================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-KSB
|X| Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the fiscal year ended December 31, 1998
OR
|_| Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the transition period from __________ to ________________
Commission File Number 001-13469
AUDIO BOOK CLUB, INC.
(Name of Small Business Issuer in Its Charter)
Florida 65-0429858
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2295 Corporate Boulevard, Suite 222, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 241-1426
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year (ending December 31,
1998) were $22,242,155.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of March 26, 1999 was approximately $36,660,000. As of March
26, 1999, there were 7,078,920 shares of the issuer's Common Stock outstanding.
Documents Incorporated by Reference:
None
================================================================================
<PAGE>
AUDIO BOOK CLUB, INC.
Form 10-KSB
Table of Contents
PART I
Item 1. Description of Business......................................... 3
Item 2. Description of Property......................................... 13
Item 3. Legal Proceedings............................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............. 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........ 14
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 16
Item 7. Financial Statements............................................ 21
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 21
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of
the Exchange Act............................................. 22
Item 10 Executive Compensation.......................................... 25
Item 11. Security Ownership of Certain Beneficial Owners
and Management................................................ 31
Item 12. Certain Relationships and Related Transactions.................. 33
Item 13. Exhibits, Lists and Reports on Form 8-K......................... 35
-2-
<PAGE>
PART I
Item 1. Description of Business.
Forward-looking Statements
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Certain Statements contained in this Form 10-KSB constitute
"Forward-Looking Statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical facts included in this Report, including, without limitation,
statements regarding our future financial position, business strategy, budgets,
projected costs and plans and objectives of our management for future operations
are forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "intend," "estimate," "anticipate," "believe,"or
"continue" or the negative thereof or variations thereon or similar terminology.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we cannot assure you that such expectations will
prove to have been correct. Such statements involve certain known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any results,
performances or achievements express or implied by such forward-looking
statements. Important factors that could cause actual results to differ
materially from our expectations, include, without limitation, our history of
losses, our ability to successfully integrate our recently acquired businesses
with our existing operations, complete the proposed acquisition described
herein, successfully implement our growth strategy, finance our working capital
requirements; dependent on third party providers and suppliers; competition; and
other risks described in our Registration Statement of Form SB-2. Undue reliance
should not be placed on these forward- looking statements, which speak only as
of the date hereof.
Introduction
Audio Book Club is the nation's largest membership club-based direct
marketer of audiobooks. Our membership club is modeled after the "negative
option" formula developed by the Book-of-the-Month Club. Each member of our
membership club is offered a limited number of audiobooks at a low introductory
discounted price and, in return, commits to purchase a minimum number of
additional audiobooks over a certain period of time at regular club prices.
Since commencing operations in 1994, we have invested heavily in our
membership recruitment programs to establish and expand our membership base. The
recruitment programs have consisted primarily of direct targeted mailings of new
member solicitation packages, marketing on the Internet and media advertising.
We have aggressively pursued marketing opportunities on the Internet by
entering into advertising arrangements with respect to audiobooks with various
Internet companies such as Microsoft Corporation (for its MSNBC web site),
America On-line, Inc., Broadcast.com, Inc., Yahoo!, Inc., Lycos, Inc. and
Netscape Communications Corporation. We have established an Internet web site
that offers visitors the opportunity to become club members, and offers club
members and visitors the opportunity to execute club transactions online and
locate and sample thousands of audiobook selections.
Our company was incorporated under the laws of the State of Florida in
August 1993.
-3-
<PAGE>
Recent Developments
In December 1998, we completed a series of acquisitions and combined the
acquired businesses to form the Radio Group. The aggregate purchase price we
paid for the businesses comprising the Radio Group was approximately $6.2
million in cash, the assumption of $2.3 million of liabilities, 600,000 shares
of common stock, options to purchase an additional 50,000 shares of common stock
at a price of $8.125 per share and options to purchase an additional 175,000
shares of common stock at a price of $13.125 per share. The Radio Group
produces, broadcasts, syndicates, sells and licenses popular "classic" and old
time radio and video programs, including vintage comedy, mystery, detective,
adventure and suspense programs. The Radio Group has an extensive library of
over 60,000 radio programs.
On December 31, 1998, we completed the acquisition of the audiobook club
division of The Columbia House Company for which we paid cash consideration of
$30.8 million and issued equity securities. As a result of this acquisition, we
more than doubled our member file by adding over 600,000 names. In addition,
Columbia House agreed to provide us with access to its continually updated
music, video, laser disc and DVD club membership lists for the next seven years
for purposes of acquiring new members without payment of list rental fees.
On March 18, 1999, we entered into a definitive agreement to acquire the
assets used by Doubleday Direct, Inc. in the direct marketing and distribution
of audiobooks and related products through Doubleday's Audiobooks Direct club,
including its membership file of approximately 450,000 names. In connection with
the closing of this acquisition, Doubleday will grant to us the exclusive right
to include our Audio Book Club new member solicitation inserts in Doubleday's
club mailings and to send our direct mail new member solicitation packages to
Doubleday's book club members for the next four years without payment of list
rental or insert fees. We anticipate that this agreement will relate to all of
Doubleday's existing and future clubs. We cannot assure you that the acquisition
or related transaction will be completed.
Audiobook Industry Overview
First introduced to the mass market in 1985, audiobooks are literary works
or other printed materials read by the author, a celebrity actor, or an ensemble
of readers or actors. Audiobooks are recorded primarily on audiocassette and, to
a lesser extent, on compact disc. Most best-selling hardcover books printed
today are released simultaneously as audiobooks. Audiobooks are usually author
approved abridged versions of the original works converted to an audio format
and are typically three to six hours in length.
Today there are over 70,000 audiobook titles in existence spanning every
genre, including non-fiction, fiction, self-improvement, mystery, fantasy,
business, science fiction, biography, romance, religion, motivational and
children's, among others. Audiobooks cover new releases as well as many of the
literary classics. New releases include selections from today's most popular
writers including John Grisham, Michael Crichton, Stephen King, Tom Clancy and
Danielle Steel. Many of these popular selling selections are made more
marketable through the use of celebrity readers, prominent figures or readings
by the authors, themselves.
Consumers of audiobooks are traditionally individuals who, due to time
constraints, do not read as often as they desire. As an alternative, they listen
to audiobooks while engaging in other activities such as driving or exercising.
This demographic group is expanding to include a wide variety of consumers.
The market for audiobooks has experienced strong sales growth since 1985.
The audiobook market increased at an eight year compound annual growth rate of
approximately 30% from an estimated $250 million in 1989 to approximately $2.0
billion in 1997. Present sales growth is driven by several factors including the
expanding number of available titles, an increase in the number of retailers
selling audiobooks, broadening of public awareness of the product, new
promotional events organized by industry participants, an increase in product
quality, and the effect of greater demands placed upon an individual's time.
-4-
<PAGE>
As a result of their control of the publishing rights to many of the
releases of today's most popular writers, hardcover book publishers are the
major suppliers to the audiobook industry. These publishers include Simon &
Schuster Audio, Random House Audio Publishing, Bantam Doubleday Dell Audio
Publishing, Harper Audio and Time Warner Audio. As demand for audiobooks has
experienced significant growth, the number of suppliers to the industry has
broadened as well. Audiobook retailers' relationships with suppliers are not
exclusive and retailers commonly purchase audiobooks from a number of different
publishers.
Business Strategy
Our current business strategy includes the following:
Expand Member Base Through Cost-Effective Member Acquisition Programs. Our
strategy is to continue to expand our strong member base aggressively
and on a cost-effective basis. We have historically realized a
significant return on our investment in new member acquisitions, and
our objective is to increase that return by reducing the average cost
of acquiring new members. We anticipate that our marketing activities
will continue to consist of (A) targeted direct mailings of member
solicitation packages to prospective members whose names are obtained
from third-party mailing lists and from the Columbia House and
Doubleday membership lists, which we have the right to use without
payment of list rental or insert fees for several years and (B)
Internet marketing activities. In particular, because the Columbia
House and Doubleday membership lists are comprised of individuals who
have previously joined negative option clubs and purchased
entertainment products such as books and videos, we expect these lists
to be an efficient source of new members and reduce our list rental
costs over the next several years. Our goal is to increase the level
of these and other advertising activities, while utilizing the
economies of scale and marketing efficiencies resulting from (1) our
significantly increased membership base, (2) our right to use of the
Columbia House and Doubleday members lists over the next several
years, (3) decreased competition for new members, and (4) our broader
Internet presence.
Optimize Member Revenues. Our strategy is to utilize our increased member
database to maximize our member revenues, reduce our return rates and
extend membership life cycles. We maintain a database of information
on each name in our member file, including number and genre of titles
ordered, payment history and the marketing campaign from which the
member joined. We also maintain a lifetime value analysis for each
mailing list we use and each promotional campaign we undertake. The
substantially increased size of our database will enable us to better
stratify our member mailings by sending marketing materials and
monthly selections that better reflect members' particular interests
as evidenced by their buying patterns and purchasing preferences,
rather than sending a general mailing and monthly selection to all
members. Our objective is to use this stratification technique and our
database analysis expertise to decrease members' returns of monthly
selections, increase members' positive response to our product
offerings and thereby increase net sales and extend membership lives.
Capitalize on Internet Presence. We have made significant investments to
obtain marketing arrangements with many of the leading Internet
companies to secure significant traffic flow to our web site,
www.audiobookclub.com. Our Internet marketing activities resulted in
the enrollment of over 40,000 new club members through the Internet in
1998, with new members currently enrolling at a rate of over 4,500 per
month. In May 1998, we formed our audiobookclub.com Associates
Network, which is designed to attract additional visitors to our web
site and obtain new members through the Internet. An Audio Book Club
hyperlink from the associate's web site enables visitors to click to
our web site and join Audio Book Club online. As of March 15, 1999,
we had approximately 2,600 associates.
-5-
<PAGE>
Create Media Portal Web Site. We are seeking to expand our Internet
presence and to take advantage of the high volume of traffic that the
Audio Book Club web site receives through the creation of a media
portal web site. We are currently designing our media portal site to
be a fully- integrated web site providing a variety of content and
e-commerce opportunities to visitors and customers alike. The site
will enable users to click through to our other web sites, to join
Audio Book Club, to purchase a variety of products from several
different retail categories and to experience the wealth of content
that will be featured on the site in both audio and video formats. The
media portal site will offer full-length real time audio features from
our catalog of classic and nostalgic radio content, as well as
audiobook content and streaming video excerpts of our classic and
nostalgic video programs. We will seek to enter into cross- marketing
arrangements and acquire additional products to offer on our media
portal site. We anticipate that upon its launch, the e-commerce
aspects of the site will include audiobookclub.com, radiospirits.com,
booksaloud.com, videoyesteryear.com and potentially, several other
product categories. We may seek to add more content and e-commerce
aspects in the future.
Emphasize Cost Containment. We continuously seek to reduce our costs of
doing business, including the costs associated with member acquisition
and catalog mailings, and product and fulfillment costs. With our
expanded membership base we will seek to achieve increased economies
of scale in connection with member recruitment advertising, member
mailings, order processing and product fulfillment. We recently began
to leverage our position as the nation's largest audiobook club and
our ability to place large volume order requests to receive more
favorable licensing, purchasing and manufacturing arrangements.
Additionally, because we contract with third parties to perform our
Audio Book Club order processing and fulfillment operations, we do not
expect to materially increase our internal staffing level with respect
to the operation of our club from its current level as a result of our
recent acquisitions.
Adapt to New Media Formats. Our company's audiobooks are currently recorded
primarily on audiocassette and, to a lesser extent, on compact disc in
response to current market tastes. We are in constant contact with
publishers, product manufacturers and other purveyors of audio content
as to the development and viability of new audio listening formats,
such as DVDs and Internet downloadable files. Because we are the
nation's only significant audiobook club and have established
relationships with substantially all of the major audiobook
publishers, we believe that we will be able to adapt to new media
formats as consumer preferences change.
Leverage Significant Radio Library Content. In December 1998, we formed our
Radio Group following a series of acquisitions of businesses involved
in the production, broadcast, syndication, sale and licensing of
popular "classic" and old time radio and video programs. These
acquisitions provided our company with a library of more than 60,000
radio programs, including well-known broadcasts, such as H.G. Wells'
"War of the Worlds"; hit series, such as the Lone Ranger; recordings
of stars, such as Frank Sinatra; and recordings of comedy teams, such
as Abbott and Costello. The Radio Group library also consists of more
than 2,500 classic video programs. These titles are marketed through
various channels including retail, mail order, and the Internet. We
intend to explore cost effective methods of leveraging our radio and
video content.
Pursue Strategic Acquisitions and Investments. In addition to our recent
acquisitions, we are seeking to expand our operations by acquiring
companies in businesses which our management believes will complement
or enhance our ongoing operations. We continually evaluate possible
acquisition opportunities. Except with respect to the Doubleday
acquisition, we currently are not a party to any agreement,
commitment, arrangement or understanding with respect to any future
acquisition. Any decision to make an acquisition will be based upon a
variety of factors, including the purchase price and financial terms
of the transaction, the business prospects and competitive position of
services provided and products offered by the acquisition
-6-
<PAGE>
candidate and the extent to which any such acquisition would enhance
our company's prospects. We may also seek to make strategic
investments in Internet companies with which we may enter into
marketing arrangements in the future. We cannot assure you that the
Doubleday acquisition or related transaction will be completed.
Audiobook Supply
We have established relationships with substantially all of the major
audiobook publishers, including Random House Audio Publishing, Bantam Doubleday
Dell Audio Publishing, Simon & Schuster Audio, Harper Audio, Time Warner Audio
Books and Audio Renaissance Tapes. We have entered into non-exclusive agreements
with selected audiobook publishers pursuant to which the publisher grants to us
a license to duplicate the recordings and the packaging materials relating to
each audiobook in such publisher's audiobook library, including audiobooks as to
which the publisher acquires rights during the term of the agreement. We also
entered into agreements pursuant to which we receive licenses to duplicate the
recordings and packaging materials relating to selected audiobooks.
Typically, in exchange for a license, we pay a royalty for each copy we
sell, a portion of which is paid as an advance upon signing of the license. Such
licensing agreements generally are non-exclusive, have one or two-year terms,
permit us to sell audiobooks in our inventory at the expiration of the term
during a "sell-off" period and prohibit us from selling an audiobook prior to
our publisher release date. Most of the license agreements permit us to arrange
for the packaging, printing and cassette duplication of audiobooks.
In addition to entering into license agreements, but to a much lesser
extent, we purchase certain audiobooks from publishers' inventories at a
substantial discount to the suggested retail price. From time to time we also
purchase certain previously released audiobooks as remainder sales from
publishers at a substantial discount to wholesale prices, often below
manufacturing cost.
Member Acquisition
Since our inception, we have engaged in an aggressive membership
recruitment program to establish a core Audio Book Club member base and
continually expand such member base. We have acquired Audio Book Club members
primarily through acquisitions, direct mailings of member solicitation packages,
online computer service and Internet advertising, and to a lesser extent from
advertisements in magazines, newspapers and other publications and package
insert programs. We continually analyze the results of our marketing activities
in an effort to maximize sales, extend membership life cycles, and efficiently
target our marketing efforts to increase response rates to our advertisements
and reduce our per member acquisition costs.
Strategic Acquisitions
We seek to expand our operations by acquiring companies in businesses which
our management believes will complement or enhance our ongoing operations. Any
decision to make an acquisition will be based upon a variety of factors,
including the purchase price and financial terms of the transaction, the
business prospects and competitive position of services provided and products
offered by the acquisition candidate and the extent to which any such
acquisition would enhance our prospects.
On December 31, 1998, we acquired from Columbia House substantially all of
the assets of its audiobook club division, including its membership file of over
600,000 names. We also entered into a mailing agreement which allows our company
to (A) use Columbia House's compact disc, VHS, laser and DVD video club
membership lists for our Audio Book Club new member acquisition campaigns for
the next seven years, (B) insert our new member acquisition material into
Columbia House's member mailing programs sent to various other clubs maintained
by Columbia House over the next seven years and (C) be referred to as the
Columbia House recommended source for audiobooks in a club format, for a period
of seven years.
-7-
<PAGE>
We have entered into a definitive agreement to acquire the assets used by
Doubleday in the direct marketing and distribution of audiobooks and related
products through Doubleday's Audiobooks Direct club, including its membership
file of approximately 450,000 names. In connection with this acquisition,
Doubleday will grant to us the exclusive right to include our Audio Book Club
new member solicitation inserts into Doubleday's club mailings and to mail our
direct mail new member solicitation packages to Doubleday's book club members
for the next four years without payment of list rental or insert fees and,
thereafter, for a fee. We can not assure you that the acquisition or related
transaction will be completed.
We also acquired mailing lists with an aggregate of approximately 400,000
names of buyers and prospective buyers of old-time radio audiocassettes and
video cassettes in connection with the acquisition of the Radio Group. Since
such members have previously purchased audio content products through direct
marketing, we believe that many of such persons may be interested in joining
Audio Book Club and we intend to send our new members solicitation packages to
such persons.
Direct Mail
We regularly engage in direct mail campaigns designed to attract new Audio
Book Club members. We obtain lists of names from various list brokers based on
criteria which we believe have characteristics of persons likely to join the
Audio Book Club, purchase sufficient quantities of audiobooks to be a profitable
source for us and become long-term members. We mail member solicitation packages
to those persons we have identified for a specific direct mail campaign. Each
member solicitation package contains a letter from Audio Book Club's editor
explaining the Audio Book Club concept and identifying the advantages of
becoming a member, an easy-to-use enrollment form for the prospective member to
complete, a brochure of audiobook titles and a self-addressed, postage paid
reply envelope. We believe that we have identified numerous lists that have
performed well in the past. Moreover, we intend to utilize the extensive
Columbia House and Doubleday club lists, to which we have access over the next
several years without payment of list rental or insert fees, and which are
comprised of individuals who have previously joined other negative option clubs.
As a result, we expect that future response rates and member acquisition costs
should improve.
Internet Web Site and Online Computer Service Advertising
In March 1995, we established www.audiobookclub.com, an Internet web site
which offers visitors the opportunity to join the Audio Book Club, execute club
transactions online (if a member), utilize the web site's search engine to
locate many of the web site's thousands of audiobook selections and sample audio
clips of any of the web site's selections. Audiobookclub.com also provides
additional options, such as alerting visitors when a new title of an author or
reader previously specified by the visitor is released, offering reviews of
selected titles offering more than 15,000 audio samples, a database search
engine of more than 70,000 titles and a coffeehouse chat room where visitors can
chat in real time.
Audiobookclub.com is updated simultaneously with the Audio Book Club
catalog to add new selections and the new current featured selection, as well as
to add new book cover images and audio clips to preview. In March 1998, we
signed an agreement to utilize on our web site Net Perceptions' GroupLens(TM)
Recommendation Engine, an advanced tool designed to deliver highly personalized
content. The integration of this engine is intended to create a personalized
audiobook buying experience customized for each individual user. Once previous
buyers have logged onto audiobookclub.com, they will be offered audiobook
selections which correspond to their previous buying patterns.
Audiobookclub.com currently has links from numerous search engines and
audiobook related sites. Audiobookclub.com is also linked to catalog listing
sites offered by online computer and Internet services.
Prior to January 1998, we did not actively market audiobookclub.com. We
have since aggressively pursued marketing opportunities on the Internet by,
among other activities, entering into advertisement arrangements with
-8-
<PAGE>
various Internet companies such as America On-line, Inc., Broadcast.com, Inc.,
Microsoft Corporation (for its MSNBC web site), Yahoo!, Inc., Lycos, Inc. and
Netscape Communications Corporation.
In May 1998, we established our audiobookclub.com Associates Network, which
is designed to attract additional visitors to our web site and obtain new
members through the Internet. An Audio Book Club hyperlink from the associate's
web site enables visitors to click to our web site and join Audio Book Club
online. As of March 15, 1999 we had approximately 2,600 associates.
In addition to the foregoing, we continue to explore arrangements with
other Internet companies. We also continue to work to expand and improve our web
site including increasing the selection of audiobook titles, and audio clips to
preview through its search engine, improving recommendation features and
streamlining the enrollment process.
Such marketing activities on the Internet resulted in the enrollment of
over 40,000 new Audio Book Club members through the Internet in 1998, with new
members enrolled through the Internet currently exceeding 4,500 per month.
Upon the closing of the Doubleday acquisition, we will enter into an
Internet marketing agreement which will provide for links between our web sites
and Doubleday's web sites and for the establishment of a joint web site.
Other Advertising Activities
We have in the past and will continue in the future to test other forms of
advertising, including print, radio, television and package insert programs.
Package insert advertising enables us to include advertisements or inserts in
mailings or product shipments made by a third party to the third party's
customers to entice them to join Audio Book Club. For example, Columbia House
has agreed to allow us to include our new member solicitation inserts in
Columbia House's member mailing programs. In addition, in connection with the
Doubleday acquisition, we will receive the right to include our new member
solicitation inserts in Doubleday's active member mailing programs.
Audio Book Club
Members
As of February 15, 1999, Audio Book Club's total member file consisted of
approximately 1,060,000 names (including the 600,000 names acquired in the
Columbia House Acquisition) compared to approximately 260,000 names as of
December 31, 1997. The total member file consists of all members we have
acquired, including currently active and inactive members. We seek to attract a
financially sound and responsible membership base. Accordingly, we target our
direct mail and other advertising efforts to these types of persons.
Audio Book Club members can enroll in the club through the mail by
responding to direct mail or print media advertisements, online through our web
site or by calling or faxing us. We typically offer new members four audiobooks
at a low introductory price ($.99 or less). By enrolling, the member commits to
purchase a minimum number of additional audiobooks (typically two or four) at
Audio Book Club's regular prices which generally range from $10.00 to $35.00 per
audiobook, which we believe is comparable to and competitive with audiobook
retailers.
We encourage Audio Book Club members to purchase audiobooks, in addition to
satisfying their minimum purchase commitment, by offering all members special
discount pricing and other incentives based on the volume of their purchases.
Upon enrollment, we send to the new member a "welcome package" consisting of a
membership guide with information concerning ordering, payment, returns,
cancellation, discounts and the Audio Book Club's bonus point and advantage
member programs; a questionnaire; a welcome letter from the club director; and a
"Member-Get-a-Member" form which enables the member to receive free audiobooks
for soliciting another person to join Audio Book Club.
-9-
<PAGE>
We engage in list rental programs to maximize the revenue generation
potential of our membership list. As Audio Book Club's membership base continues
to grow, we anticipate that our member list will become more attractive to
direct marketers as a source of potential customers.
Member Mailings
Audio Book Club members receive one mailing approximately every three
weeks. Audio Book Club mailings typically include a multi-page catalog which,
together with the "more titles" insert, offers approximately 500 titles,
including a "featured selection" which is usually one of the most popular titles
at the time of mailing; "alternate selections" which are best selling and other
current popular titles; and "backlist selections" which are long-standing titles
that have continuously sold well. Each member mailing also includes a negative
option reply form and a "Member-Get-a-Member" form. We use our computer graphics
equipment and employ two computer graphic designers to design the creative
aspects of the catalogs and related materials included in the member mailings.
We contract with print shops to print the catalogs and related materials.
Under the negative option reply system, the member receives the featured
selection unless he or she replies by the date specified on the reply card by
returning the reply card, calling us with a reply, faxing a reply to us or
replying online via our Internet web site with a decision not to receive such
selection. Members can also use any of such methods to order additional
selections from each catalog.
Audio Book Club's Editorial Director selects which titles to feature, add
to and remove from each catalog after consideration of, among other factors, an
evaluation of the author, audiobook content and production quality; the reader;
sales of the author's previous audiobooks and printed books; the author's
reputation; the audiobook's relation to a movie, television show or other book
or audiobook; as well as independent publication reviews. We attempt to offer a
balance between various genres and between unabridged and abridged audiobooks
cassettes and compact discs to satisfy differing member preferences. In
addition, we emphasize the timely introduction of new audiobook titles to our
catalogs.
We also offer a "special order" service which enables members to call us
and order virtually any of the approximately 70,000 published titles in
existence, whether or not listed in our member mailings.
Stratification of Member Mailings
We have recently begun to stratify member mailings according to buying
patterns and purchasing preferences of our members on a selective basis. We
maintain a database of information on each name in our member file, including
number and genre of titles ordered, payment history and the marketing campaign
from which the member joined. We also maintain a lifetime value analysis of each
mailing list we use and each promotional campaign we undertake. The
substantially increased size of our database will enable us to better stratify
our member mailings by sending marketing materials and monthly selections that
better reflect members' particular interests as evidenced by their buying
patterns and purchasing preferences, rather than sending a general mailing and
monthly selection to all members. Our objective is to use this stratification
technique and our database analysis expertise to decrease members' returns of
monthly selections, increase members' positive response to our product offerings
and thereby increase net sales and extend membership lives. Stratification also
provides improved target marketing when offering related products and
establishing "niche" clubs.
Complementary Products and Other Product Lines
We intend to continue to test market complementary products, such as
videos, audio related products, printed books, audio and electronic equipment,
storage racks and cases and audio music cassettes and compact discs to determine
which products, if any, to add to our product offerings. From time to time, we
offer certain of such products to Audio Book Club members by including a
promotional insert with our member mailings.
-10-
<PAGE>
We also include inserts for products or services of non-competing companies
in product shipments to customers and member mailings for which we receive a fee
based on the number of shipments and mailings in which the insert is included.
In addition, we are evaluating opportunities to enter into arrangements with
non-competing companies to offer their products or services to Audio Book Club
members.
Customer Service
In order to encourage members to maintain their relationship with the Audio
Book Club and to maximize the long-term value of a member, we seek to provide
friendly, efficient, personalized service. Our goal is to remove potential
barriers to making a purchase and to make members comfortable shopping via mail
order and on the Internet. Audio Book Club's negative option system makes it
easy for members to receive the featured selection without having to take any
action.
We offer fast ordering options, including (i) placing orders online through
our web site, (ii) calling us with an order on our 24-hour toll-free order
hotline and (iii) faxing an order to us. Orders are sent fourth class mail and
are typically delivered 10 to 14 days following the receipt by us. For an
additional fee, members can receive faster delivery of an order either by
priority delivery, which takes three to five days, or by overnight delivery.
Members are billed for their purchases at the time their orders are shipped
and are required to make payment promptly. We generally allow members in good
standing to order up to $50 of product on credit, which may be increased if the
member maintains a good credit history with us.
Our policy is to accept returns of damaged products and, to maintain
favorable customer relations, we generally accept promptly made returns of
unopened products. We monitor each member's account to determine if the member
has made excessive returns. Our policy is to either terminate a membership or
change member status to positive option, if the member makes three to five
consecutive returns of either audiobooks ordered or of featured selections
received because the member did not return the reply card on time.
Fulfillment, Warehousing and Distribution
In December 1998, we entered into a three-year agreement with National
Fulfillment Services, Inc. pursuant to which National Fulfillment provides to us
order processing and data processing services. Such services include accepting
member orders, implementation of our credit policies, inventory tracking,
billing, invoicing and generating periodic reports, such as reports of sales
activity, accounts receivable aging, customer profile and marketing
effectiveness. Our agreement with National Fulfillment may be terminated by
either party upon not less than three months prior written notice.
In May 1998, we entered into a three-year agreement with Centrobe, Inc.
pursuant to which Centrobe provides to us warehousing and distribution services.
The agreement provides for automatic one-year renewals, provided that we may
terminate the agreement upon notice ranging from 60 days to six months
(depending upon the amount of the termination payment) and Centrobe may
terminate the agreement at the end of the term upon six months prior written
notice.
Customer orders are sent directly to National Fulfillment where they are
processed. Invoices are generated by National Fulfillment and sent directly to
Centrobe. Centrobe locates the ordered audiobooks from inventory, packs and
ships the order, using the invoice as a packing list, to the club member.
Competition
The audiobook and mail order club industries are intensely competitive and
highly fragmented. We believe that after the Doubleday acquisition, we will
operate the only significant audiobook club in the United States. We compete
with all other outlets through which audiobooks are offered, including
bookstores, audiobook stores (which rent or sell only audiobooks), retail
establishments such as convenience stores, video rental stores and wholesale
-11-
<PAGE>
clubs, and mail order companies that offer audiobooks for rental and sale
through catalogs. We also compete with mail order clubs and catalogs and other
direct marketers that offer products with similar entertainment value as
audiobooks, such as music cassettes and compact discs, printed books and videos,
for discretionary consumer spending.
Intellectual Property
We hold several United States trademark and service mark registrations and
have applied for several additional service marks relating to slogans and
designs used in our advertisements, member mailings and member solicitation
packages. We believe that our trademarks and service marks have significant
value and are important to the marketing of Audio Book Club. We cannot assure
you, however, that our marks do not or will not violate the proprietary rights
of others, or that they would be upheld or that we would not be prevented from
using our marks, any of which could cause us harm.
We rely on trade secrets and proprietary know-how and employ various
methods to protect our ideas, concepts and membership database. In addition, we
typically obtain confidentiality agreements with our executive officers,
employees, list managers and appropriate consultants and service suppliers. We
also own or license the rights to the radio and video programs in our Radio
Group library.
Radio Group
In December 1998, we completed a series of acquisitions and combined the
acquired businesses to form the "Radio Group." The Radio Group produces,
broadcasts, syndicates, sells and licenses popular "classic" and old time radio
and video programs, including vintage comedy, mystery, detective, adventure and
suspense programs. The Radio Group has an extensive library of over 60,000 radio
programs, including:
o H.G. Wells' "War of the Worlds" broadcast;
o hit series, such as The Shadow, The Lone Ranger, Gunsmoke and
Superman;
o recordings of stars, such as Humphrey Bogart, Jack Benny and Frank
Sinatra; and
o recordings of comedy teams, such as Abbott and Costello, Burns and
Allen and Martin and Lewis.
The Radio Group's programs are sold through mail order and major retailers,
including Costco, Sam's Club, Barnes & Noble, Waldenbooks and B. Dalton
Booksellers.
The Radio Group also produces and syndicates three national "classic" radio
programs: "When Radio Was" hosted by Stan Freberg; "Radio Movie Classics" hosted
by Jeffrey Lyons; and "Radio Super Heroes", that are collectively heard in more
than 500 markets by over 3 million listeners weekly.
Employees
As of March 24, 1999, we had 19 full-time employees, of whom 6 were in
management and 13 were in operational positions, with respect to our Audio Book
Club operations. The Radio Group had 31 full-time employees of which 4 were in
management and 27 were in operational positions. We believe our employee
relations and the Radio Group's employee relations to be good. None of our
employees or the Radio Group's employees is covered by a collective bargaining
agreement.
-12-
<PAGE>
Item 2. Description of Property.
We lease 1,155 square feet of office space in Boca Raton, Florida pursuant
to a lease agreement which expires in November 2000 at a monthly rent of $1,307.
We have the option to renew the lease for three-year periods on two occasions.
We sublease 1,550 square feet of space in Morristown, New Jersey pursuant
to a sublease agreement dated as of January 1, 1995 between our company and H.H.
Realty Investors, Inc., a company wholly-owned by Michael Herrick, our Co-Chief
Executive Officer and Vice Chairman of our Board of Directors, Howard Herrick,
Executive Vice President and a director of our company, and Evan Herrick, a son
of Norton Herrick and brother of Michael and Howard Herrick. In January 1998,
the sublease agreement was amended to provide for additional space at our New
Jersey location for a total of 2,328 usable square feet. Minimum monthly rent
was $2,900 per month through December 1998. The sublease has been renewed on a
monthly basis at a monthly rate of $2,900. We currently lease additional office
space in the same building from a third party on a monthly basis at a monthly
rate of $1,477.
Our Radio Group leases 8,000 square feet of space in Schaumburg, Illinois
pursuant to a lease agreement which expires in December 2005, subject to a
three-year renewal option. Monthly rent under this lease is $4,667. Our Radio
Group leases an aggregate 10,000 square feet of space in Sandy Hook and Bethel,
Connecticut for nominal consideration pursuant to leases expiring in December
2008. These leases provide that the rent under the leases will increase to
market rates if we default on our obligations to an affiliate of the lessor
under a consulting agreement and a put agreement relating to the 125,000 shares
of our common stock the lessor's affiliate acquired in connection with the Radio
Group acquisition.
We lease a kiosk in a major shopping mall under a one-year lease which
expires in November 1999. The monthly rent under the lease is $5,000, subject to
increase if annual sales exceed $750,000.
Item 3. Legal Proceedings.
We have been named as a co-defendant together with a collection agency used
by us, in a lawsuit filed in March 1999 in the United States District Court for
the Northern District of Illinois, Eastern Division, alleging violations by such
collection agency and us of the Fair Debt Collection Practices Act. Such lawsuit
has been brought as a class action on behalf of individuals, limited to those
who were sent certain collection letters within the State of Illinois during the
one year period preceding the filing of the lawsuit. The lawsuit has not yet
been certified as a class action. The collection agency has agreed to indemnify
us. Therefore, we believe that the outcome of the action will not have a
material adverse impact on us.
We are not a party to any other lawsuit or proceeding which, in the opinion
of management, is likely to have a material adverse effect on us.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our securityholders during the
fourth quarter of the fiscal year covered by this report.
-13-
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock has traded since October 27, 1997 on the American Stock
Exchange ("AMEX") under the symbol "KLB." The following table sets forth, for
the periods indicated, the range of the high and low sales prices for our common
stock as reported by AMEX.
High Low
---- ---
Fiscal Year Ended December 31, 1997
Fourth Quarter (from October 22, 1997).......... $11.125 $4.00
Fiscal Year Ended December 31, 1998
First Quarter................................... 7.375 4.00
Second Quarter.................................. 13.25 3.375
Third Quarter................................... 20.875 3.9375
Fourth Quarter.................................. 16.625 5.125
The number of record holders of our common stock was approximately 89 as of
March 26, 1999. We believe that there are in excess of 400 beneficial owners of
our common stock.
Dividend Policy
We have not paid any dividends on our common stock, and our Board of
Directors does not intend to declare or pay any dividends on our common stock in
the foreseeable future. The Board of Directors currently intends to retain all
available earnings (if any) generated by our operations for the development and
growth of our business. The declaration in the future of any cash or stock
dividends on our common stock will be at the discretion of the Board of
Directors and will depend upon a variety of factors including our earnings,
capital requirements, financial condition and the general economic conditions at
the time in question. The payment of cash dividends on our common stock is
currently limited or prohibited by the terms of our existing credit facility.
Recent Sales of Unregistered Securities
In November 1998, we issued a warrant to purchase 25,000 shares of our
common stock at an exercise price of $8.375 per share to a consultant. The
warrant was issued pursuant to a consulting agreement under which the consultant
provided services and advice relating to acquisitions proposed at that time. We
valued the consultant's services at $48,750.
In December 1998, we issued 425,000 shares of our common stock valued at
$12.875 per share and options to purchase an additional 175,000 shares of our
common stock at an exercise price of $13.125 per share in connection with our
subsidiary's acquisition of Radio Spirits, Inc. We granted the holders of these
shares the right to require us to repurchase up to 175,000 of these shares under
certain circumstances, commencing December 2001 at prices ranging from $4.00 to
$12.00 per shares.
In December 1998, we issued options to purchase 15,000 shares at an
exercise price of $13.125 to an individual as consideration for entering into a
consulting agreement.
-14-
<PAGE>
In December 1998, we issued 50,000 shares of our common stock valued at
$12.875 per share and options to purchase an additional 50,000 shares of our
common stock at an exercise price of $8.125 per share as partial consideration
for our subsidiary's acquisition of the assets used by Metacom, Inc. in
connection with its "Adventures in Cassettes "business of licensing, producing,
marketing and selling old-time radio programs. We granted the holders of the
50,000 shares the right, under certain circumstances, to acquire us to
repurchase the 50,000 shares between the December 2001 and December 2008 at a
price of $10.00 per share.
In December 1998, we issued 125,000 shares of our common stock value at
$12.875 per share as partial consideration for our subsidiary's acquisition of
the assets used by Premier Electronic Laboratories, Inc. in connection with its
business of licensing, producing, marketing and selling classic videos and radio
programs. We granted the holders of these shares the right, under certain
circumstances, to require us to repurchase the shares between December 2000 and
December 2008 at a price of $15.00 per share.
In December 1998, we issued to The Columbia House Company, Sony Music
Entertainment Inc. and WCI Record Club Inc. an aggregate of 325,000 shares of
our common stock valued at $11.625 per share and warrants to purchase an
additional 100,000 shares of our common stock at a price of $11.125 per share,
in connection with our acquisition of Columbia House's audiobook club division.
We granted the holders of the 325,000 shares the right to require us to
repurchase these shares, under certain circumstances, commencing December 2004
at a price of $15.00 per share.
In December 1998, we issued three-year warrants to purchase an aggregate of
196,800 shares of our common stock at an exercise price of $10.00 per share as
partial consideration to the lenders for providing to our company a credit
facility.
In December 1998, we issued to our Co-Chief Executive Officer a $15,000,000
principal amount convertible note due December 31, 2004 and five-year warrants
to purchase 500,000 shares of our common stock at an exercise price of $12.00
per share, subject to adjustment, as consideration for a $15,000,000 loan. The
convertible note bears interest at the rate of 9% per annum and is convertible
into shares of our common stock at the rate of $11.125 of principal or interest
outstanding, subject to adjustment. The interest rate will increase to 11% per
annum if the convertible note is not repaid on or prior to September 30, 1999.
The convertible note is secured by a second lien security interest in certain
assets of two of our operating subsidiaries. In January 1999, we repaid
$1,000,000 principal amount of the convertible note and we reissued a
$14,000,000 principal amount convertible note upon cancellation of the
$15,000,000 principal amount convertible note. The convertible note is currently
convertible into 1,258,427 shares of common stock. We also agreed that if the
note is refinanced on or prior to September 30, 1999, we will issue to our
Co-Chief Executive Officer, warrants to purchase an additional 350,000 shares,
which will be identical to the warrants issued in connection with the
convertible note.
All of the foregoing securities were issued in private offering pursuant to
an exemption from registration offered by Section 4(2) of the Securities Act of
1933.
During the three months ended December 31, 1998, we issued options under
our 1997 stock option plan to purchase 463,000 shares of common stock to certain
individuals including officers and directors. We relied on the exemptions
provided by Section 2(3) and/or 4(2) of the Securities Act of 1933, in
connection with the issuance of such options.
-15-
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Audio Book Club is the nation's largest membership club-based direct
marketer of audiobooks. Our membership club is modeled after the "negative
option" formula developed by the Book-of-the-Month Club, and we acquire members
primarily through direct mail and the Internet. Since commencing operations in
1994, we have invested over $20 million in our membership recruitment programs
to establish and expand our membership base. The recruitment programs have
consisted primarily of direct targeted mailings of new member solicitation
packages, marketing on the Internet and media advertising. As of February 15,
1999, Audio Book Club's total member file consisted of approximately 1,060,000
names.
Net sales for a particular period represents our gross sales during such
period less estimated returns, discounts and allowances for sales made during
such period based upon historical return rates. Cost of sales includes the cost
of audiobooks and product royalty, shipping, mailing and fulfillment costs.
We have historically expensed the production costs of advertising the first
time the advertising takes place or when the advertising was initially mailed.
Direct-response advertising consists primarily of direct mailings to individuals
that include order forms for our products. Promotional costs for new and current
members have been expensed on the date the promotional materials are mailed.
Internet advertising has been expensed as it occurred. We have not capitalized
any new member acquisition costs.
In 1995, we established www.audiobookclub.com, an Internet web site which
currently offers visitors to the web site the opportunity to join Audio Book
Club, execute club transactions online (if a member), utilize the web site's
search engine to locate many of the web site's thousands of audiobook selections
and sample audio clips of many of the web site's selections. Audiobookclub.com
also provides additional options, such as alerting visitors when a new title of
an author or reader previously specified by the visitor is released and offering
reviews of selected titles.
Audiobookclub.com is updated simultaneously with the Audio Book Club
catalog to add new selections and the new current featured selection, as well as
to add new book cover images and audio clips to preview.
Audiobookclub.com currently has links from numerous search engines and
audiobook related sites. Audiobookclub.com is also linked to catalog listing
sites offered by online computer and Internet services.
In May 1998, we created the audiobookclub.com Associates Network program to
attract additional visitors to our web site and obtain new members through the
Internet. The program allows businesses and organizations to offer to visitors
to their web sites the opportunity to join Audio Book Club online and receive a
commission on each visitor from their site who joins Audio Book Club. As of
March 15, 1999, we had approximately 2,600 associates.
In September 1998, we formed ABC Internet Services, Inc., a wholly-owned
subsidiary, to provide Internet media management services. Prior to forming ABC
Internet Services, we were using a third party for these services.
We continue to work to expand and improve our web site by increasing the
selection of audiobook titles, and audio clips to preview through our search
engine, improving recommendation features and streamlining the join process.
-16-
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net sales.
Fiscal Year Ended
December 31,
----------------------
1997 1998
---- ----
Net sales .................................. 100% 100%
==== ====
Cost of sales .............................. 55% 63%
Gross profit ............................... 45 37
Internet expense ........................... -- 31
Advertising and promotion expense .......... 68 29
General and administrative expense ......... 22 25
Interest income (expense), net ............. (4) (1)
Net loss ................................... (49) (47)
Year ended December 31, 1998 compared with year ended December 31, 1997
Gross sales for the year ended December 31, 1998 were $22,242,155, an
increase of $7,123,062 or 47% as compared to $15,119,093 for the year ended
December 31, 1997. The increase in gross sales was primarily attributable to
increased sales of audiobooks resulting from Audio Book Club's internal member
growth. Our total member file increased by approximately 740,000 names in the
year ended December 31, 1998, primarily as a result of the Columbia House
acquisition and internal member growth of approximately 133,000 names.
Returns, discounts and allowances for the year ended December 31, 1998 were
$7,348,584, or 33% of gross sales. Returns, discounts and allowances for the
year ended December 31, 1997 were $5,040,939, or 33% of gross sales.
Expansion of Audio Book Club's membership base, increased revenue from
members and increased new member enrollment revenue resulted in an increase in
net sales of $4,815,417 or 48% for the year ended December 31, 1998 to
$14,893,571 as compared to $10,078,154 for the year ended December 31, 1997. The
increase in net sales was primarily attributable to increased sales of
audiobooks resulting from Audio Book Club's internal member growth.
Cost of sales for the year ended December 31, 1998 increased $3,956,243 to
$9,451,601 from $5,495,358 for the year ended December 31, 1997. Gross profit
increased $859,174 to $5,441,970 for the year ended December 31, 1998 from
$4,582,796 in the year ended December 31, 1997. The gross profit increase was
due to an increase in net sales, partially reduced by new member enrollment
purchases in the third quarter of 1998. These initial purchases by new members
are at substantially reduced prices to encourage enrollment. These offers, which
are typically four audiobooks for either $.99 or $.01 plus shipping and
handling, result in an initial loss to us which is recovered through additional
member purchases at regular prices. Because we do not capitalize any new member
acquisition costs, the initial purchase has the effect of reducing gross profit
in the period of enrollment.
Internet expenses for the year ended December 31, 1998 were $4,624,701.
These expenses related to a series of agreements with various Internet companies
to provide permanent placements and banner advertisements through their web
sites, expansion and improvements to our web site and the launching of
BooksAloud.com, an Internet web site and membership club designed for online
consumers. During the year ended December 31, 1997, Internet expenses were only
$115,000 and were included in advertising and promotion expense.
Advertising and promotion expenses decreased $2,557,791 or 37% to
$4,285,459 for the year ended December 31, 1998 as compared to $6,843,250 for
the year ended December 31, 1997. This decrease was due to
-17-
<PAGE>
fewer new member solicitation pieces mailed during 1998 and the timing of direct
mail campaigns. We mailed approximately 5 million new member solicitation
packages during December 1997 and received the benefits of that member
recruitment campaign during 1998. Additionally, we began engaging in significant
Internet marketing and promotion activities in 1998 and allocated a portion of
our advertising expenses for such purposes.
General and administrative expenses for the year ended December 31, 1998
increased $1,472,555 to $3,697,444 from $2,224,889. General and administrative
expenses as a percentage of net sales, for the year ended December 31, 1998,
were 25%, an increase from 22%. The increase in general and administrative
expenses is primarily due to increases in personnel, travel expenses,
professional fees and general office expenses due, in part to operating as a
public company.
We had net interest income of $180,370 for the year ended December 31,
1998, as compared to interest expense, net of interest income, of $435,508 for
the year ended December 31, 1997. Our interest income during the year ended
December 31, 1998 was derived from the investment of a portion of the net
proceeds of our initial public offering prior to its use. During the year ended
December 31, 1997, interest expense was incurred because we financed our
operating loss through borrowings.
Net loss for the year ended December 31, 1998 increased $2,064,413 to
$6,985,264 as compared to a net loss of $4,920,851 for the year ended December
31, 1997.
Liquidity and Capital Resources
Our capital requirements have been and will continue to be significant due
to, among other things, costs associated with building, expanding and
maintaining Internet web sites (including substantial Internet advertising
expenditures), direct mail campaigns and other new member recruitment
advertising and promotion. Historically, our cash requirements have exceeded
cash flows from operations. Prior to our initial public offering in October
1997, we funded our operations and working capital requirements through loans
from shareholders and, since then, our operations and working capital
requirements have been funded from the net proceeds of our initial public
offering.
During the year ended December 31, 1998, our cash decreased by $968,723, as
we used net cash of $9,368,204 in operating activities and $33,675,519 in
investing activities and had cash provided by financing activities of
$42,075,000. For the year ended December 31, 1997, our cash increased by
$3,562,197, as we used net cash of $5,506,131 and $5,192,335 for operating and
investing activities, respectively, and had cash provided by financing
activities of $14,260,663.
For the year ended December 31, 1997, net cash used in operating activities
resulted primarily from a loss of $4,920,851 and increases in account
receivables and inventory of $1,187,826 and $863,714, respectively. Net cash
used in operations was partially reduced by an increase in accounts payable of
$1,375,227.
For the year ended December 31, 1998, net cash used in operating activities
resulted primarily from the net loss of $6,985,264, increases in inventory of
$1,265,685, total prepaid expenses of $1,122,762 and accounts receivable of
$894,920. Net cash used in operations was partially reduced by an increase in
accounts payable and accrued expenses of $605,404.
The increase in accounts receivable during the year ended December 31, 1998
is principally due to higher sales and an increase in new members. Promotional
-18-
<PAGE>
costs for new and current members are expensed on the date the promotional
materials are mailed. Internet advertising is expensed as it occurs. We do not
capitalize any new member acquisition costs.
Cash used in investing activities for the year ended December 31, 1997 was
primarily for the purchase of short-term investments in the amount of
$5,143,699. For the year ended December 30, 1998, we used $36,681,581 of cash
for acquisitions. Cash was also used in the purchase of a twelve-month bank
certificate of deposit of $500,000 and to acquire $944,383 of fixed assets. Cash
was further reduced by $693,254 of costs incurred in acquisitions. Cash was
increased by the redemption of short-term investments, principally bank
certificates of deposit and accrued interest thereon, in the amount of
$5,143,699.
During the year ended December 31, 1997, we received cash proceeds from our
initial public offering, after payment of all associated offering costs, of
$19,765,663. For the year ended December 31, 1997, we borrowed $9,000,000 from a
major bank and $1,295,000 from officers and directors. During the year ended
December 31, 1997, loans outstanding from our officers and directors were
reduced in the amount of $6,800,000.
For the year ended December 31, 1998, cash provided from financing
activities consisted primarily of the issuance of the $27 million of bank debt
and $15 million of notes payable to a related party described below. During the
year ended December 31, 1998, we sold to a director, upon his exercise of a
right to purchase, five-year options to purchase 75,000 shares of our common
stock at an exercise price of $5.00 per share (market value at purchase date).
The purchase price of the options was $75,000.
In December 1998, we completed a series of acquisitions and combined the
acquired businesses to form the Radio Group. The aggregate purchase price we
paid for the businesses comprising the Radio Group was approximately $6.2
million in cash, the assumption of $2.3 million of liabilities, 600,000 shares
of our common stock, options to purchase an additional 50,000 shares of our
common stock at a price of $8.125 per share and options to purchase an
additional 175,000 shares of our common stock at a price of $13.125 per share.
On December 31, 1998, we acquired from Columbia House substantially all of the
assets of our audiobook club division, including our membership file of over
600,000 members. As consideration for the acquisition, we paid to Columbia House
$30.8 million in cash and issued to Columbia House's designees (Sony Music
Entertainment Inc. and WCI Record Club Inc., a subsidiary of Time Warner) an
aggregate of 325,000 shares of our common stock and warrants to purchase an
additional 100,000 shares of our common stock at a price of $11.125 per share.
In December 1998, we obtained financing for these acquisitions from (A)
Fleet National Bank and ING (U.S.) Capital Corporation pursuant to a credit
agreement dated as of December 31, 1998 among us, the banks, financial
institutions and other institutional lenders named therein, as initial lenders,
and Fleet, as initial issuing bank, swingline bank and administrative agent, and
(B) Norton Herrick, our Co-Chief Executive Officer, pursuant to a $15,000,000
principal amount 9% convertible senior subordinated promissory note due December
31 2004.
Pursuant to the credit facility, we borrowed an aggregate of $27,000,000,
consisting of a $25,000,000 Term Advance and a $2,000,000 Revolving Credit
Advance. Subject to certain limitations set forth in the credit facility, the
maximum principal amount of all advances under the credit facility cannot exceed
$30,000,000 through and including March 30, 1999, thereafter increasing to a
maximum of $34,000,000. We granted to the lenders a security interest in
substantially all of our assets and the assets of our subsidiaries and pledged
the capital stock of our subsidiaries to the lenders as collateral under the
credit facility. We also issued to the lenders three-year warrants to purchase
up to an aggregate of 196,800 shares of our common stock at an exercise price of
$10.00, subject to adjustment in certain circumstances.
Pursuant to the Herrick note, we borrowed $15,000,000, of which $1,000,000
was repaid on January 12, 1999. The Herrick note is due December 31, 2004, bears
interest at the initial rate of 9% per annum, payable monthly in arrears and is
convertible, in whole or in part, at the holder's option, into shares of our
common stock
-19-
<PAGE>
at the rate of one share per $11.125 of principal or interest outstanding under
the Herrick note, subject to adjustment. As additional consideration for the
loan, we issued to Mr. Herrick five-year warrants to purchase 500,000 shares of
our common stock at an exercise price of $12.00 per share, subject to
adjustment. Pursuant to the terms of a letter agreement dated December 31, 1998
between us and Mr. Herrick, the interest rate of the Herrick note will increase
to 11%, the conversion rate of the Herrick note is subject to adjustment and the
exercise price of the warrants is subject to adjustment,in the event that the
Herrick note is not refinanced on or prior to September 30, 1999. Pursuant to
the letter agreement, we also agreed that if the Herrick Note is refinanced by
anyone other than Mr. Herrick or a family member or affiliate of Mr. Herrick, we
will issue to Mr. Herrick warrants to purchase an additional 350,000 shares of
our common stock, which warrants shall be identical to the warrants issued to
him in connection with the Herrick note. The Herrick note is subordinated to our
obligations under the credit facility and is secured by a second lien security
interest of certain assets of two of our operating subsidiaries. Additionally,
pursuant to the terms of a letter agreement, Mr. Herrick agreed with Fleet not
to take certain actions with respect to the Herrick note so long as he held the
Herrick note. The terms of Mr. Herrick's investment were approved by the
independent members of our Board of Directors. Prior to consummating the
transaction, the Board obtained a fairness opinion from an investment banker.
In connection with our acquisitions of Columbia House and the Radio Group,
we granted the sellers the right, under certain conditions, to sell back to us
up to an aggregate of 675,000 shares of our common stock issued to the sellers
in connection with the acquisitions. The sellers have the right, under certain
conditions to sell such shares of stock to us at prices ranging from $4.00 to
$15.00 per share at various times commencing December 2000 and expiring in
December 2008, unless the puts are terminated as a result of our satisfying
certain common stock price and/or performance targets prior the exercise of the
puts. If all of the conditions for the repurchases are met, the maximum amount
we could be required to pay for the repurchase of all of the shares is
approximately $9.1 million which could be payable as early as follows: (i)
$175,000 commencing December 2000, (ii) $2.6 million commencing December 2001,
(iii) $300,000 commencing December 2002, (iv) $350,000 commencing December 2003,
(v) $4.9 million commencing December 2004 and (vi) $750,000 commencing December
2005. Moreover, we have pledged certain of the Radio Group's assets to secure
our obligation to purchase 175,000 shares which the holders thereof may have the
right to sell back to us at a price of up to $12.00 per share at various times
commencing December 2001. If we are unable to pay such obligation, the holders
of those shares could foreclose on the assets securing our obligation. As of
March 25, 1999, the market value of our common stock was below the guaranteed
market prices for certain put obligations.
Based on our projected level of operations (including the integration of
our recent acquisitions and the Doubleday acquisition, if completed) and
anticipated cost savings and revenue growth, we believe that our cash flow from
operations and available cash, will be adequate to meet our future liquidity
needs for at least the next several years. We cannot assure you, however, that
our business will generate sufficient cash flow from operations, that currently
anticipated cost savings and revenue growth will be realized on schedule or at
all or that future borrowings or other sources of financing will be available in
amounts sufficient to enable us to pay our indebtedness or to fund our other
liquidity needs.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Disclosures" which requires that a public enterprise disclose financial and
descriptive information about segments of their operations using a management
approach. The approach involves reporting financial information on the basis
used internally by management to evaluate segment performance and decide how
resources are allocated to segments. SFAS No. 131 additionally requires that a
public business report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets. Management has not disclosed any
segment information as it does not operate more than one segment.
-20-
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new disclosure
requirements,which provide a comprehensive standard for recognition and
measurement of derivatives and hedging activities. This will require all
derivatives to be recorded on the balance sheet at fair value and special
accounting for certain types of hedges. SFAS 133 will take effect in 2000. We
have not entered into any derivative or hedge transactions and, therefore, do
not believe that SFAS No. 133 will have a material effect on the combined
financial condition or results of operations.
Impact of Year 2000 Issue
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. This Year 2000 issue
potentially affects all individuals and companies (including our company, its
customers, business partners, vendors, suppliers, service providers and banks.)
Management believes our systems, and those of our primary service providers
are Year 2000 compliant and has received notification of such from our primary
service providers. Management is continuing our communications with its
principal vendors to ensure that they are Year 2000 compliant. Management does
not anticipate that we will incur significant operating expenses or be required
to invest in computer system improvements to be year 2000 compliant.
Management is developing contingency plans that identify alternative
vendors, suppliers and service providers in the event current vendors, suppliers
or service providers suffer significant disruption as a result of year 2000
compliance failures.
Should some of our systems or those of our service providers or vendors not
be available due to year 2000 problems, in a reasonably likely worst case
scenario, we may experience delays in its ability to perform certain functions,
but does not expect an inability to perform critical functions or to otherwise
conduct its business.
Item 7. Financial Statements.
The financial statements appear in a separate section of this report
following Part III.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
-21-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The directors, executive officers, and other key employees of our company
are as follows:
Name Age Position
- - ---- --- --------
Norton Herrick....................60 Co-Chief Executive Officer,
Chairman of the Board and
Director
Michael Herrick...................32 Co-Chief Executive Officer,
Vice Chairman of the Board and
Director
Jesse Faber.......................44 President and Director
Howard Herrick....................34 Executive Vice President and
Director
John F. Levy......................44 Executive Vice President and
Chief Financial Officer
Stephen M. McLaughlin.............32 Executive Vice President and
Chief Technology Officer
Carl P. Amari.....................35 President, Radio Group
Roy Abrams........................55 Director
Carl Wolf.........................55 Director
Mr. Norton Herrick, co-founder of our company, is our Co-Chief Executive
Officer and Chairman of our Board of Directors. Mr. Herrick has been an
executive officer and director of our company since our inception. Mr. Herrick
has been a private businessman for over 30 years and is currently Chairman and
Chief Executive Officer of the Herrick Company, Inc., a private investment firm
which he founded. Through his wholly-owned affiliates, Mr. Herrick has owned and
managed income producing properties, including office buildings, shopping
centers and multi-family apartment complexes, and has completed transactions
with respect to approximately 250 income producing properties valued at an
aggregate of approximately $2 billion. Mr. Herrick is involved in the management
of numerous entities he formed to acquire, finance, manage and lease office,
industrial and retail properties; and to acquire, operate, manage, redevelop and
sell residential rental properties. Mr. Herrick serves on the advisory board of
the Make A Wish Foundation, the advisory committee of the National Multi Housing
Council and the National Board of Directors for People for the American Way.
Mr. Michael Herrick, co-founder of our company, has been a director of our
company since our inception, has been Vice Chairman of the Board of our company
since January 1996, Co-Chief Executive Officer since April 1998, and was Chief
Operating Officer of our company from January 1997 to April 1998. Since August
1993, Michael Herrick has been an officer of the general partner of a limited
partnership which is the principal shareholder of The Walking Company, a
nationwide retailer of comfort and walking footwear and related apparel and
accessories. Since May 1989, Mr. Herrick has been employed by The Herrick
Company, Inc., and is currently one of its Vice Presidents. Mr. Herrick is also
an officer of the corporate general partners of numerous limited partnerships
which acquire, finance, manage and lease office, industrial and retail
properties; and which acquire, operate, manage redevelop and sell residential
rental properties. Michael Herrick previously provided marketing and
distribution services to a fine arts company, specializing in original oil
paintings and sculptures. Michael Herrick is the son of Norton Herrick and
brother of Howard Herrick.
-22-
<PAGE>
Mr. Jesse Faber has been President of our company since October 1996 and a
director since October 1997. Prior to joining our company, Mr. Faber was Senior
Vice President and Partner of AyerDirect, a direct response advertising agency
wholly-owned by McManus, Inc., one of the ten largest advertising and marketing
agencies in the world. From 1984-1989, Mr. Faber was Management Supervisor of
Grey Direct, a direct response advertising agency.
Mr. Howard Herrick, co-founder of our company, has been Executive Vice
President, Editorial Director and a director of our company since our inception.
Since 1988, Mr. Herrick has been an officer of The Herrick Company, Inc. and is
currently its President. Mr. Herrick is also an officer of the corporate general
partners of numerous limited partnerships which acquire, finance, manage and
lease office, industrial and retail properties; and which acquire, operate,
manage, redevelop and sell residential rental properties. Howard Herrick
previously provided marketing and distribution services to Dyanson Galleries.
Howard Herrick is the son of Norton Herrick and the brother of Michael Herrick.
Mr. John Levy has been an employee of our company since November 1997 and
in his present capacities of Executive Vice President and Chief Financial
Officer since January 1, 1998. Prior to joining our company, Mr. Levy was Senior
Vice President of Tamarix Capital Corporation and had previously served as Chief
Financial Officer of both public and private entertainment and consumer goods
companies. During 1994, Mr. Levy served as Chief Financial Officer of the
Continuum Group, Inc., a publicly-held record label. Mr. Levy is a Certified
Public Accountant with nine years experience with the national public accounting
firms of Ernst & Young, Laventhol & Horwath and Grant Thornton.
Mr. Stephen M. McLaughlin has been Executive Vice President and Chief
Technology Officer of our company since February 1999. Prior to joining our
company, Mr. McLaughlin was Vice President, Information Technology for Preferred
Healthcare Staffing, Inc. (PHS), a nurse-staffing division of Preferred
Employers Holdings, Inc. Mr. McLaughlin co-founded and was a director, Chief
Operating Officer and Chief Information Officer of NET Healthcare, Inc., from
1997 until it was acquired by Preferred Employers Holdings in August 1998. In
1994, Mr. McLaughlin founded FX Media, Inc., an Internet and multimedia
development company. As CEO of FX Media, he served as senior software engineer
for all of its projects.
Mr. Carl P. Amari has been the President of our Radio Group division since
the acquisition by our company of the Radio Group in December 1998. Since 1989,
Mr. Amari was the CEO, and principal shareholder of Radio Spirits, Inc. Radio
Spirits is recognized as the largest company in the world specializing in the
syndication, sales and licensing of old time radio programming. He currently
produces and hosts a weekly radio program, "When Radio Was", aired in Chicago.
He is also the executive producer of a nationally syndicated version of the same
program, which airs on 500 affiliates, as well as for three other related
syndicated radio programs. RSI twice made Inc's list of the fastest growing
privately held companies. Norton Herrick has agreed to use his best efforts to
cause Mr. Amari to be nominated to serve as a director and has agreed to vote
his shares to elect Mr. Amari to serve as a director for so long as Mr. Amari
continues to serve as an officer of our company or any of our subsidiaries.
Mr. Roy Abrams has been a director of our company since October 1997. Since
April 1993 and from 1986 through March 1990, Mr. Abrams has owned and operated
Abrams Direct Marketing, a marketing consulting firm. From April 1990 to April
1993, Mr. Abrams was Vice president of New Business Development of Getting to
Know You, Inc., a new homeowner welcoming service. From 1981 through 1985, Mr.
Abrams was President of Margrace Corporation, a publicly-held direct marketing
company. From 1980 through 1981, Mr. Abrams was a director of mail order
marketing of Hearst Corporation, a publishing company. From 1976 to 1979, Mr.
Abrams was employed by Columbia House, a negative option and continuity direct
marketing company, most recently as Vice President, Merchandise and Continuity
Marketing. From 1975 to 1976, Mr. Abrams was director of Mail Order Merchandise
Marketing for American Express Company.
-23-
<PAGE>
Mr. Carl T. Wolf has been a director of our company since March 1998. Mr.
Wolf is the managing partner of the Lakota Investment Group. Mr. Wolf was
formerly Chairman of the Board, President and Chief Executive Officer of Alpine
Lace Brands, Inc. Mr. Wolf founded Alpine Lace and its predecessors and had been
the Chief Executive Officer of each of them since the inception of Alpine Lace
in 1983. Mr. Wolf became a director of Alpine Lace shortly after its
incorporation in February, 1986. Alpine Lace was sold to Land O'Lakes, Inc. in
December 1997.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our officers, directors, and
persons who own more than 10% of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors, and greater than 10% shareholders are
required by Securities and Exchange Commission regulations to furnish us with
copies of all forms that they file pursuant to Section 16(a).
Based solely upon our review of the copies of such forms that we received,
we believe that, during the year ended December 31, 1998, all filing
requirements applicable to our officers, directors, and greater than 10%
shareholders were complied with, except for a Form 4 with respect to one
transaction in April 1998, which was inadvertently filed in an untimely manner
by Mr. Carl Wolf.
-24-
<PAGE>
Item 10 Executive Compensation.
Executive Compensation
The following table discloses for the fiscal years ended December 31,
1996, 1997 and 1998, compensation paid to Messrs. Norton Herrick and Michael
Herrick, our Co-Chief Executive Officers and each other executive officer of our
company whose salary together with any bonus was in excess of $100,000 during
the fiscal year ended December 31, 1998 (the "Named Executives").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------- ----------------------
Awards
Securities Underlying
Name and Principal Position Year Salary Bonus Options/SAR's (#)
- - --------------------------- ---- ------ ----- ----------------------
<S> <C> <C> <C> <C>
Norton Herrick 1996 $ -0- $ -0- -0-
Co-Chief Executive 1997 19,354 -0- -0-
Officer 1998 100,000 -0- 1,000,000
Michael Herrick 1996 59,500 -0- -0-
Co-Chief Executive 1997 72,879 -0- -0-
Officer 1998 125,000 -0- 250,000
Jesse Faber 1996 15,062 25,000 -0-
President 1997 128,417 40,000 50,000(1)
1998 140,000 35,000 50,000(2)
Howard Herrick 1996 102,000 -0- -0-
Executive Vice President 1997 115,129 -0- -0-
1998 125,000 -0- 250,000
John Levy 1996 -0- -0- -0-
Executive Vice President 1997 19,125 -0- -0-
and Chief Financial Officer 1998 137,083 7,500 50,000
</TABLE>
- - ----------
(1) The exercise price of this option was reduced to $3.50 on June 16, 1998.
(2) Represents the re-priced options referred to in footnote (2).
-25-
<PAGE>
The following table discloses options granted during the fiscal year ended
December 31, 1998 to the Named Executives:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR ENDING DECEMBER 31, 1998
Number of
Shares Underlying % of Total Options Granted to Exercise Price
Name Options Granted Employees in Fiscal Year ($/share) Expiration Date
- - ----------------- ----------------- ------------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Norton Herrick 250,000 13.8 $ 3.50 6/16/03
750,000 41.5 $ 5.25 9/10/03
Michael Herrick 100,000 5.5 $ 3.50 2/09/03
150,000 8.3 $ 7.88 11/05/03
Jesse Faber 50,000(2) 2.8 $ 3.50 Five Years from
Vesting(1)
Howard Herrick 100,000 5.5 $ 3.50 2/09/03
150,000 8.3 $ 7.88 11/05/03
John Levy 30,000(3) 1.7 $ 3.50 Five Years from
20,000(4) 1.1 $ 3.50 Vesting(3)(4)
</TABLE>
- - ----------
(1) On September 17, 1997, we granted to Mr. Faber options to purchase 50,000
shares of our common stock at an exercise price equal to 110% of the
initial public offering price of the our common stock which was in excess
of fair market value on the date of grant. Such options shall vest as to
one-fifth of the shares covered thereby annually over a five-year period
commencing on October 31, 1998, provided, however, that such options shall
terminate and be canceled if Mr. Faber is no longer employed by our company
prior to the date on which such options vest. Such options shall be
exercisable for a period of five years commencing immediately upon the
applicable vesting period subject to earlier expiration if Mr. Faber is not
employed by our company.
(2) Reflects options originally granted on September 17, 1997 whose exercise
price was reduced on June 16, 1998.
(3) Such options vest as to one-third of the shares covered thereby on January
1, 1999 with the balance vesting on January 1, 2000. Such options shall be
exercisable for a period of five years commencing immediately upon the
applicable vesting period subject to earlier expiration if Mr. Levy is not
employed by our company.
(4) Such options vest as to one-half of the shares covered thereby on June 16,
1999 with the balance vesting on June 16, 2000. Such options shall be
exercisable for a period of five years commencing immediately upon the
applicable vesting period subject to earlier expiration if Mr. Levy is not
employed by our company.
-26-
<PAGE>
The following table sets forth information concerning the number of options
owned by the Named Executives and the value of any in-the-money unexercised
options as of December 31, 1998. No options were exercised by the Named
Executives during fiscal 1998:
Aggregated Option Exercises
And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at December Money Options at December 31,
31, 1998 1998(1)
------------------------------------ ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Norton Herrick 1,000,000 -0- $6,812,500 $-0-
Michael Herrick 250,000 -0- 1,374,250 -0-
Jesse Faber 10,000 40,000 81,250 325,000
Howard Herrick 250,000 -0- 1,374,250 -0-
John Levy 10,000 40,000 81,250 325,000
</TABLE>
(1) Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year end
market value of our common stock. An option is "in-the-money" if the fiscal
year-end fair market value of our common stock exceeds the option exercise
price. The closing sale price of our common stock on December 31, 1998 was
$11.625.
Employment Agreements
We have entered into a two-year employment agreement, effective as of
October 22, 1997, with Norton Herrick which provides for an annual base
compensation of $100,000 and such increases and bonuses as our Board of
Directors may from time to time determine, based on criteria that it deems
appropriate at such time but which it has not yet established. The employment
agreement does not require that Mr. Herrick devote any fixed amount of time to
the business and activities of our company. The employment agreement contains a
provision prohibiting Mr. Herrick from, on his own behalf or on behalf of any
other person, persons, firms, partnership, corporation or company, engaging or
participating in any activities which are in direct conflict with the interests
of our company; and from soliciting or attempting to solicit the business or
patronage of any person, firm, corporation, company or partnership which had
previously been a customer of ours, for the purpose of selling products and
services similar to those provided by us during the term of the employment
agreement and for a period of two years thereafter. The employment agreement
also provides that if Mr. Herrick's employment is terminated under certain
circumstances, including as a result of a change in control, Mr. Herrick will be
entitled to receive severance pay equal to the greater of $200,000 or two times
the total compensation received by Mr. Herrick from us during the twelve months
prior to the date of termination.
