowers jointly and severally agree
to indemnify each Bank and to hold each Bank harmless from any loss or expense
which such Bank may sustain or incur as a consequence of (i) default by the
Borrowers in payment when due of the principal amount of or interest on any
Eurodollar Loan, (ii) default by the Borrowers in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrowers have
given a notice requesting the same in accordance with the provisions of this
Agreement, (iii) default by the Borrowers in making any prepayment after the
Borrowers have given a notice thereof in accordance with the provisions of this
Agreement or (iv) the making of a prepayment (whether voluntary, mandatory, as a
result of acceleration or otherwise) of Eurodollar Loans on a day which is not
the last day of an Interest Period with respect thereto, including, without
limitation, in each case, any such loss or expense arising from the reemployment
of funds obtained by it or from fees payable to terminate the deposits from
which such funds were obtained. A certificate as to any amounts that a Bank is
entitled to receive under this subsection 2.22 submitted by such Bank, through
the Agent, to the Company shall be conclusive in the absence of clearly
demonstrable error and all such amounts shall be paid by the Borrowers promptly
upon demand by such Bank. This covenant shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable hereunder.
(b) For the purpose of calculation of all amounts
payable to a Bank under this subsection, each Bank shall be deemed to have
actually funded its relevant Eurodollar Loan through the purchase of a deposit
bearing interest at the Eurodollar Rate in
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an amount equal to the amount of such relevant Eurodollar Loan and having a
maturity comparable to the relevant Interest Period; provided, however, that
each Bank may fund each of its Eurodollar Loans in any manner it sees fit, and
the foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. This covenant shall survive the termination of
this Agreement and the payment of the Notes and all other amounts payable
hereunder.
(c) Any claim by a Bank for payment from any Borrower
under this subsection 2.22 shall be made within one hundred and eighty (180)
days after such Bank becomes aware of the exact amount of such claim.
2.23 Borrowers' Representative. Each of the Borrowers hereby
appoints the Company as its non-exclusive representative, and grants to the
Company an irrevocable power of attorney to act as its attorney-in-fact, with
regard to all matters relating to this Agreement and each other Loan Document,
including, without limitation, execution and delivery of any Notice of
Borrowing, and amendments, supplements, waivers or other modifications hereto or
thereto, receipt of any notices hereunder or thereunder and receipt of service
of process in connection herewith or therewith and making all elections as to
interest rates and interest payment dates. The Agent and the Banks shall be
entitled to rely exclusively on the Company's authority so to act in each
instance without inquiry or investigation, and each of the Borrowers hereby
agrees to indemnify and hold harmless the Agent and the Banks for any losses,
costs, delays, errors, claims, penalties or charges arising from or out of the
Company's actions pursuant to this subsection 2.23 and the Agent's and the
Banks' reliance thereon and hereon. Notice from the Company shall be deemed to
be notice from all of the Borrowers and notice to the Company shall be deemed to
be notice to all of the Borrowers. Nothing in this subsection 2.23 shall vitiate
or be held contrary to each of the Borrower's representations and covenants
regarding the Loans or the net worth or solvency of the Borrowers made herein or
in any of the Loan Documents. Each of the Borrowers hereby explicitly
acknowledges that the Agent and each Bank has executed and delivered this
Agreement and each other Loan Document to which it is a party, and has performed
its obligations under this Agreement and each other Loan Document to which it is
a party, in reliance upon the irrevocable grant of such power of attorney
pursuant to this subsection 2.23.
2.24 Pro Rata Treatment of Loans and Payments; Commitment
Fees. (a) Except as required under subsection 2.19 or subsection 9.6(j), each
borrowing by the Borrowers hereunder, each payment or prepayment of principal of
the Loans, each payment of interest on the Loans, each payment of Commitment
Fees, and each reduction of the Commitments, shall be made pro rata among the
Banks in accordance with their respective Commitment Percentages.
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(b) Each Bank agrees that in computing such Bank's
portion of any borrowing to be made hereunder, the Agent may, in its discretion,
round each Bank's percentage of such borrowing to the next higher or lower whole
dollar amount.
2.25 Payments. (a) The Borrowers shall make each payment
(including principal of or interest on any borrowing or any fees or other
amounts) hereunder not later than 12:00 (noon), Philadelphia time, on the date
when due in Dollars to the Agent at its office set forth in subsection 9.2, in
immediately available funds. Such payments shall be made without set off or
counterclaim of any kind. The Agent shall distribute to the Banks any payments
received by the Agent promptly upon receipt in like funds as received.
(b) Whenever any payment (including principal of or
interest on any borrowing or any fees or other amounts) hereunder (other than
payments on Eurodollar Loans) shall become due, or otherwise would occur, on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day.
(c) The Borrowers hereby authorize and direct the
Agent to charge any deposit account of any Borrower maintained at any branch of
PNC Bank, National Association for each payment of principal of and interest on
the Loans and for all fees and other amounts due from the Borrowers hereunder
and the Agent agrees to provide prior notice of the amount and time of each such
charge; provided that, if any Event of Default shall have occurred and be
continuing, no notice from the Agent shall be required.
2.26 Conversion and Continuation Options. The Borrowers shall
have the right at any time upon prior irrevocable notice to the Agent (i) not
later than 12:00 noon, Philadelphia time, one Business Day prior to conversion,
to convert any Eurodollar Loan to a Base Rate Loan, (ii) not later than 10:00
a.m., Philadelphia time, three Business Days prior to conversion or
continuation, to convert any Base Rate Loan into a Eurodollar Loan or to
continue any Eurodollar Loan as a Eurodollar Loan for any additional Interest
Period and (iii) not later than 10:00 a.m., Philadelphia time, three Business
Days prior to conversion, to convert the Interest Period with respect to any
Eurodollar Loan to another permissible Interest Period, subject in each case to
the following:
(a) a Eurodollar Loan may not be converted at a time
other than the last day of the Interest Period applicable thereto;
(b) any portion of a Loan maturing or required to be
repaid in less than one month may not be converted into or continued as a
Eurodollar Loan;
(c) no Eurodollar Loan may be continued as such
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and no Base Rate Loan may be converted to a Eurodollar Loan when any Default has
occurred and is continuing and the Agent or the Required Banks have determined
that such a continuation is not appropriate;
(d) any portion of a Eurodollar Loan that cannot be
converted into or continued as a Eurodollar Loan by reason of paragraph 2.26(b)
or 2.26(c) be converted at the end of the Interest Period in effect for such
Loan to a Base Rate Loan;
(e) on the last day of any Interest Period for
Eurodollar Loans, if the Borrowers have failed to give notice of conversion or
continuation as described in this subsection or if such conversion or
continuation is not permitted pursuant to subsection 2.21(d), such Loans shall
be converted to Base Rate Loans on the last day of such then expiring Interest
Period.
Each request by the Borrowers to convert or continue a Loan shall constitute a
representation and warranty that no Default shall have occurred and be
continuing. Accrued interest on a Loan (or portion thereof) being converted
shall be paid by the Borrowers at the time of conversion.
2.27 Minimum Amounts of Tranches; Maximum Number of Tranches.
(a) All borrowings, conversions and continuations of Loans hereunder and all
selections of Interest Periods hereunder shall be in such amounts and be made
pursuant to such elections that, after giving effect thereto, the aggregate
principal amount of the Loans comprising each Tranche shall be equal to
$2,500,000 or a whole multiple of $500,000 in excess thereof.
(b) The Borrowers shall not have outstanding at any
one time more than in the aggregate six Tranches.
2.28 Use of Proceeds. The Letters of Credit and the proceeds
of the Loans shall be used by the Borrowers (a) for working capital and general
corporate purposes in the ordinary course of business, (b) to repay Indebtedness
under the Existing Credit Agreement and (c) to the extent permitted hereunder,
to pay all or a portion of the purchase price for acquisitions permitted
hereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Banks to enter into this Agreement
and to make the Loans and to issue and/or participate in Letters of Credit, each
of the Borrowers hereby represents and warrants to the Agent and each Bank that:
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3.1 Financial Condition. (a) The consolidated balance sheet of the
Company and its consolidated Subsidiaries as at January 31, 1997 and the related
consolidated statements of income and of cash flows for the fiscal year ended on
such date, copies of which have heretofore been furnished to each Bank, present
fairly the consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended. All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved. Neither the Company nor any of its consolidated Subsidiaries
had, at the date of the balance sheet referred to above, any material Contingent
Obligation, liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction or other Interest Rate Hedge
Agreement, which is required by GAAP to be but is not reflected in the foregoing
statements or in the notes thereto.
(b) The unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as at July 31, 1997 and the related unaudited
consolidated statements of income and of cash flows for the six-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Bank, are complete and correct and present
fairly the consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the six-month period then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved. Neither the Company
nor any of its consolidated Subsidiaries had, at the date of the balance sheet
referred to above, any material Contingent Obligation, liability for taxes, or
any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction or other Interest Rate Hedge Agreement, which is required by GAAP to
be but is not reflected in the foregoing statements or in the notes thereto.
(c) The Company has delivered to the Agent those financial
projections listed on Schedule 3.1(c) hereof (collectively, the "Financial
Projections"). The Financial Projections represent a reasonable range of
possible results in light of the history of the business, present and
foreseeable conditions and the intentions of the Borrowers' management. The
Financial Projections accurately reflect the liabilities of the Company and its
Subsidiaries upon consummation of the transactions contemplated hereby as of the
Closing Date.
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3.2 No Change. Since July 31, 1997, there has been no development or
event nor any prospective development or event which has had or could reasonably
be expected to have a Material Adverse Effect.
3.3 Corporate Existence; Compliance with Law. Each of the Borrowers and
its Subsidiaries (a) except as disclosed on Schedule 3.3, is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority, and the legal right, to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified as
a foreign corporation and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except to the extent that the failure to
be so qualified could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. Each of
the Borrowers has the corporate power, authority, and legal right, to make,
deliver and perform this Agreement and each other Loan Document to which it is a
party and to borrow hereunder and has taken all necessary corporate action to
authorize the borrowings and the issuance of Letters of Credit on the terms and
conditions of this Agreement and each other Loan Document to which it is a party
and to authorize the execution, delivery and performance of this Agreement and
each other Loan Document to which it is a party. No consent or authorization of,
filing with or other act by or in respect of, any Governmental Authority or any
other Person (including stockholders and creditors of the Borrowers) is required
in connection with the borrowings or issuance of Letters of Credit hereunder or
with the execution, delivery, performance, validity or enforceability of this
Agreement, the Notes or any other Loan Document. This Agreement has been and
each other Loan Document to which it is a party will be, duly executed and
delivered on behalf of such Borrower. This Agreement constitutes and each other
Loan Document when executed and delivered will constitute, a legal, valid and
binding obligation of the Borrowers parties thereto enforceable against such
Borrowers in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
3.5 No Legal Bar. The execution, delivery and performance of this
Agreement, the Notes and the other Loan
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Documents by the Borrowers and the Guarantors, the borrowings hereunder and the
use of the proceeds thereof and the issuance of Letters of Credit hereunder will
not violate any Requirement of Law or Contractual Obligation of any Borrower or
any of its Subsidiaries and will not result in, or require, the creation or
imposition of any Lien on any properties or revenues of any Borrower or its
Subsidiaries pursuant to any such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrowers, threatened against any Borrower or any of their
respective Subsidiaries or against any of its or their respective properties or
revenues (a) with respect to this Agreement, the Notes, the other Loan Documents
or any of the transactions contemplated hereby, or (b) as to which there is a
reasonable likelihood of an adverse determination and which, if adversely
determined, could have a Material Adverse Effect.
3.7 No Default. Neither the Company, any other Borrower nor any of its
or their Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect which could have a Material Adverse
Effect. No Default or Event of Default has occurred and is continuing.
3.8 Taxes. Each of the Borrowers and the Guarantors has filed or caused
to be filed all tax returns which, to its knowledge, are required to be filed
and has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves, if
any, in conformity with GAAP have been provided on the books of the Company or
its Subsidiaries, as the case may be); no tax Lien has been filed against any of
the Borrowers or any of their Subsidiaries, and, to the knowledge of each of the
Borrowers, no claim is being asserted, with respect to any such tax, fee or
other charges.
3.9 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U or for any purpose which
violates the provisions of Regulation U or any other Regulations of the Board of
Governors of the Federal Reserve System. If requested by any Bank or the Agent,
the Borrowers will furnish to the Agent and each Bank a statement to the
foregoing effect in conformity with the requirements of FR Form U-l referred to
in said Regulation U. No part of the proceeds of the Loans hereunder will be
used for any purpose which violates, or which is inconsistent with, the
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provisions of Regulation X.
3.10 ERISA. Each Plan (such representations in respect of any
Multiemployer Plan being made to the best knowledge of each Borrower) has
complied in all material respects with the applicable provisions of ERISA and
the Code. No prohibited transaction or accumulated funding deficiency (each as
defined in subsection 7.1(j)) or, Reportable Event has occurred with respect to
any Single Employer Plan. The present value of all accrued benefits under each
Single Employer Plan of which any Borrower or a Commonly Controlled Entity is a
sponsor (based on those assumptions used to fund the Plans), as calculated by
such Borrower's actuaries, did not, as of the last annual valuation date prior
to the date on which this representation is made or deemed made, exceed the
value of the assets of the Plans allocable to such benefits. Neither any
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan and neither any Borrower nor any Commonly
Controlled Entity would become subject under ERISA to any liability if any
Borrower or any such Commonly Controlled Entity were to withdraw completely from
any Multiemployer Plan as of the valuation date most closely preceding the date
this representation is made or deemed made. Such Multiemployer Plans are neither
in Reorganization as defined in Section 4241 of ERISA nor Insolvent as defined
in Section 4245 of ERISA. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Borrowers and each Commonly
Controlled Entity for post-retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits. Neither any Borrower nor any Commonly
Controlled Entity has any or has received notice of any liability under the Coal
Industry Retiree Health Benefit Act of 1992. Neither a Reportable Event nor an
"accumulated funding deficiency" within the meaning of Section 412 of the Code
or Section 302 of ERISA has occurred during the five-year period to the date on
which this representation is made or deemed made with respect to any Single
Employer Plan or Multiemployer Plan. No termination of a Single Employer Plan
has occurred, and no Lien on assets of any of the Borrowers or any Commonly
Controlled Entity in favor of the PBGC or a Plan has arisen during such
five-year period.
3.11 Investment Company Act. None of Borrowers is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.12 Purpose of Loans. The proceeds of the Loans shall be used by the
Borrowers only for the purposes permitted under subsection 2.28.
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3.13 Environmental Matters. Except to the extent that all of the
following could not reasonably be expected to have a Material Adverse Effect:
(a) To the best knowledge of each of the Borrowers, the Properties
do not contain, and have not previously contained, in, on, or under, including,
without limitation, the soil and groundwater thereunder, any Materials of
Environmental Concern in amounts or concentrations that constitute or
constituted a violation of, or reasonably could give rise to liability under
Environmental Laws.
(b) To the best knowledge of each of the Borrowers, the Properties
and all operations and facilities at the Properties are in compliance, and have
in the last five years been in compliance with all Environmental Laws, and there
is no contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business operated by any
Borrower or any Subsidiary thereof which could interfere with the continued
operation of any of the Properties or impair the fair saleable value of any
thereof. None of the Borrowers or any of their respective Subsidiaries have
assumed any liability of any Person under Environmental Laws.
(c) Neither the Company, any other Borrower, nor any of their
Subsidiaries has received or is aware of any claim, notice of violation, alleged
violation, non-compliance, investigation or advisory action or potential
liability regarding environmental matters or compliance of Environmental Law
with regard to the Properties which has not been satisfactorily resolved by the
Company, such other Borrower, or such Subsidiary, nor is the Company nor any
other Borrower aware or have reason to believe that any such action is being
contemplated, considered or threatened.
(d) To the best knowledge of each Borrower, Materials of
Environmental Concern have not been generated, treated, stored, transported,
disposed of, at, on, from or under any of the Properties, nor have any Materials
of Environmental Concern been transferred from the Properties to any other
location except in either case in the ordinary course of business of the
Borrowers or any of their respective Subsidiaries, in compliance with all
Environmental Laws and such that it could not reasonably be expected to give
rise to liability under any applicable Environmental Law.
(e) There are no governmental, administrative actions or judicial
proceedings pending or, to the best knowledge of each Borrower, contemplated or
threatened under any Environmental Laws to which the Company, any other Borrower
or any of their respective Subsidiaries is or will be named as a party with
respect to the Properties, nor are there any consent decrees
or other decrees, consent orders, administrative orders or other
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orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to any of the Properties.
(f) To the best knowledge of the Borrowers, there has been no
release or threat of release of Matters of Environmental Concern at or from the
Properties, or arising from or related to the operation of the Company or any
Subsidiary in connection with the Properties or otherwise in connection with the
business operated by the Company or any Subsidiary in violation of or in amounts
or in a manner that could reasonably be expected to give rise to liability under
any Environmental Law.
(g) To the best knowledge of the Borrowers, each of the
representations and warranties set forth in paragraphs 3.13(a) through 3.13(f)
is true and correct with respect to each Property.
3.14 No Material Misstatements. No financial statement, exhibit or
schedule furnished by or on behalf of any Borrower or Guarantor to the Agent or
any Bank in connection with the negotiation of this Agreement, any Note or any
other Loan Document contains any misstatement of fact, or omitted or omits to
state any fact necessary to make the statements therein not misleading under the
circumstances under which they were made or given, where such misstatement or
omission would be material to the interests of the Banks with respect to the
performance of each Borrower of its obligations hereunder or thereunder. Prior
to the date hereof, the Borrowers have disclosed to the Banks in writing any and
all facts which materially and adversely affect (to the extent the Borrowers can
as of the date hereof reasonably foresee), the business, operations or financial
condition of the Company and its Subsidiaries taken as a whole, and the ability
of the Borrowers to perform their obligations under this Agreement, the Notes
and the other Loan Documents.
3.15 Title to Properties. The real property owned or leased by the
Borrowers or any Subsidiary as of the Closing Date is described on Schedule 3.15
hereto. The Borrowers and their Subsidiaries have good and marketable title to
or valid leasehold interests in all properties, assets and other rights which
they purport to own or lease or which are reflected as owned or leased on their
respective books and records, free and clear of all Liens and encumbrances
except Permitted Liens, and subject to the terms and conditions of the
applicable leases. All leases of property are in full force and effect without
the necessity for any consent which has not previously been obtained upon
consummation of the transactions contemplated hereby unless the failure to
obtain such consent would not result in a Material Adverse Effect.
3.16 Intellectual Property. Each of the Borrowers and each of their
respective Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and
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processes necessary for the conduct of its business as currently conducted (the
"Intellectual Property") except for those as to which the failure to own or
license could not reasonably be expected to have a Material Adverse Effect. No
claim has been asserted and is pending by any Person challenging or questioning
the use of any such Intellectual Property, nor does such Borrower know of any
valid basis for any such claim. The use of such Intellectual Property by the
Borrowers and their Subsidiaries does not infringe the rights of any Person,
except for such claims and infringements that, in the aggregate, do not have
such a Material Adverse Effect.
3.17 No Burdensome Restrictions; List of Subsidiaries. No Requirement
of Law or Contractual Obligation of any of the Borrowers or any of their
Subsidiaries could reasonably be expected to have a Material Adverse Effect. All
of the Subsidiaries of each Borrower as of the date hereof are listed on
Schedule 3.17 of this Agreement under its name, and the respective number of
shares of authorized Capital Stock and issued and outstanding Capital Stock are
as set forth on such schedule. There are no Subsidiaries of the Company or any
Borrower which are not Borrowers hereunder or Guarantors.
3.18 Security Interests. (a) At all times after execution and delivery
of the Pledge Agreements by the Borrowers or Guarantors party thereto and
satisfaction of the conditions specified in subsection 4.1(b) or in any such
Pledge Agreement, the security interests created for the benefit of the Agent
and the Banks under the Pledge Agreements will constitute valid, perfected
security interests in the stock pledged thereunder, subject to no other Liens.
(b) At all times after execution and delivery of the Security
Documents (other than the Pledge Agreements) by the Borrowers and Guarantors
party thereto and completion of the filing and recordings listed on Schedule
3.18 or in any such Security Document, the security interests created for the
benefit of the Agent and the Banks pursuant to the Security Documents (other
than the Pledge Agreements) will constitute valid, perfected security interests
in the Collateral subject thereto, subject to no other Liens whatsoever, except
Permitted Liens.
3.19 Senior Debt Status. The obligations of the Borrowers under this
Agreement and the Notes rank senior in priority of payment to the Subordinated
Debt.
3.20 Solvency. Each of the Borrowers is, and after receipt and
application of the initial Loans hereunder will be, solvent such that: (a) the
fair value of its assets (including without limitation the fair salable value of
the goodwill and other intangible property of such Borrower) is greater than the
total amount of its liabilities, including without limitation, Contingent
Obligations, (b) the present fair salable value of its
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assets (including without limitation the fair salable value of the goodwill and
other intangible property of such Borrower) is not less than the amount that
will be required to pay the probable liability on its debts as they become
absolute and matured, and (c) it is able to realize upon its assets and pay its
debts and other liabilities and commitments (including Contingent Obligations)
as they mature in the normal course of business. Each Borrower (a) does not
intend to, and does not believe that it will, incur debts or liabilities beyond
its ability to pay as such debts and liabilities mature, and (b) is not engaged
in a business or transaction, or about to engage in a business or transaction,
for which its property would constitute unreasonably small capital after giving
due consideration to the prevailing practice and industry in which it is
engaged.
3.21 Public Utility Holding Company Act. No Borrower is subject to
regulation as a "holding company", subject to regulation as an "affiliate" of a
"holding company", or subject to regulation as a "subsidiary company" of a
"holding company", in each case under the Public Utility Holding Company Act of
1935, as amended.
3.22 Insurance. Schedule 3.22 hereto lists, as of the Closing Date, all
insurance policies and other bonds to which the Borrowers or any Subsidiary is a
party, all of which are valid and in full force and effect. No notice has been
given or claim made and no grounds exist to cancel or avoid any of such policies
or bonds or to reduce the coverage provided thereby or any replacements thereof.
Such policies and bonds or any replacements thereof provide adequate coverage
from reputable and financially sound insurers in amounts sufficient to insure
the assets and risks of the Borrowers and its subsidiaries in accordance with
prudent business practice in the industry of the Borrowers and its Subsidiaries.
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3.23 Material Contracts; Franchise Agreements. As of the Closing Date,
all material contracts relating to the business operations of the Borrowers,
including, without limitation, all employee benefit plans, employment
agreements, collective bargaining agreements and labor contracts, termination of
which would result in a Material Adverse Change (collectively, the "Material
Contracts") are listed on Schedule 3.23. As of the Closing Date, all such
Material Contracts are valid, binding and enforceable upon the Borrowers and
each of the parties thereto in accordance with their respective terms, and there
is no default thereunder with respect to any of the Borrowers or, to the
Borrowers' knowledge, with respect to parties other than the Borrowers. All
franchise agreements to which any of the Borrowers is a party are valid, binding
and enforceable upon such Borrower and each of the parties thereto in accordance
with their respective terms, and to the best of the Borrowers' knowledge, all
required disclosures required by law to be given in connection with those
franchise agreements have been given as required and the Borrowers and to the
best of the Borrowers' knowledge each of the other parties thereto are in
compliance in all material respects with such franchise agreements.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Extension of Credit. The agreement of each
Bank to make the initial Extensions of Credit requested to be made by it is
subject to the satisfaction on the Closing Date of the following conditions
precedent:
(a) Credit Agreement and Notes. The Agent shall have received (i)
this Agreement, (A) executed and delivered by a duly authorized officer of each
Borrower, with a counterpart for each Bank, and (B) executed and delivered by a
duly authorized officer of each Bank and (ii) for the account of each Bank, a
Tranche A Note and a Tranche B Note conforming to the requirements hereof and
executed by a duly authorized officer of the Borrowers.