We have entered into a three-year employment agreement, effective October
22, 1997, with Michael Herrick which provides for an annual base compensation of
$125,000 and such increases and bonuses as our Board of Directors may from time
to time determine, based on criteria that it deems appropriate at such time but
which
-27-
<PAGE>
it has not yet been established. The employment agreement requires Mr. Herrick
to devote substantially all of his business time to our business and affairs.
The employment agreement contains a provision prohibiting Mr. Herrick from, on
his own behalf or on behalf of any other person, persons, firms, partnership,
corporation or company, engaging or participating in any activities which are in
direct conflict with the interests of our company; and from soliciting or
attempting to solicit the business or patronage of any person, firm,
corporation, company or partnership which had previously been a customer of
ours, for the purpose of selling products and services similar to those provided
by us during the term of the employment agreement and for a period of two years
thereafter. The employment agreement also provides that if Mr. Herrick's
employment is terminated under certain circumstances, including as a result of a
change in control, Mr. Herrick will be entitled to receive severance pay equal
to the greater of $375,000 or three times the total compensation received by Mr.
Herrick from us during the twelve months prior to the date of termination.
In February 1999, we entered into an employment agreement with Jesse Faber
which provides for a base compensation at the rate of $154,000 per annum. The
agreement expires on October 31, 1999 and provides for a bonus of $45,000
payable if Mr. Faber is employed by us at the end of the term. Pursuant to the
agreement, we granted to Mr. Faber options to purchase 10,000 shares of our
common stock at an exercise price of $8.00 per share. The options vest on
October 31, 1999, provided that Mr. Faber is employed by us on such date.
We have entered into a three-year employment agreement effective as of
October 22, 1997 with Howard Herrick which provides for an annual base
compensation of $125,000 and such increases and bonuses as our Board of
Directors may from time to time determine, based on criteria that it deems
appropriate at such time but which it has not yet been established. The
employment agreement requires Mr. Herrick to devote substantially all of his
business time to our business and affairs. The employment agreement contains a
provision prohibiting Mr. Herrick from, on his own behalf or on behalf of any
other person, persons, firms, partnership, corporation or company, engaging or
participating in any activities which are in direct conflict with the interests
of our company; and from soliciting or attempting to solicit the business or
patronage of any person, firm, corporation, company or partnership which had
previously been a customer of ours, for the purpose of selling products and
services similar to those provided by us during the term of the employment
agreement and for a period of two years thereafter. The employment agreement
also provides that if Mr. Herrick's employment is terminated under certain
circumstances, including as a result of a change in control, Mr. Herrick will be
entitled to receive severance pay equal to the greater of $375,000 or three
times the total compensation received by the executive from us during the twelve
months prior to the date of termination.
In November 1997, we entered into a two-year employment agreement with John
Levy which provides for an annual base compensation of $135,000, in the first
year of the agreement and an annual base compensation of $150,000 in the second
year of the agreement. Mr. Levy's agreement also provides for a minimum bonus of
$7,500 the first year of the agreement and a minimum bonus of $12,500, the
second year of the agreement, provided Mr. Levy is employed by our company on
each such date. As of January 1, 1998, we granted to Mr. Levy options to
purchase 30,000 shares of our common stock at an exercise price of $11.00 per
share (which exceeded fair market value on the date of grant). The option
exercise price was subsequently repriced to $3.50 per share. Options for 10,000
shares vest at the end of the first year of the employment agreement and options
for 20,000 shares vest at the end of the second year of employment, provided Mr.
Levy is employed by our company on the vesting dates. However, in the event of a
change in control, all options shall immediately vest and become exercisable.
In January 1999, effective February 15, 1999, we entered into an employment
agreement with Stephen McLaughlin which provides for an annual base compensation
of $150,000 and a performance-based bonus of $15,000 payable if Mr. McLaughlin
is employed by us at the end of the first year of the employment term. Pursuant
to the agreement, we granted to Mr. McLaughlin options to purchase 150,000
shares of our common stock at an exercise price of $9.75 per share and options
to purchase 8,000 shares of our common stock at an exercise price of $.10 per
share. The 8,000 options exercisable at $.10 per share vested on February 15,
1999. The
-28-
<PAGE>
150,000 options exercisable at $9.75 vest as follows: options for 25,000 shares
vested on February 15, 1999, options for 25,000 shares vest at the end of the
first year of the employment agreement, options for 30,000 shares vest at the
end of the second year of employment, options for 35,000 shares vest at the end
of the third year of the employment agreement options for 35,000 shares vest at
the end of the fourth year of employment.
In December 1998, our subsidiary, Classic Radio Holding Corp., entered into
a three-year employment agreement with Carl Amari. Pursuant to the agreement,
Mr. Amari is entitled to receive a base salary of $200,000 per year during the
first 18 months of the agreement and $300,000 per year during the second 18
months of the agreement. The agreement also provides that Mr. Amari shall also
be appointed as a member of our Board of Directors for as long as he is employed
by Classic Radio.
Stock Plans
In June 1997, our shareholders approved a stock option plan pursuant to
which 750,000 shares of common stock have been reserved for issuance upon the
exercise of options designated as either (i) options intended to constitute
incentive stock options under the Internal Revenue Code of 1986, as amended or
(ii) nonqualified options. Incentive stock options may be granted under the
option plan to our officers and employees. Non-qualified options may be granted
to consultants, directors (whether or not they are employees), employees or
officers of our company.
The purpose of the option plan is to encourage stock ownership by certain
directors, officers and employees of company and other persons instrumental to
the success of our company. The option plan is intended to qualify under Rule
16b-3 under the Securities Exchange Act of 1934. Our Board of Directors, within
the limitations of the option plan, determines the persons to whom options will
be granted, the number of shares to be covered by each option, whether the
options granted are intended to be incentive stock options, the duration and
rate of exercise of each option, the option purchase price per share and the
manner of exercise and the time, manner and form of payment upon exercise of an
option.
Incentive stock options granted under the option plan may not be granted at
a price less than the fair market value of the common stock on the date of grant
(or 100% of fair market value in the case of persons holding 10% or more of the
voting stock of our company). The aggregate fair market value of shares for
which incentive stock options granted to any employee are exercisable for the
first time by such employee during any calendar year (under all stock option
plans of our company and any related corporation) may not exceed $100,000.
Options granted under the option plan will expire not more than ten years from
the date of grant (five years in the case of incentive stock options granted to
persons holding 10% or more of the voting stock of our company). All options
granted under the option plan are not transferable during an optionee's lifetime
(unless otherwise provided in the option agreement) but are transferable at
death by will or by the laws of descent and distribution. In general, upon
termination of employment of an optionee, all options granted to such person
which are not exercisable on the date of such termination immediately terminate,
and any options that are exercisable terminate 90 days following termination of
employment.
As of March 24, 1999, options to purchase an aggregate of 1,941,100 shares
of our common stock have been granted under our option plan.
On February 2, 1999, our Board of Directors of our company adopted, subject
to shareholder approval, the 1999 Stock Incentive Plan. The 1999 plan provides
for the grant of any or all of the following types of awards: (1) stock options,
which may be either incentive stock options or non-qualified stock options, (ii)
restricted stock, (iii) deferred stock and (iv) other stock-based awards. Awards
may be granted singly, in combination, or in tandem, as determined by the
administrators of the 1999 plan. A total of 2,500,000 shares of common stock,
subject to anti-dilution adjustment as provided in the 1999 plan, have been
reserved for distribution pursuant to the 1999 plan.
-29-
<PAGE>
The maximum number of shares of common stock that may be issued upon the grant
of an award to any employee of our company on the last day of any taxable year
cannot exceed 1,500,000 shares during the term of the 1999 plan.
The 1999 plan can be administered by our Board of Directors or a Stock
Incentive Committee consisting of two or more non-employee members of our Board
of Directors appointed by the Board. Our Board of Directors or Stock Incentive
Committee, as the case may be, shall determine those persons to whom awards
under the 1999 plan may be granted.
Under the 1999 plan, our Board of Directors or Stock Incentive Committee
may grant shares of restricted common stock either alone or in tandem with other
awards. Restricted and deferred stock awards give the recipient the right to
receive a specified number of shares of common stock, subject to such terms,
conditions and restrictions as our Board of Directors or Stock Incentive
Committee deem appropriate. Restrictions may include limitations on the right to
transfer the stock until the expiration of a specified period of time and
forfeiture of the stock upon the occurrence of certain events such as the
termination of employment prior to expiration of a specified period of time. In
addition, a participant in the 1999 plan who has received a deferred stock award
may request, under certain conditions, our Board of Directors or Stock Incentive
Committee to defer the receipt of an award (or an installment of an award) for
an additional specified period or until the occurrence of a specified event.
Other stock-based awards, which may include performance shares and shares
valued by reference to the performance of our company or any parent or
subsidiary of our company, may be granted either alone or in tandem with other
awards.
-30-
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 24, 1999
relating to the beneficial ownership of shares of common stock by (i) each
person or entity who is known by us to own beneficially more than five percent
of our outstanding common stock, (ii) each of the Named Executives, (iii) each
of our directors, and (iv) all directors and executive officers of our company
as a group:
<TABLE>
<CAPTION>
Percentage of
Outstanding Common
Number of Shares of Common Stock Stock Beneficially
Name of Beneficial Owner Beneficially Owned(2) Owned
- - ----------------------------------------- -------------------------------- -------------------
<S> <C> <C>
Norton Herrick(1) ......................... 3,893,547(3) 39.0%
Howard Herrick(1) ......................... 3,941,100(4) 53.8
Michael Herrick ........................... 250,000(5) 3.4
Carl Wolf ................................. 95,000(6) 1.3
John Levy ................................. 11,000(7) *
Roy Abrams ................................ 5,000(8) *
Jesse Faber ............................... 10,000(9) *
All directors and executive officers as a
group (7 persons) ......................... 7,584,602(3)(4) 70.3%
(5)(6)
(7)(8)
(9)(10)
</TABLE>
- - ------------
* Less than 1%
(1) The address for each named individual is in care of Audio Book Club, Inc.,
2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida, 33431.
(2) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days of
March 10, 1999 upon the exercise of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants or convertible securities that are held by
such person (but not those held by any other person) and which are
exercisable within 60 days of March 10, 1999 have been exercised and
converted.
(3) Includes (A) 8,200 shares of common stock held by Norton Herrick, (B)
488,460 shares of common stock held by Howard Herrick, (C) 488,460 shares
of common stock held by the M.E. Herrick Irrevocable Trust, of which
Michael Herrick is the sole beneficiary and Howard Herrick is the sole
trustee, (D) 1,000,000 shares of common stock issuable upon exercise of
options granted under the 1997 stock option plan, (E) 150,000 shares of
common stock issuable upon exercise of options granted to Evan Herrick
under the 1997 stock option plan, (F) 1,258,427 shares of common stock
issuable upon conversion of the Note at an initial conversion price of
$11.125 per share and (G) 500,000 shares of common stock issuable upon
exercise of a warrant issued on December 31, 1998 at an initial exercise
price of $12.00 per share. Does not include 2,714,180 shares held by the
Norton Herrick Irrevocable Trust of which Norton Herrick is the sole
beneficiary and Howard Herrick is the sole trustee. The Norton Herrick
Irrevocable ABC Trust
-31-
<PAGE>
agreement provides that Howard Herrick shall have sole voting and
dispositive power over the shares held by the trust. Howard Herrick has
irrevocably granted to Norton Herrick sole dispositive power with respect
to the shares of common stock held by Howard Herrick in his own behalf and
on behalf of the M.E. Herrick Irrevocable Trust. Evan Herrick has
irrevocably granted to Norton Herrick sole voting and dispositive power
with respect to the shares of common stock issuable upon exercise of the
150,000 options granted to Evan Herrick on November 5, 1998.
(4) Includes (A) 2,714,180 shares held by the Norton Herrick Irrevocable ABC
Trust, (B) 488,460 shares of common stock held by Howard Herrick, (C)
488,460 shares of common stock held by the M.E. Herrick Irrevocable Trust
and (D) 250,000 shares of common stock issuable upon exercise of options
granted under the 1997 stock option plan.
(5) Includes 250,000 shares of common stock issuable upon exercise of options
granted under the 1997 stock option plan. Does not include 488,460 shares
of common stock held by the M.E. Herrick Irrevocable Trust. The M.E.
Herrick Irrevocable Trust agreement provides that Howard Herrick shall have
sole voting and dispositive power over the shares held by the M.E. Herrick
Irrevocable Trust and Howard Herrick has granted to Norton Herrick sole
dispositive power over the shares held by the M.E. Herrick Irrevocable
Trust.
(6) Includes (A) 5,000 shares of Common Stock, (B) 50,000 shares of common
stock issuable upon exercise of options granted March 18, 1998 at an
exercise price of $5.00 per share, (C) 25,000 shares of common stock
issuable upon exercise of options purchased September 18, 1998 at an
exercise price of $5.00 per share, and (D) 15,000 shares of common stock
issuable upon exercise of options granted under the 1997 stock option plan.
(7) Includes 10,000 shares of common stock issuable upon exercise of options
granted under the 1997 stock option plan. Does not include 40,000 shares
issuable upon exercise of options granted under the 1997 stock option plan.
(8) Represents shares of common stock issuable upon exercise of options granted
under the 1997 stock option plan. Does not include an additional 5,000
shares issuable upon exercise of options granted under the 1997 stock
option plan.
(9) Represents shares of common stock issuable upon exercise of options granted
under the 1997 stock option plan.
(10) Represents (A) 25,000 shares of common stock issuable upon exercise of
options that are exercisable at $9.75 per share and 8,000 shares of common
stock issuable upon exercise of options that are exercisable at $.10 per
share held by Stephen McLaughlin and (B) 270,125 shares of common stock and
options to purchase 52,750 shares of common stock held by Carl Amari. Does
not include 125,000 shares of common stock and options to purchase 100,000
shares of common stock held in escrow subject to release to Carl Amari if
certain EBITDA targets are met by the portion of the Radio Group's business
acquire from Mr. Amari through our acquisition of Radio Spirits, Inc.
-32-
<PAGE>
Item 12. Certain Relationships and Related Transactions.
We lease office space in Boca Raton, Florida pursuant to a lease agreement
which expires in November 2000. The Herrick Company, Inc., a company
wholly-owned by Norton Herrick, Chairman of our Board of Directors and our
Co-Chief Executive Officer, guaranteed our obligations under this lease. During
1998 and until March 1, 1999, we subleased additional office space in Boca
Raton, Florida at a monthly rent of $653 from H.H. Realty Investors, a company
wholly owned by Michael Herrick, our Co-Chief Executive Officer of our company
and Vice Chairman of our Board of Directors, Howard Herrick, our Executive Vice
President and a director and Evan Herrick, a son of Norton Herrick and brother
of Michael and Howard Herrick.
We also sublease office space in Morristown, New Jersey pursuant to a
sublease agreement dated as of January 1, 1995 between our company and H.H.
Realty Investors. In January 1998, the sublease agreement was amended to provide
for additional space at its New Jersey location for a total of 2,328 usable
square feet. Minimum monthly rent was $2,900 per month through December 1998.
The sublease has been renewed on a monthly basis at a monthly rate of $2,900. We
believe that this lease is on commercially reasonable terms.
On November 17, 1995, Norton Herrick entered into a loan agreement pursuant
to which Norton Herrick agreed to loan our company up to $8 million, including
the approximately $5.8 million aggregate amount of loans made to us by Norton
Herrick as of such date. The loan agreement was subsequently amended to increase
permitted borrowings by us of up to $13 million and Norton Herrick subsequently
assigned his rights under the loan agreement to N. Herrick Irrevocable ABC
Trust, of which Norton Herrick is the sole beneficiary and Howard Herrick is the
sole trustee (the "N. Herrick Trust"). Borrowings under the loan agreement were
non-interest bearing and were converted into equity upon the consummation of our
initial public offering, as described below. The loan agreement between us and
Norton Herrick was terminated on October 22, 1997.
In May 1997, we used the proceeds from a $6 million loan from Bank of
America National Trust and Savings Association to repay a portion of the
outstanding indebtedness under the loan agreement with the N. Herrick Trust. On
August 2, 1997, we borrowed an additional $2.25 million from the bank to fund
working capital. The loan was to be due October 31, 1998, and had an interest
rate which was 1/2% under the bank's reference rate and was payable monthly. On
September 16, 1997, we borrowed an additional $750,000 from the bank to fund
working capital. This loan was also to be due October 31, 1998, and had an
interest rate which was 1/2% under the bank's reference rate and was payable
monthly.
The common stock of our company owned by Norton Herrick was pledged as
security for the $3 million of bank loans. Additionally, in the event we failed
to repay such bank loans at maturity, the personal guarantee of Norton Herrick
would become effective. We used a portion of the proceeds of our initial public
offering to repay the bank in the aggregate principal amount of $9 million plus
accrued interest thereon of $56,167.
Immediately prior to the consummation of our initial public offering, the
N. Herrick Trust converted the outstanding $5,975,200 of indebtedness owed to it
by us under the loan agreement into 597,520 shares of our common stock at a
price per share equal to the initial offering price of our common stock.
On May 12, 1997, Howard Herrick entered into a consolidation and
restatement of loan agreements with our company relating to the aggregate
$400,000 loaned to us by Howard Herrick (consisting of a $50,000 loan made in
June 1994 and a $350,000 loan made in February 1997). Such borrowings did not
bear interest through July 31, 1997 and, thereafter, bore interest at an annual
rate equal to the greater of 10% or the prime rate charged by Citibank, N.A. of
New York. This loan, together with accrued interest, was repaid in September
1997.
On May 12, 1997, the M.E. Herrick Irrevocable Trust (the "M.E.H. Trust"),
of which Michael Herrick is the sole beneficiary and Howard Herrick is the sole
trustee, entered into a loan agreement with us relating to the aggregate
$400,000 loaned to us by the M.E.H. Trust (consisting of a $50,000 loan made in
June 1994 and a $350,000 loan made in May 1997). Such borrowings did not bear
interest through July 31, 1997 and, thereafter,
-33-
<PAGE>
bore interest at an annual rate equal to the greater of 10% or the prime rate
charged by Citibank. This loan, together with accrued interest, was repaid in
September 1997.
Companies wholly-owned by Norton Herrick have in the past provided certain
accounting, administrative and general office services to, and obtained
insurance coverage for us at cost since our inception, and we paid to such
entities for such services, in the aggregate, $60,000 and $73,000, during the
years ended December 31, 1997 and 1998. We anticipate obtaining similar services
from time to time from companies affiliated with Norton Herrick for which we
will reimburse such companies' cost to provide such services to us.
On March 18, 1998, we sold to Carl Wolf, a director of our company, an
option to purchase 50,000 shares of our common stock at an exercise price of
$5.00 per share (the market value on the purchase date). The purchase price of
the option was $50,000, and the option is exercisable until March 18, 2003. We
also granted to Mr. Wolf the right to purchase an additional option for an
additional 25,000 shares for $25,000, if Mr. Wolf continued to serve as a
director of our company for six months. Mr. Wolf exercised such right and
purchased the additional option in September 1998. The additional option has an
exercise price of $5.00 per share and is exercisable until September 2003.
In December 1998, we obtained a portion of the financing for our recent
acquisitions from Norton Herrick by issuing a $15 million principal amount 9%
Convertible Subordinated Promissory Note due December 31, 2004 (the "Herrick
Note") of which $1 million principal amount was repaid by us on January 12,
1999.
Interest on the Herrick Note is payable monthly. The Herrick Note is
convertible, in whole or in part, at the holder's option, into shares of our
common stock at the rate of one share per $11.125 of principal or interest
outstanding under the Herrick Note, subject to adjustment. As additional
consideration for the loan, we issued to Mr. Herrick five-year warrants to
purchase 500,000 shares of our common stock at any exercise price of $12.00 per
share, subject to adjustment. Pursuant to the terms of a letter agreement dated
December 31, 1998 between us and Mr. Herrick (the "Letter Agreement"), the
interest rate of the Herrick Note will increase to 11%, the conversion rate of
the Herrick Note is subject to adjustment and the exercise price of the warrants
is subject to adjustment in the event that the Herrick Note is not refinanced on
or prior to September 30, 1999. Pursuant to the Letter Agreement, we also agreed
that if the Note is refinanced by anyone other than Mr. Herrick or a family
member or affiliate of Mr. Herrick, we will issue to Mr. Herrick warrants to
purchase an additional 350,000 shares of our common stock, which warrants will
be identical to the warrants issued to him in connection with the Herrick Note.
The Herrick Note is subordinated to our obligations under our credit facility
with Fleet is secured by a second lien security interest of certain assets of
the Radio Group. Additionally, pursuant to the terms of a letter agreement, Mr.
Herrick agreed with Fleet not to take certain actions with respect to the
Herrick Note so long as he held the Herrick Note. The terms of Mr. Herrick's
investment were approved by the independent members of our Board of Directors.
Prior to consummating the transaction, our Board of Directors obtained a
fairness opinion from an investment banker.
In connection with the Radio Group acquisition in December 1998, we assumed
a lease of property owned by Carl P. Amari, President of the Radio Group,
through a trust. The lease agreement provides for monthly rental payments of
$4,667 and expires in December 2005.
Our policy with respect to transactions between us and our officers,
directors and 5% or greater shareholders is that each transaction will be on
terms no less favorable than could be obtained from independent third parties.
Notwithstanding the foregoing, companies affiliated with Norton Herrick may
continue to provide certain accounting and general and administrative services
and access to its corporate airplane to, and obtain insurance coverage for, us
at cost.
-34-
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation of the Audio Book Club, Inc., as
amended.+
3.2 Amended and Restated By-Laws of the Audio Book Club, Inc.+
10.1 Employment Agreement between Audio Book Club, Inc. and Norton
Herrick.+
10.2 Employment Agreement between Audio Book Club, Inc. and Michael
Herrick.+
10.3 Employment Agreement between Audio Book Club, Inc. and Jesse
Faber.
10.4 Employment Agreement between Audio Book Club, Inc. and Stephen
McLaughlin.
10.5 Employment Agreement between Audio Book Club, Inc. and Howard
Herrick.+
10.6 Employment Agreement between Audio Book Club, Inc. and John
Levy.++
10.7 Employment Agreement between our subsidiary and Carl Amari.
10.8 Supplemental Agreement, dated as of December 11, 1998, by and
among Audio Book Club, Inc., Classic Radio Holding Corp., Radio
Spirits, Inc. and Carl Amari.+++
10.9 Asset Purchase Agreement, dated as of December 30, 1998, by and
between Audio Book Club, Inc. and The Columbia House Company.++++
10.10 Put Agreement, dated as of December 11, 1998, by and between
Audio Book Club, Inc. and Premier Electronic Laboratories, Inc.
10.11 Put Agreement, dated as of December 11, 1998, by and between
Audio Book Club, Inc. and Carl Amari.
10.12 Put Agreement, dated as of December 11, 1998, by and between
Audio Book Club, Inc. and Metacom, Inc.
10.13 Registration and Shareholder Rights Agreement, dated as of
December 30, 1998, by and among Audio Book Club, Inc. and The
Columbia House Company, WCI Record Club Inc. and Sony Music
Entertainment Inc.
10.14 $14,000,000 Principal Amount 9% Convertible Senior Subordinated
Promissory Note of Audio Book Club, Inc. to Norton Herrick due
December 31, 2004.
10.15 Modification Letter, dated December 31, 1998, among Norton
Herrick, Audio Book Club, Inc. company and Fleet National Bank.
10.16 Subsidiary Guarantee, dated as of December 31, 1998, from CH
Acquisitions Corp., ABC Internet Services, Inc., ABC Investment
Corp., Classic Radio Holding corp. and Classic Radio Acquisition
Corp. as guarantors in favor of the holder.
-35-
<PAGE>
10.17 Security Agreement, dated as of December 31, 1998, by and among
Audio Book Club, Inc., Classic Radio Holding corp. and Classic
Radio Acquisition Corp. and Norton Herrick.
10.18 Credit Agreement, dated as of December 31, 1998, among Audio Book
Club, Inc. and Fleet National Bank.
10.19 Subsidiary Guarantee, dated as of December 31, 1998, from CH
Acquisitions Corp., ABC Internet Services, Inc., ABC Investment
Corp., Classic Radio Holding corp. and Classic Radio Acquisition
Corp. as guarantors in favor of the Fleet National Bank.
10.20 Security Agreement,dated as of December 31, 1998, from our
company, ABC Internet Services, Inc., Classic Radio Holding
Corp., Classic Radio Acquisition Corp., ABC Investment Corp., and
CH Acquisitions Corp. as grantors to Fleet National Bank as
administrative agent.
10.21 1997 Stock Option Plan+
10.22 1999 Stock Incentive Plan*
21. Subsidiaries
27.1 Financial Data Schedule (SEC use only).
- - ----------
+ Incorporated by reference to the applicable exhibit contained in our
Registration Statement on Form SB-2 (file no. 333-30665) effective October
22, 1997.
++ Incorporated by reference to the applicable exhibit contained in our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997.
+++ Incorporated by reference to the applicable exhibit contained in our
Current Report on Form 8-K for reportable event dated December 14, 1998.
++++ Incorporated by reference to the applicable exhibit contained in our
Current Report on Form 8-K dated January 13, 1999.
* Incorporated by reference to the applicable exhibit contained in our Proxy
Statement dated February 23, 1999.
(b) Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts and Reserves
(c) Reports on Form 8-K filed during the quarter ended December 31, 1998:
We filed a Form 8-K on December 24, 1998 for events reported under Items 2
and 5. Our Form 8-K reported the acquisition of Radio Spirits, Inc. by our
wholly-owned subsidiary, Classic Radio Holding Corp. as an Item 2 event.
Our Form 8-K also reported, as Item 5 events, the acquisitions of (i)
certain assets of Premier Electronic Laboratories, (ii) certain assets of
Metacom, Inc., (iii) certain assets of Buffalo Productions, Inc., and (iv)
the acquisition of a Joint Venture Interest from Carl Amari, the sole
stockholder of Radio Spirits, Inc. On February 25, 1999, we filed a Form
8-K/A to amend our Form 8-K and filed under Item 7, the historical
financial statements for Radio Spirits, Inc. as of and for the years ended
December 31, 1996 and 1997 and nine months ended September 30, 1998 and pro
forma consolidated financial statements for the years ended December 31,
1996 and 1997 and nine months ended September 30, 1998 and as of September
30, 1998.
-36-
<PAGE>
Audio Book Club, Inc. and Subsidiaries
Form 10-KSB
Item 7
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Reports F-2 - F -3
Consolidated Balance Sheets - December 31, 1998 and 1997
F-4
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 F-5
Consolidated Statements of Stockholders'
Equity (Deficiency) for the Years ended December 31, 1998 and
1997 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8 - F-23
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Audio Book Club, Inc.
We have audited the accompanying consolidated balance sheet of Audio Book Club,
Inc. (the "Company") as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
index at Item 13. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1998, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
March 22, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Audio Book Club, Inc.
We have audited the accompanying consolidated balance sheet of Audio Book Club,
Inc. and subsidiaries (the Company) as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the year then ended. In connection with our audit of the
consolidated financial statements, we have also audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1997 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1997, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
March 13, 1998
New York, New York
F-3
<PAGE>
AUDIO BOOK CLUB, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,686,330 $ 3,655,053
Short-term investment 500,000 5,143,699
Accounts receivable, net of allowances for sales
returns and doubtful accounts of $1,418,275 and
$1,449,445 at December 31, 1998 and 1997,
respectively 4,923,077 1,783,456
Inventory 5,330,319 1,700,374
Prepaid expenses 401,154 111,896
Royalty advances 961,320 267,518
------------ ------------
Total current assets 14,802,200 12,661,996
Fixed assets, net 1,328,575 59,805
Deferred financing costs 1,515,800 --
Non-current prepaid expenses 121,552 48,219
Other intangibles 11,300,000 --
Goodwill 35,270,747 --
------------ ------------
$ 64,338,874 $ 12,770,020
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,869,422 $ 2,776,544
Accrued expenses 1,361,590 240,124
Current portion - long-term debt 2,000,000 --
------------ ------------
Total current liabilities 8,231,012 3,016,668
------------ ------------
Long term debt 40,000,000 --
------------ ------------
Preferred Stock, no par value, authorized
5,000,000 shares; no shares issued and
outstanding -- --
Common stock subject to contingent puts 8,284,375 --
Common stock; no par value, authorized
25,000,000 shares; issued and outstanding
7,078,920 and 6,153,920, at December 31,
1998 and 1997, respectively 28,959,812 25,741,063
Contributed capital 2,322,867 486,217
Accumulated deficit (23,459,192) (16,473,928)
------------ ------------
Total common stockholders' equity 7,823,487 9,753,352
============ ============
$ 64,338,874 $ 12,770,020
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AUDIO BOOK CLUB, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31.
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 22,242,155 $ 15,119,093
Returns, discounts and allowances 7,348,584 5,040,939
------------ ------------
Sales, net 14,893,571 10,078,154
Cost of sales 9,451,601 5,495,358
------------ ------------
Gross profit 5,441,970 4,582,796
Expenses:
Internet expenses for acquisition and retention of
members 4,624,701 --
Direct mail and other advertising and
promotion expenses for acquisition and
retention of members 4,285,459 6,843,250
General and administrative 3,697,444 2,224,889
------------ ------------
Operating loss (7,165,634) (4,485,343)
Interest income (expense), net of interest
(expense) income of ($93,750) and $105,631
in 1998 and 1997, respectively 180,370 (435,508)
------------ ------------
Net loss $ (6,985,264) $ (4,920,851)
============ ============
Net loss per share of common stock (basic and diluted) $ (1.13) $ (1.29)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AUDIO BOOK CLUB, INC.
Consolidated Statements of Stockholders' Equity (Deficiency)
Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Common stock Common stock Common
number of subject stock; no par Contributed Accumulated
shares to contingent puts value capital deficit
------------ --------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 200 -- $ 200 $ 231,325 $(11,553,077)
16,282 to 1 stock split 3,256,200 -- -- -- --
Imputed interest on notes
payable - related parties -- -- -- 254,892 --
Conversion of notes payable -
related parties to common
stock 597,520 -- 5,975,200 -- --
Proceeds from sale of common
stock, net of offering
expenses of 3,234,337 2,300,000 -- 19,765,663 -- --
Net loss (4,920,851)
---------------------------------------------------------------------------------
Balance at December 31, 1997 6,153,920 -- 25,741,063 486,217 (16,473,928)
Options sold to director -- -- -- 75,000 --
Warrants for URL and phone
numbers -- -- -- 104,000 --
Warrants granted in
acquisitions -- -- -- 1,002,000 --
Warrants granted for financing
and consulting in
connection with the
acquisitions -- -- -- 655,650 --
Common stock issued in the
acquisitions 925,000 $8,284,375 3,218,749 -- --
Net loss -- -- -- -- (6,985,264)
---------------------------------------------------------------------------------
Balance at December 31, 1998 7,078,920 $8,284,375 $ 28,959,812 $ 2,322,867 $(23,459,192)
=================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AUDIO BOOK CLUB, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
-----------------------------------
Years ended December 31,
-----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,985,264) $ (4,920,851)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 366,825 8,334
Imputed interest on notes payable - related parties -- 254,892
Changes in asset and liability accounts:
(Increase) in accounts receivable, net (894,920) (1,187,826)
Decrease in due from related party -- 20,000
(Increase) in inventory (1,265,685) (863,714)
(Increase) in prepaid expenses (521,589) (111,896)
(Increase) in prepaid expenses - non-current (601,173) (48,219)
(Increase) in royalty advances (71,802) (32,078)
Increase in accounts payable and accrued expenses 605,404 1,375,227
------------ ------------
Net cash used in operating activities (9,368,204) (5,506,131)
------------ ------------
Cash flows from investing activities:
Purchase of short-term investment (500,000) (5,143,699)
Acquisition of fixed assets (944,383) (48,636)
Sale of short term investments 5,143,699 --
Cash payments for acquisitions (36,681,581) --
Cost incurred in acquisitions (693,254) --
------------ ------------
Net cash used in investing activities (33,675,519) (5,192,335)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable - related parties 15,000,000 1,295,000
Repayment of notes payable - related parties -- (6,800,000)
Proceeds from issuance of long-term debt 27,000,000 9,000,000
Repayment of long-term debt -- (9,000,000)
Proceeds of issuance of options 75,000 --
Proceeds of sale of common stock, net of offering costs -- 19,765,663
------------ ------------
Net cash provided by financing activities 42,075,000 14,260,663
------------ ------------
Net (decrease) increase in cash and cash equivalents (968,723) 3,562,197
Cash and cash equivalents at beginning of period 3,655,053 92,856
============ ============
Cash and cash equivalents at end of period $ 2,686,330 $ 3,655,053
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AUDIO BOOK CLUB, INC.
Notes to Consolidated Financial Statements
December 31, 1998
(1) Organization
Audio Book Club, Inc. (the "Company"), a Florida corporation, was formed on
August 16, 1993. The Company is a direct marketer of audiobooks through Audio
Book Club, a membership club which markets and sells audiobooks and other forms
of audio entertainment by mail order and via the Internet.
(2) Significant Accounting Policies
Principals of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts have
been eliminated.
Cash and Cash Equivalents
Securities with maturities of three months or less when purchased are
considered to be cash equivalents.
Fair Value of Financial Instruments
The carrying amount of cash, short-term investments, accounts receivable,
accounts payable and accrued expenses approximates fair value due to the short
maturity of those instruments.
The fair value of long-term debt is estimated based on the interest rates
currently available for borrowings with similar terms and maturities. The
Company's long-term debt is at a variable rate; therefore, the carrying value
approximates market prices.
Inventory
Inventory, consisting primarily of audiocassettes held for resale, is
valued at the lower of cost (weighted average cost method) or market.
Prepaid Expenses
Prepaid expenses consist principally of deposits and other amounts being
expensed over the period of benefit. All current prepaid expenses will be
expensed over a period no greater than the next twelve months.
Fixed Assets, Computer Software and Internet Web Site Development Costs
Fixed assets, consisting primarily of furniture, leasehold improvements,
computer equipment, purchased computer software and web site development costs
are recorded at cost. Depreciation is provided by the straight-line method over
the estimated useful life of five years for equipment, seven years for furniture
and fixtures, five years for leasehold improvements, three years for software
and two years for Internet web site development costs. Ongoing maintenance and
other recurring charges are expensed as incurred as are all internal costs and
charges.
F-8
<PAGE>
Intangible Assets
Intangible assets, consisting of customer lists and certain agreements
acquired in the acquisitions, are being amortized over their estimated useful
life. (Note 3).
Goodwill
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for using the purchase method
of accounting. Goodwill will be amortized over the estimated period of benefit
not to exceed 20 years. Goodwill is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable using the expected undiscounted future cash flow model.
Revenue Recognition
Revenue is recorded upon shipment of merchandise and simultaneous billing.
Allowances for doubtful accounts and future returns are based upon historical
experience and evaluation of current trends.
Income Taxes
Prior to October 22, 1997, the Company had elected to be taxed as a small
business corporation (S corporation) under Section 1362 of the Internal Revenue
Code. As a small business corporation, all federal income taxes, if any, were
the obligations of the stockholders. Conversely, any losses incurred by the
Company may be used by the stockholders.
As a result of the consummation of the Company's public offering effective
on October 22, 1997, the Company's S corporation election terminated and the
Company ceased to be an S corporation. Commencing October 22, 1997, the Company
became taxable as an incorporated entity (C Corporation). Accordingly, losses
incurred by the Company on or after October 22, 1997 may be used by the Company
and not by the stockholders to the extent permitted under the Internal Revenue
Code. Conversely, future federal income taxes, if any, will be the obligation of
the Company.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date.
F-9
<PAGE>
Advertising and Promotional Costs
The Company expenses all production costs of advertising. Direct-mail
advertising consists primarily of print advertisements and mailings to
individuals that include order forms for the Company's products. The capitalized
costs of the direct mail advertising are amortized in the month of publication
of the magazine in which it appears or the month in which the individual letters
are mailed. As of December 31, 1998 and 1997, costs of all direct mail
advertising have been expensed and, accordingly, there were no capitalized costs
of direct mail advertising.
Promotional costs for new and current members are expensed on the date the
promotional materials are mailed.
Royalties
The Company is liable for royalties to licensors based upon revenue earned
from the respective licensed product. Royalties, in excess of advances, are
payable based on contractual terms. Royalty advances not expected to be
recovered through royalties on sales are charged to royalty expense. For the
years ended December 31, 1998 and 1997, no writedowns of royalty advances were
required.
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 those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(3) Acquisitions
Radio Companies Acquisitions
In December 1998, through its wholly-owned subsidiary, Classic Radio
Holding Corp. ("Classic"), the Company acquired Radio Spirits, Inc. ("Radio
Spirits") for an aggregate base purchase price of $340,000, 425,000 shares of
its common stock valued on the date of acquisition at $12.875 per share,
warrants to purchase an additional 175,000 shares of its common stock at an
exercise price of $13.125 per share and payment of $1,840,784 of liabilities at
closing. The warrants have been valued at $3.04 per share using the
Black-Scholes valuation model. A total of 100,000 of the 425,000 shares and
100,000 of the 175,000 warrants were placed in escrow and are subject to release
if certain specified "EBITDA" (as defined in the purchase agreement) levels for
the acquired company are met for the year ending December 31, 1999 (with respect
to the escrowed shares) and for the
F-10
<PAGE>
year ending December 31, 2000 (with respect to the escrowed options). The
Company also entered into a put agreement which granted the seller and his
designees the right, under certain circumstances, commencing three years from
the closing, to require the Company to repurchase up to 175,000 shares of common
stock issued in connection with the acquisition at prices ranging from $4.00 to
$12.00 per share. The acquisition was accounted for under the purchase method.
At the time of the acquisition, Radio Spirits specialized in the
syndication, sales and licensing of popular radio programs which originally
aired from the 1930's through the late 1950's. Radio Spirits also produced and
syndicated three national "classic" radio programs that are collectively heard
in more than 500 markets by over 3 million listeners weekly. Through its
in-house production and mail order services, Radio Spirits also produced and
distributed audiocassettes and compact discs of vintage comedy, mystery,
detective, adventure and suspense programs to customers worldwide. Radio Spirits
also controlled the licensing rights to many popular serials and had an
exclusive licensing arrangement with the Smithsonian Institute to market
products under the Smithsonian name.
In connection with its acquisition of Radio Spirits, through its indirectly
wholly-owned subsidiary, CRAC, the Company also acquired certain assets of
Buffalo Productions, Inc. ("Buffalo"), an affiliate of Carl Amari (who was the
sole stockholder and Chairman of Radio Spirits prior to the acquisition), for
$369,000, and Mr. Amari's 50% interest in a joint venture engaged in producing,
broadcasting, marketing and distributing a series of old-time radio programs for
$2,325,554, and assumed liabilities of $224,446. The Company also paid cash
costs and fees of $169,504 and non-cash costs and fees of $18,301 related to the
acquisition. The assets acquired from Buffalo were those relating to its
business of duplicating pre-recorded compact discs. The total purchase price of
the acquisitions was $11,067,018. The Company has accounted for the acquisitions
using the purchase method of accounting and has allocated a portion of the total
purchase price to certain identifiable intangible assets, based on their
relative fair values which will be amortized over their useful lives. The
Company has recorded $8,152,779 of goodwill which will be amortized over a
period not to exceed 20 years.
In December 1998, through CRAC, the Company acquired all of the assets used
by Metacom, Inc. ("Metacom") in connection with its "Adventures in Cassettes"
business of producing, marketing, and selling old-time radio programs for
$1,060,829, 50,000 shares of the Company's common stock valued on the date of
acquisition at $12.875 per share and warrants to purchase up to 50,000 shares of
the Company's common stock at an exercise price of $8.125 per share. The
warrants have been valued at $4.18 per share using the Black-Scholes valuation
model. In addition, the Company granted Metacom the right, subject to certain
limitations, to sell such shares back to the Company at a price of $10.00 per
share between the third and tenth anniversary of the closing. The Company also
paid cash costs and fees of $25,981 and non-cash costs and fees of $2,805 in the
acquisition. The total purchase price of $1,942,365 has been accounted for under
the purchase method of accounting. The Company has recorded $1,621,536 of
goodwill which will be amortized over a period not to exceed 20 years.
F-11
<PAGE>
In December 1998, through CRAC, the Company acquired all the assets used by
Premier Electronic Laboratories, Inc. ("Premier") in connection with its
business of licensing, producing, marketing and selling classic videos and radio
programs through mail order catalogs, phone solicitations and specialty mail
organizations for $240,000, 125,000 shares of the Company's common stock valued
at the date of closing at $12.875. The Company also paid cash costs and fees of
$25,109 and non-cash costs and fees of $2,711 relating to the acquisition, for a
total purchase price of $1,877,195. The Company has recorded $1,691,269 of
goodwill which will be amortized over a period not to exceed 20 years. The
Company also granted Premier the right, under certain circumstances and subject
to certain limitations, to sell the 125,000 shares received by it back to the
Company at prices ranging from $7.00 per share for the first 25,000 shares so
sold to $15.00 per share for the last 50,000 shares so sold, at various times
between the second and tenth year anniversary of the closing of the acquisition.
Acquisition of Columbia House's Audiobook Club Division
On December 31, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the assets used in the audiobook club division (the "CH
Audiobook Club") of The Columbia House Company ("Columbia House").
As part of the acquisition, the Company acquired Columbia House's audiobook
club's membership file of approximately 600,000 members, as well as
substantially all of Columbia House's other assets relating exclusively to the
CH Audiobook Club, including inventory and certain accounts receivable. The
Company also entered into a mailing agreement which allows the Company to (i)
use Columbia House's compact disc, VHS, laser and DVD video club's membership
lists for Audio Book Club new member acquisition campaigns, (ii) insert new
member acquisition material into Columbia House's member mailing programs sent
to various other clubs maintained by Columbia House and (iii) be referred to as
the Columbia House recommended source for audiobooks in a club format, for a
period of seven years. In addition, Columbia House entered into a non-compete
agreement pursuant to which it agreed not to engage in certain activities that
compete with our operation of Audio Book Club for a period of five years.
Moreover, the Company entered into a transitional services agreement with
Columbia House.
As consideration for the acquisition and the related transactions,
including the mailing agreement, the non-compete agreement and the transitional
services agreement, Columbia House received from the Company cash consideration
of $30,750,000 plus expenses of $24,345. In addition, the Company issued to
Columbia House's designees (Sony Music Entertainment Inc. and WCI Record Club
Inc.) an aggregate of 325,000 shares of its common stock (the "Shares") valued
on the date of acquisition at $11.625 and warrants to purchase an additional
100,000 shares of its common stock at a price of $11.125 per share. The warrants
have been valued at $2.61 using the Black-Scholes valuation model. The Company
also granted to Columbia House the right, under certain circumstances,
commencing six years from the Closing, to require the Company to purchase from
Columbia House and its designees the Shares at a price of $15.00 per Share.
F-12
<PAGE>
The Company also incurred cash costs and fees of $472,660 and non-cash costs and
fees of $51,033 related to the acquisition. The total purchase price of
$35,337,163 has been accounted for using the purchase method of accounting. The
Company has specifically identified $10,600,000 of intangible assets (customer
lists, covenants not complete and certain agreements acquired in the
acquisitions) which will be amortized over their useful lives (ranging between 3
and 7 years) and $23,805,163 of goodwill which will be amortized over a period
not to exceed 20 years.
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1998 and 1997 assume the acquisitions occurred as
of January 1, 1997 (in thousands, except per share data):
1998 1997
Net sales $ 40,360 $ 36,954
Net loss (basic and diluted) (11,366) (7,079)
-----------------------------
Loss per share $ (1.61) $ (1.00)
=============================
The following table represents the allocation of the purchase price:
<TABLE>
<CAPTION>
Columbia Radio
House Spirits Premier Metacom Total
-------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Cash $ -- $ 268,931 $ -- $ -- $ 268,931
Accounts receivable -- 2,244,701 -- -- 2,244,701
Inventory 629,000 1,179,828 155,432 400,000 2,364,260
Other current assets 622,000 -- -- 70,829 692,829
Fixed assets -- 659,471 30,494 -- 689,965
Goodwill 23,805,163 8,152,779 1,691,269 1,621,536 35,270,747
Other intangibles 10,600,000 700,000 -- -- 11,300,000
Liabilities assumed (319,000) (2,138,692) -- (150,000) (2,607,692)
------------ ------------ ------------ ------------ ------------
$ 35,337,163 $ 11,067,018 $ 1,877,195 $ 1,942,365 $ 50,223,741
============ ============ ============ ============ ============
</TABLE>
(4) Fixed Assets
Fixed Assets consist of the following:
1998 1997
Office equipment $ 408,260 $ 70,629
Furniture and fixtures 90,535 4,423
Leasehold improvements 419,081 1,300
Web site development costs 780,584 --
----------- -----------
Total 1,698,460 76,352
Accumulated depreciation (369,885) (16,547)
----------- -----------
Property, plant and equipment - net $ 1,328,575 $ 59,805
=========== ===========
F-13
<PAGE>
(5) Short-Term Investments to be Held to Maturity
At December 31, 1998, short-term investments to be held to maturity
consisted of a $500,000 bank certificate of deposit plus accrued interest
bearing interest at 5.40% maturing on April 1, 1999. At December 31, 1997,
short-term investment to be held to maturity consisted of a bank certificate of
deposit in the amount of $500,000,000 bearing interest at 5.5% maturing on May
2, 1998 and a bank certificate of deposit in the amount of $100,000 bearing
interest at 5.9% maturing on May 6, 1998 plus accrued interest on both
certificates of deposit.
(6) Long-Term Debt
1998
----
Credit agreement, senior secured bank debt $ 27,000,000
Related party note 15,000,000
-----------
42,000,000
Less: Current maturities 2,000,000
-----------
Long term debt $ 40,000,000
===========
Bank Debt
In December 1998, the Company obtained Senior Secured Bank Debt from (i)
Fleet National Bank ("Fleet") and (ii) ING (U.S.) Capital Corporation pursuant
to a Credit Agreement dated as of December 31, 1998.
Pursuant to the Credit Agreement, the Company borrowed an aggregate of
$27,000,000, consisting of a $25,000,000 Term Advance (as defined in the Credit
Agreement) and a $2,000,000 Revolving Credit Advance (as defined in the Credit
Agreement). The Term Advance and Revolving Credit Advances bear interest at a
rate of 2.00% above the bank's prime rate payable quarterly. Subject to certain
limitations set forth in the Credit Agreement, the maximum principal amount of
all advances under the Credit Agreement cannot exceed $30,000,000 through and
including March 30, 1999, thereafter increasing to a maximum of $34,000,000. The
principal amount outstanding under the Credit Agreement is payable in quarterly
installments commencing on March 31, 1999 through December 31, 2003. The
quarterly payments will begin at $250,000 on March 31, 1999 and increase by
$500,000 increments on each March 31, to $2,250,000 on March 31, 2003, provided,
however, that the final principal installment on December 31, 2003 will be equal
to the aggregate principal amount outstanding on such date. The Company granted
to the lenders a security interest in substantially all of the Company's assets
and the assets of its subsidiaries and pledged the capital stock of its
subsidiaries to the lenders as collateral under the Credit Agreement. The
Company also agreed to a number of financial and business covenants including a
restriction on the payment of dividends. The covenants do not take effect until
March 31, 1999. The Company also issued to the lenders three-year warrants to
purchase up to an aggregate of 196,800 shares of our common stock at an exercise
price of $10.00 per share.
On May 9, 1997, the Company borrowed $6,000,000 from a major bank which was
used to repay a portion of the outstanding notes payable to the Company's
Chairman, Chief Executive Officer and founder. The loan had a one-year term, had
an interest rate which was 1/2% under the bank's reference rate and had interest
payable monthly.
On August 2, 1997, the Company borrowed an additional $2,250,000 from the
same major bank to fund working capital. The loan was to be due October 31,
1998, and had an interest rate which was 1/2% under the bank's reference rate
and which was payable monthly.
F-14
<PAGE>
On September 16, 1997, the Company borrowed an additional $750,000 from the
same major bank to fund working capital. The loan was also to be due October 31,
1998, and had an interest rate which was 1/2% under the bank's reference rate
and was payable monthly.
The Company used a portion of the proceeds of its initial public offering
to repay the loans from a major bank in the aggregate principal amount of
$9,000,000 plus accrued interest thereon of $56,167.
The loan maturities for the next five years are as follows:
Year Ending
December 31,
1999 $ 1,000,000
2000 3,000,000
2001 5,000,000
2002 7,000,000
2003 11,000,000
-----------
Total maturities $27,000,000
===========
Related Party Debt
In December 1998, the Company borrowed $15,000,000 from its Chairman and
Co-Chief Executive Officer, pursuant to a $15,000,000 principal amount 9%
Convertible Senior Subordinated Promissory Note due December 31, 2004 (the
"Note"). Pursuant to the Note, the Company borrowed $15,000,000, of which
$1,000,000 was repaid on January 12, 1999. The Note is due December 31, 2004,
bears interest at the initial rate of 9% per annum, payable monthly in arrears
and is convertible, in whole or in part, at the holder's option, into shares of
our common stock at the rate of one share per $11.125 of principal or interest
outstanding under the Note. The Company issued to its Chairman and Chief
Executive Officer five-year warrants to purchase 500,000 shares of our common
stock at an exercise price of $12.00 per share. Pursuant to the terms of a
letter agreement dated December 31, 1998 between the Company and its Chairman
and Chief Executive Officer, the interest rate of the Note will increase to 11%,
the conversion rate of the Note is subject to adjustment and the exercise price
of the warrants is subject to adjustment, in the event that the Note is not
refinanced on or prior to September 30, 1999. Pursuant to the Letter Agreement,
the Company also agreed that if the Note is refinanced by anyone other than its
Chairman and Chief Executive Officer or a family member or affiliate of its
Chairman and Chief Executive Officer, the Company will issue to its Chairman and
Chief Executive Officer warrants to purchase an additional 350,000 shares of our
common stock, which warrants shall be identical to the warrants issued to him in
connection with the Note. The Note is subordinated to the Company's obligations
under
F-15
<PAGE>
the Credit Agreement and is secured by a second lien security interest of
certain assets of Classic and CRAC. Additionally, pursuant to the terms of a
letter agreement, its Chairman and Chief Executive Officer agreed with Fleet not
to take certain actions with respect to the Note so long as he held the Note.
The terms of its Chairman and Chief Executive Officer's investment were approved
by the independent members of the Company's Board of Directors. Prior to
consummating the transaction the Board obtained a fairness opinion from an
investment banker.
On November 17, 1995, the Company executed a loan agreement with its
Chairman, Chief Executive Officer and founder in the amount of $8,000,000, of
which $5,805,000 had been granted in the form of unsecured, non-interest bearing
advances as of December 31, 1995.
On February 6, 1997, the loan agreement was amended to increase the maximum
borrowing amount to $13,000,000 from $12,000,000. On May 12, 1997, the loan
agreement was further amended to stipulate that the loan does not and will not
bear interest, and removed all references to interest in prior documents.
Immediately prior to the consummation of the Company's initial public
offering, the Company's Chairman, Chief Executive Officer, and founder (Norton
Herrick) converted the outstanding $5,975,200 of indebtedness owed to him under
the loan agreement into 597,520 shares of common stock at a price per share
equal to the initial offering price of the common stock. The loan agreement
between the Company and Norton Herrick was terminated on October 22, 1997.
In June 1994, the Company received $50,000 from both the Chief Operating
Officer and Executive Vice President for a total of $100,000, in exchange for
the Company issuing two notes payable of $50,000 each.
In February 1997, the Company's Executive Vice President loaned the Company
an additional $350,000 pursuant to a loan agreement (the "1997 HH Loan"). On May
12, 1997, loans payable to the Company's Executive Vice President in the amounts
of $50,000 and $350,000 were consolidated via a consolidated and restated loan
agreement. The consolidated loan balance of $400,000 did not bear interest until
August 1, 1997, after which time interest was calculated at an annual rate of
10%.
On May 12, 1997, the Chief Operating Officer loaned the Company $350,000
pursuant to a loan agreement (the "1997 MEH Loan"). Borrowings under the 1997
MEH Loan were consolidated via a loan agreement with the $50,000 loan balance
originated in June of 1994. The consolidated loan balance of $400,000 did not
bear interest until August 1, 1997, after which time interest was calculated at
an annual rate of 10%.
On September 15, 1997, the Company repaid the $800,000 of outstanding notes
payable plus accrued interest in the amount of $10,082 to the Company's Chief
Operating Officer and Executive Vice President.
F-16
<PAGE>
In accordance with Staff Accounting Bulletin Topic 5:T, the Company imputed
an interest cost on the portion of the non-interest bearing notes payable to
related parties which were not converted to equity upon the completion of the
Company's initial public offering. The imputed rate used was based on the terms
negotiated by the Company for its bank debt and was 8.00% for the year ended
December 31, 1997. Interest expense imputed was $254,892 for the year ended
December 31, 1997.
(7) Commitments and Contingencies
Leases - Related Parties
Rent expense for each of the years ended December 31, 1998 and 1997
amounted to $58,320 and $38,000, respectively.
The Company sublets office space from an entity, HH Realty Investors, Inc.,
wholly-owned by officers and directors of the Company.
In 1999, the New Jersey location subleased with HH Realty Investors, Inc.
was amended to a month by month lease at $2,900 per month. Also on March 1, 1999
additional space was directly leased in New Jersey for a period to expire on the
earlier of December 31, 1999 or 30 days from the occurrence of a defined event.
During 1998, the Company subleased office space in Florida from The Herrick
Company, a company owned by Norton Herrick, Co-CEO, at $653 per month. Such
sublease was terminated on March 1, 1999.
In January 1998, the Company amended a sublease agreement to provide for
additional space at its New Jersey location. Minimum monthly rent under the
amended lease is $2,900 per month through December 1998 and is subject to two
extension periods of five years each under certain conditions. In December 1998,
the lease was amended to provide for a month to month lease. In May 1998, the
Company amended a sublease agreement to provide for additional space at its
Florida location. Minimum monthly rent under the amended lease is $1,307 per
month through November 2000 and is subject to two extension periods of three
years each under certain conditions.
Leases - Other
In September 1998, the Company entered into a lease for a kiosk at a major
shopping mall. The lease which commenced in November 1998 has a one year term,
with monthly rental amounts of $5,000 per month with the provision for increases
based on annual sales in excess of $ 750,000.
In connection with the acquisition of Radio Spirits, the Company leases
8,000 square feet of space in South Schaumburg, Illinois from a trust owned by
the President of the Company's radio group. The lease agreement expires in
December 2005, subject to a three year renewal option. Monthly rent under the
leases is $4,667.
In connection with the acquisition of Premier, the Company entered into two
ten-year leases on 7,000 square feet of space in Bethel, Connecticut and 3,000
square feet in Sandy Hook, Connecticut. Lease payments on each lease are $100
per year with mandatory capital improvement payments starting in 2004 of $3,500
per year and $1,500 per year on the Bethel and Sandy Hook properties ,
respectively.
F-17
<PAGE>
Minimum annual lease commitments including capital improvement payments
under non-cancelable operating leases are as follows:
Year ending
December 31,
------------
1999 $123,187
2000 70,573
2001 56,200
Thereafter 250,400
--------
Total lease commitments $500,360
========
Employment Agreements
The Company has commitments pursuant to employment agreements with certain
of its officers. The Company's aggregate commitments under such employment
agreements are approximately $841,517 and $452,054 during 1999 and 2000,
respectively. In connection with the Radio Spirits acquisition, the Company
hired Carl Amari as President of Classic, to manage the combined, post-merger
radio operations pursuant to a three-year employment agreement that provides for
an annual salary of $200,000 for the first 18 months and $300,000 for the next
18 months.
(8) Initial Public Offering
The Company's Registration Statement on Form SB-2 for its initial public
offering was declared effective by the Securities and Exchange Commission on
October 22, 1997. On October 27, 1997, the Company closed its initial public
offering of 2,300,000 shares of Common Stock, with no par value, at a price of
$10.00 per share of Common Stock. In connection with the public offering, the
underwriters were granted an over-allotment option to purchase an additional
345,000 shares of Common Stock, exercisable until December 6, 1997. The
underwriters partially exercised their over allotment option by purchasing
110,000 shares from a minority shareholder (with holdings of less than 5% of the
Company's common stock.) The Company incurred expenses of $3,234,337 related to
its initial public offering, including underwriting discounts and commissions,
legal and accounting fees, printing expenses and other expenses. Upon completion
of the offering, the associated costs were deducted from net proceeds of the
offering.
(9) Stock Option Plan
In June 1998, the Company amended the 1997 Stock Option Plan, under the
amendment the Company is now authorized to grant up to 2,000,000 shares of
authorized but unissued common stock.
F-18
<PAGE>
In June 1997, the Company adopted the 1997 Stock Option Plan, pursuant to
which the Company's Board of Directors may grant stock options to key employees
of the Company. The Plan authorizes grants of options to purchase up to 750,000
shares of authorized but unissued common stock. Under the Plan, the Company may
grant incentive and non-qualified stock options. The terms and conditions of
options granted under the Plan may vary at the discretion of the Company's Board
of Directors. In addition, shares issued pursuant to the exercise of the options
may be restricted as to their transferability.
Stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
--------- ---------------
<S> <C> <C>
Outstanding at December 31, 1996 -- --
Granted 50,000 $11.00
Exercised -- --
Canceled -- --
Outstanding at December 31, 1997 50,000 $11.00
Granted 1,808,500 $5.37
Exercised -- --
Canceled -- --
--------- ----------
Outstanding at December 31, 1998 1,858,500 $5.52
========= ==========
</TABLE>
The per share weighted-average fair value of stock options granted during
the year ended December 31, 1997 was $4.55 on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions for the year
ended December 31, 1997; risk free rate of return 5.56%; option life five years
from date of vesting; and no dividend yield.
The per share weighted-average fair value of stock options granted during
the year ended December 31, 1998 is as follows using the Black-Scholes
option-pricing model with the following assumptions and no dividend yield. The
shares were granted as follows:
<TABLE>
<CAPTION>
Assumed Risk-free Fair Value
Date No. of Shares Exercise Price Volatility interest rate per Share
---- ------------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
June 1998 551,500 $3.50 25% 5.49% $.86
September 1998 750,000 $5.25 25% 4.58% $1.21
November 1998 450,000 $7.875 25% 4.50% $1.82
Various 57,000 $6.00 - $10.81
---------
Total 1,808,500
=========
</TABLE>
At December 31, 1998, there were 141,500 additional shares available for
grant under the Plan.
The Company applies the intrinsic value method to account for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements becuase the exercise price was equal to or greater than
the fair value at the date of grant.
At December 31, 1998, the weighted average remaining contractual life of
outstanding options was five years. At December 31, 1998, 1,682,500 options were
exercisable.
F-19
<PAGE>
(10) Income Taxes
Prior to October 22, 1997, the Company had elected to be taxed as a small
business corporation (S corporation) under Section 1362 of the Internal Revenue
Code. As a result of the consummation of the Company's public offering effective
on October 22, 1997, the Company's S corporation election terminated and the
Company ceased to be an S corporation. Commencing October 22, 1997, the Company
became taxable as an incorporated entity (C Corporation).
Income tax benefit for the year ended December 31, 1998 differed from the
amount computed by applying the U.S. Federal income tax rate of 34% and the
state income tax rate of 5.39% to the pre-tax loss as a result of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Computed tax benefit (Federal and State at 39.39%) $(2,751,215) $(1,673,089)
Adjustment for partial-year C-corporation status 1,347,673
----------- -----------
Adjusted computed tax benefit at 34% (325,416)
Valuation allowance for Federal and State deferred tax assets
2,751,215 325,416
----------- -----------
Income tax expense $ -0- $ -0-
=========== ===========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows:
Deferred tax assets: 1998 1997
----------- -----------
Federal and state net operating loss carry-forwards $ 3,099,025 $ 269,715
Accounts receivable, principally due to
allowance for doubtful accounts and reserve for returns 547,312 112,778
Fixed assets (9,251)
------------ -----------
Total gross deferred tax assets 3,637,086 382,493
Less valuation allowance (3,637,086) (382,493)
------------ -----------
Net deferred tax assets $ -0- $ -0-
============ ===========
</TABLE>
The Company has provided a valuation allowance of $3,637,086 and $382,493
for deferred tax assets as of December 31, 1998 and 1997, respectively. In
assessing the realizability of deferred tax assets, management has determined
that the Company does not have a history of earnings on which to base its
determination. The ultimate realization of deferred tax assets is dependent on
the generation of future taxable income during the periods in which those
temporary timing differences become deductible. The Company's limited operating
history does not allow management to make a judgment regarding future taxable
income over those periods.
The Company has approximately $7,591,631 of net operating loss
carry-forwards which may be used to offset possible future earnings, if any, in
computing future income tax
F-20
<PAGE>
liabilities. The net operating losses will expire between December 31, 2017 and
December 31, 2018 for federal income tax purposes. For state purposes, the net
operating losses will expire at varying times, as the Company is subject to
corporate income tax in several states.
(11) Net Loss Per Share of Common Stock
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the applicable reporting
periods. The computation of diluted net loss per share is similar to the
computation of basic net loss per share except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. However,
the Company's computation of dilutive net loss per share does not assume any
conversion or exercise of securities as their effect is antidilutive for all
periods presented.
The weighted average number of shares outstanding used in the net loss per
share computations for the years ended December 31, 1998 and 1997 were 6,187,687
and 3,820,027, respectively.
Common equivalent shares that could potentially dilute basic earnings per
share in the future and that were not included in the computation of diluted
loss per share because of antidilution were 4,670,927 for the year ended
December 31, 1998 and 50,000 for the year ended December 31, 1997.
(12) Supplemental Cash Flow Information
No cash has been expended for income taxes for the years ended December 31,
1998 and 1997. Cash expended for interest was -0- and $286,246 for the years
ended December 31, 1998 and 1997, respectively.
In connection with its acquisitions, the Company provided a total of
925,000 shares of its common stock and 380,000 options and warrants to the
former owners of the acquired companies, and attorneys and advisors to the
transactions. The total value of the stock, $11,503,124 and warrants of
$1,002,000 has been recorded as part of the acquisition prices to be amortized
over periods not to exceed 20 years. The Company also provided 35,000 warrants
to advisors to the transaction. The value of warrants of $75,650 has been
included in the cost of the acquisitions and recorded as goodwill. The Company
also provided 196,800 warrants to the banks providing financing for the
acquisitions. The value of the warrants of $580,000 has been included in
deferred financing fees.
In May 1998, the Company, in addition to a cash payment of $20,000, granted
options to a third party to purchase 20,000 shares of the Company's Common Stock
at $4.81 per share to acquire the universal Resource Locators ("URL"),
audiobook.com and audiobook.net. The Company has included the value of the
options of $50,000 in the asset value of $70,000, the negotiated price, and is
amortizing the asset over six years. In March 1998, the Company granted options
to purchase 21,600 shares of the Company's Common Stock at $4.40 per share to a
company in compensation for the costs incurred in transferring to the Company
the toll free phone numbers, (800) AUDIOBOOK and (888) AUDIOBOOK. Such options
vest and are exercisable immediately and have a five-year term. The Company has
recorded an asset in the amount of $54,000, the negotiated cost of transferring
the phone numbers, and is amortizing the asset over six years.
F-21
<PAGE>
During the year ended December 31, 1997, the Company had a non-cash
financing activity related to the recognition of imputed interest on a portion
of the notes payable - related parties of $254,892.
Immediately prior to the consummation of the Company's initial public
offering, the Company's Chairman, Chief Executive Officer, and founder converted
the outstanding $5,975,200 of indebtedness owed to him into 597,520 shares of
common stock at a price per share of $10.00.
(13) Related Party Transactions
Companies wholly-owned by Norton Herrick provided certain accounting,
administrative and general office services to, and obtained insurance coverage
for, the Company. In connection with such services the Company paid to such
entities the aggregate of $73,000 and $60,000, during the years ended December
31, 1998 and 1997, respectively. The Company anticipates obtaining similar
services from time to time from companies affiliated with Norton Herrick for
which it will reimburse such companies' cost to provide such services to the
Company.
(14) Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Disclosures ("SFAS 131") which requires that a public
enterprise disclose financial and descriptive information about segments of
their operations using a management approach. The approach involves reporting
financial information on the basis used internally by management to evaluate
segment performance and decide how resources are allocated to segments. SFAS 131
additionally requires that a public business report a measure of segment profit
or loss, certain specific revenue and expense items and segment assets.
Management has not disclosed any segment information as it does not operate more
than one segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133"). SFAS 133 establishes new
disclosure requirements, which provide a comprehensive standard for recognition
and measurement of derivatives and hedging activities. This will require all
derivatives to be recorded on the balance sheet at fair value and special
accounting for certain types of hedges. SFAS 133 will take effect in 2000. The
Company has not entered into any derivative or hedge transactions and,
therefore, does not believe that SFAS 133 will have a material effect on the
consolidated financial condition or results of operations.
(15) Subsequent Events
On March 18, 1999, the Company entered into a definitive agreement to
acquire substantially all of the assets used by Doubleday Direct, Inc. in the
direct marketing and distribution of audiobooks and related products through
Doubleday's Audiobooks Direct club, including its membership file of
approximately 450,000 names. In connection with the closing of this acquisition,
Doubleday will grant to the Company the exclusive right to include Audio Book
Club new member solicitation inserts in Doubleday's club mailings and to send
direct mail new member solicitation packages to Doubleday's book club members
F-22
<PAGE>
for the next four years. This agreement will relate to all of Doubleday's
existing and future clubs. In addition, as part of the acquisition, the
companies have agreed to enter into a broad Internet marketing and promotion
agreement including the development of a co-branded web site. The Company cannot
be assured that this acquisition or the related agreements will be completed.
In March 1999, the Company granted to employees of the Company or its
subsidiaries, five year options under the 1997 Stock Option plan to purchase an
aggregate of 62,600 shares of its common stock at $12.00 per share, vesting over
the next two years.
In March 1999, the Company has been named as a co-defendant together with a
collection agency used by the Company, in a lawsuit in the United States
District Court for the Northern District of Illinois, alleging violations by
such collection agency and the Company of the Fair Debt Collection Practices
Act. Such lawsuit has been brought by a Class Action on behalf of individuals,
limited to those who were sent certain collection letters within the state of
Illinois during the one year period preceding the filing of the lawsuit. The
lawsuit has not yet been certified as a Class Action. The collection agency has
agreed to indemnify the Company and therefore the Company believes that the
outcome of the action will not have a material adverse impact on the Company.
In February 1999, the Company granted to employees of the Company five year
options under the 1997 Stock Option plan to purchase 20,000 shares of its common
stock at $8.00 per share, vesting over the next two years.
In February 1999, the Company's Board of Directors approved (i) an
amendment to the Company's Articles of Incorporation to increase the Company's
authorized common stock to 75,000,000 shares and (ii) the adoption of the
Company's 1999 Stock Incentive Plan, in each case, subject to shareholder
approval. The 1999 Stock Incentive Plan provides for grants of awards of stock
options, restricted stock, deferred stock or other stock -based awards. A total
of 2,500,000 shares of common stock have been reserved for distribution pursuant
to the plan.
Effective February 15, 1999, the Company entered into an employment
agreement with its new Executive Vice President and Chief Technology Officer,
which provides for an annual base compensation of $150,000 and a
performance-based bonus of $15,000 payable at the end of the first year of
employment. Pursuant to the agreement, the Company granted five year options to
purchase 150,000 shares of common stock at an exercise price of $9.75, vesting
at various times over a three year period, and five year options to purchase
8,000 shares of common stock at $.10 vesting on February 15, 1999.
F-23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
------------------------------------------
Norton Herrick, Co-Chief Executive Officer
In accordance with the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ Norton Herrick Director, Chairman of the Board March 30, 1999
- - --------------------- and Co-Chief Executive Officer
Norton Herrick (Principal Executive Officer)
/s/ Michael Herrick Director and Co-Chief Executive March 30, 1999
- - --------------------- Officer
Michael Herrick
Director and President March 30, 1999
/s/ Jesse Faber
- - ---------------------
Jesse Faber
/s/ Howard Herrick Director and Executive Vice March 30, 1999
- - --------------------- President
Howard Herrick
/s/ John F. Levy Executive Vice President and March 30, 1999
- - --------------------- Chief Financial Officer
John F. Levy (Principal Financial and
Accounting Officer)
March 30, 1999
/s/ Roy Abrams Director
- - ---------------------
Roy Abrams
/s/ Carl Wolf Director March 30, 1999
- - ---------------------
Carl Wolf
</TABLE>
-37-
<PAGE>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Balance Amounts Write-Offs Balance
Beginning of Charged to Against End of
Period Net Income Reserves Period
------ ---------- -------- ------
<S> <C> <C> <C> <C>
Allowances for sales returns and doubtful accounts:
Year Ended December 31, 1998 $1,449,445 $8,256,989 $8,288,159 $1,418,275
Year Ended December 31, 1997 $ 831,669 $6,073,746 $5,455,970 $1,449,445
</TABLE>
AUDIO BOOK CLUB, INC.
February 25, 1999
Mr. Jesse Faber
1 Nutting Place
West Caldwell, New Jersey 07006
Re: AUDIO BOOK CLUB, INC. (the "Company")
Dear Jesse:
This letter will cover the period of your employment with the Company from
November 1, 1998 until October 31, 1999 (the "Employment Term").
In this regard, the Company will pay you a base salary, commencing November 1,
1998 of $154,000 (One Hundred and Fifty Four Thousand) per annum. Such salary
will be paid monthly in arrears on the last day of the month at the rate of
$12,834 per month.
In addition to this base salary, you will receive a bonus, provided you are
still employed by the Company at the conclusion of the Employment Term, of
$45,000 (Forty-Five Thousand Dollars) to be paid to you on October 31, 1999.
You will receive options to acquire 10,000 shares of common stock in the Company
pursuant to and in accordance with the Company's stock option plan. Such options
shall vest on October 31, 1999; provided, however, that such options shall
terminate and be canceled if you are no longer employed by the Company prior to
the date such options vest. Such options shall be exercisable at a price per
share equal to $8.00 and will be exercisable for a period of five years
commencing immediately upon vesting, provided, however, if you are no longer
employed by the Company, such options shall expire on the earlier of 30 days
following the date you are no longer employed by the Company or five years from
the date such options initially became exercisable.
You acknowledge and agree that: all mailing lists, customer, member and prospect
names; licensor arrangements; front end and back end marketing performance;
financial statements; operating system; proprietary technology; web marketing
strategies and advertising or other contracts; database and other computer
software specific to the Company; and all information which is known by you to
be subject to a confidentiality agreement or obligation of confidentiality, even
without a confidentiality agreement between the Company and another
<PAGE>
person or party, shall be maintained by you in a confidential manner and you
agree that you will not use such information to the detriment of the Company or
disclose such information to any third party, except as may be necessary in the
course of performing your job responsibilities. You further agree that your
obligations of confidentiality with respect to such information shall continue
for five years after you cease to be employed by the Company.
You acknowledge that this letter and the May 1, 1997 employment letter between
the Company and you and the Employee Handbook embodies and constitutes the
entire understanding between the Company and you with respect to your employment
by the Company and such employment arrangement may not be modified except by a
writing signed by the Company and you.
Very truly yours,
AUDIO BOOK CLUB, INC.
Michael Herrick, COO
AGREED AND ACCEPTED this 25th
day of February, 1999
_____________________________
Jesse Faber
cc: Norton Herrick
AUDIO BOOK CLUB, INC.
January 29, 1999
Mr. Steve McLaughlin
4311 Greenbriar Lane
Weston, Florida 33331
Re: AUDIO BOOK CLUB, INC.
Dear Steve:
This letter is our agreement for your employment at Audio Book Club, Inc. (the
"Company") as Executive Vice President/Chief Technical Officer which will
commence on or before February 15, 1999 and end on the second (2nd) anniversary
of your start date of employment with the Company, subject, however, to the next
sentence. The Company may terminate your employment at any time for cause as
determined by the Board of Directors of the Company.
Audio Book Club, Inc. will pay you a salary, while you are employed at Audio
Book Club, Inc., at the annual rate of $150,000 (One Hundred Fifty Thousand
Dollars) commencing on your start date of employment. Such salary will be paid
monthly in arrears on the last day of the month at the rate of $12,500.00 per
month, prorated for your first and last month, for the actual number of days
employed during each month.
In addition, you may receive a performance-based bonus to be determined by the
Chief Executive Officer in his sole and absolute discretion at the end of your
first year of employment, provided you are still employed by the Company at that
time, in the amount of $15,000. Such bonus shall be paid within forty-five (45)
days of the end of such year.
You will also receive upon your start date of employment with the Company
options to acquire 8,000 shares of Common Stock at an exercise price of $0.10
per share, which shall vest upon your start day of employment.
You will also receive options to acquire 150,000 shares of Common Stock in the
Company pursuant to and in accordance with the Company's stock option plan. Such
options shall vest as to 25,000 of the shares covered thereby upon your start
date of employment, 25,000 at the end of year one, 30,000 at the end of year
two, 35,000 at the end of year three and 35,000 at the end of year four
provided, however, that such options shall terminate and be canceled if you
<PAGE>
Mr. Steve McLaughlin
January 29, 1999
Page 2
are no longer employed by the Company prior to the date such options vest. Such
options shall be exercisable at a price per share equal to 100% of the fair
market value as of the date of the signing of this agreement ($9.75 per share)
and will be exercisable for a period of five years commencing immediately upon
vesting, provided, however, if you are no longer employed by the Company such
options shall expire on the earlier of 30 days following the date you are no
longer employed by the Company or five years from the date such options
initially become exercisable. All unvested options shall immediately vest upon a
person (or persons acting together), other than the current officers and
directors of the Company, becoming the beneficial owner of 50% or more of the
Company's outstanding Common Stock.
You will also receive $10,000 as reimbursement for any moving and closing
expenses associated with your move to the Morristown, New Jersey area, which is
a condition of your employment with the Company as well as an interest-free
loan, paid back self-liquidating over five years in the amount of $35,000 to
cover the down-payment on a house associated with your move to New Jersey as
described above, provided that, if the Company is to go bankrupt while you are
still employed by the Company, such loan shall be forgiven and you shall have no
obligation to repay such loan to the Company. The balance of the loan will
become due upon termination of your employment for any reason other than because
of bankruptcy.
You will also be named Chairman of the Company's Technology Advisory Board.
If you are still employed at the Company after the conclusion of one year, you
will then be eligible for the Company's standard 401K Plan. You will also
receive the Company's normal medical insurance for yourself and family after
thirty days of employment.
It is further agreed that you shall be permitted to work a minimal number of
hours in respect of your consulting relationship with Tom Payne for a period of
one year from your start date of employment with the Company, provided that any
work done in connection with such relationship occur on your own personal time
and provided further that it in no way conflicts with the business of the
Company including your performance, responsibilities and hours spent working in
the Company.
You acknowledge and agree that: all mailing lists, customer, member and prospect
names; licensor arrangements; front end and back end marketing performance;
financial statements; operating system; proprietary technology; web marketing
strategies and advertising or other contracts; database and other computer
software specific to the Company; and all information which is known by you to
be subject to a confidentiality agreement or obligation of confidentiality, even
without a confidentiality agreement between the Company and another
<PAGE>
Mr. Steve McLaughlin
January 29, 1999
Page 3
person or party, shall be maintained by you in a confidential manner and you
agree that you will not use such information to the detriment of the Company or
disclose such information to any third party, except as may be necessary in the
course of performing your job responsibilities. You further agree that your
obligations of confidentiality with respect to such information shall continue
for five years after you cease to be employed by the Company.
You acknowledge that this letter embodies and constitutes the entire
understanding between the Company and you with respect to your employment by the
Company.
Very truly yours,
AUDIO BOOK CLUB, INC.
Norton Herrick
Chairman & CEO
AGREED AND ACCEPTED this 29th
day of January, 1999
_____________________________
Steve McLaughlin
cc: Mike Herrick, Vice Chairman & Co-CEO
John levy, CFO
EMPLOYMENT AGREEMENT dated as of December , 1998 between Classic Radio
Holding Corp., a Delaware corporation (the "Company"), and Carl Amari, an
individual residing at 11 Cutters Run, South Barrington, IL 60010 ("Executive").
BACKGROUND
The Company desires to employ Executive on the terms and conditions set
forth herein, and Executive desires to be so engaged. The capitalized terms used
and not otherwise defined herein shall have the meaning ascribed to such terms
in the Supplemental Agreement of even date herewith among the Company, Audio
Book Club, Inc., a Delaware corporation and parent of the Company ("ABC"), Radio
Spirits, Inc., an Illinois corporation ("RSI") and Executive (the "Supplemental
Agreement"). In consideration of the covenants and agreements herein contained,
the parties agree as follows:
1. Employment; Acceptance. The Company hereby employs Executive as
President of the Company and Executive hereby accepts such employment with the
Company.
2. Term. The term of Executive's employment with the Company shall commence
on the date hereof and shall continue for a period of three (3) years unless
sooner terminated in accordance with the provisions of Paragraph 6 of this
Agreement (the "Initial Employment Term"); provided, however, that the parties
hereto may mutually agree to extend the Employment Term for an additional two
(2) years (the "Option Term" together with the Initial Employment Term, the
"Employment Term") at a salary rate and on such terms as shall be mutually
acceptable to the parties.
3. Duties and Authority.
3.1. Executive shall devote Executive's full business time and
energies to the business and affairs of the Company, and shall work
exclusively for the Company during the Employment Term. Subject to the
control and direction of the Board of Directors of the Company and the
Chief Executive Officer of the Company, Norton Herrick or his successor
(the "CEO"), as set forth herein, Executive agrees to use Executive's best
efforts, skill, and abilities to promote the Company's interests, to work
with other employees of the Company in a competent and professional manner
and generally to promote the interests of the Company. Executive shall
report directly to the CEO.
3.2. Executive shall perform the services normally attributed to
Executive's position or such services as are otherwise reasonably directed
by the Board of Directors of the Company or the CEO, including, without
limitation, (i) having responsibility over all activities relating to the
classic radio products of the Company including any other classic radio
businesses which the Company, its subsidiaries or ABC may acquire, and at
the option of the Company, additional lines of business and products
related to the classic or old-time radio
<PAGE>
business including, but not limited to, classic videos and (ii) producing
the Radio Show (collectively, the "Business") and Executive shall advise
ABC, as may be requested from time to time. Notwithstanding anything to the
contrary contained in the Agreement, provided that the Company maintains
the EBITDA thresholds set forth on Schedule 1 hereto and subject to
Paragraph 3.4 below, Executive shall have control over the day-to-day
management of the Business, including (i) employee decisions (including,
without limitation, salary issues within the parameters of the annual
business plan and budget), (ii) sales, marketing and distribution matters,
(iii) implementation of the annual budget, (iv) product development
policies, strategies and implementation, and (v) other operational matters
that arise in the ordinary course of business, so long as such decisions
are made in the best interest of the Company in Executive's reasonable
business judgment and are made at an arms' length basis (items (i) through
(v) being hereafter referred to as the "Operational Matters").
3.3. So long as Executive is employed by the Company, Executive shall
be appointed to, and serve as a member of, the Board of Directors of the
Company.
3.4. Within sixty (60) days after the Merger Date (with regard to the
1999 fiscal year of the Company) and thirty (30) days prior to the end of
the Company's 1999 and 2000 fiscal year (with regard to the 2000 and 2001
fiscal years), Executive shall submit to the Board of Directors for their
review and approval a business plan and detailed budget for each fiscal
year, setting forth in complete detail the Operational Matters for that
year. Any changes to the proposed business plan or budget must be approved
by the Board of Directors. Executive shall have the power to make all
management decisions concerning the Business, as provided in Paragraph 3.2
above, so long as such decisions are reasonably consistent with the
business plan approved by the Board of Directors. Any overages to the
approved budget must be approved by the Board of Directors before such
expenses are incurred by the Company.
3.5. Executive shall be responsible for submitting to Audio Book Club,
Inc. and its accountants on a timely basis all of the information requested
by the officers of Audio Book Club, Inc. and/or such accountants for the
preparation of Audio Book Club, Inc.'s financial statements and reports.
3.6. Executive shall perform his services at the offices located in
Schaumburg, Illinois or at such other place or places as may be mutually
agreed upon by the Company and Executive and subject to reasonable travel
as may be required in connection with performing such services.
3.7. During the Employment Term, Executive shall also serve as
President of the Company's wholly-owned subsidiary, Classic Radio
Acquisition Corp., a Delaware corporation ("Acquisition Corp."), under the
same terms and conditions as provided for herein; provided, however, that
Executive shall serve as President of Acquisition Corp. for no additional
compensation or benefits (other than payment of reasonable business
expenses in accordance with Paragraph 5.2 below), including, without
limitation, severance payments. So long as Executive is employed by
Acquisition Corp., Executive shall be appointed to, and serve as a member
of, the Board of Directors of Acquisition Corp.
-2-
<PAGE>
4. Salary.
4.1. The Company shall pay and Executive shall accept a base salary at
the rate of two hundred thousand dollars ($200,000) per year while employed
during the first eighteen (18) months of the Initial Employment Term. The
Company shall pay and Executive shall accept a base salary at the rate of
three hundred thousand dollars ($300,000) per year while employed during
the second eighteen (18) months of the Initial Employment Term. Of
Executive's base salary set forth above, twenty five thousand dollars
($25,000) shall be deemed to be compensation to Executive for his services
in connection with the production of the Radio Show. The balance of
Executive's salary shall be deemed to be compensation for his other
services hereunder.
4.2. All amounts of salary shall be payable in accordance with the
Company's normal payroll practices, which is currently on a monthly basis
in arrears. In no event shall salary be paid less than monthly. All amounts
of salary or other compensation which may become payable hereunder shall be
subject to such withholding as is required by law.
5. Benefits; Expenses.
5.1. Executive shall be entitled to fifteen (15) vacation days per
year during the Initial Employment Term and twenty (20) vacation days per
year during the Option Term, if the Option Term is exercised, in accordance
with the Company's vacation policy. Vacation time shall be taken at such
times as the Company reasonably approves. Executive shall be entitled to
participate in any Executive benefit plan from time to time in effect for
the benefit of Executives and other executives of the Company at a similar
level, including, but not limited to, health insurance, the Company's
401(k) Plan and similar benefits.
5.2. The Company shall pay for or reimburse Executive for reasonable
and necessary out-of-pocket expenses incurred in the course of Executive's
employment against presentation of documentation in accordance with Company
policy.
5.3. The Board of Directors of the Company may, in its sole and
absolute discretion, elect to award Executive a bonus during any year of
the Employment Term.
6. Death; Disability; Termination for Cause; Termination without Cause.
6.1. This Agreement shall terminate immediately upon the death of
Executive.
6.2. If the Company determines in its good faith discretion that
Executive is unable to perform the services required to be performed by
Executive pursuant to the terms of this Agreement by reason of Executive's
physical or mental disability and if the Executive has failed to perform
such services for an aggregate of one hundred twenty (120) days within any
three hundred sixty (360) day period, the Company may terminate Executive's
-3-
<PAGE>
employment under this Agreement by giving written notice thereof and
Executive's employment shall terminate upon the date of such notice.
6.3. The Company may terminate Executive's employment for Cause
provided that Amari is given reasonable advance written notice by the
Company of such Cause and, with respect to items (a) and (b) below, such
default shall remain uncured for five (5) days from Amari's receipt of
notice of the matter giving rise to such Cause. "Cause" shall mean (a)
Executive's repeated failure or refusal to perform, observe or otherwise
comply with any reasonable written request or directive of the Board of
Directors of the Company, the CEO of an executive nature or otherwise
consistent with Executive's position under this Agreement; (b) Executive's
failure to devote all of his business time and attention to the business
and affairs of the Company; (c) the wilful misappropriation by Executive of
funds or property of the Company; (d) Executive's use of illegal drugs or
excessive use of alcohol; (e) conviction of Executive in a court of law of,
or Executive entering into a plea of guilty or no contest to, any felony or
crime associated with his employment with the Company or involving moral
turpitude; (f) any breach by Executive of any confidentiality provision set
forth in this Agreement or the confidentiality, non-competition and/or
non-solicitation provisions in the Merger Agreement; or (g) Executive's
commission in bad faith of any act which injures or could reasonably be
expected to injure the reputation, business or business relationships of
the Company. It will be in the sole discretion of the Board of Directors of
the Company whether a default of item (a) or (b) above has been cured by
Executive to the satisfaction of the Board during the five (5) day period
after Executive receives notice thereof; it being understood that Executive
has not waived his rights to claim in an applicable court of law that such
termination was unjustified and that any such determination by the Board of
Directors of the Company was erroneous.
6.4. If at any time during his employment with the Company, Executive
is indicted or formally charged for any crime associated with his
employment with the Company or involving moral turpitude or that may result
in a felony conviction, the Company shall have the right, in its sole
discretion, to suspend all salary and other payments due to Executive
hereunder until there has been a final adjudication of such matter (the
"Suspension Period"). If Executive is convicted of such a crime or enters a
plea of guilty or no contest, then Executive's employment shall be deemed
terminated for Cause as of the date of Executive's indictment or formal
charges for such crime and the Company shall be under no obligation to make
any payments to Executive. If after a final adjudication Executive is not
convicted of such a crime and has not plead guilty or no contest, the
Company shall make a lump sum payment to Executive equal to the payments
which were due and payable by the Company to Executive during the
Suspension Period.
6.5. If this Agreement is terminated pursuant to Paragraph 6.1, 6.2,
or 6.3 hereof, the Company shall be obligated to pay, and Executive or his
estate shall be entitled to receive, accrued salary and reimbursement for
expenses through the date of termination. Rights and benefits, if any, of
the Executive or his estate under any employee benefit plan will be
determined in accordance with the terms and conditions of such plan. In the
event of such a termination, (i) except for the amounts due pursuant to
this Paragraph 6.5, the Company shall have no further liability or
obligation to Executive arising out of Executive's employment and (ii)
-4-
<PAGE>
except as provided in Articles IX and X of the Supplemental Agreement, the
Executive shall have no further obligations under this Agreement, subject,
however, to any claim of the Company against Executive arising as a result
of termination by the Company for "Cause" pursuant to Paragraph 6.3.
6.6. Subject to Paragraph 6.7 below, if Executive is terminated
without Cause, Executive shall have the right to receive (i) his unpaid
salary and other payments through the end of the Initial Employment Term
(or the Option Term, if such termination occurs during the Option Term) at
such times as Executive would have been entitled to receive such amounts if
Executive's employment had not been terminated without Cause, and (ii) all
stock and options that Executive is entitled to receive (when and if
earned) under the Supplemental Agreement pursuant to the terms thereof.
6.7. Notwithstanding Paragraph 6.6 above, if EBITDA (as defined and
calculated in accordance with the Supplemental Agreement) for the Company
and its subsidiary, Acquisition Corp., in each of the full calendar years
prior to the date of Executive's termination without Cause exceed,
respectively, $600,000 in 1998 (excluding any earnings attributable to the
Target Companies), $800,000 in 1999 and $1,050,000 in 2000, the Company
shall be obligated to (i) make a lump sum payment to Executive (in lieu of
the payments set forth in Paragraph 6.6 above) equal to the balance of his
salary and other payments due to him under this Agreement for the remainder
of the Initial Employment Term or the Option Term (if such termination
occurs during the Option Period), as the case may be, and (ii) send a
notice to the escrow agent to immediately release to Executive the stock
and options held in escrow pursuant to the terms of the Supplemental
Agreement that Executive would have been entitled to receive after the date
of termination, assuming for this purpose that the highest EBITDA targets
for each year set forth in Section 2.5 of the Supplemental Agreement were
achieved by the Company and Acquisition Corp.
6.8. Nothing contained in this Agreement (and no event of default or
Cause hereunder) shall be deemed to reduce, restrict, limit, or take away
any rights Executive may have to receive any other consideration or
compensation (including cash, stock and options) under any other agreement
between Employee and/or any entities owned or controlled by him, on the one
hand, and Company, Acquisition Corp. and/or ABC, on the other hand.
7. Confidential Information.
7.1. Executive shall, during the Employment Term and at all times
thereafter, treat all Confidential Material (as hereinafter defined) of the
Company or any of the Company's subsidiaries, affiliates or parent entities
(the Company and the Company's subsidiaries, affiliates and parent entities
being hereinafter collectively referred to as the "Company Group")
confidentially. Executive shall not, without the prior written consent of
the Board of Directors of the Company, disclose such Confidential Material,
directly or indirectly, to any party who at the time of such disclosure is
not an Executive or agent of any member of the Company Group, or remove
from the Company's premises any notes or records relating thereto, copies
or facsimiles thereof (whether made by electronic, electrical, magnetic,
optical, laser, acoustic or other means).
-5-
<PAGE>
Executive agrees that all Confidential Material, together with all notes
and records of Executive relating thereto, and all copies or facsimiles
thereof in the possession of Executive (whether made by the foregoing or
other means) are the exclusive property of the Company. Executive shall not
in any manner use any Confidential Material of the Company Group, or any
other property of any member of the Company Group, in any manner not
specifically directed by the Company or in any way which is detrimental to
any member of the Company Group.
7.2. For the purposes hereof, the term "Confidential Material" shall
mean information concerning the activities, business or affairs of any
member of the Company Group or any of the customers or clients of any
member of the Company Group or any third party with which the Company has a
contractual relationship of the type which would normally be deemed to be
confidential, including, without limitation, information concerning trade
secrets, sales and financial information, information concerning business
methods, operational processes, products and projects in development,
details of contractual relationships between the Company and any third
party marketing plans or techniques, client and customer lists, mailing
lists, data, databases, software, works in progress, manuals, catalogues,
and price lists, which information is conceived or developed by Executive
alone or with others, or furnished to Executive by any member of the
Company Group or any of its agents, customers or clients, as such, or
otherwise acquired by Executive in the course of Executive's employment
with the Company or the Company's predecessors in interest; provided,
however, that the term "Confidential Material" shall not include
information which (i) becomes generally available to the public other than
as a result of a disclosure by Executive, or (ii) becomes available to
Executive on a non-confidential basis from a source other than any member
of the Company Group or any of its agents, customers or clients, as such,
provided that such source is not bound by a confidentiality agreement with
any member of the Company Group or any of such agents, customers or
clients.
7.3. Promptly upon the request of the Company, Executive shall deliver
to the Company all Confidential Material relating to any member of the
Company Group in the possession of Executive without retaining a copy
thereof.
7.4. In the event that Executive is required, by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process, to disclose any Confidential
Material relating to any member of the Company Group, Executive shall
provide the Company with prompt notice thereof so that the Company may seek
an appropriate protective order and/or waive compliance by Executive with
the provisions hereof; provided, however, that if in the absence of a
protective order or the receipt of such a waiver, Executive is compelled to
disclose Confidential Material not otherwise disclosable hereunder to any
legislative, judicial or regulatory body, agency or authority, or else be
exposed to liability for contempt, fine or penalty or to other censure,
such Confidential Material may be so disclosed, provided such disclosure is
limited to the specific information required to be disclosed. Any
reasonable costs or expenses of Executive in connection with his
cooperation hereunder shall be reimbursed by the Company, provided such
disclosure is not a result of a Cause event.
8. Remedies. The parties hereby acknowledge and agree that the restrictions
set forth in Paragraphs 7 of this Agreement are reasonable and necessary to
protect the
-6-
<PAGE>
Company's legitimate business interests. Executive acknowledges that a breach or
threatened breach by Executive of Paragraph 7 may cause the Company irreparable
harm; therefore, the Company shall be entitled, in addition to any other right
and remedy it may have, at law or in equity, to seek an injunction, under such
terms as may be approved by a court of competent jurisdiction, enjoining or
restraining Executive from any violation or threatened violation of Paragraph 7
of this Agreement.
9. Representation and Warranty. Executive represents and warrants to the
Company that Executive is not subject to any non-compete, non-solicitation, or
other restriction which may prevent Executive from performing the services
contemplated by this Agreement and that as of the date hereof, to Executive's
knowledge, Executive does not have any illness or physical or metal disability
that would prevent Executive from performing his services hereunder.
10. Waivers. No waiver by either party of any breach or non-performance of
any provisions or obligations of this Agreement shall be deemed to be a waiver
of any preceding or succeeding breach of the same or any other provision of this
Agreement.
11. Notices. All notices or other communications required or permitted
under this Agreement shall be in writing addressed to the parties at the
addresses set forth below and shall be deemed to be given upon the earlier of
(i) actual delivery by hand, or (ii) three (3) days after being mailed by
registered or certified mail, return receipt requested:
if to the Company, to:
Classic Radio Acquisition Corp.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attn: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
and
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Attn: Norton Herrick
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
-7-
<PAGE>
with a copy to:
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attention: Gary A. Schonwald, Esq.
Telephone No.: 212-826-5583
Facsimile No.: 212-593-9175
if to Executive, to:
Mr. Carl Amari
11 Cutters Run
South Barrington, IL 60010
Telephone No.: 847-428-9485
with a copy to:
Schwartz & Freeman
401 North Michigan Avenue
Suite 1900
Chicago, IL 60611-4206
Telephone No.: 312-222-6683
Facsimile No.: 312-222-0818
12. Assignment. Executive may not assign this Agreement or any part
thereof, and any assignment in violation of this provision shall be null and
void ab initio. Notwithstanding the foregoing, nothing herein shall preclude one
or more beneficiaries of Executive from receiving any amount that may be payable
following the occurrence of his legal incompetency or his death and shall not
preclude the legal representative of his estate from receiving such amount or
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. In the event of an
assignment of this Agreement by the Company, it is understood that the Company
and ABC shall remain liable for the assignee's performance of this Agreement,
unless such assignment is to a public company with a tangible net worth and
gross revenues not less than the tangible net worth and gross revenues of ABC
and its affiliates at the time of the assignment of this Agreement.
13. Severability. In the event that any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void
-8-
<PAGE>
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
14. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
15. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to its subject matter hereof and may not be amended,
supplemented, canceled, or discharged except by a written instrument signed by
both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CLASSIC RADIO HOLDING CORP.
By: /s/ Norton Herrick
---------------------------------
Authorized Officer
/s/ Carl Amari
---------------------------------
Carl Amari
Solely with respect to Paragraph 3.7 hereof:
CLASSIC RADIO ACQUISITION CORP.
By: /s/ Norton Herrick
--------------------------------
Authorized Officer
-9-
<PAGE>
ABC hereby unconditionally and irrevocably guarantees the full and complete
payment and performance of all duties, obligations, promises, covenants and
undertakings of the Company set forth herein including, without limitation, the
provisions of Paragraph 3.3 hereof.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
---------------------------------
Authorized Officer
-10-
<PAGE>
SCHEDULE 1
EBITDA THRESHOLDS
Period EBITDA Threshold*
- - ------ -----------------
January 1, 1998 - December 31, 1998 $700,001**
January 1, 1999 - December 31, 1999 $900,001
January 1, 2000 - December 31, 2000 $1,150,001
* EBITDA shall be calculated in accordance with the terms of the Supplemental
Agreement.
** Includes 1998 EBITDA for Radio Spirits, Inc. through the Merger Date and
EBITDA for the Company and Classic Radio Acquisition Corp. for the period
beginning on the Merger Date and ending December 31, 1998, which is
attributable to the business of Radio Spirits, Inc. and such other business
as shall be included in the EBITDA calculation for the fiscal year ending
December 31, 1998 as provided in the Supplemental Agreement.
-11-
PUT AGREEMENT
AGREEMENT, dated as of December 11, 1998, between Audio Book Club, Inc., a
Florida corporation (the "Company") and Premier Electronic Laboratories, Inc., a
Connecticut corporation ("Premier").
WHEREAS, Premier, the Company and Classic Radio Acquisition Corp., an
indirect wholly-owned subsidiary of the Company ("Classic Radio") have entered
into an asset purchase agreement (the "Purchase Agreement") on even date
herewith providing for the purchase by the Classic Radio of certain assets of
Premier (the "Assets");
WHEREAS, pursuant to the Purchase Agreement the Company shall issue to
Premier 125,000 shares (the "Shares") of the Company's common stock, no par
value (the "Common Stock"), as partial consideration for the Assets;
WHEREAS, the Company has agreed to provide Premier with certain "put"
rights with respect to the Shares in accordance with the terms hereof;
NOW, THEREFORE, for good and valuable consideration receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Put Rights.
(a) Premier shall have the right and option (the "Put Option") to sell
to the Company such number of Shares (the "Put Shares") as set forth below
on a cumulative basis on or after the applicable put date (each a "Put
Date") during the Option Period (as hereinafter defined) at a price per
share equal to the corresponding put price (each a "Put Price"). The
"Option Period" shall commence on the second anniversary of the Closing
Date (as such term is defined in the Purchase Agreement) and shall end on
the tenth anniversary of the Closing Date, unless and to the extent the Put
Option has otherwise been earlier terminated pursuant to the terms of
Paragraph 1(b) below.
Put Shares
Becoming Exercisable Put Price Put Date
-------------------- --------- --------
25,000 $7.00 Two (2) years from the Closing Date
25,000 $12.00 Three (3) years from the Closing
Date
25,000 $14.00 Five (5) years from the Closing Date
50,000 $15.00 Seven (7) years from the Closing Date
(b) If at any time after the Put Shares shall become publicly
tradeable, the daily closing price of the Common Stock on the American
Stock Exchange (or such other stock exchange on which the Common Stock is
listed) is greater than the Put Price specified in Paragraph 1(a) above for
any Put Shares for ten (10) consecutive trading days, the Put Option shall
terminate with respect to those Put Shares (whether or not those Put Shares
were eligible to be put to the Company).
2. The Put Option shall be exercisable by notice in writing sent by Premier
(a "Put Notice") to Company advising of its election to exercise the Put. Each
Put Notice shall set forth the number of Put Shares to be sold to Company. If
Premier elects to sell less than all of the Put Shares eligible to be sold, the
Put Option shall terminate as to those eligible Put Shares not sold. The closing
of the purchase and sale of the Shares being sold by Premier shall take place
ten (10) business days after the Company's receipt of the Put Notice (the "Put
Closing"). The exercise of the Put Option shall constitute an unconditional and
irrevocable commitment by Premier, on the one hand, and the Company, on the
other hand, to sell and purchase, all Put Shares being put to the Company by
Premier in accordance with the provisions of this Agreement. On the date of the
Put Closing, Premier shall deliver to the Company at the Company's offices set
forth in Paragraph 3 below, the certificate representing the Shares, free and
clear of any lien or encumbrance thereon, accompanied by a stock power duly
endorsed in blank and the Company shall deliver to Premier in immediately
available funds the aggregate Put Price for such Shares being sold to the
Company, together with a stock certificate representing the Shares not sold to
the Company.
3. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to the Company, to:
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attn: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
-2-
<PAGE>
with a copy to:
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Attn: Norton Herrick
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
and
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attention: Gary A. Schonwald, Esq.
Telephone No.: (212) 826-5583
Facsimile No.: (212) 593-9175
if to Seller, to:
Premier Electronic Laboratories, Inc.
Box 542
New Town, CT 06470
Attention: Mr. David Goldin
Telephone No.: 203-426-2524
Facsimile No.: 203-426-2525
with a copy to:
Peter Lane, PLLC
153 Stevens Avenue
Mount Vernon, NY 10550
Telephone: (914) 699-6052
Facsimile: (914) 699-1769
4. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
-3-
<PAGE>
5. Amendment. This Agreement may only be amended by the parties hereto by
execution of an instrument in writing signed on behalf of each of the parties
hereto.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any federal and state courts located within Palm Beach County, and
courts with appellate jurisdiction therefrom, in connection with any matter
based upon or arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the laws
of the State of Florida for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction,
venue and such process.
[SIGNATURE PAGE FOLLOWS]
-4-
<PAGE>
IN WITNESS WHEREOF, the Company and Premier have caused this Agreement to
be signed by their duly authorized officers all as of the date first written
above.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
---------------------------------
Name: Norton Herrick
Title: Co-Chief Executive
PREMIER ELECTRONIC LABORATORIES, INC.
By: /s/ J. David Goldin
---------------------------------
Name: J. David Goldin
Title: President
-5-
PUT AGREEMENT
AGREEMENT, dated as of December 11, 1998, between Audio Book Club, Inc., a
Florida corporation (the "Company") and Carl Amari, an individual residing at 11
Cutters Run, South Barrington, IL 60010 ("Amari").
WHEREAS, the Company, Classic Radio Holding Corp., which is wholly-owned by
the Company ("Classic Radio") and Radio Spirits, Inc., an Illinois corporation
wholly-owned by Amari ("RSI") have entered into a plan and agreement of merger
and supplemental agreement (collectively the "Merger Agreement") on even date
herewith providing for the merger of RSI with and into Classic Radio (the
"Merger"). The capitalized terms used and not otherwise defined herein shall
have the meaning ascribed to such terms in the Merger Agreement;
WHEREAS, pursuant to the Merger Agreement Amari and his designees will
receive, as part of the merger consideration, an aggregate of up to 425,000
shares (the "ABC Shares") of the Company's common stock, no par value (the "ABC
Common Stock"); and
WHEREAS, the Company has agreed to provide Amari with certain "put" rights
with respect to 175,000 of the ABC Shares (the "Put Shares") to be issued free
from escrow to Amari on the Merger Date in accordance with the terms hereof;
NOW, THEREFORE, for good and valuable consideration receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Put Rights.
(a) Amari shall have the right and option (the "Put Option") to sell
to the Company, and the Company shall have the obligation to buy, provided
such redemption is not otherwise prohibited by applicable law, such number
of the Put Shares as set forth below on a cumulative basis on or after the
applicable put exercise date (each a "Put Exercise Date") during the Put
Period (as hereinafter defined) at a price per share equal to the
corresponding put price (each a "Put Price"), as determined pursuant to
Paragraph 2 below. The "Put Period" shall commence on the third anniversary
of the Closing Date (as such term is defined in the Purchase Agreement) and
shall end on the tenth anniversary of the Closing Date, unless and to the
extent the Put Option has otherwise been earlier terminated pursuant to the
terms of Paragraph 1(b) below.
Put Shares
Becoming Exercisable Put Exercise Date
-------------------- -----------------
150,000 Three (3) years from the Closing Date
25,000 additional Shares Four (4) years from the Closing Date
-------------------------
Total: 175,000 Shares
<PAGE>
(b) If at any time during which the Put Shares are publicly tradeable
pursuant to an effective registration statement or Rule 144 promulgated
under the Securities Act of 1933, as amended (and are in fact tradeable by
Amari without restriction) the daily closing price of the Common Stock on
the American Stock Exchange (or such other stock exchange on which the
Common Stock is listed) is greater than the Put Price determined pursuant
to Paragraph 2 below for any Put Shares for ten (10) consecutive trading
days, the Put Option shall terminate with respect to those Put Shares
(whether or not those Put Shares were eligible to be put to the Company);
provided, however, that such Put Option may be restored in accordance with
Paragraph 2(b) below.
2. Put Price.
(a) The Put Option shall be exercisable at the Put Price provided for
below based on Classic Radio's annual EBITDA (as defined and calculated in
accordance with the Merger Agreement). Except as specifically provided in
Paragraph 2(b) below, (x) the Put Price shall be reduced with respect to
all of the Put Shares if the EBITDA for any year subsequent to the fiscal
year ending December 31, 1998 results in a lower Put Price as set forth
below; and (y) the Put Option will immediately terminate if the EBITDA for
any year subsequent to the fiscal year ending December 31, 1998 results in
the termination of the Put Option as provided below.
(i) If the EBITDA of Classic Radio for the fiscal year ending December
31, 1998 (which for fiscal year 1998 shall be based on the aggregate of
RSI's EBITDA through the Merger Date plus the EBITDA of Classic Radio and
its subsidiary, Classic Radio Acquisition Corp. (together with Classic
Radio, the "Classic Radio Companies") for the period commencing from the
day after the Merger Date through December 31, 1998 attributable to the
business of RSI and such other business as shall be included in the EBITDA
calculation for the fiscal year ending December 31, 1998 as provided in the
Merger Agreement) exceeds the indicated EBITDA figure, then the Put Option
shall be exercisable at the corresponding Put Price:
EBITDA Put Price
------ ---------
$950,000 $ 12.00
$900,000 $ 9.00
$850,000 $ 6.00
$800,000 $ 4.00
$800,000 or less Put Option shall terminate (subject
to Paragraph 2(b) below)
-2-
<PAGE>
(ii) If the EBITDA of the Classic Radio Companies for the fiscal year
ending December 31, 1999 exceeds the indicated EBITDA figure, then the Put
Option shall be exercisable at the corresponding Put Price:
EBITDA Put Price
------ ---------
$1,100,000 $ 12.00
$1,000,000 $ 9.00
$ 900,000 $ 6.00
$900,000 or less Put Option shall terminate (subject
to Paragraph 2(b) below)
(iii) If the EBITDA of the Classic Radio Companies for the fiscal year
ending December 31, 2000 exceeds the indicated EBITDA figure, then the Put
Option shall be exercisable at the corresponding Put Price:
EBITDA Put Price
------ ---------
$1,350,000 $ 12.00
$1,250,000 $ 9.00
$1,150,000 $ 8.00
$1,150,000 or less Put Option shall terminate (subject
to Paragraph 2(b) below)
(b) Notwithstanding the provisions of Paragraph 2(a), if (i) the
EBITDA of the Classic Radio Companies for the fiscal year ending December
31, 1998 (as calculated in accordance with Paragraph 2(a)(i) above) exceeds
$800,000, and (ii) the cumulative EBITDA for the Classic Radio Companies
for the three (3) year period ending December 31, 2000 exceeds $3,400,000,
then the Put Option shall be restored at $12.00 per Share if (x) the EBITDA
for the Classic Radio Companies for the fiscal year ending December 31,
1999 is greater than $855,000 and (y) the EBITDA for the Classic Radio
Companies for the fiscal year ending December 31, 2000 is greater than
$1,092,500, provided that the Put Option will not be restored with respect
to any Put Shares if at any time after such Put Shares became publicly
tradeable the daily closing price of the Common Stock on the American Stock
Exchange (or such other stock exchange on which the Common Stock is listed)
was greater than $12.00 per share for ten (10) consecutive trading days.
3. Exercise of Put Rights. The Put Option shall be exercisable by notice in
writing sent by Amari (a "Put Notice") to the Company advising of his election
to exercise the Put Option. Each Put Notice shall set forth the number of Put
Shares to be sold to Company. Amari shall have up to four (4) opportunities to
send a Put Notice with respect to any Put Shares eligible to be sold, provided
that no less than ten percent (10%) of such eligible Put Shares are included in
a Put Notice. The closing of the purchase and sale of the Put Shares being sold
by Amari shall take place ten (10) business days after the Company's receipt of
the Put Notice (the "Put Closing"). The exercise of the Put Option shall
constitute an unconditional and irrevocable commitment by Amari to
-3-
<PAGE>
sell, on the one hand, and the Company to purchase, on the other hand, all Put
Shares being put to the Company by Amari in accordance with the provisions of
this Agreement. On the date of the Put Closing, Amari shall deliver to the
Company at the Company's offices set forth in Paragraph 5 below the stock
certificate representing such Put Shares, free and clear of any lien or
encumbrance thereon, (except for the liens and encumbrances which may be
asserted by the Company) accompanied by a stock power duly endorsed in blank and
the Company shall deliver to Amari in immediately available funds the aggregate
Put Price for such Put Shares being sold to the Company, together with a stock
certificate representing the ABC Shares not sold by Amari to the Company (if
any).
4. Security Interest. In accordance with the terms of a security agreement
dated of even date hereof between the Classic Radio Companies and Amari, the
Classic Radio Companies have granted to Amari a security interest in the assets
of the Classic Radio Companies acquired from RSI (and all substitutes, additions
and proceeds thereof) to secure the Company's obligations to Amari hereunder.
5. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to the Company, to:
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attn: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
with a copy to:
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Attn: Norton Herrick
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
and
-4-
<PAGE>
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attention: Gary A. Schonwald, Esq.
Telephone No.: 212-826-5583
Facsimile No.: 212-593-9175
and
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Brad Shiffman, Esq.
Telephone No.: 212-885-5442
Facsimile No.: 212-885-5001
if to Classic Radio, to:
Classic Radio Holding Corp.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attn: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
with a copy to:
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Attn: Norton Herrick
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
and
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attention: Gary A. Schonwald, Esq.
Telephone No.: 212-826-5583
Facsimile No.: 212-593-9175
-5-
<PAGE>
and
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Brad Shiffman, Esq.
Telephone No.: 212-885-5442
Facsimile No.: 212-885-5001
if to Amari, to:
Carl Amari
11 Cutters Run
South Barrington, IL 60010
Telephone No.: 847-428-9485
with a copy to:
Schwartz & Freeman
401 North Michigan Avenue
Suite 1900
Chicago, IL 60611-4206
Attn: William Kummerer, Esq.
Telephone No.: 312-222-6683
Facsimile No.: 312-222-0818
6. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
7. Survivability. This Agreement shall survive the termination of Amari's
employment with Classic Radio for any reason.
8. Amendment. This Agreement may only be amended by the parties hereto by
execution of an instrument in writing signed on behalf of each of the parties
hereto.
9. Transferability. Except as set forth below, the Put Option granted to
Amari hereunder is not transferable by Amari at any time without the prior
written consent of the Company. Notwithstanding the foregoing, without the
consent of the Company, the Put Option relating to the Put Shares held by Amari
may be transferred (along with the Put Shares) to, and exercised by, an
immediate family member of Amari or trust(s) established by Amari for the
benefit of himself and/or his family for estate planning purposes, provided
Amari controls all decisions related to such Put Option including, without
limitation, the exercise thereof, on behalf of such trust. In the event of such
transfer, Amari will promptly provide the Company with notice of such transfer
and copies of
-6-
<PAGE>
all agreements pursuant to which Amari maintains decision-making authority and
all such transferees shall be subject to the terms and conditions of this
Agreement.
10. Enforcement. If either party institutes any legal proceeding to enforce
his or its rights hereunder, the prevailing party in such proceeding shall be
entitled to recover from the non-prevailing party his or its reasonable
attorneys' fees, costs and litigation expenses.
[SIGNATURE PAGE TO FOLLOW]
-7-
<PAGE>
IN WITNESS WHEREOF, the Company and RSI have caused this Agreement to be
signed by their duly authorized officers all as of the date first written above.
AUDIO BOOK CLUB, INC.
By: /s/ NORTON HERRICK
-----------------------------------
Name: NORTON HERRICK
Title: CO-CEO
/s/ CARL AMARI
---------------------------------------
CARL AMARI
PUT AGREEMENT
AGREEMENT, dated as of December 11, 1998, between Audio Book Club, Inc., a
Florida corporation (the "Company") and Metacom, Inc., a Minnesota corporation
("Metacom").
WHEREAS, Metacom, the Company and Classic Radio Acquisition Corp., a
indirect wholly-owned subsidiary of the Company ("Classic Radio") have entered
into an asset purchase agreement (the "Purchase Agreement") on even date
herewith providing for the purchase by Classic Radio of the assets of Metacom's
Adventures in Cassettes division (the "Assets");
WHEREAS, pursuant to the Purchase Agreement the Company shall issue to
Metacom 50,000 shares (the "Shares") of the Company's common stock, no par value
(the "Common Stock") as partial consideration for the Assets;
WHEREAS, the Company has agreed to provide Metacom with certain "put"
rights with respect to the Shares in accordance with the terms hereof;
NOW, THEREFORE, for good and valuable consideration receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Put Rights.
(a) Metacom shall have the right and option (the "Put Option") to sell to
the Company, and the Company shall have the obligation to buy, provided such
redemption is not otherwise prohibited by applicable law, all of the Shares
(collectively, the "Put Shares") during the Option Period (as hereinafter
defined) at $10.00 per share (the "Put Price"). The "Option Period" shall
commence on the third anniversary of the Closing Date (as such term is defined
in the Purchase Agreement) and shall end on the tenth anniversary of the Closing
Date, unless and to the extent the Put Option has otherwise been earlier
terminated pursuant to the terms of Paragraph 1(b) below.
(b) If at any time during which the Put Shares are publicly tradeable
pursuant to an effective registration statement or Rule 144 promulgated under
the Securities Act of 1933, as amended, the daily closing price of the Common
Stock on the American Stock Exchange (or such other stock exchange on which the
Common Stock is listed) is greater than the Put Price specified in Paragraph
1(a) above for any Put Shares for ten (10) consecutive trading days, the Put
Option shall terminate with respect to those Put Shares (whether or not those
Put Shares were eligible to be put to the Company).
2. The Put Option shall be exercisable by notice in writing sent by Metacom
(a "Put Notice") to Company advising of its election to exercise the Put. Each
Put Notice shall
<PAGE>
set forth the number of Put Shares to be sold to Company. If Metacom elects to
put to the Company less than all of the Put Shares eligible to be put to the
Company in accordance with the terms hereof, the Put Option shall terminate as
to those eligible Put Shares not put to the Company. The closing of the purchase
and sale of the Shares being sold by Metacom shall take place ten (10) business
days after the Company's receipt of the Put Notice (the "Put Closing"). The
exercise of the Put Option shall constitute an unconditional and irrevocable
commitment by Metacom, on the one hand, and the Company, on the other hand, to
sell and purchase, all Put Shares being put to the Company by Metacom in
accordance with the provisions of this Agreement. On the date of the Put
Closing, Metacom shall deliver to the Company at the Company's offices set forth
in Paragraph 3 below, the certificate representing the Shares, free and clear of
any lien or encumbrance thereon, accompanied by a stock power duly endorsed in
blank and the Company shall deliver to Metacom in immediately available funds
the aggregate Put Price for such Shares being sold to the Company, together with
a stock certificate representing the Shares not sold to the Company.
3. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to the Company, to:
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attn: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
with a copy to:
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Attn: Norton Herrick
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
and
-2-
<PAGE>
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attention: Gary A. Schonwald, Esq.
Telephone No.: (212) 826-5583
Facsimile No.: (212) 593-9175
and
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Brad Shiffman, Esq.
Telephone No.: (212) 885-5442
Facsimile No.: (212) 885-5001
if to Seller, to:
Metacom, Inc.
5353 Nathan Lane
Plymouth, MN 55442
Attention: Robert Ezrilov and DeeDee Drays, Esq.
Telephone No.: 612-557-6145
Facsimile No.:
with a copy to:
Lommen, Nelson, Cole & Stageberg, P.A.
1800 IDS Center
Minneapolis, MN 55402
Attention: David S. Ezrilov, Esq.
Telephone No.: 612-336-9331
Facsimile No.: 612-339-8064
4. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
5. Amendment. This Agreement may only be amended by the parties hereto by
execution of an instrument in writing signed on behalf of each of the parties
hereto.
-3-
<PAGE>
IN WITNESS WHEREOF, the Company and Metacom have caused this Agreement to
be signed by their duly authorized officers all as of the date first written
above.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
---------------------------
Name: Norton Herrick
Title: Co-Chief Executive Officer
METACOM, INC.
By: /s/ R. Ezrilov
---------------------------
Name: R. Ezrilov
Title: President
-4-
[EXECUTION COPY]
REGISTRATION AND SHAREHOLDER
RIGHTS AGREEMENT
This Registration and Shareholder Rights Agreement (this "Agreement") is
made as of the 31st day of December, 1998, by Audio Book Club, Inc., a Florida
corporation ("Buyer"), The Columbia House Company, a New York general
partnership "Seller"), WCI Record Club Inc. ("WCI") and Sony Music Entertainment
Inc. ("Sony").
WHEREAS, Buyer and Seller have entered into an Asset Purchase Agreement,
dated as of the 30th day of December, 1998 (the "Asset Purchase Agreement");
WHEREAS, pursuant to the Asset Purchase Agreement, Buyer is delivering to
Seller, or certain of its Affiliates (as defined below), (i) 325,000 of its
unregistered shares (the "Closing Shares") of common stock, no par value (the
"ABC Common Stock"), and (ii) a warrant to purchase 100,000 shares of ABC Common
Stock (the "Warrant Shares," and, together with the Closing Shares, the
"Shares"), as set forth in Annex A hereto, in partial satisfaction of the
Purchase Price, as defined therein; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Asset Purchase Agreement that Buyer grant to Seller the
registration rights and other rights set forth herein with respect to the Shares
and that the transfer of the Shares be subject to the understandings and
limitations set forth herein.
Capitalized terms used herein and not defined shall have the meanings
assigned to such terms in the Asset Purchase Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Certain Definitions. Unless otherwise defined herein, capitalized terms
used herein and in the recitals above shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under direct or indirect common control with,
such Person. For the purposes of this definition "control," when used with
respect to any specified Person, shall mean the power to direct or cause the
direction of the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities or partnership or other ownership
interests, by contract or otherwise; and the terms "controlling" and
"controlled" shall have the meanings correlative to the foregoing.
<PAGE>
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Effectiveness Period" means the period commencing with the date hereof and
ending on the date that all Shares have been disposed of by the Stockholders (as
defined below).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Market Price," with respect to any date, means the closing price per share
of ABC Common Stock for the trading day immediately preceding such date. The
closing price for each such day shall be the last sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the principal securities exchange on
which the shares of ABC Common Stock are listedolding a majority of the Shares
(the "Majority Stockholders"), or, if such agreement cannot be reached, the
Board of Directors of Buyer, together with the Majority Stockholders shall
select an Independent Financial Expert who shall determine the fair market value
of such shares. In the event that Buyer and the Majority Stockholders are unable
to agree on the Independent Financial Expert within fifteen (15) days after the
request by the Majority Stockholders, each of Buyer and the Majority
Stockholders shall select an Independent Financial Expert and these two shall
select a third Independent Financial Expert, and the determination of fair
market value by such third Independent Financial Expert shall be final and
binding. The fees and expenses of any of the Independent Financial Experts
retained pursuant to this section shall be paid by Buyer on the first occasion
on which such Independent Financial Experts are retained and then, thereafter,
the fees and expenses of any of the Independent Financial Experts shall be split
equally among Buyer and the Stockholders.
"Permitted Transfer" means a transfer of Registrable Shares by Seller, WCI
or Sony to any Affiliate agreeing to become a party hereto and to be bound by
the terms hereof.
"Registration Expenses" means the expenses described in subsection 7.4.
2
<PAGE>
"Registrable Shares" means (i) any Shares held by Seller, WCI or Sony or an
Affiliate thereof from time to time as to which registration pursuant to the
Securities Act is required for public sale without limitation on volume or
otherwise, (ii) any other equity securities of Buyer issued in respect of any of
the Shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events) and (iii) any and all equity securities of
Buyer or any successor into which such shares may be converted; provided,
however, that shares of ABC Common Stock that are Registrable Shares shall cease
to be Registrable Shares (w) when a Registration Statement filed pursuant to the
Securities Act covering such shares of ABC Common Stock has been declared
effective and they have been disposed of pursuant to such effective Registration
Statement, (x) upon any sale pursuant to Section 4(l) of the Securities Act or
Rule 144 or Rule 144A under the Securities Act, (y) at such time as they are
eligible for sale pursuant to Rule 144 under the Securities Act without
limitation as to the amount of securities to be sold or (z) when such shares are
available for sale in the opinion of counsel to Buyer reasonably satisfactory to
Seller, WCI and/or Sony in a single transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are or may be removed
upon the consummation of such sale.
"Registration Statement" means a registration statement filed pursuant to
the Securities Act (as defined herein) by the Buyer with the Commission for a
public offering and sale of securities of Buyer (other than a registration
statement on Form S-8 or Form S-4, or their successors, or any other form for a
limited purpose, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another corporation).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Stockholders" means Seller, WCI or Sony, or any Affiliate thereof, and any
persons or entities to whom the rights granted hereunder are transferred
pursuant to a Permitted Transfer or otherwise in accordance with the terms of
this Agreement, provided that, in the case of a transfer (other than a Permitted
Transfer), the transferee acquires no less than 50% of the total number of
Shares.
2. Restrictions on Transfer.
2.1. Sale or Transfer of Shares; Legend.
(a) The Registrable Shares shall not be sold or transferred other than (i)
pursuant to a Permitted Transfer, (ii) in accordance with the procedure set
forth in Section 3 hereof, provided that, in the case of a transfer other
3
<PAGE>
than to Buyer, Buyer first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to Buyer, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act;
provided that (a) if requested by a Stockholder, Buyer shall use its reasonable
best efforts to cause (at Stockholders' expense) its counsel to furnish such
opinion and (b) in case of a registered public offering, no such opinion shall
be required, or (iii) as provided in Section 6 hereof.
(b) Each certificate representing the Registrable Shares shall bear a
legend consistent with the provisions of paragraph (a) of this Section 2.1.
2.2. Rights. The registration and other rights granted herein to Seller,
WCI or Sony are not transferable and may not be assigned by Seller, WCI or Sony,
except that Seller, WCI or Sony may assign the rights granted herein upon any
Permitted Transfer so long as, in any such case, the transferee agrees to be
bound by the terms of this Agreement.
3. First Offer Right.
3.1. Prior to making any transfer, sale or other disposition of any Shares
(other than pursuant to: (i) a public offering; (ii) a Permitted Transfer; or
(iii) Rule 144 under the Securities Act), the Stockholder shall deliver a
written notice of the proposed disposition ("Offer Notice") to Buyer, which
shall state (i) the number of Shares proposed to be transferred, (ii) the
proposed purchase price and (iii) all other material terms and conditions of
such transfer. During the period commencing on the date that the Buyer receives
the Offer Notice and expiring at the end of business on the tenth (10th)
Business Day following such date (the "Election Period"), Buyer may elect to
purchase all, but not less than all, of the Shares subject to the Offer Notice
(the "Offered Shares") for cash at the purchase price set forth in the Offer
Notice (the "Offer Price"), by delivering written notice of exercise to the
Stockholder (the "Buyer Notice") and Seller, WCI or Sony, as appropriate, shall
sell to Buyer the Offered Shares at such price if Buyer elects to exercise its
rights under this Section 3.1.
3.2. The closing of the Buyer's rights to purchase the Offered Shares shall
be held at the New Jersey offices of Buyer, or if no such offices exists, at
some other location mutually agreed upon by the Buyer and the holders of a
majority of the Offered Shares, at 11:00 a.m., local time, no later than the
fifth (5th) Business Day after delivering the Buyer Notice to Stockholder (the
"Offered Shares Closing"). At the Offered Shares Closing, the Stockholder shall
deliver certificates representing the Shares, duly endorsed for transfer and
accompanied by all requisite transfer taxes, if any, and such Shares shall be
free and clear of any liens and the Stockholder shall so represent and warrant
on behalf of itself, and further represent and warrant that each of the
Stockholders is the sole beneficial and record owner of the Shares owned by it.
At the Offered Shares Closing, Buyer shall deliver to each
4
<PAGE>
Stockholder, by wire transfer in immediately available funds, payment for all of
the Offered Shares or shall make other arrangements for payment satisfactory to
the Stockholder. At the Offered Shares Closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate.
3.3. If Buyer does not elect to purchase the Offered Shares during the
Election Period, the Stockholder may, within ninety (90) days after the date of
the Offer Notice, transfer such Offered Shares in accordance with the Offer
Notice, subject to the other restrictions on transfer set forth herein. If
Stockholder does not complete the disposition within such period, the Offered
Shares again become subject to the provisions of Section 3.1.
4. Shelf Registration Rights.
4.1. Shelf Registrations.
(a) Buyer shall prepare and file with the Commission, as soon as
practicable but in any event no later than forty-five (45) days following the
date hereof (the "Filing Date"), a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 of the Securities Act (or any
successor rule or similar provision then in effect) (a "Shelf Registration")
registering the resale from time to time by the Stockholders thereof of all of
the Registrable Shares (the "Initial Shelf Registration"). The Initial Shelf
Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Shares for resale by the Stockholders. Buyer
shall use its best efforts to cause the Initial Shelf Registration to be
declared effective under the Securities Act as soon as practicable (and shall
promptly notify in writing the Stockholders once the Initial Shelf Registration
has been declared effective) and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the earlier of the: (i)
expiration of the Effectiveness Period; (ii) second anniversary (plus any
Blackout Period, as defined below) from the date the Initial Shelf Registration
covering all of the Registrable Shares has been declared effective under the
Securities Act; (iii) date all of the Registrable Shares part of the Initial
Shelf Registration are sold; or (iv) date a Subsequent Shelf Registration (as
defined below) covering all of the Registrable Shares has been declared
effective under the Securities Act. Any holder of Registrable Shares shall be
permitted to withdraw all or any part of the Registrable Shares from a Shelf
Registration Statement at any time prior to the effective date of such Shelf
Registration Statement.
(b) A registration under this section will not be deemed to have been
effected as a Shelf Registration Statement unless the Shelf Registration
Statement with respect thereto has been declared effective by the Commission and
Buyer has complied in all material respects with this Agreement with respect
thereto; provided, however, that if the Initial Shelf Registration (or any
Subsequent Shelf Registration) is interfered with by any stop order, injunction
or
5
<PAGE>
other order or requirement of the Commission or any other governmental agency or
court, Buyer shall use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness thereof (including, without limitation, amend
the Shelf Registration in a manner reasonably expected to obtain the withdrawal
of the order suspending the effectiveness thereof), and such Initial Shelf
Registration (or any Subsequent Shelf Registration) will be deemed not to have
been effective during the period of such interference until the offering of
Registrable Shares pursuant to such Shelf Registration Statement (or Subsequent
Shelf Registration Statement) may legally resume (the "Blackout Period").
(c) Notwithstanding the foregoing paragraph, if prior to the second
anniversary (plus any Blackout Period) from the date the Initial Shelf
Registration covering all of the Registrable Shares has been declared effective
under the Securities Act Buyer has failed to obtain the withdrawal of the order
suspending the effectiveness within 60 days of such cessation of effectiveness,
Buyer shall file an additional Shelf Registration covering all of the
Registrable Shares (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, Buyer shall use its best efforts to cause the Subsequent
Shelf Registration to be declared effective as soon as practicable after such
filing and to keep such Registration Statement continuously effective until the
earlier of the: (i) expiration of the Effectiveness Period; (ii) second
anniversary from the date the Initial Shelf Registration covering all of the
Registrable Shares has been declared effective under the Securities Act (plus
any Blackout Period); (iii) date all of the Registrable Shares part of the
Subsequent Shelf Registration are sold; or (iv) date another Subsequent Shelf
Registration covering all of the Registrable Shares has been declared effective
under the Securities Act. If the registration required under this Section 4 is
deemed not to have been effected then Buyer shall continue to be obligated to
effect a registration statement pursuant to this Section 4.
(d) Buyer shall supplement and amend any Shelf Registration Statement filed
pursuant to this section if: (i) required by the rules, regulations or
instructions applicable to the registration form used by Buyer for such Shelf
Registration; (ii) required by the Securities Act; or (iii) reasonably requested
by the holders of a majority of the Registrable Shares included in the Shelf
Registration Statement concerned.
(e) As far in advance as practical (but not later than five (5) days)
before filing a Shelf Registration Statement covering any of the Registrable
Shares or any supplement or amendment thereto, Buyer will furnish to the
Stockholders (and their counsel) copies of reasonably complete drafts of all
such documents proposed to be filed (including exhibits), and any Stockholder
shall have the reasonable opportunity to object to any information pertaining
solely to such holder that is contained therein and Buyer will make the
corrections reasonably requested by such holder with respect to such information
prior to filing any such Shelf Registration Statement or amendment thereto;
provided that if Buyer receives no
6
<PAGE>
response on the third day after furnishing Stockholders (and their counsel)
copies of reasonably complete drafts of all such documents proposed to be filed
(including exhibits), Stockholders (and their counsel) will be deemed to have no
comments on the documents concerned.
(f) Each holder of Registrable Shares wishing to sell Registrable Shares
pursuant to a Shelf Registration and related Prospectus agrees to deliver and
execute such questionnaires and otherwise provide such information, reasonably
requested by Buyer in writing (at least ten (10) days prior to the Shelf
Registration Statement concerned being filed) to prepare, file and gain
effectiveness of the Shelf Registration, at least five (5) days prior to the
Shelf Registration Statement concerned being filed.
(g) In connection with this Section 4, neither of the Major Stockholders
(as defined below), individually or in the aggregate, shall sell any shares of
ABC Common Stock on any national securities exchange in excess of the number of
shares permitted to be sold by a single holder of restricted stock of Buyer
pursuant to Rule 144(e)(1) of the Securities Act until the Stockholders are able
to dispose of the Registrable Shares included in the Initial Shelf Registration
(i.e., the Initial Shelf Registration has been declared effective under the
Securities Act and the Stockholders have been notified in writing of such
effectiveness and have been provided with the number of copies of prospectuses
and prospectus supplements that the Stockholders have reasonably requested
related to such Shelf Registration).
(h) In connection with this Section 4, Buyer shall not sell any shares of
ABC Common Stock on any national securities exchange until the Stockholders are
able to dispose of the Registrable Shares included in the Initial Shelf
Registration (i.e., the Initial Shelf Registration has been declared effective
under the Securities Act and the Stockholders have been notified in writing of
such effectiveness and have been provided with the number of copies of
prospectuses and prospectus supplements that the Stockholders have reasonably
requested); provided, however, if a registration statement filed by Buyer has
been declared effective under the Securities Act (the "Buyer Registration
Statement") prior to the date (i) the Initial Shelf Registration has been
declared effective under the Securities Act and (ii) the Stockholders have been
notified in writing of such effectiveness and have been provided with the number
of copies of prospectuses and prospectus supplements that the Stockholders have
reasonably requested related to such Shelf Registration, Buyer agrees to
repurchase from the Stockholders an aggregate of 32,500 of the Closing Shares,
at a purchase price equal to the price the shares of ABC Common Stock are sold
to the public on the closing date of any such transaction from the proceeds of
the sale of ABC Common Stock by Buyer pursuant to the Buyer Registration
Statement. Buyer shall not file a registration statement prior to the filing of
the Initial Shelf Registration other than a registration statement on Form S-8.
7
<PAGE>
5. Put Rights of the Parties.
(a) For a fifteen (15) Business Day period beginning on the six year
anniversary of the Closing Date (the "Put Exercise Period"), Buyer agrees to
repurchase from any one or more of the Stockholders an aggregate of 325,000 of
the Closing Shares (less the number Closing Shares which are repurchased by
Buyer pursuant to Section 4(h) herein, if any), at a purchase price of $15 per
share (the "Stockholder Put Right"), provided that any Stockholder exercising
such right delivers written notice (the "Put Notice") anytime within the Put
Exercise Period to Buyer stating that such Stockholder is exercising the
Stockholder Put Right.
(b) The put rights set forth in Section 5(a) above with respect to the
325,000 Closing Shares shall lapse and become null and void upon the following
conditions. If, for any period of ten (10) consecutive trading days (not
including days during which the "lock-up" referred to in Section 7.8 is in
effect) (the "Measurement Period"), at any time as long as either (i) a
Registration Statement (including a Shelf Registration) that would allow the
sale of the Closing Shares by the Stockholders has been filed and remains
effective during the Measurement Period or (ii) Buyer has offered in writing to
register the sale of the Closing Shares by the Stockholders pursuant to Section
7.2 hereof, such offer has been declined in writing by the Stockholders and the
Registration Statement with respect to such offer has been filed and remains
effective during the Measurement Period, the ABC Common Stock is trading on the
principal securities exchange on which it is listed or admitted for trading at a
Market Price at or above $15 per share, then the Stockholder Put Right shall
lapse, and the number of Closing Shares with respect to which each Stockholder
may exercise the Stockholder Put Right shall be reduced pro rata, with respect
to that aggregate number of Closing Shares set forth in the right hand column
below, opposite the highest level of average daily trading volume (the
"Threshold") exceeded during the Measurement Period, set forth in the left hand
column below, but only to the extent that the actual daily trading volume on at
least three (3) trading days during the Measurement Period equals or exceeds the
Threshold. Notwithstanding the foregoing, if the number of Shares covered (or
offered to be covered) by any Registration Statement referred to above is less
than the number of Closing Shares, then the Stockholder Put Right shall lapse
with respect to no more than such lesser number of Closing Shares.
(c) In addition, to the extent any Closing Shares remain subject to the
Stockholder Put Right subsequent to any lapsing as determined above, then for
each day during the ten (10) consecutive trading days following the Measurement
Period (not including any days during which the "lock-up" is in effect or a
Registration Statement covering the Closing Shares is not effective) that the
ABC Common Stock is trading on the principal securities exchange on which it is
listed or admitted for trading at a Market Price at or above $15 per share and
the actual daily trading volume for ABC Common Stock exceeds any Threshold set
forth in the left hand column below, then the Stockholder Put Right shall lapse,
and the number of
8
<PAGE>
Closing Shares with respect to which the Stockholders may exercise the
Stockholder Put Right shall be further reduced, by an additional number of
Closing Shares equal to seven and one half percent (7 1/2%) of the number of
Closing Shares set forth in the right hand column opposite such Threshold.
Notwithstanding the foregoing, if the number of Shares covered (or offered to be
covered) by any Registration Statement referred to in clause (d) above is less
than the Threshold, then the Stockholder Put Right shall lapse with respect to
no more than such lesser number of Closing Shares.
================================================================================
Average Daily Trading Volume Number of Puts Lapsing
- - --------------------------------------------------------------------------------
40,000 47,500
- - --------------------------------------------------------------------------------
65,000 95,000
- - --------------------------------------------------------------------------------
90,000 142,500
- - --------------------------------------------------------------------------------
120,000 190,000
- - --------------------------------------------------------------------------------
150,000 237,500
- - --------------------------------------------------------------------------------
175,000 285,000
- - --------------------------------------------------------------------------------
200,000 325,000
================================================================================
(d) The closing of the Stockholder Put Right exercised by the Stockholders
pursuant to this Section 5 shall be held at the New Jersey offices of Buyer, or
if no such offices exists, at some other location mutually agreed upon by the
Buyer and a majority of the Stockholders holding a majority of shares as to
which the Put Right has been exercised, at 11:00 a.m., local time, no later than
ten (10) Business Days after delivery by the Stockholders of the relevant Put
Notice to Buyer (the "Closing"). At the Closing, each Stockholder exercising a
Stockholder Put Right shall deliver certificates representing the Closing Shares
covered by the relevant Put Notice, duly endorsed for transfer and accompanied
by all requisite transfer taxes, if any, and such Closing Shares shall be free
and clear of any liens and each Stockholder shall so represent and warrant on
behalf of itself, and further represent and warrant that each of the
Stockholders is the sole beneficial and record owner of the Closing Shares owned
by it. At the Closing, all of the parties to the transaction shall execute such
additional documents as are otherwise necessary or appropriate.
(e) At the Closing, Buyer shall deliver to each Stockholder exercising a
Stockholder Put Right, by wire transfer in immediately available funds, payment
for all of the Closing Shares covered by such Stockholder's Put Notice or shall
make other arrangements for payment satisfactory to such Stockholder. Any
failure by Buyer to make any payment in respect of the Stockholder Put Right
when due shall be a breach of this Agreement and, without limitation of other
rights or remedies available to the Stockholders at law or in equity, to the
extent Buyer was prohibited from making such payment pursuant to FLA. STAT. ANN.
ch. 607.06401
9
<PAGE>
(or any successor rule or similar provision then in effect), subject to Sections
5(f) and (g) below, Buyer shall make such payment(s) on the first date(s) that
it is lawfully permitted to do so, together with interest thereon at the rate of
10% per annum, compounded quarterly.
(f) Buyer represents and warrants that it has not entered into any
agreement or arrangement pursuant to which Buyer is restricted in its ability to
make any payment in respect of the Stockholder Put Right other than as set forth
in the: (i) Credit Agreement dated as of December 31, 1998 among Buyer, the
banks, financial institutions and other institutional lenders named therein (as
initial lenders) and Fleet National Bank, as Initial Issuing Bank, Swing Line
Bank and Administrative Agent (the "Credit Agreement"); and (ii) $15.0 million
principal amount 9.0% Convertible Senior Subordinated Promissory Note of Buyer
due December 31, 2004 (the "Convertible Note").