(b) Other Loan Documents. (i) The Agent shall have received the
following agreements executed and delivered by a duly authorized officer of the
Borrowers party thereto: (A) the Pledge Agreements, together with share
certificates evidencing all of the stock pledged thereunder and stock powers or
other appropriate instruments of transfer, executed in blank, (B) the Security
Agreement and (C) each of the other Security Documents.
(ii) Any document (including without limitation financing
statements) required to be filed, registered or recorded in order to create, for
the benefit of the Agent and the Banks, a perfected, first priority Lien,
subject only to those Liens described on Schedule 4.1(b)(ii), shall have been
properly prepared for filing, registration or recording in each office in
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each jurisdiction in which such filings, registration and recordation are
required to perfect such first priority security interests created by the
Security Documents, and the Agent shall be satisfied that all such recordings
and filings will be completed promptly following the Closing Date and that all
necessary filing, recording and other fees and all taxes and expenses related to
such filings, registrations and recordings will be paid in full by the
Borrowers.
(c) Corporate Proceedings; No Default. The Agent shall have
received a certificate of the Secretary or an Assistant Secretary of each
Borrower dated as of the Closing Date certifying (A) that attached thereto is a
true and complete copy of the resolutions, in form and substance satisfactory to
the Agent, of the Board of Directors of such Borrower authorizing (i) the
execution, delivery and performance of this Agreement, the Notes and the other
Loan Documents to which it is a party, and (ii) the borrowings contemplated
hereunder and that such resolutions attached thereto have not been amended,
modified, revoked or rescinded, (B) as to the incumbency and specimen signature
of each officer executing any Loan Document on behalf of a Borrower; and such
certificate and the regulations attached thereto shall be in form and substance
satisfactory to the Agent and (C) that the representations contained in Section
3 are true and correct and there exists no Default after giving effect to the
initial Loans hereunder.
(d) Corporate Documents. The Agent shall have received, with a
counterpart for each Bank, true and complete copies of the certificate of
incorporation and by-laws of each Borrower, certified as of the Closing Date as
complete and correct copies thereof by the Secretary or an Assistant Secretary
of such Borrower.
(e) Fees and Expenses. The Agent shall have received (i) for its
own account (x) the fees required to be paid on the Closing Date pursuant to the
Fee Letter and (y) all costs and expenses due and payable hereunder on or before
the Closing Date (if then invoiced), including, without limitation, the
reasonable fees and expenses of Ballard Spahr Andrews & Ingersoll, counsel to
the Agent, in connection with the transactions contemplated by the Loan
Documents and (ii) for the account of each Bank, a closing fee equal to one half
of one percent (1/2%) of the aggregate Commitments on the Closing Date of such
Bank.
(f) Legal Opinions. The Agent shall have received the executed
legal opinion of Hale and Dorr, counsel to the Borrowers, substantially in the
form of Exhibit H. Such opinion shall be addressed to the Banks and the Agent
and cover such other matters incident to the transactions contemplated by this
Agreement as the Agent may reasonably require.
(g) UCC Filing and Other Searches. The Agent shall
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have received the results of (i) Uniform Commercial Code searches made with
respect to the Borrowers in the states or provinces in which their chief
executive offices are located, together with copies of financing statements
disclosed by such searches and (ii) such tax lien searches as the Agent shall
reasonably request, and each of the foregoing searches shall disclose no Liens
on any assets encumbered by any Security Document, except for Permitted Liens
or, if unpermitted Liens are disclosed, the Agent shall have received
satisfactory evidence of the release of such Liens.
(h) Insurance. The Agent shall have received Certificates of
Insurance with respect to each Borrower's fire, casualty, liability and other
insurance covering its respective property and business, including loss payee
endorsements in favor of the Agent as to all material collateral under the
Security Documents.
(i) Good Standing. The Agent shall have received certificates of
good standing, subsistence and/or status dated a recent date from the Secretary
of State or appropriate taxing or other authorities in the state or province of
incorporation of each Borrower.
(j) No Material Adverse Change. Since July 31, 1997, there shall
have been no material adverse change in the financial condition or prospects of
the Company and its Subsidiaries taken as a whole.
4.2 Conditions to Each Extension of Credit. The agreement of each Bank
to make any Extension of Credit requested to be made by it on any date
(including, without limitation, its initial Extension of Credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by each Borrower herein or which are contained in any
certificate, document or financial or other statement furnished at any time
under or in connection herewith or therewith (including by or on behalf of a
Guarantor), shall be true and correct in all material respects on and as of such
date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Extensions of
Credit requested to be made on such date.
(c) Additional Matters. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory in form and substance to the Agent, and the Agent shall have
received such other documents and legal opinions in respect of any aspect
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or consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
Each request by the Borrowers for a Loan or the issuance of a Letter of Credit
hereunder shall constitute a representation and warranty by the Borrowers as of
the date of such Loan that the conditions contained in this subsection 4.2 have
been satisfied.
4.3 Closing. The closing (the "Closing") of the transactions
contemplated hereby shall take place at the offices of Ballard Spahr Andrews &
Ingersoll, 1735 Market Street, Philadelphia, PA 19103, commencing at 12:00 Noon,
Philadelphia time, on December 15, 1997. The date on which the Closing shall be
completed is referred to herein as the "Closing Date".
SECTION 5. AFFIRMATIVE COVENANTS
Each of the Borrowers hereby agrees that, so long as the Commitments
remain in effect, any Note remains outstanding and unpaid, any Letter of Credit
remains outstanding or any other amount is owing to any Bank or the Agent
hereunder, such Borrower shall and (except in the case of delivery of financial
information, reports and notices) shall cause each of its Subsidiaries to:
5.1 Financial Statements. Furnish to each Bank:
(a) as soon as available, but in any event not later than 90 days
after the close of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its consolidated Subsidiaries,
including therein a consolidated balance sheet of the Company and its
consolidated Subsidiaries as at the end of such fiscal year, and related
consolidated statements of income and retained earnings and changes in cash
flows of the Company and its consolidated Subsidiaries for such fiscal year, all
in reasonable detail, prepared in accordance with GAAP applied on a basis
consistently maintained throughout the period involved and with the prior year
with such changes thereon as shall be approved by the Company's independent
certified public accountants, such financial statements to be certified by Price
Waterhouse, LLP. or other independent certified public accountants selected by
the Company and reasonably acceptable to the Banks, without a "going concern" or
like qualification or exception or qualification arising out of the scope of the
audit; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal year
of the Company and 90 days after the end of the fourth quarterly period of each
fiscal year of the Company, unaudited cash flows of the Company and its
consolidated Subsidiaries, including therein (i) a consolidated
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balance sheet of the Company and its consolidated Subsidiaries as at the end of
such fiscal quarter, (ii) the related consolidated statements of income and
retained earnings of the Company and its consolidated Subsidiaries, and (iii)
the related consolidated statement of changes in financial position of the
Company and its consolidated Subsidiaries all for the period from the beginning
of such fiscal quarter to the end of such fiscal quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each case in
comparative form the corresponding figures for the like period of the preceding
fiscal year; all in reasonable detail, prepared in accordance with GAAP applied
on a basis consistently maintained throughout the period involved and with prior
periods and accompanied by a certificate of a Responsible Officer of the Company
stating that the financial statements fairly present the financial condition of
the Company and its consolidated Subsidiaries as of the date and for the periods
covered thereby (subject to, except with respect to the statements as of the
fourth fiscal quarter, normal year-end audit adjustments).
5.2 Certificates; Other Information. Furnish to each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 5.1(a), a certificate of the Company's independent
certified public accountants reporting on such financial statements stating that
in making the examination necessary for certifying such financial statements no
knowledge was obtained of any Default or Event of Default, except as
specifically indicated;
(b) concurrently with the delivery of the financial statements
referred to in subsection 5.1(a) and (b) (i) a certificate of a Responsible
Officer of the Company showing in detail the calculations demonstrating
compliance with the financial covenants set forth in subsection 6.1 and (ii) a
certificate of the chief financial officer or Treasurer of the Company stating
that such officer has obtained no knowledge of any Default or Event of Default
except as specifically indicated; if the certificate above shall indicate that
such officer has obtained knowledge of a Default or Event of Default, such
certificate shall state what efforts the Borrowers are making to cure such
Default or Event of Default;
(c) within 45 days after the end of the first three fiscal quarters
in each fiscal year of the Company, and within 90 days after the end of each
fiscal year of the Company, a certificate of a Responsible Officer of the
Company setting forth the Total Debt/OCF Ratio as of the end of such fiscal
quarter or fiscal year, as the case may be, and detailing the computations
necessary in calculating such Ratio (a "Total Debt/OCF Ratio Certificate");
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(d) within five days after the same are sent, copies of all
certificates, financial statements and reports which the Company sent to its
stockholders and within five days after the same are filed, copies of all
financial statements and reports which any Borrower or Guarantor may make to, or
file with, the Securities and Exchange Commission or any successor of analogous
Governmental Authority;
(e) Written notice:
(i) at least ten (10) calendar days prior thereto, with
respect to any proposed sale or transfer of assets in excess of
$250,000 pursuant to subsection 6.5, and
(ii) within the time limits set forth in subsection 6.15, any
amendment to the organizational documents of any Borrower or Guarantor.
(f) Promptly upon their becoming available to the Borrowers,
any reports including management letters submitted to any Borrower or
Guarantor by independent accountants in connection with any annual,
interim or special audit.
(g) Concurrently with the delivery of the financial statements
referred to in subsection 5.1(a) and (b), a brief description of each
acquisition that was consummated in the prior quarter, detailing the
consideration paid and the cash flow of the entity or assets acquired
in such acquisition.
(h) promptly, such additional financial and other information
as the Agent or any Bank may from time to time reasonably request
(including without limitation the annual budget, forecasts or
projections of the Borrowers and an updated list of all currently
effective franchise agreements to which any of the Borrowers are
parties).
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Company or its Subsidiaries, as the case may be.
5.4 Conduct of Business and Maintenance of Existence. Except as
otherwise permitted in subsection 6.4, continue to engage in business of the
same general type as now conducted by it and engage in such business only in the
United States (including not opening any stores outside the United States),
except that the Borrowers may enter into franchise agreements with franchisees
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located outside of the United States; and, preserve, renew and keep in full
force and effect its corporate existence and take all reasonable action to
maintain all rights, privileges and franchises necessary or desirable in the
normal conduct of its business; comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, have a Material Adverse Effect.
5.5 Maintenance of Insurance; Property. (a) Insure its properties and
assets against loss or damage by fire and such other insurable hazards as such
assets are commonly insured (including fire, extended coverage, property damage,
worker's compensation, public liability and business interruption insurance) and
against other risks in such amounts as similar properties and assets are insured
by prudent companies in similar circumstances carrying on similar businesses,
and with reputable and financially sound insurers, including self insurance to
the extent customary. The Borrowers shall deliver (i) on the Closing Date and
annually thereafter an original certificate of insurance signed by the
Borrowers' independent insurance broker describing and certifying as to the
existence of the insurance on the Collateral required to be maintained by this
Agreement and the other Loan Documents and (ii) at the request of the Agent or
any Bank, from time to time a summary schedule indicating all insurance then in
force with respect to the Borrowers. Such policies of insurance shall contain
endorsements, in form and substance acceptable to the Agent, which shall (i)
specify the Agent (on behalf of the Banks) as an additional insured and lender
loss payee as its interests may appear, with the understanding that any
obligation imposed upon the insured (including, without limitation, the
liability to pay premiums) shall be the sole obligation of the Borrowers and not
that of the insured, (ii) provide, except in the case of public liability
insurance and workmen's compensation insurance, that all insurance proceeds for
losses of less than $250,000 shall be adjusted with and payable to the Borrowers
or any Subsidiaries and that all insurance proceeds for losses of $250,000 or
more shall be adjusted with and payable to the Bank, (iii) include effective
waivers by the insurer of all claims for insurance premiums against the Agent
and the Banks, (iv) provide that no cancellation of such policies for any reason
(including, without limitation, non-payment of premium) nor any change therein
including any reduction in coverage shall be effective until at least thirty
(30) days after receipt by the Agent of written notice of such cancellation or
change, (v) be primary without right of contribution of any other insurance
carried by or on behalf of any additional insureds with respect to their
respective interests in the Collateral, and (vi) provide that inasmuch as the
policy covers more than one insured, all terms, conditions, insuring agreements
and endorsements (except limits of liability) shall operate as if there were a
separate policy covering each insured. The Borrowers shall notify the Banks
promptly of any occurrence causing a material loss or decline in value of the
Collateral and the estimated (or actual,
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if available) amount of such loss or decline. Following the occurrence and
continuance of an Event of Default, any monies constituting insurance proceeds
shall, if received by the Borrowers, be held in trust for the benefit of the
Banks and promptly paid over to the Agent, on behalf of the Banks, and all such
proceeds may, at the option of the Agent, either (i) be applied by the Banks to
the payment of the Loans in such manner as the Banks may reasonably determine,
or (ii) be disbursed to the Borrowers on such terms as are deemed appropriate by
the Banks for the repair, restoration and/or replacement of property in respect
of which such proceeds were paid. Otherwise, so long as no Event of Default has
occurred, any monies constituting insurance proceeds shall, if received by the
Agent, be disbursed to the Borrowers and, together with any such proceeds paid
directly to the Borrowers, shall be applied by the Borrowers to the repair,
restoration and/or replacement of property in respect of which such proceeds
were paid, all as the Borrowers reasonably deem appropriate.
(b) Maintain in good repair, working order and condition (ordinary
wear and tear and casualty excepted) in accordance with the general practice of
other businesses of similar character and size, all of those properties useful
or necessary to its business, and from time to time, each of the Company and its
Subsidiaries will make or cause to be made all appropriate repairs, renewals or
replacements thereof.
5.6 Inspection of Property; Books and Records; Discussions. Keep proper
books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and upon reasonable
notice permit representatives of any Bank to visit and inspect any of its
properties and examine and make abstracts from any of its books and records
during normal business hours and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of the Company and its Subsidiaries with officers and employees of the Company
and its Subsidiaries and with its independent certified public accountants.
5.7 Notices. Promptly give notice to the Agent and each Bank of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Company or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the Company or
any of its Subsidiaries and any Governmental Authority, which in either case, if
not cured or if adversely determined, as the case may be, could have a Material
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Adverse Effect;
(c) any litigation or proceeding affecting the Company or any of
its Subsidiaries in which the amount involved is $500,000 or more and not
covered by insurance as reasonably determined by the Company's corporate counsel
or in which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Company knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan, a failure to make any required contribution to a Plan, any Lien in favor
of PBGC or a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or
the taking of any other action by the PBGC or any Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the withdrawal from,
or the terminating, Reorganization or Insolvency of, any Plan or (iii)
assessment of liability under the Coal Industry Retiree Health Benefit Act of
1992; and
(e) an event which has had or could reasonably be expected to have
a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrowers propose to take with respect thereto.
5.8 Environmental Laws. (a) Comply with, and require compliance by all
tenants and all subtenants, if any, with, all Environmental Laws and obtain and
comply with and maintain, and require that all tenants and subtenants obtain and
comply with and maintain, any and all licenses, approvals, registrations or
permits required by Environmental Laws, except to the extent that failure to so
comply or obtain or maintain such documents could not reasonably be expected to
have a Material Adverse Effect;
(b) Comply with all lawful and binding orders and directives of all
Governmental Authorities respecting Environmental Laws; and
(c) Defend, indemnify and hold harmless the Agent and the Banks,
and their respective employees, agents, officers, directors, successors and
assigns 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 any
violation of or noncompliance with or liability under any Environmental Laws, or
any orders, requirements or demands of Governmental Authorities related thereto
which in each case relate to or arise in connection with any Borrower, any
Property or any
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activities relating to any other property or business of a Borrower or the
enforcement of any rights provided herein or in the other Loan Documents,
including, without limitation, attorneys' and consultants' fees, response costs,
investigation and laboratory fees, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of any of the foregoing enumerated parties. This indemnity
shall continue in full force and effect regardless of the termination of this
Agreement and the payment of the Notes.
5.9 Management Changes. Notify the Agent in writing within thirty (30)
days after any change of its executive officers.
5.10 Further Assurances. From time to time, at their expense,
faithfully preserve and protect the Agent's and the Bank's Lien on and security
interest in the Collateral as a continuing first priority perfected Lien,
subject only to Liens permitted under subsection 6.2, and shall do such other
acts and things as the Agent or the Required Banks in its or their sole
discretion may deem necessary or advisable from time to time in order to
preserve, perfect and protect the Liens granted under the Security Documents and
to exercise and enforce its or their rights and remedies thereunder with respect
to the Collateral.
5.11 [INTENTIONALLY BLANK]
5.12 Pledge of Property. At any time and from time to time at the
written request of the Agent, each Borrower or Guarantor shall execute, deliver
and, if requested, record and/or file such security agreements, pledge
agreements, mortgages and/or related or similar documents as the Agent shall
reasonably request and take such further action as the Agent shall reasonably
request, in each case, in order to grant to the Agent (or other Person selected
by the Agent) for the benefit of the Banks, a Lien on all of such Borrower's
right, title and interest in all real or personal property owned by such
Borrower or Guarantor or any real or personal property acquired by such Borrower
or Guarantor after the Closing Date or, to the extent such Borrower or Guarantor
becomes a Borrower or Guarantor after the Closing Date, all of such Borrower's
right, title and interest in any and all assets of such Borrower or Guarantor,
in each case as additional collateral for the obligations of the Borrowers to
the Agent and the Banks under this Agreement and the other Loan Documents.
5.13 Notice and Joinder of New Subsidiaries. Notify the Agent as soon
as practicable after acquiring or creating a new Subsidiary, and cause such new
Subsidiary to execute and deliver to the Agent (a) at the Agent's sole election,
either a Joinder Agreement pursuant to which such Subsidiary shall become a
Borrower hereunder, or a Guarantee pursuant to which such Subsidiary shall
guarantee the obligations of the Borrowers
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hereunder and under the other Loan Documents and (b) a Security Agreement or
such other Collateral Documents as the Agent shall reasonably request, including
UCC Financing Statements. In addition, at the request of the Agent, the stock of
such Subsidiary shall be pledged to the Agent under a Pledge Agreement and all
stock certificates representing interests in such Subsidiary shall be delivered
to the Agent together with undated stock powers. If the Subsidiary shall become
a Borrower hereunder, the Borrowers shall, if requested by the Agent, execute
and deliver to the Agent new Notes which shall include as an obligor the new
Subsidiary. The Borrowers shall execute and deliver and cause any Guarantor to
execute and deliver to the Agent such further documents and take such actions as
the Agent may reasonably request.
5.14 Interest Rate Hedge Agreements. Within thirty (30) days of the
Closing Date, enter into, with either one or more Banks or with one or more
other financial institutions organized under the laws of the United States, the
unsecured long-term debt obligations of which are rated "A3" or higher by
Moody's or "A-" or higher by S&P, and issued by a bank or trust company having
capital, surplus and undivided profits aggregating at least $250,000,000, such
interest rate protection contracts (collectively, the "Interest Rate Hedge
Agreements"), with terms of at least three (3) years, as are necessary to cause
at least $30,000,000 of the Borrowers' Indebtedness to bear interest either at a
fixed rate or be subject to such contracts such that such Indebtedness is
protected against an increase in rates of 200 basis points or more. Such
contracts shall conform to ISDA standards, shall (unless with a Bank) be subject
to such intercreditor and subordination provisions as may be required by the
Agent and shall otherwise be acceptable to the Agent. Any Interest Hedge
Agreements shall be unsecured unless entered into with a Bank, in which case
obligations thereunder shall be secured by the Security Documents.
5.15 Good Standing. (a) Within one hundred and eighty (180) days of the
Closing Date (i) cause Palmer Video Corporation to become in good standing in
the State of New Jersey and to be qualified to transact business as a foreign
corporation in the State of New York and (ii) cause Video King of Broome County
to file with the State of New York its past due Biennial Statement.
(b) Within ninety (90) days of the Closing Date cause any financing
statements in favor of V.P.D. IV, Inc. to be removed of record.
SECTION 6. NEGATIVE COVENANTS
Each of the Borrowers hereby agrees that, so long as the Commitments
remain in effect, any Note remains outstanding and
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unpaid, any Letter of Credit remains outstanding or any other amount is owing to
any Bank or the Agent hereunder, such Borrower shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly:
6.1 Financial Condition Covenants.
(a) Maintenance of Net Worth. Permit Consolidated Net Worth on any
day to be less than (i) from the Closing Date until January 31, 1998,
$96,839,000 and (ii) thereafter, the sum of (x) $96,839,000 plus (y)
seventy-five percent (75%) of Consolidated Net Income for each fiscal year
commencing with the fiscal year ending January 31, 1998, exclusive of any fiscal
year in which Consolidated Net Income is a negative and (z) one-hundred percent
(100%) of the Net Proceeds from the issuance after the Closing Date of Capital
Stock of any Borrower or Subsidiary thereof.
(b) Total Debt/OCF Leverage Ratio. Permit for any period of four
consecutive fiscal quarters ending on any date set forth below the Total
Debt/OCF Ratio to be greater than the number set forth opposite such date below:
<TABLE>
<CAPTION>
================================================================================
Date Maximum Total Debt/OCF Ratio
================================================================================
<S> <C>
October 31, 1997 4.50 to 1.00
January 31, 1998 4.30 to 1.00
April 30, 1998 4.00 to 1.00
July 31, 1998 3.50 to 1.00
The last day of each fiscal 3.25 to 1.00
quarter thereafter
================================================================================
</TABLE>
(c) Minimum OCF. Permit for any period of four consecutive fiscal
quarters ending on any date set forth below OCF to be less than the number set
forth opposite such date below:
<TABLE>
<CAPTION>
Date Minimum OCF
---- -----------
<S> <C>
October 31, 1997 $13,036,000
January 31, 1998 13,920,000
April 30, 1998 15,218,000
July 31, 1998 18,182,000
October 31, 1998 19,281,000
January 31, 1999 19,700,000
April 30, 1999 20,009,000
July 31, 1999 20,218,000
The last day of each fiscal 20,218,000
quarter thereafter
</TABLE>
(d) Capital Expenditures. (i) Permit for any fiscal quarter ending
on the dates set forth below Capital
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<PAGE> 70
Expenditures of the Company and its Subsidiaries taken as a whole incurred in
such period to be greater than the numbers set in the Capital Expenditures
Projection Letter.
(ii) Permit for any fiscal year of the Company commencing with the
fiscal year ending January 31, 2000, Capital Expenditures of the Company and its
Subsidiaries taken as a whole incurred in such fiscal year to be greater than
$2,000,000 in the aggregate, or such other amount as may be approved in writing
by the Required Banks.
(iii) For purposes of clauses (i) and (ii) above, (A) Capital
Expenditures shall include the sum of the fair market value of all assets leased
by the Company and its Subsidiaries as lessee in connection with the operation
of any store (other than leases of real property but including leases of
fixtures and improvements) and (B) any amounts not expended in the period for
which it is permitted, may be carried over for expenditure in the next
twelve-month period but not any subsequent periods.
(e) Fixed Charge Coverage Ratio. At the last day of any fiscal
quarter of the Company commencing with the fiscal quarter ending October 31,
1997, permit the ratio of (i) OCF for the period of four consecutive fiscal
quarters ending on such day to (ii) Consolidated Fixed Charges for the period of
four consecutive fiscal quarters ending on such day to be less than 1.10 to
1.00.
6.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for Permitted Liens.
6.3 Limitation of Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness except:
(a) Indebtedness in respect of the Loans, the Notes and other
obligations of the Borrowers under this Agreement;
(b) Indebtedness of any Borrower or Guarantor to any other Borrower
or Guarantor; and
(c) Indebtedness (i) listed on Schedule 6.3, and renewals,
extensions and modifications thereof which do not increase the principal amount
thereof or otherwise significantly change the terms thereof unless otherwise
specified in Schedule 6.3 and (ii) Indebtedness under Capital Leases or secured
by Purchase Money Security Interests in an aggregate amount for both clauses (i)
and (ii) above not exceeding in the aggregate $2,000,000.