(g) Buyer covenants and agrees that, at all times between the date hereof
(the "Execution Date") until the earlier of the (i) expiration of the Put
Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) when the Stockholders have disposed of all of the Registrable Shares, it
shall not enter into any agreement or arrangement pursuant to which Buyer will
be restricted in its ability to make any payment in respect of the Stockholder
Put Right other than as set forth in (i) the Credit Agreement, (ii) any
extension, refinancing or replacement of, or amendment or modification to, the
Credit Agreement, (iii) the Convertible Note, (iv) any indebtedness incurred to
repay the Convertible Note or (v) indebtedness, incurred in connection with
future acquisitions, provided, that in the case of clause (v) above, such
indebtedness shall only restrict Buyer's ability to make payments in respect of
the Stockholder Put Right if Buyer is in default of such indebtedness
immediately prior to such payment or if such payment would cause a default under
such indebtedness.
(h) The Put Notice shall be delivered to Buyer in accordance with Section
7.6 herein.
6. Additional Rights of the Parties.
(a) (A) If, at any time prior to the earlier of the (i) expiration of the
Put Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) expiration of the Effectiveness Period, either Norton Herrick or N.
Herrick Irrevocable ABC Trust (the "Major Stockholders"), acting individually or
in concert ("Selling Major Stockholders"), shall desire to sell or otherwise
transfer in a bona fide private sale 50% or more of the ABC Common Stock legally
and/or beneficially owned by the Major Stockholders (provided that the transfer
of the Convertible Note and the warrants issued pursuant to the Warrant
Agreement dated as of December 31, 1998 between Buyer and Norton Herrick to an
unrelated third party bona fide purchaser of the Convertible Note or the
refinancing or replacement thereof
10
<PAGE>
shall be excluded from the provision of this Section 6 in all respects), then
the Selling Major Stockholders shall refrain from effecting such transaction
unless, prior to the consummation thereof, the Stockholders shall have been
afforded the opportunity to join in such sale on a pro rata basis, as
hereinafter provided in Section 6(a)(B).
(B) Prior to consummation of any bona fide private sale of shares of ABC
Common Stock described in this Section 6(a)(B), the Selling Major Stockholders
shall deliver a written notice (the "Sale Notice") to each of the Stockholders,
specifying in reasonable detail the number of shares proposed to be transferred,
the identity of the potential transferee(s) and the terms and conditions of the
transfer; provided, however, that this Section shall not apply to (i) any
transfer by any Major Stockholder of any shares to any of the employees of the
Buyer or any of its subsidiaries, other than in connection with any
extraordinary transaction (e.g., a management buy-out of Buyer), (ii) any
transfer of securities made by any Major Stockholder to members of his immediate
family, (iii) any transfer by any Major Stockholder to any other Major
Stockholder, or to any of their affiliates, (iv) any transfer by any Major
Stockholder pursuant to a pledge agreement with a bank or other financial
institution or (v) any transfer made by any Major Stockholder upon his death to
his estate. The Stockholders may elect to participate in the proposed transfer
by delivering written notice to the Selling Major Stockholder(s) within five (5)
days after receipt of the Sale Notice. If any Stockholder elects to participate
in such transfer pursuant to the terms hereof, such Stockholder shall be
entitled to sell in the proposed transfer, at the same price and on the same
terms, a number of Closing Shares equal to the product of (x) a fraction, the
numerator of which is the number of Closing Shares owned by such Stockholder and
the denominator of which is the total number of shares of ABC Common Stock
beneficially owned by the Selling Major Stockholder(s) on a fully diluted basis
and all of the other Stockholders electing to participate in the transfer
multiplied by, (y) the total number of shares of Common Stock to be transferred
by the Selling Major Stockholder(s) in the proposed transfer.
(b) If Buyer effects, or is a party to, any consolidation, merger or sale,
transfer or other disposition of all or substantially all of the property,
assets or business of Buyer at any time between the Closing Date and the earlier
of the (i) expiration of the Put Exercise Period; (ii) the lapsing of all of the
Stockholders Put Rights; or (iii) expiration of the Effectiveness Period
(collectively, a "Merger Event") (other than any Merger Event: (A) involving
only Buyer and one or more of its Affiliates so long as the Stockholders get:
(1) consideration of the same type and amount per share as the controlling
shareholders of Buyer, including, without limitation, the Major Stockholders;
and (2) rights are not adversely affected by any such event; or (B) effected
with the consent of Fleet National Bank, as administrative agent, following an
Event of Default and foreclosure by Fleet National Bank, under the Credit
Agreement), the Stockholders shall have the right to receive the greater of the
(i) consideration per share received by the stockholders of Buyer or (ii) $15.00
per share. As promptly as possible, but, in any event, at least five (5)
Business
11
<PAGE>
Days after the occurrence of a Merger Event, Buyer shall deliver to each
Stockholder written notice of such event in accordance with Section 7.6 herein.
(c) From the date hereof until the earlier of the (i) expiration of the Put
Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) expiration of the Effectiveness Period, Buyer shall not repurchase, in one
or more private transaction(s), shares of ABC Common Stock outstanding on the
Execution Date, except that Buyer may repurchase (i) up to 200,000 shares of ABC
Common Stock and (ii) those shares of ABC Common Stock that Buyer has committed
to repurchase prior to the date hereof, as set forth on Schedule 4.7 to the
Asset Purchase Agreement.
(d) From the Execution Date until the earlier of the (i) expiration of the
Put Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) expiration of the Effectiveness Period, neither the Major Stockholders nor
Buyer shall purchase any shares of ABC Common Stock on any national securities
exchange, unless such Major Stockholder(s) or Buyer, as the case may be, shall
first offer to repurchase an equal number of Shares from the Stockholders at the
Market Price on such offer date.
7. Registration Rights.
7.1. Required Registrations.
(a) In the event that the Initial Shelf Registration has not been declared
effective by the 180th day after the date hereof or has ceased to be effective
for a period of 20 consecutive days, or any time after the second anniversary
(plus any Blackout Period) of the effectiveness of the Initial Shelf
Registration (or any Subsequent Shelf Registration), the Stockholder(s) holding
in the aggregate at least the greater of (i) 51% of the then Registrable Shares
or (ii) 100,000 Registrable Shares shall have the right to make a written
request that Buyer effect the registration of the number of Registrable Shares
that such Stockholder(s) (the "Requesting Party"); provided, however, that, only
one (1) request for registration may be made under this subsection 7.1(a). The
Buyer will thereupon file a Registration Statement with respect to, and use its
best efforts to cause to be declared effective, at the earliest possible date,
the registration under the Securities Act, including, without limitation, by
means of a Shelf Registration if so requested in such request (but only if Buyer
is then eligible to use such a Shelf Registration), of the Registrable Shares
which Buyer has been so requested to register by the Requesting Party.
(b) A registration requested pursuant to this Section 7.1 shall not be
deemed to have been effected (i) unless a Registration Statement with respect
thereto has become effective and remained effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Shares covered by such Registration Statement until the date twelve
12
<PAGE>
(12) months from the effective date of such Registration Statement; or (ii) if
after it has become effective, such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court, prior to the end of the twelve (12) month period
specified in clause (i) above, for any reason not attributable solely to the
Requesting Party and has not thereafter become effective.
(c) In the event such registration is underwritten (which underwriting
Buyer shall have no obligation to provide except as set forth in Section 7.1(d)
below), the right of other Stockholders to participate shall be conditioned on
such Stockholders' participation in such underwriting. If the managing
underwriter, if any, of any underwritten offering shall advise Buyer (and Buyer
shall so advise each Stockholder of such advice in writing) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, then Buyer will include
in such registration, to the extent of the number of Registrable Shares which
Buyer is so advised can be sold in (or during the time of) such offering at a
price acceptable to each Stockholder, the number of Registrable Shares requested
by each Stockholder to be included in such registration that, in the opinion of
such managing underwriter, can be sold, such amount to be allocated among all
such holders of Registrable Shares pro rata on the basis of the respective
number of Registrable Shares each such holder has requested to be included in
such registration, provided that if the number of Registrable Shares that such
managing underwriter advises can be sold in such offering is less than all the
Registrable Shares that the Requesting Party requested be included, such
Requesting Party may withdraw its written request made pursuant to Section
7.1(a) and such written request will not be considered a request for
registration for the purposes of Section 7.1(a).
(d) If Buyer grants any other person or entity the right to require Buyer
to effect a registration statement registering the distribution by such persons
or entities of securities of Buyer by means of an underwriting, or has granted
any other person or entity such rights, Buyer must promptly advise Seller in
writing. Any time after receipt of such notice, the Requesting Party initiating
the registration pursuant to this Section 7.1 (in accordance with Section 7.1(a)
above) may require Buyer to effect a registration statement registering the
distribution of the Registrable Shares by means of an underwriting (an
"Underwritten Demand") by delivering to Buyer written notice (the "Underwritten
Demand Notice"). Upon receipt of any such Underwritten Demand Notice, Buyer
shall promptly give written notice of such proposed registration to all
Stockholders. Such Stockholders shall have the right, by giving written notice
to Buyer within ten (10) Business Days after the Buyer provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such Stockholders may request in such notice of election and Buyer shall, as
expeditiously as possible, use its best efforts to effect the registration of
such Registrable Shares. In connection with any underwritten offering, Buyer
shall have the right to select the managing underwriter with respect to the
offering;
13
<PAGE>
provided that such managing underwriter shall be a nationally recognized firm
reasonably acceptable to both Buyer and the holders of a majority of the
Registrable Shares requested to be sold in such underwritten offering.
(e) If at the time of any request to register Registrable Shares pursuant
to Sections 7.1(a) or (d) hereof, Buyer is engaged or has fixed plans to engage
within seventy-five (75) days of the time of the request in a registered public
offering as to which the Stockholders may include Registrable Shares pursuant to
Section 7.2 hereof, or is engaged in any other material activity that, in the
good faith determination of Buyer's Board of Directors, would be adversely
affected by the requested registration to the detriment of Buyer, then Buyer
shall give written notice (the "Delay Notice") of such determination to each
Requesting Party. Such delay or discontinuance shall be for the period Buyer
determines on the basis provided above in good faith is necessary or desirable,
but in no event greater than 150 days from delivery by Buyer of the Delay
Notice, provided that Buyer shall have the right to only one Delay Notice each
year and no more than 180 days of delay or discontinuance in any two year
period. Buyer shall notify in writing the Requesting Party of the expiration of
the period of delay or discontinuance. Following such delay or discontinuance,
Buyer shall promptly cause the Registrable Shares to be registered unless,
within twenty (20) Business Days of receipt of notice from Buyer, the Requesting
Party withdraws its written request made pursuant to Section 7.1(a), in which
case, such written request will not be considered a request for registration for
the purposes of Section 7.1(a).
7.2. Incidental Registration.
(a) At any time following the Closing Date, when Buyer proposes to file a
Registration Statement (other than pursuant to Section 7.1 hereof), it will give
written notice to all Stockholders and, upon the written request of a
Stockholder or Stockholders given within ten (10) Business Days after Buyer
provides such notice (which request shall specify the Registrable Shares
intended to be disposed of by such holder), Buyer shall, subject to subsections
7.2(b) and 7.2(c) hereof, use its best efforts to cause all Registrable Shares
that Buyer has been requested by such Stockholder or Stockholders to register to
be registered under the Securities Act; provided, however, if, at any time after
giving such written notice of its intention to register any securities and prior
to the effective date of the Registration Statement filed in connection with
such registration, Buyer shall determine for any reason not to register such
securities, Buyer may, at its election, give written notice of such
determination to each holder of Registrable Shares who shall have made a request
for registration as hereinabove provided and thereupon Buyer shall be relieved
of its obligation to register any Registrable Shares in connection with this
Section 7.2 (but not from its obligation to pay any expenses in connection
therewith).
(b) In connection with any offering under this Section 7.2 hereof involving
an underwriting, Buyer shall not be required to include
14
<PAGE>
any Registrable Shares in such offering unless the holders thereof accept the
terms of the underwriting as agreed upon between Buyer and the underwriters
selected by it and execute an underwriting agreement reflecting such terms
(provided that such terms must be consistent with this Agreement).
(c) If a registration pursuant to this Section 7.2 involves an underwritten
offering and the managing underwriter advises the issuer that, in its opinion,
the number of securities proposed to be included in such registration should be
limited due to market conditions, then, after having included in such
registration any shares being registered in satisfaction of "demand"
registration rights of any person, Buyer shall include in such registration, to
the extent of the number of Registrable Shares which Buyer is so advised by the
managing underwriter in its professional judgment can be sold without materially
adversely impacting the terms of the underwriting in (or during the time of)
such offering at a price acceptable to each Stockholder, the number of
Registrable Shares requested by each Stockholder to be included in such
registration that, in the opinion of such managing underwriter, can be sold,
such amount to be allocated among all such holders of Registrable Shares pro
rata on the basis of the respective number of Registrable Shares each such
holder has requested to be included in such registration. If any third party
notifies Buyer of its intent to exercise a "demand" registration right which
would have the effect of reducing the number of Registrable Shares to be
registered pursuant to the preceding sentence, then, promptly upon receipt of
such notice, Buyer shall notify the Stockholders requesting registration of such
demand and, if all of the other conditions set forth in Section 7.1 are met,
such Stockholders may thereupon elect to exercise their "demand" registration
rights pursuant to Section 7.1 hereof in lieu of their "piggyback" registration
rights pursuant to this Section 7.2. No third party shall be granted any
registration rights superior to the rights granted under this Agreement.
7.3. Registration Procedures. If and whenever Buyer is required by the
provisions of this Agreement to use its efforts to effect the registration of
any of the Registrable Shares under the Securities Act (including, without
limitation, pursuant to Section 4 herein), Buyer shall, except as otherwise
specifically set forth in Section 4 herein:
(a) prepare and, in case of any registration effected pursuant to Section
7.1 hereof, subject to Section 7.1(e) hereof, within ninety (90) calendar days
after which the request for registration may be given to Buyer, file with the
Commission a Registration Statement with respect to such Registrable Shares and
use its best efforts to cause such Registration Statement to become and remain
effective (the "Registration Statement"); provided that as far in advance as
practical before filing such Registration Statement or any amendment thereto,
Buyer will furnish to the Stockholders that (whether pursuant to Sections 4, 7.1
or 7.2) have Registrable Shares included in such registration ("Requesting
Stockholders") copies of reasonably complete drafts of all such documents
proposed to be filed (including exhibits), and any Requesting Stockholder shall
have the reasonable opportunity (but
15
<PAGE>
not less than five (5) Business Days) to object to any information pertaining
solely to such holder that is contained therein and Buyer will make the
corrections reasonably requested by such holder with respect to such information
prior to filing any such Registration Statement or amendment;
(b) as expeditiously as possible prepare and file with the Commission any
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus included in the Registration Statement
as may be necessary to keep the Registration Statement effective, in the case of
a firm commitment underwritten public offering, until each underwriter has
completed the distribution of all securities purchased by it and, in the case of
any other offering, until the earlier of the sale of all Registrable Shares
covered thereby or twelve (12) months after the effective date thereof;
(c) as expeditiously as possible furnish to each Requesting Stockholder
such numbers of copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as the Requesting Stockholder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Shares owned by the
Requesting Stockholders;
(d) as expeditiously as possible use its commercially reasonable efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the Requesting
Stockholders shall reasonably request, and do any and all other acts and things
that may be necessary or desirable to enable the Requesting Stockholders to
consummate the public sale or other disposition in such states of the
Registrable Shares owned by the Requesting Stockholders; provided, however, that
Buyer shall not be required in connection with this paragraph (d) to qualify as
a foreign corporation or execute or file a general consent to service of process
in any jurisdiction;
(e) otherwise use its best efforts to cause Registrable Shares covered by
such Registration Statement to be registered with, or approved by, such other
governmental agencies or authorities as may be necessary to enable the
Requesting Stockholders to consummate the disposition of such Registrable
Shares, so long as the requirement of such approval relates to the business of
Buyer;
(f) notify each seller of such Shares, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, such prospectus shall not contain an
untrue
16
<PAGE>
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(g) during normal business hours and on reasonable advance notice and, make
available for inspection by any seller of Shares (who executes a confidentiality
agreement substantially to the effect set forth in Annex B hereto), any
underwriter participating in any disposition pursuant to such registration
statement (who executes a confidentiality agreement substantially to the effect
set forth in Annex B hereto) and any attorney, accountant or other agent
retained by any such seller or underwriter (each a "Person"), such financial and
other records, documents and properties of Buyer, and cause Buyer's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement (provided that any Person
who receives such financial and other records, documents and properties of Buyer
agrees to use reasonable precautions to keep confidential all non-public
information identified by Buyer as being confidential at the time the same is
delivered to such Person pursuant to this section);
(h) permit any holder of Shares which holder, in its reasonable judgment,
might be deemed to be an underwriter or a controlling person of Buyer, to
participate in the preparation of such registration or comparable statement and
to require the insertion therein of material, furnished to Buyer in writing,
which in the reasonable judgment of such holder and its counsel should be
included;
(i) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, Buyer shall use its reasonable best efforts promptly to obtain the
withdrawal of such order;
(j) provide a transfer agent and registrar for all such Registrable Shares
not later than the effective date of such registration statement;
(k) comply in all material respects with all applicable rules and
regulations of the Commission in connection with the Registration Statement;
(l) in the case of any underwritten offering, promptly enter into a
customary Underwriting Agreement reasonably acceptable to the Underwriter,
including, if applicable, the terms set forth in Section 7.1(d) hereof; and
(m) promptly notify the General Counsel and Chief Financial Officer of
Seller at the addresses set forth in Section 7.6 hereof (which
17
<PAGE>
notification will be deemed to be notice to all Stockholders), and the
underwriter or underwriters, if any:
(A) when such Registration Statement or any prospectus used in connection
therewith, or any amendment or supplement thereto, (i) has been filed and (ii)
has become effective;
(B) of any written comments from the Commission with respect to any filing
referred to in clause (A), to the extent that such written comments are
substantive, and of any written request by the Commission for amendments or
supplements to such Registration Statement or prospectus;
(C) of the written notification to Buyer by the Commission of its
initiation of any proceeding with respect to the issuance by the Commission of,
or of the issuance by the Commission of, any stop order suspending the
effectiveness of such Registration Statement; and
(D) of the receipt by Buyer of any notification with respect to the
suspension of the qualification of any Registrable Shares for sale under the
applicable securities or blue sky laws of any jurisdiction.
If Buyer has delivered preliminary or final prospectuses to the Requesting
Stockholders and after having done so, the prospectus is amended to comply with
the provisions of the Securities Act or is amended or supplemented pursuant to
Section 7.3(b), Buyer shall promptly notify the Requesting Stockholders, the
Requesting Stockholders shall immediately cease making offers of Registrable
Shares and, if requested, return all prospectuses to Buyer. Buyer shall promptly
provide the Requesting Stockholders with revised prospectuses, to the extent
required by Section 7.3(b), and, following receipt of the revised prospectuses,
the Requesting Stockholders shall be free to resume making offers of the
Registrable Shares.
7.4. Allocation of Expenses. Buyer will pay all Registration Expenses of
all registrations under this Agreement; provided, however, that if a
registration under Section 7.1 hereof is withdrawn at the request of the
Requesting Stockholders (other than as a result of materially adverse
information concerning the business or financial condition of Buyer that is made
known to the Stockholders after the date on which such registration was
requested) and if the Requesting Stockholders elect not to have such
registration counted as a registration requested under Section 7.1 hereof, the
Requesting Stockholders shall pay the Registration Expenses of such registration
pro rata in accordance with the number of their Registrable Shares included in
such registration. For purposes of this Section 7.4, the term "Registration
Expenses" shall mean all expenses incurred by Buyer in complying with Section 6
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and expenses of counsel for Buyer, reasonable state Blue
Sky fees and expenses, and the expense of any special audit incident to or
required by any such
18
<PAGE>
registration, and the fees and disbursements of Buyer's independent public
accountants, including the expenses of any "cold comfort" letters required by or
incident to such performance and compliance, provided that "Registration
Expenses" shall not include underwriting discounts and selling commissions,
non-accountable or accountable expense allowances, other brokerage fees and
transfer taxes relating to the Registrable Shares. The Requesting Stockholders
shall pay any underwriting discounts and selling commissions, non-accountable or
accountable expense allowances, other brokerage fees and transfer taxes relating
to the Registrable Shares, and any fees and expenses of any counsel to the
Stockholders or any Stockholder.
7.5. Indemnification and Contribution. In the event of any registration of
any of the Registrable Shares under the Securities Act pursuant to this
Agreement, Buyer will indemnify and hold harmless the Stockholders selling
Registrable Shares, each underwriter of such Registrable Shares, and each of
their respective directors and officers, and each other person, if any, who
controls such Stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act against any losses, claims, damages, or liabilities,
joint or several, to which such Stockholder, underwriter, director, officer or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or Blue Sky laws, or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement (or any amendment or supplement
thereto) under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus, or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement or prospectus, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and Buyer will
reimburse such Stockholder, underwriter, and each such controlling person for
its reasonable costs and expenses (including reasonable attorneys fees and
expenses) in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that Buyer will not be liable
in any such case to the extent that any such loss, claim, damage, or liability
(i) arises out of, or is based upon, any material untrue statement or omission
made in such Registration Statement, preliminary prospectus, or final
prospectus, or any such amendment or supplement in reliance upon, and in
conformity with, information furnished to Buyer in writing, by or on behalf of
any such Stockholder, underwriter, or controlling person, specifically for use
in the preparation thereof or (ii) is based solely upon, failure to give or
deliver a prospectus at, or prior to, written confirmation of sale.
In the event of any registration of any of the Registrable Shares under the
Securities Act pursuant to this Agreement, each Stockholder selling Registrable
Shares will indemnify and hold harmless Buyer, each of its directors and
officers and each underwriter (if any) and each person, if any, who controls
Buyer or any such underwriter within the meaning of the Securities Act or the
Exchange Act,
19
<PAGE>
(collectively, "Buyer Indemnitees") against any losses, claims, damages, or
liabilities, to which Buyer, such directors and officers, underwriter, or
controlling person may become subject under the Securities Act, Exchange Act,
state securities or Blue Sky laws, or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such Stockholder furnished in writing to Buyer by or on
behalf of such Stockholder specifically for use in connection with the
preparation of such Registration Statement, prospectus, amendment, or
supplement.
Each party entitled to indemnification under this Section 7.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and provided, further, that the failure of any Indemnified Party to
give notice as provided herein, which failure is not prejudicial to the defense
of such claim or litigation, shall not relieve the Indemnifying Party of its
obligations under this Section 7.5. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
Party shall pay the fees and expenses of no more than one counsel to the
Indemnified Party approved by the Indemnifying Party if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigations, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior consent of the Indemnifying
Party, which consent shall be deemed to be given if not denied within five (5)
days of the Indemnified Party's submission of a request for such consent.
In order to provide for just and equitable contribution in circumstances
under which the indemnity contemplated by Section 7.5 hereof is for any reason
not available, the parties required to indemnify by the terms thereof shall
contribute to the
20
<PAGE>
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement (collectively, "Losses") incurred by
Buyer, any seller of Registrable Shares and one or more of the underwriters,
except to the extent that contribution is not permitted under Section 11(f) of
the Securities Act. In determining the amounts which the respective parties
shall contribute, there shall be considered the relative fault of the
Indemnifying Party on the one hand and the Indemnified Party on the other hand
in connection with statements or omissions which resulted in such Losses, as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, the parties' relative knowledge
and access to information concerning the matter with respect to which the claim
was asserted, the opportunity to correct and prevent any statement or omission
and any other equitable considerations appropriate under the circumstances.
Buyer and each Person selling securities agree with each other that no seller of
Registrable Shares shall be required to contribute any amount in excess of the
amount such seller would have been required to pay to an Indemnified Party if
the indemnity under Section 7.5 hereof were available. Buyer and each such
seller agree with each other and the underwriters of the Registrable Shares, if
requested by such underwriters, that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation. For
purposes of this Section 7.5, each Person, if any, who controls an underwriter
within the meaning of the Securities Act shall have the same rights to
contribution as such underwriter, and each director and each officer of Buyer
who signed the Registration Statement, and each Person, if any, who controls
Buyer or a seller of Registrable Shares, shall have the same rights to
contribution as Buyer or a seller of Registrable Shares, as the case may be.
Notwithstanding anything herein the contrary, the rights and obligations
contained in this Section 7.5 shall survive any termination of this Agreement.
7.6. Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering, Buyer agrees to enter into an underwriting agreement
containing customary representations and warranties with respect to the business
and operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including without
limitation customary provisions with respect to indemnification by Buyer of the
underwriters of such offering.
7.7. Information by Holder. Each holder of Registrable Shares included in
any registration shall furnish to Buyer such information regarding such holder
and the distribution proposed by such holder as Buyer may reasonably request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 6. Buyer shall not be
obligated to register any Registrable Shares pursuant to this Section 6 unless
Buyer has first received the foregoing information with respect to the holder or
holders thereof.
21
<PAGE>
7.8. "Lock-Up" Agreement. Each holder of Registrable Shares holding
beneficial ownership of in excess of 2% of the outstanding shares of ABC Common
Stock (calculated under Rule 13d-3 of the Exchange Act) agrees, to the extent
reasonably requested in writing by Buyer in the event of a non-underwritten
"rights" offering to all existing stockholders or to the extent reasonably
requested in writing by an underwriter in the event of an underwritten offering
as to which the holder of such Registrable Shares had the right to cause such
Registrable Shares to be included, to execute a customary "lock-up" agreement to
defer the sale or distribution of all Registrable Shares (other than (i)
Registrable Shares included in any such offering and (ii) Shares proposed to be
sold in a non-public sale, so long as the prospective purchaser of such Shares
agrees in writing with the Buyer to be bound by the terms of this Agreement) for
a period of time (not to exceed ninety (90) days) following the effective date
of a registration statement of Buyer filed under the Securities Act, which
agreement, in each such case, shall also bind the executive officers and
directors of Buyer and the Major Stockholders and other stockholders holding
more than two percent (2%) of the then-outstanding capital stock of Buyer, on
terms and conditions substantially similar to those which shall apply to holders
of Registrable Shares.
8. Miscellaneous.
8.1. Violative Agreement. Buyer represents and warrants that it has not
entered into, and covenants that it shall not hereafter enter into, any
agreement or arrangement with respect to its securities which violates or
adversely effects the rights granted to the holders of Registrable Shares in
this Agreement.
8.2. Remedies. The parties hereto agree that if any party seeks to resolve
any dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing party to such proceeding shall be entitled promptly to receive from
the other party, the fees and expenses (including reasonable attorneys fees and
expenses) incurred on the prevailing party's behalf in connection with such
proceedings.
8.3. Owners or Affiliates of Seller. Buyer acknowledges that the
obligations and liabilities of Seller arising out of this Agreement or any other
transaction contemplated hereby, whether arising before, on or after the Closing
Date and whether known or unknown, actual, fixed, contingent or otherwise, shall
not be binding upon, enforceable against or extend to the owners or Affiliates
of Seller (other than owners or Affiliates who are Stockholders) and that its
sole recourse is to the assets of Seller and not to the assets of the owners or
Affiliates of Seller (other than owners or Affiliates who are Stockholders).
8.4. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively),
22
<PAGE>
only with the written consent of the Buyer and the Majority Stockholders;
provided, however, if the rights of any holder of Shares is adversely affected,
Buyer must obtain the written consent of such holder. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Shares then outstanding, each future holder of all such Shares, and Buyer.
8.5. Obligations of Stockholders. By exercising any rights hereunder, each
Stockholder shall be deemed to assume all obligations of a Stockholder hereunder
as though such Stockholder were a signatory hereto. Buyer may require any
Stockholder to execute an instrument whereby such Stockholder expressly assumes
all obligations of such Stockholder hereunder as a condition precedent to any
obligation of Buyer to such Stockholder hereunder.
8.6. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements among them concerning such subject matter and
may be modified only by a written instrument duly executed by each party hereto.
8.7. Notices. Any notice given pursuant to this Agreement to any party
hereto shall be deemed to have been duly given when mailed by registered or
certified mail, return receipt requested, or by overnight courier, or when hand
delivered as follows:
If to Seller, WCI, Sony or Stockholders:
The Columbia House Company
1221 Avenue of the Americas
New York, New York 10020-1090
Attention: General Counsel
-and-
The Columbia House Company
1221 Avenue of the Americas
New York, New York 10020-1090
Attention: Chief Financial Officer
23
<PAGE>
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James H. Schwab, Esq.
If to Buyer:
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962-2346
Attention: Michael Herrick, Co-CEO
-and-
Audio Book Club, Inc.
2295 Corporate Blvd, N.W. Suite 222
P.O. Box 5010
Boca Raton, Florida 33431-0810
Attention: Norton Herrick, Co-CEO
with a copy to:
Werbel & Carnelutti
711 Fifth Avenue
New York, New York 10022
Attention: Guy N. Molinari, Esq.
-and-
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
or at such other address as either such party shall from time to time designate
by written notice, in the manner provided herein, to the other party hereto. All
24
<PAGE>
references to days in this Agreement shall be deemed to refer to calendar days,
unless otherwise specified.
8.8. Waiver. Any waiver must be in writing, and any waiver by any party of
a breach of any provision of this Agreement shall not operate as or be construed
to be a waiver of any other breach of that provision or of any breach of any
other provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions will not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
8.9. Separability. If any provision of this Agreement is invalid, illegal
or unenforceable, such provision shall be ineffective to the extent, but only to
the extent of, such invalidity, illegality or unenforceability, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, unless such a construction would be unreasonable.
8.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.11. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York. Each party hereto
agrees that it shall bring any action or proceeding in respect of any claim
arising out of or related to this Agreement or the transactions contained in or
contemplated by this Agreement, whether in tort or contract or otherwise or at
law or in equity, exclusively in the United States District Court for the
Southern District of New York (the "Chosen Court") and (i) irrevocably submits
to the exclusive jurisdiction of the Chosen Court, (ii) waives any objection to
laying venue in any such action or proceeding in the Chosen Court and (iii)
waives any objection that the Chosen Court is an inconvenient forum or does not
have jurisdiction over any party hereto.
8.12. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their permitted successors and assigns.
[SIGNATURE PAGE FOLLOWS]
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE COLUMBIA HOUSE COMPANY
By: /s/ Richard C. Wolter
-------------------------------
Name: Richard C. Wolter
Title: Chairman and Chief Executive Officer
WCI RECORD CLUB INC.
By: /s/ Fred Wistow
-------------------------------
Name: Fred Wistow
Title: Vice President and Secretary
SONY MUSIC ENTERTAINMENT INC.
By: /s/ Thomas Connolly
-------------------------------
Name: Thomas Connolly
Title: Senior Vice President and Comptroller
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
-------------------------------
Name: Norton Herrick
Title: Chairman and Chief Executive Officer
26
<PAGE>
ANNEX A
SHARES DISTRIBUTION SCHEDULE
Closing Shares Warrant Shares
-------------- --------------
The Columbia House Company.......... 225,000 0
WCI Record Club Inc................. 50,000 50,000
Sony Music Entertainment Inc........ 50,000 50,000
ii
<PAGE>
ANNEX B
December __, 1998
CONFIDENTIALITY AGREEMENT
[Prospective Holder of Registrable Shares]
Re: Registration and Shareholder Rights Agreement dated as of
December __, 1998 among Audio Book Club, Inc., Fleet National Bank
and International Nederladen (US) Capital Corporation
Dear Sirs:
As a party to the above-referenced Registration and Shareholder Rights
Agreement (the "Agreement"), we have agreed with Audio Book Club, Inc. (the
"Company") pursuant to Section 7.3(g) of the Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information identified by the Company as being confidential at the
time the same is delivered to us pursuant to the Agreement.
As provided in said Section 7.3(g) thereof, we are permitted to provide
you, as a prospective holder of Registrable Shares (as defined in the
Agreement), with certain of such non-public information subject to the execution
and delivery by you, prior to receiving such non-public information, of a
Confidentiality Agreement in this form. Such information will not be made
available to you until your execution and return to us of this Confidentiality
Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (a) such information will not be used by you except in
connection with the proposed purchase mentioned above and (b) you shall use
reasonable precautions, in accordance with your customary procedures for
handling confidential information and in accordance with safe and sound
practices, to keep such information confidential, provided that nothing herein
shall limit the disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to your counsel or to
counsel for any of the holders of Registrable Shares, and (iii) to regulatory
personnel, auditors or accountants; provided that in no event shall you be
obligated to return any materials furnished to you pursuant to this
Confidentiality Agreement.
iii
<PAGE>
Would you please indicate your agreement to the foregoing by signing, at
the place provided below, the enclosed copy of this Confidentiality Agreement.
Very truly yours,
[Stockholder]
By:
------------------------------
The foregoing is agreed to
as of the date of this letter.
[Insert Name of Prospective
Holder of Registrable Shares]
By:
-----------------------------
iv
NEITHER THIS NOTE, NOR ANY SECURITY ISSUABLE UPON CONVERSION HEREOF, HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS. NO INTEREST IN THIS NOTE MAY BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE ACT WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF ITS COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
AUDIO BOOK CLUB, INC.
9% CONVERTIBLE SENIOR SUBORDINATED PROMISSORY NOTE
DUE DECEMBER 31, 2004
$14,000,000.00 December 31, 1998
AUDIO BOOK CLUB, INC. (together with its successors, the "Company"), a
Florida corporation, for value received, hereby promises to pay to Norton
Herrick or registered assigns (the "Holder"), the principal sum of FOURTEEN
MILLION DOLLARS ($14,000,000) on December 31, 2004 (the "Maturity Date"), and to
pay interest on the unpaid principal balance hereof from December 7, 1998 to the
Maturity Date at the rate of nine percent (9.0%) per annum, in arrears,
quarterly on March 31, June 30, September 30 and December 31 in each year,
commencing on March 31, 1999, until the principal amount hereof shall become due
and payable; and to pay on demand interest on any overdue principal (including
any overdue partial payment of principal and principal payable at the maturity
hereof), and (to the extent permitted by applicable law) on any overdue
installment of interest (the due date of such payments to be determined without
giving effect to any grace period) at the rate of eleven percent (11.0%) per
annum.
1. Interest and Payment
1.1 Interest shall be computed on the basis of a 360 day year of twelve 30
day months for the actual time elapsed.
1.2 At the option of the Holder, the Company may pay a scheduled interest
payment in a number of whole shares of common stock, without par value ("Common
Stock"), of the Company, in lieu of paying such interest in cash, equal to the
quotient of dividing the amount of accrued and unpaid interest payable on such
interest payment date by an amount equal to the then current Conversion Price
(as hereinafter defined). No fractional shares of Common Stock will be issued to
the Holder in lieu of cash interest. Instead of any fractional share which would
otherwise be issuable in lieu of cash interest, the Company will calculate and
pay a cash adjustment in respect of such fraction (calculated to the nearest
1/100th of a share) in an amount equal to the same fraction of the Conversion
Price at the close of business on the fifth business day immediately preceding
such interest payment date. The Holder may exercise its option to cause the
Company to issue shares of Common Stock, in lieu of cash interest payable on an
interest payment date, by giving the Company written notice of its exercise of
such option at least five business days prior to such interest payment date and
the Company will deliver or cause
<PAGE>
its transfer agent to deliver, to the Holder or its designee on such interest
payment date, duly executed certificates for the number of whole shares of
Common Stock so issuable to the Holder registered in the Holder's name or such
other name or names and in such denominations as the Holder shall have
designated in its notice of exercise, and, if applicable, a check payable to the
Holder for any cash adjustment in lieu of a fractional share.
1.3 Except as provided in Section 1.2 hereof, payments of principal, Change
in Control Purchase Price (as hereinafter defined), if any, and accrued interest
shall be made in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private Debts to
the Holder hereof at its address shown in the register maintained by the Company
for such purpose.
1.4 (a) The Company shall pay all amounts payable with respect to this Note
(without any presentment of this Note) by crediting, by federal funds bank wire
transfer, the account of the Holder in any bank in the United States of America
as may be designated in writing by the Holder or in such other manner or to such
other address in the United States of America as may be designated in writing by
the Holder (and as to which, absent subsequent notice from the Holder, the
Company may conclusively rely). Annex 1 shall be deemed to constitute notice,
direction or designation (as appropriate) by the payee of this Note to the
Company with respect to payments to be made to such payee as above provided. In
the absence of such written direction, all amounts payable with respect to this
Note shall be paid by check mailed and addressed to the Holder at its address
shown in the register maintained by the Company pursuant to Section 2.1.
(b) All payments received on account of this Note shall be applied
first to the payment of accrued and unpaid interest on this Note and then
to the reduction of the unpaid principal amount of this Note. In case the
entire principal amount of this Note is paid or this Note is purchased by
the Company, this Note shall be surrendered to the Company for cancellation
and shall not be reissued, and no Note shall be issued in lieu of the paid
principal amount of any Note.
1.5 (a) If any payment due on account of this Note shall fall due on a day
other than a business day, then such payment shall be made on the first business
day following the day on which such payment shall have so fallen due; provided
that if all or any portion of such payment shall consist of a payment of
interest, for purposes of calculating such interest, such payment shall be
deemed to have been originally due on such first following Business Day, such
interest shall accrue and be payable to (but not including) the actual date of
payment, and the amount of the next succeeding interest payment shall be
adjusted accordingly.
(b) Any payment to be made to the Holder on account of this Note shall
be deemed to have been made on the business day such payment actually
becomes available at such Holder's bank prior to the close of business of
such bank, provided that interest for one day at the non-default interest
rate of this Note shall be due on the amount of any such payment that
actually becomes available to the Holder at the Holder's bank after 1:00
p.m. (local time of such bank).
1.6 The Company may, upon at least three business days prior written notice
to the Holder specifying the date of the prepayment (the "Prepayment Date") and
the principal amount to be prepaid, prepay the unpaid principal balance of this
Note in whole at any time or in part from time to time, without penalty or
premium, in multiples of $100,000 (or if the outstanding principal amount is
less than
-2-
<PAGE>
$100,000 at such time, then such principal amount) together with interest on the
principal amount being prepaid accrued to the designated Prepayment Date.
1.7 In the event of a Change in Control, the Company will, within 15
business days after the occurrence of such event, give notice of such Change in
Control to the Holder. Such notice shall contain an irrevocable offer to the
Holder to repurchase this Note on a date (the "Change in Control Payment Date")
specified in such notice that is not less than thirty (30) days and not more
than ninety (90) days after the date of such notice, at a purchase price equal
to 100% of the aggregate principal amount thereof and all interest accrued and
unpaid on such principal amount to the Change in Control Payment Date (the
"Change in Control Purchase Price"). Each such notice shall: (i) be dated the
date of the sending of such notice; (ii) be executed by an executive officer of
the Company; (ii) specify, in reasonable detail, the nature and date of the
Change in Control; (iv) specify the Change in Control Payment Date; (v) specify
the principal amount of this Note outstanding; (vi) specify the interest that
would be due on this Note, accrued to the Change in Control Payment Date; and
(vii) specify that this Note shall be purchased at the Change in Control
Purchase Price. The Holder shall have the option to accept or reject such
offered payment. In order to accept such offered payment, the Holder shall cause
a notice of such acceptance to be delivered to the Company at least five days
prior to the Change in Control Payment Date. A failure to accept in writing such
written offer of payment as provided in this Section 1.7, or a written rejection
of such offered prepayment, shall be deemed to constitute a rejection of such
offer. The offered payment shall be made at the Change in Control Purchase Price
determined as of the Change in Control Payment Date.
1.8 Upon any partial payment of the outstanding principal amount of this
Note, the Holder shall mark this Note with a notation of the principal amount so
paid and the date of such payment.
2. Registration; Exercise; Substitution
2.1 The Company will keep at its principal executive office a register for
the registration and transfer of this Note. The name and address of the Holder
of this Note, each transfer hereof made in accordance with Section 2.2(a) and
the name and address of each transferee of this Note shall be registered in such
register. The person in whose name this Note shall be registered shall be deemed
and treated as the owner and holder thereof, and the Company shall not be
affected by any notice or knowledge to the contrary, other than in accordance
with Section 2.2(a)
2.2 (a) Upon surrender of this Note at the principal executive office of
the Company, duly endorsed or accompanied by a written instrument of transfer
duly executed by the Holder or the Holder's attorney duly authorized in writing,
the Company will execute and deliver, at the Company's expense (except as
provided in Section 2.2(c)), a new Note (or Notes) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Subject to Section 2.2(b), the new Note(s) shall be registered
in such name(s) as the Holder may request. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note, if no interest shall
have been paid thereon. Each such new Note shall carry the same rights to unpaid
interest and interest to accrue on the unpaid principal amount thereof as were
carried by the Note so exchanged or transferred.
(b) This Note has been acquired for investment and has not been
registered under the securities laws of the United States of America or any
state thereof. Accordingly, notwithstanding
-3-
<PAGE>
Section 2.2(a), neither this Note nor any interest thereon may be offered for
sale, sold or transferred in the absence of registration and qualification of
this Note under applicable federal and state securities laws or an opinion of
counsel of the Holder reasonably satisfactory to the Company that such
registration and qualification are not required. This Note shall not be
transferred in denominations of less than $100,000 and integral multiples
thereof, provided that the Holder may transfer this Note as an entirety
regardless of the principal amount thereof.
(c) The Company may require payment of a sum sufficient to cover any stamp
tax or governmental change imposed in respect of any such transfer of this Note.
2.3 Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note (which evidence shall be, if the Holder is the payee or an
institutional investor, notice from the payee or such institutional investor of
such loss, theft, destruction or mutilation), and (a) in the case of loss, theft
or destruction, of indemnity reasonably satisfactory to the Company; provided,
however, that if the Holder is the payee or an institutional investor, the
unsecured agreement of indemnity of the payee or such institutional investor
shall be deemed to be satisfactory; or (b) in the case of mutilation, upon
surrender and cancellation thereof; the Company at its own expense will execute
and deliver, in lieu thereof, a replacement Note, dated and bearing interest
from the date to which interest shall have been paid on such lost, stolen,
destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note, if no interest shall have been paid thereon.
2.4 The Company will pay taxes (if any) due (but not, in any event, income
taxes of the Holder) in connection with and as the result of the initial
issuance of this Note and in connection with any modification, waiver or
amendment of this Note and shall save the Holder harmless, without limitation as
to time, against any and all liabilities with respect to all such taxes.
3. Subordination
3.1 Notwithstanding any other provision contained in this Agreement, the
Subordinated Debt is subordinate and junior in right of payment to all Senior
Debt to the extent provided in this Section 3.
3.2 In the event of: (a) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company; (b) any proceeding for the liquidation,
dissolution or other winding-up of the Company, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings; (c) any general
assignment by the Company for the benefit of creditors; or (d) any other
marshaling of the assets of the Company; all Senior Debt shall first be paid in
full, in cash or Cash Equivalents (as defined in Section 8 hereof and, for all
purposes of this Section 3, as so defined), before any payment or distribution,
whether in cash, securities or other property, shall be made to any holder of
any Subordinated Debt on account of any Subordinated Debt. Any payment or
distribution, whether in cash, securities or other property (other than
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment, the payment of which is subordinated, at least
to the extent provided in this Section 3 with respect to Subordinated Debt, to
the payment of all Senior Debt at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or readjustment,
but only if the rights of the holders of the Senior Debt are not impaired by
such plan without their consent), which would
-4-
<PAGE>
otherwise (but for this Section 3) be payable or deliverable in respect of
Subordinated Debt, shall be paid or delivered directly to the holders of Senior
Debt in accordance with the priorities then existing among such holders, until
all Senior Debt shall have been paid in full, in cash or Cash Equivalents.
3.3 If any holder of Subordinated Debt does not file a proper claim or
proof of Debt therefor prior to 20 days before the expiration of the time to
file such claim or proof, then the Senior Agent is hereby authorized and
empowered (but not obligated) as the agent and attorney-in-fact for such holder
for the specific and limited purpose set forth in this Section 3.3 to file such
claim or proof for or on behalf of such holder; provided, however, that the
Senior Agent shall have, prior to taking any such action, given 15 days prior
written notice (which notice may be given up to 60 days prior to the expiration
of the time to file such claim or proof) to such holder of Subordinated Debt
that it intends to file such claim or proof of Debt. In no event may the Senior
Agent or any holder of the Senior Debt vote any claim on behalf of any holder of
the Subordinated Debt, and such agency and appointment of attorney-in-fact shall
not extend to any such right to vote any such claim.
3.4 If (a) the Company shall default in the payment or prepayment of any
principal of, premium, if any, or interest on, or commitment fee or letter of
credit fee or Administrative Agent fee or indemnity under Section 2.10 or 2.12
or 11.4(c) (or comparable sections under any replacement Senior Debt) in respect
of, any Senior Debt (a "Senior Payment Default") when the same becomes due and
payable, whether at maturity, at a date fixed for prepayment, by declaration of
acceleration or otherwise, or shall fail to comply with any covenant or
agreement in respect of Senior Debt which covenant or agreement default results
in actual acceleration of the maturity of such Senior Debt ("Covenant
Acceleration"); and (b) the Company receives from the Senior Agent written
notice of the happening of such Senior Payment Default or Covenant Acceleration,
stating that such notice is a payment blockage notice pursuant to this Section
3.4; no direct or indirect payment (in cash, property or securities or by
set-off or otherwise) shall be made or agreed to be made on account of any
Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect
of any redemption, retirement, purchase, prepayment or other acquisition or
payment of any Subordinated Debt, unless and until such Senior Payment Default
shall have been cured or waived or otherwise shall have ceased to exist or such
Covenant Acceleration shall have been rescinded and the underlying covenant
default shall have been cured or waived or shall have otherwise ceased to exist.
The Company shall give prompt written notice to each holder of Subordinated
Debt of its receipt of any such notice from the Senior Agent under this Section
3.4.
3.5 If (a) any Significant Nonpayment Default shall have occurred; and (b)
the Company and the Holder receive from the Senior Agent written notice (a "Stop
Payment Notice") of the happening of such Significant Nonpayment Default,
stating that such notice is a payment blockage notice pursuant to this Section
3.5; no direct or indirect payment (in cash, property or securities or by
set-off or otherwise) shall be made or agreed to be made for or on account of
any Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in
respect of any redemption, retirement, repurchase, prepayment, purchase or other
acquisition or payment of any Subordinated Debt, for a period (each, a "Payment
Blockage Period") commencing on the date such Stop Payment Notice is delivered
to the Company and ending on the earliest to occur of the following: (a) the
time as of which each Significant Nonpayment Default which is the subject of
such Stop Payment Notice shall have been waived or cured (whether by amendment
of any provisions of the Senior Credit Agreement or otherwise), (b) a number of
days shall have elapsed as is necessary to prevent the total number of days that
a Stop Payment
-5-
<PAGE>
Notice (or Stop Payment Notices in the event that more than one Stop Payment
Notice has been given) is in effect during any consecutive 365 day period from
exceeding 180 days in the aggregate, and (c) the date of the repayment in full
in cash or Cash Equivalents of the Senior Debt and the termination of any
commitment to make further loans or advances in respect of the Senior Debt;
provided, however, that (i) the Senior Agent shall not be permitted to issue a
Stop Payment Notice more than six times in the aggregate; (ii) only two Stop
Payment Notices may be issued in any period of 365 consecutive days; (iii)
Payment Blockage Periods may not be in effect for more than 180 days (whether or
not such days are consecutive) during any period of 365 consecutive days, and if
any Payment Blockage Period is in effect on the 181st day in any period of 365
consecutive days, such Payment Blockage Period will terminate immediately; and
(iv) no Payment Blockage Period may be imposed as a result of a Significant
Nonpayment Default which served as the basis for or was continuing during any
previous Payment Blockage Period, unless any such Significant Nonpayment Default
shall have been cured or waived or otherwise ceased to exist for a period of not
less than 60 consecutive days after the date that the previous Stop Payment
Notice was given.
3.6 If, at any time during which the Senior Credit Facility is in effect,
the Holder elects to exercise any Remedies in respect of any Event of Default,
the Holder shall deliver to the Company and to the Senior Agent written notice
(an "Enforcement Notice") specifying the Event or Events of Default which are
the basis for the exercise of such Remedies and stating that the Holder intends
to exercise Remedies; provided, however, that the failure to deliver such
Enforcement Notice to the Senior Agent shall not affect the validity of the
Enforcement Notice as between such holder or holders and the Company.
3.7 Notwithstanding anything contained in this Note to the contrary, for so
long as any amount is outstanding under the Senior Credit Facility including any
letter of credit reimbursement obligations or commitments, the Holder shall not
exercise any Remedies in respect thereof during any period (a "Standstill
Period") commencing on the first date the Holder, but for the provisions of this
Section 3, would have been entitled to exercise any Remedies and ending upon the
earliest of:
(a) the date which is 10 business days after the Enforcement Notice is
delivered to the Company and the Senior Agent pursuant to Section 3.6;
provided, however, that if any Payment Blockage Period arising from the
giving of a Stop Payment Notice is in effect on such 10th business day
after the Enforcement Notice is so delivered, this clause (a) shall be
ineffective to terminate such Standstill Period;
(b) in the event that a Payment Blockage Period arising from the
giving of a Stop Payment Notice is in effect on the date which is 10
business days after an Enforcement Notice is delivered to the Company and
the Senior Agent pursuant to Section 3.6, the expiration of such Payment
Blockage Period;
(c) the date that any holder of any Senior Debt commences the exercise
of any Remedies in respect of such Senior Debt; and
(d) the first date upon which any of the Events of Default described
in Section 7.1(f) and (g) shall have occurred and be continuing beyond any
period of grace specified therein; and, in such
-6-
<PAGE>
event, the automatic acceleration of this Note contemplated in respect of
such Event of Default pursuant to Section 7.2(a) shall occur immediately
upon the termination of the Standstill Period.
3.8 If (a) any payment or distribution shall be paid to or collected or
received by any holders of Subordinated Debt in contravention of any of the
terms of this Section 3 but whether or not any Stop Payment Notice or (pursuant
to Section 3.4) payment blockage notice shall theretofore have been given (i.e.,
if paid, collected or received at a time when either such notice could have been
given had the Senior Agent been aware of circumstances giving rise to the right
to deliver any such notice); and (b) the Senior Agent shall have notified the
holders of Subordinated Debt in writing, within 30 days after the date such
payment or distribution is made, of the facts by reason of which such payment or
collection or receipt so contravenes this Section 3 or constituted a Significant
Nonpayment Default; then such holders of Subordinated Debt will deliver such
payment or distribution, to the extent necessary to pay all such Senior Debt in
full, in cash or Cash Equivalents, to the Senior Agent, on behalf of the holders
of the Senior Debt, and, until so delivered, the same shall be held in trust by
such holders of Subordinated Debt as the property of the holders of such Senior
Debt. If any amount is delivered to the Senior Agent pursuant to this Section
3.8, whether or not such amounts have been applied to the payment of Senior
Debt, and the outstanding Senior Debt shall thereafter be paid in full, in cash
or Cash Equivalents, by the Company or otherwise other than pursuant to this
Section 3.8, the holders of Senior Debt shall return to such holders of
Subordinated Debt an amount equal to the amount delivered to such holders of
Senior Debt pursuant to this Section 3.8, so long as after the return of such
amounts the Senior Debt shall remain indefeasibly paid in full, in cash or Cash
Equivalents.
3.9 Except as provided in this Section 3, the rights set forth in this
Section 3 of the holders of the Senior Debt as against each holder of
Subordinated Debt shall remain in full force and effect without regard to, and
shall not be impaired by:
(a) any act or failure to act on the part of the Company;
(b) any extension or indulgence in respect of or change in the time,
manner or place of any payment or prepayment of the Senior Debt or any part
thereof or in respect of any other amount payable to any holder of Senior
Debt, including, without limitation, any increase in the Senior Debt
resulting from extension of additional credit to the Company or any
subsidiary or otherwise and permitted by Section 6.3(iii) or (iv) hereof;
(c) any amendment, modification, restatement, refinancing or waiver
of, or addition or supplement to, or deletion from, or compromise, release,
consent or other action in respect of, any of the terms of any Senior Debt
or any other agreement which may be relating to any Senior Debt, other than
such as would cause all or any portion of such Debt to fail to meet the
definition of "Senior Debt;"
(d) any exercise or non-exercise by any holder of Senior Debt of any
right, power, privilege or remedy under or in respect of any Senior Debt or
Subordinated Debt or any waiver of any such right, power, privilege or
remedy or any default in respect of any Senior Debt or the Subordinated
Debt, any dealing with or action against or application of proceeds from
any collateral security therefor or any receipt by any holder of Senior
Debt of any security, or any failure by any holder of Senior Debt to
perfect a security interest in, or any release by any such Senior Debt of,
any security for or guaranty of the payment of any Senior Debt or any
manner of sale or other disposition of any assets of the Company or any
subsidiary;
-7-
<PAGE>
(e) any merger or consolidation of the Company or any of its
subsidiaries into or with any other subsidiaries of the Company or into or
with any person, or any transfer of any or all of the property of the
Company or any of its subsidiaries to any other person or any change,
restructuring or termination of the corporate structure or existence of the
Company or any of its subsidiaries;
(f) the absence of any notice to, or knowledge by, any holder of
Subordinated Debt of the existence or occurrence of any of the matters or
events set forth in the foregoing clauses (a) through (e).
(g) any lack of validity or enforceability of any instrument or
agreement evidencing or securing any Senior Debt or any other agreement or
instrument relating thereto; or
(h) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company or any holder of Subordinated
Debt.
3.10 Each holder of Subordinated Debt and the Company hereby waives
promptness, diligence, notice of appearance and any other notice with respect to
any of the Senior Debt and these provisions and any requirement that any holder
of the Senior Debt protect, secure, perfect or insure any security interest or
lien or any property subject thereto or exhaust any right to take any action
against the Company or any other person or entity or any collateral.
3.11 The Company will, and will use its reasonable efforts to cause each
holder of Subordinated Debt to, at the Company's expense and at any time and
from time to time, promptly execute and deliver all further instruments and
documents, and take all further actions, that may be necessary or desirable, or
that any holder of any Senior Debt may reasonably request, in order to protect
any right or interest granted or purported to be granted under this Section 3 or
enable the holders of the Senior Debt to exercise and enforce their rights and
remedies under these provisions.
3.12 Each holder of Subordinated Debt waives any and all notices of the
acceptance of the provisions of this Section 3 or of the creation, renewal,
extension or accrual, now or at any time in the future, of any Senior Debt.
3.13 The obligations of each holder of Subordinated Debt under the
provisions set forth in this Section 3 shall continue to be effective, or be
reinstated, as the case may be, as to any payment in respect of any Senior Debt
that is rescinded or must otherwise be returned by the holder of such Senior
Debt upon the occurrence or as a result of any bankruptcy or judicial
proceeding, all as though such payment had not been made.
3.14 Nothing contained in this Section 3 shall impair, as between the
Company and any holder of Subordinated Debt, the obligation of the Company to
pay to such holder the principal thereof and interest thereon as and when the
same shall become due and payable in accordance with the terms thereof and to
comply with each and every provision of this Note or prevent any holder of any
Subordinated Debt from exercising all rights, powers and remedies otherwise
permitted by applicable law or under this Note, all subject to the rights of the
holders of the Senior Debt hereunder including rights to receive cash,
securities or other property otherwise payable or deliverable to the holders of
Subordinated Debt.
-8-
<PAGE>
3.15 Upon the payment in full of all Senior Debt, the holders of
Subordinated Debt shall be subrogated to all rights of any holder of Senior Debt
to receive any further payments or distributions applicable to the Senior Debt
until the Subordinated Debt shall have been paid in full, and such payments or
distributions received by the holders of Subordinated Debt by reason of such
subrogation, of cash, securities or other property which otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Company and
its creditors other than the holders of Senior Debt, on the one hand, and the
holders of Subordinated Debt, on the other hand, be deemed to be a payment by
the Company on account of Senior Debt and not on account of Subordinated Debt.
Notwithstanding the foregoing provisions of this Section 3.15 or any other
provision of this Note each holder of Subordinated Debt hereby waives any and
all exoneration and impairment defenses that it may at any time have by law or
otherwise in respect of subrogation rights.
3.16 Each holder of Subordinated Debt, by its acceptance thereof, shall be
deemed to acknowledge and agree that the foregoing subordination provisions are,
and are intended to be, an inducement to and a consideration of each holder of
any Senior Debt, whether such Senior Debt was created or acquired before or
after the creation of Subordinated Debt, to acquire and hold, or to continue to
hold, such Senior Debt, and such holder of Senior Debt shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
holding, or in continuing to hold, such Senior Debt. Each such holder of Senior
Debt is intended to be, and is, a third party beneficiary of this Section 3.
Each holder of Subordinated Debt acknowledges and agrees that the provisions set
forth in this Section 3 shall be enforceable against such holder of Subordinated
Debt by the holders of the Senior Debt. Notwithstanding anything contained in
this Note to the contrary, none of the provisions of this Section 3 (including,
without limitation, this Section 3.16 and defined terms used herein) may,
directly or indirectly, be amended, modified, supplemented or waived without the
prior written consent of the Senior Agent, on behalf of the holders of the
Senior Debt.
3.17 Notwithstanding the other provisions of this Section 3.17, no
amendment to or refinancing of the Senior Debt or any agreement or instrument
related thereto shall be entitled to the benefits of this Section 3 without the
consent of the Holder to the extent that such amendment would prohibit directly
and expressly the Company or any subsidiary from making scheduled payments in
respect of the Subordinated Debt in accordance with the terms of this Agreement
as in effect on the date hereof or as may be amended to the extent permitted by
the Senior Credit Agreement; provided that no change of financial covenants or
increase in the restrictiveness of negative covenants or events of default under
the Senior Debt documents (that do not by their terms refer to this Note) shall
be deemed to constitute a prohibition from making scheduled payments, even if
the ultimate effect of any such change would cause the Company to be in default
under the Senior Debt if such a scheduled payment were made.
3.18 As used in this Section 3 and elsewhere in this Agreement, the
following terms have the respective meanings set forth below:
"Credit Facility" means and includes a credit agreement or similar
agreement pursuant to which the lender or lenders commit(s) to permit the
Company, subject to the conditions therein, to obtain from time to time
thereunder term or revolving loans and/or letters of credit and
periodically repay the same.
-9-
<PAGE>
"Junior Subordinated Debt" means any Debt of the Company or any
subsidiary which is (a) issued on or after the Issue Date of this Note and
which is expressly subordinated in right of payment to any Debt of the
Company, or (b) owing to any subsidiary or affiliate of the Company.
"Remedies" means and includes, with respect to any Debt (including,
without limitation, the Senior Debt and the Subordinated Debt):
(a) the acceleration of the maturity of any of such Debt;
(b) the exercise of any put right or other similar right to
require the Company or any subsidiary to repurchase any of such Debt
prior to the stated maturity thereof;
(c) the collection or commencement of proceedings against the
Company, any subsidiary thereof or any other person obligated on such
Debt or any of their respective property, to enforce or collect any of
such Debt;
(d) taking possession of or foreclosing upon (whether by judicial
proceedings or otherwise) any Liens or other collateral security for
such Debt; or causing a marshaling of any property of the Company or
any subsidiary;
(e) the making of a demand in respect of any Guaranty given by
the Company or any subsidiary of the Company of such Debt;
(f) commencing or joining in or causing the Company to commence
or join in or assist the Company in commencing, any proceeding of the
nature referred to in Section 7.1(f) or 7.1(g); or
(g) exercising any other remedies with respect to such Debt or
any claim with respect thereto.
"Senior Agent" means, for so long as the Senior Credit Agreement
remains outstanding, Fleet National Bank, as administrative agent in
respect of the Senior Credit Agreement, and thereafter, any one agent or
lender in respect of the Senior Credit Facility, or a representative of
either, designated in writing to the Holder by the Company as being the
"Senior Agent".
"Senior Credit Agreement" means the Credit Agreement dated as of the
date hereof among the Company, Fleet National Bank as administrative agent
(together with its successors in such capacity) and the banks, financial
institutions and other institutional lenders from time to time named
therein, as it may be amended, supplemented, extended, renewed, refinanced,
restated or replaced in whole or in part.
"Senior Credit Facility" means and includes:
(a) the Senior Credit Agreement; and
(b) any Credit Facility (whether or not secured), which Credit
Facility has refinanced in whole or in part the Senior Debt governed
by the terms of a Senior Credit Facility which
-10-
<PAGE>
the Company has designated in writing to the Holder as being the
"Senior Credit Facility;" provided, however, that, by making such
designation, the predecessor Senior Credit Facility shall cease to be
the Senior Credit Facility (but any Debt outstanding or incurred
thereunder shall continue to be Senior Debt for so long as such Debt
meets the definition thereof).
"Senior Debt" means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal or interest (including interest (at
the rate specified in the applicable Senior Credit Facility) accruing after
the filing of a petition under the Bankruptcy Code, whether or not
allowed), fees, expenses, indemnification or otherwise (including letter of
credit reimbursement obligations whether or not any draw has occurred), in
respect of:
(a) the Senior Credit Facility; and
(b) any other Debt of the Company owing to the Senior Agent or
any lender under the Senior Credit Facility (whether or not such
lender continues to be a lender thereunder) with respect to any
obligations under Bank Hedge Agreements (as defined in the Senior
Credit Agreement) related to the Senior Credit Agreement that are or
may become owed by the Company directly or indirectly, other than Debt
incurred pursuant to a Senior Credit Facility.
Notwithstanding the foregoing, in no event shall "Senior Debt"
include any Junior Subordinated Debt.
"Significant Nonpayment Default" means and includes:
(a) an event of default under the Senior Credit Facility in
respect of the failure of the Company to comply with any material
covenant or agreement in respect of the Senior Credit Facility or
documents executed or delivered in connection therewith (it being
understood that the provisions of Sections 2.14, 5.2, 5.5, 5.6, 5.7,
5.13 and 5.14, Article 6 and Article 8 of the Senior Credit Agreement,
as in effect on the date hereof and any comparable provisions in
effect after the date hereof, are "material covenants" for such
purpose); and any event of default under Sections 9.2, 9.5, 9.7
through 9.14 (inclusively) under the Senior Credit Agreement (or any
comparable provision in effect after the date hereof); and
(b) an event of default in respect of the Senior Credit Facility
arising out of any Event of Default in respect of this Note.
"Subordinated Debt" means and includes all obligations, liabilities
and indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal, interest (including interest
accruing after the filing of a petition under the Federal Bankruptcy Code,
to the extent allowed), fees, expenses, indemnification or otherwise, in
respect of this Note.
4. Conversion
4.1 The Holder may convert the outstanding principal amount of this Note,
and accrued and unpaid interest thereon (or a portion of such outstanding
principal amount as provided in Section 4.3) into fully paid and nonassessable
shares of Common Stock of the Company ("Conversion Shares") at
-11-
<PAGE>
any time prior to the time the outstanding principal amount of this Note, and
accrued and unpaid interest thereon is paid in full, at the Conversion Price
then in effect, except that if this Note is to be prepaid in full or repurchased
pursuant to the provisions hereof, such conversion right shall terminate at the
close of business on the Prepayment Date or the Change in Control Purchase Date,
as the case may be. The number of shares of Common Stock issuable upon
conversion of this Note shall be determined by dividing the principal amount
(and accrued and unpaid interest, if any) to be converted by the conversion
price in effect on the Conversion Date (the "Conversion Price"). The initial
Conversion Price is $11.125 and is subject to adjustment as provided in this
Section 4.
The provisions of this Note that apply to conversion of the outstanding
principal amount of this Note and accrued and unpaid interest thereon also apply
to a partial conversion of this Note. The Holder is not entitled to any rights
of a holder of Conversion Shares until the Holder has converted this Note (or a
portion thereof) into Conversion Shares, and only to the extent that this Note
is deemed to have been converted into Conversion Shares under this Section 4.
4.2 To convert all or a portion of this Note, the Holder must (a) complete
and sign a notice of election to convert substantially in the form annexed
hereto (each, a "Conversion Notice"), (b) surrender the Note to the Company, (c)
furnish appropriate endorsements or transfer documents if required by the
Company and (d) pay any transfer or similar tax, if required. The date on which
the Holder satisfies all of such requirements is the conversion date (the
"Conversion Date"). As soon as practicable, and in any event within three (3)
business days, after the Conversion Date, the Company will deliver, or cause to
be delivered, to the Holder a certificate for the number of whole Conversion
Shares issuable upon such conversion and a check for any fractional Conversion
Share determined pursuant to Section 4.4 and for interest on this Note accrued
and unpaid through the Conversion Date (unless such interest has also been
converted as permitted by this Section 4). The person in whose name the
certificate for Conversion Shares is to be registered shall become the
shareholder of record on the Conversion Date and, as of the Conversion Date, the
rights of the Holder shall cease as to the portion thereof so converted;
provided, however, that no surrender of a Note on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the person entitled to receive the Conversion Shares upon such conversion as the
shareholder of record of such Conversion Shares on such date, but such surrender
shall be effective to constitute the person entitled to receive such Conversion
Shares as the shareholder of record thereof for all purposes at the close of
business on the next succeeding day on which such stock transfer books are open;
provided further that such conversion shall be at the Conversion Price in effect
on the date that this Note shall have been surrendered for conversion, as if the
stock transfer books of the Company had not been closed.
4.3 In the case of a partial conversion of this Note, upon such conversion,
the Company shall execute and deliver to the Holder, at the expense of the
Company, a new Note in an aggregate principal amount equal to the unconverted
portion of the principal amount. This Note may be converted in part in a
principal amount equal $100,000 or an integral multiple thereof, unless the
outstanding principal amount of this Note is less than $100,000, in which case,
only such outstanding principal amount and accrued and unpaid interest thereon
is convertible into Conversion Shares.
4.4 No fractional Conversion Shares shall be issued upon conversion of this
Note. Instead of any fractional Conversion Share which would otherwise be
issuable upon conversion of this Note, the Company shall calculate and pay a
cash adjustment in respect of such fraction (calculated to the
-12-
<PAGE>
nearest 1/100th of a share) in an amount equal to the same fraction of the
Conversion Price at the close of business on the Conversion Date.
4.5 The issuance of certificates for Conversion Shares upon the conversion
of any Security shall be made without charge to the Holder for such certificates
or for any tax in respect of the issuance of such certificates, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder; provided, however, that in the event that certificates for
Conversion Shares are to be issued in a name or names other than the name of the
Holder, such Note, when surrendered for conversion, shall be accompanied by an
instrument of transfer, in form satisfactory to the Company, duly executed by
the Holder or his duly authorized attorney; and provided further, moreover, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name or names other than that of the Holder, and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid or is not applicable.
4.6 (a) In case the Company shall at any time after the date hereof issue,
grant or sell any Additional Stock (as hereinafter defined) for a consideration,
exercise or conversion price per share less than the Conversion Price in effect
immediately prior to the issuance or sale of such Additional Stock, or without
consideration, then forthwith upon such issuance or sale, the Conversion Price
shall (upon such issuance or sale) be reduced to a price determined by dividing
(i) an amount equal to the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale multiplied by the
Conversion Price then in effect, plus (b) the consideration, if any, received by
the Company upon such issuance or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Conversion Price be adjusted pursuant to
this computation to an amount in excess of the Conversion Price in effect
immediately prior to such computation, except as provided in 4.6(d) hereof.
"Additional Stock" shall mean Common Stock or options, warrants or other rights
to acquire or securities convertible into or exchangeable for shares of Common
Stock, including shares held in the Company's treasury, and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of Common Stock and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, other
than:
(A) This Note.
(B) Warrants to purchase Common Stock issued to the Holder on the
date hereof (the "Warrants").
(C) Common Stock issued or issuable upon conversion of this Note
or exercise of the Warrants.
(D) Common Stock issued or issuable upon the conversion or
exercise of options, warrants, rights and other securities or debt
convertible into or exercisable or exchangeable for Common Stock
outstanding on the date hereof;
-13-
<PAGE>
(E) The grant of options, warrants, stock appreciation rights or
other rights available for future grant under the Company's stock
option plan or any future stock option or incentive plan approved by
the Company's shareholders;
(F) Common Stock issuable upon exercise of options, warrants,
stock appreciation rights or other rights outstanding or available for
future grant under the Company's stock option plan or any future stock
option or incentive plan approved by the Company's shareholders;
provided, that, any such options, warrants, stock appreciation rights
or other rights provide for an exercise price or conversion price at
least equal to the lesser of the Market Price (as hereinafter defined)
or the last sale price of the Common Stock on the day of or day prior
to (i) the date of approval of such grant by the Board of Directors or
(ii) the date of execution of an agreement relating to such grant;
(G) Warrants to be issued in connection with the Senior Credit
Agreement and shares of Common Stock issuable upon the exercise
thereof, and
(H) Common Stock or options, warrants, rights or other securities
or debt convertible into, or exercisable or exchangeable for, Common
Stock (or shares of Common Stock issuable upon the conversion or
exercise thereof) in connection with future acquisitions.