6.4 Limitations on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up
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or dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of, all or substantially all of its
property, business or assets, except that:
(a) any Subsidiary of the Company may be merged or consolidated
with or into the Company (provided that the Company shall be the continuing or
surviving corporation) or with or into any other Borrower (provided that such
Borrower shall be the continuing or surviving corporation); and
(b) any Subsidiary of the Company may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to a Borrower; provided that, immediately after any such transaction
referred to in paragraphs (a) and (b) above and after giving effect thereto,
each of the Borrowers is in compliance with this Agreement and no Default or
Event of Default shall have occurred and be continuing or result from such
transaction.
6.5 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer
or otherwise dispose of any of its property, business or assets (including,
without limitation, receivables and leasehold interests), whether now owned or
hereafter acquired, except:
(a) any sale, transfer or lease of assets in the ordinary course of
business which are no longer necessary or required in the conduct of the
Borrowers' or such Subsidiary's business;
(b) transactions involving the sale or lease of inventory in the
ordinary course of business;
(c) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the compromise or
collection in the ordinary course of business of such accounts receivable;
(d) as permitted by subsection 6.4; and
(e) in addition to the above subsections 6.5(a) through 6.5(d)
inclusive, any such conveyances, sales, leases, assignments, transfers or other
disposals, the aggregate amount of which for the Company and its Subsidiaries
for any fiscal year of the Company does not exceed $250,000; provided that (i)
such conveyance, sale, lease, assignment, transfer or other disposition is for
cash consideration which the officers or Board of Directors of the Company or
its Subsidiary, as the case may be, deems to be fair and reasonable and (ii) the
Net Proceeds are applied to the Loans to the extent provided in subsection 2.18.
6.6 Limitation on Distributions. Declare or pay any
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Distribution (whether in cash or property or obligations of a Borrower or any
Subsidiary thereof) in respect of any Borrower or any Subsidiary thereof, except
any Wholly-Owned Subsidiary may declare and pay dividends to a Borrower or
Guarantor.
6.7 Transactions with Affiliates. Except as expressly permitted in this
Agreement, directly or indirectly enter into any transaction or arrangement
whatsoever (including without limitations any purchase, sale, lease or exchange
of property or the rendering of any service) or make any payment to or otherwise
deal with any Affiliate, except, as to all of the foregoing in the ordinary
course of and pursuant to the reasonable requirements of such Borrower's and its
Subsidiary's business and upon fair and reasonable terms no less favorable to
such Borrower or such Subsidiary, as the case may be, than would be obtained in
a comparable arm's length transaction with a Person not an Affiliate.
6.8 Sale and Leaseback. Enter into any arrangement with any Person
providing for the leasing by such Borrower or any Subsidiary thereof of real or
personal property which has been or is to be sold or transferred by such
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations thereof.
6.9 Limitation on Contingent Obligations. Create, incur, assume or
suffer to exist any Contingent Obligation except:
(a) guarantees made in the ordinary course of its business by any
of the Borrowers or its Subsidiaries of obligations of any of their
Subsidiaries, provided those obligations are otherwise permitted under this
Agreement;
(b) Contingent Obligations described on Schedule 6.9; and
(c) Guarantees of the Borrowers' obligations under the Loan
Documents pursuant to the Guarantees.
6.10 Limitation on Investments, Loans and Advances. Purchase, hold or
acquire beneficially any stock, other securities or evidences of indebtedness
of, make or permit to exist any loans or advances to, or make or permit to exist
any investment or acquire any interest whatsoever in, any other Person, except:
(a) extensions of trade credit to customers in the ordinary course
of business;
(b) Permitted Investments;
(c) advances to employees of the Borrowers or
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their Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business;
(d) Capital Stock of any Subsidiary; provided that such Capital
Stock is pledged to the Agent for the benefit of the Banks pursuant to a Pledge
Agreement.
(e) loans, advances and capital contributions by a Borrower to the
Company or to any Borrower or Guarantor that is a Wholly-Owned Subsidiary of the
Company; and
(f) Permitted Acquisitions.
6.11 Limitation on Optional Payments and Modifications of Subordinated
Debt. Make any optional payment or prepayment on or redemption, defeasance or
purchase of any Subordinated Indebtedness; or amend, modify or change, or
consent or agree to any amendment, modification or change to any of the terms
(including the payment terms) of any Subordinated Debt.
6.12 Limitation on Negative Pledge Clauses. Enter into any agreement
with any Person other than the Banks which prohibits or limits the ability of
any Borrower or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its properties, assets or revenues, whether now owned
or hereafter acquired; provided that a Borrower or Guarantor may enter into such
an agreement in connection with a Purchase Money Security Interest permitted
hereunder, provided that such prohibition or limitation is by its terms
effective only against the assets subject to such Lien.
6.13 Fiscal Year. Permit the fiscal year of a Borrower or Guarantor to
end on a day other than January 31.
6.14 Limitation on Conduct of Business. Enter into any business either
directly or through any Subsidiary except for businesses in the United States in
which the Borrowers and their Subsidiaries are engaged on the date of this
Agreement and any business in the United States directly related to such
existing businesses; provided that, the Borrowers may enter into franchise
agreements with franchisees located outside the United States.
6.15 Changes in Organizational Documents. None of the Borrowers shall
amend in any respect its certificate of incorporation (including any provisions
or resolutions relating to Capital Stock), by-laws or other organizational
documents without providing at least thirty (30) calendar days' prior written
notice to the Agent, in the event such change would be adverse to the Agent
and/or the Banks as determined by the Agent in its sole discretion.
6.16 Landlord Waivers. Permit, on any date on and after one-hundred
twenty (120)_ days after the Closing Date, more
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than one-third (1/3) in Dollar amount of all of the Borrowers' Inventory (as
defined in the Security Agreement) to be maintained at locations which (a) are
not owned by a Borrower free and clear of any mortgage or other Lien, except any
Lien in favor of the Agent for the benefit of the Banks or (b) are leased by a
Borrower unless (i) the owner of such location has executed a landlord waiver in
form and substance satisfactory to the Agent or (ii) such location is in a state
in which the Company has demonstrated to the Agent, and the Agent in its
reasonable judgment concurs, that any potential statutory Lien in favor of the
owner of such location would be junior in priority to the Lien in favor of the
Agent, for the benefit of the Banks, in the Borrowers' Inventory present at such
location.
SECTION 7. EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events shall occur and
be continuing:
(a) A Borrower shall fail to pay any principal of or interest on
any Note, any Reimbursement Obligation or any other amount payable hereunder or
thereunder (including without limitation any fees) when due in accordance with
the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by a
Borrower herein or in any other Loan Document or which is contained in any
certificate or financial statement furnished at any time under or in connection
with this Agreement shall prove to have been incorrect or misleading in any
material respect on or as of the date made or deemed made; or
(c) A Borrower shall default in the observance or performance of
any agreement contained in Section 6 of this Agreement; or
(d) (i) A Borrower shall default in the observance or performance
of any other agreement contained in this Agreement (other than as provided in
subsection (a) through (c) above) or any other Loan Document or (ii) a Guarantor
shall default in the observance or performance of any agreement contained in the
Guarantee executed by it or any other Loan Document to which it is a party, and
in each case any such default shall continue unremedied for a period of 20 days;
or
(e) A Borrower or any Subsidiary thereof shall (i) default in the
payment of any principal of or interest on or any other amount payable on any
Indebtedness (other than the Notes) or in the payment of any Contingent
Obligation (other than the Guarantees), beyond the period of grace (not to
exceed 30 days), if any, provided in the instrument or agreement under which
such Indebtedness or Contingent Obligation was created and the
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aggregate amount of such Indebtedness and/or Contingent Obligations in respect
of which such default or defaults shall have occurred is at least $250,000; or
(ii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or Contingent Obligation 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 Indebtedness or beneficiary or beneficiaries of such Contingent
Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required,
such Indebtedness to become due and payable prior to its stated maturity or such
Contingent Obligation to become payable; or
(f) (i) A Borrower or any Subsidiary thereof shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or a Borrower or any of
its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against a Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against a
Borrower or any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated, discharged,
satisfied, or stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) a Borrower or any of its Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in clause (i), (ii), or (iii) above; or (v) a Borrower
or any of its Subsidiaries shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they generally become due;
or
(g) One or more judgments or decrees shall be entered against a
Borrower or any of its Subsidiaries involving in the aggregate a liability
(excluding any such judgments or orders which are fully covered by insurance,
subject to any customary deductible, and under which the applicable insurance
carrier has
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acknowledged such full coverage in writing) of $250,000 or more and all such
judgments or decrees shall not have been vacated, discharged, settled, satisfied
or paid, or stayed or bonded pending appeal, within 30 days from the entry
thereof; or
(h) Any Change in Control shall occur; or
(i) A Borrower or any Subsidiary thereof shall fail to (i) comply
with or require compliance by all tenants and, to the extent possible, all
subtenants, if any, with all Environmental Laws or obtain and comply with and
maintain, or require that all tenants and, to the extent possible, all
subtenants, obtain and comply with and maintain, any and all licenses,
approvals, registrations or permits required by Environmental Laws except to the
extent that failure to so comply or obtain or maintain such documents could not
reasonably be expected to have a Material Adverse Effect; or (ii) comply with
all lawful and binding orders and directives of all Governmental Authorities
respecting Environmental Laws except to the extent that failure to so comply
could not reasonably be expected to have a Material Adverse Effect; or
(j) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Company or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or institution of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Banks, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company
or any Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Banks is likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist in regard to a Plan; and in each
case in clauses (i) through (vi) above, such event or condition, together with
all other such events or conditions, if any, could reasonably be expected to
have a Material Adverse Effect; or
(k) the Company shall cease to own, directly or indirectly,
one-hundred percent (100%) of the legal and beneficial ownership of each other
Borrower except pursuant to a transaction permitted under subsection 6.4; or
(l) Any Security Document shall, at any time, cease to be in full
force and effect (unless released by the
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Agent) or shall be declared null and void, or the validity or enforceability
thereof shall be contested by any Borrower or Guarantor or the Agent shall not
have or shall cease to have valid, perfected security interests in the
collateral subject thereto, subject to no other liens whatsoever, except
Permitted Liens;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to a Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement, the Notes and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) shall automatically and immediately become due and payable,
and (B) if such event is any other Event of Default, either or both of the
following actions may be taken: (i) with the consent of the Required Banks, the
Agent may, or upon the written request of the Required Banks, the Agent shall,
by notice to the Company declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the consent
of the Required Banks, the Agent may, or upon the written request of the
Required Banks, the Agent shall, by notice of default to the Company, declare
the Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement, the Notes and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable.
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, the Borrowers shall at such time deposit in a cash
collateral account opened by the Agent an amount equal to the aggregate then
undrawn and unexpired amount of such Letters of Credit. The Borrowers hereby
grant to the Agent, for the benefit of each Issuing Bank, the L/C Participants
and the Banks and the Agent, a security interest in such cash collateral to
secure all obligations of the Borrowers under this Agreement and the other Loan
Documents. Amounts held in such cash collateral account shall be applied by the
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 other obligations of
the Borrowers hereunder and under the Notes and the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrowers hereunder and under the Notes and the other Loan Documents shall
have been paid in full, the balance, if
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any, in such cash collateral accounts shall be returned to the Borrowers. The
Borrowers shall execute and deliver to the Agent, for the account of each
Issuing Bank, the L/C Participants, the Banks and the Agent, such further
documents and instruments as the Agent may request to evidence the creation and
perfection of the within security interest in such cash collateral account.
Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 8. THE AGENT
8.1 Appointment. Each Bank hereby irrevocably designates and appoints
PNC Bank, National Association as the Agent of such Bank under this Agreement
and the other Loan Documents, and each such Bank irrevocably authorizes PNC
Bank, National Association, as the Agent for such Bank, 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 Agent by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement and
the other Loan Documents, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein or therein, or any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement and the other Loan Documents or otherwise exist against the Agent. PNC
Bank, National Association agrees to act as the Agent on behalf of the Banks to
the extent provided in this Agreement and the other Loan Documents.
8.2 Delegation of Duties. The Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to engage and pay for the advice and
services of counsel concerning all matters pertaining to such duties. The Agent
shall not be responsible to the Banks for the negligence or misconduct of any
agents or attorneys in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. The Banks hereby agree that neither the
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates shall be (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 its or such Person's own gross negligence or
willful misconduct) or (b) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by a Borrower or any
officer thereof contained in this Agreement, the other Loan Documents or in any
certificate,
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report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, the Notes or the other Loan Documents or for any failure of the
Borrowers (or any of them) to perform their obligations hereunder or thereunder.
The Agent shall not be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or the other Loan Documents, or to inspect
the properties, books or records of the Borrowers (or any of them).
8.4 Reliance by Agent. The 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 one or more of the Borrowers), independent
accountants and other experts selected by such Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or the other Loan Documents unless it
shall first receive such advice or concurrence of the Required Banks as it deems
appropriate or it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Banks hereby agree that the
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement, the Notes or the other Loan Documents in
accordance with a request of the Required Banks, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Banks and
all future holders of the Notes.
8.5 Notice of Default. The 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 Bank or a 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 Agent receives such a notice, the
Agent shall give notice thereof to the Banks. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Banks; provided that unless and until the Agent shall have
received such directions, it 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 best interests of the Banks.
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8.6 Non-Reliance on Agent and Other Banks. Each Bank expressly
acknowledges that neither the Agent nor any of its respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrowers, shall be deemed to
constitute any representation or warranty by the Agent to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon the
Agent or any other Bank, 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 Borrowers and made its own decision to make its Loans
hereunder and enter into this Agreement and each other Loan Document to which it
is a party. Each Bank also represents that it will, independently and without
reliance upon the Agent or any other Bank, 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 Borrowers and
Guarantors. Except for notices, reports and other documents expressly required
to be furnished to the Banks by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Bank with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Borrowers which may come
into the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
8.7 Indemnification. The Banks agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrowers and without
limiting the obligation, if any, of the Borrowers to do so) in Dollars, ratably
according to their respective 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) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement, 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 Agent under
or in connection with any of the foregoing; provided that no Bank 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 Agent's gross negligence or willful misconduct. The
agreements in this Section 8.7 shall survive the payment of the Notes and all
other amounts payable hereunder.
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8.8 Agent in Its Individual Capacity. The Agent and its Affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with the Borrowers and Guarantors (or any of them) as though the Agent were not
the Agent hereunder. With respect to its Loans made or renewed by it and any
Note issued to it, the Agent shall have the same rights and powers under this
Agreement and the other Loan Documents as any Bank and may exercise the same as
though it were not the Agent, and the terms "Bank" and "Banks" shall include the
Agent in its individual capacity.
8.9 Release of Liens. Upon the sale of any assets of the Borrowers in
compliance with subsection 6.5, the Agent will take such action as may be
necessary to evidence the release of the Banks' Lien on such assets, including
delivering to the Borrowers, at the cost of the Borrowers, appropriate releases,
Uniform Commercial Code termination statements and mortgage satisfaction
documents, as appropriate.
8.10 Successor Agent. The Agent may resign as Agent hereunder and under
the other Loan Documents upon 30 days' notice to the Banks and the Company. If
the Agent shall resign, then the Required Banks shall appoint from among the
Banks a successor Agent for the Banks, which appointment shall be subject to the
approval of the Company, which approval shall not be unreasonably withheld,
delayed or conditioned. Any rejection by the Company of a successor agent shall
specify the reasons for such rejection. Failure of the Company to approve or
reject a successor agent within ten days following request for approval shall be
deemed to constitute approval. Upon such appointment and approval, such
successor agent shall succeed to the rights, powers and duties of the Agent and
the term "Agent" shall mean such successor agent effective upon its appointment
and the former Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement or the other Loan Documents or any holders of
the Notes. After any retiring Agent's resignation, the provisions of this
Section 8 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
8.11 Beneficiaries. Except as expressly provided herein, the provisions
of this Section 8 are solely for the benefit of the Agent and the Banks, and the
Borrowers shall not have any rights to rely on or enforce any of the provisions
hereof. In performing its functions and duties under this Agreement and the
other Loan Documents, the Agent shall act solely as agent of the Banks and does
not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for the Borrowers.
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SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any Note any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. With the
written consent of the Required Banks, the Agent and the Borrowers may, from
time to time, enter into written amendments (including letter amendments),
supplements or modifications hereto and to the Notes and the other Loan
Documents for the purpose of adding any provisions to this Agreement, the Notes
or any other Loan Document or changing in any manner the rights of the Banks or
of the Borrowers hereunder or thereunder or waiving, on such terms and
conditions as the Agent may specify in such instrument, any of the requirements
of this Agreement, the Notes or any other Loan Document or any Default or Event
of Default and its consequences; provided, however, that no such waiver and no
such amendment, supplement or modification shall directly or indirectly (a)
reduce the amount or extend the maturity of any Note or any installment thereof,
or reduce the rate of interest or extend the time of payment of interest
thereon, or reduce any fee payable to any Bank hereunder or extend the period
for payment thereof, or change the duration or the amount of any Bank's
Commitment in each case without the consent of the Bank affected thereby or (b)
or amend, modify or waive any provision of this subsection or reduce the
percentage specified in the definition of Required Banks, or amend the
definition of Permitted Acquisitions, or consent to the assignment or transfer
by the Borrowers or the Guarantors of any of their rights and obligations under
this Agreement, the Notes and the other Loan Documents, or release all or
substantially all of the Collateral or extend the maturity of any Letter of
Credit beyond the Termination Date in each case without the written consent of
all the Banks, or (c) amend, modify or waive any provision of Section 8 without
the written consent of the then Agent. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Banks and shall be
binding upon the Borrowers, the Banks, the Agent and all future holders of the
Notes. In the case of any waiver, the Borrowers, the Banks and the Agent shall
be restored to their former position and rights hereunder and under the
outstanding Notes, and any Default or Event of Default waived shall be deemed to
be cured and not continuing; but no such waiver shall extend to any subsequent
or other Default or Event of Default, or impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy, telegraph or telex confirmed in writing), and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or three days after being deposited in the mail, postage
prepaid, or the next Business Day if sent by reputable overnight courier,
postage prepaid, for delivery on the next Business Day, or, in the
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case of telecopy notice, when received during normal business hours, or, in the
case of telegraphic notice, when delivered to the telegraph company, or, in the
case of telex notice, when sent, answerback received, addressed as follows in
the case of the Borrowers or the Agent, and as set forth in Schedule I in the
case of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto and any future holders of the Notes:
The Borrowers c/o West Coast Entertainment Corporation
or any of them: One Summit Square
Suite 200
Route 413 and Double Woods Road
Newtown, PA 19047
Attention: T. Kyle Standley, President
Telecopy: (215) 968-5164
The Agent: PNC Bank, National Association
Suite 200
1000 Westlakes Drive
Berwyn, PA 19312
Attention: Charlene Massih
Telecopy: (610) 725-5799
With a Copy to: PNC Bank, National Association
Multi-Bank Loan Administration
One PNC Plaza
249 Fifth Avenue
Fourth Floor Annex
Pittsburgh, PA 15222
Attention: Arlene Ohler
Telecopy: (412) 762-8672
provided that (a) any notice, request or demand to or upon the Agent or the
Banks pursuant to subsections 2.3, 2.5, 2.16, 2.17, 2.18 and 2.26 shall not be
effective until received and (b) any notice of a Default or Event of Default
hereunder shall be sent by telecopy or reputable overnight courier.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
9.4 Survival of Representations and Warranties. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in
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connection herewith shall survive the execution and delivery of this Agreement,
the Notes and the other Loan Documents.
9.5 Payment of Expenses and Taxes. Each of the Borrowers jointly and
severally agrees (a) to pay or reimburse the Agent for all its out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of, and the syndication of, this Agreement, the Notes, the other Loan
Documents and any other documents executed and delivered in connection herewith,
and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Agent, (b) to pay or reimburse the Agent for all its out-of-pocket costs
and expenses incurred in connection with any amendment, supplement or
modification to this Agreement, the Notes and the other Loan Documents and any
other documents executed and delivered in connection therewith, including
without limitation, the reasonable fees and disbursements of counsel, (c) pay or
reimburse the Agent and each Bank for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the Notes, the other Loan Documents and any such other documents,
including, without limitation, reasonable fees and disbursements of counsel to
the Agent and to the several Banks, (d) to pay, indemnify, and hold each Bank
and the Agent harmless from, any and all recording and filing fees and any and
all liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the Notes, the
other Loan Documents and any such other documents, and (e) to pay, indemnify,
and hold each Bank and the Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions (whether sounding
in contract, in tort or on any other ground), judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of or in any other way
arising out of or relating to, this Agreement, the Notes, the other Loan
Documents, or any such other documents contemplated by or referred to herein or
therein or any action taken by any Bank or the Agent with respect to the
foregoing (all the foregoing, collectively, the "indemnified liabilities"),
provided, that the Borrowers shall have no obligation hereunder to the Agent or
any Bank with respect to indemnified liabilities arising from (i) the gross
negligence or willful misconduct of such person or (ii) legal proceedings
commenced against such person by any other Bank. The agreements in this
subsection shall survive repayment of the Notes and all other amounts payable
hereunder.
9.6 Successors and Assigns. (a) Whenever in this Agreement any of the
parties hereto is referred to, such reference
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shall be deemed to include the successors and permitted assigns of such party;
and all covenants, promises and agreements by or on behalf of a Borrower, the
Agent or the Banks that are contained in this Agreement shall bind and inure to
the benefit of their respective successors and assigns. No Borrower or Guarantor
may assign or transfer any of their rights or obligations under this Agreement
or the other Loan Documents without the prior written consent of each Bank.
(b) Each Bank may, in accordance with applicable law, sell to any
Bank and, with the consent of the Company and the Agent (which consents shall
not be unreasonably withheld) to one or more banks or other financial
institutions (each, a "Purchasing Bank") all or any part of its interests,
rights and obligations under this Agreement, the Notes and the other Loan
Documents (including all or a portion of its Commitments and the Loans at the
time owing to it and the Notes held by it); provided, however, that (i) so long
as no Event of Default shall exist and be continuing, such assignment shall be
in an amount not less than $5,000,000 (or the lesser of (x) the full amount of
such Bank's Commitments and (y) such amount as the Company and the Agent shall
agree in their sole discretion), (ii) such assignment shall be of all or a pro
rata portion of all of such assigning Bank's interests hereunder (i.e., no Bank
may sell a non-pro rata interest) and (iii) the parties to each such assignment
shall execute and deliver to the Agent and the Company for its acceptance and
recording in the Register an Assignment and Acceptance, together with the Note
or Notes subject to such assignment and a processing and recordation fee of
$3,500. Upon acceptance and recording pursuant to paragraph (e) of this
subsection 9.6, from and after the effective date specified in each Assignment
and Acceptance, which effective date shall be at least five Business Days after
the execution thereof, (A) such Purchasing Bank shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Bank under this Agreement and (B) the assigning Bank
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of an
assigning Bank's rights and obligations under this Agreement and the other Loan
Documents, such Bank shall cease to be a party hereto but shall continue to be
entitled to the benefits of subsections 2.19, 2.20, 2.21, 2.22 and 9.5 (to the
extent that such Bank's entitlement to such benefits arose out of such Bank's
position as a Bank prior to the applicable assignment), as well as to any
Commitment Fees accrued for its account and not yet paid). Such Assignment and
Acceptance shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of such Purchasing Bank and the
resulting amounts and percentages held by the Banks arising from the purchase by
such Purchasing Bank of all or a portion of the rights and obligations of such
assigning Bank under this Agreement, the
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Notes and the other Loan Documents. Notwithstanding any provision of this
subsection 9.6, the consent of the Company shall not be required for any
assignment which occurs at any time when any of the events described in
subsection 7.1(f) shall have occurred and be continuing.