The term "Market Price" shall mean the average of the daily closing prices of a
share of Common Stock for the 10 consecutive trading days immediately prior to
the day in question. The closing price for each day shall be (a) the last
reported sales price or, in the case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case on
the principal national securities exchange on which the Common stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, on The Nasdaq Stock Market, Inc.
("Nasdaq"), (b) if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq, the average of the closing bid
and asked prices in the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the Company
for that purpose, or (c) if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on Nasdaq and the average
price cannot be determined as contemplated by clause (b), the fair market value
of the Common Stock as determined in good faith by resolution of the independent
directors of the Company. For the purposes of the preceding sentence, the term
"trading day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day on which securities are not traded on such exchange or in
such market.
(b) For the purpose of any computation to be made in accordance with
Section 4.6(a), the following provisions shall apply:
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock
are offered by the Company for subscription, the subscription price,
or, if such securities shall be sold to underwriters or dealers for
public offering without a subscription offering, the initial public
offering price) before deducting therefrom any compensation paid or
discount
-14-
<PAGE>
allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In the case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares
of Common Stock for a consideration part or all of which shall be
other than cash, the amount of the consideration therefor other than
cash shall be deemed to be the fair market value of such consideration
as determined in good faith by the Board of Directors.
(iii) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in Section 4.6(b)(ii).
(iv) In the case of the issuance of options, rights, or warrants
to purchase or subscribe for shares of Common Stock, securities
convertible into or exchangeable for shares of Common Stock, or
options, rights or warrants to purchase or subscribe for any such
convertible or exchangeable securities, the following provisions shall
apply:
(A) The aggregate maximum number of shares of Common Stock
issuable under such options, rights or warrants shall be deemed
to be issued and outstanding at the time such options, rights or
warrants were issued, and shall be deemed to be issued for a
consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of
issuance plus the consideration, if any, received by the Company
in connection with sale or issuance of such options, rights or
warrants; provided, however, that upon the expiration or other
termination of such options, rights or warrants, if any thereof
shall not have been exercised, the number of shares of Common
Stock deemed to be issued and outstanding pursuant to this
subsection (A) shall be reduced by such number of shares as to
which options, warrants and/or rights shall have expired or
terminated unexercised, and such number of shares of Common Stock
shall no longer be deemed to be issued and outstanding, and the
Conversion Price then in effect shall forthwith be readjusted and
thereafter be the price which it would have been had such
adjustment been made on the basis of the issuance only of shares
of Common Stock actually issued or issuable upon the exercise of
those options, rights or warrants as to which the exercise of
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and
outstanding at the time of issuance of such securities, and shall
be deemed to be issued for a consideration equal to the
consideration received by the Company in connection with the sale
of such securities plus the consideration, if any, receivable by
the Company upon the conversion or exchange thereof; provided,
however, that upon the termination of the right to convert or
exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares deemed
to be issued and outstanding pursuant to this subsection (B)
shall be reduced by such number of shares as to which the
conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed
to be issued and
-15-
<PAGE>
outstanding and the Conversion Price then in effect shall
forthwith be readjusted and thereafter be the price which it
would have been had such adjustment been made on the basis of the
issuance only of shares actually issued or issuable upon the
conversion or exchange of those convertible or exchangeable
securities as to which the conversion or exchange rights shall
not have expired or terminated unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred
to in Section 4.6(b)(iv)(A), or in the price per share at which
the securities referred to in Section 4.6(b)(iv)(B) are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be
deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such
date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number
of shares issuable upon the exercise of such options, rights or
warrants or the conversion or exchange of such convertible or
exchangeable securities.
(D) Except as otherwise provided in this Section 4.6(b), no
adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock upon exercise of options, rights or
warrants or upon the actual issuance of such Common Stock upon
conversion or exchange of any convertible or exchangeable
securities.
(c) In case the Company shall pay or make a dividend or other
distribution to all holders of its Common Stock in shares of Common Stock,
the Conversion Price in effect at the opening of business on the day next
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination, and the denominator shall be the sum
of the numerator and the total number of shares constituting such dividend
or other distribution, such reduction to become effective immediately after
the opening of business on the day next following the date fixed for such
determination. For the purposes of this Section 4.6(c), the number of
shares of Common Stock at any time outstanding shall not include shares of
Common Stock held in the treasury of the Company. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(d) In the event that the Company shall at any time prior to the
conversion in full of the Note declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or
distribution payable out of current or retained earnings) or otherwise
distribute to its shareholders any monies, assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another person or entity, or any other
thing of value, the Holder or Holders of the Note to the extent of the
unconverted portion thereof shall thereafter be entitled, in addition to
the shares of Common Stock or other securities receivable upon the
conversion thereof, to receive, upon conversion of such unconverted portion
of the Note, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this Subsection.
-16-
<PAGE>
(e) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(f) In case the Company shall fail to take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or other distribution payable in shares of Common Stock, then such
record date shall be deemed to be the date of the issue of the shares of
Common Stock deemed to have been issued as a result of the declaration of
such dividend or other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
4.7 No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($.01) in
the Conversion Price; provided, however, that any adjustments which by reason of
this Section 4.7 are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
4.8 Notice of Certain Events.
(a) In the event that: (i) the Company takes any action which would
require an adjustment in the Conversion Price; (ii) the Company takes any
action described in Section 4.9(a), (b) or (c); or (iii) there is a
dissolution or liquidation of the Company; the Holder may wish to convert
this Note into shares of Conversion Shares prior to the record date for or
the effective date of the transaction so that such Holder may receive the
securities or assets which a holder of shares of Common Stock on that date
may receive. Therefore, the Company shall give notice to the Holder in
accordance with the provisions of this Section 4.8 stating the proposed
record or effective date, as the case may be, which notice shall be given
prior to the proposed record or effective date and, in any case, no later
than notice of such transaction is given to holders of Common Stock.
Failure to give such notice or any defect therein shall not affect the
validity of any transaction referred to in clause (i), (ii) or (iii) of
this Section.
(b) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 4, the Company, at its expense,
shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to each Holder a statement, signed
by its chief financial officer, setting forth such adjustment or
readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Holder, furnish or cause to be furnished to such
Holder a like certificate setting forth (i) such adjustment and
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the Conversion of the
portion of this Note specified in such request.
4.9 If any of the following shall occur, namely:
-17-
<PAGE>
(a) any reclassification or change of outstanding shares of Common
Stock issuable upon conversion of this Note (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination);
(b) any consolidation or merger to which the Company is a party, other
than a merger in which the Company is the continuing corporation and which
does not result in any reclassification of, or change (other than a change
in name, or par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination) in,
outstanding shares of Common Stock; or
(c) any sale or conveyance of all or substantially all of the property
or business of the Company and its subsidiaries as an entirety;
then the Company, or such successor or purchasing corporation, as the case may
be, shall, as a condition precedent to such reclassification, change,
consolidation, merger, sale or conveyance, execute and deliver to the Holder, an
agreement in form satisfactory to the Holder providing that the Holder shall
have the right to convert this Note into the kind and amount of shares of stock
and other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of this Note
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. Such agreement shall provide for adjustments of the Conversion
Price which shall be as nearly equivalent as may be practicable to the
adjustments of the Conversion Price provided for in this Section 4. If, in the
case of any such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a holder of
Common Stock includes shares of stock or other securities and property of a
corporation other than the successor or purchasing corporation, as the case may
be, in such consolidation, merger, sale or conveyance, then such agreement shall
also be executed by such other corporation and shall contain such additional
provisions to protect the interests of the Holder as the Board of Directors
shall reasonably consider necessary by reason of the foregoing. The provisions
of this Section 4.9 shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or conveyances.
4.10 The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of this Note, the full number of
Conversion Shares then issuable upon the conversion in full of this Note.
4.11 If the Company or an affiliate of the Company shall at any time after
the date hereof and prior to the conversion of the Note in full issue any rights
to subscribe for shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company, the Holder of the
unconverted portion of the Note shall be entitled, in addition to the shares of
Common Stock or other securities receivable upon the Conversion thereof, to
receive such rights at the time such rights are distributed to the other
shareholders of the Company.
-18-
<PAGE>
5. Affirmative Covenants
The Company covenants that on and after the Issue Date and so long as any
portion of the Note shall be outstanding:
5.1 The Company will, and will cause each of its Subsidiaries to, pay
before they become delinquent: (a) all taxes, assessments and governmental
charges or levies imposed upon it or its property; and (b) all claims or demands
of materialmen, mechanics, carriers, warehousemen, vendors, landlords and other
like persons that, if unpaid, might by law become a Lien upon its property;
provided, that items of the foregoing description need not be paid so long as
such items are being contested in good faith and by appropriate proceedings and
as to which appropriate reserves in accordance with GAAP have been established
and maintained with respect thereto, unless and until any Lien resulting
therefrom attaches to its property and becomes enforceable, unless such Lien is
effectively stayed or fully bonded pending the disposition of such proceedings.
5.2 The Company will, and will cause each of its subsidiaries to:
(a) maintain its property that is reasonably necessary in the conduct
of its business in good working order and condition, ordinary wear and
tear, obsolescence and insured casualty losses excepted;
(b) maintain, with insurers reasonably believed to be financially
sound and reputable, insurance with respect to its property and business
against such casualties and contingencies, of such types and in such
amounts as is customary in the case of corporations engaged in the same or
a similar business and similarly situated;
(c) keep proper books of record and account, in which full and correct
entries shall be made of all dealings and transactions of or in relation to
the properties and business thereof;
(d) do or cause to be done all things reasonably necessary to preserve
and keep in full force and effect its corporate existence, corporate rights
(charter and statutory) and corporate franchises, except as permitted by
Section 6.1;
(e) comply, in all material respects, with all applicable laws, rules
and regulations (including, without limitation, ERISA, Environmental Laws
and Environmental Permits) and obtain all licenses, permits, franchises and
other governmental authorizations necessary for the ownership of its
properties and the conduct of its business, except where its obligation to
so comply being contested in good faith and by appropriate proceedings and
adequate resources have been established are being maintained in accordance
with GAAP, and except where failure to comply could not reasonably be
expected to have a Material Adverse Effect; and
(f) conduct its business so as not to become subject to any liability
under any Environmental Law that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect and except where
any such liability is being contested in good faith by appropriate
proceedings and adequate reserves have been established and are being
maintained in accordance with GAAP.
-19-
<PAGE>
5.3 The Company will conduct, and cause each of its subsidiaries to
conduct, all transactions otherwise permitted by this Note with any of their
Affiliates on terms that are fair and reasonable and no less favorable to the
Company or any such subsidiary than it could obtain in a comparable arms-length
transaction with a person not an Affiliate; provided, however, that this Section
5.3 shall not be deemed to prohibit any transactions solely between the Company
and its wholly-owned subsidiaries carried out in the ordinary course of
business, subject, however, to any applicable provisions of Section 6, the
transactions contemplated hereby, the issuance and exercise of the Warrants, the
provisions of a certain letter agreement dated the date hereof between the
Company and such payee (the "Letter Agreement") or payments pursuant the
Acquisition Documents and the Future Acquisition Puts (as those terms are
defined in the Senior Credit Agreement, collectively, the "Acquisition
Obligations" and, individually, an "Acquisition Obligation").
5.4 The Company shall deliver to the Holder, except during any period in
which the Holder or an Affiliate thereof is serving as a director or executive
officer of the Company:
(a) as soon as available and in any event within thirty (30) days
after the end of each month which is not a fiscal quarter end, a
consolidated balance sheet, statement of income and cash flows commencing
April 1999, of the Company and its subsidiaries, as of the end of such
month and for the period commencing at the end of the previous month and
ending with the end of such month and consolidated statement of income and
a consolidated statement of cash flows of the Company and its subsidiaries,
for the period commencing at the end of the previous fiscal year of the
Company and ending with the end of such month, setting forth in each case
commencing April 2000 in comparative form the corresponding figures for the
corresponding period of the prior fiscal year, all in reasonable detail and
duly certified by the chief financial officer of the Company.
(b) as soon as practicable after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company, and in any
event within 55 days thereafter: (i) a consolidated balance sheet as at the
end of such quarter; and (ii) consolidated statements of income and cash
flows for such quarter and (in the case of the second and third quarters)
for the portion of the fiscal year ending with such quarter; for the
Company and its subsidiaries, setting forth in each case, in comparative
form, the financial statements for the corresponding periods in the
previous fiscal year, all in reasonable detail, prepared in accordance with
GAAP applicable to quarterly financial statements generally, and certified
as complete and correct by the Chief Financial Officer of the Company, and
accompanied by the certificate required by Section 5.5; provided, that
timely delivery of copies of the Company's Quarterly Report on Form 10-QSB
filed with the Securities and Exchange Commission ("SEC") shall be deemed
to satisfy the requirements of this Section 5.4(b) so long as such
Quarterly Report contains or is accompanied by the information specified in
this Section 5.4(b);
(c) as soon as practicable after the end of each fiscal year of the
Company, and in any event within 110 days thereafter: (i) a consolidated
balance sheet as at the end of such year; and (ii) consolidated statements
of income, stockholders' equity and cash flows for such year; for the
Company and its subsidiaries, setting forth, in comparative form, the
financial statement for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP, and accompanied by: (A) an audit report
thereon of independent certified public accountants of recognized national
standing, which report shall state without qualifications related to the
scope of the audit, the compliance of the audit with generally accepted
auditing standards or the ability of the Company or a material subsidiary
thereof to
-20-
<PAGE>
continue as a going concern, that such financial statements have been
prepared and are in conformity with GAAP; and (B) the certificates required
by Section 5.5 and Section 5.6; provided, that timely delivery of the
Company's Annual Report on Form 10-KSB for such fiscal year filed with the
SEC shall be deemed to satisfy the requirements of this Section 5.4(c) so
long as such Annual Report contains or is accompanied by the reports and
other information otherwise specified in this Section 5.4(c);
(d) promptly upon their becoming available, and in any event within 15
days thereafter: (i) each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally; (ii) each regular
or periodic report (including, without limitation, each Form 10-KSB, Form
10-QSB and Form 8-K), any registration statement which shall have become
effective with respect to a public offering of securities of the Company
for its own account, and all amendments thereto filed by the Company or any
subsidiary thereof with the SEC;
(e) within 15 business days after any executive officer of the Company
becoming aware (i) of the existence of any condition or event which
constitutes a Default or an Event of Default; or (ii) that the holder of
any Debt in a principal amount of $400,000 or more (other than this Note)
shall have given notice or taken any other action with respect to a claimed
or default or event of default; a notice specifying the nature of the
claimed Default, Event of Default or default or event of default and the
notice given or action taken (if any) by such holder of Debt (other than
this Note) and what action the Company is taking or proposes to take with
respect thereto;
(f) promptly upon receipt thereof, a copy of each report or management
letter submitted to the Company or any subsidiary thereof by independent
accountants in connection with any annual, interim or special audit made of
the books of the Company or such subsidiary;
(g) promptly after the commencement of any action or proceeding
relating to the Company or any subsidiary thereof in any court or before
any court, other governmental authority or arbitration tribunal as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, would have a Material Adverse Effect, a notice
specifying the nature and period of existence thereof and what action the
Company or such subsidiary is taking or proposes to take with respect
thereto; and
(h) with reasonable promptness, such other data and information as
from time to time may be reasonably requested the Holder.
5.5 Each set of financial statements delivered to the Holder pursuant to
Section 5.4(a), Section 5.4(b), or Section 5.4(c) shall be accompanied by a
certificate of the Chief Financial Officer, setting forth a statement that the
signer has reviewed the relevant terms hereof and has made, or caused to be
made, under his supervision or authority, a review of the transactions and
conditions of the Company and its subsidiaries from the beginning of the
accounting period covered by the income statements being delivered therewith to
the date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect thereto.
-21-
<PAGE>
5.6 Each set of annual financial statements delivered pursuant to Section
5.4(c) shall be accompanied by a certificate of the accountants that audited
such financial statements, stating that they have reviewed this Note and stating
further, whether, in making their audit, such accountants have become aware of
any condition or event that then constitutes a Default or an Event of Default,
and, if such accountants are aware that any such condition or event then exists,
specifying the nature and period of existence thereof.
5.7 The Company will, except during any period in which the Holder or any
Affiliate thereof is serving as a director or executive officer of the Company,
permit the representatives of the Holder to visit and inspect any of the
properties of the Company or any of its Subsidiaries, to examine all their
respective books of account, records, reports and other papers, to make copies
and extracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective executive officers and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested. At all times
during which there exists a Default or Event of Default, except during any
period in which the Holder or any Affiliate thereof is serving as a director or
executive officer of the Company, expenses incurred by the Holder of this Note
in connection with this Section 5.7 shall be reimbursed by the Company to the
Holder.
5.8 The Company will make all payments and otherwise perform, or cause the
relevant subsidiary of the Company to pay or otherwise perform, all obligations
in respect of all leases of real property to which the Company or any of its
subsidiaries is a party, keep such leases in full force and effect and not allow
such leases to lapse or be terminated or any rights to renew such leases to be
forfeited or canceled, notify the Holder of any default by any party with
respect to such leases (except during any period in which the Holder or any
Affiliate thereof is serving as a director or executive officer of the Company)
and cooperate with the Holder in all respects to cure any such default, and
cause each of its subsidiaries to do so except, in any case, where the failure
to do so, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect and except where its failure to do so
is being contested in good faith and by proper proceedings.
5.9 The Company will perform and observe, and cause each of its
subsidiaries to perform and observe, all of the material terms and provisions of
each Material Contract (as that term is defined in the Senior Credit Agreement)
to which it is a party to be performed or observed by it, maintain, and cause
each of its subsidiaries to maintain, each such Material Contract to which it is
a party in full force and effect, and enforce, and cause each of its
subsidiaries to enforce, each such Material Contract to which it is a party in
accordance with its terms, except where the failure to do so would not be
reasonably likely to have a Material Adverse Effect and except where its failure
to do so is being contested in good faith and by proper proceedings.
5.10 The Company will perform and observe, or cause the relevant subsidiary
of the Company to perform and observe, all of the material terms and provisions
of each Acquisition Obligation to be performed or observed by it or such
subsidiary, maintain each such Acquisition Obligation in full force and effect,
enforce each such Acquisition Obligation in accordance with its terms, take all
such action to such end as may be from time to time requested by the Holder
required in order to enforce its material rights under the Acquisition
Obligations and, upon request of the Holder, make to each other party to each
such Acquisition Obligation such demands and requests for action or for
information and reports as the Company or any subsidiary of the Company is
entitled to make under
-22-
<PAGE>
such Acquisition Obligation required in order to enforce its material rights
under the Acquisition Obligations.
5.11 The Company shall promptly, and in any case within 30 days after the
date hereof, cause each of its existing direct and indirect wholly-owned
subsidiaries and any such subsidiaries of the Company hereafter formed and/or
acquired by the Company (or any subsidiary of the Company) to issue to the
Holder a guaranty of the Company's obligations under this Note, which guaranties
shall be substantially similar to the Subsidiary Guaranties issued pursuant to
the Senior Credit Agreement, except that such guaranties will be subordinated to
the obligations of such subsidiaries under the Subsidiary Guaranties issued or
to be issued by such subsidiaries under the Senior Credit Agreement consistent
with the subordination provisions set forth in Section 3 of this Note, will
guaranty the obligations of the Company under this Note and will otherwise be in
form and substance reasonably satisfactory to the Holder and the Senior Agent.
6. Negative Covenants
6.1 The Company will not, and will not permit any subsidiary thereof to,
(a) merge with or into or consolidate with any other person, permit any other
person to merge or consolidate with or into it, or (b) sell all or substantially
all of its property to any other person; provided, however, that the foregoing
restriction does not apply to the merger or consolidation of the Company with
another corporation or transfer of all or substantially all of the property of
the Company to any other person if: (i) the corporation that results from such
merger or consolidation or to which all or substantially all of the property of
the Company is transferred (the "Surviving Corporation") (a) is organized under
the laws of, and conducts substantially all of its business and has
substantially all of its properties within, the United States of America or any
jurisdiction or jurisdictions thereof and (b) has shareholders' equity
immediately after such transaction that is equal to or greater than the
shareholders' equity of the Company immediately prior to such transaction; (ii)
the due and punctual payment of the principal of, and interest on this Note,
according to their tenor, and the due and punctual performance and observance of
all the covenants in this Note, to be performed or observed by the Company, are
expressly assumed pursuant to such assumption agreements and instruments in such
forms as shall be approved reasonably by the Holder, or assumed by operation of
law, by the Surviving Corporation; and (iii) immediately prior to, and
immediately after the consummation of the transaction, and after giving effect
thereto, no Default or Event of Default exists or would exist. Notwithstanding
the foregoing, a subsidiary of the Company may merge into the Company so long as
the Company is the Surviving Corporation, and a subsidiary of the Company, may
merge with or into a wholly-owned subsidiary of the Company, so long as such
wholly-owned subsidiary is the Surviving Corporation. Notwithstanding anything
contained herein to the contrary, the Company may (i) sell all or substantially
all of its property to, or enter into a merger transaction with, any other
person if such sale or merger follows and is the result of an acceleration of
the Senior Debt and the transaction has been approved by the Senior Agent and
the banks which are parties to the Senior Credit Agreement and (ii) in
compliance with Section 6.19 of the Senior Credit Agreement, transfer its assets
to a wholly-owned subsidiary so long as such subsidiary executes and delivers a
guaranty in favor of the Holder that is reasonably acceptable to the Holder,
subordinated on terms and conditions acceptable to the Senior Agent consistent
with the terms of subordination set forth in Section 3 hereof.
6.2 The Company will not, and will not permit any subsidiary of the Company
to, sell, lease as lessor, transfer or otherwise dispose of its property
(collectively, "Transfers"), except:
-23-
<PAGE>
(A) Transfers of inventory and of unnecessary, obsolete or worn-out
assets, in each case in the ordinary course of business of the Company or
such subsidiary;
(B) Transfers from a subsidiary of the Company to the Company or a
wholly-owned subsidiary of the Company, or from the Company to a
wholly-owned subsidiary of the Company provided such subsidiary issues a
guaranty of the Company's obligations under this Note consistent with the
provisions of Section 5.11;
(C) any other Transfer at any time of any property to a person for
such consideration as determined, in each case by the Board of Directors,
in its good faith opinion, to be in the best interest of the Company and to
reflect the fair market value of such property if the conditions specified
in each of the following clauses (A) and (B) would be satisfied with
respect to such Transfer: (A) the sum of: (1) the book value of such
property at the time of Transfer; plus (2) the aggregate book value of all
other property Transferred (other than in transactions described in clauses
(A) and (B) above), after the Issue Date, would not exceed 25% of
consolidated total assets of the Company and its subsidiaries (determined
in accordance with GAAP) measured as of the last day of the immediately
preceding fiscal quarter of the Company; and (B) immediately before and
after the consummation of the Transfer, and after giving effect thereto, no
Default or Event of Default would exist;
(D) any other Transfer of property to the extent that the proceeds of
such Transfer, net of transaction costs and expenses incurred and actually
paid in connection with such Transfer (including sales, transfer or gains
taxes), within 365 days after such Transfer are applied by the Company or
such subsidiary (A) to fund its working capital and capital expenditure or
acquisitions requirements, and/or (B) to pay or prepay a principal amount
of Debt of the Company or any subsidiary thereof (other than Junior
Subordinated Debt) equal to the amount of such net proceeds; and, in
connection with any such payment, the Company shall pay all accrued
interest thereon and any premium or make-whole amount required to be paid
in connection therewith; provided, however, that in the event that any Debt
so prepaid is not Senior Debt, then the Company shall prepay, together with
such prepayment of such other Debt, a proportional and ratable principal
amount of this Note pursuant to Section 1.6.;
(E) any Transfers pursuant to the Acquisition Obligations; and
(F) any other Transfer permitted to be made by the Company or any of
its subsidiaries consistent with the terms of the Senior Credit Agreement
as in effect on the Issue Date.
6.3 The Company will not, and will not permit any subsidiary to, directly
or indirectly, create, incur, assume, guarantee, or otherwise become directly or
indirectly liable with respect to, any Debt, other than:
(A) this Note and any guaranties thereof;
-24-
<PAGE>
(B) Debt owing by the Company to any wholly-owned subsidiary of the
Company and Debt of a subsidiary of the Company owing to the Company or a
wholly-owned subsidiary of the Company;
(C) Debt existing on the Issue Date and listed on Schedule 6.3
(including Debt under the Senior Credit Agreement, provided that loans
thereunder shall not exceed an aggregate of $34 million plus an additional
$6 million to be used solely for working capital and general corporate
purposes of the Company, including, but not limited to, acquisitions);
(D) Debt incurred under the Senior Credit Facility from time to time
following the Issue Date, provided that loans thereunder shall not exceed
an aggregate of $34 million plus an additional $6 million to be used solely
for working capital and general corporate purposes of the Company,
including, but not limited to, acquisitions;
(E) Debt incurred or created to refinance any of the Debt permitted by
clauses (C) and (D) of this Section 6.3, provided that in the case of Debt
listed on Schedule 6.3 (other than Senior Debt and refinancing thereof),
the principal amount does not exceed the principal amount of Debt being
refinanced;
(F) Debt (other than Debt incurred under the Senior Credit Facility)
incurred or assumed in connection with "Permitted Acquisitions" and
"Permitted Club Acquisitions" (as those terms are defined in the Senior
Credit Agreement);
(G) Debt incurred in connection with conversion of the obligations of
the Company or any subsidiary thereof under the Acquisition Puts (as
defined in the Senior Credit Agreement) pursuant to the terms of the
Acquisition Documents (as defined in the Senior Credit Agreement) or the
conversion of obligations under Future Acquisition Puts (as defined in the
Senior Credit Agreement) into Debt of the Company or its subsidiaries under
the terms of the agreements governing such Future Acquisition Puts;
(H) Debt (other than this Note) owing by the Company or a subsidiary
thereof to Norton Herrick, Michael Herrick and/or Howard Herrick (together,
the "Herricks") and/or any of their respective Affiliates;
(I) Debt incurred by the Company or a subsidiary thereof to finance
the payment of the Change in Control Purchase Price of this Note;
(J) Debt, in addition to the Debt permitted to be incurred by the
clauses (A) through (I) of this Section 6.3, in the principal amount at any
time outstanding not to exceed $1,000,000;
(K) Any Guaranties made or issued by the Company of Debt permitted to
be incurred by any of its subsidiaries pursuant to clauses (E), (F), (G),
(H), (I), (J) and (L) above and Guaranties made or issued by subsidiaries
of the Company of Debt permitted to be incurred by the Company pursuant to
clauses (C), (D), (E), (F), (G), (H), (I), (J) and (L) above; and
-25-
<PAGE>
(L) Any other Debt permitted to be incurred by the Company or any of
its subsidiaries consistent with the terms of the Senior Credit Agreement
as in effect on the Issue Date.
6.4 The Company will not, and will not permit any subsidiary thereof to,
incur, assume or Guaranty any Debt which is subordinated in right of payment to
any other Debt of the Company or any subsidiary thereof, unless such Debt is
also subordinated in right of payment to the obligations of the Company in
respect of this Note on terms reasonably acceptable to the Holder. The Company
will not, and will not permit any subsidiary thereof to, incur or create any
Debt in favor of an Affiliate or another subsidiary (other than Debt in favor of
the Company or a wholly-owned subsidiary thereof which is a guarantor of Debt
under the Senior Credit Facility) unless such Debt is also subordinated in right
of payment to the obligations of the Company in respect of this Note on terms
reasonably acceptable to the Holders.
6.5 The Company will not, and will not permit any subsidiary thereof to,
engage in any business if, as a result, the general nature of the business in
which the Company and its subsidiaries, taken as a whole, would then be engaged
would be substantially changed from the general nature of the business in which
the Company and the Subsidiaries, taken as a whole, are engaged on the Issue
Date.
7. Events of Default
7.1 An "Event of Default" exists at any time if any of the following occurs
(whether such occurrence shall be voluntary or come about or be effected by
operation of law or otherwise):
(a) The Company defaults in the payment of the principal of this Note
when due (whether at the Maturity Date or any Prepayment Date) or in the
payment of the Change in Control Purchase Price when due or defaults in the
payment of any accrued interest on this Note when due and such default
continues for a period of 30 business days after the date such interest
became due;
(b) The Company or any subsidiary thereof defaults in the performance
or observance of any of the covenants contained in Section 5.2(d) or
Section 6 hereof or defaults in the performance or observance of any of the
covenants contained in Sections 5.2(e), 5.3, 5.4 (e) or 5.10 hereof and
such default remains uncured for more than 30 days;
(c) The Company or any subsidiary thereof defaults in the performance
of any covenants contained in this Note, and such default remains uncured,
after notice and an opportunity to cure, for more than 60 days;
(d) Any warranty, representation or other statement by or on behalf of
the Company contained in this Note or in any certificate, financial
statement, report or notice furnished after the date hereof to Holder
pursuant to the terms of this Note, or in any written amendment,
supplement, modification or waiver with respect to any such document shall
be false or misleading in any material respect when made;
(e) Either (i) the Company or any subsidiary thereof fails to pay when
due and within any applicable period of grace, any principal of, premium,
if any, or interest in respect of any Debt for borrowed money of the
Company or such subsidiary in the aggregate principal amount of $2
-26-
<PAGE>
million; or (ii) any event shall occur or any condition shall exist in
respect of such Debt, or under any agreement securing or relating to such
Debt, and in either case, as a result thereof: (A) the maturity of such
Debt, or a material portion thereof, is accelerated, or (B) any one or more
of the holders thereof or a trustee therefor is permitted to require the
Company or such subsidiary to repurchase such Debt from the holders
thereof, and any such trustee or holder exercises such option; or (C) any
such one or more of such holders or such trustee declares an acceleration
of the maturity of such Debt;
(f) a receiver, liquidator, custodian or trustee of the Company or any
subsidiary thereof or of all or any substantial part of the property of
either is appointed by court order and such order remains in effect for
more than 60 days; or an order for relief is entered with respect to the
Company or any such subsidiary, or the Company of any subsidiary thereof is
adjudicated a bankrupt or insolvent; or all or any substantial part of the
property of the Company or any subsidiary thereof is sequestered by court
order and such order remains in effect for more than 60 days; or an
involuntary case or proceeding is commenced against the Company or any
subsidiary thereof under the Federal Bankruptcy Code or any other
bankruptcy reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, and is not dismissed within 60 days after such filing;
(g) The Company or any subsidiary thereof: (i) commences a voluntary
case or proceeding or seeks relief under any provision of the Federal
Bankruptcy Code or any other bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or consents to the filing
of any petition against it under any such law; or (ii) makes an assignment
for the benefit of creditors, or admits in writing its inability or fails,
to pay its debts generally as they become due, or consents to the
appointment of a receiver, liquidator or trustee of the Company or a
subsidiary thereof or of all or a substantial part of its property; or
(h) A final, non-appealable judgment or final, non-appealable
judgments for the payment of money aggregating in excess of $2.0 million
(in excess of any insurance relating to such judgments or judgments or any
claim or claims underlying such judgment or judgments and the relevant
insurer or insurers shall not have denied liability under such insurance or
rejected any claims made with respect thereto) is or are outstanding
against one or more of the Company and its subsidiaries and any one of such
judgments shall have been outstanding for more than 60 days from the date
of its entry and shall not have been discharged in full or stayed; or
(i) The Note shall cease to be in full force and effect or shall be
declared by a court of competent jurisdiction to be void, voidable or
unenforceable, or the validity or enforceability of the Note shall be
contested by the Company or any Affiliate, or the Company or any Affiliate
shall deny that the Company has any further liability or obligation under
the Note.
7.2 Default Remedies
(a) If any Event of Default specified in Section 7.1(f) or (g) shall
exist, the principal amount of this Note at the time outstanding, together
with interest accrued and unpaid thereon, shall automatically immediately
become due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived.
-27-
<PAGE>
(b) Subject to Section 3.6 and Section 3.7, if any Event of Default,
other than those specified in Section 7.1(a), shall exist, the Holder may
exercise any right, power or Remedy permitted to such Holder by law, and
shall have in particular, without limiting the generality of the foregoing,
the right to declare the entire principal of, and all interest accrued and
unpaid on, this Note then outstanding to be, and this Note shall thereupon
become, forthwith due and payable, without any presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived, and
the Company shall forthwith pay to the Holder such principal and interest.
(c) Subject to Sections 3.6 and 3.7, during the continuance of an
Event of Default described in Section 7.1(a) and irrespective of whether
the Note shall have become due and payable pursuant to Section 7.2(b), the
Holder may, at the Holder's option, by notice in writing to the Company,
declare the principal amount of this Note at the time outstanding, and
accrued and unpaid interest thereon, to be, and the same shall thereupon
become, forthwith due and payable, without any presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived, and
the Company shall forthwith pay to the Holder such principal and interest.
(d) During the continuance of an Event or Default and irrespective of
whether this Note shall become due and payable pursuant to Section 7.2(a),
(b) or (c) and irrespective of whether the Holder shall otherwise have
pursued or be pursuing any other rights or Remedies, subject to Section 3.6
and Section 3.7, the Holder may proceed to protect and enforce its rights
under this Note by exercising such Remedies as are available to such holder
in respect thereof under applicable law, either by suit in equity or by
action at law, or both, whether for specific performance of any agreement
contained herein or in aid of the exercise of any power granted herein.
(e) No course of dealing on the part of the Holder nor any delay or
failure on the part of the Holder to exercise any right shall operate as a
waiver of such right or otherwise prejudice the Holder's rights, powers and
Remedies. All rights and Remedies of the Holder hereunder and under
applicable law are cumulative to, and not exclusive of, any other rights or
Remedies the Holder would otherwise have.
(f) The rights of the Holder to receive payments in respect of this
Note, and to exercise any Remedies, solely as between the Holder and the
holders of the Senior Debt, shall be subject in all respects to the
provisions of Section 3; provided, however, that all such rights shall
remain unconditional and absolute as between the Holder and the Company.
7.3 If a declaration is made pursuant to Section 7.2(b) arising solely out
of an Event of Default described in Section 7.1(e) regarding the Senior Debt,
then and in every such case, if the holders of the Senior Debt waive such
default in respect of the Senior Debt or such default is cured, and the holders
of the Senior Debt rescind or annul any and all accelerations of the maturity of
all or any portion of the Senior Debt and any required or demanded repurchase of
all or any portion thereof, then, upon written notice to the Holder of such
events with respect to the Senior Debt, any declaration made pursuant to Section
7.2(b) and the consequences thereof, shall automatically and without any further
action on the part of the Holder, be annulled and rescinded; provided, however,
that at the time such declaration is deemed annulled and rescinded: (i) no
judgment or decree shall have been entered for the payment of any moneys due on
or pursuant to this Note; and (ii) no other Default or Event of Default shall be
continuing; provided further that no such rescission and annulment shall extend
to or affect any subsequent Default or Event of Default or impair any right
consequent thereon.
-28-
<PAGE>
8. Interpretation of this Note
8.1. As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"Affiliate" means and includes with respect to any person, at any
time, each other person (other than, with respect to the Company, a
subsidiary of the Company): (a) that directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common
control with, such person; (b) that beneficially owns or holds five percent
or more of any class of the Voting Stock of such person; (c) five percent
or more of the Voting Stock (or if such other person is not a corporation,
five percent or more of the equity interest) of which is beneficially owned
or held by such person; or (d) that is an officer or director of or holds a
position of comparable authority with such person; at such time; provided,
however, that no person holding this Note or Warrants shall be deemed to be
an "Affiliate" of the Company solely by virtue of the ownership of such
securities. As used in this definition: "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of
voting securities, by contract or otherwise.
"Applicable Interest Law" means any present or future law (including,
without limitation, the laws of the State of New York and the United States
of America) which has application to the interest and other charges
pursuant to this Note.
"Board of Directors" means, at any time, the board of directors of the
Company or any or any committee thereof that, in the instance, shall have
the lawful power to exercise the power and authority of such board of
directors.
"Capital Lease" means, at any time, a lease of any property 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.
"Cash Equivalents" means, for all purposes of Section 3 hereof,
equivalents of cash that are acceptable to the Senior Agent in its
reasonable business judgment.
"Change in Control" means, at any time, an occurrence or event or
failure of an event to occur, as a result of which a person or group of
related persons (other than the Herricks, an Affiliate of any of the
Herricks, or any trust for the benefit of any of the Herricks) acquires
more than 50% of the Voting Stock of the Company.
"Debt" with respect to any person, means, without duplication, the
liabilities of such person with respect to: (a) borrowed money; (b) the
deferred purchase price of property acquired by such person (excluding
accounts payable and accrued expenses arising in the ordinary course of
business, but including all liabilities created or arising under any
conditional sale or other title retention agreement with respect to any
such property); (c) borrowed money secured by any Lien existing on property
owned by such person (whether or not such liabilities have been assumed);
(d) Capital Leases of such person; (e) letters of credit, bankers
acceptances or similar instruments serving a similar function issued or
accepted by banks and other financial institutions for the account of such
person (whether or not representing obligations for borrowed money), other
than undrawn trade letters of credit in the
-29-
<PAGE>
ordinary course of business; (f) Swaps of such person; and (g) any Guaranty
of such person of any obligation or liability of another person of
obligations of the type listed in clause (a) through clause (f) of this
definition of Debt; provided that, with respect to the Company, Debt shall
not include any unfunded obligations which may now or hereafter exist with
respect to Company's Plans. As used in this definition, "Swaps" means, with
respect to any person, obligations with respect to interest rate swaps and
currency swaps and similar obligations obligating such person to make
payments, whether periodically or upon the happening of a contingency,
except that if any agreement relating to such obligation provides for the
netting of amounts payable by and to such person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such
person, then in each such case, the amount of such obligations shall be the
net amount thereof. The aggregate net obligation of Swaps at any time shall
be the aggregate amount of the obligations of such person under all Swaps
assuming all such Swaps had been terminated by such person as of the end of
the then most recently ended fiscal quarter of such person. If such net
aggregate obligation shall be an amount owing to such person, then the
amount shall be deemed to be zero. Unless the context otherwise requires,
"Debt" means Debt of the Company or of a subsidiary of the Company.
"Default" means any event which, with the giving of notice or the
passage of time, or both, would become an Event of Default.
"Environmental Law" means any law, statute or regulation enacted by
any governmental authority in connection with or relating to the protection
or regulation of the environment, including, without limitation, those
laws, statutes and regulations regulating the disposal, removal,
production, storing, refining, handling, transferring, processing or
transporting of Hazardous Materials and any applicable orders, decrees or
judgments issued by any court of competent jurisdiction in connection with
any of the foregoing.
"Environmental Permit" means any permit, approval, identification
number or other authorization required by any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the
Company under Section 414 of the IRC.
"GAAP" means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board
and in such statements, opinions and pronouncements of such other entities
with respect to financial accounting of for-profit entities as shall be
accepted by a substantial segment of the accounting profession in the
United States.
"Guaranty" means with respect to any person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or
collection) of such person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other person (the
"Primary Obligor") in any manner, whether directly or indirectly,
including, without limitation, obligations incurred through an agreement,
contingent or otherwise, by the Guarantor: (a) to purchase such
indebtedness or obligation or any
-30-
<PAGE>
property constituting security therefor; (b) to advance or supply funds (i)
for the purchase or payment of such indebtedness, dividend or obligation;
or (ii) to maintain working capital or other balance sheet condition or any
income statement condition of the Primary Obligor or otherwise to advance
or make available funds for the purchase or payment of such indebtedness,
dividend or obligation; (c) to lease property or to purchase securities or
other property or services primarily for the purpose of assuring the owner
of such indebtedness or obligation of the ability of the Primary Obligor to
make payment of the indebtedness or obligation; or (d) otherwise to assure
the owner of the indebtedness or obligation of the Primary Obligor against
loss in respect thereof.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Environmental Laws as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, "TLCP toxicity" or "EP toxicity"; (b) oil, petroleum
or petroleum derived substances, natural gas, natural gas liquids or
synthetic gas and drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil,
natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; (d) asbestos or urea formaldehyde
in any form; and (e) dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million.
"IRC" means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
"Issue Date" means December 31, 1998
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a person other than the owner of such property (for purposes
of this definition, the "Owner"), whether such interest is based on the
common law, statute or contract, and includes but is not limited to: (a)
the security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes, and the filing of any financing statement under the
Uniform Commercial Code of any jurisdiction, or an agreement to give any of
the foregoing; (b) reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting real property; and (c) any interest
in any property held by the owner evidenced by a conditional sale
agreement, Capital Lease or other arrangement pursuant to which title to
such property has been retained by or vested in some other person for
security purposes. The term "Lien" does not include negative pledge clauses
in loan agreements and equal and ratable security clauses in loan
agreements.
"Material Adverse Effect" means, with respect to any event or
circumstance (either individually or in the aggregate with all other events
and circumstances), an effect caused thereby or resulting therefrom that
would be materially adverse as to, or in respect of: (a) the business,
operations, profits, financial condition or properties of the Company and
its subsidiaries, taken as a whole; (b) the ability of the Company to
perform its obligations under this Note; or (c) the validity or
enforceability of this Note.
-31-
<PAGE>
"Note" means and includes each 9% Convertible Senior Subordinated Note
due December 31, 2004 issued by the Company, as the same may be amended,
modified, supplemented, refunded, refinanced or extended from time to time.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may
have any liability.
"Voting Stock" means with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time any stock of any other class or
classes shall have or might have voting power by reason of the happening of
any contingency), and, in the case of the Company, shall include the Common
Stock. Except as otherwise provided, references herein to "Voting Stock"
shall mean Voting Stock of the Company.
"Warrant" means each warrant to purchase Common Stock issued pursuant
to the Warrant Agreement dated as of the date hereof between the Company
and the Holder, pursuant to which the Warrants were issued.
8.2 (a) Unless otherwise provided herein, all financial statements
delivered in connection herewith will be prepared in accordance with GAAP. Where
the character or amount of any asset or liability or item of income or expense,
or any consolidation or other accounting computation is required to be made for
any purpose hereunder, it shall be done in accordance with GAAP; provided,
however, that if any term defined herein includes or excludes amounts, items or
concepts that would not be included in or excluded from such term if such term
were defined with reference solely to GAAP, such term will be deemed to include
or exclude such amounts, items or concepts as set forth herein.
(b) Whenever accounting amounts of a group of persons are to be determined
"on a consolidated basis" it shall mean that, as to balance sheet amounts to be
determined as of a specific time, the amount that would appear on a consolidated
balance sheet of such persons prepared as of such time, and as to income
statement amounts to be determined for a specific period, the amount that would
appear on a consolidated income statement of such persons prepared in respect of
such period, in each case with all transactions among such persons eliminated,
and prepared in accordance with GAAP except as otherwise required hereby.
8.3 Where any provision herein refers to action to be taken by any person,
or which such person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such person,
including actions taken by or on behalf of any partnership in which such person
is a general partner.
8.4 (a) The titles of the Sections of this Note appear as a matter of
convenience only, do not constitute a part hereof and shall not affect the
construction hereof. The words "herein," "hereof," "hereunder" and "hereto"
refer to this Note as a whole and not to any particular Section or other
subdivision. References to Annexes and Sections are, unless otherwise specified,
references to Sections of this Note. References to Annexes and Schedules are,
unless otherwise specified, references to Schedules attached to this Note.
-32-
<PAGE>
(b) Each covenant contained herein shall be construed (absent an express
contrary provision herein) as being independent of each other covenant contained
herein, and compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with one or more other
covenants.
8.5 THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA, WITHOUT REGARD TO ANY CHOICE
OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION. IN ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT THEY MAY
LAWFULLY DO SO, THE INTERNAL LAWS OF THE STATE OF FLORIDA AS THE APPLICABLE
INTEREST LAW.
9. Miscellaneous
9.1 All communications under this Note shall be in writing and shall be
delivered either by nationwide overnight courier or by facsimile transmission
(confirmed by delivery by nationwide overnight courier sent on the day of the
sending of such facsimile transmission). Communications to the Company shall be
addressed as set forth on Annex 1, or at such other address of which the Company
shall have notified the Holder. Communications to the Holder shall be addressed
as set forth on Annex 1, or at such other address of which such Holder shall
have notified the Company (and the Company shall record such address in the
register for the registration and transfer of this Note). Any communication
addressed and delivered as herein provided shall be deemed to be received when
actually delivered to the address of the addressee (whether or not delivery is
accepted) or received by the telecopy machine of the recipient. Any
communication not so addressed and delivered shall be ineffective.
Notwithstanding the foregoing provisions of this Section 9.1, service of process
in any suit, action or proceeding arising out of or relating to this Note or any
transaction contemplated hereby, or any action or proceeding to execute or
otherwise enforce any judgment in respect of any breach hereunder or under any
document hereby, shall be delivered in the manner provided in Section 9.7(c).
9.2 All warranties, representations, statements of fact, certifications and
covenants contained in this Note or in any certificate, financial statement,
report or notice delivered or provided hereunder shall be considered to have
been relied upon by the other party hereto and shall survive the delivery to
such party regardless of any investigation made by or on behalf of any party
hereto. All statements in any certificate, delivered pursuant to the terms
hereof shall constitute warranties and representations hereunder. All
obligations hereunder (other than payment of this Note, but including, without
limitation, reimbursement obligations in respect of costs, expenses and fees)
shall survive the payment of this Note and the termination hereof. Subject to
the preceding, this Note embodies the entire agreement and understanding between
the Company and the Holder, and supersedes all prior agreements and
understandings, relating to the subject matter hereof.
9.3 The provisions hereof are intended to be for the benefit of the Holder,
from time to time, of this Note, and shall be enforceable by any such Holder
whether or not an express assignment to such Holder of rights hereunder shall
have been made by the payee or his successors or assigns. In the event that the
payee named herein transfers or assigns less than all of this Note, the term
"Holder" as used herein shall be deemed to refer to the assignor and assignee or
assignees hereof, collectively, and any action permitted to be taken by the
Holder hereunder shall be taken only upon the consent or approval of persons
comprising the Holder that own that percentage interest in the principal amount
of this Note
-33-
<PAGE>
as shall be designated by the payee named herein at the time of such assignment.
Anything contained in this Section 9.3 notwithstanding, the Company may not
assign any of its respective rights, duties or obligations hereunder other
without the prior written consent of the Holder. For purposes of the avoidance
of doubt, the Holder of this Note shall be permitted to pledge or otherwise
grant a lien in and to this Note; provided, however, that any such pledgee or
holder of a Lien shall not be considered a Holder hereunder until it shall have
foreclosed upon this Note in accordance with applicable law and informed the
Company, in writing, of the same.
9.4 (a) This Note may be amended, and the observance of any term hereof may
be waived, with (and only with) the written consent of the Company and the
Holder, provided, however, that without the written consent of the holders of
Senior Debt, no amendment, supplement or modification of the provisions of
Section 3, or any defined term to the extent used therein, shall be effective as
to any holder of Senior Debt who has not consented to such amendment, supplement
or modification.
Any amendment or waiver consented to as provided in this Section 9.4 shall
be binding upon the then current Holder and upon each future holder of this Note
and upon the Company whether or not this Note shall have been marked to indicate
such amendment or waiver. No such amendment or waiver shall extend to or affect
any obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon.
9.5 (a) The Company shall pay when billed the reasonable costs and expenses
(including reasonable attorneys' fees) incurred by the Holder in connection with
the consideration, negotiation, preparation or execution of any amendments,
waivers, consents, standstill agreements and other similar agreements with
respect to this Note (whether or not any such amendments, waivers, consents,
standstill agreements or other similar agreements are executed).
(b) At any time when the Company and the Holder are conducting
restructuring or workout negotiations in respect hereof, or a Default or Event
of Default exists, the Company shall pay when billed the reasonable costs and
expenses (including reasonable attorneys' fees and the fees of professional
advisors) incurred by the Holder in connection with the assessment, analysis or
enforcement of any rights or remedies that are or may be available to the
Holder.
(c) If the Company shall fail to pay when due any principal of, or interest
on, this Note, the Company shall pay to the Holder, to the extent permitted by
law, such amounts as shall be sufficient to cover the costs and expenses,
including but not limited to reasonable attorneys' fees, incurred by the Holder
in collecting any sums due on this Note.
9.6 (a) THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT
ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS NOTE OR TRANSACTIONS CONTEMPLATED HEREBY.
(b) ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER
THIS NOTE MAY BE BROUGHT BY SUCH PARTY
-34-
<PAGE>
IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK COUNTY, NEW YORK, OR ANY
NEW YORK STATE COURT LOCATED IN NEW YORK COUNTY, NEW YORK AS SUCH PARTY MAY
IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS
NOTE, THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE
NON-EXCLUSIVE IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY
PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION
OF ANY SUCH COURT. IN ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR TRANSACTION
CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND HEREBY IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH PARTY HERETO IRREVOCABLY AGREES THAT PROCESS PERSONALLY
SERVED OR SERVED BY U.S. EXPRESS, REGISTERED OR CERTIFIED MAIL OR BY
NATIONWIDE OVERNIGHT COMMERCIAL COURIER OR DELIVERY SERVICE AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT
PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR TRANSACTION
CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE
ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER. RECEIPT OF PROCESS
SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT
FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY
SERVICE.
(d) NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF
ANY HOLDER OF THIS NOTE TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY
MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE
COMPANY IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE
PERMITTED BY APPLICABLE LAW.
-35-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by one of its duly authorized officers or
representatives.
AUDIO BOOK CLUB, INC.
By: /s/ JOHN LEVY
-----------------------------------
Name: John Levy
Title: Executive Vice President and
Chief Financial Officer
-36-
<PAGE>
Schedule 6.3
1. Debt incurred under the Senior Credit Agreement on the Issue Date
2. Debt in the principal amount of $50,000, together with accrued interest
thereon at the annual rate of 10%, evidenced by a promissory note of Radio
Spirits, Inc., payable to Charles Michelson Inc., which Debt was assumed by
Classic Radio Holding Corp. ("CRHC")
3. Debt in the amount of approximately $17,330 representing royalties owing to
Audrey Chratens by Radio Spirits, Inc. Such Debt was assumed by CHRC.
4. Debt of an immaterial amount owing under a lease for mail system equipment
due to Pitney Bowes Credit Corporation.
Norton Herrick
Audio Book Club, Inc.
20 Community Place
Morristown, New Jersey 07962-2346
December 31, 1998
Fleet National Bank, as Administrative Agent
1185 Avenue of the Americas
New York, New York 10036
Re: Audio Book Club, Inc. 9% Convertible Senior
Subordinated Promissory Note Due December 31, 2004
Gentlemen:
Reference is made to (i) the Audio Book Club, Inc. 9% Convertible Senior
Subordinated Promissory Note Due December 31, 2004 (as it may be amended,
modified or supplemented from time to time to the extent permitted under the
Credit Agreement referred to below, the "Subordinated Note"), and (ii) the
Credit Agreement of even date herewith as amended, modified, supplemented,
restated, refinanced, refunded or replaced from time to time, the "Credit
Agreement") among Audio Book Club, Inc. (the "Borrower"), the Banks, financial
institutions and other institutional lenders from time to time party thereto (as
defined in the Credit Agreement, the "Lender Parties") and Fleet National Bank
in its capacity, inter alia, as Administrative Agent (together with its
successors in such capacity, the "Administrative Agent"). Capitalized terms used
herein without definition shall have the respective meanings ascribed thereto in
the Credit Agreement.
Norton Herrick (together with any of his Affiliates including, without
limitation, family and trusts, "Herrick") is on the date hereof the holder of
the Subordinated Note . As an inducement to the Lenders and the Administrative
Agent to enter into the Credit Agreement and extend credit thereunder, and in
reliance hereon, Herrick has agreed to enter into this agreement (the
"Agreement" or "Modification Agreement") pursuant to which certain rights that
may be exercised by a holder of the Subordinated Note shall not be exercised, to
the extent set forth herein, in respect of such portions of the Subordinated
Note held or controlled directly or indirectly by Herrick for so long as such
portions of the Subordinated Note are held or controlled by Herrick.
For good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Restrictions on Herrick's Rights.
Notwithstanding anything to the contrary contained in the
<PAGE>
Subordinated Note, and only so long as Herrick holds or controls all or any
portion of the Subordinated Note:
(a) Herrick shall not be entitled to assert the existence of a default
under the Subordinated Note based on a violation of Section 6.4 of the
Subordinated Note arising out of or in connection with any Acquisition Puts or
Future Acquisition Puts (as defined in the Credit Agreement) (the "Acquisition
Puts" and "Future Acquisition Puts").
(b) Herrick shall not be entitled to assert the existence of a default
arising out of a violation of Section 5.1, 5.2(e) or 5.4(d) of the Subordinated
Note.
(c) Herrick shall not be entitled to assert the existence of a default
under Section 7.1(a) of the Subordinated Note arising from a default in the
payment of any accrued interest on the Subordinated Note unless and until two
successive interest payments shall have failed to be made under the Subordinated
Note.
(d) Herrick shall not be entitled to assert the existence of a default
under Section 7.1(c) of the Subordinated Note.
(e) If and to the extent that Herrick seeks enforcement thereof, Section
7.1(e) of the Subordinated Note shall not apply to any Debt due in respect of
any Acquisition Puts or Future Acquisition Puts.
(f) If and to the extent that Herrick seeks enforcement thereof, Section
7.1(h) of the Subordinated Note shall not apply to any judgment arising in
connection with any Acquisition Puts or Future Acquisition Puts.
(g) Neither Norton Herrick nor any of his Affiliates (as defined in the
Credit Agreement) may transfer to any Affiliate of Norton Herrick the
Subordinated Note unless any such transferee shall have agreed expressly in
writing addressed to the Administrative Agent to be bound by the terms and
conditions of this Agreement as if an original signatory thereto. No transfer
shall be made by Norton Herrick or any of his Affiliates (except to one or more
of Norton Herrick's Affiliates) of any portion of the Subordinated Note
representing less than $1,000,000 of the principal amount thereof or the
remaining principal if less than $1,000,000. If Herrick or any of his Affiliates
transfers less than all of the Subordinated Note Herrick shall retain no
interest directly or indirectly in the transferred portion of the Subordinated
Note and shall not benefit from the provisions of the transferred portion
contrary to the provisions and the intent of this Agreement, and prior to any
such transfer, the Administrative Agent shall have received copies of all
documents relating thereto with sufficient time in order to confirm compliance
with the terms of this Agreement, except that if the Administrative Agent shall
not have delivered to Norton Herrick written confirmation or objection relating
to the matters described in this proviso within five (5) business days following
the Administrative Agent's actual receipt of the copies of the above-described
documents,
-2-
<PAGE>
then the Administrative Agent shall be deemed to have confirmed compliance with
the terms of this Agreement.
(h) Notwithstanding any other provisions contained herein, or in the
Subordinated Note or in the Senior Subordinated Security Agreement: (i) no
holder of the Subordinated Note other than Herrick shall be entitled to the
benefits of the Senior Subordinated Security Agreement unless such holder shall
have become party to the Intercreditor Agreement by execution and delivery of
documents acceptable to the Administrative Agent, and (ii) in any event Herrick
shall not be entitled to vote the Subordinated Note as a secured claim in any
proceeding of the type described in Section 9.6 of the Credit Agreement and all
such rights to vote the Subordinated Note (or any portion thereof) as a secured
creditor shall be or shall have been assigned to the Administrative Agent on
terms and conditions satisfactory to the Administrative Agent.
2. Borrower Rights. So long as Herrick owns or controls all or any portion
of the Subordinated Note, the Borrower shall not be, and shall not be deemed in
default under the terms of the Subordinated Note if and when the Borrower fails
to, recognize or comply with any term of the Subordinated Note not consistent
with the provisions of this Modification Agreement solely with respect to the
portion of the Subordinated Note held or controlled by Herrick and not with
respect to any portion of the Subordinated Note not controlled or held by
Herrick; provided, however, that in the event of exercise of remedies under the
Subordinated Note by any holder of the Subordinated Note other than Herrick (to
the extent such exercise is then permitted under the terms of the Subordinated
Note as held by any non-Herrick holder thereof), then Herrick shall be entitled
to exercise his remedies under the Subordinated Note.
3. Monthly Interest. Notwithstanding the reference in the Subordinated Note
to interest being payable quarterly, interest on the portion of the Subordinated
Note held by Herrick, if and for so long as Herrick holds $7,000,000 or more in
principal amount of the Subordinated Note, shall be paid monthly in arrears.
4. Miscellaneous.
(a) All notices or communications to be given by (i) Herrick or any of his
Affiliates to the Administrative Agent or the Lender Parties shall be given to
such parties at their respective addresses specified for purposes of notices
under the Credit Agreement and (ii) the Administrative Agent under this
Agreement to Herrick or any of his Affiliates shall be given to such party at
the address specified for Norton Herrick on the signature pages hereof or such
other address as may be duly given in writing to the Administrative Agent.
(b) At any time and from time to time, upon the request of the
Administrative Agent, Norton Herrick and each Loan Party shall execute and
deliver or cause to be executed and delivered, such further documents and
instruments and do such other acts and things as the Administrative Agent may
reasonably request in order to fully effect the purposes of this Agreement.
-3-
<PAGE>
(c) This Agreement may not be amended or modified orally but may be amended
or modified only in writing, signed by all parties hereto and the Administrative
Agent. No waiver of any term or provision of this Agreement shall be effective
unless it is in writing, making specific reference to this Agreement and signed
by the party against which such waiver is sought to be enforced. This Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof. This Agreement shall be binding upon Herrick and each of
his Affiliates and their respective successors and assigns and shall inure to
the benefit of the Administrative Agent and the Lender Parties and their
respective successors and assigns.
(d) This Agreement may be executed in counterparts by the parties hereto,
and each such counterpart shall be considered an original, and all such
counterparts shall constitute one and the same instrument.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES PERTAINING TO
CONFLICTS OF LAWS.
(f) EACH PARTY HERETO IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST IT UNDER, ARISING OUT OF, OR IN ANY MANNER RELATING TO THIS
AGREEMENT MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. EACH PARTY, BY THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING. EACH PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY
COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR
PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER PROVIDED
FOR IN PARAGRAPH 3(a) ABOVE. EACH PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES
ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR
BASIS. HERRICK SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT
ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF
NEW YORK UNLESS SUCH DEFENSE IS GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW
YORK. NOTHING
-4-
<PAGE>
IN THIS PARAGRAPH 3(e) SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE
RIGHT OF THE ADMINISTRATIVE AGENT TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST HERRICK IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW.
Very truly yours,
/s/ Norton Herrick
------------------------------
Norton Herrick
20 Community Place
Morristown, New Jersey 07962-2346
-5-
<PAGE>
AUDIO BOOK CLUB, INC.
By: /s/ John Levy
---------------------------------
Name: John Levy
-------------------------------
Title: Executive Vice President and
Chief Financial Officer
------------------------------
Acknowledged and agreed to:
FLEET NATIONAL BANK,
as Administrative Agent
By: /s/ Alex Sade
---------------------------------
Name: Alex Sade
-------------------------------
Title: Director
------------------------------
-6-
SUBSIDIARY GUARANTY
Dated as of December 31, 1998
From
CH ACQUISITIONS CORP.
ABC INTERNET SERVICES, INC.
ABC INVESTMENT CORP.
CLASSIC RADIO HOLDING CORP.,
and
CLASSIC RADIO ACQUISITION CORP.
as Guarantors,
in favor of
THE HOLDER,
as defined herein
<PAGE>
TABLE OF CONTENTS
Section Page
- - ------- ----
Section 1. Guaranty; Limitation of Liability ..................... 1
Section 2. Guaranty Absolute ..................................... 2
Section 3. Subordination ......................................... 3
Section 4. Waivers and Acknowledgments ........................... 11
Section 5. Subrogation ........................................... 11
Section 6. Payments Free and Clear of Taxes, Etc. ................ 12
Section 7. Representations and Warranties ........................ 14
Section 8. Covenants ............................................. 14
Section 9. Amendments, Etc. ...................................... 14
Section 10. Notices, Etc. ......................................... 15
Section 11. No Waiver; Remedies ................................... 15
Section 12. Right of Setoff. ...................................... 15
Section 13. Indemnification ....................................... 15
Section 14. Continuing Guaranty; Assignments of the Note .......... 15
Section 15. Security Agreement .................................... 16
Section 16. Governing Law; Jurisdiction; Waiver of July Trial, Etc. 16
Section 17. Counterparts .......................................... 17
i
<PAGE>
GUARANTY
GUARANTY (this "Guaranty"), dated as of December 31, 1998, made by each of
the Persons listed on the signature pages hereof, and the Additional Guarantors
(as defined in Section 9(b)) (such Persons so listed and the Additional
Guarantors being, each, a "Guarantor", and collectively, the "Guarantors") in
favor of the Holder (as defined in the Note referred to below (the Borrower and
the Guarantors, being, each, a "Loan Party", and collectively the "Loan
Parties")).
PRELIMINARY STATEMENT. Audio Book Club, Inc., a Florida corporation (the
"Company"), has entered into a 9% Convertible Senior Subordinated Promissory
Note Due December 31, 2004, dated the date hereof to Norton Herrick (such Note,
as it may hereafter be amended, extended, supplemented, restated or otherwise
modified from time to time, being referred to herein in as the "Note";
capitalized terms used and not otherwise defined herein having the meanings
ascribed to them in the Note and in the Senior Credit Agreement (as defined in
the Note). It is a condition precedent to the purchase by Norton Herrick of the
Note, that the Guarantors shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce
Norton Herrick to purchase the Note, each Guarantor hereby agrees as follows:
Section 1. Guaranty; Limitation of Liability.
(a) Each Guarantor hereby, jointly and severally, unconditionally and
irrevocably guarantees to the Holder the punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all Obligations of the Company
or any other Loan Party to the Holder now or hereafter existing under the Note
or this Guaranty or any Guaranty Supplement (the "Loan Documents"), whether for
principal, interest, fees, expenses or otherwise (such Obligations being the
"Guaranteed Obligations"), and agrees to pay any and all expenses (including
reasonable counsel fees and expenses) incurred by the Holder in enforcing any
rights under this Guaranty. Without limiting the generality of the foregoing,
each Guarantor's liability shall extend to all amounts that constitute part of
the Guaranteed Obligations and would be owed by the Company or any other Loan
Party to the Holder under the Loan Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Company.
(b) Each Guarantor, and by its acceptance of this Guaranty, the Holder,
hereby confirms that it is the intention of all such parties that this Guaranty
not constitute a fraudulent transfer or conveyance for purposes of any
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal, state or foreign law which may be
applicable to this Guaranty. To effectuate the foregoing intention, the Holder,
by its acceptance hereof, and the Guarantors hereby irrevocably agree that the
Obligations of each Guarantor under this Guaranty shall be limited to the
maximum amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant under such
<PAGE>
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the Obligations of such other Guarantor under this Guaranty, result
in the Obligations of such Guarantor under this Guaranty not constituting a
fraudulent transfer or conveyance. For purposes hereof, "Bankruptcy Law" means
Title 11, U.S. Code, or any similar federal or state law for the relief of
debtors.
Section 2. Guaranty Absolute. Each Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Holder with
respect thereto. The Obligations of each Guarantor under this Guaranty are
independent of the Guaranteed Obligations or any other Obligations of any other
Loan Party under the Loan Documents, and a separate action or actions may be
brought and prosecuted against any Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against the Company or any other
Loan Party or whether the Company or any other Loan Party is joined in any such
action or actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional, irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:
(a) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other Obligations of
any other Loan Party under the Loan Documents, or any amendment or waiver of or
any consent to departure from any Loan Document, including, without limitation,
any increase in the Guaranteed Obligations resulting from the extension of
additional credit to the Company or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any Collateral, or
any taking, release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of Collateral, or proceeds thereof, to all or
any of the Guaranteed Obligations, or any manner of sale or other disposition of
any Collateral for all or any of the Guaranteed Obligations or any other
Obligations of any other Loan Party under the Loan Documents or any other assets
of the Company or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of the Company or any of its Subsidiaries;
(f) any failure of any Holder to disclose to the Company or any Guarantor
any information relating to the financial condition, operations, properties or
prospects of any other Loan Party now or in the future known to any Holder (each
Guarantor waiving any duty on the part of the Holder to disclose such
information); or
2
<PAGE>
(g) any other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by the
Administrative Agent or any other Holder that might otherwise constitute a
defense available to, or a discharge of, the Company, such Guarantor or any
other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be refused by any Holder or any other Person upon the
insolvency, bankruptcy or reorganization of the Company or any other Loan Party
or otherwise, all as though such payment had not been made.
Section 3. Subordination.
3.1 Notwithstanding any other provision contained in the Note and this
Guaranty, the Subordinated Debt and the obligations of any Guarantor hereunder
and in respect of the Subordinated Debt are subordinate and junior in right of
payment to all Senior Debt to the extent provided in this Section 3.
3.2 In the event of: (a) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company or any Guarantor; (b) any proceeding for the
liquidation, dissolution or other winding-up of the Company or any Guarantor,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings; (c) any general assignment by the Company or any Guarantor for the
benefit of creditors; or (d) any other marshaling of the assets of the Company
or any Guarantor; all Senior Debt shall first be paid in full, in cash or Cash
Equivalents (as defined in Section 8 of the Note and, for all purposes of this
Section 3, as so defined), before any payment or distribution, whether in cash,
securities or other property, shall be made to the Holder on account of any
Subordinated Debt or this Guaranty. Any payment or distribution, whether in
cash, securities or other property (other than securities of the Company or any
Guarantor or any other corporation provided for by a plan of reorganization or
readjustment, the payment of which is subordinated, at least to the extent
provided in the Note and this Section 3 with respect to Subordinated Debt and
this Guaranty, to the payment of all Senior Debt at the time outstanding and to
any securities issued in respect thereof under any such plan of reorganization
or readjustment, but only if the rights of the holders of the Senior Debt are
not impaired by such plan without their consent), which would otherwise (but for
this Section 3) be payable or deliverable in respect of the Subordinated debt
and this Guaranty, shall be paid or delivered directly to the holders of Senior
Debt in accordance with the priorities then existing among such holders, until
all Senior Debt shall have been paid in full, in cash or Cash Equivalents.
3.3 If the Holder does not file a proper claim or proof of Debt therefor
prior to 20 days before the expiration of the time to file such claim or proof,
then the Senior Agent is hereby authorized and empowered (but not obligated) as
the agent and attorney-in-fact for such holder for the specific and limited
purpose set forth in this Section 3.3 to file such claim or proof for or on
behalf of such holder; provided, however, that the Senior Agent shall have,
prior to taking any such action, given 15 days prior written notice (which
notice may be given up to 60 days prior to the
3
<PAGE>
expiration of the time to file such claim or proof) to such holder of
Subordinated Debt that it intends to file such claim or proof of Debt. In no
event may the Senior Agent or any holder of the Senior Debt vote any claim on
behalf of any holder of the Subordinated Debt, and such agency and appointment
of attorney-in-fact shall not extend to any such right to vote any such claim.
3.4 If (a) the Company or any Guarantor shall default in the payment or
prepayment of any principal of, premium, if any, or interest on, or commitment
fee or letter of credit fee or Administrative Agent fee or indemnity under
Section 2.10 or 2.12 or 11.4(c) (or comparable sections under any replacement
Senior Debt) in respect of, any Senior Debt (a "Senior Payment Default") when
the same becomes due and payable, whether at maturity, at a date fixed for
prepayment, by declaration of acceleration or otherwise, or shall fail to comply
with any covenant or agreement in respect of Senior Debt which covenant or
agreement default results in actual acceleration of the maturity of such Senior
Debt ("Covenant Acceleration"); and (b) the Company receives from the Senior
Agent written notice of the happening of such Senior Payment Default or Covenant
Acceleration, stating that such notice is a payment blockage notice pursuant to
this Section 3.4; no direct or indirect payment (in cash, property or securities
or by set-off or otherwise) shall be made or agreed to be made on account of the
Guaranty, any Subordinated Debt, or as a sinking fund for any Subordinated Debt,
or in respect of any redemption, retirement, purchase, prepayment or other
acquisition or payment of any Subordinated Debt, unless and until such Senior
Payment Default shall have been cured or waived or otherwise shall have ceased
to exist or such Covenant Acceleration shall have been rescinded and the
underlying covenant default shall have been cured or waived or shall have
otherwise ceased to exist.