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(c) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the Purchasing Bank thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Bank warrants that it is the legal and beneficial owner of
the interest being assigned thereby, free and clear of any adverse claim and
that its Commitment(s), and the outstanding balances of its Loans, without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance, (ii) except as set forth in (i) above,
such assigning Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or the other Loan Documents, or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement, the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto, or the financial condition of the
Borrowers or any Subsidiary thereof or the performance or observance by the
Borrowers or any Subsidiary thereof of any of its obligations under this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; (iii) such Purchasing Bank represents and
warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such Purchasing Bank confirms that it has received a copy of
this Agreement, together with copies of the most recent financial statements
delivered pursuant to subsection 5.1 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such Purchasing Bank will independently
and without reliance upon the Agent, such assigning Bank or any other Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents; (vi) such Purchasing Bank
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof or thereof, together with such powers
as are reasonably incidental thereto; and (vii) such Purchasing Bank agrees that
it will perform in accordance with their terms all the obligations which by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Bank including, if it is organized under the laws of a
jurisdiction outside the United States, its obligation pursuant to subsection
2.21 to deliver the forms prescribed by the Internal Revenue Service of the
United States certifying as to the Purchasing Bank's exemption from United
States withholding taxes with respect to all payments to be made to the
Purchasing Bank under this Agreement.
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(d) The Agent shall maintain at its offices in Philadelphia,
Pennsylvania a copy of each Assignment and Acceptance and the names and
addresses of the Banks, and the Commitments of, and principal amount of the
Loans owing to, each Bank pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive in the absence of
manifest error and the Borrowers, the Agent and the Banks may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Bank
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrowers and any Bank at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Bank and a Purchasing Bank (and in the case of a
Purchasing Bank that is not then a Bank or an Affiliate thereof, by the Company
and the Agent) together with the Note or Notes subject to such assignment and
the processing and recordation fee referred to in paragraph (b) above, the Agent
shall promptly (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give notice thereof to
the Banks. Within five Business Days after receipt of notice, the Borrowers, at
their own expense, shall execute and deliver to the Agent, in exchange for the
surrender of the original Notes, (A) new Notes to the order of such Purchasing
Bank in an amount equal to the Commitments assumed and (B) if the assigning Bank
has retained a Commitment or, with respect to assignments occurring after the
termination of the Commitments, a portion of Loans, new Notes, as appropriate,
to the order of such assignor in the respective amount equal to the Loans
retained by it and/or the Commitments retained by it, as the case may be. Such
new Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note(s); such new Notes shall be dated the
date of the surrendered Notes which they replace and shall otherwise be in
substantially the form of Exhibit A-1 and A-2 hereto, as appropriate. Canceled
Notes shall be returned to the Company.
(f) Each Bank may without the consent of the Company or the Agent
(except to the extent provided below) sell participations to one or more banks
or other entities (each a "Participant") in any Loan owing to such Bank, any
Note held by such Bank, any Commitment of such Bank or any other interest of
such Bank hereunder and under the other Loan Documents, provided, however, that
(i) such Bank's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible
to the other parties hereto for the performance of such obligations, (iii) such
Bank shall remain the holder of any such Note for all purposes under this
Agreement and the other Loan Documents, (iv) the Borrowers, the Banks and the
Agent shall continue to deal solely and directly with such Bank in connection
with such Bank's rights and
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obligations under this Agreement and the other Loan Documents, (v) in any
proceeding under the Bankruptcy Code the Bank shall be, to the extent permitted
by law, the sole representative with respect to the obligations held in the name
of such Bank, whether for its own account or for the account of any Participant,
(vi) such Bank shall retain the sole right to approve, without the consent of
any Participant, any amendment, modification or waiver of any provision of this
Agreement or the Note or Notes held by such Bank or any other Loan Document,
other than any such amendment, modification or waiver with respect to any Loan
or Commitment in which such Participant has an interest that forgives principal,
interest or fees or reduces the interest rate or fees payable with respect to
any such Loan or Commitment, postpones any date fixed for any regularly
scheduled payment of principal of, or interest or fees on, any such Loan,
releases any guarantor of such Loan or releases all or substantially all of the
Collateral, if any, securing any such Loan.
(g) If amounts outstanding under this Agreement and the Notes are
due or unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement and any Note and other Loan Document to the same
extent as if the amount of its participating interest were owing directly to it
as a Bank under this Agreement or any Note or any other Loan Document, provided
that in purchasing such participation such Participant shall be deemed to have
agreed to share with the Banks the proceeds thereof as provided in subsection
9.8. The Borrowers also agree that each Participant shall be entitled to the
benefits of subsections 2.19, 2.20, 2.21, 2.22 and 9.5 with respect to its
participation in the Commitments and the Loans outstanding from time to time;
provided, that no Participant shall be entitled to receive any greater amount
pursuant to such subsections than the assigning Bank would have been entitled to
receive in respect of the amount of the participation transferred by such
assigning Bank to such Participant had no such transfer occurred.
(h) If any Participant of a Bank is organized under the laws of any
jurisdiction other than the United States or any state thereof, the assigning
Bank, concurrently with the sale of a participating interest to such
Participant, shall cause such Participant (i) to represent to the assigning Bank
(for the benefit of the assigning Bank, the other Banks, the Agent and the
Borrowers) that under applicable law and treaties no taxes will be required to
be withheld by the Agent, the Borrowers or the assigning Bank with respect to
any payments to be made to such Participant in respect of its participation in
the Loans and (ii) to agree (for the benefit of the assigning Bank, the other
Banks, the Agent and the Borrowers) that it will deliver the tax forms and other
documents required to be delivered pursuant to paragraph 2.21(b) and comply from
time to time with all applicable U.S. laws
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and regulations with respect to withholding tax exemptions.
(i) Any Bank may at any time assign all or any portion of its
rights under this Agreement and the Notes issued to it to a Federal Reserve
Bank; provided that no such assignment shall release a Bank from any of its
obligations hereunder.
(j) Any bank becoming a party to this Agreement pursuant to
subsection 2.16(g) hereof (an "Additional Bank") shall, at least seven (7) days
before the effective date of such bank's joinder hereto, complete, execute and
deliver to the Agent a New Bank Joinder. Such New Bank Joinder shall include,
among other things, a joinder to this Agreement and otherwise be satisfactory to
the Agent and the Borrowers. Upon the effective date of such joinder, such
Additional Bank shall be a party hereto and shall be one of the Banks hereunder
for all purposes except that such Additional Bank's rights shall be limited in
the following respects as more fully set forth in such joinder: (i) on the
effective date of such joinder the Borrowers shall repay all outstanding Base
Rate Tranche A Loans and Base Rate Tranche B Loans and reborrow a like amount of
Base Rate Tranche A Loans and Base Rate Tranche B Loans from the Banks,
including the Additional Bank, according to their new Commitment Percentages and
(ii) such Additional Bank shall not participate in any Eurodollar Loans which
are outstanding on the effective date of such joinder but shall participate in
all new Loans made to the Borrowers after the effective date of such joinder
including, without limitation, new Eurodollar Loans and renewals and conversions
of Eurodollar Loans. If the Borrowers should (i) renew after the effective date
of such joinder any Eurodollar Loans existing on such date or (ii) convert after
the date of such joinder any Eurodollar Loans existing on such date, the
Borrowers shall be deemed to repay the applicable Loans on the conversion or
renewal date, as the case may be, and then reborrow a similar amount on such
date so that the Additional Bank shall participate in such Loans after such
renewal or conversion date. Any increase in the Commitments pursuant to
subsection 2.16(g) and this subsection 9.6(j) shall increase the Tranche B
Commitments and not the Tranche A Commitments. Simultaneously with the execution
and delivery of such joinder pursuant to which such Additional Bank shall join
this Agreement (i) each Bank's Commitments shall be readjusted so that each Bank
has the same percentage of the Tranche A Commitments as it does of the Tranche B
Commitments and (ii) the Borrowers shall execute and deliver to each Bank a new
Tranche A Note and a new Tranche B Note in the respective amounts of each Bank's
new Tranche A Commitment and Tranche B Commitment.
9.7 Disclosure of Information. Unless otherwise consented to by the
Company in writing, each of the Banks and the Agent agrees (on behalf of itself
and each of its affiliates, directors, officers, employees and representatives)
to use reasonable precautions to keep confidential, in accordance with its
customary procedures for handling confidential information of
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the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Company pursuant to this Agreement;
provided that nothing herein shall limit the disclosure of any such information
(a) to the extent required by statute, rule, regulation or judicial process, (b)
to counsel for any Bank or the Agent, (c) to bank examiners, auditors or
accountants, (d) to the Agent or any other Bank, (e) in connection with any
litigation to which any one or more of the Banks or the Agent is a party
involving one or more Borrowers or Guarantors or its or their properties or in
any way relating to this Agreement or any other Loan Documents or any Loans or
other obligations of one or more Borrowers or Guarantors to the Agent or any
Bank and (f) to any Participant or Purchasing Bank (or prospective Participant
or Purchasing Bank) so long as such Participant or Purchasing Bank (or
prospective Participant or Purchasing Bank) agrees to comply with the
requirements of this Section.
9.8 Adjustments; Set-off. (a) If any Bank (a "benefitted Bank") shall
at any time receive any payment of all or part of its Loans or the Reimbursement
Obligations owing to it, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in subsection 7.1(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Bank, if any, in respect of such other Bank's Loans or the
Reimbursement Obligations owing to it, or interest thereon, such benefitted Bank
shall purchase for cash from the other Banks such portion of each such other
Bank's Loans owing to it or the Reimbursement Obligations owing to it, or shall
provide such other Banks with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Bank to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Banks; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Bank, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. Each of the Borrowers,
jointly and severally agrees that each Bank so purchasing a portion of another
Bank's Loans may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such Bank were
the direct holder of such portion.
(b) In addition to any rights and remedies of the Banks provided by
law, upon the occurrence and during the continuance of an Event of Default, each
Bank shall have the right, without prior notice to the Borrowers (or any of
them), any such notice being expressly waived by the Borrowers to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrowers hereunder or under the Notes (whether at the stated maturity, by
acceleration or otherwise) to set-off and
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appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Bank to or for the credit or the account of one or more Borrowers.
Each Bank agrees promptly to notify the Company and the Agent after any such
set-off and application made by such Bank, provided that the failure to give
such notice shall not affect the validity of such set-off and application.
9.9 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company, on behalf of the Borrowers, and each of the
Banks.
9.10 Severability. Any provision of this 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.
9.11 Integration. This Agreement and the other Loan Documents represent
the agreement of the parties hereto with respect to the subject matter hereof,
and there are no promises, undertakings, representations or warranties by the
Agent or any Bank relative to the subject matter hereof not expressly set forth
or referred to herein or in the other Loan Documents.
9.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
COMMONWEALTH OF PENNSYLVANIA.
9.13 Submission To Jurisdiction; Waivers. Each of the Borrowers hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement or the Notes, or for recognition and
enforcement of any judgement in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the Commonwealth of Pennsylvania, the courts of
the United States of America for the Eastern District of Pennsylvania, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or
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proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Company at its
address set forth in Section 9.2 or at such other address of which the Agent
shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to in
this subsection any special, exemplary or punitive or consequential damages.
9.14 Acknowledgements. Each of Borrowers hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement, the Notes and the other Loan Documents;
(b) neither the Agent nor any Bank has any fiduciary relationship
to the Borrowers or the Guarantors (or any of them) and the relationship
hereunder between the Agent and Banks, on the one hand, and the Borrowers and
Guarantors, on the other hand, is solely that of debtor and creditor; and
(c) no joint venture exists among the Banks or among the Borrowers
and Guarantors (or any of them) and the Banks.
9.15 No Right of Contribution. No Borrower shall seek or be entitled to
any reimbursement from any other Borrower, or be subrogated to any rights of the
Banks against the Borrowers, in respect of any payments made pursuant to the
Loan Documents, until all amounts owing to the Banks hereunder and under the
Notes are paid in full and the Commitments are terminated.
9.16 WAIVERS OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN
DOCUMENT AND FOR ANY MANDATORY COUNTERCLAIM THEREIN.
93
<PAGE> 94
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: WEST COAST ENTERTAINMENT
CORPORATION
By:
Name:
[seal] Title:
ATTEST: VIDEOSMITH, INCORPORATED
By:
Name:
[seal] Title:
ATTEST: WEST COAST FRANCHISING COMPANY
By:
Name:
[seal] Title:
ATTEST: PALMER WEST COAST CORPORATION
By:
Name:
[seal] Title:
ATTEST: PALMER VIDEO CORPORATION
By:
Name:
[seal] Title:
94
<PAGE> 95
ATTEST: PALMER INVESTMENT CORPORATION
By:
Name:
[seal] Title:
ATTEST: CASABLANCA DISTRIBUTING
CORPORATION
By:
Name:
[seal] Title:
ATTEST: RKT MERGER CO.
By:
Name:
[seal] Title:
ATTEST: SHOWTIME, INC.
By:
Name:
[seal] Title:
ATTEST: VIDEO GIANT INC.
By:
Name:
[seal] Title:
ATTEST: VIDEO KING OF BROOME COUNTY,
INC.
By:
Name:
[seal] Title:
ATTEST: KING VIDEO ENTERPRISES, INC.
95
<PAGE> 96
By:
Name:
[seal] Title:
ATTEST: WEST COAST FINANCING CORPORATION
By:
Name:
[seal] Title:
ATTEST: WEST COAST LICENSING
CORPORATION
By:
Name:
[seal] Title:
PNC BANK, NATIONAL
ASSOCIATION, as a Bank and as
Agent
By:
Name:
Title:
FIRST UNION NATIONAL BANK
By:
Name:
Title:
SUMMIT BANK CORPORATION
By:
Name:
Title:
BANKBOSTON, N.A., F/K/A THE
96
<PAGE> 97
FIRST NATIONAL BANK OF BOSTON
By:
Name:
Title:
THE SUMITOMO BANK, LIMITED
By:
Name:
Title:
By:
Name:
Title:
97
<PAGE> 98
SCHEDULE I
Addresses of Banks
<TABLE>
<CAPTION>
BANK ADDRESSES TRANCHE A TRANCHE B
COMMITMENT COMMITMENT
---------- ----------
<S> <C> <C> <C>
PNC BANK, National Association $16,923,076.97 $3,076,923.09
Suite 200
1000 Westlakes Drive
Berwyn, PA 19312
Attention: Charlene Massih
Telephone: (610) 725-5756
Telecopy: (610) 725-5799
FIRST UNION NATIONAL BANK 12,692,307.68 2,307,692.32
123 South Broad Street
Philadelphia, PA 19109
Attention: Suzanne Storm
Telephone: (215) 985-7767
Telecopy: (215) 985-3143
SUMMIT BANK CORPORATION 8,461,538.45 1,538,461.53
1800 Chapel Avenue - West
Cherry Hill, NJ 08002
Attention: Adrian Marquez
Telephone: (609) 486-3629
Telecopy: (609) 486-3716
BANKBOSTON, N.A. 8,461,538.45 1,538,461.53
100 Federal Street
Boston, MA 02110
Attention; Peter McGowan
Telephone: (617) 434-0162
Telecopy: (617) 434-0204
THE SUMITOMO BANK, LIMITED 8,461,538.45 1,538,461.53
One Liberty Place
1650 Market Street, Suite 2860
Attention: Michael Fox
Philadelphia, PA 19103
Telephone: (215) 636-4440
Telecopy: (215) 636-4446
----------- -----------
$55,000,000 $10,000,000
</TABLE>
98
<PAGE> 99
CREDIT AGREEMENT
AMONG
WEST COAST ENTERTAINMENT CORPORATION,
VIDEOSMITH, INCORPORATED,
PALMER WEST COAST CORPORATION,
PALMER VIDEO CORPORATION
PALMER INVESTMENT CORPORATION
CASABLANCA DISTRIBUTING CORPORATION
RKT MERGER CO.,
SHOWTIME, INC.,
VIDEO GIANT INC.,
VIDEO KING OF BROOME COUNTY, INC.,
KING VIDEO ENTERPRISES, INC.
WEST COAST FINANCING CORPORATION,
WEST COAST LICENSING CORPORATION,
AND
WEST COAST FRANCHISING COMPANY
AS BORROWERS,
THE SEVERAL LENDERS FROM TIME TO TIME
PARTIES HERETO
AND
PNC BANK, NATIONAL ASSOCIATION,
AS AGENT
DATED AS OF DECEMBER 15, 1997
<PAGE> 100
$65,000,000 CREDIT FACILITY
<PAGE> 101
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
SECTION 1. DEFINITIONS............................................................................................... 1
1.1 Defined Terms............................................................................................... 1
1.2 Other Definitional Provisions............................................................................... 24
SECTION 2A. RESTRUCTURE OF EXISTING INDEBTEDNESS..................................................................... 24
2A.1. Restructure of Existing Indebtedness...................................................................... 24
2A.2. Existing Documents Superseded............................................................................. 25
SECTION 2. LOANS AND TERMS OF COMMITMENTS............................................................................ 25
2.1 Commitments................................................................................................. 25
2.2 Notes....................................................................................................... 27
2.3 Procedure for Loans......................................................................................... 28
2.4 L/C Commitment.............................................................................................. 29
2.5 Procedure for Issuance of Letters of Credit................................................................. 31
2.6 L/C Fees, Commissions and Other Charges..................................................................... 31
2.7 L/C Participations.......................................................................................... 32
2.8 Reimbursement Obligation of the Borrowers................................................................... 33
2.9 Obligations Absolute........................................................................................ 33
2.10 Letter of Credit Payments.................................................................................. 34
2.11 Application................................................................................................ 34
2.12 Fees....................................................................................................... 34
2.13 Interest Rates and Payment Dates........................................................................... 35
2.14 Default Interest........................................................................................... 36
2.15 Inability to Determine Interest Rate....................................................................... 36
2.16 Termination, Reduction, Extension and Increase of
Commitments............................................................................................. 37
2.17 Optional Prepayment of Loans............................................................................... 41
2.18 Mandatory Prepayments...................................................................................... 42
2.19 Illegality................................................................................................. 43
2.20 Requirements of Law........................................................................................ 44
2.21 Taxes...................................................................................................... 45
2.22 Indemnity.................................................................................................. 47
2.23 Borrowers' Representative.................................................................................. 48
2.24 Pro Rata Treatment of Loans and Payments; Commitment
Fees.................................................................................................... 48
2.25 Payments................................................................................................... 48
2.26 Conversion and Continuation Options........................................................................ 49
2.27 Minimum Amounts of Tranches; Maximum Number of Tranches.................................................... 50
2.28 Use of Proceeds............................................................................................ 50
SECTION 3. REPRESENTATIONS AND WARRANTIES............................................................................ 50
3.1 Financial Condition......................................................................................... 50
3.2 No Change................................................................................................... 51
3.3 Corporate Existence; Compliance with Law.................................................................... 52
3.4 Corporate Power; Authorization; Enforceable Obligations..................................................... 52
3.5 No Legal Bar................................................................................................ 52
3.6 No Material Litigation...................................................................................... 53
3.7 No Default.................................................................................................. 53
</TABLE>
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<TABLE>
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----
<S> <C>
3.8 Taxes....................................................................................................... 53
3.9 Federal Regulations......................................................................................... 53
3.10 ERISA...................................................................................................... 54
3.11 Investment Company Act..................................................................................... 54
3.12 Purpose of Loans........................................................................................... 54
3.13 Environmental Matters...................................................................................... 55
3.14 No Material Misstatements.................................................................................. 56
3.15 Title to Properties........................................................................................ 56
3.16 Intellectual Property...................................................................................... 57
3.17 No Burdensome Restrictions; List of Subsidiaries........................................................... 57
3.18 Security Interests......................................................................................... 57
3.19 Senior Debt Status......................................................................................... 57
3.20 Solvency................................................................................................... 57
3.21 Public Utility Holding Company Act......................................................................... 58
3.22 Insurance.................................................................................................. 58
3.23 Material Contracts; Franchise Agreements................................................................... 58
SECTION 4. CONDITIONS PRECEDENT...................................................................................... 59
4.1 Conditions to Initial Extension of Credit................................................................... 59
4.2 Conditions to Each Extension of Credit...................................................................... 61
4.3 Closing..................................................................................................... 62
SECTION 5. AFFIRMATIVE COVENANTS..................................................................................... 62
5.1 Financial Statements........................................................................................ 62
5.2 Certificates; Other Information............................................................................. 63
5.3 Payment of Obligations...................................................................................... 64
5.4 Conduct of Business and Maintenance of Existence............................................................ 64
5.5 Maintenance of Insurance; Property.......................................................................... 65
5.6 Inspection of Property; Books and Records; Discussions...................................................... 66
5.7 Notices..................................................................................................... 66
5.8 Environmental Laws.......................................................................................... 67
5.9 Management Changes.......................................................................................... 68
5.10 Further Assurances......................................................................................... 68
5.11 [INTENTIONALLY BLANK]...................................................................................... 68
5.12 Pledge of Property......................................................................................... 68
5.13 Notice and Joinder of New Subsidiaries..................................................................... 68
5.14 Interest Rate Hedge Agreements............................................................................. 69
5.15 Good Standing.............................................................................................. 69
SECTION 6. NEGATIVE COVENANTS........................................................................................ 69
6.1 Financial Condition Covenants............................................................................... 70
6.2 Limitation on Liens......................................................................................... 71
6.3 Limitation of Indebtedness.................................................................................. 71
6.4 Limitations on Fundamental Changes.......................................................................... 71
6.5 Limitation on Sale of Assets................................................................................ 72
6.6 Limitation on Distributions................................................................................. 72
6.7 Transactions with Affiliates................................................................................ 73
6.8 Sale and Leaseback.......................................................................................... 73
6.9 Limitation on Contingent Obligations........................................................................ 73
6.10 Limitation on Investments, Loans and Advances.............................................................. 73
</TABLE>
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<PAGE> 103
<TABLE>
Page
----
<S> <C>
6.11 Limitation on Optional Payments and Modifications of
Subordinated Debt....................................................................................... 74
6.12 Limitation on Negative Pledge Clauses...................................................................... 74
6.13 Fiscal Year................................................................................................ 74
6.14 Limitation on Conduct of Business.......................................................................... 74
6.15 Changes in Organizational Documents........................................................................ 74
6.16 Landlord Waivers........................................................................................ 75
SECTION 7. EVENTS OF DEFAULT......................................................................................... 75
7.1 Events of Default........................................................................................... 75
SECTION 8. THE AGENT................................................................................................. 79
8.1 Appointment................................................................................................. 79
8.2 Delegation of Duties........................................................................................ 79
8.3 Exculpatory Provisions...................................................................................... 80
8.4 Reliance by Agent........................................................................................... 80
8.5 Notice of Default........................................................................................... 80
8.6 Non-Reliance on Agent and Other Banks....................................................................... 81
8.7 Indemnification............................................................................................. 81
8.8 Agent in Its Individual Capacity............................................................................ 82
8.9 Release of Liens............................................................................................ 82
8.10 Successor Agent............................................................................................ 82
8.11 Beneficiaries.............................................................................................. 83
SECTION 9. MISCELLANEOUS............................................................................................. 83
9.1 Amendments and Waivers...................................................................................... 83
9.2 Notices..................................................................................................... 84
9.3 No Waiver; Cumulative Remedies.............................................................................. 85
9.4 Survival of Representations and Warranties.................................................................. 85
9.5 Payment of Expenses and Taxes............................................................................... 85
9.6 Successors and Assigns...................................................................................... 86
9.7 Disclosure of Information................................................................................... 91
9.8 Adjustments; Set-off........................................................................................ 91
9.9 Counterparts................................................................................................ 92
9.10 Severability............................................................................................... 93
9.11 Integration................................................................................................ 93
9.12 GOVERNING LAW.............................................................................................. 93
9.13 Submission To Jurisdiction; Waivers........................................................................ 93
9.14 Acknowledgements........................................................................................... 94
9.15 No Right of Contribution................................................................................... 94
9.16 WAIVERS OF JURY TRIAL...................................................................................... 94
</TABLE>
-iii-
<PAGE> 104
SCHEDULES
SCHEDULE I Bank and Commitment Information
SCHEDULE II Existing Liens
SCHEDULE 3.1(c) List of Projections
SCHEDULE 3.3 List of Borrowers Not in Good Standing
SCHEDULE 3.15 List of Real Property
SCHEDULE 3.17 List of Subsidiaries
SCHEDULE 3.18 List of Filing Locations
SCHEDULE 3.22 Insurance
SCHEDULE 3.23 Material Contracts
SCHEDULE 4.1(b)(ii) List of Permitted Exceptions
SCHEDULE 6.3 Existing Indebtedness
SCHEDULE 6.9 Existing Contingent Obligations
EXHIBITS
EXHIBIT A-1 Form of Tranche A Note
EXHIBIT A-2 Form of Tranche B Note
EXHIBIT B Form of Assignment and Acceptance Agreement
EXHIBIT C-1 Form of Company Pledge Agreement
EXHIBIT C-2 Form of Subsidiary Pledge Agreement
EXHIBIT D Form of Security Agreement
EXHIBIT E Form of Guarantee
EXHIBIT F Form of Joinder Agreement
EXHIBIT G Form of Notice of Borrowing
EXHIBIT H Form of Legal Opinion of Hale and Dorr
-iv-
<PAGE> 105
BSA&I WINDAAX DOCUMENT PRODUCTION REQUEST FORM
KEEP THIS COMPLETED FORM WITH YOUR DOCUMENT FOR FUTURE REVISIONS.