The Company or any Guarantor shall give prompt written notice to the Holder
of its receipt of any such notice from the Senior Agent under this Section 3.4.
3.5 If (a) any Significant Nonpayment Default shall have occurred; and (b)
the Company and the Holder receive from the Senior Agent written notice (a "Stop
Payment Notice") of the happening of such Significant Nonpayment Default,
stating that such notice is a payment blockage notice pursuant to Section 3.5 of
the Note; no direct or indirect payment (in cash, property or securities or by
set-off or otherwise) shall be made or agreed to be made for or on account of
this Guaranty or any Subordinated Debt, or as a sinking fund for any
Subordinated Debt, or in respect of any redemption, retirement, repurchase,
prepayment, purchase or other acquisition or payment of any Subordinated Debt,
for a period (each, a "Payment Blockage Period") commencing on the date such
Stop Payment Notice is delivered to the Company and ending on the earliest to
occur of the following: (a) the time as of which each Significant Nonpayment
Default which is the subject of such Stop Payment Notice shall have been waived
or cured (whether by amendment of any provisions of the Senior Credit Agreement
or otherwise), (b) a number of days shall have elapsed as is necessary to
prevent the total number of days that a Stop Payment Notice (or Stop Payment
Notices in the event that more than one Stop Payment Notice has been given) is
in effect during any consecutive 365 day period from exceeding 180 days in the
aggregate, and (c) the date of the repayment in full in cash or Cash Equivalents
of the Senior Debt and the termination of any commitment to make further loans
or advances in respect of the Senior Debt; provided, however, that (i) the
Senior Agent shall not be permitted to issue a Stop Payment Notice more than six
times
4
<PAGE>
in the aggregate; (ii) only two Stop Payment Notices may be issued in any period
of 365 consecutive days; (iii) Payment Blockage Periods may not be in effect for
more than 180 days (whether or not such days are consecutive) during any period
of 365 consecutive days, and if any Payment Blockage Period is in effect on the
181st day in ay period of 365 consecutive days, such Payment Blockage Period
will terminate immediately; and (iv) no Payment Blockage Period may be imposed
as a result of a Significant Nonpayment Default which served as the basis for or
was continuing during any previous Payment Blockage Period, unless any such
Significant Nonpayment Default shall have been cured or waived or otherwise
ceased to exist for a period of not less than 60 consecutive days after the date
that the previous Stop Payment Notice was given.
3.6 If, at any time during which the Senior Credit Facility is in effect,
the Holder elects to exercise any Remedies in respect of any Event of Default
(as such term is defined in the Note), the Holder shall deliver to the Company
and to the Senior Agent written notice (an "Enforcement Notice") specifying the
Event or Events of Default which are the basis for the exercise of such Remedies
and stating that the Holder intends to exercise Remedies; provided, however,
that the failure to deliver such Enforcement Notice to the Senior Agent shall
not affect the validity of the Enforcement Notice as between the Holder, the
Company and the Guarantors.
3.7 Notwithstanding anything contained in the Note or this Guaranty to the
contrary, for so long as any amount is outstanding under the Senior Credit
Facility including any letter of credit reimbursement obligations or
commitments, the Holder shall not exercise any Remedies in respect thereof
during any period (a "Standstill Period") commencing on the first date the
Holder, but for the provisions of this Section 3, would have been entitled to
exercise any Remedies and ending upon the earliest of:
(a) the date which is 10 business days after the Enforcement Notice is
delivered to the Company and the Senior Agent pursuant to Section 3.6; provided,
however, that if any Payment Blockage Period arising from the giving of a Stop
Payment Notice is in effect on such 10th business day after the Enforcement
Notice is so delivered, this clause (a) shall be ineffective to terminate such
Standstill Period;
(b) in the event that a Payment Blockage Period arising from the giving of
a Stop Payment Notice is in effect on the date which is 10 business days after
an Enforcement Notice is delivered to the Company and the Senior Agent pursuant
to Section 3.6, the expiration of such Payment Blockage Period;
(c) the date that any holder of any Senior Debt commences the exercise of
any Remedies in respect of such Senior Debt; and
(d) the first date upon which any of the Events of Default described in
Section 7.1(f) and (g) of the Note shall have occurred and be continuing beyond
any period of grace specified therein; and, in such event, the automatic
acceleration of the Note contemplated in respect of such Event of Default
pursuant to Section 7.2(a) of the Note shall occur immediately upon the
termination of the Standstill Period.
5
<PAGE>
3.8 If (a) any payment or distribution shall be paid to or collected or
received by the Holder in contravention of any of the terms of this Section 3 or
Section 3 of the Note but whether or not any Stop Payment Notice or (pursuant to
Section 3.4) payment blockage notice shall theretofore have been given (i.e., if
paid, collected or received at a time when either such notice could have been
given had the Senior Agent been aware of circumstances giving rise to the right
to deliver any such notice); and (b) the Senior Agent shall have notified the
Holder in writing, within 30 days after the date such payment or distribution is
made, of the facts by reason of which such payment or collection or receipt so
contravenes this Section 3 or constituted a Significant Nonpayment Default; then
such Holder will deliver such payment or distribution, to the extent necessary
to pay all such Senior Debt in full, in cash or Cash Equivalents, to the Senior
Agent, on behalf of the holders of the Senior Debt, and, until so delivered, the
same shall be held in trust by the Holder as the property of the holders of such
Senior Debt. If any amount is delivered to the Senior Agent pursuant to this
Section 3.8, whether or not such amounts have been applied to the payment of
Senior Debt, and the outstanding Senior Debt shall thereafter be paid in full,
in cash or Cash Equivalents, by the Company, any Guarantor or otherwise other
than pursuant to this Section 3.8, the holders of Senior Debt shall return to
the Holder an amount equal to the amount delivered to such holders of Senior
Debt pursuant to this Section 3.8, so long as after the return of such amounts
the Senior Debt shall remain indefeasibly paid in full, in cash or Cash
Equivalents.
3.9 Except as provided in this Section 3, the rights set forth in this
Section 3 of the holders of the Senior Debt as against the Holder shall remain
in full force and effect without regard to, and shall not be impaired by:
(a) any act or failure to act on the part of the Company or the Guarantor;
(b) any extension or indulgence in respect of or change in the time, manner
or place of any payment or prepayment of the Senior Debt or any part thereof or
in respect of any other amount payable to any holder of Senior Debt, including,
without limitation, any increase in the Senior Debt resulting from extension of
additional credit to the Company or any subsidiary thereof or otherwise and
permitted by Section 6.3(iii) or (iv) of the Note;
(c) any amendment, modification, restatement, refinancing or waiver of, or
addition or supplement to, or deletion from, or compromise, release, consent or
other action in respect of, any of the terms of any Senior Debt or any other
agreement which may be relating to any Senior Debt, other than such as would
cause all or any portion of such Debt to fail to meet the definition of "Senior
Debt;"
(d) any exercise or non-exercise by any holder of Senior Debt of any right,
power, privilege or remedy under or in respect of any Senior Debt or
Subordinated Debt or any waiver of any such right, power, privilege or remedy or
any default in respect of any Senior Debt or the Subordinated Debt, any dealing
with or action against or application of proceeds from any collateral security
therefor or any receipt by any holder of Senior Debt of any security, or any
failure by any holder of Senior Debt to perfect a security interest in, or any
release by any such Senior Debt of, any
6
<PAGE>
security for or guaranty of the payment of any Senior Debt of any manner of sale
or other disposition of any assets of the Company or any subsidiary, including
the Guarantor;
(e) any merger or consolidation of the Company or any of its subsidiaries,
including the Guarantor, into or with any other subsidiaries of the Company or
into or with any person, or any transfer of any or all of the property of the
Company or any of its subsidiaries to any other person or any change,
restructuring or termination of the corporate structure or existence of the
Company or any of its subsidiaries;
(f) the absence of any notice to, or knowledge by, any holder of
Subordinated Debt of the existence or occurrence of any of the matters or events
set forth in the foregoing clauses (a) through (e).
(g) any lack of validity or enforceability of any instrument or agreement
evidencing or securing any Senior Debt or any other agreement or instrument
relating thereto; or
(h) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company or the Guarantor or any holder of
Subordinated Debt.
3.10 The Holder, by its acceptance of this Guaranty, and the Guarantors
hereby waive promptness, diligence, notice of appearance and any other notice
with respect to any of the Senior Debt and these provisions and any requirement
that any holder of the Senior Debt protect, secure, perfect or insure any
security interest or lien or any property subject thereto or exhaust any right
to take any action against the Company, the Guarantors or any other person or
entity or any collateral.
3.11 Each of the Company and the Guarantors will and will use its
reasonable efforts to cause the Holder to, at the Company's and/or the
Guarantors' expense and at any time and from time to time, promptly execute and
deliver all further instruments and documents, and take all further actions,
that may be necessary or desirable, or that any holder of any Senior Debt may
reasonably request, in order to protect any right or interest granted or
purported to be granted under this Section 3 or enable the holders of the Senior
Debt to exercise and enforce their rights and remedies under these provisions.
3.12 The Holder, by its acceptance of this Guaranty, waives any and all
notices of the acceptance of the provisions of this Section 3 or of the
creation, renewal, extension or accrual, now or at any time in the future, of
any Senior Debt.
3.13 The obligations of the Holder under the provisions set forth in this
Section 3 shall continue to be effective, or be reinstated, as the case may be,
as to any payment in respect of any Senior Debt that is rescinded or must
otherwise be returned by the holder of such Senior Debt upon the occurrence or
as a result of any bankruptcy or judicial proceeding, all as though such payment
had not been made.
7
<PAGE>
3.14 Nothing contained in this Section 3 shall impair, as between the
Company, the Guarantors and the Holder, the obligation of the Company or any
Guarantor, as the case may be, to pay to the Holder the principal thereof and
interest thereon as and when the same shall become due and payable in accordance
with the terms thereof and to comply with each and every provision of the Note
and this Guaranty or prevent any holder of any Subordinated Debt from exercising
all rights, powers and remedies otherwise permitted by applicable law or under
the Note and this Guaranty, all subject to the rights of the holders of the
Senior Debt hereunder including rights to receive cash, securities or other
property otherwise payable or deliverable to the Holder.
3.15 Upon the payment in full of all Senior Debt, the Holder shall be
subrogated to all rights of any holder of Senior Debt to receive any further
payments or distributions applicable to the Senior Debt until the Subordinated
Debt shall have been paid in full, and such payments or distributions received
by the Holder by reason of such subrogation, of cash, securities or other
property which otherwise would be paid or distributed to the holders of Senior
Debt, shall, as between the Company, the Guarantors and their creditors other
than the holders of Senior Debt, on the one hand, and the Holder, on the other
hand, be deemed to be a payment by the Company and the Guarantors on account of
Senior Debt and not on account of Subordinated Debt. Notwithstanding the
foregoing provisions of this Section 3.15 or any other provision of this
Guaranty and the Note, the Holder, by its acceptance hereof, hereby waives any
and all exoneration and impairment defenses that it may at any time have by law
or otherwise in respect of subrogation rights.
3.16 The Holder, by its acceptance hereof, shall be deemed to acknowledge
and agree that the foregoing subordination provisions are, and are intended to
be, an inducement to and a consideration of each holder of any Senior Debt,
whether such Senior Debt was created or acquired before or after the creation of
Subordinated Debt, to acquire and hold, or to continue to hold, such Senior
Debt, and such holder of Senior Debt shall be deemed conclusively to have relied
on such subordination provisions in acquiring and holding, or in continuing to
hold, such Senior Debt. Each such holder of Senior Debt is intended to be, and
is, a third party beneficiary of this Section 3. The Holder, by its acceptance
of this Guaranty, acknowledges and agrees that the provisions set forth in this
Section 3 shall be enforceable against the Holder by the holders of the Senior
Debt. Notwithstanding anything contained in this Guaranty or the Note to the
contrary, none of the provisions of this Section 3 (including, without
limitation, this Section 3.16 and defined terms used herein) may, directly or
indirectly, be amended, modified, supplemented or waived without the prior
written consent of the Senior Agent, on behalf of the holders of the Senior
Debt.
3.17 Notwithstanding the other provisions of this Section 3.17 and the
Note, no amendment to or refinancing of the Senior Debt or any agreement or
instrument related thereto shall be entitled to the benefits of this Section 3
without the consent of the Holder to the extent that such amendment would
prohibit directly and expressly the Company or any subsidiary thereof from
making scheduled payments in respect of the Subordinated Debt or the Guaranty in
accordance with the terms of the Note and this Guaranty as in effect on the date
hereof or as may be amended to the extent permitted by the Senior Credit
Agreement; provided that no change of financial covenants or increase in the
restrictiveness of negative covenants or events of default under the Senior Debt
8
<PAGE>
documents (that do not by their terms refer to the Note or this Guaranty) shall
be deemed to constitute a prohibition from making scheduled payments, even if
the ultimate effect of any such change would cause the Company or the Guarantor
to be in default under the Senior Debt if such a scheduled payment were made.
3.18 As used in this Section 3 and elsewhere in this Guaranty, the
following terms have the respective meanings set forth below:
"Credit Facility" means and includes a credit agreement or similar
agreement pursuant to which the lender or lenders commit(s) to permit the
Company, subject to the conditions therein, to obtain from time to time
thereunder term or revolving loans and/or letters of credit and periodically
repay the same.
"Junior Subordinated Debt" means any Debt of the Company or any subsidiary
which is (a) issued on or after the Issue Date of the Note and which is
expressly subordinated in right of payment to any Debt of the Company, or (b)
owing to any subsidiary or affiliate of the Company.
"Remedies" means and includes, with respect to any Debt (including, without
limitation, the Senior Debt and the Subordinated Debt):
(a) the acceleration of the maturity of any of such Debt;
(b) the exercise of any put right or other similar right to require the
Company or any subsidiary to repurchase any of such Debt prior to the stated
maturity thereof;
(c) the collection or commencement of proceedings against the Company, any
subsidiary thereof or any other person obligated on such Debt or any of their
respective property, to enforce or collect any of such Debt;
(d) taking possession of or foreclosing upon (whether by judicial
proceedings or otherwise) any Liens or other collateral security for such Debt;
or causing a marshaling of any property of the Company or any subsidiary;
(e) the making of a demand in respect of any Guaranty given by the Company
or any subsidiary of the Company of such Debt; or
(f) commencing or joining in or causing the Company to commence or join in
or assist the Company in commencing, any proceeding of the nature referred to in
Section 7.1(f) or 7.1(g) of the Note; or
(g) exercising any other remedies with respect to such Debt or any claim
with respect thereto.
9
<PAGE>
"Senior Agent" means, for so long as the Senior Credit Agreement remains
outstanding, Fleet National Bank, as administrative agent in respect of the
Senior Credit Agreement, and thereafter, any one agent or lender in respect of
the Senior Credit Facility, or a representative of either, designated in writing
to the Holder by the Company as being the "Senior Agent".
"Senior Credit Agreement" means the Credit Agreement dated as of the date
hereof among the Company, Fleet National Bank as administrative agent (together
with its successors in such capacity) and the banks, financial institutions and
other institutional lenders from time to time named therein, as it may be
amended, supplemented, extended, renewed, refinanced, restated or replaced in
whole or in part.
"Senior Credit Facility" means and includes:
(a) the Senior Credit Agreement; and
(b) any Credit Facility (whether or not secured), which Credit Facility has
refinanced in whole or in part the Senior Debt governed by the terms of a Senior
Credit Facility which the Company has designated in writing to the Holder as
being the "Senior Credit Facility;" provided, however, that, by making such
designation, the predecessor Senior Credit Facility shall cease to be the Senior
Credit Facility (but any Debt outstanding or incurred thereunder shall continue
to be Senior Debt for so long as such Debt meets the definition thereof).
"Senior Debt" means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal or interest (including interest (at the
rate specified in the applicable Senior Credit Facility) accruing after the
filing of a petition under the Bankruptcy Code, whether or not allowed), fees,
expenses, indemnification or otherwise (including letter of credit reimbursement
obligations whether or not any draw has occurred), in respect of:
(a) the Senior Credit Facility; and
(b) any other Debt of the Company owing to the Senior Agent or any lender
under the Senior Credit Facility (whether or not such lender continues to be a
lender thereunder) with respect to any obligations under Bank Hedge Agreements
(as defined in the Senior Credit Agreement) related to the Senior Credit
Agreement that are or may become owed by the Company directly or indirectly,
other than Debt incurred pursuant to a Senior Credit Facility.
Notwithstanding the foregoing, in no event shall "Senior Debt" include any
Junior Subordinated Debt.
10
<PAGE>
"Significant Nonpayment Default" means and includes:
(a) an event of default under the Senior Credit Facility in respect of the
failure of the Company to comply with any material covenant or agreement in
respect of the Senior Credit Facility or documents executed or delivered in
connection therewith (it being understood that the provisions of Sections 2.14,
5.2, 5.5, 5.6, 5.7, 5.13 and 5.14, Article 6 and Article 8 of the Senior Credit
Agreement, as in effect on the date hereof and any comparable provisions in
effect after the date hereof, are "material covenants" for such purpose); and
any event of default under Sections 9.2, 9.5, 9.7 through 9.14 (inclusively)
under the Senior Credit Agreement (or any comparable provision in effect after
the date hereof); and
(b) an event of default in respect of the Senior Credit Facility arising
out of any Event of Default in respect of the Note.
"Subordinated Debt" means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal, interest (including interest accruing
after the filing of a petition under the Federal Bankruptcy Code, to the extent
allowed), fees, expenses, indemnification or otherwise, in respect of the Note
and all obligations, liabilities and indebtedness of the Guarantor(s) in respect
of the foregoing.
Section 4. Waivers and Acknowledgments.
(a) Each Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that the Administrative Agent
or any other Holder protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against the Company, any
Guarantor or any other Person or any collateral securing the Obligations under
any of the Loan Documents (the "Collateral").
(b) Each Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) Each Guarantor acknowledges that it will receive material and
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in this
Section 4 are knowingly made in contemplation of such benefits.
Section 5. Subrogation. None of the Guarantors will exercise any rights it
may now or hereafter acquire against the Company or any other guarantor that
arise from the existence, payment, performance or enforcement of any such
Guarantor's obligations under this Guaranty or any other Loan Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of the Holder against the Company or any other guarantor or any
Collateral, whether or not such claim,
11
<PAGE>
remedy or right arises in equity or under contract, statute or common law,
including, without limitation, the right to take or receive from the Company or
any other guarantor, directly or indirectly, in cash or other property or by
setoff or in any other manner, payment or security on account of such claim,
remedy or right, unless and until all of the Guaranteed Obligations and all
other amounts payable under this Guaranty shall have been indefeasibly paid in
full in cash. If any amount shall be paid to a Guarantor in violation of the
preceding sentence at any time prior to the indefeasible payment in full in cash
of the Guaranteed Obligations and all other amounts payable under this Guaranty,
such amount shall be held in trust for the benefit of the Holder and shall
forthwith be paid to the Holder to be credited and applied to the Guaranteed
Obligations and all other amounts payable under this Guaranty, whether matured
or unmatured, in accordance with the terms of the Loan Documents, or to be held
as Collateral for any Guaranteed Obligations or other amounts payable under this
Guaranty thereafter arising. If all of the Guaranteed Obligations and all other
amounts payable under this Guaranty shall be indefeasibly paid in full in cash,
the Holder will promptly, at such Guarantor's request and expense, execute and
deliver to such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Gurantor of an interest in the Guaranteed Obligations resulting from such
payment by such Guarantor.
Section 6. Payments Free and Clear of Taxes, Etc.
(a) Any and all payments made by a Guarantor hereunder shall be made free
and clear of and without deduction for any and all present or future Taxes. If
any Guarantor shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder to the Holder, (i) the sum payable shall be increased
as may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Holder
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Guarantor shall make such deductions
and (iii) such Guarantor shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) In addition, each Guarantor agrees to pay any present or future Other
Taxes.
(c) Each Guarantor will indemnify the Holder for the full amount of Taxes
or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section) imposed on or paid by
the Holder and any liability (including, without limitation, penalties,
additions to tax, interest and expenses) arising therefrom or with respect
thereto, except with respect to the Holder, for such a liability arising from
the Holder's willful misconduct or gross negligence. This indemnification shall
be made within thirty (30) days from the date on which the Holder makes written
demand specifying in reasonable detail the basis therefor.
(d) Within thirty (30) days after the date of any payment of Taxes by or on
behalf of a Guarantor, such Guarantor will furnish to the Holder, at its address
referred to in Section 9.1 of the Note, the original receipt of payment thereof
or a certified copy of such receipt. In the case
12
<PAGE>
of any payment hereunder by or on behalf of a Guarantor through an account or
branch outside the United States or by or on behalf of such Guarantor by a payor
that is not a United States person, if such Guarantor determines that no Taxes
are payable in respect thereof, such Guarantor shall furnish, or shall cause
such payor to furnish, to the Holder, at such address, an opinion of counsel
acceptable to the Holder stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) If applicable, any Holder claiming any additional amounts payable
pursuant to this Section 6 agrees to use best efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Eurodollar Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the judgment of such Holder, be
otherwise disadvantageous to such Holder.
(f) Without prejudice to the survival of any other agreement of each
Guarantor hereunder or under any other Loan Document, the agreements and
obligations of each Guarantor contained in this Section 6 shall survive the
payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty and the other Loan Documents.
Section 7. Representations and Warranties. The Guarantors hereby jointly
and severally represent and warrant as follows:
(a) There are no conditions precedent to the effectiveness of this Guaranty
that have not been satisfied or waived.
(b) Each Guarantor has, independently and without reliance upon the Holder
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Guaranty, and each
Guarantor has established adequate means of obtaining from any other Loan
Parties on a continuing basis information pertaining to (and is now, and on a
continuing basis will be, completely familiar with) the financial condition,
operations, properties and prospects of the Company and the other Loan Parties.
(c) Each of the representations and warranties applicable to the Guarantors
in the Note is true and correct in all material respects on the date hereof.
Section 8. Covenants. Each Guarantor hereby covenants and agrees that, so
long as any part of the Guaranteed Obligations shall remain unpaid, such
Guarantor will, unless the Holder shall otherwise consent in writing, perform or
observe all of the terms, covenants and agreements that this Guaranty and the
other Loan Documents state that such Guarantor shall perform or observe.
Section 9. Amendments, Etc. (a) No amendment or waiver of any provision of
this Guaranty, and no consent to any departure by any Guarantor therefrom, shall
in any event
13
<PAGE>
be effective unless the same shall be in writing and signed by the Holder, and
then such waiver or consent shall be effective only in the specific instance,
and for the specific purpose for which given.
(b) Upon the execution and delivery by any Person of a supplemental
guaranty in substantially the form of Exhibit A hereto (each a "Guaranty
Supplement"), such Person shall be referred to as an "Additional Guarantor" and
shall be and become a Guarantor for all purposes hereunder and each reference in
this Guaranty to a "Guarantor" shall also mean and be a reference to such
Additional Guarantor and each reference in any other Loan Document to a
"Guarantor" or "Subsidiary Guarantor" shall also mean and be a reference to such
Additional Guarantor.
Section 10. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to it,
if to a Guarantor, addressed to it at the address listed for such Guarantor on
the signature pages hereof (or in the applicable Guaranty Supplement), if to the
Holder, at its address specified in Section 9.1 of the Note. All such notices
and other communications shall, when mailed by certified mail, return receipt
requested, telegraphed, telecopied or telexed, be effective three (3) days after
mailing, upon delivery to the telegraph company, upon transmission by telecopier
or upon confirmation by telex answerback, respectively.
Section 11. No Waiver; Remedies. No failure on the part of the Holder to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 12. Indemnification. Without limitation on any other Obligations of
any Guarantor or the remedies of the Holder under this Guaranty, each Guarantor
shall, to the fullest extent permitted by law, indemnify, defend and save and
hold harmless the Holder from and against, and shall pay on demand, any and all
losses, liabilities, damages, costs, expenses and charges (including the
reasonable fees and disbursements of such Holder's legal counsel) suffered or
incurred by such Holder as a result of any failure of any Guaranteed Obligations
to be the legal, valid and binding obligations of the Company or any other
Guarantor enforceable against the Company or such other Guarantor (as the case
may be) in accordance with their terms.
Section 13. Continuing Guaranty; Assignments of the Note. This Guaranty is
a continuing guaranty and shall (a) remain in full force and effect until the
indefeasible payment in full in cash of the Guaranteed Obligations and all other
amounts payable under this Guaranty, (b) be binding upon each Guarantor, its
successors and assigns and (c) inure to the benefit of and be enforceable by the
Holder and its respective successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), the Holder may assign or otherwise
transfer all or any portion of its rights and obligations under the Note to any
other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Holder by this Guaranty or
otherwise, subject to the provisions of the Senior Credit Agreement and the
14
<PAGE>
Modification Agreement dated the date hereof between Fleet National Bank as
Administrative Agent, Norton Herrick and the Company.
Section 14. Security Agreement. The obligations of Classic Radio Holding
Corp. and Classic Radio Acquisition Corp. under this Guaranty are secured by and
to the extent set forth in a certain Security Agreement dated as of the date
hereof among those Persons, the Company and Norton Herrick.
Section 15. Governing Law; Jurisdiction; Waiver of July Trial, Etc.
(A) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW
PRINCIPLES).
(B) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE
COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY,
AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH NEW YORK STATE COURT OR IN SUCH FEDERAL COURT LOCATED WITHIN THE STATE OF
NEW YORK. EACH GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
GUARANTY SHALL AFFECT ANY RIGHT THAT THE HOLDER MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY IN THE COURTS OF ANY JURISDICTION.
(C) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF, OR RELATING TO, THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO
WHICH IT IS OR IS TO BE A PARTY, IN ANY NEW YORK STATE OR FEDERAL COURT. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
15
<PAGE>
(D) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE, IN EQUITY OR AT LAW) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY OTHER HOLDER IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.
Section 17. Counterparts. This Agreement may be executed in any number of
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Delivery by
telecopier of an executed counterpart of a signature page to this Agreement
shall be as effective as delivery of a manually executed counterpart to this
Agreement.
[SIGNATURE PAGE FOLLOWS]
16
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
CH ACQUISITIONS CORP.
By: /s/ John Levy
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
ABC INTERNET SERVICES, INC.
By: /s/ John Levy
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
ABC INVESTMENT CORP.
By: /s/ John Levy
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
CLASSIC RADIO HOLDING CORP.
By: /s/ John Levy
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
<PAGE>
CLASSIC RADIO ACQUISITION CORP.
By: /s/ John Levy
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
Accepted:
/s/ NORTON HERRICK
----------------------------
NORTON HERRICK
<PAGE>
EXHIBIT A
FORM OF GUARANTY SUPPLEMENT
_________, _____
Mr. Norton Herrick
c/o The Herrick Company
2295 Corporate Boulevard, N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
9% Convertible Senior Subordinated Promissory Note Due December
31, 2004, dated December __, 1998, from Audio Book Club, Inc.,
a Delaware corporation (the "Company"), to Norton Herrick (the
"Note")
Dear Sir:
Reference is made to the above-defined Note and to the Guaranty dated as of
December __, 1998 from certain subsidiaries of the Company to the Holder under
the Note (such Guaranty, as in effect on the date hereof and as it may hereafter
be amended, modified, restated or supplemented from time to time, the
"Guaranty"). Capitalized terms used and not otherwise defined herein have the
meanings ascribed to them in the Guaranty.
The undersigned hereby, jointly and severally, unconditionally and
irrevocably guarantees to the Holder the punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all of the Guaranteed
Obligations and agrees to pay any and all reasonable expenses (including
reasonable counsel fees and expenses) incurred by the Holder on the terms set
forth in the Guaranty as if it were an original party thereto. On and after the
date hereof, each reference in the Guaranty to "Guarantor" shall also mean and
be a reference to the undersigned.
The undersigned hereby agrees to be bound as a Guarantor by all of the
terms and provisions of the Guaranty to the same extent as each other Guarantor.
THIS GUARANTY SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICT
OF LAWS PRINCIPLES).
A - 1
<PAGE>
THE UNDERSIGNED HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF
AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT
OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND
ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR
IS TO BE A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE
UNDERSIGNED HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
NEW YORK STATE COURT OR IN SUCH FEDERAL COURT LOCATED WITHIN THE STATE OF NEW
YORK. THE UNDERSIGNED AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THE
GUARANTY SHALL AFFECT ANY RIGHT THAT THE HOLDER OR ANY OTHER HOLDER MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THE GUARANTY OR ANY
OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY IN THE COURTS OF
ANY JURISDICTION.
THE UNDERSIGNED IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF, OR RELATING TO, THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, IN ANY NEW YORK STATE OR FEDERAL COURT. THE
UNDERSIGNED HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE, IN EQUITY OR AT LAW) ARISING OUT OF THE LOAN DOCUMENTS, THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF ANY HOLDER IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Very truly yours,
[NAME OF ADDITIONAL
GUARANTOR]
By:________________________________
Title: ____________________________
Address: __________________________
A - 2
SECURITY AGREEMENT
This Security Agreement is made and entered into as of December 30, 1998 by
and among Audio Book Club, Inc., a Florida corporation ("ABC"), Classic Radio
Holding Corp., a Delaware corporation and wholly-owned subsidiary of ABC
("Holding Corp"), and Classic Radio Acquisition Corp., a Delaware Corporation
and an indirect wholly-owned subsidiary of ABC ("Acquisition Corp.", and
together with ABC and Holding Corp., the "Companies"), each with its principal
office at 20 Community Place, Morristown, New Jersey 07962, on the one hand, and
Norton Herrick, an individual with an address at 2295 Corporate Boulevard, N.W.
, Suite 222, P.O. Box 5010, Boca Raton, Florida 33431 (the "Secured Party"), on
the other hand. The Companies and the Secured Party are collectively referred to
hereinafter as the "Parties".
W I T N E S S E T H:
WHEREAS, ABC has issued to the Secured Party its 9% Convertible Senior
Subordinated Promissory Note Due December 31, 2004 in the principal amount of
$15,000,000 (the "Note") and Holding Corp. and Acquisition Corp. have executed
and delivered to Secured Party that certain Subsidiary Guaranty dated as of the
date hereof (the "Guaranty") whereby Holding Corp. and Acquisition Corp. have
guaranteed all obligations of ABC under the Note;
WHEREAS, pursuant to the terms of that certain Plan and Agreement of Merger
and Supplemental Agreement each dated as of December 11, 1998 (the "Merger
Agreement"), Radio Spirits, Inc. ("RSI"), an Illinois corporation wholly-owned
by Carl Amari ("Amari") has been merged with and into Holding Corp. and in
partial consideration therefor ABC has entered into a Put Agreement dated as of
December 11, 1998 with Amari (the "Put Agreement") providing Amari with
<PAGE>
certain "put" rights with respect to shares of ABC's common stock, no par value,
issued pursuant to the terms of the Merger Agreement (the "ABC Shares"); and
WHEREAS, the Companies have granted a security interest to Amari (the
"Amari Security Interest") in their right, title and interest in and to the
assets of Holding Corp. that were acquired in the merger with RSI, as well as
the assets of Acquisition Corp. that were acquired from Buffalo Productions,
Inc., an Illinois corporation wholly-owned by Amari, and the fifty (50%) percent
interest in a Joint Venture with Dick Brescia Associates which was acquired from
Amari, which assets are set forth on Schedule 1 attached hereto (the "Classic
Radio Assets").
WHEREAS, as an inducement to the Secured Party to purchase the Note from
ABC, the Companies have agreed to grant to the Secured Party a security interest
in their right, title and interest in and to the Classic Radio Assets on the
terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing and upon the terms and
conditions hereinafter set forth, the Parties agree as follows:
1. Grant of Security Interests in Collateral.
To secure the Companies' prompt payment when due of all principal and
interest and all other amounts payable under the Note and the Guaranty and
performance of all other obligations of the Companies under the Note and
the Guaranty (collectively, the "Obligations") and for $1.00 and other
consideration, receipt of which is hereby acknowledged, the Companies
hereby grant to the Secured Party a continuing second lien security
interest (the "Second Lien") in all present Classic Radio Assets and all
accretions thereto and products, proceeds and replacements and
substitutions thereof, including but not limited to the assets and
properties described on Schedule 1 attached hereto (the "Collateral") to
the extent of the Obligations. The Second Lien shall be junior and
subordinate to the security interests of Fleet National Bank, as
administrative agent, and the
-2-
<PAGE>
lenders under the Credit Agreement dated as of the date hereof (as amended,
modified or supplemented from time to time, the "Credit Agreement") by and
among ABC, Fleet National Bank, as administrative agent, and such other
lenders from time to time party to the Credit Agreement, (the "Senior
Obligations", which term shall include, without limitation, all principal,
interest (including post-petition), fees, costs and expenses whether or not
currently contemplated), and senior and prior in all respects to the Amari
Security Interest. Persons at any time having or acquiring any right or
interest in any of the Senior Obligations shall hereafter be referred to as
the "Senior Parties". Notwithstanding the foregoing, the Second Lien shall
not be subordinate to any other security interest in the Collateral
hereafter granted by the Companies other than to the Senior Parties,
including, without limitation, any security interest granted to selling
third parties in consideration for the sale of assets or securities of such
selling third parties to one of the Companies or in connection with the
merger or consolidation of another company with and into one of the
Companies. Subject to the provisions of the Note and the Credit Agreement,
the Companies shall be free to sell the Collateral (excluding the proceeds
thereof) in the ordinary course of business without restriction. However, a
sale in the ordinary course of business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale.
2. Subordination of Lien.
(a) Limitation on Exercise of Certain Rights Upon Default. Upon the
occurrence of any Event of Default (as hereinafter defined) hereunder,
prior to the payment and satisfaction in full of the Senior Obligations,
the Secured Party shall take no action with respect to the Collateral or
exercise any rights as a secured party, including, without limitation,
giving notice of foreclosure or effecting foreclosure or giving notice to
obligors with respect to the Collateral, unless (i) authorized in writing
by the Senior Parties holding a majority in dollar amount of Senior
-3-
<PAGE>
Obligations, or (ii) one or more of the Senior Parties has declared a
default against one or more of the Companies with respect to the Senior
Obligations and has initiated an action(s) with respect to some or all of
the Collateral. The Secured Party agrees not to oppose, interfere with or
otherwise attempt to prevent the Senior Parties from enforcing their liens
and security interests in the Collateral or otherwise realizing on the
Collateral. So long as any of the Senior Obligations shall remain unpaid to
Senior Parties, Senior Parties may at all times, in their sole discretion,
subject to the provisions of the Senior Obligations and the Security
Agreement securing the Senior Obligations, exercise any and all powers and
rights, including, without limitation, the right to foreclose or otherwise
realize upon the Collateral, that Senior Parties now have or hereafter may
acquire with respect to any of the Collateral, whether or not in their
possession, nor shall any of the Senior Parties have any liability to the
Secured Party for any action taken or failure to act with respect to any of
such Collateral in their possession beyond the exercise of reasonable care
to assure the safe custody thereof.
In connection therewith, the Secured Party hereby irrevocably appoints
Fleet National Bank, and its successors and assigns, on behalf of itself
and the other Senior Parties, as Secured Party's lawful attorney-in-fact
with full power and authority for it and in its name to make, execute and
acknowledge, publish, file, record and swear to the execution,
acknowledgment, filing and/or recordation, as applicable, of any and all
documents, including, without limitation, Uniform Commercial Code
termination statements, real estate mortgage satisfactions and stock powers
relating to the security interest of the Secured Party, all as Fleet
National Bank (and its successors and assigns), in its sole discretion,
shall deem necessary, appropriate and/or advisable following the occurrence
of a default and acceleration of any of the Senior Obligations with respect
to the enforcement and administration of the Senior Obligations and the
furtherance of the collection thereof; provided, however, that Fleet
National Bank (and its successors and assigns) shall take no
-4-
<PAGE>
action with respect to the termination of the Secured Party's rights
hereunder without prior notification to the Secured Party. The Secured
Party hereby ratifies and confirms any and all acts or omissions that Fleet
National Bank (and its successors and assigns) may take or fail to take
with respect to the administration and/or enforcement of the Second Lien,
and hereby remises, releases and forever discharges Senior Parties from any
and all claims in connection therewith, except those claims that arise as a
result of the negligence of Senior Parties. The foregoing power of attorney
is coupled with an interest and is irrevocable. The foregoing rights of
Fleet National Bank (and its successors and assigns), on behalf of the
Senior Parties, shall include the right to release and terminate any or all
of the Second Lien, given in connection with a sale or other disposition of
all or any portion of the Collateral to which Senior Parties have
consented. The Secured Party shall on the date hereof execute and deliver
to Fleet National Bank (or its successors or assigns), on behalf of itself
and the other Senior Parties, releases and Uniform Commercial Code
termination instruments, satisfactory in form and substance to Senior
Parties, releasing and terminating in full the Second Lien, which Fleet
National Bank (or its successors or assigns) shall hold in escrow on behalf
of itself and the other Senior Parties, and shall be entitled to release
from escrow and file, record or otherwise cause to become effective, in the
exercise of any of its rights under this subparagraph 2(a). The net amount
received by Senior Parties as a result of their exercise of any of their
rights under this subparagraph 2(a) as proceeds of the payment or
collection of the proceeds of the Second Lien shall be applied to the
Senior Obligations then, or thereafter to become, due and the excess, if
any, shall be remitted to the Secured Party.
(b) Additional Rights of the Senior Parties. Without the consent of or
notice to the Secured Party, the Senior Parties (or any of them) at any
time and from time to time in their sole and absolute discretion may (i)
amend or supplement any document or instrument executed
-5-
<PAGE>
by any one or more of the Companies or any subsidiary in connection with
the Senior Obligations; (ii) demand and receive a security interest in or
other lien upon any property or assets of any one or more of the Companies
or any subsidiary to secure the Senior Obligations and sell, exchange,
release or otherwise deal with any property pledged or mortgaged to secure,
or howsoever securing, the Senior Obligations; (iii) exercise or refrain
from exercising any and all powers and rights in respect of the Senior
Obligations against any one or more of the Companies, any subsidiary or
others (including the Secured Party); and (iv) apply any sums by whomsoever
or however realized to the Senior Obligations in any order elected by the
Senior Parties.
(c) Continued Effectiveness of this Agreement. The terms of this
Agreement, the subordination effected hereby, and the rights of Senior
Parties, and the obligations of the Secured Party arising hereunder, shall
not be affected, modified or impaired in any manner or to any extent by:
(i) any amendment or modification of or supplement to any documents
evidencing any of the Senior Obligations or the rights of the Secured
Party, or any instrument or document executed or delivered pursuant to any
of such documents other than this Agreement; (ii) the validity or
enforceability of any of such documents; (iii) any exercise or non-exercise
of any right, power or remedy under or in respect of the Senior Obligations
or any of such instruments or documents referred to in clause (i) above or
in respect of any of the properties or assets now or hereafter constituting
the Collateral, whether or not the Secured Party shall have had notice or
knowledge of any of the foregoing and whether or not it shall have
consented thereto. All references to "Senior Parties" hereunder shall be
deemed to refer to Senior Parties or any of their successors or assigns, or
any other person or entity which hereafter may hold all or any portion of
the Senior Obligations, including, without limitation, any person or entity
that makes any loan, advance or other extension of credit to any of the
Companies the proceeds of which are used, directly or indirectly,
-6-
<PAGE>
to pay all or any portion of indebtedness that, at the time of such
payment, constitutes Senior Obligations hereunder, and any such successor,
assign or other person or entity shall be entitled to have the benefit of
and enforce this Agreement, as fully as if it were the signatory hereto in
the place of "Senior Parties", without the necessity of the execution or
delivery of any other instrument or document.
(d) Reinstatement. The provisions of this Section 2 shall continue to
be effective or be reinstated, as the case may be, if at any time any
payment of any of the Senior Obligations is rescinded or must otherwise be
returned by any Senior Party to any one or more of the Companies or any
subsidiary upon the insolvency, bankruptcy or reorganization of any one or
more of the Companies or such subsidiary or otherwise, all as though such
payment had not been made.
(e) Amendments. No amendment, supplement or modification to this
Agreement may be made without consent of all of the Senior Parties.
(f) Reliance; Enforcement. Senior Parties have relied hereon and it is
intended by all parties that the Senior Parties shall be third party
beneficiaries and are entitled directly to enforce their rights hereunder
as if a party hereto.
(g) Right to Payment. The Secured Party agrees that the Senior Parties
are entitled to all payments from the Collateral and all proceeds of the
Collateral prior to payment thereof to the Secured Party and Secured Party
agrees that until all Senior Obligations are paid in full, Secured Party
shall not knowingly receive, accept or retain any direct or indirect
payment from the Collateral or the proceeds thereof and if Secured Party
receives any such payment at any time prior to the payment in full of the
Senior Obligations (including, without limitation, any obligations accruing
after any bankruptcy, insolvency or similar proceeding involving any of the
Companies),
-7-
<PAGE>
the Secured Party will promptly upon written request by any of the Senior
Parties deliver such payment (or funds in the amount of such payment) to
the Senior Parties.
(h) Subordination. The subordination set forth above is applicable
irrespective of the time or order of attachment or perfection of any lien
or security interest referred to herein, the time or order of filing of any
financing statement, the acquisition of purchase money or other priority
with respect to any such lien or security interest or the time of giving of
the failure to give notice of the acquisition or expected acquisition of a
purchase money or other security interest.
(i) Intercreditor Agreement. The terms of this Agreement are subject
to the terms and conditions of an Intercreditor Agreement dated as of the
date hereof between Fleet National Bank, as administrative agent for the
Senior Lenders and the Secured Party (the "Intercreditor Agreement"). In
the event of any conflict between the terms of this Section 2 and the terms
of the Intercreditor Agreement, the terms of the Intercreditor Agreement
shall govern.
3. Location of Collateral; Location of Books and Records. The Companies
warrant and covenant that the Collateral and the books and records concerning
the Collateral are and shall be kept at the locations set forth on Schedule 2
attached hereto, which may be amended from time-to-time by the Companies upon
ten (10) days advance prior written notice to the Secured Party.
4. Title.
Except for (i) the security interest hereby granted and (ii) interests of
the Senior Parties in the Collateral, the Companies have and at all times during
the term hereof will retain full title to the Collateral, free and clear of any
lien, security interest, encumbrance, or claim,
-8-
<PAGE>
and the Companies will, at their cost and expense, defend any action which may
affect the Secured Party's security interest in, or the Companies' title to, the
Collateral.
5. Financing Statement.
The Companies shall simultaneously execute and file all necessary UCC-1
financing statements in favor of the Secured Party in order for the Secured
Party to perfect and continue its security interest in the Collateral, the
Companies and will pay (or reimburse Secured Party for) the cost of filing fees
for filing the same and will further execute all other instruments or take all
further actions reasonably deemed necessary by the Secured Party for the
perfection and continuation of its security interest in the Collateral and pay
(or reimburse Secured Party for) the cost of filing fees for filing the same.
6. Representations and Warranties of the Companies.
The Companies hereby jointly and severally represent and warrant that this
Security Agreement is a valid and binding obligation of the Companies and is
enforceable in accordance with its terms. The execution and delivery hereof has
been duly authorized by the Board of Directors of each of the Companies, and
neither the execution nor performance of this Security Agreement will conflict
with any other agreement to which the Companies are a party or by which they are
bound.
7. Term.
This Agreement commenced on the date first set forth above and shall only
terminate upon the earlier of (i) termination of the Amari Security Interest,
and (ii) the fulfillment or expiration of all of the Obligations. Such period is
the "Term." Upon a termination of this Agreement and the security interest
granted to the Secured Party hereunder, Secured Party shall execute and deliver
to the Companies UCC-3 termination statements and all other documents or
-9-
<PAGE>
instruments and take all further action necessary to release the Second Lien and
all of Secured Party's rights in the Collateral.
8. Change of Place of Business.
Company will provide ten (10) days advance written notice to the Secured
Party in the event of any change of any of the Companies' principal places of
business, or places where the Collateral and records concerning same are kept.
9. Default.
The Companies shall be in default under this Security Agreement on the
happening and during the continuance of one or more of the events or conditions
defined as an Event of Default in the Note (each an "Event of Default").
10. Remedies.
(a) Subject to the provisions of Paragraph 2 above, upon the
occurrence of an Event of Default, the Secured Party shall give the
Companies and the Senior Parties if such Event of Default is continuing,
ten (10) days prior written notice of occurrence of such Event of Default
and an opportunity to cure such default within such ten (10) day notice
period (to the extent such Event of Default is curable). If the Companies
fail to cure such Event of Default within such ten (10) day period, the
Secured Party shall have and may exercise all rights and remedies of a
secured party after default under the Uniform Commercial Code (the "Code"),
at law, in equity or otherwise, with respect to the Collateral, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively or concurrently; provided, however, that
notwithstanding the foregoing, the Secured Party shall not take any steps
to take possession of, or to liquidate, any Collateral without first
complying with the provisions of Paragraph 2(a).
-10-
<PAGE>
(b) Subject to the provisions of Paragraph 2 above, the Secured Party
shall apply the cash proceeds actually received from any sale or other
disposition of the Collateral (i) to the reasonable expenses of retaking,
holding, preparing for sale, selling, leasing and the like, to reasonable
attorneys' fees and all legal, travel and other expenses which may be
incurred by the Secured Party in attempting to collect the Obligations or
enforce this Security Agreement or in the prosecution or defense of any
action or proceeding related to the subject matter of this Security
Agreement; and then (ii) pay to the Secured Party the entire unpaid amount
of the Obligations. The Companies shall remain liable and will pay the
Secured Party on demand any deficiency remaining on the Obligations and the
balance of any expenses unpaid, with any surplus to be paid to ABC, subject
to any duty of the Secured Party imposed by law to the holder of any
subordinate security interest in the Collateral known to the Secured Party.
11. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to the Companies, to:
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attn: Chief Financial Officer
Telephone No.: 973-539-9528
Facsimile No.: 973-539-1273
with a copy to:
-11-
<PAGE>
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
Telephone No.: (212)885-5555
Facsimile No.: (212) 885-5001
If to the Secured Party, to:
Mr. Norton Herrick
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
with a copy to:
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
Telephone No.: (212) 753-7200
Facsimile No.: (212) 980-7177
12. Miscellaneous Provisions.
(a) Parties Bound. This Security Agreement shall be binding on and
inure to the benefit of the Parties and their respective heirs, executors,
administrators, legal representatives, successors, assigns, subsidiaries
and affiliates.
(b) Legal Construction. In case any one or more of the provisions
contained in this Security 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 hereof
and this Security Agreement shall be construed as if such invalid, illegal,
or unenforceable provision had never been contained herein. Notwithstanding
anything to the contrary herein, nothing contained in this Agreement shall
be deemed to restrict, limit, modify, impair,
-12-
<PAGE>
impede or otherwise affect in any manner any of Secured Party's (including
all of his heirs, executors, successors and assigns) rights in, to or under
the Note, it being expressly understood that Secured Party may enforce all
of his rights in, to and under the Note without regard to the terms hereof.
This Agreement shall solely and exclusively relate to Secured Party's
rights in and to the Collateral, and shall not extend to any other
contractual rights he may have.
(c) Prior Agreements Superseded. This Agreement constitutes the sole
and only agreement of the Parties hereto, and supersedes any prior
understandings or written or oral agreements between the parties,
respecting the subject matter hereof.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW
OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A
JURISDICTION OTHER THAN SUCH STATE
-13-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Security Agreement
as of the date first above written.
AUDIO BOOK CLUB, INC.
By: /s/ JOHN LEVY
----------------------------------------
Name: John Levy
Title: Executive Vice President
and Chief Financial Officer
CLASSIC RADIO HOLDING CORP.
By: /s/ JOHN LEVY
----------------------------------------
Name: John Levy
Title: Executive Vice President
and Chief Financial Officer
CLASSIC RADIO ACQUISITION CORP.
By: /s/ JOHN LEVY
----------------------------------------
Name: John Levy
Title: Executive Vice President
and Chief Financial Officer
/s/ NORTON HERRICK
---------------------------------
NORTON HERRICK
-14-
<PAGE>
SCHEDULE 1
COLLATERAL
The "Collateral" shall include, without limitation, all right, title and
interest in and to all of the following assets and properties:
1. All of the assets and properties acquired (by way of merger) from Radio
Spirits, Inc. ("RSI"), as described in Section 4.7 of the Supplemental
Agreement between RSI and the Carl Amari, on the one hand, and ABC and
Holding Corp., on the other hand (the "Supplemental Agreement"), entered
into as of December 11, 1998, including but not limited to the assets and
properties described on Schedule 4.7 to the Supplemental Agreement
(collectively, the "RSI Assets");
2. All of the assets and properties of Buffalo Productions, Inc. ("BPI")
acquired from BPI, as described in Section 2.1 of the Asset Purchase
Agreement between BPI, on the one hand, and ABC and Acquisition Corp., on
the other hand, entered into as of December 11, 1998 (collectively, the
"BPI Assets"); and
3. The fifty percent (50%) interest in the OTR Series Joint Venture with Dick
Brescia Associates, Inc. pursuant to the OTR Series Joint Venture Agreement
dated January 1, 1998, acquired by Classic Radio Acquisition Corp. from
Carl Amari pursuant to the Joint Venture Purchase Interest and Assignment
Agreement entered into on December 11, 1998 (the "JV Interest").
4. Without limiting the generality of sections 1, 2, and 3 above, all of the
following assets with respect to or arising from the RSI Assets, the BPI
Assets and the JV Interest: (a) accounts, chattel paper, tax refunds,
contract rights, leases, leasehold interests, letters of credit,
instruments, documents, documents of title, patents, copyrights,
trademarks, trade names, licenses, goodwill, beneficial interests and
general intangibles; (b) all goods whose sale, lease or other disposition
have given rise to accounts and have been returned to or repossessed or
stopped in transit; (c) certificated and uncertificated securities; (d)
goods, including without limitation consumer goods, machinery, equipment,
farm products, fixtures and inventory; (e) liens, guaranties and other
rights and privileges pertaining to any of the foregoing; (f) monies,
reserves, deposits, deposit accounts and interest or dividends thereon,
cash or cash equivalents; (g) all accessions to the foregoing, and all
litigation proceeds pertaining to the foregoing and all substitutions,
renewals, improvements and replacements of and additions to the foregoing;
(h) all books, records and computer records in any way relating to any of
the foregoing; and (i) all products and proceeds of the foregoing
including, without limitation, proceeds of insurance policies insuring the
foregoing. The terms used herein to identify all property described in (a)
though (i) shall have the same meaning as are assigned to such terms as of
the date hereof in the Illinois Uniform Commercial Code.
<PAGE>
SCHEDULE 2
LOCATION OF COLLATERAL
1. 20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
2. 974 Estes Court
Schaumburg, IL 60193
3. Cassette Services, Inc.
111 North N. Hickory Ave.
Arlington Heights, IL 60004
Tel: 847-559-9700
4. Cinram
4905 Moores Mill Road
Huntsville, AL 35811-1511
Tel: 205-859-9042
5. Cinram
1600 Rich Rd
Richmond, IN 47374
6. Rose Packaging & Design, Inc.
6444 S. Quebec Street
Bldg 7, Suite 212
Englewood, CO 80111
Tel: 303-773-1003
Rose Western
8609 Chetle Avenue
Santa Fe Springs, CA 90670
7. The Audio Source, Inc.
1850 Holste Rd
Northbrook, Il 60062
Tel: 847-559-9700
8. Global Cassettes
14804 Cave Creek Road
Phoenix, AZ 85032
Tel: 602-953-0527
================================================================================
$34,000,000
CREDIT AGREEMENT
Dated as of December 31, 1998
among
AUDIO BOOK CLUB, INC.
as Borrower,
THE BANKS, FINANCIAL INSTITUTIONS AND
OTHER INSTITUTIONAL LENDERS NAMED HEREIN,
as Initial Lenders,
FLEET NATIONAL BANK,
as Initial Issuing Bank,
as Swing Line Bank
and
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS......................................2
SECTION 1.1 Certain Defined Terms....................................2
SECTION 1.2 Computation of Time Periods.............................32
SECTION 1.3 Accounting Terms........................................32
SECTION 1.4 Other Definitional Provisions...........................33
ARTICLE 2
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT............................................34
SECTION 2.1 The Advances............................................34
SECTION 2.2 Making the Advances.....................................36
SECTION 2.3 Issuance of and Drawings and Reimbursement
Under Letters of Credit...........................39
SECTION 2.4 Repayment of Advances...................................40
SECTION 2.5 Termination or Reduction of the Commitments.............42
SECTION 2.6 Prepayments.............................................43
SECTION 2.7 Interest................................................46
SECTION 2.8 Fees....................................................47
SECTION 2.9 Conversion of Advances..................................48
SECTION 2.10 Increased Costs, Etc....................................49
SECTION 2.11 Payments and Computations...............................51
SECTION 2.12 Taxes...................................................52
SECTION 2.13 Sharing of Payments, Etc................................54
SECTION 2.14 Use of Proceeds.........................................55
SECTION 2.15 Defaulting Lenders......................................55
ARTICLE 3
CONDITIONS OF LENDING................................................58
SECTION 3.1 Conditions Precedent to Initial Extension of Credit.....58
SECTION 3.2 Conditions Precedent to Each Borrowing and Issuance.....65
SECTION 3.3 Determinations Under Section 3.1........................66
ii
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWER.......................67
SECTION 4.1 Organization............................................67
SECTION 4.2 Subsidiaries............................................67
SECTION 4.3 Corporate Power, Authorization..........................75
SECTION 4.4 Governmental Authorizations, Approvals..................68
SECTION 4.5 Due Execution, Validity, Enforceability.................68
SECTION 4.6 Financial Statements....................................69
SECTION 4.7 Pro Forma Financial Statements..........................70
SECTION 4.8 Accurate Information....................................70
SECTION 4.9 Litigation..............................................70
SECTION 4.10 Regulation U............................................71
SECTION 4.11 ERISA...................................................71
SECTION 4.12 Casualty................................................71
SECTION 4.13 Environmental Matters...................................71
SECTION 4.14 Restrictive Agreements..................................72
SECTION 4.15 Priority of Liens.......................................72
SECTION 4.16 Taxes...................................................72
SECTION 4.17 Compliance with Securities Laws.........................73
SECTION 4.18 Solvency................................................73
SECTION 4.19 Debt....................................................73
SECTION 4.20 No Defaults, Compliance with Laws.......................74
SECTION 4.21 Owned Real Property.....................................74
SECTION 4.22 Leased Real Property....................................74
SECTION 4.23 Material Contracts......................................75
SECTION 4.24 Investments.............................................75
SECTION 4.25 Intellectual Property...................................75
SECTION 4.26 Acquisition Documents...................................76
SECTION 4.27 Fees....................................................76
SECTION 4.28 Government Consents for Conduct of Business.............76
ARTICLE 5
AFFIRMATIVE COVENANTS................................................77
SECTION 5.1 Compliance with Law.....................................77
SECTION 5.2 Payment of Taxes, Etc...................................77
SECTION 5.3 Compliance with Environmental Laws......................77
SECTION 5.4 Preparation of Environmental Reports....................78
SECTION 5.5 Maintenance of Insurance................................78
SECTION 5.6 Preservation of Corporate Existence, Etc................79
SECTION 5.7 Visitation Rights.......................................79
SECTION 5.8 Keeping of Books........................................79
SECTION 5.9 Maintenance of Properties, Etc..........................79
iii
<PAGE>
SECTION 5.10 Compliance with Terms of Leaseholds.....................80
SECTION 5.11 Performance of Material Contracts.......................80
SECTION 5.12 Transactions with Affiliates............................80
SECTION 5.13 Agreement to Grant Additional Security..................80
SECTION 5.14 Performance of Acquisition Documents....................82
SECTION 5.15 Year 2000 Compatibility.................................82
ARTICLE 6
NEGATIVE COVENANTS...................................................83
SECTION 6.1 Liens, Etc..............................................83
SECTION 6.2 Debt....................................................84
SECTION 6.3 Accounts Payable........................................86
SECTION 6.4 Fundamental Changes.....................................86
SECTION 6.5 Sales, Etc. of Assets...................................87
SECTION 6.6 Investments in Other Persons............................88
SECTION 6.7 Dividends, Etc..........................................89
SECTION 6.8 Change in Nature of Business............................90
SECTION 6.9 Charter Amendments......................................90
SECTION 6.10 Accounting Changes......................................91
SECTION 6.11 Prepayments, Etc. of Debt...............................91
SECTION 6.12 Amendment, Etc. of Acquisition Documents................91
SECTION 6.13 Amendment, Etc. of Material Contracts, Including Debt. .91
SECTION 6.14 Negative Pledge.........................................93
SECTION 6.15 Partnerships, New Subsidiaries..........................93
SECTION 6.16 Speculative Transactions................................93
SECTION 6.17 Capital Expenditures....................................93
SECTION 6.18 Issuance of Stock.......................................94
SECTION 6.19 Operating Subsidiary....................................95
SECTION 6.20 Management Fees.........................................95
SECTION 6.21 Shelf Registration......................................95
ARTICLE 7
REPORTING REQUIREMENTS...............................................96
SECTION 7.1 Default Notice..........................................96
SECTION 7.2 Monthly Financials......................................96
SECTION 7.3 Quarterly Financials....................................96
SECTION 7.4 Annual Financials.......................................97
SECTION 7.5 Annual Forecasts........................................98
SECTION 7.6 ERISA Events and ERISA Reports..........................98
SECTION 7.7 Plan Terminations.......................................98
SECTION 7.8 Actuarial Reports.......................................98
SECTION 7.9 Plan Annual Reports.....................................98
iv
<PAGE>
SECTION 7.10 Annual Plan Summaries...................................98
SECTION 7.11 Multiemployer Plan Notices..............................99
SECTION 7.12 Litigation..............................................99
SECTION 7.13 Securities Reports......................................99
SECTION 7.14 Creditor Reports........................................99
SECTION 7.15 Agreement Notices.......................................99
SECTION 7.16 Revenue Agent Reports..................................100
SECTION 7.17 Environmental Conditions...............................100
SECTION 7.18 Real Property..........................................100
SECTION 7.19 Insurance..............................................100
SECTION 7.20 [Intentionally left blank.]............................100
SECTION 7.21 Management Letters.....................................100
SECTION 7.22 Permitted Acquisition Documents........................100
SECTION 7.23 Other Information......................................100
ARTICLE 8
FINANCIAL COVENANTS.................................................101
SECTION 8.1 Minimum EBITDA........................................101
SECTION 8.2 Consolidated Senior Debt to EBITDA Ratio..............102
SECTION 8.3 Consolidated Debt to EBITDA Ratio.....................102
SECTION 8.4 Interest Coverage Ratio...............................103
SECTION 8.5 Fixed Charge Coverage Ratio...........................104
ARTICLE 9
EVENTS OF DEFAULT...................................................105
SECTION 9.1 Payment................................................105
SECTION 9.2 Representations and Warranties.........................105
SECTION 9.3 Certain Covenants......................................105
SECTION 9.4 Other Covenants........................................105
SECTION 9.5 Other Defaults.........................................105
SECTION 9.6 Bankruptcy, Etc........................................106
SECTION 9.7 Judgments..............................................106
SECTION 9.8 Loan Documents.........................................106
SECTION 9.9 Liens..................................................106
SECTION 9.10 Change of Control......................................107
SECTION 9.11 ERISA Events...........................................107
SECTION 9.12 Subordination Provisions...............................107
SECTION 9.13 Management.............................................107
SECTION 9.14 No Pledge of Certain Stock.............................108
v
<PAGE>
ARTICLE 10
THE ADMINISTRATIVE AGENT............................................109
SECTION 10.1 Authorization and Action...............................109
SECTION 10.2 Agent's Reliance, Etc..................................110
SECTION 10.3 Fleet and Affiliates...................................110
SECTION 10.4 Lender Party Credit Decision...........................111
SECTION 10.5 Indemnification........................................111
SECTION 10.6 Successor Administrative Agents........................112
SECTION 10.7 Events of Default......................................113
ARTICLE 11
MISCELLANEOUS.......................................................113
SECTION 11.1 Amendments, Etc.......................................113
SECTION 11.2 Notices Etc...........................................114
SECTION 11.3 No Waiver; Remedies; Counterclaims....................116
SECTION 11.4 Costs and Expenses....................................116
SECTION 11.5 Right of Set-off......................................118
SECTION 11.6 Binding Effect........................................118
SECTION 11.7 Assignments and Participations........................119
SECTION 11.8 Execution in Counterparts.............................122
SECTION 11.9 No Liability of the Issuing Bank......................122
SECTION 11.10 Confidentiality.......................................122
SECTION 11.11 Survival of Agreements and Representations;
Construction........................................123
SECTION 11.12 Assurances............................................123
SECTION 11.13 Severability..........................................123
SECTION 11.14 JURISDICTION, ETC.....................................124
SECTION 11.15 GOVERNING LAW.........................................124
SECTION 11.16 WAIVER OF JURY TRIAL..................................125
SECTION 11.17 FINAL AGREEMENT.......................................125
vi
<PAGE>
EXHIBITS
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Term Note
Exhibit D - Form of Notice of Borrowing
Exhibit E - Form of Security Agreement
Exhibit F - [Intentionally Omitted]
Exhibit G - Form of Intellectual Property Security Agreement
Exhibit H - Form of Subsidiary Guaranty
Exhibit I - Form of Swing Line Note
SCHEDULES
Schedule I Commitments and Applicable Lending Offices
Schedule 4.2 Organization and Subsidiaries
Schedule 4.4 Required Authorizations and Approvals
Schedule 4.9 Disclosed Litigation
Schedule 4.11 Welfare Plans
Schedule 4.13 Environmental Assessment Reports
Schedule 4.14 Restrictive Agreements
Schedule 4.16 Open Tax Years
Schedule 4.19(a) Existing Debt
Schedule 4.19(b) Surviving Debt
Schedule 4.20 No Defaults
Schedule 4.21 Owned Real Estate
Schedule 4.22 Leased Real Estate
Schedule 4.23 Material Contracts
Schedule 4.24 Investments
Schedule 4.25 Intellectual Property
Schedule 5.5 Insurance
Schedule 5.12 Certain Transactions
Schedule 6.1(c) Liens
Schedule 6.6(a) Investments in Subsidiaries
Schedule 6.6(e) Existing Investments
Schedule 6.18 Existing Issuances, Etc. of Stock
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of December 31, 1998, by and among AUDIO BOOK
CLUB, INC., a Florida corporation (the "Borrower" or the "Company"), the banks,
financial institutions and other institutional lenders listed on the signature
pages hereof as the Initial Lenders (the "Initial Lenders"), FLEET NATIONAL
BANK, as Initial Issuing Bank (the "Initial Issuing Bank"), FLEET NATIONAL BANK,
as the Swing Line Bank (the "Swing Line Bank") and FLEET NATIONAL BANK, as
administrative agent (together with any successor appointed pursuant to Article
10, the "Administrative Agent") for the Lender Parties (as hereinafter defined).
PRELIMINARY STATEMENTS:
(a) Pursuant to an Asset Purchase Agreement, dated as of December 30, 1998
(the "CH Acquisition Agreement"), by and among the Borrower and The Columbia
House Company, the Borrower or a Wholly-Owned Subsidiary of the Borrower agreed
to purchase all or substantially all of the assets of the audio book division of
The Columbia House Company (such division,"Columbia House") (such transaction
being hereinafter called the "CH Acquisition");
(b) Pursuant to an Asset Purchase Agreement, dated as of December 11, 1998
(the "Premier Acquisition Agreement"), by and among Borrower, Classic Radio
Acquisition Corp., a Delaware corporation indirectly wholly-owned by Borrower
("Acquisition Corp."), and Premier Electronic Laboratories, Inc., a Connecticut
corporation ("Premier"), Acquisition Corp. purchased all of the assets of
Premier (such transaction being hereinafter called the "Premier Acquisition");
(c) Pursuant to an Asset Purchase Agreement, dated as of December 11, 1998
(the "AIC Acquisition Agreement"), by and among Borrower, Acquisition Corp. and
Metacom, Inc., a Minnesota corporation ("Metacom"), Acquisition Corp. purchased
all of the assets of the Adventures in Cassettes division ("AIC") of Metacom
(such transaction being hereinafter called the "AIC Acquisition")
(d) Pursuant to an Agreement and Plan of Merger and a Supplemental
Agreement, each dated as of December 11, 1998 (the "Radio Spirits Merger
Agreement"), by and among Borrower, Classic Radio Holding Corp., a Delaware
corporation and wholly-owned subsidiary of Borrower ("Holding Corp."), and Radio
Spirits, Inc., an Illinois corporation ("Radio Spirits"), Radio Spirits merged
with and into Holding Corp. (such transaction, together with the transactions
described in the following subsection (e), being hereinafter called the "Radio
Spirits Acquisition";
(e) In addition, Acquisition Corp. acquired from Carl Amari ("Amari"), the
sole shareholder of Radio Spirits, pursuant to an Asset Purchase Agreement,
dated as of December 11, 1998 (the "Buffalo Productions Acquisition Agreement"),
by and among Borrower, Acquisition Corp. and Carl Amari, all of the assets of
Buffalo Productions, Inc., ("Buffalo
<PAGE>
Productions") and Acquisition Corp. also acquired from Carl Amari, Amari's fifty
percent (50%) joint venture interest in the Old Time Radio Joint Venture ("OTR
Joint Venture") between Amari and Dick Brescia Associates, pursuant to a Joint
Venture Interest Purchase and Assignment Agreement, dated as of December 11,
1998 (the "JV Acquisition Agreement") by and among Acquisition Corp. and Amari;
(f) The CH Acquisition Agreement, the Radio Spirits Merger Agreement, the
Buffalo Productions Acquisition Agreement, the JV Acquisition Agreement, the
Premier Acquisition Agreement and the AIC Acquisition Agreement are herein
referred to collectively as the "Acquisition Agreements" and individually as an
"Acquisition Agreement"; the CH Acquisition, the Radio Spirits Acquisition, the
Premier Acquisition and the AIC Acquisition are herein referred to collectively
as the "Acquisitions" and individually as an "Acquisition");
(g) The Borrower has requested that the Lender Parties (as hereinafter
defined) make loans to the Borrower and issue letters of credit having an
aggregate principal and face amount at any one time outstanding of up to
Thirty-Four Million Dollars ($34,000,000) to be used by the Borrower (a) to
finance, in part, the Acquisitions, (b) to pay fees and expenses incurred in
connection with the Acquisitions, (c) to refinance certain existing indebtedness
of the Borrower and (d) to provide working capital and finance capital
expenditures for the Borrower, and the Lender Parties have agreed to make such
loans and issue such letters of credit all on and subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Acquisition(s)" has the meaning specified in the Preliminary Statements.
"Acquisition Agreement(s)" has the meaning specified in the Preliminary
Statements.
"Acquisition Dates" means the dates on which the Acquisitions shall have
been consummated in accordance with the Acquisition Documents.
"Acquisition Documents" means the Acquisition Agreements, the other
agreements entered into in connection therewith (other than immaterial
agreements and certificates) including, without limitation, (i) the employment
agreement between the Borrower (or one of its subsidiaries) and
2
<PAGE>
Carl Amari, (ii) the Mailing Agreement and the Transitional Services Agreements
relating to the CH Acquisition, and (iii) and all schedules and exhibits related
to each such agreement, all as such agreements, instruments and documents are in
effect as of the Closing Date, and as they may be amended to the extent
permitted under Section 6.12 hereof.
"Acquisition Puts" means the obligation of the Borrower or any of its
Subsidiaries to repurchase any of Borrower's Common Stock or other Equity
Interests as may be required by the Acquisition Documents.
"Acquisition Target" shall mean each of Columbia House, Radio Spirits,
Buffalo Productions, OTR Joint Venture, Premier and AIC.