BATCH NO. ______________
- --------------------------------------------------------------------------------
NAME _______________________ ATTORNEY #___________________
DATE IN ______ TIME IN _____AM PM DATE DUE ______ TIME DUE ______AM PM
WHEN COMPLETED, CALL ___________________ EXTENSION ___________________
- --------------------------------------------------------------------------------
DOCUMENT PRODUCTION SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
|_| Revise Document #____________ *|_| Dupe & Revise Document #__________
*|_| Original Document |_| BlacklineeNew Document #__________
|_| Run Off Document #___________ against Old Document #_________
*|_| Scan Document and cleanup using Option #__________
|_| Spell check *|_| Dupe Document #__________ to a new
level for future blacklining
*|_| Transfer from Indaax to Windaax - Revise
*|_| Transfer from Indaax to Windaax - DO NOT REVISE INDAAX INFORMATION
(complete for transfer to Windaax):
Library _________ Class _________ ID ___________ Revision ______
</TABLE>
* = COMPLETE WINDAAX PROFILE INFORMATION SECTION
- --------------------------------------------------------------------------------
SPECIAL INSTRUCTIONS:
- --------------------------------------------------------------------------------
WINDAAX PROFILE INFORMATION
- --------------------------------------------------------------------------------
AUTHOR: __ RICHARD S. PERELMAN
DOCUMENT NUMBER: __ 472838.005
DOCUMENT NAME: __ CREDIT AGREEMENT WEST COAST ENTERTAINMENT
FILE # (required): __ 847641
KEYWORDS: __
SPECIALIST: __ j. brooks
DATE PROCESSED: __ 12/07/97
WORK DONE: __ REVISIONS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LIBRARY (check one) TYPE (check one)
|_| Administration |_| Litigation |_| Agreement |_| Landscape
|_| Business & Finance |_| Marketing |_| Bill |_| Letter
|_| Computer Services |_| PSS |_| Brief |_| Manual
|_| Engagement Letter |_| Public Finance |_| Bond Doc. |_| Memo
|_| Employee Benefits |_| Real Estate |_| Database |_| Opinion
|_| Environmental |_| Tax |_| Desktop Pub. |_| Pension Doc.
|_| Estates |_| Wheaton |_| Document |_| Spreadsheet
|_| Hire |_| Form |_| Will
</TABLE>
- --------------------------------------------------------------------------------
PRODUCTION DATA (TO BE COMPLETED BY DOCUMENT SPECIALIST)
- --------------------------------------------------------------------------------
DOCUMENT # _________________ SPECIALIST ____________________________
DATE PROCESSED ______________ TIME ELAPSED __________________________
ACCOUNTING USE ONLY: JOB COST $____________________
- --------------------------------------------------------------------------------
38876.004(PSS)
-vi-
<PAGE> 1
Exhibit 10.31
EXHIBIT C-1
FORM OF PLEDGE AGREEMENT
Pledge Agreement, dated as of _____ __, 1997, made by WEST COAST
ENTERTAINMENT CORPORATION, a Delaware corporation (the "Pledgor"), in favor of
PNC BANK, NATIONAL ASSOCIATION, as agent (in such capacity, the "Agent") for the
banks and other financial institutions (the "Banks") parties to the Credit
Agreement (as defined below).
WITNESSETH:
WHEREAS, the Pledgor and certain of its subsidiaries
(collectively, the "Borrowers"), the Banks and the Agent have entered into a
Credit Agreement, dated as of the date hereof (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement");
WHEREAS, pursuant to the provisions of the Credit Agreement and
upon the terms and subject to the conditions set forth therein, the Banks have
severally agreed to make certain loans to, and to issue or participate in
letters of credit for the account of, the Borrowers;
WHEREAS, the Pledgor is the legal and beneficial owner of the
shares of Pledged Stock (as hereinafter defined) of the entities listed on
Schedule I hereto (individually, an "Issuer," and collectively, the "Issuers");
and
WHEREAS, it is a condition precedent to the obligation of the
Banks to make their respective loans to, and to issue or participate in letters
of credit for the account of, the Borrowers under the Credit Agreement that the
Pledgor shall have executed and delivered this Pledge Agreement to the Agent for
the ratable benefit of the Banks.
NOW, THEREFORE, in consideration of the premises and to induce the
Agent and the Banks to enter into the Credit Agreement and make their respective
loans to, and to issue or participate in letters of credit for the account of,
the Borrowers thereunder, the Pledgor hereby agrees with the Agent, for the
ratable benefit of the Banks, 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:
"Code" means the Uniform Commercial Code from time to
<PAGE> 2
time in effect in the Commonwealth of Pennsylvania.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" shall mean the unpaid principal amount of, and
interest on (including, without limitation, interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to a Borrower,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) the Notes and all other obligations and
liabilities of the Borrowers to the Agent or any Bank, whether direct
or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, the Notes, the Letters of
Credit, the Applications, this Pledge Agreement, the other Loan
Documents, any Interest Rate Hedge Agreement with a Bank and any other
document made, delivered or given in connection therewith or herewith,
whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all
fees and disbursements of counsel to the Agent or any Bank that are
required to be paid by the Borrowers pursuant to the terms of the
Credit Agreement) or otherwise.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of the Issuers
listed on Schedule I hereto, together with all stock certificates,
options or rights of any nature whatsoever that may be issued or
granted by any Issuer to the Pledgor while this Pledge Agreement is in
effect.
"Proceeds" means all "proceeds" as such term is defined in Section
9306(a) of the Code and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Pledgor hereby agrees
on the date hereof to deliver to the Agent, for the ratable benefit of the Banks
and the Agent, the Pledged Stock and hereby grants to the Agent, for the ratable
benefit of the Banks and the Agent, a first priority security interest in the
Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to the Agent of
each certificate representing one or more shares of
2
<PAGE> 3
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor with, if the Agent so
requests, signature guaranteed.
4. Representations and Warranties. The Pledgor represents and
warrants that:
(a) the Pledgor is the owner of the issued and outstanding shares
of all capital stock of each Issuer and the shares of Pledged Stock
listed on Schedule I constitute all of such issued and outstanding
shares;
(b) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Stock listed on Schedule I,
free of any and all Liens or options in favor of, or claims of, any
other Person, except the Lien created by this Pledge Agreement; and
(d) upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock, 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 Collateral from the Pledgor.
5. Covenants. The Pledgor covenants and agrees with the Agent
and the Banks that from and after the date of this Pledge Agreement until the
Obligations are paid in full and the Commitments are terminated and no Letter of
Credit remains outstanding:
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, 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 shares of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as the agent of the Agent
and the Banks, hold the same in trust for the Agent and the Banks and
deliver the same to the Agent in the exact form received, duly indorsed
by the Pledgor to the Agent, if required, together with an undated
stock power covering such certificate duly executed in blank by the
Pledgor and with, if the Agent so requests, signature guaranteed, to be
held by the Agent, subject to the terms hereof, as additional
collateral security for the Obligations. Any sums paid upon or in
respect of the
3
<PAGE> 4
Pledged Stock upon the liquidation or dissolution of any Issuer shall
be paid over to the Agent to be held by it hereunder as additional
collateral security for the Obligations, and in case any distribution
of capital shall be made on or in respect of the Pledged Stock or any
property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of
such Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Agent to be held by it hereunder
as additional collateral security for the Obligations. If any sums of
money or property so paid or distributed in respect of the Pledged
Stock shall be received by the Pledgor, the Pledgor shall, until such
money or property is paid or delivered to the Agent, hold such money or
property in trust for the Banks, segregated from other funds of the
Pledgor, as additional collateral security for the Obligations.
(b) Without the prior written consent of the Agent, the Pledgor
will not (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock 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 or other equity securities of any
nature of such Issuer, (ii) sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option with respect to, the
Collateral, and (iii) create, incur or permit to exist any Lien 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 Lien provided
for by this Pledge Agreement. The Pledgor will defend the right, title
and interest of the Agent and the Banks in and to the Collateral
against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Agent, and at the sole expense of the Pledgor, the Pledgor will
promptly and duly execute and deliver such further instruments and
documents and take such further actions as the 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 Agent, duly endorsed in a manner
satisfactory to the Agent, to be held as Collateral pursuant to this
Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Agent and the Banks
harmless from, any and all liabilities with
4
<PAGE> 5
respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with
this Pledge Agreement or the granting of security hereunder or the
exercising of any rights or remedies hereunder.
6. Cash Dividends; Voting Rights. Unless an Event of Default
shall have occurred and be continuing and the Agent shall have given notice to
the Company of the Agent's intent to exercise its rights pursuant to paragraph 7
below, the Pledgor shall be permitted to receive all dividends (other than
dividends paid in additional capital stock of any Issuer) paid in the normal
course of business of each Issuer and consistent with past practice, to the
extent permitted in the Credit Agreement, in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock,
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which, in the 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 or any of the other Loan Documents.
5
<PAGE> 6
7. Rights of the Banks and the Agent.
(a) If an Event of Default shall occur and be continuing and
the Agent shall give notice of its intent to exercise its rights hereunder to
the Company, (i) the Agent shall have the right to receive any and all cash
dividends paid in respect of the Pledged Stock and make application thereof to
the Obligations in such order as the Agent may determine, and (ii) all shares of
the Pledged Stock shall be registered in the name of the Agent or its nominee,
and the Agent, or its nominee may thereafter exercise (A) all voting, corporate
and other rights pertaining to such shares of Pledged Stock at any meeting of
shareholders of any Issuer or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of any
Issuer, or upon the exercise by the Pledgor or the Agent of any right, privilege
or option pertaining to such shares of the Pledged Stock, and in connection
therewith, the right to deposit and deliver any and all of the Pledged Stock
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 and except for
its gross negligence or willful misconduct, but the 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.
(b) The rights of the Agent and the Banks hereunder shall not
be conditioned or contingent upon the pursuit by the Agent or any Bank of any
right or remedy 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 therefor or right of offset with respect thereto. Neither
the Agent nor any Bank 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 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.
8. Remedies. If an Event of Default shall have occurred and be
continuing, the Agent, on behalf of the Banks, may exercise, in addition to all
other rights and remedies granted to it in this Pledge Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the
6
<PAGE> 7
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below or otherwise specifically required hereunder) to or upon the Pledgor,
any Issuer 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 or 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 Agent or any Bank 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 Agent or any Bank shall have the right upon any such public sale or sales,
and, to the extent permitted by 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 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
Agent and the Banks hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Agent, to the payment in
whole or in part of the Obligations, in such order as the Agent may elect, and
only after such application and after the payment by the Agent of any other
amount required by any provision of law, including, without limitation, Section
9504(a)(3) of the Code, need the 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 Agent or any Bank arising
out of the lawful exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 Business Days
before such sale or other disposition. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Agent or any Bank to collect such deficiency.
9. Registration Rights; Private Sales.
(a) The Pledgor recognizes that the 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 of 1933, as amended (the
"Securities Act") and applicable state
7
<PAGE> 8
securities laws or otherwise, and may 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 Agent shall be
under no obligation to delay a sale of any of the Pledged Stock for the period
of time necessary to permit any Issuer to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(b) 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 Pledged Stock pursuant to this paragraph 9
valid and binding and in compliance with any and all other applicable
Requirements of Law. The Pledgor further agrees that a breach of any of the
covenants contained in this paragraph 9 will cause irreparable injury to the
Agent and the Banks, that the Agent and the Banks have no adequate remedy at law
in respect of such breach and, as a consequence, that each and every covenant
contained in this paragraph 9 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.
10. Limitation on Duties Regarding Collateral. The 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 Agent deals with similar
securities and property for its own account. Neither the Agent, any Bank 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.
11. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
12. 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
8
<PAGE> 9
invalidate or render unenforceable such provisions in any other jurisdiction.
13. 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.
14. No Waiver; Cumulative Remedies. Neither the Agent nor any
Bank shall by any act (except by a written instrument pursuant to paragraph 15
hereof) be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default of any obligation under any Loan Document or in any
breach of any of the terms and conditions hereof or thereof. No failure to
exercise, nor any delay in exercising, on the part of the Agent or any Bank of
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 Agent or any Bank of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right 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.
15. 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 Agent, provided that any provision of this Pledge Agreement
may be waived by the Agent in a letter or agreement executed by the Agent or by
telex or facsimile transmission from the Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Agent and the Banks and their respective successors and assigns.
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
16. Notices. All notices hereunder to the Agent, the Pledgor or
any Issuer to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given when delivered or sent in the manner and to the respective addresses as
provided in Subsection 9.2 of the Credit Agreement or in the case of each Issuer
at its address set forth on Schedule II hereto.
17. Irrevocable Authorization and Instruction to Issuers. The
Pledgor hereby authorizes and instructs each Issuer to comply with any
instruction received by it from the Agent in writing that (a) states that an
Event of Default has occurred and
9
<PAGE> 10
is continuing and (b) is otherwise in accordance with the terms of this Pledge
Agreement, without any other or further instructions from the Pledgor, and the
Pledgor agrees that each Issuer shall be fully protected in so complying.
18. Authority of Agent. The Pledgor acknowledges that the rights
and responsibilities of the Agent under this Pledge Agreement with respect to
any action taken by the Agent or the exercise or non-exercise by the 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 Agent and the Banks, 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 Agent and the Pledgor, the Agent shall be conclusively
presumed to be acting as agent for the Banks with full and valid authority so to
act or refrain from acting, and neither the Pledgor nor any Issuer shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
19. Submission to Jurisdiction; Waivers.
(a) The Pledgor hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal
action or proceeding relating to this Pledge Agreement, or for
recognition and enforcement of any judgment in respect thereof to
the non-exclusive general jurisdiction of the courts of the
Commonwealth of Pennsylvania, the courts of the United States of
America for the Eastern District of Pennsylvania, and appellate
courts from any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now
or hereafter have to the venue of any such action or proceeding in
any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Pledgor at its address set forth
in the Credit Agreement or at such other address of which the
Agent shall have been notified; and
(iv) agrees that nothing herein shall affect the right
to effect service of process in any other manner permitted by law
or shall limit the right to sue
10
<PAGE> 11
in any other jurisdiction.
(b) THE PLEDGOR HEREBY UNCONDITIONALLY WAIVES TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE.
20. Counterparts. This Pledge Agreement may be executed by one or
more of the parties to this Pledge Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
ATTEST: WEST COAST ENTERTAINMENT
CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
11
<PAGE> 12
ACKNOWLEDGMENT AND CONSENT
Each Issuer referred to in the foregoing Pledge Agreement hereby
acknowledges receipt of a copy thereof and agrees to be bound thereby and comply
with the terms thereof insofar as such terms are applicable to it. Each Issuer
agrees to notify the Agent promptly in writing of the occurrence of any of the
events described in paragraph 5(a) of the Pledge Agreement. Each Issuer further
agrees that the terms of paragraph 9(b) of the Pledge Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
under or pursuant to or arising out of paragraph 9 of the Pledge Agreement.
VIDEOSMITH, INCORPORATED
By:_________________________
Name:_______________________
WEST COAST FRANCHISING COMPANY
By:_________________________
Name:_______________________
Title:______________________
Title: _____________________
PALMER WEST COAST CORPORATION
By:_________________________
Name:_______________________
Title:______________________
PALMER VIDEO CORPORATION
By:_________________________
Name:_______________________
Title:______________________
PALMER INVESTMENT CORPORATION
By:_________________________
Name:_______________________
Title:______________________
[signatures continued on next page]
<PAGE> 13
RKT MERGER COMPANY
By:_________________________
Name:_______________________
Title:______________________
SHOWTIME, INCORPORATED
By:_________________________
Name:_______________________
Title:______________________
VIDEO GIANT, INC.
By:_________________________
Name:_______________________
Title:______________________
VIDEO KING OF BROOME COUNTY, INC.
By:_________________________
Name:_______________________
Title:______________________
KING VIDEO ENTERPRISES,INC.
By:_________________________
Name:_______________________
Title:______________________
WEST COAST FINANCING CORPORATION
By:_________________________
Name:_______________________
Title:______________________
2
<PAGE> 14
SCHEDULE I
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
=====================================================================================================
STOCK PERCENTAGE
CLASS OF CERTIFICATE NO. OF OF
ISSUER STOCK* NO. SHARES ISSUED SHARES
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
=====================================================================================================
</TABLE>
* Common unless otherwise indicated.
<PAGE> 15
SCHEDULE II
TO PLEDGE AGREEMENT
ADDRESSES OF ISSUERS
<PAGE> 1
EXHIBIT 10.32
EXHIBIT C-4
FORM OF PLEDGE AGREEMENT
Pledge Agreement, dated as of December 15, 1997, made
by PALMER WEST COAST CORPORATION, a Delaware corporation (the "Pledgor"), in
favor of PNC BANK, NATIONAL ASSOCIATION, as agent (in such capacity, the
"Agent") for the banks and other financial institutions (the "Banks") parties to
the Credit Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the West Coast Entertainment Corporation and
certain of its subsidiaries (collectively, the "Borrowers"), the Banks and the
Agent have entered into a Credit Agreement, dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement");
WHEREAS, pursuant to the provisions of the Credit
Agreement and upon the terms and subject to the conditions set forth therein,
the Banks have severally agreed to make certain loans to, and to issue or
participate in letters of credit for the account of, the Borrowers;
WHEREAS, the Pledgor is the legal and beneficial owner
of the shares of Pledged Stock (as hereinafter defined) of the entities listed
on Schedule I hereto (individually, an "Issuer," and collectively, the
"Issuers"); and
WHEREAS, it is a condition precedent to the obligation
of the Banks to make their respective loans to, and to issue or participate in
letters of credit for the account of, the Borrowers under the Credit Agreement
that the Pledgor shall have executed and delivered this Pledge Agreement to the
Agent for the ratable benefit of the Banks.
NOW, THEREFORE, in consideration of the premises and to
induce the Agent and the Banks to enter into the Credit Agreement and make their
respective loans to, and to issue or participate in letters of credit for the
account of, the Borrowers thereunder, the Pledgor hereby agrees with the Agent,
for the ratable benefit of the Banks, 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:
"Code" means the Uniform Commercial Code from time to
<PAGE> 2
time in effect in the Commonwealth of Pennsylvania.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" shall mean the unpaid principal amount of,
and interest on (including, without limitation, interest accruing
after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to a
Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) the Notes and all other
obligations and liabilities of the Borrowers to the Agent or any
Bank, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Credit Agreement, the
Notes, the Letters of Credit, the Applications, this Pledge
Agreement, the other Loan Documents, any Interest Rate Hedge
Agreement with a Bank and any other document made, delivered or given
in connection therewith or herewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees and disbursements
of counsel to the Agent or any Bank that are required to be paid by
the Borrowers pursuant to the terms of the Credit Agreement) or
otherwise.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of the
Issuers listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by any Issuer to the Pledgor while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9306(a) of the Code and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Pledgor
hereby agrees on the date hereof to deliver to the Agent, for the ratable
benefit of the Banks and the Agent, the Pledged Stock and hereby grants to the
Agent, for the ratable benefit of the Banks and the Agent, a first priority
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to
the Agent of each certificate representing one or more shares of
2
<PAGE> 3
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor with, if the Agent so
requests, signature guaranteed.
4. Representations and Warranties. The Pledgor
represents and warrants that:
(a) the Pledgor is the owner of the issued and outstanding
shares of all capital stock of each Issuer and the shares of Pledged
Stock listed on Schedule I constitute all of such issued and
outstanding shares;
(b) all the shares of the Pledged Stock have been duly
and validly issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and
has good and marketable title to, the Pledged Stock listed on
Schedule I, free of any and all Liens or options in favor of, or
claims of, any other Person, except the Lien created by this Pledge
Agreement; and
(d) upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock, 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 Collateral
from the Pledgor.
5. Covenants. The Pledgor covenants and agrees with
the Agent and the Banks that from and after the date of this Pledge Agreement
until the Obligations are paid in full and the Commitments are terminated and no
Letter of Credit remains outstanding:
(a) If the Pledgor shall, as a result of its ownership of
the Pledged Stock, 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 shares of the Pledged Stock, or otherwise
in respect thereof, the Pledgor shall accept the same as the agent of
the Agent and the Banks, hold the same in trust for the Agent and the
Banks and deliver the same to the Agent in the exact form received,
duly indorsed by the Pledgor to the Agent, if required, together with
an undated stock power covering such certificate duly executed in
blank by the Pledgor and with, if the Agent so requests, signature
guaranteed, to be held by the Agent, subject to the terms
hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the
3
<PAGE> 4
Pledged Stock upon the liquidation or dissolution of any Issuer shall
be paid over to the Agent to be held by it hereunder as additional
collateral security for the Obligations, and in case any distribution
of capital shall be made on or in respect of the Pledged Stock or any
property shall be distributed upon or with respect to the Pledged
Stock pursuant to the recapitalization or reclassification of the
capital of such Issuer or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Agent to be held by
it hereunder as additional collateral security for the Obligations.
If any sums of money or property so paid or distributed in respect of
the Pledged Stock shall be received by the Pledgor, the Pledgor
shall, until such money or property is paid or delivered to the
Agent, hold such money or property in trust for the Banks, segregated
from other funds of the Pledgor, as additional collateral security
for the Obligations.
(b) Without the prior written consent of the Agent, the
Pledgor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock 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 or other
equity securities of any nature of such Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Collateral, and (iii) create, incur or permit to
exist any Lien 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 Lien provided for by this Pledge Agreement. The Pledgor will
defend the right, title and interest of the Agent and the Banks in
and to the Collateral against the claims and demands of all Persons
whomsoever.
(c) At any time and from time to time, upon the written
request of the Agent, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the 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
Agent, duly endorsed in a manner satisfactory to the Agent, to be
held as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Agent and
the Banks harmless from, any and all liabilities with
4
<PAGE> 5
respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with
this Pledge Agreement or the granting of security hereunder or the
exercising of any rights or remedies hereunder.
6. Cash Dividends; Voting Rights. Unless an Event of
Default shall have occurred and be continuing and the Agent shall have given
notice to the Company of the Agent's intent to exercise its rights pursuant to
paragraph 7 below, the Pledgor shall be permitted to receive all dividends
(other than dividends paid in additional capital stock of any Issuer) paid in
the normal course of business of each Issuer and consistent with past practice,
to the extent permitted in the Credit Agreement, in respect of the Pledged Stock
and to exercise all voting and corporate rights with respect to the Pledged
Stock, provided, however, that no vote shall be cast or corporate right
exercised or other action taken which, in the 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 or any of the
other Loan Documents.
5
<PAGE> 6
7. Rights of the Banks and the Agent.
(a) If an Event of Default shall occur and be
continuing and the Agent shall give notice of its intent to exercise its rights
hereunder to the Company, (i) the Agent shall have the right to receive any and
all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Obligations in such order as the Agent may determine, and (ii)
all shares of the Pledged Stock shall be registered in the name of the Agent or
its nominee, and the Agent, or its nominee may thereafter exercise (A) all
voting, corporate and other rights pertaining to such shares of Pledged Stock at
any meeting of shareholders of any Issuer or otherwise and (B) any and all
rights of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any Issuer, or upon the exercise by the Pledgor or the Agent of any
right, privilege or option pertaining to such shares of the Pledged Stock, and
in connection therewith, the right to deposit and deliver any and all of the
Pledged Stock 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 and
except for its gross negligence or willful misconduct, but the 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.
(b) The rights of the Agent and the Banks
hereunder shall not be conditioned or contingent upon the pursuit by the Agent
or any Bank of any right or remedy 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 therefor or right of offset with respect
thereto. Neither the Agent nor any Bank 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 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.
8. Remedies. If an Event of Default shall have
occurred and be continuing, the Agent, on behalf of the Banks, may exercise, in
addition to all other rights and remedies granted to it in this Pledge Agreement
and in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the
6
<PAGE> 7
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below or otherwise specifically required hereunder) to or upon the Pledgor,
any Issuer 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 or 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 Agent or any Bank 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 Agent or any Bank shall have the right upon any such public sale or sales,
and, to the extent permitted by 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 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
Agent and the Banks hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Agent, to the payment in
whole or in part of the Obligations, in such order as the Agent may elect, and
only after such application and after the payment by the Agent of any other
amount required by any provision of law, including, without limitation, Section
9504(a)(3) of the Code, need the 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 Agent or any Bank arising
out of the lawful exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 Business Days
before such sale or other disposition. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Agent or any Bank to collect such deficiency.
9. Registration Rights; Private Sales.
(a) The Pledgor recognizes that the 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 of 1933, as amended (the
"Securities Act") and applicable state
7
<PAGE> 8
securities laws or otherwise, and may 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 Agent shall be
under no obligation to delay a sale of any of the Pledged Stock for the period
of time necessary to permit any Issuer to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(b) 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 Pledged Stock pursuant to
this paragraph 9 valid and binding and in compliance with any and all other
applicable Requirements of Law. The Pledgor further agrees that a breach of any
of the covenants contained in this paragraph 9 will cause irreparable injury to
the Agent and the Banks, that the Agent and the Banks have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this paragraph 9 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.
10. Limitation on Duties Regarding Collateral. The
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 Agent
deals with similar securities and property for its own account. Neither the
Agent, any Bank 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.
11. Powers Coupled with an Interest. All
authorizations and agencies herein contained with respect to the Collateral are
irrevocable and powers coupled with an interest.
12. 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
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<PAGE> 9
invalidate or render unenforceable such provisions in any other jurisdiction.
13. 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.
14. No Waiver; Cumulative Remedies. Neither the Agent
nor any Bank shall by any act (except by a written instrument pursuant to
paragraph 15 hereof) be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default of any obligation under any Loan Document or
in any breach of any of the terms and conditions hereof or thereof. No failure
to exercise, nor any delay in exercising, on the part of the Agent or any Bank
of 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 Agent or any Bank of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right 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.
15. 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 Agent, provided that any provision of this
Pledge Agreement may be waived by the Agent in a letter or agreement executed by
the Agent or by telex or facsimile transmission from the Agent. This Pledge
Agreement shall be binding upon the successors and assigns of the Pledgor and
shall inure to the benefit of the Agent and the Banks and their respective
successors and assigns. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA.
16. Notices. All notices hereunder to the Agent, the
Pledgor or any Issuer to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given when delivered or sent in the manner and to the respective
addresses as provided in Subsection 9.2 of the Credit Agreement or in the case
of each Issuer at its address set forth on Schedule II hereto.
17. Irrevocable Authorization and Instruction to
Issuers. The Pledgor hereby authorizes and instructs each Issuer to comply with
any instruction received by it from the Agent in writing that (a) states that an
Event of Default has occurred and
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<PAGE> 10
is continuing and (b) is otherwise in accordance with the terms of this Pledge
Agreement, without any other or further instructions from the Pledgor, and the
Pledgor agrees that each Issuer shall be fully protected in so complying.
18. Authority of Agent. The Pledgor acknowledges that
the rights and responsibilities of the Agent under this Pledge Agreement with
respect to any action taken by the Agent or the exercise or non-exercise by the
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 Agent and the Banks, 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 Agent and the Pledgor, the Agent shall be conclusively
presumed to be acting as agent for the Banks with full and valid authority so to
act or refrain from acting, and neither the Pledgor nor any Issuer shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
19. Submission to Jurisdiction; Waivers.
(a) The Pledgor hereby irrevocably and
unconditionally:
(i) submits for itself and its property in any
legal action or proceeding relating to this Pledge
Agreement, or for recognition and enforcement of any
judgment in respect thereof to the non-exclusive general
jurisdiction of the courts of the Commonwealth of
Pennsylvania, the courts of the United States of America
for the Eastern District of Pennsylvania, and appellate
courts from any thereof;
(ii) consents that any such action or
proceeding may be brought in such courts, and waives any
objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(iii) agrees that service of process in any
such action or proceeding may be effected by mailing a
copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to
such Pledgor at its address set forth in the Credit
Agreement or at such other address of which the Agent
shall have been notified; and
(iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner
permitted by law or shall limit the right to sue
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<PAGE> 11
in any other jurisdiction.
(B) THE PLEDGOR HEREBY UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN
PARAGRAPH (A) ABOVE.
20. Counterparts. This Pledge Agreement may be
executed by one or more of the parties to this Pledge Agreement on any number of
separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned has caused this
Pledge Agreement to be duly executed and delivered as of the date first above
written.
ATTEST: PALMER WEST COAST CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
11
<PAGE> 12
ACKNOWLEDGMENT AND CONSENT
Each Issuer referred to in the foregoing Pledge
Agreement hereby acknowledges receipt of a copy thereof and agrees to be bound
thereby and comply with the terms thereof insofar as such terms are applicable
to it. Each Issuer agrees to notify the Agent promptly in writing of the
occurrence of any of the events described in paragraph 5(a) of the Pledge
Agreement. Each Issuer further agrees that the terms of paragraph 9(b) of the
Pledge Agreement shall apply to it, mutatis mutandis, with respect to all
actions that may be required of it under or pursuant to or arising out of
paragraph 9 of the Pledge Agreement.
PALMER VIDEO CORPORATION
By:
Name:_______________________
Title: _____________________
PALMER INVESTMENT CORPORATION
By:
Name:_______________________
Title: _____________________
<PAGE> 13
SCHEDULE I
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
- --------------------------------------------------------------------------------
STOCK PERCENTAGE
CLASS OF CERTIFICATE NO. OF OF
ISSUER STOCK* NO. SHARES ISSUED SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Common unless otherwise indicated.
<PAGE> 14
SCHEDULE II
TO PLEDGE AGREEMENT
ADDRESSES OF ISSUERS
<PAGE> 1
EXHIBIT 10.33
EXHIBIT C-2
FORM OF PLEDGE AGREEMENT
Pledge Agreement, dated as of _____ __, 1997, made by WEST
COAST FRANCHISING COMPANY, a Delaware corporation (the "Pledgor"), in favor of
PNC BANK, NATIONAL ASSOCIATION, as agent (in such capacity, the "Agent") for the
banks and other financial institutions (the "Banks") parties to the Credit
Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the West Coast Entertainment Corporation and certain
of its subsidiaries (collectively, the "Borrowers"), the Banks and the Agent
have entered into a Credit Agreement, dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement");
WHEREAS, pursuant to the provisions of the Credit Agreement
and upon the terms and subject to the conditions set forth therein, the Banks
have severally agreed to make certain loans to, and to issue or participate in
letters of credit for the account of, the Borrowers;
WHEREAS, the Pledgor is the legal and beneficial owner of the
shares of Pledged Stock (as hereinafter defined) of the entities listed on
Schedule I hereto (individually, an "Issuer," and collectively, the "Issuers");
and
WHEREAS, it is a condition precedent to the obligation of the
Banks to make their respective loans to, and to issue or participate in letters
of credit for the account of, the Borrowers under the Credit Agreement that the
Pledgor shall have executed and delivered this Pledge Agreement to the Agent for
the ratable benefit of the Banks.
NOW, THEREFORE, in consideration of the premises and to induce
the Agent and the Banks to enter into the Credit Agreement and make their
respective loans to, and to issue or participate in letters of credit for the
account of, the Borrowers thereunder, the Pledgor hereby agrees with the Agent,
for the ratable benefit of the Banks, 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:
"Code" means the Uniform Commercial Code from time to
<PAGE> 2
time in effect in the Commonwealth of Pennsylvania.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" shall mean the unpaid principal amount of, and
interest on (including, without limitation, interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to a Borrower,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) the Notes and all other obligations and
liabilities of the Borrowers to the Agent or any Bank, whether direct
or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, the Notes, the Letters of
Credit, the Applications, this Pledge Agreement, the other Loan
Documents, any Interest Rate Hedge Agreement with a Bank and any other
document made, delivered or given in connection therewith or herewith,
whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all
fees and disbursements of counsel to the Agent or any Bank that are
required to be paid by the Borrowers pursuant to the terms of the
Credit Agreement) or otherwise.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of the
Issuers listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by any Issuer to the Pledgor while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9306(a) of the Code and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Pledgor hereby
agrees on the date hereof to deliver to the Agent, for the ratable benefit of
the Banks and the Agent, the Pledged Stock and hereby grants to the Agent, for
the ratable benefit of the Banks and the Agent, a first priority security
interest in the Collateral, as collateral security for the prompt and complete
payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to the Agent
of each certificate representing one or more shares of
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<PAGE> 3
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor with, if the Agent so
requests, signature guaranteed.
4. Representations and Warranties. The Pledgor represents and
warrants that:
(a) the Pledgor is the owner of the issued and outstanding
shares of all capital stock of each Issuer and the shares of Pledged
Stock listed on Schedule I constitute all of such issued and
outstanding shares;
(b) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Stock listed on Schedule I,
free of any and all Liens or options in favor of, or claims of, any
other Person, except the Lien created by this Pledge Agreement; and
(d) upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock, 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 Collateral from the Pledgor.
5. Covenants. The Pledgor covenants and agrees with the Agent
and the Banks that from and after the date of this Pledge Agreement until the
Obligations are paid in full and the Commitments are terminated and no Letter of
Credit remains outstanding:
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, 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 shares of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as the agent of the Agent
and the Banks, hold the same in trust for the Agent and the Banks and
deliver the same to the Agent in the exact form received, duly indorsed
by the Pledgor to the Agent, if required, together with an undated
stock power covering such certificate duly executed in blank by the
Pledgor and with, if the Agent so requests, signature guaranteed, to be
held by the Agent, subject to the terms hereof, as additional
collateral security for the Obligations. Any sums paid upon or in
respect of the
3
<PAGE> 4
Pledged Stock upon the liquidation or dissolution of any Issuer shall
be paid over to the Agent to be held by it hereunder as additional
collateral security for the Obligations, and in case any distribution
of capital shall be made on or in respect of the Pledged Stock or any
property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of
such Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Agent to be held by it hereunder
as additional collateral security for the Obligations. If any sums of
money or property so paid or distributed in respect of the Pledged
Stock shall be received by the Pledgor, the Pledgor shall, until such
money or property is paid or delivered to the Agent, hold such money or
property in trust for the Banks, segregated from other funds of the
Pledgor, as additional collateral security for the Obligations.
(b) Without the prior written consent of the Agent, the
Pledgor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock 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 or other equity
securities of any nature of such Issuer, (ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to,
the Collateral, and (iii) create, incur or permit to exist any Lien 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 Lien provided
for by this Pledge Agreement. The Pledgor will defend the right, title
and interest of the Agent and the Banks in and to the Collateral
against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written
request of the Agent, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the 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 Agent, duly endorsed in a
manner satisfactory to the Agent, to be held as Collateral pursuant to
this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Agent and the
Banks harmless from, any and all liabilities with
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<PAGE> 5
respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with
this Pledge Agreement or the granting of security hereunder or the
exercising of any rights or remedies hereunder.
6. Cash Dividends; Voting Rights. Unless an Event of Default
shall have occurred and be continuing and the Agent shall have given notice to
the Company of the Agent's intent to exercise its rights pursuant to paragraph 7
below, the Pledgor shall be permitted to receive all dividends (other than
dividends paid in additional capital stock of any Issuer) paid in the normal
course of business of each Issuer and consistent with past practice, to the
extent permitted in the Credit Agreement, in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock,
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which, in the 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 or any of the other Loan Documents.
5
<PAGE> 6
7. Rights of the Banks and the Agent.
(a) If an Event of Default shall occur and be
continuing and the Agent shall give notice of its intent to exercise its rights
hereunder to the Company, (i) the Agent shall have the right to receive any and
all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Obligations in such order as the Agent may determine, and (ii)
all shares of the Pledged Stock shall be registered in the name of the Agent or
its nominee, and the Agent, or its nominee may thereafter exercise (A) all
voting, corporate and other rights pertaining to such shares of Pledged Stock at
any meeting of shareholders of any Issuer or otherwise and (B) any and all
rights of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any Issuer, or upon the exercise by the Pledgor or the Agent of any
right, privilege or option pertaining to such shares of the Pledged Stock, and
in connection therewith, the right to deposit and deliver any and all of the
Pledged Stock 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 and
except for its gross negligence or willful misconduct, but the 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.
(b) The rights of the Agent and the Banks hereunder
shall not be conditioned or contingent upon the pursuit by the Agent or any Bank
of any right or remedy 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 therefor or right of offset with respect thereto. Neither
the Agent nor any Bank 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 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.
8. Remedies. If an Event of Default shall have occurred and be
continuing, the Agent, on behalf of the Banks, may exercise, in addition to all
other rights and remedies granted to it in this Pledge Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the
6
<PAGE> 7
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below or otherwise specifically required hereunder) to or upon the Pledgor,
any Issuer 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 or 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 Agent or any Bank 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 Agent or any Bank shall have the right upon any such public sale or sales,
and, to the extent permitted by 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 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
Agent and the Banks hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Agent, to the payment in
whole or in part of the Obligations, in such order as the Agent may elect, and
only after such application and after the payment by the Agent of any other
amount required by any provision of law, including, without limitation, Section
9504(a)(3) of the Code, need the 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 Agent or any Bank arising
out of the lawful exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 Business Days
before such sale or other disposition. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Agent or any Bank to collect such deficiency.
9. Registration Rights; Private Sales.
(a) The Pledgor recognizes that the 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 of 1933, as amended (the
"Securities Act") and applicable state
7
<PAGE> 8
securities laws or otherwise, and may 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 Agent shall be
under no obligation to delay a sale of any of the Pledged Stock for the period
of time necessary to permit any Issuer to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(b) 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 Pledged Stock pursuant to
this paragraph 9 valid and binding and in compliance with any and all other
applicable Requirements of Law. The Pledgor further agrees that a breach of any
of the covenants contained in this paragraph 9 will cause irreparable injury to
the Agent and the Banks, that the Agent and the Banks have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this paragraph 9 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.
10. Limitation on Duties Regarding Collateral. The 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 Agent deals with similar
securities and property for its own account. Neither the Agent, any Bank 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.
11. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
12. 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
8
<PAGE> 9
invalidate or render unenforceable such provisions in any other jurisdiction.
13. 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.
14. No Waiver; Cumulative Remedies. Neither the Agent nor any
Bank shall by any act (except by a written instrument pursuant to paragraph 15
hereof) be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default of any obligation under any Loan Document or in any
breach of any of the terms and conditions hereof or thereof. No failure to
exercise, nor any delay in exercising, on the part of the Agent or any Bank of
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 Agent or any Bank of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right 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.
15. 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 Agent, provided that any provision of this Pledge Agreement
may be waived by the Agent in a letter or agreement executed by the Agent or by
telex or facsimile transmission from the Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Agent and the Banks and their respective successors and assigns.
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
16. Notices. All notices hereunder to the Agent, the Pledgor
or any Issuer to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given when delivered or sent in the manner and to the respective addresses as
provided in Subsection 9.2 of the Credit Agreement or in the case of each Issuer
at its address set forth on Schedule II hereto.
17. Irrevocable Authorization and Instruction to Issuers. The
Pledgor hereby authorizes and instructs each Issuer to comply with any
instruction received by it from the Agent in writing that (a) states that an
Event of Default has occurred and
9
<PAGE> 10
is continuing and (b) is otherwise in accordance with the terms of this Pledge
Agreement, without any other or further instructions from the Pledgor, and the
Pledgor agrees that each Issuer shall be fully protected in so complying.
18. Authority of Agent. The Pledgor acknowledges that the
rights and responsibilities of the Agent under this Pledge Agreement with
respect to any action taken by the Agent or the exercise or non-exercise by the
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 Agent and the Banks, 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 Agent and the Pledgor, the Agent shall be conclusively
presumed to be acting as agent for the Banks with full and valid authority so to
act or refrain from acting, and neither the Pledgor nor any Issuer shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
19. Submission to Jurisdiction; Waivers.
(a) The Pledgor hereby irrevocably and
unconditionally:
(i) submits for itself and its property in
any legal action or proceeding relating to this Pledge
Agreement, or for recognition and enforcement of any judgment
in respect thereof to the non-exclusive general jurisdiction
of the courts of the Commonwealth of Pennsylvania, the courts
of the United States of America for the Eastern District of
Pennsylvania, and appellate courts from any thereof;
(ii) consents that any such action or
proceeding may be brought in such courts, and waives any
objection that it may now or hereafter have to the venue of
any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(iii) agrees that service of process in any
such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to such Pledgor at its
address set forth in the Credit Agreement or at such other
address of which the Agent shall have been notified; and
(iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner
permitted by law or shall limit the right to sue
10
<PAGE> 11
in any other jurisdiction.
(b) THE PLEDGOR HEREBY UNCONDITIONALLY WAIVES TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE.
20. Counterparts. This Pledge Agreement may be executed by one
or more of the parties to this Pledge Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
ATTEST: WEST COAST FRANCHISING COMPANY
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
11
<PAGE> 12
ACKNOWLEDGMENT AND CONSENT
Each Issuer referred to in the foregoing Pledge Agreement
hereby acknowledges receipt of a copy thereof and agrees to be bound thereby and
comply with the terms thereof insofar as such terms are applicable to it. Each
Issuer agrees to notify the Agent promptly in writing of the occurrence of any
of the events described in paragraph 5(a) of the Pledge Agreement. Each Issuer
further agrees that the terms of paragraph 9(b) of the Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of paragraph 9 of the Pledge
Agreement.
WEST COAST LICENSING CORPORATION
By:_________________________
Name:_______________________
Title: _____________________
<PAGE> 13
SCHEDULE I
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
====================================================================================================================================
STOCK PERCENTAGE
CLASS OF CERTIFICATE NO. OF OF
ISSUER STOCK* NO. SHARES ISSUED SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
* Common unless otherwise indicated.
<PAGE> 14
SCHEDULE II
TO PLEDGE AGREEMENT
ADDRESSES OF ISSUERS
<PAGE> 1
EXHIBIT 10.34
EXHIBIT C-3
FORM OF PLEDGE AGREEMENT
Pledge Agreement, dated as of _____ __, 1997, made by
PALMER VIDEO CORPORATION, a New Jersey corporation (the "Pledgor"), in favor of
PNC BANK, NATIONAL ASSOCIATION, as agent (in such capacity, the "Agent") for the
banks and other financial institutions (the "Banks") parties to the Credit
Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the West Coast Entertainment Corporation and
certain of its subsidiaries (collectively, the "Borrowers"), the Banks and the
Agent have entered into a Credit Agreement, dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement");
WHEREAS, pursuant to the provisions of the Credit
Agreement and upon the terms and subject to the conditions set forth therein,
the Banks have severally agreed to make certain loans to, and to issue or
participate in letters of credit for the account of, the Borrowers;
WHEREAS, the Pledgor is the legal and beneficial owner
of the shares of Pledged Stock (as hereinafter defined) of the entities listed
on Schedule I hereto (individually, an "Issuer," and collectively, the
"Issuers"); and
WHEREAS, it is a condition precedent to the obligation
of the Banks to make their respective loans to, and to issue or participate in
letters of credit for the account of, the Borrowers under the Credit Agreement
that the Pledgor shall have executed and delivered this Pledge Agreement to the
Agent for the ratable benefit of the Banks.
NOW, THEREFORE, in consideration of the premises and to
induce the Agent and the Banks to enter into the Credit Agreement and make their
respective loans to, and to issue or participate in letters of credit for the
account of, the Borrowers thereunder, the Pledgor hereby agrees with the Agent,
for the ratable benefit of the Banks, 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:
"Code" means the Uniform Commercial Code from time to
<PAGE> 2
time in effect in the Commonwealth of Pennsylvania.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" shall mean the unpaid principal amount of,
and interest on (including, without limitation, interest accruing
after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to a
Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) the Notes and all other
obligations and liabilities of the Borrowers to the Agent or any
Bank, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Credit Agreement, the
Notes, the Letters of Credit, the Applications, this Pledge
Agreement, the other Loan Documents, any Interest Rate Hedge
Agreement with a Bank and any other document made, delivered or given
in connection therewith or herewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees and disbursements
of counsel to the Agent or any Bank that are required to be paid by
the Borrowers pursuant to the terms of the Credit Agreement) or
otherwise.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of the
Issuers listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by any Issuer to the Pledgor while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9306(a) of the Code and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Pledgor
hereby agrees on the date hereof to deliver to the Agent, for the ratable
benefit of the Banks and the Agent, the Pledged Stock and hereby grants to the
Agent, for the ratable benefit of the Banks and the Agent, a first priority
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to
the Agent of each certificate representing one or more shares of
2
<PAGE> 3
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor with, if the Agent so
requests, signature guaranteed.
4. Representations and Warranties. The Pledgor
represents and warrants that:
(a) the Pledgor is the owner of the issued and outstanding
shares of all capital stock of each Issuer and the shares of Pledged
Stock listed on Schedule I constitute all of such issued and
outstanding shares;
(b) all the shares of the Pledged Stock have been duly
and validly issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and
has good and marketable title to, the Pledged Stock listed on
Schedule I, free of any and all Liens or options in favor of, or
claims of, any other Person, except the Lien created by this Pledge
Agreement; and
(d) upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock, 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 Collateral
from the Pledgor.
5. Covenants. The Pledgor covenants and agrees with
the Agent and the Banks that from and after the date of this Pledge Agreement
until the Obligations are paid in full and the Commitments are terminated and no
Letter of Credit remains outstanding:
(a) If the Pledgor shall, as a result of its ownership of
the Pledged Stock, 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 shares of the Pledged Stock, or otherwise
in respect thereof, the Pledgor shall accept the same as the agent of
the Agent and the Banks, hold the same in trust for the Agent and the
Banks and deliver the same to the Agent in the exact form received,
duly indorsed by the Pledgor to the Agent, if required, together with
an undated stock power covering such certificate duly executed in
blank by the Pledgor and with, if the Agent so requests, signature
guaranteed, to be held by the Agent, subject to the terms hereof, as
additional collateral security for the Obligations. Any sums paid
upon or in respect of the
3
<PAGE> 4
Pledged Stock upon the liquidation or dissolution of any Issuer shall
be paid over to the Agent to be held by it hereunder as additional
collateral security for the Obligations, and in case any distribution
of capital shall be made on or in respect of the Pledged Stock or any
property shall be distributed upon or with respect to the Pledged
Stock pursuant to the recapitalization or reclassification of the
capital of such Issuer or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Agent to be held by
it hereunder as additional collateral security for the Obligations.
If any sums of money or property so paid or distributed in respect of
the Pledged Stock shall be received by the Pledgor, the Pledgor
shall, until such money or property is paid or delivered to the
Agent, hold such money or property in trust for the Banks, segregated
from other funds of the Pledgor, as additional collateral security
for the Obligations.
(b) Without the prior written consent of the Agent, the
Pledgor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock 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 or other
equity securities of any nature of such Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Collateral, and (iii) create, incur or permit to
exist any Lien 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 Lien provided for by this Pledge Agreement. The Pledgor will
defend the right, title and interest of the Agent and the Banks in
and to the Collateral against the claims and demands of all Persons
whomsoever.