"Additional Collateral Documents" has the meaning specified in Section
5.13(e).
"Administrative Agent" has the meaning specified in the recital of parties
to this Agreement.
"Administrative Agent's Account" means the account of the Administrative
Agent maintained by the Administrative Agent with Fleet at its office at Fleet
National Bank, One Federal Street, Boston, Massachusetts 02110, Account No.
151035103156, Attention: Loan Administration.
"Advance" means a Term Advance, a Revolving Credit Advance, a Swing Line
Advance or a Letter of Credit Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, (a) the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 50% or more of the Voting
Stock of such Person or to direct or cause the direction of the management and
policies of such Person, whether through the ownership of Voting Stock, by
contract or otherwise and (b) the families of any one or more of Norton Herrick,
Howard Herrick and Michael Herrick shall be deemed to be Affiliates of each of
them. Without limiting the foregoing, a trust shall be deemed an Affiliate of
the trust's trustee.
"After-Acquired Mortgaged Property" means any parcel (or adjoining parcels)
of real property (including any leaseholds) acquired by any Loan Party after the
Closing Date subject to a Mortgage granted to the Administrative Agent for the
benefit of the Secured Parties pursuant to Section 5.13.
"AIC" has the meaning specified in the Preliminary Statements.
3
<PAGE>
"Applicable Lending Office" means, with respect to each Lender Party, such
Lender Party's Domestic Lending Office in the case of a Prime Rate Advance and
such Lender Party's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance.
"Applicable Margin" means at any time and from time to time a percentage
per annum determined pursuant to the last paragraph of this definition by
reference to the ratio of Consolidated Debt to EBITDA at such time, as set forth
below:
Applicable Margin for
Revolving Credit Advances and Term Advances
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Consolidated Debt Applicable Margin for Applicable Margin for
to EBITDA Ratio Eurodollar Rate Advances Prime Rate Advances
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.0:1.0 3.25% 2.00%
- - -----------------------------------------------------------------------------------------------
Greater than or equal to 4.0:1.0 but 3.00% 1.75%
less than 5.0:1.0
- - -----------------------------------------------------------------------------------------------
Greater than or equal to 3.5:1.0 but 2.75% 1.50%
less than 4.0:1.0
- - -----------------------------------------------------------------------------------------------
Less than 3.5:1.0 2.50% 1.25%
- - -----------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding the above rates, prior to the date which is six months from
the date hereof, the Applicable Margin for a Revolving Credit Advance and a Term
Advance shall be 3.25% for a Eurodollar Rate Advance and 2.00% for a Prime Rate
Advance.
The Applicable Margin for each Prime Rate Advance and each Eurodollar Rate
Advance shall be determined by reference to the ratio of Consolidated Debt to
EBITDA which shall be determined three Business Days after the date on which the
Administrative Agent receives financial statements pursuant to Section 7.3 or
7.4 and a certificate of the Chief Financial Officer of the Borrower
demonstrating the ratio of Consolidated Debt to EBITDA. If the Borrower has not
submitted to the Administrative Agent the information described above as and
when required under Section 7.3 or 7.4, as the case may be, the Applicable
Margin shall be as determined by the Administrative Agent in its discretion for
so long as such information has not been received by the Administrative Agent.
The Applicable Margin shall be adjusted, if applicable, as of the first day of
the month following the date of determination described in the two preceding
sentences. In the event that the financial statements received pursuant to
Section 7.4 indicate that the Applicable Margin determined on the basis of
financial statements theretofore received pursuant to Section 7.3 is different
from the Applicable Margin that would have been determined on the basis of the
Section 7.4 financial statements, the Applicable Margin shall be adjusted
retroactively for the relevant period.
4
<PAGE>
"Asset Disposition" shall mean the disposition of any or all of the fixed
assets of the Borrower or any of its Subsidiaries whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise; provided,
however, that for purposes of Section 2.6(b), the term "Asset Disposition" shall
not include any sale, lease, transfer or other disposition of Inventory in the
ordinary course of business or any sale pursuant to Section 6.5(b), (e) or (f).
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender Party and an Eligible Assignee, and accepted by the Administrative
Agent and, so long as no Event of Default shall have occurred and be continuing,
by the Borrower, in accordance with Section 11.7 and in substantially the form
of Exhibit A hereto.
"Available Amount" of any Letter of Credit means, at any time, the maximum
amount available to be drawn under such Letter of Credit at such time (assuming
compliance at such time with all conditions to drawing).
"Bank Hedge Agreement" means any interest rate Hedge Agreement permitted
under this Agreement that is entered into by and between the Borrower and any
Lender.
"Borrower" has the meaning specified in the recital of parties to this
Agreement.
"Borrower's Account" means the account of the Borrower maintained by the
Borrower with Fleet National Bank at its office at One Federal Street, Boston,
Massachusetts 02110, Account No. 9417544039.
"Borrowing" means a Term Borrowing, a Revolving Credit Borrowing or a Swing
Line Borrowing.
"Business Day" means a day of the year on which banks are not required or
authorized by law to close in Boston, Massachusetts and New York, New York and,
if the applicable Business Day relates to any Eurodollar Rate Advances, on which
dealings are carried on in the London interbank market.
"Capital Expenditures" means, for any Person for any period, the sum of all
expenditures made, directly or indirectly, by such Person or any of its
Subsidiaries during such period for Equipment, fixed assets, real property or
improvements, and including computer software and internet development costs or
other costs typically treated as capital expenditures pursuant to GAAP, or for
replacements or substitutions therefor or additions thereto, that have been or
should be, in accordance with GAAP, reflected as additions to property, plant or
Equipment on a Consolidated balance sheet of such Person; provided, that Capital
Expenditures shall not include capital expenditures to the extent that such
expenditures constitute a reinvestment of Net Cash Proceeds from any Asset
Disposition permitted under this Agreement in similar fixed assets, which
investment is made before or within one hundred eighty days after receipt of
such Net Cash Proceeds.
5
<PAGE>
"Capitalized Leases" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"Cash Equivalents" means any of the following, to the extent owned by the
Borrower or any of its Subsidiaries, free and clear of all Liens other than
Liens created under the Collateral Documents: (a) readily marketable direct
obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by the full
faith and credit of the Government of the United States having a maturity of not
greater than one year from the date of issuance thereof, (b) insured
certificates of deposit of or time deposits having a maturity of not greater
than one year from the date of issuance thereof with , or overnight Federal
Funds transactions that are issued or sold by, any commercial bank that is a
Lender Party or a member of the Federal Reserve System that issues (or the
parent of which issues) commercial paper rated as described in clause (c) and is
organized under the laws of the United States or any State thereof and has
combined capital and surplus of at least 500 million, (c) commercial paper,
including asset-backed commercial paper, having a maturity of not greater than
one year from the date of issuance thereof, in an aggregate amount of no more
than $2,500,000 per issuer outstanding at any time, issued by any corporation
organized under the laws of any State of the United States and rated at least
"Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or
"A-1" (or the then equivalent grade) by Standard & Poor's Ratings Group or an
equivalent rating of any other nationally recognized rating agency, (d)
eurodollar time deposits maturing not more than one year after such time with
any commercial bank of the stature referred to in clause (b) above; (e) any
repurchase agreement entered into with any commercial bank of the stature
referred to in clause (b) or a registered broker/dealer of the stature referred
to in clause (f) below which is (i) secured by a perfected security interest in
any obligation of the type described in any of the clauses (a) through (d) and
(ii) has a market value at the time such repurchase agreements is entered into
of not less than 100% of the repurchase obligation of such commercial bank or
broker/dealer thereunder, (f) investments in short-term asset management
accounts managed by any commercial bank of the stature referred to in clause (b)
or a registered securities broker/dealer having regulatory net capital, as per
its most recently filed FOCUS report , of not less than $100,000 million which
are invested in indebtedness of any state or municipality of the United States
and which are rated under one of the two highest ratings from any nationally
recognized rating agency and/or general investment contracts and/or investments
of the type described in clauses (a) through (e) above or (g) insured money
market funds investing primarily in investments of the types described in
clauses (a) through (f).
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System maintained by the U.S. Environmental Protection
Agency.
"Change of Control" means any of the following: (a) Norton Herrick, Michael
Herrick and/or Howard Herrick, together with their Affiliates, shall at any time
cease to own and control
6
<PAGE>
any of the following set forth in clauses (i), (ii), (iii) and (iv): (i) at
least 35% of the common stock of the Borrower outstanding at any time on or
prior to June 30, 1999, (ii) at least 30% of the common stock of the Borrower
outstanding at any time from July 1, 1999 through December 31, 1999, (iii) at
least 25% of the common stock of the Borrower outstanding at any time after
January 1, 2000, and (iv) an aggregate of the outstanding common stock of the
Borrower that exceeds the aggregate amount held by any other Person together
with such Person's Affiliates; or (b) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Borrower shall cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by the
Borrower's shareholders, of each new director shall be approved by a vote of at
least two-thirds (2/3) of the directors then still in office who were directors
at the beginning of the period. For purposes of this definition "control", when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract, by family relationship or
otherwise; and the terms "controlling" and "controlled" have the meanings
correlative to the foregoing.
"CH Subsidiary" means CH Acquisitions Corp.
"CH Deferred Purchase Price Rights" means the right of Columbia House to
receive deferred purchase price pursuant to Section 2.2(a) of the CH Acquisition
Agreement and pursuant to Section 1(c)(i) of the Transitional Services Agreement
(forming a part of the Acquisition Documents relating to the CH Acquisition
Agreement) collections of accounts receivable of the Borrower covered by such
Transitional Services Agreement up to (but not exceeding) the amount specified
in such Section 1(c)(i) of such Transitional Services Agreement.
"Closing Date" means the date on which all of the conditions precedent set
forth in Section 3.1 to the Initial Extension of Credit shall have been
satisfied or waived.
"Collateral" means all "Collateral" referred to in the Collateral Documents
and all other property that is or is intended to be subject to any Lien in favor
of the Administrative Agent for the benefit of the Secured Parties.
"Collateral Documents" means the Security Agreement, the Intellectual
Property Security Agreement, each Collateral Assignment of Lease, the Mortgages
and any other agreement that creates or purports to create a Lien in favor of
the Administrative Agent for the benefit of the Secured Parties, including the
Additional Collateral Documents delivered pursuant to Section 5.13.
"Columbia House" has the meaning specified in the Preliminary Statements.
"Commitment" means a Term Commitment, a Revolving Credit Commitment or a
Letter of Credit Commitment.
"Company" has the meaning specified in the recital of parties to this
Agreement.
7
<PAGE>
"Compliance Certificate" with respect to the Borrower and its Subsidiaries,
a certificate to the effect that: (a) as of the effective date of the
certificate, no Default or Event of Default under this Agreement exists or would
exist after giving effect to the action intended to be taken by any Loan Party,
as described in such certificate, including, without limitation, that the
covenants set forth in Article 8 hereof would not be breached after giving
effect to such action, together with a calculation in reasonable detail, and in
form reasonably satisfactory to the Administrative Agent, of such compliance,
and (b) the representations and warranties contained in Article 4 hereof are
true and with the same effect as though such representations and warranties were
made on the date of such certificate, unless stated to relate to a specific
earlier date in which case such specified representations and warranties shall
be true and correct as of such earlier date, and, except for changes in the
ordinary course of business not prohibited by this Agreement, none of which,
either singly or in the aggregate, have had a Material Adverse Effect on the
Borrower and its Subsidiaries taken as a whole, which certificate shall be
executed and delivered by the chief financial officer of the Borrower.
"Confidential Information" means information that the Borrower furnishes to
the Administrative Agent or any Lender Party other than any such information
that is or becomes generally available to the public other than as a result of a
breach by the Administrative Agent or any Lender Party of its obligations
hereunder or that is or becomes available to the Administrative Agent or such
Lender Party from a source other than the Borrower that is not, to the best of
the Administrative Agent's or such Lender Party's knowledge, acting in violation
of a confidentiality agreement with the Borrower, provided that Confidential
Information shall include the Information Memorandum and all projections,
forecasts, budgetary data, business plans and other forward-looking information
of the Borrower and its Subsidiaries unless such information becomes publicly
available as described above.
"Consolidated" refers to the consolidation of accounts, in accordance with
GAAP, of any Person and all of its Subsidiaries, and if not specified, the
Borrower and all of its Subsidiaries.
"Consolidated Debt to EBITDA" has the same meaning as Consolidated Debt to
EBITDA Ratio.
"Consolidated Debt to EBITDA Ratio" means, for any fiscal quarter of the
Borrower, a ratio of (a) Debt of the Borrower and its Subsidiaries as at the end
of such fiscal quarter to (b) EBITDA for the most recently completed four fiscal
quarters of the Borrower and its Subsidiaries.
"Conversion", "Convert" and "Converted" each refer to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section 2.9 or
2.10.
"Current Assets" of any Person means all assets of such Person that would,
in accordance with GAAP, be classified as current assets of a company conducting
a business the same as or similar to that of such Person, after deducting
adequate reserves in each case in which a reserve is proper in accordance with
GAAP.
8
<PAGE>
"Current Liabilities" of any Person means (a) Debt of such Person, except
Funded Debt, that by its terms is payable on demand or matures within one year
after the date of determination (excluding any Debt renewable or extendible, at
the option of such Person, to a date more than one year from such date or
arising under a revolving credit or similar agreement that obligates the lender
or lenders to extend credit during a period of more than one year from such
date), (b) all amounts of Funded Debt of such Person required to be paid or
prepaid within one year after such date and (c) all other items (including taxes
accrued as estimated) that in accordance with GAAP would be classified as
current liabilities of such Person.
"Debt" of any Person means, without duplication, the following:
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred purchase price of
property or services other than accounts payable and accrued expenses included
in Current Liabilities which payables and expenses were incurred in respect of
property or services purchased in the ordinary course of business;
(c) all Obligations of such Person evidenced by notes, bonds, debentures or
other similar borrowing or securities instruments;
(d) all Obligations of such Person created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property);
(e) all Obligations of such Person as lessee under Capitalized Leases;
(f) all Obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities;
(g) all Obligations of such Person to purchase, redeem, retire, defease or
otherwise make any payment in respect of any capital stock of or other ownership
or profit interest in such Person or any other Person or any warrants, rights or
options to acquire such capital stock other than the Obligations of the Borrower
or its Subsidiaries pursuant to the Acquisition Puts and Future Acquisition
Puts, provided that in the event such Acquisition Puts and Future Acquisition
Puts are converted into indebtedness of the Borrower or its Subsidiaries any
such amounts owed in respect thereof shall be deemed to be "Debt";
(h) all Debt of others referred to in clauses (a) through (g) above or
clause (i) below guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through an
agreement (A) to pay or purchase such Debt or to advance or supply funds for the
payment or purchase of such
9
<PAGE>
Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the debtor to
make payment of such Debt or to assure the holder of such Debt against loss, (C)
to supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of such Debt
against loss, or (D) otherwise to assure a creditor against loss; and
(i) all Debt referred to in clauses (a) through (h) above of another Person
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts, contract rights or inventory) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Debt;
provided, however, that for purposes of clarification, customary indemnities
issued by Borrower or its Subsidiaries in the ordinary course of business shall
not be deemed to be Debt.
"Debt Issuance" means any issuance or sale or other incurrence by the
Borrower or any of its Subsidiaries of any Debt; provided, however, that for
purposes of determination of Net Cash Proceeds under Section 2.6(b)(iii), the
term "Debt Issuance" shall not include the incurrence of Debt permitted under
Section 6.2.
"Default" means any Event of Default or any event that would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both.
"Defaulted Advance" means, with respect to any Lender Party at any time,
the portion of any Advance required to be made by such Lender Party to the
Borrower pursuant to Section 2.1 or 2.2 at or prior to such time which has not
been made by such Lender Party or by the Administrative Agent for the account of
such Lender Party pursuant to Section 2.2(e) as of such time. In the event that
a portion of a Defaulted Advance shall be deemed made pursuant to Section
2.15(a), the remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made pursuant to Section 2.1 on the
same date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Lender Party at any time, any
amount required to be paid by such Lender Party to the Administrative Agent or
any other Lender Party hereunder or under any other Loan Document at or prior to
such time which has not been so paid as of such time, including, without
limitation, any amount required to be paid by such Lender Party to (a) the Swing
Line Bank pursuant to Section 2.2(b) to purchase a portion of a Swing Line
Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant to Section
2.3(c) to purchase a portion of a Letter of Credit Advance made by the Issuing
Bank, (c) the Administrative Agent pursuant to Section 2.2(e) to reimburse the
Administrative Agent for the amount of any Advance made by the Administrative
Agent for the account of such Lender Party, (d) any other Lender Party pursuant
to Section 2.13 to purchase any participation in Advances
10
<PAGE>
owing to such other Lender Party and (e) the Administrative Agent or the Issuing
Bank pursuant to Section 10.5 to reimburse the Administrative Agent or the
Issuing Bank for such Lender Party's ratable share of any amount required to be
paid by the Lender Parties to the Administrative Agent or the Issuing Bank as
provided therein. In the event that a portion of a Defaulted Amount shall be
deemed paid pursuant to Section 2.15(b), the remaining portion of such Defaulted
Amount shall be considered a Defaulted Amount originally required to be paid
hereunder or under any other Loan Document on the same date as the Defaulted
Amount so deemed paid in part.
"Defaulting Lender" means, at any time, any Lender Party that, at such
time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any
action or be the subject of any action or proceeding of a type described in
Section 9.6.
"Disclosed Litigation" has the meaning specified in Section 4.9.
"Disposal" means the discharge, deposit, injection, dumping, spilling,
leaking or placing of any solid waste or hazardous waste, as those terms are
defined by any federal, state, local or foreign law, into or on any land or
water so that such solid waste or hazardous waste or any constituents thereof
may enter the environment or be emitted into the air or discharged into any
waters, including ground waters.
"Domestic Lending Office" means, with respect to any Lender Party, the
office of such Lender Party specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender Party, as the case may be, or such other office of such
Lender Party as such Lender Party may from time to time specify to the Borrower
and the Administrative Agent.
"Domestic Subsidiary" means any Subsidiary organized under the laws of the
United States of America or any State thereof.
"EBITDA" means, for any period, the sum, determined on a Consolidated
basis, of (i) net income (or net loss), (ii) Interest Expense, (iii) income tax
expense, (iv) depreciation expense, (v) extraordinary and nonrecurring losses
and (vi) amortization expense, minus extraordinary and nonrecurring gains (in
each case determined in accordance with GAAP) plus the pro forma effect on
EBITDA for such period of any Permitted Acquisition or Permitted Club
Acquisition made by the Borrower (such pro forma effect to be reasonably
acceptable to the Administrative Agent), provided that, as required by the last
sentence of Section 1.3, EBITDA shall be adjusted for the effect of reporting
advertising expenses and New Member Acquisition Costs as expensed as incurred.
"Eligible Assignee" means with respect to any Facility (other than the
Letter of Credit Facility), (a) a Lender; (b) an Affiliate of a Lender; and (c)
subject to the prior approval of the Administrative Agent and, so long as no
Event of Default shall have occurred and be continuing, the Borrower, such
approval by the Borrower not to be unreasonably withheld or delayed, (i) a
11
<PAGE>
commercial bank organized under the laws of the United States, or any State
thereof, and having total assets in excess of $500,000,000; (ii) a savings and
loan association or savings bank organized under the laws of the United States,
or any State thereof, and having total assets in excess of $500,000,000; (iii) a
commercial bank organized under the laws of any other country that is a member
of the OECD or has concluded special lending arrangements with the International
Monetary Fund associated with its General Arrangements to Borrow or of the
Cayman Islands, or a political subdivision of any such country, and having total
assets in excess of $500,000,000, so long as such bank is acting through a
branch or agency located in the United States; (iv) the central bank of any
country that is a member of the OECD; and (v) a finance company, insurance
company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
and having total assets in excess of $500,000,000; and, with respect to the
Letter of Credit Facility, a Person that is an Eligible Assignee under subclause
(i) or (iii) of clause (c) of this definition and is approved by the
Administrative Agent and the Borrower, such approval by the Borrower not to be
unreasonably withheld or delayed; provided, however, that no Loan Party or
Affiliate of a Loan Party shall qualify as an Eligible Assignee under this
definition.
"Environmental Action" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, any Environmental Permit or
Hazardous Material or arising from alleged injury or threat to public health and
safety or the environment, including, without limitation, (a) by any
governmental or regulatory authority or third party for enforcement, cleanup,
Removal, Response, Remedial or other actions or damages and (b) by any
governmental or regulatory authority or third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any international or transnational law, federal,
state, local or foreign statute, law, ordinance, rule, regulation, code, order,
writ, judgment, injunction, decree or judicial or agency interpretation, policy
or guidance relating to pollution or protection of the environment or natural
resources, including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, threatened release, release or
discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification number,
license or other authorization required under any Environmental Law.
"Equipment" has the meaning specified in Section 1(a) of the Security
Agreement.
"Equity Issuance" means any issuance or sale by the Borrower or any of its
Subsidiaries of its capital stock or other equity securities or any obligations
convertible into or exchangeable for, or giving any Person a right, option or
warrant to acquire such stock, securities or such convertible or exchangeable
obligations; provided, however, that for purposes of Section 2.6(b)(iii), the
term "Equity Issuance" shall not include any issuance or sale of (a) Equity
12
<PAGE>
Interests of the Borrower to any Person as consideration paid in connection with
a Permitted Acquisition; (b) Equity Interests of the Borrower issued on or
before the Closing Date in connection with any Acquisition which are consistent
with the provisions of Section 6.18 and disclosed on Schedule 6.18 hereto; (c)
common stock of the Borrower issued to any director of the Borrower required by
applicable law in connection with such Person acting in such capacity; (d)
common stock of the Borrower to management and employees thereof, respectively,
pursuant to any stock option plan permitted hereunder or the exercise of options
issued pursuant thereto; (e) common stock of Borrower issued upon exercise of
any outstanding warrants, rights or options or upon conversion of any
outstanding convertible securities, in each case only if outstanding on the
Closing Date or issued to the holder of the Senior Subordinated Debt thereafter
in accordance with the Letter Agreement; (f) Equity Interests issued in
compliance with the provisions of Section 6.18(e), except to the extent net
proceeds thereof exceed the net proceeds actually applied to replace or repay,
in whole or in part, the Senior Subordinated Debt in accordance with Section
6.18 (e); (g) Equity Interests issued by the Borrower to the extent the net
proceeds therefrom are applied to satisfy the Borrower's obligations under the
Acquisition Puts or the Future Acquisition Puts (in each case if then required
to be paid) so long as (i) such application is made within one hundred eighty
(180) days after the issuance of such Equity Interests, (ii) any such net
proceeds not so applied within such period shall be applied to repay the
Advances in accordance with Section 2.6, and (iii) the Borrower otherwise
complies with Section 6.7(c) and Section 6.7(e) in satisfying the Acquisition
Puts and the Future Acquisition Puts; and (h) Equity Interests issued as full or
partial consideration for any Permitted Club Acquisition or to the extent the
net proceeds therefrom are used as full or partial consideration for any
Permitted Club Acquisition to repay any indebtedness of the business acquired
simultaneously with the closing of such acquisition or pay any fees and expenses
incurred by the Borrower or its Subsidiaries in connection therewith so long as
(i) the application of any net proceeds is made within one hundred eighty (180)
days after the issuance of such Equity Interests, and (ii) any such net proceeds
not so applied within such period shall be applied to repay the Advances in
accordance with Section 2.6.
"Equity Interests" means, in any Person, any and all shares, interests,
participations, rights or other equivalents (however designated) of any capital
stock or other ownership of any profit interest, and any and all warrants,
rights, options, obligations or other securities of or in such Person, and
rights to acquire any of the foregoing, including, without limitation,
partnership interests and joint venture (whether general or limited) and any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, such
partnership or joint venture, but excluding debt for borrowed money and
excluding any debt security that is convertible into, or exchangeable for any of
the foregoing equity interests.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
13
<PAGE>
"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA
is a member of the controlled group of any Loan Party, or under common control
with any Loan Party, within the meaning of Section 414 of the Internal Revenue
Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event, within
the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day
notice requirement with respect to such event has been waived by the PBGC, or
(ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without
regard to subsection (2) of such Section) are met with respect to a contributing
sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event
described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA
is reasonably expected to occur with respect to such Plan within the following
30 days; (b) the application for a minimum funding waiver with respect to a
Plan; (c) the provision by the administrator of any Plan of a notice of intent
to terminate such Plan under ERISA Section 4041(c), pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan amendment
referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a
facility of any Loan Party or any ERISA Affiliate in the circumstances described
in Section 4062(e) of ERISA; (e) the withdrawal by any Loan Party or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the
conditions for imposition of a lien under Section 302(f) of ERISA shall have
been met with respect to any Plan; (g) the adoption of an amendment to a Plan
requiring the provision of security to such Plan pursuant to Section 307 of
ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that constitutes grounds for the termination
of, or the appointment of a trustee to administer, such Plan.
"Escrow Agreement" has the meaning specified in Section 6.11 hereof.
"Eurocurrency Liabilities" has the meaning specified in Regulation D of the
Board of Governors of the Federal Reserve System, as in effect from time to
time.
"Eurodollar Lending Office" means, with respect to any Lender Party, the
office of such Lender Party specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and Acceptance
pursuant to which it became a Lender Party (or, if no such office is specified,
its Domestic Lending Office), or such other office of such Lender Party as such
Lender Party may from time to time specify to the Borrower and the
Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate
Advances comprising part of the same Borrowing, an interest rate per annum
(rounded upward, if necessary, to the nearest 1/32 of one percent) as determined
on the basis of the offered rates for deposits in U.S. dollars, for a period of
time comparable to such Interest Period which appears on the Telerate Page 3750
as of 11:00 a.m. (London time) two Business Days before the first day of such
Interest Period; provided, however, that if the rate described above does not
appear on the Telerate System on any applicable interest determination date, the
Eurodollar Rate shall be the
14
<PAGE>
rate (rounded upward as described above, if necessary) for deposits in U.S.
dollars for a period substantially equal to the interest period on the Reuters
Page "LIBO" (or such other page as may replace the LIBO page on that service for
the purpose of displaying such rates), as of 11:00 a.m. (London time) two
Business Days before the first day of such Interest Period.
If both the Telerate and Reuters system are unavailable, then the rate for
that date will be determined on the basis of the offered rates for deposits in
U.S. dollars for a period of time comparable to such Interest Period which are
offered by four major banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days before the first day of such Interest
Period as selected by the Administrative Agent. The principal London office of
each of the four major London banks will be requested to provide a quotation of
its U.S. dollar deposit offered rate. If at least two such quotations are
provided, the rate for that date will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for that date
will be determined on the basis of the rates quoted for loans in U.S. dollars to
leading European banks for a period of time comparable to such Interest Period
offered by major banks in New York City at approximately 11:00 a.m. (New York
time) two Business Days before the first day of such Interest Period. In the
event that the Administrative Agent is unable to obtain any such quotation as
provided above, it will be deemed that the Eurodollar Rate for such Interest
Rate cannot be determined.
In the event that the Board of Governors of the Federal Reserve System
shall impose a Eurodollar Rate Reserve Percentage with respect to Eurocurrency
Liabilities, the Eurodollar Rate for an Interest Period shall be equal to the
amount determined above for such Interest Period divided by a percentage equal
to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period.
"Eurodollar Rate Advance" means an Advance that bears interest as provided
in Section 2.7(a)(ii).
"Eurodollar Rate Reserve Percentage" means, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, the reserve
percentage applicable two Business Days before the first day of such Interest
Period under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurodollar Rate Advances is determined) having a term equal to such Interest
Period.
"Events of Default" has the meaning specified in Article 9.
"Excess Cash Flow" means for any period the sum of (a) EBITDA of the
Borrower and its Subsidiaries for such period (provided that EBITDA, for
purposes of this definition of Excess
15
<PAGE>
Cash Flow, shall be computed without giving effect to the final clause of the
definition of "EBITDA" relating to the addition of the pro forma effect of
Permitted Acquisitions) plus (b) the aggregate amount of all non-cash charges
deducted from Consolidated net income for such period, but not added back in
arriving at EBITDA plus (c) if there was a net increase in Consolidated Current
Liabilities of the Borrower and its Subsidiaries during such period, the amount
of such net increase other than arising out of Debt permitted pursuant to
Section 6.2 plus (d) if there was a net decrease in Consolidated Current Assets
(excluding cash and Cash Equivalents) of the Borrower and its Subsidiaries
during such period the amount of such net decrease less (e) the aggregate amount
of mandatory and optional prepayments (other than optional prepayments of the
Swing Line Advances, Letter of Credit Advances or Revolving Credit Advances made
pursuant to clause (i) of the second sentence of Section 2.6(a)) or repayments
of principal made by the Borrower and its Subsidiaries on any Funded Debt of the
Borrower and its Subsidiaries during such period less (f) Capital Expenditures
of the Borrower and its Subsidiaries during such period less (g) the aggregate
amount of all federal, state, local and foreign taxes paid by the Borrower and
its Subsidiaries during such period less (h) the aggregate amount of interest
paid on any Debt of the Borrower and its Subsidiaries during such period less
(i) the aggregate amount of all non-cash credits included in arriving at such
EBITDA less (j) if there was a net decrease in Consolidated Current Liabilities
of the Borrower and its Subsidiaries during such period, the amount of such net
decrease less (k) if there was a net increase in Consolidated Current Assets
(excluding cash and Cash Equivalents) of the Borrower and its Subsidiaries
during such period the amount of such increase less (l) dividends paid by the
Borrower to the holders of its common stock during such period to the extent
that the Borrower is permitted to pay such dividends under this Agreement.
"Existing Debt" has the meaning specified in Section 4.19(a).
"Extraordinary Receipt" means any cash received by or paid to or for the
account of any Person not in the ordinary course of business, including, without
limitation, tax refunds, pension plan reversions, proceeds of insurance (other
than proceeds of business interruption and associated similar insurance to the
extent such proceeds constitute compensation for lost earnings), condemnation
awards (and payments in lieu thereof) and indemnity payments; provided, however,
that an Extraordinary Receipt shall not include cash receipts received from
proceeds of insurance, condemnation awards (and payments in lieu thereof) or
indemnity payments to the extent that such proceeds, awards or payments (a) in
respect of loss or damage to Equipment, fixed assets, real property or Inventory
are applied (or in respect of which expenditures were previously incurred) to
replace or repair the Equipment, fixed assets, real property or Inventory in
respect of which such proceeds, awards or payments were received in accordance
with the terms of the Loan Documents, so long as (i) such application is made
within one hundred eighty (180) days after such Person's receipt of such
proceeds, awards or payments and (ii) such proceeds, awards or payments are
received by such Person within fifteen (15) months after the occurrence of such
damage or loss; or (b) are received by any Person in respect of any third party
claim against such Person and applied to pay (or to reimburse such Person for
its prior payment of) such claim and the costs and expenses of such Person with
respect thereto.
16
<PAGE>
"Facility" means the Term Facility, the Revolving Credit Facility, the
Letter of Credit Facility or the Swing Line Facility.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to 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 for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Fiscal Year" means a fiscal year of the Borrower and its Consolidated
Subsidiaries ending on December 31 in any calendar year.
"Fixed Charges" means the sum, for the Borrower and its Subsidiaries on a
Consolidated basis for any period, of (i) cash Interest Expense, plus (ii)
scheduled amortization of Debt payable during such period, plus (iii) income
taxes and other taxes reasonably estimated by the Borrower to be payable in
respect of such period, plus (iv) Capital Expenditures during such period to the
extent permitted by this Agreement.
"Fixed Charge Coverage Ratio" means, for the four consecutive fiscal
quarters of the Borrowers ending on the date of determination, the ratio of (a)
EBITDA of the Borrower and its Subsidiaries for such four fiscal quarters (or
other period specified in Section 8.5), to (b) Fixed Charges for such four
fiscal quarters (or other period specified in Section 8.5).
"Fleet" means Fleet National Bank in its capacity as a Lender or Issuing
Bank or Swing Line Bank.
"Foreign Subsidiary" means any Subsidiary organized under the laws of any
jurisdiction other than the United States of America or any State thereof.
"Funded Debt" means, with respect to the Borrower, the Advances, and with
respect to the Borrower and the other Loan Parties and any other Person, all
other Debt of such Person that by its terms matures more than one year after the
date of determination or matures within one year from such date but is renewable
or extendible, at the option of such Person, to a date more than one year after
such date or arises under a revolving credit or similar agreement that obligates
the lender or lenders to extend credit during a period of more than one year
after such date, including the current portion of all such Debt.
"Future Acquisition Puts" has the meaning specified in Section 6.7.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public
17
<PAGE>
Accountants and statements and pronouncements of the Financial Accounting
Standards Board and statements, pronouncements, rules and regulations of the
Securities and Exchange Commission that are applicable to the circumstances as
of the date of determination.
"Guaranteed Obligations" has the meaning specified in the Subsidiary
Guaranties.
"Guarantors" means (a) each Domestic Subsidiary of the Borrower and (b)
each Person which shall have executed and delivered or become a party to a
Subsidiary Guaranty hereunder.
"Hazardous Materials" means (a) petroleum or petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements.
"Hedge Bank" means any Lender in its capacity as a party to a Bank Hedge
Agreement.
"Indemnified Party" has the meaning specified in Section 11.4(b).
"Information Memorandum" means the information memorandum, dated December
1998 delivered by the Administrative Agent to the Lenders.
"Initial Extension of Credit" means the earlier to occur of the initial
Borrowing and the initial issuance of a Letter of Credit.
"Initial Issuing Bank" has the meaning specified in the recital of parties
to this Agreement.
"Initial Lenders" has the meaning specified in the recital of parties to
this Agreement.
"Insufficiency" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Intellectual Property Security Agreement" has the meaning specified in
Section 3.1(a).
"Intercreditor Agreement" means the Intercreditor Agreement dated the date
of this Agreement among, inter alia, the holder or holders of the Senior
Subordinated Debt, and the Administrative Agent, and comprising one of the
Senior Subordinated Debt Documents.
"Interest Expense" means, with respect to any Person for any period,
interest expense on all Debt of such Person for such period net of interest
income for such period, whether paid or
18
<PAGE>
accrued, determined on a Consolidated basis for such Person and its Subsidiaries
and in accordance with GAAP, and including, without limitation, (a) in the case
of the Borrower, interest expense in respect of Debt resulting from Advances,
(b) the interest component of all obligations under Capitalized Leases, (c)
commissions, discounts and other fees and charges payable in connection with
letters of credit (including, without limitation, Letters of Credit), and (d)
all fees paid by the Borrower pursuant to Section 2.8(a).
"Interest Period" means, for each Eurodollar Rate Advance comprising part
of the same Borrowing, the period commencing on the date of such Eurodollar Rate
Advance or the date of the Conversion of any Prime Rate Advance into such
Eurodollar Rate Advance, and ending on the last day of the period selected by
the Borrower pursuant to the provisions below and, thereafter, each subsequent
period commencing on the last day of the immediately preceding Interest Period
and ending on the last day of the period selected by the Borrower pursuant to
the provisions below. The duration of each such Interest Period shall be one,
two, three or six months, as the Borrower may, upon notice received by the
Administrative Agent not later than 11:00 A.M. (New York time) on the third
Business Day prior to the first day of such Interest Period, select; provided,
however, that:
(a) The Borrower may not select any Interest Period with respect to any
Eurodollar Rate Advance under a Facility that ends after any principal repayment
installment date for such Facility unless, after giving effect to such
selection, the aggregate principal amount of Prime Rate Advances and of
Eurodollar Rate Advances having Interest Periods that end on or prior to such
principal repayment installment date for such Facility shall be at least equal
to the aggregate principal amount of Advances under such Facility due and
payable on or prior to such date;
(b) Whenever the last day of any Interest Period would otherwise occur on a
day other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, provided, however, that,
if such extension would cause the last day of such Interest Period to occur in
the next following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day;
(c) Whenever the first day of any Interest Period occurs on a day of an
initial calendar month for which there is no numerically corresponding day in
the calendar month that succeeds such initial calendar month, such Interest
Period shall end on the last Business Day of such succeeding calendar month; and
(d) Until the earlier of (i) 120 days after the Closing Date, or (ii) the
date on which the Administrative Agent notifies the Borrower that the
syndication of the Facilities has been completed, only Interest Periods with a
duration of seven days, if available to all the Lenders, shall be available to
the Borrower for Eurodollar Rate Advances, or if such Interest Periods are not
available to all the Lenders, Interest Periods of such duration as may be
selected by the Administrative Agent and are acceptable to the other Lenders.
19
<PAGE>
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.
"Inventory" of any person means all of such Person's now owned and
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all returned goods, raw materials, other materials and supplies of any
kind, nature or description which are or might be consumed in such Person's
business or used in connection with the packing, shipping, advertising, selling
or finishing of such goods, merchandise and such other personal property, and
all documents of title or other documents representing them.
"Investment" in any Person means any loan or advance to such Person, any
purchase or other acquisition of any capital stock or other ownership or profit
interest, warrants, rights, options, obligations or other securities of such
Person, any capital contribution to such Person or any other investment in such
Person, including, without limitation, any arrangement pursuant to which the
investor incurs Debt of the types referred to in clause (h) or (i) of the
definition of "Debt" in respect of such Person.
"Issuing Bank" means the Initial Issuing Bank and each Eligible Assignee to
which Letter of Credit Commitment hereunder has been assigned pursuant to
Section 11.7.
"L/C Cash Collateral Account" has the meaning specified in the Security
Agreement.
"L/C Related Documents" has the meaning specified in Section 2.4(f)(ii)(A).
"Lender Party" means any Lender, the Issuing Bank or the Swing Line Bank.
"Lenders" means the Initial Lenders and each Person that shall become a
Lender hereunder pursuant to Section 11.7.
"Letter Agreement" has the meaning specified in Section 6.11 hereof.
"Letter of Credit" means any Letter of Credit issued hereunder (as
specified in Section 2.3(a)).
"Letter of Credit Advance" means an advance made by the Issuing Bank or any
Revolving Credit Lender pursuant to Section 2.3(c).
"Letter of Credit Agreement" has the meaning specified in Section 2.3(a).
"Letter of Credit Commitment" means, with respect to the Issuing Bank, the
amount set forth opposite the Issuing Bank's name on Schedule I hereto under the
caption "Letter of Credit Commitment" or, if the Issuing Bank has entered into
one or more Assignments and Acceptances, set forth for the Issuing Bank in the
Register maintained by the Administrative Agent pursuant
20
<PAGE>
to Section 11.7(d) as the Issuing Bank's "Letter of Credit Commitment", as such
amount may be reduced at or prior to such time pursuant to Section 2.5.
"Letter of Credit Facility" means, at any time, an amount equal to the
amount of the Issuing Bank's Letter of Credit Commitment at such time, as such
amount may be reduced pursuant to Section 2.5.
"Lien" means any lien, security interest or other charge or encumbrance of
any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan Documents" means (a) this Agreement, (b) the Notes, (c) each
Subsidiary Guaranty, (d) the Collateral Documents, (e) each Letter of Credit
Agreement, (f) each Additional Collateral Document, and (g) all other
agreements, instruments and documents executed in connection therewith, in each
case as the same may at any time be amended, supplemented, restated or otherwise
modified and in effect.
"Loan Parties" means the Borrower, each Guarantor, and each other Person
who shall, at any time, have executed and delivered a Loan Document to the
Administrative Agent.
"Management Fees" for any period, all fees, emoluments or similar
compensation paid to or incurred with respect to any Person (other than any such
fees, emoluments or similar compensation paid to or incurred and payable to any
Loan Party) in respect of services rendered in connection with the management or
supervision of the management of any Loan Party, other than (a) salaries,
bonuses and other compensation paid to any full-time executive employee in
respect of such full-time employment, (b) fees and other compensation paid in
the ordinary course of business by any Loan Party to any Person who is not an
Affiliate thereof and (c) reimbursement to Affiliates of expenses (not
management fees) for services provided to Borrower and/or its Subsidiaries in
the ordinary course of business including, without limitation, for bookkeeping
services, tax and legal advice, use of an aircraft and use of accounting or
other personnel, on terms which are no less favorable to the Borrower and its
Subsidiaries than they would obtain in a comparable arms-length transaction with
a Person not an Affiliate so long as the aggregate amount payable by all Loan
Parties to all Affiliates (excluding payments by the Subsidiaries of the
Borrower directly to the Borrower or to other Wholly-Owned Subsidiaries or
payments by Borrower to its Wholly-Owned Subsidiaries) does not exceed Two
Hundred Thousand ($200,000.00) Dollars in any single fiscal year of the
Borrower.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Effect" means (a) a material adverse effect on the
business, condition (financial or otherwise), results of operations,
performance, reasonably foreseeable business prospects or properties of the
Borrower and its Subsidiaries (taken as a whole), (b) a material adverse affect
on the ability of any Loan Party to perform its obligations under the Loan
21
<PAGE>
Documents to which it is a party, (c) an adverse affect on the rights and
remedies of the Administrative Agent and the Lender Parties under any of the
Loan Documents or (d) a material adverse affect on any aspect of any Acquisition
or the Facilities.
"Material Contract" means, with respect to any Person, each contract listed
on Schedule 4.23, each contract which is a replacement or a substitute for any
contract listed on such Schedule and each other contract to which such Person is
a party which is material to the business, financial condition, operations,
performance, properties or reasonably foreseeable business prospects of such
Person.
"Metacom" has the meaning specified in the Preliminary Statements.
"Mortgage" means each mortgage, deed of trust, leasehold mortgage or
leasehold deed of trust or other similar document executed and delivered by the
appropriate Loan Party, in form and substance acceptable to the Administrative
Agent and the Lenders in order (a) to provide that such Loan Party is the
mortgagor or grantor, (b) to comply with and/or provide for specific laws of the
jurisdictions in which the real property or leasehold property to be encumbered
is located, and (c) to assure that the Administrative Agent for the benefit of
the Secured Parties has a perfected Lien on such Property.
"Mortgage Policies" has the meaning assigned to that term in Section
3.1(a)(iv)(B).
"Mortgaged Property" means each real property or leasehold property
specified on Schedule 4.21 or 4.22, respectively, that is subject to a Mortgage
and shall include After-Acquired Mortgaged Property.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan
Party or any ERISA Affiliate and at least one Person other than the Loan Parties
and the ERISA Affiliates or (b) was so maintained and in respect of which any
Loan Party or any ERISA Affiliate could have liability under Section 4064 or
4069 of ERISA in the event such plan has been or were to be terminated.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
other disposition of any asset or any Debt Issuance or Equity Issuance by any
Person, or any Extraordinary Receipt received by or paid to or for the account
of any Person, the aggregate amount of cash received from time to time (whether
as initial consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only (without duplication) (a) reasonable
and customary brokerage commissions,
22
<PAGE>
underwriting fees and discounts, legal fees, finder's fees and other normal and
customary out-of-pocket costs incurred in connection with such transaction, (b)
the amount of taxes payable in connection with or as a result of such
transaction and (c) with respect to any asset, the amount of any Debt secured by
a Lien on such asset that, by the terms of such transaction, is required to be
repaid upon such disposition, in each case to the extent, but only to the
extent, that the amounts so deducted are, at the time of or shortly after the
receipt of such cash, actually paid to a Person that is not an Affiliate of such
Person or any Loan Party or any Affiliate of any Loan Party and are properly
attributable to such transaction or to the asset that is the subject thereof.
"New Member Acquisition Costs" means amounts expended by the Borrower or a
Subsidiary of the Borrower for any type of advertising in any medium for the
purpose of acquiring customers.
"Note" means a Term Note, a Revolving Credit Note or a Swing Line Note.
"Note Assignment Agreement" has the meaning specified in Section 3.
"Notice of Borrowing" has the meaning specified in Section 2.2(a).
"Notice of Issuance" has the meaning specified in Section 2.3(a).
"Notice of Renewal" has the meaning specified in Section 2.1(f).
"Notice of Swing Line Borrowing" has the meaning specified in Section
2.2(b).
"Notice of Termination" has the meaning specified in Section 2.1(f).
"NPL" means the National Priorities List under CERCLA.
"Obligation" means, with respect to any Person, any payment, performance or
other obligation of such Person of any kind, including, without limitation, any
liability of such Person on any claim, whether or not the right of any creditor
to payment in respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is discharged,
stayed or otherwise affected by any proceeding referred to in Section 9.7.
Without limiting the generality of the foregoing, the Obligations of the Loan
Parties under the Loan Documents include (a) the obligation to pay principal,
interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by any Loan Party under
any Loan Document, (b) the obligation of any Loan Party to reimburse any amount
in respect of any of the foregoing that any Lender Party may, after the
occurrence and during the continuance of an Event of Default, elect to pay or
advance on behalf of such Loan Party, and (c) any other obligations arising out
of or under, based upon or relating to the Loan Documents.
"OECD" means the Organization for Economic Cooperation and Development.
23
<PAGE>
"Open Year" has the meaning specified in Section 4.16.
"Other Taxes" has the meaning specified in Section 2.12(b).
"Owned Herrick Shares" means any or all shares of capital stock issued by
the Borrower having voting rights, that are owned or controlled (whether
beneficially and/or of record) by Norton Herrick, Michael Herrick, Howard
Herrick and their Affiliates in the aggregate.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor).
"Permitted Acquisitions" means any acquisition by any of the Borrower's
Subsidiaries of all or substantially all of the assets or the capital stock of
any Person (or segment of such Person's business) which either (a) has been
consented to in writing by the Administrative Agent and the Required Lenders, or
(b) complies with each of the following: (i) such Person (or segment of such
Person's business) is engaged in substantially the same or similar line of
business as the Borrower or any of its Subsidiaries as of the date of this
Agreement, (ii) the aggregate cash consideration payable in respect of any
individual acquisition shall not exceed $3,000,000, (iii) the aggregate cash
consideration payable in respect of acquisitions contemplated by this definition
shall not exceed for all such acquisitions $4,000,000 in any twelve (12) month
period ending on the last day of the calendar month immediately preceding the
closing of the proposed acquisition, (iv) such Person (or segment of such
Person's business) on a consolidated basis with its Subsidiaries being acquired
in the proposed acquisition had positive EBITDA for the twelve (12) month period
ending on the last day of the calendar month immediately preceding the closing
of the proposed acquisition, (v) after giving effect to the proposed
acquisition, the Revolving Credit Commitments of all Lenders minus the sum of
Revolving Advances plus Letter of Credit Advances plus Swing Line Advances plus
the aggregate Available Amount of all Letters of Credit then outstanding shall
equal at least $1,500,000, (vi) the Borrower shall give the Administrative Agent
and the Lenders not less than ten (10) Business Days prior written notice of its
intention to make a Permitted Acquisition, such notice to include the proposed
amounts, date and form of the proposed transaction, a reasonable description of
the stock or assets to be acquired and the location of all assets, a description
and calculation in reasonable detail of the pro forma adjustments to EBITDA of
the target of such acquisition, and a calculation in reasonable detail of the
pro forma effect of such acquisition on matters covered by the financial
covenants contained herein, (vii) concurrently with the making of a Permitted
Acquisition, the Borrower shall, as additional collateral security for the
Obligations, grant or cause to be granted to the Administrative Agent for the
ratable benefit of the Lenders, prior liens on and security interests (subject
to Permitted Liens existing with respect to such assets at the time of the
Permitted Acquisition) in any of the acquired assets by the execution and
delivery to the Administrative Agent of such agreements, instruments and
documents as shall be reasonably satisfactory in form and substance to the
Administrative Agent, and (viii) the Borrower shall not permit to be made any
acquisition at any time during which an Event of Default shall exist and be
continuing or would exist after giving effect to such acquisition and the
Borrower shall have delivered to the Administrative Agent a Compliance
Certificate effective as of the date of consummation of such acquisition.
24
<PAGE>
"Permitted Club Acquisitions" means any acquisition by any of the
Borrower's Subsidiaries of all or substantially all of the assets or the capital
stock of any Person (or segment of such Person's business) which either (a) has
been consented to in writing by the Administrative Agent or (b) complies with
each of the following: (i) such Person (or segment of such Person's business) is
engaged in the business of operating a membership club business or a business
that licenses, operates, owns or otherwise exploits a library of audio, video
and/or entertainment content or a business that is substantially the same kind
of business as determined in the discretion of the Required Lenders, (ii) the
consideration payable in respect of such acquisition is comprised exclusively of
Equity Interests of the Borrower and/or the net proceeds from the Equity
Interests of the Borrower raised within the one hundred eighty (180) day period
preceding the closing of such acquisition, (iii) the Borrower shall give the
Administrative Agent and the Lenders not less than ten (10) Business Days prior
written notice of its intention to make a Permitted Club Acquisition, such
notice to include the proposed amounts, date and form of the proposed
transaction, a reasonable description of the stock or assets to be acquired and
the location of all assets, a description and calculation of the pro forma
adjustments to EBITDA of the target of such acquisition, and a calculation in
reasonable detail of the pro forma effect of such acquisition on matters covered
by the financial covenants contained herein, (iv) concurrently with the making
of a Permitted Club Acquisition, the Borrower, as additional collateral security
for the Obligations, shall grant or cause to be granted to the Administrative
Agent for the ratable benefit of the Lenders, prior liens on and security
interests (subject to Permitted Liens existing with respect to such assets at
the time of the Permitted Club Acquisition) in any of the acquired assets by the
execution and delivery to the Administrative Agent of such agreements,
instruments and documents as shall be reasonably satisfactory in form and
substance to the Administrative Agent, and (v) the Borrower shall not permit to
be made any acquisition at any time during which an Event of Default shall exist
and be continuing or would exist after giving effect to such acquisition and the
Borrower shall have delivered to the Administrative Agent a Compliance
Certificate effective as of the date of consummation of such acquisition.
"Permitted Liens" means any of the following: (a) Liens for taxes,
assessments and governmental charges or levies (i) not yet due and payable or
(ii) that are due and payable and that are being contested in good faith and by
appropriate proceedings diligently conducted, provided that in the case of Liens
under this clause (ii), reserves or other appropriate provisions shall have been
established therefor in accordance with GAAP; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing obligations
that are not overdue for a period of more than sixty (60) days or which, if
overdue, are being contested in good faith and by appropriate proceedings
diligently conducted, provided that reserves or other appropriate provisions
shall have been established therefor in accordance with GAAP; (c) pledges or
deposits to secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations; (d) Permitted Real
Property Encumbrances; (e) in the case of any Permitted Acquisition or Permitted
Club Acquisition, any Lien in respect of property of the acquired Person
existing at the time of such acquisition if such Lien would constitute a
Permitted Lien under any of the preceding clauses of this definition or
otherwise permitted by Section 6.1(d) or (e) provided that in respect of all
Liens referred to in this clause (e) (i) such Lien was
25
<PAGE>
not created in contemplation of such event, and (ii) no such Lien shall at any
time extend to or cover any asset of Borrower or any Subsidiary other than the
assets on which it was originally imposed and improvements thereto and proceeds
thereof; (f) judgment and other similar Liens arising in connection with court
proceedings, provided the execution or other enforcement of such Liens is
effectively stayed or bonded and the claims secured thereby are being contested
in good faith and by appropriate proceedings and no Default otherwise exists
under Section 9.7 hereof; (g) Liens (other than Liens created or imposed under
ERISA) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive in any case of
obligations incurred in connection with the borrowing of money or the obtaining
of advances or credit); and (h) Liens arising from the sales of accounts
receivable for collection in the ordinary course of business to the extent such
sales are permitted in accordance with the terms of Section 6.5(g).
"Permitted Real Property Encumbrances" means, with respect to any
particular real property, easements, zoning restrictions or other restrictions,
rights-of-way, minor encroachments, covenants or encumbrances on real property
imposed by law or arising in the ordinary course of business that do not arise
out of the incurrence of any Debt and that do not and could not reasonably be
expected to materially detract from the value of the affected property or
interfere materially with the ordinary conduct of business of the Borrower or
any of its Subsidiaries or materially impair the use thereof to the Borrower or
any Subsidiary.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pre-Commitment Information" has the meaning specified in Section 3.1(g).
"Premier" has the meaning specified in the Preliminary Statements.
"Prime Rate" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the higher of:
(a) the rate of interest announced publicly by Fleet in Boston,
Massachusetts, from time to time, as Fleet's prime rate, which is not
necessarily the lowest rate made available by Fleet; or
(b) 1/2 of one percent per annum above the Federal Funds Rate.
"Prime Rate Advance" means an Advance that bears interest as provided in
Section 2.7(a)(i).
26
<PAGE>
"Pro Rata Share" of any amount means, with respect to any Revolving Credit
Lender at any time, the product of such amount times a fraction the numerator of
which is the amount of such Lender's Revolving Credit Commitment at such time
and the denominator of which is the Revolving Credit Facility at such time.
"Radio Spirits" has the meaning specified in the Preliminary Statements.
"Radio Spirits Subordinated Security Agreement" means the Security
Agreement dated and effective as of December 11, 1998 between the Borrower,
Classic Radio Holding Corp. and Classic Radio Acquisition Corp., on the one
hand, and Carl Amari, on the other hand, as in effect on the date of this
Agreement.
"Receivables" means all Receivables referred to in Section 1(c) of the
Security Agreement.
"Reduction Amount" has the meaning specified in Section 2.6(b)(v).
"Register" has the meaning specified in Section 11.7(d).
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Regulatory Authority" means any federal, state, local or other U.S. or
foreign governmental authority, bureau or agency.
"Release" means any release, spill, emission, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment (including the abandonment or discarding of
barrels, containers and other closed receptacles containing any Hazardous
Materials) or into or from any property, including, without limitation, the
movement of any Hazardous Materials through the air, soil, surface waters or
ground water.
"Remedial" shall have the meaning as set forth in CERCLA at 42 U.S.C. ss.
9601(24) and/or any other applicable Environmental Laws.
"Removal" shall have the meaning as set forth in CERCLA at 42 U.S.C. ss.
9601(23) and/or any other applicable Environmental Laws.
"Required Lenders" means at any time Lenders owed or holding greater than
50% of the sum of (a) the aggregate principal amount of the Advances outstanding
at such time and (b) the
27
<PAGE>
aggregate Available Amount of all Letters of Credit outstanding at such time,
or, if no such principal amount and no Letters of Credit are outstanding at such
time, Lenders holding greater than 50% of the aggregate of the Term Commitments
and the Revolving Credit Commitments; provided, however, that if any Lender
shall be a Defaulting Lender at such time, there shall be excluded from the
determination of Required Lenders at such time (i) the aggregate principal
amount of the Advances owing to such Lender (in its capacity as a Lender) and
outstanding at such time, and (ii) the aggregate Term Commitment and the
Revolving Credit Commitment of such Lender at such time. For purposes of this
definition, the aggregate principal amount of Swing Line Advances owing to the
Swing Line Bank, Letter of Credit Advances owing to the Issuing Bank and the
Available Amount of each Letter of Credit shall be considered to be owed to the
Revolving Credit Lenders ratably in accordance with their respective Revolving
Credit Commitments.
"Response" shall have the meaning as set forth in CERCLA at 42 U.S.C. ss.
9601(25) and/or any other applicable Environmental Laws.
"Responsible Officer" means, with respect to any Loan Party, the Chief
Executive Officer, the President, the Chief Financial Officer, any Vice
President, the Controller or the Treasurer of such Loan Party.
"Revolving Credit Advance" has the meaning specified in Section 2.1(c).
"Revolving Credit Borrowing" means a borrowing consisting of simultaneous
Revolving Credit Advances of the same Type made by the Revolving Credit Lenders.
"Revolving Credit Commitment" means, with respect to any Revolving Credit
Lender at any time, the amount set forth opposite such Lender's name on Schedule
I hereto under the caption "Revolving Credit Commitment" or, if such Lender has
entered into one or more Assignments and Acceptances, set forth for such Lender
in the Register maintained by the Administrative Agent pursuant to Section
11.7(d) as such Lender's "Revolving Credit Commitment," as such amount may be
reduced at or prior to such time pursuant to Section 2.5.
"Revolving Credit Facility" means, at any time, the aggregate amount of the
Revolving Credit Lenders' Revolving Credit Commitments at such time.
"Revolving Credit Lender" means any Lender that has a Revolving Credit
Commitment.
"Revolving Credit Note" means a promissory note of the Borrower payable to
the order of any Revolving Credit Lender, in substantially the form of Exhibit B
hereto, evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the Revolving Credit Advances made by such Lender.
"Revolving Credit Termination Date" means the earlier of (a) the fifth
anniversary of the Closing Date, and (b) the Termination Date.
28
<PAGE>
"Secured Obligations" has the meaning specified in the Security Agreement.
"Secured Parties" means the Administrative Agent, the Lender Parties, and
the Hedge Banks and the other Persons the Obligations owing to which are or are
purported to be secured by the Collateral under the terms of the Collateral
Documents.
"Security Agreement" has the meaning specified in Section 3.1(a).
"Senior Debt" means, as at any date of determination thereof, the aggregate
outstanding principal balance of (a) all Term Advances, Revolving Credit
Advances (b) all Debt of the Borrower and its Subsidiaries, if any, secured by
purchase money security interests, conditional sale arrangements or other
similar security interests, (c) obligations of the Borrower and its
Subsidiaries, if any, with respect to Capitalized Leases and (d) other Debt of
the Borrower and its Subsidiaries, if any, which is senior to other Debt in the
priority of payment.
"Senior Subordinated Debt" means the 9% Convertible Senior Subordinated
Promissory Notes due December 31, 2004 issued by the Borrower payable to Norton
Herrick, dated December 31, 1998 and any guaranties thereof permitted to be
issued by Subsidiaries of the Company from time to time pursuant to Section
6.2(c)(iv), as the same may be amended, modified or supplemented from time to
time consistent with the terms of this Agreement.
"Senior Subordinated Debt Documents" means all documents entered into or
delivered in connection with the Senior Subordinated Debt, including, without
limitation, the Letter Agreement and the Escrow Agreement.
"Senior Subordinated Security Agreement" means the Security Agreement dated
on or about the date hereof between the Borrower, Classic Radio Holding Corp.
and Classic Radio Acquisition Corp. on the one hand, and Norton Herrick as
holder of the Senior Subordinated Debt.
"Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or
any ERISA Affiliate and no Person other than the Loan Parties and the ERISA
Affiliates or (b) was so maintained and in respect of which any Loan Party or
any ERISA Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the assets of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay such debts
and liabilities as they mature and (d) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
29
<PAGE>
which such Person's property would constitute an unreasonably small capital. The
amount of contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Standby Letter of Credit" means any Letter of Credit other than a Trade
Letter of Credit.
"Subordinated Debt" means any Debt of the Borrower that is subordinated to
the Obligations of the Borrower under the Loan Documents on, and that otherwise
contains, terms and conditions satisfactory to the Administrative Agent and
Required Lenders and shall include, without limitation, the Senior Subordinated
Debt.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits or distributions or
general or limited partnership interests of such partnership, joint venture or
limited liability company or (c) the beneficial interest in such trust or
estate, is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries. Unless otherwise specified herein, the
term Subsidiary shall mean a Subsidiary of the Borrower.
"Subsidiary Guaranty" has the meaning specified Section 3.1(a)(viii).
"Surviving Debt" shall have the meaning specified in Section 4.19(b).
"Swing Line Advance" means an advance made by (a) the Swing Line Bank
pursuant to Section 2.1(e) or (b) any Revolving Credit Lender pursuant to
Section 2.2(b).
"Swing Line Bank" has the meaning specified in the recital of parties to
this Agreement.
"Swing Line Borrowing" means a borrowing consisting of a Swing Line Advance
made by the Swing Line Bank.
"Swing Line Facility" has the meaning specified in Section 2.1(e).
"Swing Line Note" means a promissory note of the Borrower payable to the
order of the Swing Line Bank, in substantially the form of Exhibit I, evidencing
the indebtedness of the Borrower to such Swing Line Bank resulting from the
Swing Line Advances made by such Swing Line Bank.
"Taxes" has the meaning specified in Section 2.12(a).
30
<PAGE>
"Term Advance" has the meaning specified in Section 2.1(a).
"Term Borrowing" means a borrowing consisting of simultaneous Term Advances
of the same Type made by the Term Lenders.
"Term Commitment" means, with respect to any Term Lender at any time, the
amount set forth opposite such Lender's name on Schedule I hereto under the
caption "Term Commitment" or, if such Lender has entered into one or more
Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 11.7(d) as such
Lender's "Term Commitment," as such amount may be reduced at or prior to such
time pursuant to Section 2.5.
"Term Facility" means, at any time, the aggregate amount of the Term
Lenders' Term Commitments at such time.
"Term Lender" means any Lender that has a Term Commitment.
"Term Note" means a promissory note of the Borrower payable to the order of
any Term Lender, in substantially the form of Exhibit C hereto, evidencing the
indebtedness of the Borrower to such Lender resulting from the Term Advance made
by such Lender.
"Termination Date" means the date of termination in whole of the
Commitments pursuant to Section 2.5 or Article 9.
"Trade Letter of Credit" means any Letter of Credit that is issued for the
benefit of a supplier of Inventory to the Borrower or any of its Subsidiaries to
effect payment for such Inventory, the conditions to drawing under which include
the presentation to the Issuing Bank of negotiable bills of lading, invoices and
related documents sufficient, in the judgment of the Issuing Bank, to create a
valid and perfected lien on or security interest in such Inventory, bills of
lading, invoices and related documents in favor of the Issuing Bank.
"Transaction" means the transactions contemplated by the Acquisition
Documents and the Loan Documents.
"Type" refers to the distinction between Advances bearing interest at the
Prime Rate and Advances bearing interest at the Eurodollar Rate.
"Unused Revolving Credit Commitment" means, with respect to any Revolving
Credit Lender, at any time, (a) such Lender's Revolving Credit Commitment at
such time minus (b) the sum of (i) the aggregate principal amount of all
Revolving Credit Advances and Letter of Credit Advances made by such Lender (in
its capacity as a Lender) and outstanding at such time, plus (ii) such Lender's
Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit
outstanding at such time and (B) the aggregate principal amount of all Letter of
Credit Advances made by the Issuing Bank pursuant to Section 2.3(c) and
outstanding at such time.
31
<PAGE>
"Voting Stock" means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA,
that is maintained for employees of any Loan Party or in respect of which any
Loan Party could have liability.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Equity Interests of which shall at the time be owned by
such Person or by one or more Wholly-Owned Subsidiaries of that Person or a
combination thereof.
"Withdrawal Liabilities" has the meaning specified in Part I of Subtitle E
of Title IV of ERISA.
SECTION 1.2 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.3 Accounting Terms. For purposes of this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to such terms in conformity with GAAP. Financial statements and other
information furnished to Lender pursuant to Article 7 shall be prepared in
accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis, subject to the final sentence of this Section 1.3. In the
event any "Accounting Changes" (as defined below) shall occur and such changes
affect financial covenants, standards or terms in this Agreement (other than
changes which have an immaterial effect on such financial covenants, standards
or terms), then the Borrower and the Lenders agree to enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating the
financial condition of the Borrower shall be the same after such Accounting
Changes as if such Accounting Changes had not been made, and until such time as
such an amendment shall have been executed and delivered by the Borrower and the
Lenders, (a) all financial covenants, standards and terms in this Agreement
shall be calculated and/or construed as if such Accounting Changes had not been
made, and (b) the Borrower shall prepare footnotes to each Compliance
Certificate and the financial statements required to be delivered hereunder that
show the differences between the financial statements delivered (which reflect
such Accounting Changes) and the basis for calculating financial covenant
compliance (without reflecting such Accounting Changes), and, in any event, the
terms of the last sentence of this Section 1.3 shall supersede the provisions of
this sentence to the extent of any inconsistency. "Accounting Changes" means:
(a) changes in accounting principles required by GAAP and implemented by
Borrower; (b) changes in accounting principles recommended by Borrower's
certified public accountants; (c) changes in carrying value of the Borrower's or
any of its Subsidiaries' assets, liabilities or equity accounts resulting from
adjustments that, in each case, were applicable to, but not included in, the
32
<PAGE>
Pro Forma Financials; and (d) changes in accounting principles permitted by GAAP
(other than with respect to any changes to the Borrower's method of accounting
for New Member Acquisition Costs or advertising expenses as reflected in the
financial statements of the Borrower and its Subsidiaries provided by the
Borrower pursuant to Section 4.6) which in the reasonable opinion of the
Borrower's management provide for more meaningful disclosure in light of the
business conducted by the Borrower and its Subsidiaries and which changes are
concurred with by Borrower's certified public accountants and which do not
effect a material change. Notwithstanding any other provision in this Agreement,
in any event, for all purposes of reporting and compliance under this Agreement,
New Member Acquisition Costs and advertising expenses shall be treated as
expensed and not amortized regardless of GAAP and notwithstanding treatment by
Columbia House in any other manner, provided that, in complying with the
reporting provisions of this Agreement, including applicable provisions of
Section 7 hereof, the Borrower shall be permitted to deliver its audited or
publicly filed financial statements, in accordance with GAAP (which may require
amortization of advertising expenses and New Member Acquisition Costs) so long
as together therewith the Borrower shall have delivered to the Lenders a
schedule reporting EBITDA and net income as if advertising and New Members
Acquisition Costs were expensed as incurred .
SECTION 1.4 Other Definitional Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in Section 1.1 may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. In this Agreement, words importing any gender include the other
genders; the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
33
<PAGE>
ARTICLE 2
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.1 The Advances.
(a) The Term Advances. Each Term Lender severally agrees, on the terms and
conditions hereinafter set forth, to make a single advance (a "Term Advance") to
the Borrower on the Closing Date in an amount not to exceed such Lender's Term
Commitment at such time. The Term Borrowing shall consist of Term Advances made
simultaneously by the Term Lenders ratably according to their Term Commitments.
Amounts borrowed under this Section 2.1(a) and repaid or prepaid may not be
reborrowed.
(b) [Intentionally left blank].
(c) The Revolving Credit Advances. Each Revolving Credit Lender severally
agrees, on the terms and conditions hereinafter set forth, to make advances
(each a "Revolving Credit Advance") to the Borrower from time to time on any
Business Day during the period from the date hereof until the Revolving Credit
Termination Date in an amount for each such Advance not to exceed such Lender's
Unused Revolving Credit Commitment at such time; provided, however, that no
Revolving Credit Lender shall have any obligation to make a Revolving Credit
Advance under this Section 2.1(c) to the extent such Revolving Credit Advance
would cause the aggregate amount of Revolving Credit Advances outstanding (after
giving effect to any immediate application of the proceeds thereof) to exceed
the Revolving Credit Facility; and provided, further, that during the respective
periods described below no Revolving Advance, Swing Line Advance or Letter of
Credit Advance shall be made or remain outstanding and no Letter of Credit shall
be issued if, after giving effect thereto, the outstanding principal amount of
all Revolving Credit Advances, SwingLine Advances, Letter of Credit Advances and
Available Amounts when taken together with the then outstanding principal
balance of all of the Term Advances, would exceed the respective amounts
described below:
Maximum Aggregate
Period Outstanding
- - --------------------------------------- ------------------------------------
Day Following Closing Date through (and $30,000,000
including) March 30, 1999
34
<PAGE>
March 31, 1999 through (and including) the $31,500,000
date of delivery of the June 30, 1999
quarterly Compliance Certificate
After delivery of the June 30, 1999 Maximum Amount that would
quarterly Compliance Certificate not cause violation of
any of the covenants set
forth in Article 8.
Each Revolving Credit Borrowing shall be in an aggregate amount of $500,000 or
an integral multiple of $100,000 (other than, in each case, a Borrowing the
proceeds of which shall be used solely to repay or prepay in full outstanding
Swing Line Advances or outstanding Letter of Credit Advances) and shall consist
of Revolving Credit Advances made simultaneously by the Revolving Credit Lenders
ratably according to their Revolving Credit Commitments. Within the limits of
each Revolving Credit Lender's Unused Revolving Credit Commitment in effect from
time to time, the Borrower may borrow, repay and reborrow Revolving Credit
Advances.
(d) [Intentionally left blank].