(c) At any time and from time to time, upon the written
request of the Agent, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the 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 Agent, duly endorsed in a manner satisfactory to the
Agent, to be held as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Agent and
the Banks harmless from, any and all liabilities with
4
<PAGE> 5
respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with
this Pledge Agreement or the granting of security hereunder or the
exercising of any rights or remedies hereunder.
6. Cash Dividends; Voting Rights. Unless an Event of
Default shall have occurred and be continuing and the Agent shall have given
notice to the Company of the Agent's intent to exercise its rights pursuant to
paragraph 7 below, the Pledgor shall be permitted to receive all dividends
(other than dividends paid in additional capital stock of any Issuer) paid in
the normal course of business of each Issuer and consistent with past practice,
to the extent permitted in the Credit Agreement, in respect of the Pledged Stock
and to exercise all voting and corporate rights with respect to the Pledged
Stock, provided, however, that no vote shall be cast or corporate right
exercised or other action taken which, in the 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 or any of the
other Loan Documents.
5
<PAGE> 6
7. Rights of the Banks and the Agent.
(a) If an Event of Default shall occur and be
continuing and the Agent shall give notice of its intent to exercise its rights
hereunder to the Company, (i) the Agent shall have the right to receive any and
all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Obligations in such order as the Agent may determine, and (ii)
all shares of the Pledged Stock shall be registered in the name of the Agent or
its nominee, and the Agent, or its nominee may thereafter exercise (A) all
voting, corporate and other rights pertaining to such shares of Pledged Stock at
any meeting of shareholders of any Issuer or otherwise and (B) any and all
rights of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any Issuer, or upon the exercise by the Pledgor or the Agent of any
right, privilege or option pertaining to such shares of the Pledged Stock, and
in connection therewith, the right to deposit and deliver any and all of the
Pledged Stock 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 and
except for its gross negligence or willful misconduct, but the 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.
(b) The rights of the Agent and the Banks
hereunder shall not be conditioned or contingent upon the pursuit by the Agent
or any Bank of any right or remedy 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 therefor or right of offset with respect
thereto. Neither the Agent nor any Bank 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 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.
8. Remedies. If an Event of Default shall have
occurred and be continuing, the Agent, on behalf of the Banks, may exercise, in
addition to all other rights and remedies granted to it in this Pledge Agreement
and in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the
6
<PAGE> 7
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below or otherwise specifically required hereunder) to or upon the Pledgor,
any Issuer 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 or 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 Agent or any Bank 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 Agent or any Bank shall have the right upon any such public sale or sales,
and, to the extent permitted by 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 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
Agent and the Banks hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Agent, to the payment in
whole or in part of the Obligations, in such order as the Agent may elect, and
only after such application and after the payment by the Agent of any other
amount required by any provision of law, including, without limitation, Section
9504(a)(3) of the Code, need the 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 Agent or any Bank arising
out of the lawful exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 Business Days
before such sale or other disposition. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Agent or any Bank to collect such deficiency.
9. Registration Rights; Private Sales.
(a) The Pledgor recognizes that the 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 of 1933, as amended (the
"Securities Act") and applicable state
7
<PAGE> 8
securities laws or otherwise, and may 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 Agent shall be
under no obligation to delay a sale of any of the Pledged Stock for the period
of time necessary to permit any Issuer to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(b) 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 Pledged Stock pursuant to
this paragraph 9 valid and binding and in compliance with any and all other
applicable Requirements of Law. The Pledgor further agrees that a breach of any
of the covenants contained in this paragraph 9 will cause irreparable injury to
the Agent and the Banks, that the Agent and the Banks have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this paragraph 9 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.
10. Limitation on Duties Regarding Collateral. The
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 Agent
deals with similar securities and property for its own account. Neither the
Agent, any Bank 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.
11. Powers Coupled with an Interest. All
authorizations and agencies herein contained with respect to the Collateral are
irrevocable and powers coupled with an interest.
12. 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
8
<PAGE> 9
invalidate or render unenforceable such provisions in any other jurisdiction.
13. 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.
14. No Waiver; Cumulative Remedies. Neither the Agent
nor any Bank shall by any act (except by a written instrument pursuant to
paragraph 15 hereof) be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default of any obligation under any Loan Document or
in any breach of any of the terms and conditions hereof or thereof. No failure
to exercise, nor any delay in exercising, on the part of the Agent or any Bank
of 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 Agent or any Bank of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right 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.
15. 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 Agent, provided that any provision of this
Pledge Agreement may be waived by the Agent in a letter or agreement executed by
the Agent or by telex or facsimile transmission from the Agent. This Pledge
Agreement shall be binding upon the successors and assigns of the Pledgor and
shall inure to the benefit of the Agent and the Banks and their respective
successors and assigns. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA.
16. Notices. All notices hereunder to the Agent, the
Pledgor or any Issuer to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given when delivered or sent in the manner and to the respective
addresses as provided in Subsection 9.2 of the Credit Agreement or in the case
of each Issuer at its address set forth on Schedule II hereto.
17. Irrevocable Authorization and Instruction to
Issuers. The Pledgor hereby authorizes and instructs each Issuer to comply with
any instruction received by it from the Agent in writing that (a) states that an
Event of Default has occurred and
9
<PAGE> 10
is continuing and (b) is otherwise in accordance with the terms of this Pledge
Agreement, without any other or further instructions from the Pledgor, and the
Pledgor agrees that each Issuer shall be fully protected in so complying.
18. Authority of Agent. The Pledgor acknowledges that
the rights and responsibilities of the Agent under this Pledge Agreement with
respect to any action taken by the Agent or the exercise or non-exercise by the
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 Agent and the Banks, 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 Agent and the Pledgor, the Agent shall be conclusively
presumed to be acting as agent for the Banks with full and valid authority so to
act or refrain from acting, and neither the Pledgor nor any Issuer shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
19. Submission to Jurisdiction; Waivers.
(a) The Pledgor hereby irrevocably and
unconditionally:
(i) submits for itself and its property in any
legal action or proceeding relating to this Pledge
Agreement, or for recognition and enforcement of any
judgment in respect thereof to the non-exclusive general
jurisdiction of the courts of the Commonwealth of
Pennsylvania, the courts of the United States of America
for the Eastern District of Pennsylvania, and appellate
courts from any thereof;
(ii) consents that any such action or
proceeding may be brought in such courts, and waives any
objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(iii) agrees that service of process in any
such action or proceeding may be effected by mailing a
copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to
such Pledgor at its address set forth in the Credit
Agreement or at such other address of which the Agent
shall have been notified; and
(iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner
permitted by law or shall limit the right to sue
10
<PAGE> 11
in any other jurisdiction.
(b) THE PLEDGOR HEREBY UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN
PARAGRAPH (A) ABOVE.
20. Counterparts. This Pledge Agreement may be
executed by one or more of the parties to this Pledge Agreement on any number of
separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned has caused this
Pledge Agreement to be duly executed and delivered as of the date first above
written.
ATTEST: PALMER VIDEO CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
11
<PAGE> 12
ACKNOWLEDGMENT AND CONSENT
Each Issuer referred to in the foregoing Pledge
Agreement hereby acknowledges receipt of a copy thereof and agrees to be bound
thereby and comply with the terms thereof insofar as such terms are applicable
to it. Each Issuer agrees to notify the Agent promptly in writing of the
occurrence of any of the events described in paragraph 5(a) of the Pledge
Agreement. Each Issuer further agrees that the terms of paragraph 9(b) of the
Pledge Agreement shall apply to it, mutatis mutandis, with respect to all
actions that may be required of it under or pursuant to or arising out of
paragraph 9 of the Pledge Agreement.
CASABLANCA DISTRIBUTING CORPORATION
By:
Name:_______________________
Title: _____________________
<PAGE> 13
SCHEDULE I
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
- --------------------------------------------------------------------------------
STOCK PERCENTAGE
CLASS OF CERTIFICATE NO. OF OF
ISSUER STOCK* NO. SHARES ISSUED SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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* Common unless otherwise indicated.
<PAGE> 14
SCHEDULE II
TO PLEDGE AGREEMENT
ADDRESSES OF ISSUERS
<PAGE> 1
Exhibit 10.35
EXHIBIT D
FORM OF SECURITY AGREEMENT
This Security Agreement is made and entered into as of the ___ day
of _____, 1997, between WEST COAST ENTERTAINMENT CORPORATION, a Delaware
corporation (the "Company"), VIDEOSMITH INCORPORATED, a Massachusetts
corporation, WEST COAST FRANCHISING COMPANY, a Delaware corporation, PALMER WEST
COAST CORPORATION, a Delaware corporation, PALMER VIDEO CORPORATION, a Delaware
corporation, PALMER INVESTMENT CORPORATION, a Delaware corporation, CASABLANCA
DISTRIBUTING CORPORATION, a Delaware corporation, RKT MERGER CO., a Delaware
corporation, SHOWTIME, INC., a Virginia corporation, VIDEO GIANT INC., a Texas
corporation, VIDEO KING OF BROOME COUNTY, INC., a New York corporation, KING
VIDEO ENTERPRISES, INC., a New York corporation, WEST COAST FINANCING
CORPORATION, a Delaware corporation and WEST COAST LICENSING CORPORATION, a
Delaware corporation (collectively, the "Debtors"), and PNC BANK, NATIONAL
ASSOCIATION, as agent (in such capacity, the "Agent") for the banks and other
financial institutions (the "Banks") from time to time parties to the Credit
Agreement, dated as of the date hereof (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") among the Debtors, the Banks
and the Agent.
WITNESSETH:
WHEREAS, pursuant to the provisions of the Credit Agreement and
upon the terms and subject to the conditions set forth therein, the Banks have
severally agreed to make certain loans to, and to issue or participate in
letters of credit for the account of, the Debtors to be evidenced by the notes
issued by the Debtors thereunder; and
WHEREAS, it is a condition precedent to the obligation of the
Banks to make their respective loans to the Borrowers under the Credit Agreement
and to issue or participate in letters of credit that the Debtors shall have
executed and delivered this Security Agreement to the Agent for the ratable
benefit of the Banks.
NOW, THEREFORE, in consideration of the premises and to induce the
Agent and the Banks to enter into the Credit Agreement and to make their
respective loans to, and to issue or participate in letters of credit for the
account of, one or more of the Borrowers under the Credit Agreement, the Debtors
hereby agree with the Agent, for the ratable benefit of the Banks, as follows:
1. Defined Terms. Unless otherwise defined herein,
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terms which are defined in the Credit Agreement and used herein are so used as
so defined; the following terms which are defined in the Uniform Commercial Code
in effect in the Commonwealth of Pennsylvania on the date hereof are used herein
as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products,
General Intangibles, Instruments, Inventory, Investment Property and Proceeds;
and the following terms shall have the following meanings:
"Code" shall mean the Uniform Commercial Code as from time to
time in effect in the Commonwealth of Pennsylvania.
"Collateral" shall have the meaning assigned to it in Section
2 of this Security Agreement.
"Contracts" shall mean all contracts and other agreements
between one or more Debtors and any other Person (including agreements
between one Debtor and another Debtor), as the same may from time to
time be amended, supplemented or otherwise modified, including, without
limitation, (a) all rights of the Debtors to receive moneys due and to
become due to them thereunder or in connection therewith, (b) all
rights of the Debtors to damages arising out of, or for, breach or
default in respect thereof and (c) all rights of the Debtors to perform
and to exercise all remedies thereunder.
"Obligations" shall mean the unpaid principal amount of, and
interest on (including, without limitation, interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to a Debtor,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) the Notes and all other obligations and
liabilities of the Debtors to the Agent or any Bank, whether direct or
indirect, absolute or contingent, due or to become due, or now existing
or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the Notes, the Letters of Credit, the
Applications, this Security Agreement, the other Loan Documents, any
Interest Rate Hedge Agreement with a Bank and any other document made,
delivered or given in connection therewith or herewith, whether on
account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees
and disbursements of counsel to the Agent or any Bank that are required
to be paid by the Debtors pursuant to the terms of the Credit
Agreement) or otherwise.
"Patents" shall mean (a) all letters patent of the United
States or any other country or any political
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subdivision thereof, and all reissues and extensions thereof,
including, without limitation, any thereof referred to in Schedule I
hereto, and (b) all applications for letters patent of the United
States and all divisions, continuations and continuations-in-part
thereof or any other country or any political subdivision, including,
without limitation, any thereof referred to in Schedule I hereto.
"Patent License" shall mean all agreements, whether written
or oral, providing for the grant by a Debtor of any right to
manufacture, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule I hereto.
"Security Agreement" shall mean this Security Agreement, as
amended, supplemented or otherwise modified from time to time.
"Trademarks" shall mean (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers, and the goodwill associated therewith, now existing or
hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or
any political subdivision thereof, or otherwise, including, without
limitation, any thereof referred to in Schedule II hereto, and (b) all
reissues, extensions or renewals thereof.
"Trademark License" shall mean any agreement, written or
oral, providing for the grant by a Debtor of any right to use any
Trademark, including, without limitation, any thereof referred to in
Schedule II hereto.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, each of the Debtors
hereby grants to the Agent for the ratable benefit of the Banks and the Agent a
security interest in all of the following property now owned or at any time
hereafter acquired by such Debtor or in which such Debtor now has or at any time
in the future may acquire any right, title or interest (collectively, the
"Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
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(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Inventory;
(ix) all Patents;
(x) all Patent Licenses;
(xi) all Trademarks;
(xii) all Trademark Licenses;
(xiii) all Investment Property; and
(xiv) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing.
3. Rights of Agent and Banks; Limitations on Agent's and Banks'
Obligations.
(a) Debtors Remain Liable under Accounts and Contracts.
Anything herein to the contrary notwithstanding, the Debtors shall remain liable
under each of the Accounts and Contracts to observe and perform all the
conditions and obligations to be observed and performed by them thereunder, all
in accordance with the terms of any agreement giving rise to each such Account
and in accordance with and pursuant to the terms and provisions of each such
Contract. Neither the Agent nor any Bank shall have any obligation or liability
under any Account (or any agreement giving rise thereto) or under any Contract
by reason of or arising out of this Security Agreement or the receipt by the
Agent or any such Bank of any payment relating to such Account or Contract
pursuant hereto, nor shall the Agent or any Bank be obligated in any manner to
perform any of the obligations of the Debtors under or pursuant to any Account
(or any agreement giving rise thereto) or under or pursuant to any Contract, to
make any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
under any Account (or any agreement giving rise thereto) or under any Contract,
to present or file any claim, to take any action to enforce any performance or
to collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
(b) Notice to Account Debtors and Contracting Parties. Upon
the request of the Agent at any time after the occurrence and during the
continuance of an Event of Default, the
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Debtors shall notify account debtors on the Accounts and parties to the
Contracts that the Accounts and the Contracts have been assigned to the Agent
for the ratable benefit of the Banks and shall indicate on all billings that
payments in respect thereof shall be made directly to the Agent. The Agent may
in its own name or in the name of others communicate with account debtors on the
Accounts and parties to the Contracts to verify with them to its satisfaction
the existence, amount and terms of any Accounts or Contracts.
(c) Analysis of Accounts. The Agent shall have the right to
make test verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Debtors shall furnish all such
assistance and information as the Agent may require in connection therewith. At
any time and from time to time, upon the Agent's request and at the expense of
the Debtors, the Debtors shall cause independent public accountants or others
satisfactory to the Agent to furnish to the Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Accounts.
(d) Collections on Accounts. The Agent hereby authorizes the
Debtors to collect the Accounts, subject to the Agent's direction and control,
from the account debtors. Prior to the occurrence of an Event of Default, the
Proceeds of Accounts so collected by the Debtors shall be received and held by
the Debtors in trust for the Agent and the Banks but may be applied by the
Debtors in their discretion towards payment of the Obligations or other
corporate purposes. Upon occurrence of an Event of Default, the authority hereby
given to the Debtors to collect the Proceeds of Accounts in trust for the Agent
and the Banks may be terminated by the Agent at any time and the Debtors shall
deliver to the Agent on the date of receipt thereof by the Debtors all Proceeds
in the form of cash, checks, drafts, notes and other remittances received in
payment of or on account of any Debtor's Accounts. Following receipt by the
Agent such Proceeds shall be deposited in a special bank account (the "Cash
Collateral Account") maintained with the Agent over which the Agent alone shall
have power of withdrawal. All Proceeds other than cash shall be deposited in
precisely the form in which received, except for the addition thereto of the
endorsement of the Debtors when necessary to permit collection of the items,
which endorsement the Debtors agree to make. The Debtors will not commingle any
such Proceeds with any of the Debtor's other funds or property but will hold
them separate and apart from any other funds or property and upon an express
trust for the Agent until deposit thereof is made in the Cash Collateral
Account.
4. Representations and Warranties. Each of the Debtors hereby
represents and warrants that:
(a) Title; No Other Liens. Except for the Lien granted to the
Agent for the ratable benefit of the Banks
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pursuant to this Security Agreement and the other Liens permitted to exist on
the Collateral pursuant to the Credit Agreement, the Debtors own each item of
the Collateral free and clear of any and all Liens or claims of others. No
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public office,
except such as may have been filed in favor of the Agent, for the ratable
benefit of the Banks, pursuant to this Security Agreement or as may be permitted
pursuant to the Credit Agreement.
(b) Perfected First Priority Liens. Except as set forth on
Schedule 4.1(b)(ii) to the Credit Agreement, the Liens granted pursuant to this
Security Agreement constitute perfected Liens on the Collateral in favor of the
Agent, for the ratable benefit of the Banks, which are prior to all other Liens
on the Collateral created by the Debtors and in existence on the date hereof and
which are enforceable as such against all creditors of and purchasers from the
Debtors and against any owner or purchaser of the real property where any of the
Equipment is located and any present or future creditor obtaining a Lien on such
real property.
(c) Accounts. The amount represented by the Debtors to the
Banks from time to time in any reports requested by or furnished to the Agent or
the Banks as owing by each account debtor or by all account debtors in respect
of the Accounts will at such time be the correct amount actually owing by such
account debtor or debtors thereunder. No amount payable to any of the Debtors
under or in connection with any Account is evidenced by any Instrument or
Chattel Paper which has not been delivered to the Agent. The Debtors keep their
records concerning the Accounts at the location or locations set forth in
Schedule III.
(d) Contracts. No consent of any party (other than the
Debtors) to any Contract is required, or purports to be required, in connection
with the execution, delivery and performance of this Security Agreement, except
to the extent that a non-material Contract may contain a no-assignment
provision. Each Contract is in full force and effect and constitutes a valid and
legally enforceable obligation of the parties thereto, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights generally. No consent or
authorization of, filing with or other act by or in respect of any Governmental
Authority is required in connection with the execution, delivery, performance,
validity or enforceability of any of the Contracts by any party thereto other
than those which have been duly obtained, made or performed, are in full force
and effect and do not subject the scope of any such Contract to any material
adverse limitation, either specific or general in nature. Neither the Debtors
nor (to the best of the Debtors' knowledge) any other party to any Contract is
in default or is
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likely to become in default in the performance or observance of any of the terms
thereof. The Debtors have fully performed all their obligations under each
Contract. The right, title and interest of the Debtors in, to and under each
Contract are not subject to any defense, offset, counterclaim or claim which
would materially adversely affect the value of such Contract as Collateral, nor
have any of the foregoing been asserted or alleged against the Debtors as to any
Contract. No amount payable to the Debtors under or in connection with any
Contract is evidenced by any Instrument or Chattel Paper which had not been
delivered to the Agent.
(e) Inventory. The types, amounts and valuations of the
Inventory or any other information regarding the same represented by the Debtors
from time to time in any reports requested by or furnished to the Agent or the
Banks will at such time be accurate to the best of the Debtors' knowledge. The
Debtors keep records concerning the Inventory at the location or locations
listed on Schedule IV. The Inventory is kept at the locations listed on Schedule
V hereto.
(f) Equipment. The Equipment is kept at the locations listed
on Schedule VI hereto.
(g) Chief Executive Office. The locations of each of the
Debtor's chief executive office and chief place of business are set forth on
Schedule VII.
(h) Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.
(i) Patents and Trademarks. Schedule I hereto includes all
Patents and Patent Licenses owned by a Debtor in its own name as of the date
hereof. Schedule II hereto includes all Trademarks and Trademark Licenses owned
by a Debtor in its own name as of the date hereof. To the best of the Debtors'
knowledge, each Patent and Trademark is valid, subsisting, unexpired,
enforceable and has not been abandoned. Except as set forth in either such
Schedule, none of such Patents and Trademarks is the subject of any licensing or
franchise agreement. No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of any
Patent or Trademark. No action or proceeding is pending (i) seeking to limit,
cancel or question the validity of any Patent or Trademark, or (ii) which, if
adversely determined, would have a material adverse effect on the value of any
Patent or Trademark.
(j) Power and Authority; Authorization. Each of the Debtors
has the corporate power and authority and the legal right to execute and
deliver, to perform its obligations under, and to grant the Lien on the
Collateral pursuant to, this Security Agreement and has taken all necessary
corporate action
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to authorize its execution, delivery and performance of, and grant of the Lien
on the Collateral pursuant to, this Security Agreement.
(k) Enforceability. This Security Agreement constitutes a
legal, valid and binding obligation of the Debtors 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.
(l) No Conflict. The execution, delivery and performance of
this Security Agreement will not violate any provision of any Requirement of Law
or Contractual Obligation of the Debtors and will not result in the creation or
imposition of any Lien on any of the properties or revenues of the Debtors
pursuant to any Requirement of Law or Contractual Obligation of the Debtors,
except as contemplated hereby.
(m) No Consents, etc. 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 Debtors), is required in connection with the
execution, delivery, performance, validity or enforceability of this Security
Agreement.
(n) No Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Debtors, threatened by or against the Debtors or against any of
their properties or revenues with respect to this Security Agreement or the
granting of the security interests contemplated hereunder.
5. Covenants. Each of the Debtors covenants and agrees with the Agent
and the Banks that from and after the date of this Security Agreement until the
Obligations are paid in full, the Commitments are terminated and no Letter of
Credit is outstanding it will:
(a) Further Documentation; Pledge of Instruments and Chattel
Paper. At any time and from time to time, upon the written request of the Agent,
and at the sole expense of the Debtors, promptly and duly execute and deliver
such further instruments and documents and take such further action as the Agent
may reasonably request for the purpose of obtaining or preserving the full
benefits of this Security Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the Liens created hereby. Each of the Debtors also hereby authorizes
the Agent to execute and file any such financing or continuation statements
without the
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signature of such Debtors to the extent permitted by applicable law. A carbon,
photographic, facsimile or other reproduction of this Security Agreement shall
be sufficient as a financing statement for filing in any jurisdiction. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Agent, duly endorsed in a manner
satisfactory to the Agent, to be held as Collateral pursuant to this Security
Agreement.
(b) Indemnification. Pay, and save the Agent and the Banks
harmless from, any and all liabilities, costs and expenses (including, without
limitation, legal fees and expenses) (i) with respect to, or resulting from, any
delay in paying 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, any delay in complying with any Requirement of
Law applicable to any of the Collateral or (iii) in connection with any of the
transactions contemplated by this Security Agreement. In any suit, proceeding or
action brought by the Agent or any Bank under any Account or Contract for any
sum owing thereunder, or to enforce any provisions of any Account or Contract,
each of the Debtors will save, indemnify and keep the Agent and such Bank
harmless from and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction or liability whatsoever
of the account debtor or obligor thereunder, arising out of a breach by such
Debtor 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 a Debtor. Notwithstanding the
foregoing, the Debtors shall have no obligation to the Agent or any Bank under
this paragraph with respect to any liability arising solely from the gross
negligence or willful misconduct of such Person.
(c) Maintenance of Records. Keep and maintain at its own cost
and expense satisfactory and complete records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Accounts. At the request of the Agent, each of the Debtors
will mark its books and records pertaining to the Collateral to evidence this
Security Agreement and the security interests granted hereby. For the Agent's
and the Banks' further security, the Agent, for the ratable benefit of the
Banks, shall have a security interest in all of the Debtors' books and records
pertaining to the Collateral, and the Debtors shall turn over any such books and
records to the Agent or to their representatives during normal business hours at
the request of the Agent.
(d) Right of Inspection and Audit. Give to the Agent at all
times upon reasonable prior notice full and free access during normal business
hours to all of its books, correspondence and records and the Agent and the
Agent's
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respective representatives may examine, inspect or audit the same, take extracts
therefrom and make photocopies thereof, and each of the Debtors agrees to render
to the Agent, at the Debtors' cost and expense upon reasonable prior notice,
such clerical and other assistance as may be reasonably requested with regard
thereto. The Agent and its respective representatives shall at all times also
have the right upon reasonable prior notice to enter into and upon any premises
where any of the Inventory or Equipment is located for the purpose of examining,
inspecting or auditing the same, observing its use or otherwise protecting their
interests therein.
(e) Compliance with Laws, etc. Comply in all material
respects with all Requirements of Law applicable to the Collateral or any part
thereof or to the operation of its business; provided, however, that such Debtor
may contest any Requirement of Law in any reasonable manner which shall not, in
the sole opinion of the Agent, adversely affect the Agent's or the Banks' rights
or the priority of their Liens on the Collateral.
(f) Compliance with Terms of Contracts, etc. Perform and
comply in all material respects with all its obligations under the Contracts and
all its other Contractual Obligations relating to the Collateral.
(g) Payment of Obligations. Pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the Collateral or in
respect of its income or profits therefrom, as well as all 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 (i) the validity thereof is being contested in good faith by appropriate
proceedings, (ii) such proceedings do not involve any material danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein and
(iii) such charge is adequately reserved against on such Debtor's books in
accordance with GAAP.
(h) Limitation on Liens on Collateral. Not create, incur or
permit to exist, will defend the Collateral against, and take such other action
as is necessary to remove, any Lien or claim on or to the Collateral, other than
the Liens created hereby and other than as permitted pursuant to the Credit
Agreement, and will defend the right, title and interest of the Agent and the
Banks in and to any of the Collateral against the claims and demands of all
Persons whomsoever.
(i) Limitations on Dispositions of Collateral. Not sell,
transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer
or contract to do so except as expressly permitted pursuant to the Credit
Agreement.
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(j) Limitations on Modifications, Waivers, Extensions of
Contracts and Agreements Giving Rise to Accounts. Not (i) amend, modify,
terminate or waive any provision of any Contract or any agreement giving rise to
an Account in any manner which could reasonably be expected to materially
adversely affect the value of such Contract or Account as Collateral, except, if
no Event of Default shall exist, in the ordinary course of business based on its
reasonable business judgment, (ii) fail to exercise promptly and diligently each
and every material right which it may have under each Contract and each
agreement giving rise to an Account (other than any right of termination),
except, if no Event of Default shall exist, in the ordinary course of business
based on its reasonable business judgment,or (iii) fail to deliver to the Agent
a copy of each demand, notice or document received by it relating in any way to
any Contract or any agreement giving rise to an Account and which could
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect.
(k) Limitations on Discounts, Compromises, Extensions of
Accounts. Not grant any extension of the time of payment of any of the Accounts,
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, other than in the ordinary
course of business as generally conducted by such Debtor over a period of time.
(l) Further Identification of Collateral. Furnish to the
Agent from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Agent may reasonably request, all in reasonable detail.
(m) Notices. Advise the Agent promptly, in reasonable detail,
at their respective addresses set forth in the Credit Agreement, (i) of any Lien
(other than Liens created hereby or permitted under the Credit Agreement) on, or
claim asserted against, any of the Collateral and (ii) of the occurrence of any
other event which could reasonably be expected to have a material adverse effect
on the aggregate value of the Collateral or on the Liens created hereunder.
(n) Changes in Locations, Name, etc. Unless it shall have
given the Agent at least 30 days prior written notice thereof no Debtor will (i)
change the location of its chief executive office or chief place of business
from that specified in Schedule VII attached hereto or remove its books and
records from the location specified in Section 4(c), (ii) permit any of the
Inventory or Equipment to be kept at a location other than those listed on
Schedules V and VI hereto or (iii) change its name, identity or corporate
structure to such an extent that any financing statement filed by the Agent in
connection with this
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Security Agreement would become seriously misleading.
(o) Patents and Trademarks.
(i) Except with respect to any Trademark that it shall
reasonably determine is of immaterial economic value to it, (either
itself or through licensees), (i) continue to use each Trademark on
each and every trademark class of goods applicable to their current
line as reflected in their current catalogs, brochures and price lists
in order to maintain such Trademark in full force free from any claim
of abandonment for non-use, (ii) maintain as in the past the quality of
products and services offered under such Trademark, (iii) employ such
Trademark with the appropriate notice of registration, (iv) not adopt
or use any mark which is confusingly similar or a colorable imitation
of such Trademark unless the Agent, for the ratable benefit of the
Banks, shall obtain a perfected security interest in such mark pursuant
to this Security Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act
whereby any Trademark may become invalidated.
(ii) Not, except with respect to any Patent that it
shall reasonably determine is of immaterial economic value to it, do
any act, or omit to do any act, whereby any Patent may become abandoned
or dedicated.
(iii) Notify the Agent immediately if it knows, or has
reason to know, that any application or registration relating to any
Patent or Trademark may become abandoned or dedicated, or of any
adverse determination or development (including, without limitation,
the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any
court or tribunal in any country) regarding its ownership of any Patent
or Trademark or its right to register the same or to keep and maintain
the same.
(iv) Whenever such Debtor, either by itself or through
any agent, employee, licensee or designee, shall file an application
for the registration of any Patent or Trademark with the United States
Patent and Trademark Office or any similar office or agency in any
other country or any political subdivision thereof, report such filing
to the Agent within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Agent, each of
the Debtors shall execute and deliver any and all agreements,
instruments, documents, and papers as the Agent may request to evidence
the Agent's and the Banks' security interest in any Patent or Trademark
and the goodwill and general intangibles of such Debtor relating
thereto or represented thereby, and each of the Debtors
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hereby constitutes the Agent, its attorney-in-fact to execute and file
all such writings for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed; such power being coupled with an
interest is irrevocable until the Obligations are paid in full and the
Commitments are terminated.
(v) Take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United
States Patent and Trademark Office, or any similar office or agency in
any other country or any political subdivision thereof, to maintain and
pursue each application (and to obtain the relevant registration) and
to maintain each registration of the Patents and Trademarks, including,
without limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.
(vi) In the event that any Patent or Trademark included
in the Collateral is infringed, misappropriated or diluted by a third
party, promptly notify the Agent after it learns thereof and shall,
unless it shall reasonably determine that such Patent or Trademark is
of immaterial economic value to it, which determination it shall
promptly report to the Agent and the Banks, promptly sue for
infringement, misappropriation or dilution, to seek injunctive relief
where appropriate and to recover any and all damages for such
infringement, misappropriation or dilution, or take such other actions
as it shall reasonably deem appropriate under the circumstances to
protect such Patent or Trademark.
6. Agent's Appointment as Attorney-in-Fact.
(a) Powers. Each of the Debtors hereby irrevocably constitutes and
appoints the Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Debtor and in the name of
such Debtor or in its own name, from time to time in the Agent's discretion, for
the purpose of carrying out the terms of this Security Agreement, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this Security
Agreement, and, without limiting the generality of the foregoing, each of the
Debtors hereby gives the Agent the power and right, on behalf of such Debtor,
without notice to or assent by such Debtor, to do the following:
(i) in the case of any Account, at any time when the
authority of such Debtor to collect the Accounts has been curtailed or
terminated pursuant to the third sentence of Section 3(d) hereof, or in
the case of any
13
<PAGE> 14
other Collateral, at any time when any Event of Default shall have
occurred and is continuing, in the name of such Debtor or its own name,
or otherwise, to take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Account, Instrument, General Intangible,
Investment Property or Contract or with respect to any other Collateral
and to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Agent for
the purpose of collecting any and all such moneys due under any
Account, Instrument, General Intangible, Investment Property or
Contract or with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or
placed on or threatened against the Collateral (provided that, if no
Event of Default shall exist, the foregoing shall not apply to any
Permitted Lien), to effect any repairs or any insurance called for by
the terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(iii) upon the occurrence and during the continuance of
any Event of Default, (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and all moneys due
or to become due thereunder directly to the Agent or as the Agent shall
direct; (B) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral;
(C) to sign and indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection
with any of the Collateral; (D) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any proceeds thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against such Debtor with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Agent may deem appropriate;
(G) to assign any Patent or Trademark (along with the goodwill of the
business to which any such Trademark pertains), throughout the world
for such term or terms, on such conditions, and in such manner, as the
Agent shall in its sole discretion determine; and (H) generally, to
sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Agent were the absolute owner thereof for all purposes, and
to do, at the
14
<PAGE> 15
Agent's option and such Debtor's expense, at any time, or from time to
time, all acts and things which the Agent deems necessary to protect,
preserve or realize upon the Collateral and the Agent's and the Banks'
Liens thereon and to effect the intent of this Security Agreement, all
as fully and effectively as such Debtor might do.
Each of the Debtors hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
(b) Other Powers. Each of the Debtors also authorizes the Agent
and the Banks, 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.
(c) No Duty on Agent or Banks' Part. The powers conferred on the
Agent and the Banks hereunder are solely to protect the Agent's and the Banks'
interests in the Collateral and shall not impose any duty upon the Agent or any
Bank to exercise any such powers. The Agent and the Banks shall be accountable
only for amounts that they actually receive as a result of the exercise of such
powers, and neither they nor any of their officers, directors, employees or
agents shall be responsible to the Debtors for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct.
7. Performance by Agent of Debtors' Obligations. If any of the
Debtors fails to perform or comply with any of its agreements contained herein
and the Agent, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expenses of the Agent incurred in connection with such
performance or compliance, together with interest thereon at a rate per annum
equal to the rate of interest then payable on Loans bearing interest at a rate
determined by reference to the Base Rate, shall be payable by the Debtors to the
Agent on demand and shall constitute Obligations secured hereby.
8. Remedies. If an Event of Default shall occur and be continuing,
the Agent, on behalf of the Banks may exercise, in addition to all other rights
and remedies granted to them in this Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Debtors or any other
Person (all and
15
<PAGE> 16
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, lease,
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, at any exchange,
broker's board or office of the Agent or any Bank 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 Agent or any Bank shall have the right upon any such public sale or
sales, and, to the extent permitted by 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 Debtors, which right or equity is hereby waived
or released. The Debtors further agree, at the Agent's request, to assemble the
Collateral and make it available to the Agent at places which the Agent shall
reasonably select, whether at the Debtors' premises or elsewhere. The Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein 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 Agent and the Banks hereunder, including, without limitation, reasonable
attorneys' fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Agent may elect, and only after such
application and after the payment by the Agent of any other amount required by
any provision of law, including, without limitation, Section 9504(a)(3) of the
Code, need the Agent account for the surplus, if any, to the Debtors. To the
extent permitted by applicable law, each of the Debtors waives all claims,
damages and demands it may acquire against the Agent or any Bank arising out of
the exercise by them of any rights hereunder. If any notice of a proposed sale
or other disposition of Collateral shall be required by law, such notice shall
be deemed reasonable and proper if given at least 10 days before such sale or
other disposition. The Debtors shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Agent or any Bank to collect such deficiency.
9. Limitation on Duties Regarding Preservation of Collateral. The
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9207 of the Code
or otherwise, shall be to deal with it in the same manner as the Agent deals
with similar property for its own account. Neither the Agent, any Bank, nor any
of their respective directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay
16
<PAGE> 17
in doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Debtors or otherwise.
10. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
11. Severability. Any provision of this Security 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.
12. Paragraph Headings. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
13. No Waiver; Cumulative Remedies. Neither the Agent nor any Bank
shall by any act (except by a written instrument pursuant to Section 14 hereof),
delay, indulgence, omission or otherwise 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 Agent or any Bank, 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 Agent or any Bank of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Agent or such Bank 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 rights or remedies provided by law.
14. Waivers and Amendments; Parties Bound; Governing Law. None of the
terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Debtors and the Agent, provided that any provision of this Security
Agreement may be waived by the Agent in a written letter or agreement executed
by the Agent or by telex or facsimile transmission from the Agent. This Security
Agreement shall be the joint and several obligations of the Debtors and shall be
binding upon the respective successors and permitted assigns of the Debtors and
shall inure to the benefit of the Agent and the Banks and their
17
<PAGE> 18
respective successors and assigns. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA.
15. Notices. All notices hereunder to the Debtors, the Agent or any of
the Banks to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered or sent in the manner and to the respective
addresses as provided in subsection 9.2 of the Credit Agreement.
16. Authority of Agent. The Debtors acknowledge that the rights and
responsibilities of the Agent under this Security Agreement with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Security Agreement shall, as between the Agent
and the Banks, be governed by the Credit Agreement and by such other agreement
with respect thereto as may exist from time to time among them, but, as between
the Agent and the Debtors, the Agent shall be conclusively presumed to be acting
as agent for the Banks with full and valid authority so to act or refrain from
acting, and the Debtors shall not be under any obligation, or entitlement, to
make any inquiry respecting such authority.
17. Submission to Jurisdiction; Waivers.
(a) Each of the Debtors hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action
or proceeding relating to this Security Agreement, or for recognition
and enforcement of any judgment in respect thereof to the non-exclusive
general jurisdiction of the courts of the Commonwealth of Pennsylvania,
the courts of the United States of America for the Eastern District of
Pennsylvania, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid,
18
<PAGE> 19
to the Company at its address set forth in the Credit Agreement or at
such other address of which the Agent shall have been notified; and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
(b) THE DEBTORS HEREBY UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE.
18. Counterparts. This Security Agreement may be executed by one or
more of the parties to this Security Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Security
Agreement signed by all the parties shall be lodged with the Company, on behalf
of the Debtors, and each of the Banks.
IN WITNESS WHEREOF, the Debtors have caused this Security Agreement to
be duly executed and delivered as of the date first above written.
ATTEST: WEST COAST ENTERTAINMENT
CORPORATION
___________________________ By:___________________________
Name:
[seal] Title:
ATTEST: VIDEOSMITH, INCORPORATED
___________________________ By:___________________________
Name:
[seal] Title:
ATTEST: WEST COAST FRANCHISING COMPANY
___________________________ By:___________________________
Name:
[seal] Title:
[signatures continued on next page]
19
<PAGE> 20
ATTEST: PALMER WEST COAST CORPORATION
___________________________ By:___________________________
Name:
[seal] Title:
ATTEST: PALMER VIDEO CORPORATION
___________________________ By:___________________________
Name:
[seal] Title:
ATTEST: PALMER INVESTMENT CORPORATION
___________________________ By:___________________________
Name:
[seal] Title:
ATTEST: KASABLANCA DISTRIBUTING
CORPORATION
___________________________ By:___________________________
Name:
[seal] Title:
ATTEST: RKT MERGER CO.
___________________________ By:___________________________
Name:
[seal] Title:
[signatures continued on next page]
20
<PAGE> 21
ATTEST: SHOWTIME, INC.
___________________________ By:___________________________
Name:
[seal] Title:
ATTEST: VIDEO GIANT INC.
___________________________ By:___________________________
Name:
[seal] Title:
[signatures continued on next page]
21
<PAGE> 22
ATTEST: VIDEO KING OF BROOME COUNTY,
INC.
___________________________ By:___________________________
Name:
Title:
[seal]
ATTEST: KING VIDEO ENTERPRISES,INC.
___________________________ By:___________________________
Name:
Title:
[seal]
ATTEST: WEST COAST FINANCING
CORPORATION
___________________________ By:___________________________
Name:
Title:
[seal]
[signatures continued on next page]
22
<PAGE> 23
ATTEST: WEST COAST LICENSING
CORPORATION
___________________________ By:___________________________
Name:
Title:
[seal]
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:___________________________
Name:
Title:
23
<PAGE> 24
SCHEDULE I TO
Security Agreement
PATENTS AND PATENT LICENSES
<PAGE> 25
SCHEDULE II TO
Security Agreement
TRADEMARKS AND TRADEMARK LICENSE
<PAGE> 26
SCHEDULE III TO
Security Agreement
LOCATIONS OF ACCOUNT RECORDS
<PAGE> 27
SCHEDULE IV TO
Security Agreement
LOCATIONS OF INVENTORY RECORDS
<PAGE> 28
SCHEDULE V TO
Security Agreement
LOCATIONS OF INVENTORY
<PAGE> 29
SCHEDULE VI TO
Security Agreement
LOCATIONS OF EQUIPMENT
<PAGE> 30
SCHEDULE VII TO
Security Agreement
LOCATIONS OF CHIEF EXECUTIVE OFFICES
<PAGE> 1
EXHIBIT 10.36
EXHIBIT A-2
FORM OF TRANCHE B NOTE
$__________________ Philadelphia, Pennsylvania
_______________, 1997
FOR VALUE RECEIVED, WEST COAST ENTERTAINMENT CORPORATION, a Delaware
corporation (the "Company"), VIDEOSMITH INCORPORATED, a Massachusetts
corporation, WEST COAST FRANCHISING COMPANY, a Delaware corporation, PALMER WEST
COAST CORPORATION, a Delaware corporation, PALMER VIDEO CORPORATION, a Delaware
Corporation, PALMER INVESTMENT CORPORATION, a Delaware corporation, CASABLANCA
DISTRIBUTING CORPORATION, a Delaware corporation, RKT MERGER CO., a Delaware
corporation, SHOWTIME, INC., a Virginia corporation, VIDEO GIANT INC., a Texas
corporation, VIDEO KING OF BROOME COUNTY, INC., a New York corporation, KING
VIDEO ENTERPRISES, INC., a New York corporation, WEST COAST FINANCING
CORPORATION, a Delaware corporation and WEST COAST LICENSING CORPORATION, a
Delaware corporation (collectively, the "Borrowers"), hereby jointly and
severally unconditionally promise to pay to the order of
__________________________________ (the "Bank") at the office of PNC BANK,
NATIONAL ASSOCIATION (the "Agent") located at 1600 Market Street, Philadelphia,
Pennsylvania, 19103, on the Termination Date (as such term is defined in the
Credit Agreement hereinafter referred to) in lawful money of the United States
of America and in immediately available funds, principal sum of (a)
__________________________DOLLARS ($______) or, if less, (b) the aggregate
unpaid principal amount of all Tranche B Loans made by the Bank to the Borrowers
pursuant to the Credit Agreement. The Borrowers further agree to pay interest
accrued on the unpaid principal amount outstanding hereunder from time to time
from the date hereof in like money at such office at the rates and on the dates
specified in the Credit Agreement together with all other costs, fees and
expenses as provided in the Credit Agreement.
The holder of this Note is authorized to endorse on Schedule 1 annexed
hereto and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof the respective date(s), the Type and
amount of each Tranche B Loan made by the Bank to the Borrowers, each
continuation thereof, each conversion of all or a portion thereof to another
Type, the date and amount of each payment or prepayment of principal thereof
and, in the case of Eurodollar Tranche B Loans, the length of each Interest
Period with respect thereto, which endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed; provided, however, that
the failure to make any such endorsement (or any error in such recordation)
shall not affect the obligations of the
<PAGE> 2
Borrowers to make payments of principal, interest and other amounts outstanding
in accordance with the terms of this Note and the Credit Agreement.
This Note is one of the Tranche B Notes referred to in, evidences
indebtedness incurred under, and is entitled to the benefits of, the Credit
Agreement dated as of December __, 1997 (said Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being referred to
as the "Credit Agreement") among the Borrowers, the other banks and financial
institutions parties thereto, and PNC Bank, National Association, as agent. The
Credit Agreement, among other things, contains provisions for the acceleration
of the maturity hereof upon the happening of certain events, for optional or
mandatory prepayments of the principal hereof prior to the maturity thereof, for
a higher rate of interest hereunder on amounts past due, for the amendment or
waiver of certain provisions of the Credit Agreement and for certain security
interests granted by the Borrowers. Reference is made to the Credit Agreement
and the other Loan Documents for a statement of the terms and conditions under
which the Loans evidenced hereby have been secured.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts then remaining unpaid on this
Note shall become, or may be declared to be, immediately due and payable, all as
provided therein.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and notice of any kind. No failure to exercise, and
no delay in exercising, any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights.
Capitalized terms not otherwise defined herein shall have the meanings
set forth in the Credit Agreement. This Note shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Pennsylvania.
ATTEST: WEST COAST ENTERTAINMENT CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
[signatures continued on next page]
2
<PAGE> 3
ATTEST: VIDEOSMITH, INCORPORATED
___________________________ By:___________________________
Name:_____________________
Title:_____________________
[seal]
ATTEST: WEST COAST FRANCHISING COMPANY
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: PALMER WEST COAST CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: PALMER VIDEO CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: PALMER INVESTMENT CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
[signatures continued on next page]
3
<PAGE> 4
ATTEST: CASABLANCA DISTRIBUTING
CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: RKT MERGER CO.
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: SHOWTIME, INC.
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: VIDEO GIANT INC.
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: VIDEO KING OF BROOME COUNTY,
INC.
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
[signatures continued on next page]
4
<PAGE> 5
ATTEST: KING VIDEO ENTERPRISES,INC.
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: WEST COAST FINANCING
CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
ATTEST: WEST COAST LICENSING
CORPORATION
___________________________ By:___________________________
Name:______________________
Title:_____________________
[seal]
5
<PAGE> 6
SCHEDULE 1
TRANCHE B LOANS, CONVERSIONS AND PAYMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNT OF AMOUNT OF
BASE RATE EURODOLLAR
LOANS LOANS UNPAID
TYPE OF LOAN AMOUNT OF CONVERTED CONVERTED TO PRINCIPAL
(EURODOLLAR OR AMOUNT OF PRINCIPAL TO EURODOLLAR BASE RATE BALANCE OF NOTATION
DATE BASE RATE) LOANS REPAID LOANS LOANS LOANS MADE BY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
West Coast Franchising Company
West Coast Licensing Corporation (subsidiary of West Coast Franchising Company)
West Coast Financing Corporation
Palmer West Coast Corporation Palmer Video
Corporation (subsidiary of Palmer West Coast Corporation)
Casablanca Distributing Corporation (subsidiary of Palmer Video Corporation
Palmer Investment Corporation (subsidiary of Palmer West Coast Corporation)
142nd Retail Associates (a New Jersey general partnership - 51% owned by Palmer
Investment Corporation)
38th Retail Associates (a New York limited partnership - 50% owned by Palmer
Investment Corporation)
Showtime, Inc.
Video Giant Inc.
Videosmith Incorporated
RKT Merger Co.
Video King of Broome County, Inc.
King Video Enterprises, Inc.
West Coast Video (Australia) Pty. Ltd.
West Coast Entertainment (Australia) Pty. Ltd. (subsidiary of West Coast
Franchising Company)
- 5 -
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-14405, No. 33-14411, and No. 333-1109) of our
report dated April 2, 1998, appearing on page 26 of West Coast Entertainment
Corporation's Annual Report on Form 10-K for the year ended January 31, 1998.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,604
<SECURITIES> 0
<RECEIVABLES> 1,752
<ALLOWANCES> 123
<INVENTORY> 8,216
<CURRENT-ASSETS> 16,827
<PP&E> 23,232
<DEPRECIATION> 4,279
<TOTAL-ASSETS> 187,236
<CURRENT-LIABILITIES> 16,653
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 103,543
<TOTAL-LIABILITY-AND-EQUITY> 187,236
<SALES> 19,312
<TOTAL-REVENUES> 123,753
<CGS> 13,596
<TOTAL-COSTS> 123,330
<OTHER-EXPENSES> 128
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,927
<INCOME-PRETAX> (4,632)
<INCOME-TAX> (1,062)
<INCOME-CONTINUING> (3,570)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,570)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.2
TO COME
</TABLE>