(e) The Swing Line Advances. The Borrower may request the Swing Line Bank
to make, and the Swing Line Bank may, if in its discretion it elects to do so,
make, on the terms and conditions hereinafter set forth, Swing Line Advances to
the Borrower from time to time on any Business Day during the period from the
date hereof until the Revolving Credit Termination Date (i) in an aggregate
amount not to exceed at any time outstanding $1,000,000 (the "Swing Line
Facility") and (ii) in an amount for each such Swing Line Borrowing not to
exceed the aggregate of the Unused Revolving Credit Commitments of the Revolving
Credit Lenders at such time. No Swing Line Advance shall be used for the purpose
of funding the payment of principal of any other Swing Line Advance. Each Swing
Line Borrowing shall be made as a Prime Rate Advance. Within the limits of the
Swing Line Facility and within the limits referred to in clause (ii) above, so
long as the Swing Line Bank, in its discretion, elects to make Swing Line
Advances, the Borrower may borrow and reborrow under this Section 2.1(e) and may
repay or prepay the Swing Line Advances at such times prior to the Termination
Date, and in such integral multiples, as the Borrower may elect.
(f) Letters of Credit. The Issuing Bank agrees, on the terms and conditions
hereinafter set forth, to issue letters of credit for the account of the
Borrower from time to time on any Business Day during the period from the
Closing Date until sixty (60) days before the Revolving Credit Termination Date
(i) in an aggregate Available Amount for all Letters of Credit not to exceed at
any time the Issuing Bank's Letter of Credit Commitment at such time and (ii) in
an Available Amount for each such Letter of Credit not to exceed an amount equal
to the Unused Revolving Credit Commitments of the Revolving Credit Lenders at
such time. No Letter of Credit shall have an expiration date (including all
rights of the Borrower or the beneficiary to require renewal) later than (A) the
earlier of sixty (60) days before the Revolving Credit Termination Date, (B) in
the case of a Standby Letter of Credit, 365 days after the date of
35
<PAGE>
issuance thereof and (C) in the case of a Trade Letter of Credit, 180 days after
the date of issuance thereof. The foregoing notwithstanding, any Standby Letter
of Credit may, by its terms, be renewable annually upon notice (a "Notice of
Renewal") given to the Issuing Bank and the Administrative Agent on or prior to
any date for notice of renewal set forth in such Letter of Credit (but in any
event at least five (5) Business Days prior to the date of the proposed renewal
of such Standby Letter of Credit) and upon fulfillment of the applicable
conditions set forth in Article 3 unless such Issuing Bank shall have notified
the Borrower (with a copy to the Administrative Agent) on or prior to the date
for notice of termination set forth in such Letter of Credit (but in any event
at least thirty (30) Business Days prior to the date of automatic renewal) of
its election not to renew such Standby Letter of Credit (a "Notice of
Termination"); provided that the terms of each Standby Letter of Credit that is
automatically renewable annually shall not permit the expiration date (after
giving effect to any renewal) of such Standby Letter of Credit in any event to
be extended to a date later than sixty (60) days before the Revolving Credit
Termination Date. If either a Notice of Renewal is not given by the Borrower or
a Notice of Termination is given by the Issuing Bank pursuant to the immediately
preceding sentence, such Standby Letter of Credit shall expire on the date on
which it otherwise would have been automatically renewed; provided, however,
that even in the absence of receipt of a Notice of Renewal, the Issuing Bank
may, in its discretion unless instructed to the contrary by the Administrative
Agent or the Borrower, deem that a Notice of Renewal had been timely delivered
and, in such case, a Notice of Renewal shall be deemed to have been so delivered
for all purposes under this Agreement. Within the limits of the Letter of Credit
Facility, and subject to the limits referred to above, the Borrower may request
the issuance of Letters of Credit under this Section 2.1(f), repay any Letter of
Credit Advances resulting from drawings under Letters of Credit pursuant to
Section 2.3(c) and request the issuance of additional Letters of Credit under
this Section 2.1(f).
SECTION 2.2 Making the Advances. (a) Except as otherwise provided in
Section 2.3 or, with respect to Swing Line Advances, in Section 2.2(b), each
Borrowing shall be made on notice, given not later than 11:00 A.M. (New York
time) on the third Business Day prior to the date of the proposed Borrowing in
the case of Eurodollar Rate Advances and on the first Business Day prior to the
date of the proposed Borrowing in the case of Prime Rate Advances by the
Borrower to the Administrative Agent, which shall give to each appropriate
Lender prompt notice thereof by telex or telecopier. Each such notice of a
Borrowing (a "Notice of Borrowing") may be by telephone, confirmed immediately
in writing, or telex or telecopier in substantially the form of Exhibit D
hereto, specifying therein the requested (i) date of such Borrowing, (ii)
Facility under which such Borrowing is to be made, (iii) Type of Advances
comprising such Borrowing, (iv) aggregate amount of such Borrowing and (v) in
the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest
Period for each such Advance. Each appropriate Lender shall, before 11:00 A.M.
(New York time) on the date of such Borrowing, make available for the account of
its Applicable Lending Office to the Administrative Agent at the Administrative
Agent's Account, in same day funds, such Lender's ratable portion of such
Borrowing in accordance with the respective Commitments under the applicable
Facility of such Lender and the other appropriate Lenders. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article 3, the Administrative Agent
36
<PAGE>
will make such funds available to the Borrower by crediting the Borrower's
Account; provided, however, that in the case of any Revolving Credit Borrowing,
the Administrative Agent shall first make a portion of such funds equal to the
aggregate principal amount of any Swing Line Advances and Letter of Credit
Advances made by the Swing Line Bank, the Issuing Bank and by any other
Revolving Credit Lender and outstanding on the date of such Revolving Credit
Borrowing, plus interest accrued and unpaid thereon to and as of such date,
available to the Swing Line Bank, the Issuing Bank and such other Revolving
Credit Lenders for repayment of such Swing Line Advances and Letter of Credit
Advances.
(b) Each Swing Line Borrowing shall be made either (x) on notice, given not
later than 11:00 A.M. (New York time) on the date of the proposed Swing Line
Borrowing, by the Borrower to the Swing Line Bank and the Administrative Agent
or (y) pursuant to other arrangements, including, by way of example and not of
limitation, arrangements for daily repayments and borrowings on each Business
Day, which are satisfactory in form and substance to the Swing Line Bank, the
Administrative Agent and the Borrower. Each notice of a Swing Line Borrowing
pursuant to clause (x) in the immediately preceding sentence (a "Notice of Swing
Line Borrowing") shall be by telephone, confirmed immediately in writing, or
telex or telecopier, specifying therein the requested (i) date of such
Borrowing, (ii) amount of such Borrowing and (iii) maturity of such Borrowing
(which maturity shall be no later than the seventh day after the requested date
of such Borrowing). If, in its discretion, it elects to make a requested Swing
Line Advance, the Swing Line Bank will make the amount thereof available to the
Administrative Agent at the Administrative Agent's Account, in same day funds.
After the Administrative Agent's receipt of such funds and upon fulfillment of
the applicable conditions set forth in Article 3, the Administrative Agent will
make such funds available to the Borrower by crediting the Borrower's Account.
Upon written demand by the Swing Line Bank, with a copy of such demand to the
Administrative Agent, each other Revolving Credit Lender shall purchase from the
Swing Line Bank, and the Swing Line Bank shall sell and assign to each such
other Revolving Credit Lender, such other Lender's Pro Rata Share of all
outstanding Swing Line Advances as of the date of such demand, by deposit to the
Administrative Agent's Account, in same day funds, an amount equal to the
portion of the outstanding principal amount of Swing Line Advances to be
purchased by such Lender. The Borrower hereby agrees to each such sale and
assignment. Each Revolving Credit Lender agrees to purchase its Pro Rata Share
of outstanding Swing Line Advances on (i) the Business Day on which demand
therefor is made by the Swing Line Bank; provided that notice of such demand is
given not later than 3:00 P.M. (New York time) on such Business Day, or (ii) the
first Business Day next succeeding such demand if notice of such demand is given
after such time. Upon any such assignment by the Swing Line Bank to any other
Revolving Credit Lender of a portion of a Swing Line Advance, the Swing Line
Bank represents and warrants to such other Lender that the Swing Line Bank is
the legal and beneficial owner of such interest being assigned by it, but makes
no other representation or warranty and assumes no responsibility with respect
to such Swing Line Advance, the Loan Documents or any Loan Party. If and to the
extent that any Revolving Credit Lender shall not have so made the amount of
such Swing Line Advance available to the Administrative Agent, such Revolving
Credit Lender agrees to pay to the Administrative Agent, for the account of the
Swing Line Bank, forthwith on demand such amount together with interest thereon,
for each day
37
<PAGE>
from the date of demand by the Swing Line Bank until the date such amount is
paid to the Administrative Agent, at the Federal Funds Rate. If such Lender
shall pay to the Administrative Agent such amount for the account of the Swing
Line Bank on any Business Day, such amount so paid in respect of principal shall
constitute a Swing Line Advance made by such Lender on such Business Day for
purposes of this Agreement, and the outstanding principal amount of the Swing
Line Advance made by the Swing Line Bank shall be reduced by such amount on such
Business Day.
(c) Anything in subsection (a) above to the contrary notwithstanding, (i)
the Borrower may not select Eurodollar Rate Advances if the obligation of the
appropriate Lenders to make Eurodollar Rate Advances shall then be suspended
pursuant to Section 2.9 or Section 2.10, and (ii) the Eurodollar Rate Advances
made on any date may not be outstanding as part of more than ten (10) separate
Borrowings.
(d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be
irrevocable and binding on the Borrower. In the case of any Borrowing that the
related Notice of Borrowing specifies is to be comprised of Eurodollar Rate
Advances, the Borrower shall indemnify each appropriate Lender against any loss,
cost or expense incurred by such Lender as a result of any failure to fulfill on
or before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article 3, including, without limitation, any
loss (including loss of anticipated profits as reasonably determined by such
Lender), cost or expense incurred by reason of the liquidation or redeployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Borrowing when such Advance, as a result of
such failure, is not made on such date.
(e) Unless the Administrative Agent shall have received notice from an
appropriate Lender prior to the date of any Borrowing under a Facility under
which such Lender has a Commitment that such Lender will not make available to
the Administrative Agent such Lender's ratable portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) or (b) of this Section 2.2 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such ratable portion available to the Administrative Agent, such Lender and
the Borrower severally agree to repay or pay to the Administrative Agent
forthwith on demand such corresponding amount and to pay interest thereon, for
each day from the date such amount is made available to the Borrower until the
date such amount is repaid or paid to the Administrative Agent, at (i) in the
case of the Borrower, the interest rate applicable at such time under Section
2.7 to Advances comprising such Borrowing and (ii) in the case of such Lender,
the Federal Funds Rate. If any Lender so fails to make its ratable portion
available to the Administrative Agent, the Administrative Agent shall use its
best efforts to obtain such ratable portion from such Lender and, upon receipt
of such amount, shall promptly forward it to Borrower, provided that the
foregoing shall not be deemed to change the Administrative Agent's obligations
hereunder, or to cause the several obligations of the Lenders to become joint
obligations. If such Lender shall pay to the Administrative Agent
38
<PAGE>
such corresponding amount, such amount so paid shall constitute such Lender's
Advance as part of such Borrowing for all purposes.
(f) The failure of any Lender to make the Advance to be made by it as part
of any Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make its Advance on the date of such Borrowing, but no Lender shall
be responsible for the failure of any other Lender to make the Advance to be
made by such other Lender on the date of any Borrowing.
SECTION 2.3 Issuance of and Drawings and Reimbursement Under Letters of
Credit.
(a) Request for Issuance. Each Letter of Credit shall be issued upon
notice, given not later than 11:00 A.M. (New York time) on the fifth Business
Day prior to the date of the proposed issuance of such Letter of Credit, by the
Borrower to the Issuing Bank, which shall give to the Administrative Agent and
each Revolving Credit Lender prompt notice thereof by telex or telecopier. Each
such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be
by telephone, confirmed immediately in writing, or telex or telecopier,
specifying therein the requested (i) date of such issuance (which shall be a
Business Day), (ii) Available Amount of such Letter of Credit, (iii) expiration
date of such Letter of Credit, (iv) name and address of the beneficiary of such
Letter of Credit and (v) form of such Letter of Credit, and shall be accompanied
by such application and agreement for letter of credit as the Issuing Bank may
specify to the Borrower for use in connection with such requested Letter of
Credit (a "Letter of Credit Agreement"). If the requested form of such Letter of
Credit is reasonably acceptable to the Issuing Bank, the Issuing Bank will, upon
fulfillment of the applicable conditions set forth in Article 3, make such
Letter of Credit available to the Borrower at its office referred to in Section
11.2 or as otherwise agreed with the Borrower in connection with such issuance.
In the event and to the extent that the provisions of any such Letter of Credit
Agreement shall conflict with this Agreement, the provisions of this Agreement
shall govern.
(b) Letter of Credit Reports. The Issuing Bank shall furnish (i) to the
Administrative Agent on the first Business Day of each week a written report
summarizing issuance and expiration dates of Letters of Credit issued during the
previous week and drawings during such week under all Letters of Credit, (ii) to
the Administrative Agent, the Borrower and each Revolving Credit Lender on the
first Business Day of each month a written report summarizing issuance and
expiration dates of Letters of Credit issued during the preceding month and
drawings during such month under all Letters of Credit and (iii) to the
Administrative Agent, the Borrower and each Revolving Credit Lender on the first
Business Day of each calendar quarter a written report setting forth the average
daily aggregate Available Amount during the preceding calendar quarter of all
Letters of Credit.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Letter of Credit Advance which
shall be a Prime Rate Advance in the amount of such draft. Each of the Borrower,
the Administrative Agent and each Revolving Credit Lender
39
<PAGE>
hereby acknowledges and agrees that Letter of Credit Advances may be made, or
deemed made, by the Issuing Bank in respect of any Letter of Credit and to
participate in all Letter of Credit Advances made hereunder as provided herein.
Upon written demand by the Issuing Bank, with a copy of such demand to the
Administrative Agent, each Revolving Credit Lender shall purchase from the
Issuing Bank, and the Issuing Bank shall sell and assign to each such Revolving
Credit Lender, such Lender's Pro Rata Share of such outstanding Letter of Credit
Advance as of the date of such purchase, by making available (for the account of
its Applicable Lending Office) to the Administrative Agent (for the account of
the Issuing Bank), by deposit to the Administrative Agent's Account, in same day
funds, an amount equal to the portion of the outstanding principal amount of
such Letter of Credit Advance to be purchased by such Lender. Promptly after
receipt thereof, the Administrative Agent shall transfer such funds to the
Issuing Bank. The Borrower hereby agrees to each such sale and assignment. Each
Revolving Credit Lender agrees to purchase its Pro Rata Share of an outstanding
Letter of Credit Advance on (i) the Business Day on which demand therefor is
made by the Issuing Bank; provided that notice of such demand is given not later
than 11:00 A.M. (New York time) on such Business Day or (ii) the first Business
Day next succeeding such demand if notice of such demand is given after such
time. Upon any such assignment by the Issuing Bank to any other Revolving Credit
Lender of a portion of a Letter of Credit Advance, the Issuing Bank represents
and warrants to such other Lender that the Issuing Bank is the legal and
beneficial owner of such interest being assigned by it, free and clear of any
liens, but makes no other representation or warranty and assumes no
responsibility with respect to such Letter of Credit Advance, the Loan Documents
or any Loan Party. If and to the extent that any Revolving Credit Lender shall
not have so made the amount of such Letter of Credit Advance available to the
Administrative Agent, such Revolving Credit Lender agrees to pay to the
Administrative Agent forthwith on demand such amount together with interest
thereon, for each day from the date of demand by the Issuing Bank until the date
such amount is paid to the Administrative Agent, at the Federal Funds Rate for
its account or the account of the Issuing Bank, as applicable. If such Lender
shall pay to the Administrative Agent such amount for the account of the Issuing
Bank on any Business Day, such amount so paid in respect of principal shall
constitute a Letter of Credit Advance made by such Lender on such Business Day
for purposes of this Agreement, and the outstanding principal amount of the
Letter of Credit Advance made by the Issuing Bank shall be reduced by such
amount on such Business Day.
(d) Failure to Make Letter of Credit Advances. The failure of any Lender to
make any Letter of Credit Advance to be made by it on the date specified in
Section 2.3(c) shall not relieve any other Lender of its obligation hereunder to
make its Letter of Credit Advance on such date, but no Lender shall be
responsible for the failure of any other Lender to make the Letter of Credit
Advance to be made by such other Lender on such date.
SECTION 2.4 Repayment of Advances.
(a) Term Advances. The Borrower shall repay to the Administrative Agent for
the ratable account of the Term Lenders the aggregate outstanding principal
amount of the Term Advances on the following dates in the amounts indicated
(which amounts shall be reduced as
40
<PAGE>
a result of the application of prepayments in accordance with the order of
priority set forth in Section 2.6):
Date Amount
- - --------------------------------------------------------------------------------
Each of March 31, 1999, June 30, 1999, $250,000
September 30, 1999 and December 31, 1999
Each of March 31, 2000, June 30, 2000, 750,000
September 30, 2000 and December 31, 2000
Each of March 31, 2001, June 30, 2001, 1,250,000
September 30, 2001 and December 31, 2001
Each of March 31, 2002, June 30, 2002, 1,750,000
September 30, 2002 and December 31, 2002
Each of March 31, 2003, June 30, 2003, 2,250,000
September 30, 2003 and December 31, 2003
- - --------------------------------------------------------------------------------
provided, however, that the final principal installment shall be in an amount
equal to the aggregate principal amount of the Term Advances outstanding on such
date.
(b) [Intentionally left blank.]
(c) Revolving Credit Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Revolving Credit Lenders on
the Revolving Credit Termination Date the aggregate principal amount of the
Revolving Credit Advances then outstanding.
(d) [Intentionally left blank.]
(e) Swing Line Advances. The Borrower shall repay to the Administrative
Agent for the account of the Swing Line Bank and each other Revolving Credit
Lender that has made a Swing Line Advance the outstanding principal amount of
each Swing Line Advance made by each of them on the earlier of the maturity date
for such Swing Line Advance (which maturity date shall be no later than the
seventh day after the date of such Swing Line Advance) and the Revolving Credit
Termination Date.
(f) Letter of Credit Advances. (i) The Borrower shall repay to the
Administrative Agent for the account of the Issuing Bank and each other
Revolving Credit Lender that has made a Letter of Credit Advance on the earlier
of demand made by the Administrative Agent to the Borrower and the Revolving
Credit Termination Date the outstanding principal amount of each Letter of
Credit Advance made by each of them.
41
<PAGE>
(ii) The Obligations of the Borrower under this Agreement, any Letter of
Credit Agreement and any other agreement or instrument relating to any Letter of
Credit shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement, such Letter of Credit Agreement and
such other agreement or instrument under all circumstances, including, without
limitation, the following circumstances:
(A) any lack of validity or enforceability of any Loan Document, any Letter
of Credit Agreement, any Letter of Credit or any other agreement or instrument
relating to any of the foregoing (all of the foregoing being, collectively, the
"L/C Related Documents");
(B) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations of the Borrower in respect of any L/C
Related Document or any other amendment or waiver of or any consent to departure
from all or any of the L/C Related Documents;
(C) the existence of any claim, set-off, defense or other right that the
Borrower may have at any time against any beneficiary or any transferee of a
Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank, or any other Person, whether in
connection with the transactions contemplated by the L/C Related Documents or
any unrelated transaction;
(D) any statement or any other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect, except where the
Issuing Bank acts with gross negligence or willful misconduct in accepting an
insufficient such statement or document; or
(E) any exchange, release or non-perfection of any Collateral or other
collateral, or any release or amendment or waiver of or consent to departure
from any Subsidiary Guaranty or any other guarantee, for all or any of the
Obligations of the Borrower in respect of the L/C Related Documents.
SECTION 2.5 Termination or Reduction of the Commitments.
(a) Optional. The Borrower may, upon at least three Business Days' notice
to the Administrative Agent, terminate in whole or reduce in part the unused
portions of the Unused Revolving Credit Commitments; provided, however, that
each partial reduction of a Facility (i) shall be in an aggregate amount of
$250,000 or an integral multiple of $100,000 in excess thereof, and (ii) shall
be made ratably among the appropriate Lenders in accordance with their
Commitments with respect to such Facility.
(b) Mandatory. (i) On the date of the Term Borrowing, after giving effect
to such Term Borrowing, and from time to time thereafter upon each repayment or
prepayment of the
42
<PAGE>
Term Advances, the aggregate Term Commitments of the Term Lenders shall be
automatically and permanently reduced, on a pro rata basis, by an amount equal
to the amount by which the aggregate Term Commitments immediately prior to such
reduction exceed the aggregate unpaid principal amount of the Term Advances then
outstanding; provided, however, that the Term Commitments shall terminate, and
all Advances made thereunder shall be repaid in full, no later than December 31,
2003.
(ii) [Intentionally left blank].
(iii) [Intentionally left blank].
(iv) [Intentionally left blank].
(v) [Intentionally left blank].
(vi) In the event the Closing Date shall not have occurred by December 31,
1998, then all of the Commitments shall be automatically terminated and this
Agreement shall be of no further force or effect.
SECTION 2.6 Prepayments.
(a) Optional. The Borrower may, without premium or penalty, upon at least
one (1) Business Day's notice in the case of Prime Rate Advances and three (3)
Business Days' notice in the case of Eurodollar Rate Advances, in each case to
the Administrative Agent stating the proposed date and aggregate principal
amount of the prepayment, and if such notice is given, the Borrower shall,
prepay the outstanding aggregate principal amount of the Advances, in whole or
ratably in part, together with accrued interest to the date of such prepayment
on the aggregate principal amount prepaid; provided, however, that (i) each
partial prepayment shall be in an aggregate principal amount of $500,000 or an
integral multiple of $100,000 in excess thereof and (ii) no such prepayment of a
Eurodollar Rate Advance shall be made other than on the last day of an Interest
Period therefor without payment by the Borrower of the amounts provided for in
Section 11.4(c). Each prepayment made pursuant to this Section 2.6(a) shall, at
the Borrower's option, be applied to either (i) repay the Facilities in the
following manner: first, to prepay Letter of Credit Advances then outstanding
until such Advances are paid in full; second, to prepay Swing Line Advances then
outstanding until such Advances are paid in full; and third, to prepay Revolving
Credit Advances then outstanding until such Revolving Credit Advances are paid
in full; or (ii) be applied to repay the Facilities in the following manner:
first, ratably to the Term Facility, and ratably to each unpaid installment of
principal of the Term Facility until such installments are paid in full; second,
to prepay Letter of Credit Advances then outstanding until such Advances are
paid in full; third, to prepay Swing Line Advances then outstanding until such
Advances are paid in full; fourth, to prepay Revolving Credit Advances then
outstanding until such Revolving Credit Advances are paid in full; and fifth,
deposited in the L/C Cash Collateral Account to cash collateralize 100% of the
Available Amount of the Letters of Credit then outstanding. Upon the drawing of
any Letter of Credit for which funds are on deposit in the L/C
43
<PAGE>
Cash Collateral Account, such funds shall be applied to reimburse the Issuing
Bank or the Revolving Credit Lenders, as applicable.
(b) Mandatory. (i) Within ninety (90) days following the end of each Fiscal
Year in which the ratio of Consolidated Debt to EBITDA at the end of such Fiscal
Year exceeds 4.25:1, the Borrower shall execute and deliver to the
Administrative Agent a certificate of the Borrower's Chief Executive Officer or
Chief Financial Officer demonstrating its calculation of Excess Cash Flow for
such Fiscal Year along with a prepayment of the then outstanding Advances equal
to seventy-five percent (75%) of the annual Excess Cash Flow; provided, however,
that (A) if the ratio of Consolidated Debt to EBITDA, measured at the end of and
for such Fiscal Year of the Borrower, for such Fiscal Year of the Borrower, is
less than or equal to 4.25:1 but greater than 3.25:1, then the required
prepayment of the then outstanding Advances shall be in the amount of fifty
percent (50%) of the annual Excess Cash Flow for such Fiscal Year rather than
seventy-five percent (75%) of such annual Excess Cash Flow; and (B) without
limiting the preceding terms of this clause (i) in any event the Borrower shall
deliver a prepayment of the then outstanding Advances equal to no less than 50%
of the annual Excess Cash Flow payable in 2000 (in respect of the Fiscal Year
ended in 1999) and also payable in 2001 (in respect of the Fiscal Year ended in
2000) even if the ratio of Consolidated Debt to EBITDA for the Fiscal Year then
ended is less than 3.25:1.
(ii) Upon receipt by any Loan Party or any of its Subsidiaries of Net Cash
Proceeds from any Asset Disposition, the Borrower shall prepay the then
outstanding Advances in an amount equal to one-hundred percent (100%) of such
Net Cash Proceeds payable concurrently with consummation of such Asset
Disposition; provided that no such prepayment need be made (1) unless the Net
Proceeds from any single Asset Disposition or series of related Asset
Dispositions exceed $100,000 (in which case a prepayment shall be made in the
amount of the entire Asset Disposition) or (2) until the cumulative Net Proceeds
from all Asset Dispositions by the Borrower in any particular fiscal year exceed
$500,000 (in which case a prepayment shall be made in the amount of the Net
Proceeds from the specific Asset Disposition (or portion thereof) causing the
limit to be exceeded), except that the terms of this Section shall not be
applicable with respect to Asset Dispositions, not exceeding $500,000 in any
single fiscal year by the Borrower or any Subsidiary if the Net Proceeds
therefrom are reinvested in fixed assets (for use in its business or, with
respect to the Borrower, the business of the Subsidiaries) within 180 days of
such Asset Disposition, provided that any such Net Proceeds not so reinvested
shall be used to prepay the Advances on the 181st day.
(iii) Within fifteen (15) days after receipt by any Loan Party or any of
its Subsidiaries of Net Cash Proceeds from any Debt Issuance or Equity Issuance,
the Borrower shall prepay the then outstanding Advances in an amount equal to
(A) one hundred percent (100%) of such Net Cash Proceeds, with respect to any
Debt Issuance and (B) seventy-five (75%) of such Net Cash Proceeds, with respect
to any Equity Issuance.
(iv) Within fifteen (15) days after receipt of Net Cash Proceeds by any
Loan Party or any of its Subsidiaries from any Extraordinary Receipt received by
or paid to or for the
44
<PAGE>
account of any Loan Party or any of its Subsidiaries and not otherwise included
in clause (i), (ii) or (iii) above, the Borrower shall prepay the then
outstanding Advances in an amount equal to one hundred percent (100%) of such
Net Cash Proceeds in excess of $500,000 in the aggregate.
(v) Each prepayment made pursuant to clause (i), (ii), (iii) or (iv) shall
be subject to the provisions of Section 11.4(c) and shall be applied to prepay
the Facilities in the following manner: first, ratably to the Term Facility, and
ratably to each unpaid installment of principal of the Term Facility until such
installments are paid in full; second, to prepay Letter of Credit Advances then
outstanding until such Advances are paid in full; third, to prepay Swing Line
Advances then outstanding until such Advances are paid in full; fourth, to
prepay Revolving Credit Advances then outstanding until such Revolving Credit
Advances are paid in full; and fifth, deposited in the L/C Cash Collateral
Account to cash collateralize 100% of the Available Amount of the Letters of
Credit then outstanding. Upon the drawing of any Letter of Credit for which
funds are on deposit in the L/C Cash Collateral Account, such funds shall be
applied to reimburse the Issuing Bank or the Revolving Credit Lenders, as
applicable. The amount remaining (if any) after the required prepayment of the
Advances then outstanding and the 100% cash collateralization of the aggregate
Available Amount of Letters of Credit then outstanding (the sum of such
prepayment amounts, cash collateralization amounts and remaining amount being
referred to herein as the "Reduction Amount") may be retained by the Borrower.
Upon the drawing of any Letter of Credit for which funds are on deposit in the
L/C Cash Collateral Account, such funds shall be applied to reimburse the
Issuing Bank or the Revolving Credit Lenders, as applicable. Upon the
termination of all of the Commitments and the indefeasible payment in full of
all Obligations, including, without limitation, termination or expiration of all
Letters of Credit and the indefeasible payment in full of all Obligations in
respect of all Letters of Credit, then all amounts remaining on deposit in the
L/C Cash Collateral Account shall be returned to the Borrower.
(vi) The Borrower shall, within fifteen (15) days following the end of each
month in each Fiscal Year, pay to the Administrative Agent for deposit in the
L/C Cash Collateral Account an amount sufficient to cause the aggregate amount
on deposit in such Account to equal the amount by which the aggregate Available
Amount of all Letters of Credit then outstanding exceeds the Letter of Credit
Facility on such Business Day.
(vii) At any time that the aggregate amount of Revolving Credit Advances
outstanding exceeds the Revolving Credit Facility, the Borrower shall
immediately repay Revolving Credit Advances to the extent necessary to reduce
the principal balance of Revolving Credit Borrowings to an amount equal to or
less than the Revolving Credit Facility.
(viii) The foregoing notwithstanding, the provisions of this Section 2.6(b)
shall not be construed to permit any Equity Issuance, Debt Issuance or Asset
Disposition otherwise prohibited under the terms of this Agreement.
45
<PAGE>
(c) Application of Prepayments to the Term Facility. Upon receipt of any
amounts to be applied to the prepayment in respect of the Term Facility pursuant
to this Section 2.6, the Administrative Agent shall apply such amounts to the
prepayment of the Term Advances ratably.
SECTION 2.7 Interest.
(a) Scheduled Interest. The Borrower shall pay to the Administrative Agent,
for the benefit of the Lenders, interest on the unpaid principal amount of each
Advance owing to each Lender from the date of such Advance until such principal
amount shall be paid in full, at the following rates per annum:
(i) Prime Rate Advances. During such periods as such Advance is a Prime
Rate Advance, a rate per annum equal at all times to the sum of (x) the Prime
Rate in effect from time to time plus (y) the Applicable Margin for such Advance
in effect from time to time, payable in arrears quarterly on the last day of
each March, June, September and December, commencing March 31, 1999, during such
periods and on the date such Prime Rate Advance shall be Converted or paid in
full.
(ii) Eurodollar Rate Advances. During such periods as such Advance is a
Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of (x) the Eurodollar Rate for such
Interest Period for such Advance plus (y) the Applicable Margin for such Advance
in effect on the first day of such Interest Period, payable in arrears on the
last day of such Interest Period and, if such Interest Period has a duration of
more than three months, on each day that occurs during such Interest Period
every three months from the first day of such Interest Period and on the date
such Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of a
Default, the Borrower shall pay interest on (i) the unpaid principal amount of
each Advance owing to each Lender, payable in arrears on the dates referred to
in clause (a)(i) or (a)(ii) above and on demand, at a rate per annum equal at
all times to 2% per annum above the rate per annum required to be paid on such
Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest
extent permitted by law, the amount of any interest, fee or other amount payable
hereunder that is not paid when due (whether at the stated maturity, by
acceleration or otherwise), from the date such amount shall be due until such
amount shall be paid in full, payable in arrears on the date such amount shall
be paid in full and on demand, at a rate per annum equal at all times to 2% per
annum above the rate per annum required to be paid, in the case of interest, on
the Type of Advance on which such interest has accrued pursuant to clause (a)(i)
or (a)(ii) above, and, in all other cases, on Prime Rate Advances pursuant to
clause (a)(i) above.
(c) Notice of Interest Rate. Promptly after receipt of a Notice of
Borrowing pursuant to Section 2.2(a), the Administrative Agent shall give notice
to the Borrower and each appropriate Lender of the applicable interest rate
determined by the Administrative Agent.
46
<PAGE>
(d) Limitations on Interest. All agreements between and among the Borrower,
any Guarantors, any other Loan Party and the Lenders and/or the Administrative
Agent are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the Indebtedness
evidenced hereby or otherwise, shall the amount paid or agreed to be paid to any
Lender for the use or the forbearance of the Indebtedness incurred hereunder
exceed the maximum permissible under applicable law. As used herein the term
"applicable law" shall mean the law in effect as of the date hereof; provided,
however, that in the event there is a change in the law which results in a
higher permissible rate of interest, then this Agreement and the Notes issued
hereunder shall be governed by such new law as of its effective date. In this
regard it is expressly agreed that it is the intent of the Borrower, the Lenders
and the Administrative Agent in execution, delivery and acceptance of this
Agreement to contract in strict compliance with the laws of the State of New
York from time to time in effect. If under any circumstances whatsoever,
fulfillment of any provision hereof or of any of the Loan Documents at the time
performance of such provision shall be due shall involve transcending the limits
of such validity prescribed by applicable law, then the obligation to be
fulfilled shall automatically be reduced to the limits of such validity, and if
under or from any circumstance whatsoever the Administrative Agent or any Lender
should ever receive as interest any amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced by the Notes issued hereunder and
not to the payment of interest. This provision shall control every other
provision of all agreements between and among the Borrower, any Guarantors, any
other Loan Party, the Administrative Agent and the Lenders.
SECTION 2.8 Fees.
(a) Commitment Fees. The Borrower shall pay to the Administrative Agent,
for the account of the Lenders, commitment fees, from the Closing Date in the
case of each Initial Lender and from the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender, until the Revolving Credit Termination Date payable in
arrears quarterly on the last Business Day of each March, June, September and
December, commencing March 31, 1999, and on the Revolving Credit Termination
Date at a rate per annum equal to 0.50% per annum on the average daily Unused
Revolving Credit Commitment of such Lender. For purposes of this clause (a),
Swing Line Advances shall not constitute utilization of the Revolving Credit
Commitments of the Revolving Credit Lenders.
(b) [Intentionally left blank.]
(c) Letter of Credit Fees. (i) The Borrower shall pay to the Administrative
Agent for the account of each Revolving Credit Lender a commission, payable in
arrears quarterly on the last Business Day of each March, June, September and
December, commencing March 31, 1999 and on the earliest to occur of the full
drawing, expiration, termination or cancellation of any such Letter of Credit
and on the Revolving Credit Termination Date, on such Lender's Pro Rata Share of
the average daily aggregate Available Amount during such quarter of all Letters
of
47
<PAGE>
Credit outstanding from time to time at the rate per annum equal to the
Applicable Margin then in effect for Eurodollar Advances under the Revolving
Credit Facility.
(ii) In addition to the foregoing fees described in (i) above, the Borrower
shall pay to the Issuing Bank, for its own account, (x) on the Available Amount
of each Letter of Credit outstanding, a fronting fee, for the period from the
date of issuance of such Letter of Credit to and including the termination
thereof, computed at the rate of one quarter of one percent (1/4%) per annum,
payable in arrears quarterly on the last Business Day of each March, June,
September and December of each year and on the date of termination thereof and
(y) transfer fees and other customary fees and charges in connection with the
issuance or administration of each Letter of Credit as the Borrower and the
Issuing Bank shall agree.
(d) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account such fees as may from time to time be
agreed between the Borrower and the Administrative Agent.
SECTION 2.9 Conversion of Advances.
(a) Optional. The Borrower may on any Business Day, upon notice given to
the Administrative Agent not later than 11:00 A.M. (New York time) on the third
Business Day prior to the date of the proposed Conversion and subject to the
provisions of Sections 2.7 and 2.10, Convert all or any portion of the Advances
of one Type comprising the same Borrowing into Advances of the other Type;
provided, however, that any Conversion of Eurodollar Rate Advances into Prime
Rate Advances shall be made only on the last day of an Interest Period for such
Eurodollar Rate Advances unless the Borrower pays the amounts, if any, provided
for in Section 11.4(c), any Conversion of Prime Rate Advances into Eurodollar
Rate Advances shall be in an amount not less than the minimum amount specified
in Section 2.1(c), no Conversion of any Advances shall result in more separate
Borrowings than permitted under Section 2.2(c) and each Conversion of Advances
comprising part of the same Borrowing under any Facility shall be made ratably
among the appropriate Lenders in accordance with their Commitments under such
Facility. Each such notice of Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Advances to
be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for such Advances. Each notice of
Conversion shall be irrevocable and binding on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid principal
amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $500,000, such Advances shall
automatically Convert into Prime Rate Advances.
(ii) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.1, the
Administrative Agent will forthwith so notify the Borrower
48
<PAGE>
and the appropriate Lenders, whereupon each such Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Prime Rate Advance.
(iii) Upon the occurrence and during the continuance of any Event of
Default and the acceleration of the Notes, interest thereon and other amounts
payable by the Borrower under this Agreement and the other Loan Documents
pursuant to Article 9, (x) each Eurodollar Rate Advance will automatically, on
the last day of the then existing Interest Period therefor, Convert into a Prime
Rate Advance and (y) the obligation of the Lenders to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended.
SECTION 2.10 Increased Costs, Etc.
(a) If, after the date hereof, due to (i) the introduction or effectiveness
of, any change in, or any change in the interpretation of, reserve requirements
included in the Eurodollar Rate Reserve Percentage, or any law or regulation, or
(ii) the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender Party of agreeing to make or of making,
funding or maintaining Eurodollar Rate or Prime Rate Advances or of agreeing to
issue or of issuing or maintaining Letters of Credit or of agreeing to make or
of making or maintaining Letter of Credit Advances (excluding for purposes of
this Section 2.10 any such increased costs resulting from (x) Taxes or Other
Taxes (as to which Section 2.12 shall govern) and (y) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender Party
is organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrower shall either (i) from time to time, upon demand by
such Lender Party (with a copy of such demand to the Administrative Agent), pay
to the Administrative Agent for the account of such Lender Party additional
amounts sufficient to compensate such Lender Party for such increased cost or
(ii) repay in full the outstanding principal balance of such affected Advances,
together with all interest accrued and unpaid thereon; provided, however, that a
Lender Party claiming additional amounts under this Section 2.10(a) agrees to
use best efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, such
increased cost that may thereafter accrue and would not, in the reasonable
judgment of such Lender Party, be otherwise disadvantageous to such Lender
Party. A certificate as to the amount of such increased cost, submitted to the
Borrower by such Lender Party, shall be conclusive and binding for all purposes,
absent manifest error.
(b) If, after the date hereof, due to (i) the introduction or effectiveness
of, any change in, or any change in the interpretation of, any law or regulation
or (ii) the compliance with any guideline or request from any central bank or
other governmental authority (whether or not having the force of law), there
shall be any increase in the amount of capital required or reasonably expected
to be maintained by any Lender Party or any corporation controlling such Lender
Party as a result of or based upon the existence of such Lender Party's
commitment to lend or to issue Letters of Credit hereunder and other commitments
of such type or the issuance
49
<PAGE>
or maintenance of the Letters of Credit (or similar contingent obligations),
then, upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender Party, from time to time as reasonably specified by
such Lender Party, additional amounts sufficient to compensate such Lender Party
in the light of such circumstances, to the extent that such Lender Party
reasonably determines such increase in capital to be allocable to the existence
of such Lender Party's commitment to lend or to issue Letters of Credit
hereunder or to the issuance or maintenance of any Letters of Credit. A
certificate as to such amounts submitted to the Borrower by such Lender Party
shall be conclusive and binding for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances under any Facility,
Lenders owed greater than 50% of the then aggregate unpaid principal amount
thereof notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Lenders of making, funding or maintaining their Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the appropriate Lenders, whereupon (i) each such Eurodollar Rate
Advance under any Facility will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Prime Rate Advance and (ii)
the obligation of the appropriate Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Administrative Agent shall
notify the Borrower that such Lenders have determined that the circumstances
causing such suspension no longer exist, which it shall do promptly in such
event.
(d) Notwithstanding any other provision of this Agreement, if the
introduction or effectiveness of, any change in, or any change in the
interpretation of, any law or regulation shall make it unlawful, or any central
bank or other governmental authority shall assert that it is unlawful, for any
Lender or its Eurodollar Lending Office to perform its obligations hereunder to
make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate
Advances hereunder, then, on notice thereof and demand therefor by such Lender
to the Borrower through the Administrative Agent (and if such demand is being
made by the Lender to all similarly situated customers of such Lender as a
result of such events), (i) each Eurodollar Rate Advance under each Facility
under which such Lender has a Commitment will automatically, upon such demand,
Convert into a Prime Rate Advance and (ii) the obligation of the appropriate
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Administrative Agent shall notify the Borrower that such
Lender has determined that the circumstances causing such suspension no longer
exist, which it shall do promptly in such event; provided, however, that before
making any such demand, such Lender agrees to use its best efforts (consistent
with its internal policy and legal and regulatory restrictions) to designate a
different Eurodollar Lending Office if the making of such a designation would
allow such Lender or its Eurodollar Lending Office to continue to perform its
obligations to make Eurodollar Rate Advances or to continue to find or maintain
Eurodollar Rate Advances and would not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender.
50
<PAGE>
SECTION 2.11 Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the Notes,
irrespective of any right of counterclaim or set-off (except as otherwise
provided in Section 2.15), not later than 11:00 A.M. (New York time) on the day
when due in U.S. dollars to the Administrative Agent at the Administrative
Agent's Account in same day funds. The Administrative Agent will promptly
thereafter cause like funds to be distributed (i) if such payment by the
Borrower is in respect of principal, interest, commitment fees or any other
Obligation then payable hereunder and under the Notes to more than one Lender
Party, to such Lender Parties for the account of their respective Applicable
Lending Offices ratably in accordance with the amounts of such respective
Obligations then payable to such Lender Parties and (ii) if such payment by the
Borrower is in respect of any Obligation then payable hereunder to one Lender
Party, to such Lender Party for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 11.7(d), from and after
the effective date of such Assignment and Acceptance, the Administrative Agent
shall make all payments hereunder and under the Notes in respect of the interest
assigned thereby to the Lender Party assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
(b) If the Administrative Agent receives funds for application to the
Obligations under the Loan Documents under circumstances for which the Loan
Documents do not specify the Advances or the Facility to which, or the manner in
which, such funds are to be applied, the Administrative Agent may, but shall not
be obligated to, elect to distribute such funds to each Lender Party ratably in
accordance with such Lender Party's proportionate share of the principal amount
of all outstanding Advances and the Available Amount of all Letters of Credit
then outstanding in repayment or prepayment of such of the outstanding Advances
or other Obligations owed to such Lender Party, and for application to such
principal installments, as the Administrative Agent shall direct.
(c) The Borrower hereby authorizes each Lender Party, if and to the extent
payment owed to such Lender Party is not made when due hereunder or, in the case
of a Lender, under the Note held by such Lender, to charge from time to time
against any or all of the Borrower's accounts with such Lender Party any amount
so due.
(d) All computations of interest, fees and Letter of Credit commissions
shall be made by the Administrative Agent on the basis of a year of 360 days, in
each case for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest, fees or
commissions are payable; provided, however, that interest on Prime Rate Loans
shall be computed on the basis of a year of 365 days. Each determination by the
Administrative Agent of an interest rate, fee or commission hereunder shall be
conclusive and binding for all purposes, absent manifest error.
51
<PAGE>
(e) Whenever any payment hereunder or under the Notes shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(f) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to any Lender Party
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each such Lender Party
on such due date an amount equal to the amount then due such Lender Party. If
and to the extent the Borrower shall not have so made such payment in full to
the Administrative Agent, each such Lender Party shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender
Party together with interest thereon, for each day from the date such amount is
distributed to such Lender Party until the date such Lender Party repays such
amount to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.12 Taxes.
(a) Any and all payments by the Borrower hereunder or under the Notes shall
be made, in accordance with Section 2.11, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender Party and the Administrative Agent, net income taxes
that are imposed by the United States and net income taxes (or franchise taxes
imposed in lieu thereof) that are imposed on such Lender Party or the
Administrative Agent by the state or foreign jurisdiction under the laws of
which such Lender Party or the Administrative Agent (as the case may be) is
organized or any political subdivision thereof and, in the case of each Lender
Party, net income taxes (or franchise taxes imposed in lieu thereof) that are
imposed on such Lender Party by the state or foreign jurisdiction of such Lender
Party's Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or under the Notes being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Lender Party or the Administrative Agent, (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.12) such Lender Party or the Administrative Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
52
<PAGE>
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender Party and the Administrative
Agent for the full amount of Taxes and Other Taxes, and for the full amount of
taxes imposed by any jurisdiction on amounts payable under this Section 2.12,
imposed on or paid by such Lender Party or the Administrative Agent (as the case
may be) and any liability (including penalties, additions to tax, interest and
expenses) arising therefrom or with respect thereto, except with respect to any
Lender Party or the Administrative Agent, as the case may be, for such a
liability arising from such Lender Party's or the Administrative Agent's, as the
case may be, willful misconduct or gross negligence. This indemnification shall
be made within thirty (30) days from the date on which such Lender Party or the
Administrative Agent, as the case may be, makes written demand specifying in
reasonable detail the basis therefor.
(d) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 11.2, the original receipt of payment thereof or a certified copy of
such receipt. In the case of any payment hereunder or under the Notes by or on
behalf of the Borrower through an account or branch outside the United States or
by or on behalf of the Borrower by a payor that is not a United States person,
if the Borrower determines that no Taxes are payable in respect thereof, the
Borrower shall furnish, or shall cause such payor to furnish, to the
Administrative Agent, at such address, an opinion of counsel acceptable to the
Administrative Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) Each Lender Party organized under the laws of a jurisdiction outside
the United States shall, on or prior to the date of its execution and delivery
of this Agreement in the case of each Initial Lender or Initial Issuing Bank, as
the case may be, and on the date of the Assignment and Acceptance pursuant to
which it became a Lender Party in the case of each other Lender Party, and from
time to time thereafter as requested in writing by the Borrower or the
Administrative Agent (but only so long thereafter as such Lender Party remains
lawfully able to do so), provide each of the Administrative Agent and the
Borrower with two (2) original Internal Revenue Service forms 1001 or 4224, as
appropriate, or any successor or other form prescribed by the Internal Revenue
Service, certifying that such Lender is exempt from or entitled to a reduced
rate of United States withholding tax on payments pursuant to this Agreement or
the Notes. If the forms provided by a Lender Party at the time such Lender Party
first becomes a party to this Agreement indicates or such Lender Party is later
subject to a United States interest withholding tax rate in excess of zero,
withholding tax at such rate shall be considered excluded from Taxes unless and
until such Lender Party provides the appropriate form certifying that a lesser
rate applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such form; provided,
however, that, if at the date of the Assignment and Acceptance pursuant to which
a Lender Party becomes a party to this
53
<PAGE>
Agreement, the Lender Party assignor was entitled to payments under subsection
(a) in respect of United States withholding tax with respect to interest paid at
such date, then, to such extent, the term Taxes shall include (in addition to
withholding taxes that may be imposed in the future or other amounts otherwise
includable in Taxes) United States withholding tax, if any, applicable with
respect to the Lender Party assignee on such date. If any form or document
referred to in this subsection (e) requires the disclosure of information, other
than information necessary to compute the tax payable and information required
on the date hereof by Internal Revenue Service form 1001 or 4224, that the
Lender Party reasonably considers to be confidential, the Lender Party shall
give notice thereof to the Borrower and shall not be obligated to include in
such form or document such confidential information.
(f) For any period with respect to which a Lender Party has failed to
provide the Borrower with the appropriate form described in subsection (e)
(other than if such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or if such form otherwise
is not required under subsection (e)), such Lender Party shall not be entitled
to indemnification under subsection (a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided, however, that should a
Lender Party become subject to Taxes because of its failure to deliver a form
required hereunder, the Borrower shall take such steps as such Lender Party
shall reasonably request to assist such Lender Party to recover such Taxes.
(g) Any Lender Party claiming any additional amounts payable pursuant to
this Section 2.12 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender Party, be
otherwise disadvantageous to such Lender Party.
SECTION 2.13 Sharing of Payments, Etc. If any Lender Party shall obtain at
any time any payment (whether voluntary, involuntary, through the exercise of
any right of set-off, or otherwise) (i) on account of Obligations due and
payable to such Lender Party hereunder or under the Notes at such time in excess
of its ratable share (according to the proportion of (x) the amount of such
Obligations due and payable to such Lender Party at such time to (y) the
aggregate amount of the Obligations due and payable to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
Obligations due and payable to all Lender Parties hereunder or under the Notes
at such time obtained by all the Lender Parties at such time or (ii) on account
of Obligations owing (but not due and payable) to such Lender Party hereunder
and under the Notes at such time in excess of its ratable share (according to
the proportion of (x) the amount of such Obligations owing to such Lender Party
at such time to (y) the aggregate amount of the Obligations owing (but not due
and payable) to all Lender Parties hereunder and under the Notes at such time)
of payments on account of the Obligations owing (but not due and payable) to all
Lender Parties hereunder and under the Notes at such time obtained by all of the
Lender Parties at such time, such Lender Party shall forthwith purchase from the
other Lender Parties such participations in the Obligations due and payable or
owing to them, as the case may
54
<PAGE>
be, as shall be necessary to cause such purchasing Lender Party to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender Party, such purchase from each other Lender Party shall be rescinded and
each such other Lender Party shall repay to the purchasing Lender Party the
purchase price to the extent of such Lender Party's ratable share (according to
the proportion of (x) the purchase price paid to such Lender Party to (y) the
aggregate purchase price paid to all Lender Parties) of such recovery together
with an amount equal to such Lender Party's ratable share (according to the
proportion of (x) the amount of such other Lender Party's required repayment to
(y) the total amount of such required repayments to the purchasing Lender Party)
of any interest or other amount paid or payable by the purchasing Lender Party
in respect of the total amount so recovered.
The Borrower agrees that any Lender Party so purchasing a participation from
another Lender Party pursuant to this Section 2.13 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender Party
were the direct creditor of the Borrower in the amount of such participation.
SECTION 2.14 Use of Proceeds. The proceeds of the Advances and issuances of
Letters of Credit shall be available, and the Borrower shall use such proceeds
and Letters of Credit solely (a) to finance in part the Acquisitions, (b) to pay
fees and expenses incurred in connection with the Acquisitions, (c) to repay
existing indebtedness of the Borrower; and (d) to finance working capital and
capital expenditures of the Borrower.
SECTION 2.15 Defaulting Lenders. (a) In the event that, at any one time,
(i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender
shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be
required to make any payment hereunder or under any other Loan Document to or
for the account of such Defaulting Lender, then the Borrower may, so long as no
Default shall occur or be continuing at such time and to the fullest extent
permitted by applicable law, set off and otherwise apply the obligation of the
Borrower to make such payment to or for the account of such Defaulting Lender
against the obligation of such Defaulting Lender to make such Defaulted Advance.
In the event that, on any date, the Borrower shall so set off and otherwise
apply its obligation to make any such payment against the obligation of such
Defaulting Lender to make any such Defaulted Advance on or prior to such date,
the amount so set off and otherwise applied by the Borrower shall constitute for
all purposes of this Agreement and the other Loan Documents an Advance by such
Defaulting Lender made on the date under the Facility pursuant to which such
Defaulted Advance was originally required to have been made pursuant to Section
2.1. Such Advance shall be a Prime Rate Advance and shall be considered, for all
purposes of this Agreement, to comprise part of the Borrowing in connection with
which such Defaulted Advance was originally required to have been made pursuant
to Section 2.1, even if the other Advances comprising such Borrowing shall be
Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant
to this subsection (a). The Borrower shall notify the Administrative Agent at
any time the Borrower exercises its right of set-off pursuant to this subsection
(a) and shall set forth in such notice (i) the name of the Defaulting Lender and
the Defaulted Advance required to be made by such
55
<PAGE>
Defaulting Lender and (ii) the amount set off and otherwise applied in respect
of such Defaulted Advance pursuant to this subsection (a). Any portion of such
payment otherwise required to be made by the Borrower to or for the account of
such Defaulting Lender which is paid by the Borrower, after giving effect to the
amount set off and otherwise applied by the Borrower pursuant to this subsection
(a), shall be applied by the Administrative Agent as specified in subsection (b)
or (c) of this Section 2.15.
(b) In the event that, at any one time, (i) any Lender Party shall be a
Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to
the Administrative Agent or any of the other Lender Parties and (iii) the
Borrower shall make any payment hereunder or under any other Loan Document to
the Administrative Agent for the account of such Defaulting Lender, then the
Administrative Agent may, on its behalf or on behalf of such other Lender
Parties and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrower to or for the account of such Defaulting
Lender to the payment of each such Defaulted Amount to the extent required to
pay such Defaulted Amount. In the event that the Administrative Agent shall so
apply any such amount to the payment of any such Defaulted Amount on any date,
the amount so applied by the Administrative Agent shall constitute for all
purposes of this Agreement and the other Loan Documents, payment, to such
extent, of such Defaulted Amount on such date. Any such amount so applied by the
Administrative Agent shall be retained by the Administrative Agent or
distributed by the Administrative Agent to such other Lender Parties, ratably in
accordance with the respective portions of such Defaulted Amounts payable at
such time to the Administrative Agent and such other Lender Parties and, if the
amount of such payment made by the Borrower shall at such time be insufficient
to pay all Defaulted Amounts owing at such time to the Administrative Agent and
the other Lender Parties, in the following order of priority:
(i) first, to the Administrative Agent for any Defaulted Amount then owing
to the Administrative Agent; and
(ii) second, to the Lender Parties for any Defaulted Amounts then owing to
such Lender Parties, ratably in accordance with such respective Defaulted
Amounts then owing to such Lender Parties.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.15.
(c) In the event that, at any one time, (i) any Lender Party shall be a
Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance
or a Defaulted Amount and (iii) the Borrower, the Administrative Agent or any
other Lender Party shall be required to pay or distribute any amount hereunder
or under any other Loan Document to or for the account of such Defaulting
Lender, then the Borrower or such other Lender Party shall pay such amount to
the Administrative Agent to be held by the Administrative Agent, to the fullest
extent
56
<PAGE>
permitted by applicable law, in escrow or the Administrative Agent shall, to the
fullest extent permitted by applicable law, hold in escrow such amount otherwise
held by it. Any funds held by the Administrative Agent in escrow under this
subsection (c) shall be deposited by the Administrative Agent in an account with
Fleet, in the name and under the control of the Administrative Agent, but
subject to the provisions of this subsection (c). The terms applicable to such
account, including the rate of interest payable with respect to the credit
balance of such account from time to time, shall be Fleet's standard terms
applicable to escrow accounts maintained with it. Any interest credited to such
account from time to time shall be held by the Administrative Agent in escrow
under, and applied by the Administrative Agent from time to time in accordance
with the provisions of, this subsection (c). The Administrative Agent shall, to
the fullest extent permitted by applicable law, apply all funds so held in
escrow from time to time to the extent necessary to make any Advances required
to be made by such Defaulting Lender and to pay any amount payable by such
Defaulting Lender hereunder and under the other Loan Documents to the
Administrative Agent or any other Lender Party, as and when such Advances or
amounts are required to be made or paid and, if the amount so held in escrow
shall at any time be insufficient to make and pay all such Advances and amounts
required to be made or paid at such time, in the following order of priority:
(i) first, to the Administrative Agent for any amount then due and payable
by such Defaulting Lender to the Administrative Agent hereunder;
(ii) second, to the Lender Parties for any amount then due and payable by
such Defaulting Lender to such Lender Parties hereunder, ratably in accordance
with such respective amounts then due and payable to such Lender Parties; and
(iii) third, to the Borrower for any Advance then required to be made by
such Defaulting Lender pursuant to a Commitment of such Defaulting Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such time under
this Agreement and the other Loan Documents in such manner as the Administrative
Agent shall reasonably direct.
(d) The rights and remedies against a Defaulting Lender under this Section
2.15 are in addition to other rights and remedies that the Borrower may have
against such Defaulting Lender with respect to any Defaulted Advance and that
the Administrative Agent or any Lender Party may have against such Defaulting
Lender with respect to any Defaulted Amount.
57
<PAGE>
ARTICLE 3
CONDITIONS OF LENDING
SECTION 3.1 Conditions Precedent to Initial Extension of Credit. The
obligation of each Lender to make an Advance or of the Issuing Bank to issue a
Letter of Credit on the occasion of the Initial Extension of Credit hereunder is
subject to the satisfaction of each of the following conditions precedent before
or concurrently with the Initial Extension of Credit:
(a) The Administrative Agent shall have received on or before the day of
the Initial Extension of Credit the following, each dated such day (unless
otherwise specified), in form and substance satisfactory to the Administrative
Agent and the Lenders, and in sufficient copies (except for the Notes), for each
Lender Party:
(i) The Notes payable to the order of the Lenders duly executed by the
Borrower.
(ii) A security agreement in substantially the form of Exhibit E granting
to the Administrative Agent, for the ratable benefit of the Lenders, a security
interest in all of the Collateral of the Borrower and each Guarantor (together
with each other security agreement deliv ered pursuant to Section 5.13, in each
case as amended, supplemented or otherwise modified from time to time in
accordance with its terms, each a "Security Agreement"), duly executed by the
Borrower and each Guarantor, together with:
(A) proper, duly executed financing statements under the Uniform Commercial
Code of all jurisdictions that the Administrative Agent may deem necessary or
desirable in order to perfect and protect the first priority Liens and security
interests created under the Security Agreement, covering the Collateral
described in the Security Agreement which are able to be perfected by filing;
(B) completed requests for information, dated on or before the date of the
Initial Extension of Credit, listing all effective financing statements filed
that name the Borrower or any other Loan Party as debtor, together with copies
of such financing statements;
(C) evidence of the completion of all other recordings and filings of or
with respect to the Security Agreement that the Administrative Agent may deem
necessary or desirable in order to perfect and protect the Liens created
thereby;
(D) evidence of the insurance required by the terms of the Security
Agreement;
58
<PAGE>
(E) copies of the Assigned Agreements, if any, referred to in the Security
Agreement, together with a consent (to the extent required by the Administrative
Agent) to such assignments, if any, in substantially the form of Exhibit C to
the Security Agreement, duly executed by each party to such Assigned Agreements
other than the Borrower;
(F) certificates representing the Pledged Shares referred to in the
Security Agreement, accompanied by undated stock powers executed in blank and
irrevocable proxies;
(G) a duly executed note assignment agreement in form and substance
satisfactory to the Administrative Agent (as amended, modified and supplemented
from time to time, the "Note Assignment Agreement") covering (and together with)
all intercompany notes made by the Borrower's Subsidiaries payable to the
Borrower and duly endorsed to the Administrative Agent;
(H) in the case of the Borrower's Foreign Subsidiaries, all action
necessary to allow the Administrative Agent to obtain a valid and enforceable,
first priority, perfected security interest in 65% of the stock of each Foreign
Subsidiary and a memorandum to the Administrative Agent from appropriate foreign
counsel confirming that the Administrative Agent, on behalf of the Secured
Parties, has obtained a valid and enforceable first priority perfected security
interest in the relevant Pledged Stock or outlining the steps necessary to
obtain a perfected security interest in the relevant Pledged Stock; and
(I) evidence that all other action that the Administrative Agent may deem
necessary or desirable in order to perfect the first priority liens and security
interests created under the Security Agreement has been taken.
(iii) If required by the Administrative Agent a collateral assignment of
lease assigning to the Administrative Agent, for the ratable benefit of the
Lenders, the Borrower's interest in the lease of certain of its facilities, duly
executed by the Borrower, together with a recognition agreement duly executed by
the property owner pursuant to which the property owner shall (A) consent to
such collateral assignment, (B) acknowledge the interest of the Administrative
Agent, for the ratable benefit of the Secured Parties and (C) permit the
Administrative Agent or its assignee to become the successor in interest to the
Borrower under the lease.
(iv) If required by the Administrative Agent: (A) fully executed
counterparts of Mortgages duly executed by the applicable Loan Party, together
with evidence that counterparts of the Mortgages have been delivered to a title
insurance company (reasonably acceptable to the Lenders) insuring the Lien of
the Mortgages for recording in all places to the extent necessary or desirable,
in the reasonable judgment of the Lenders, to create a valid and enforceable
first priority lien on each Mortgaged Property listed on Schedule 4.21 (subject
only
59
<PAGE>
to Permitted Real Property Encumbrances) in favor of Administrative Agent (or a
trustee acting on behalf of Administrative Agent required or desired under local
law) for the benefit of the Secured Parties;
(B) Mortgagee title insurance policies (or binding commitments to issue
such title insurance policies) which shall (1) be issued to Administrative Agent
for the benefit of the Secured Parties by title insurance companies reasonably
satisfactory to the Administrative Agent (the "Mortgage Policies") in amounts
reasonably satisfactory to the Administrative Agent insuring that the Mortgages
are valid and enforceable first priority mortgage liens on the respective
Mortgaged Properties, free and clear of all defects, encumbrances and other
Liens except Permitted Real Property Encumbrances, (2) be in form and substance
satisfactory to the Administrative Agent in its sole discretion, (3) include, as
appropriate, an endorsement for future advances under this Agreement, the Notes
and the Mortgages and such other endorsements that the Administrative Agent in
its discretion may reasonably request, (4) not include an exception for
mechanics' liens, and (5) provide for affirmative insurance and such reinsurance
(including direct access agreements) as the Administrative Agent in its
discretion may reasonably request; and
(C) Surveys, in form and substance satisfactory to the Administrative
Agent, of each Mortgaged Property listed on Schedule 4.21, dated a recent date
reasonably acceptable to the Administrative Agent, certified by a licensed
professional surveyor in a manner satisfactory to the Administrative Agent for
the benefit of the Lenders.
(v) An intellectual property security agreement in substantially the form
of Exhibit G hereto granting to the Administrative Agent for the ratable benefit
of the Lenders security interest in all of the Borrower's and each Guarantor's
intellectual property (together with each other intellectual property security
agreement delivered pursuant to Section 5.13, in each case as amended,
supplemented or otherwise modified from time to time in accordance with its
terms, each an "Intellectual Property Security Agreement"), duly executed by the
Borrower and each Guarantor, together with evidence that all action that the
Administrative Agent may deem necessary or desirable in order to perfect and
protect the first priority Liens and security interests created under the
Intellectual Property Security Agreement has been taken.
(vi) All accrued fees and expenses of the Administrative Agent (including
the reasonable fees and expenses of counsel for the Agent).
(vii) [Intentionally left blank.]
(viii) A guaranty in substantially the form of Exhibit H hereto (as
hereafter amended, supplemented or otherwise modified from time to time in
accordance with its terms, whether one or more, the "Subsidiary Guaranty"), duly
executed by each Domestic Subsidiary of the Borrower.
60
<PAGE>
(ix) Certified copies of resolutions of the Board of Directors of each Loan
Party approving the Acquisitions, this Agreement, the Notes, and each other Loan
Document and Acquisition Document to which it is or is to be a party, and of all
documents evidencing other necessary corporate action and governmental and other
third party approvals and consents, if any, with respect to the Acquisitions,
this Agreement, the Notes, and each other Loan Document and Acquisition
Document.
(x) A copy of the charter of each Loan Party and each amendment thereto,
certified (as of a date reasonably near the date of the Initial Extension of
Credit) by the Secretary of State of the jurisdiction of its incorporation as
being a true and correct copy thereof.
(xi) A copy of a certificate of the Secretary of State of the jurisdiction
of its incorporation, dated within five (5) Business Days of the date of the
Initial Extension of Credit, listing the charter of each Loan Party and each
amendment thereto on file in its office and certifying that (A) such amendments
are the only amendments to such Loan Party's charter on file in its office, (B)
to the extent obtainable, that such Loan Party has paid all franchise taxes to
the date of such certificate and (C) such Loan Party is duly incorporated and in
good standing or existing, as the case may be, under the laws of the State of
the jurisdiction of its incorporation.
(xii) A copy of a certificate of the Secretary of State of each State
listed on Schedule 4.2, dated reasonably near the date of the Initial Extension
of Credit, stating that each Loan Party is duly qualified and in good standing
as a foreign corporation in such State and has filed all annual reports required
to be filed to the date of such certificate.
(xiii) A certificate of each Loan Party signed on behalf of such Loan Party
by a Responsible Officer and the Secretary or an Assistant Secretary of such
Loan Party, dated the date of the Initial Extension of Credit (the statements
made in such certificate shall be true on and as of the date of the Initial
Extension of Credit), certifying as to (A) the absence of any amendments to the
charter of such Loan Party since the date of the Secretary of State's
certificate referred to in Section 3.1(a)(xi), (B) a true and correct copy of
the bylaws of such Loan Party as in effect on the date of the Initial Extension
of Credit, (C) the due incorporation and good standing of such Loan Party as a
corporation organized under the laws of the jurisdiction of its incorporation,
and the absence of any proceeding for the dissolution or liquidation of such
Loan Party, (D) the truth of the representations and warranties contained in the
Information Memorandum, any Pre-Commitment Information, the Loan Documents and
the Acquisition Documents as though made on and as of the date of the Initial
Extension of Credit except for such representations and warranties that
expressly relate to an earlier date and except for changes in the ordinary
course of business none of which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect and (E) the absence of
any event occurring and continuing, or resulting from the Initial Extension of
Credit, that constitutes a Default or an Event of Default.
(xiv) A certificate of the Secretary or an Assistant Secretary of each Loan
Party certifying the names and true signatures of the officers of such Loan
Party authorized to sign this
61
<PAGE>
Agreement, the Notes, each other Loan Document to which they are or are to be
parties and the other documents to be delivered hereunder and thereunder.
(xv) Such financial, business and other information regarding each Loan
Party, each Acquisition Target and each such Person's Subsidiaries as any of the
Lenders shall have reasonably requested, including, without limitation,
(A) information as to possible contingent liabilities, tax matters,
Environmental Actions, Environmental Permits, obligations under Plans,
Multiemployer Plans and Welfare Plans, collective bargaining agreements and
other arrangements with employees; and
(B) annual financial statements dated December 31, 1997, with respect to
each of (1) the Borrower, (2) Columbia House and (3) Radio Spirits, and dated
January 31, 1998, with respect to Premier which are audited (except to the
extent otherwise described in Section 4.6), interim financial statements dated
the end of the most recent fiscal quarter for which financial statements are
available (or, in the event the Initial Lenders' due diligence review reveals
material changes since such financial statements, as of a later date within
thirty (30) days of the day of the Initial Extension of Credit), pro forma
financial statements as to each of the Loan Parties and each Acquisition Target
and forecasts prepared by management of the Borrower, all in form and substance
reasonably satisfactory to the Lenders, which pro forma financial statements and
forecasts have heretofore been delivered to the Administrative Agent by
Borrower.
(xvi) A Notice of Borrowing with respect to each Facility pursuant to which
the Borrower shall request an Initial Extension of Credit in an aggregate amount
of not more than $27,000,000.
(b) The Initial Lenders shall be satisfied with the corporate and legal
structure and capitalization of each Loan Party and each of its Subsidiaries
after the Acquisitions, including, without limitation, the terms and conditions
of the charter, by-laws and each class of capital stock of each Loan Party and
each such Subsidiary and of each agreement or instrument relating to such
structure or capitalization.
(c) The Initial Lenders shall be satisfied that all Existing Debt, other
than the Surviving Debt, has been (or, upon consummation of the Acquisitions
will be) prepaid, redeemed or defeased in full or otherwise satisfied and
extinguished and that all Surviving Debt shall be on terms and conditions
satisfactory to the Initial Lenders.
(d) There shall have occurred no change in the business, condition
(financial or otherwise), results of operations, performance or properties of
the Borrower and its Subsidiaries, taken as a whole, since September 30, 1998
that could reasonably be expected to result in a Material Adverse Effect, and
there shall have occurred no change in the business, condition (financial or
otherwise), results of operations, performance on properties of any Acquisition
62
<PAGE>
Target and its Subsidiaries, taken as a whole, since September 30, 1998, that
could reasonably be expected to result in a Material Adverse Effect.
(e) Other than the Disclosed Litigation, there shall exist no action, suit,
investigation, litigation or proceeding pending or threatened in any court or
before any arbitrator or governmental or regulatory agency or authority that
could reasonably be expected to have a Material Adverse Effect, and there shall
have been no Material Adverse Effect in the status, or financial effect on the
Borrower or its Subsidiaries as a whole, of the Disclosed Litigation from that
described on Schedule 4.9.
(f) All governmental and third party consents and approvals necessary in
connection with each aspect of the Acquisitions and the Facilities shall have
been obtained (without the imposition of any conditions that are not acceptable
to the Initial Lenders) and shall remain in effect; all applicable waiting
periods shall have expired without any adverse action being taken by any
competent authority; and no law or regulation shall be applicable in the
judgment of the Initial Lenders that restrains, prevents or imposes materially
adverse conditions upon any aspect of the Acquisitions or the Facilities.
(g) The Initial Lenders shall have completed a due diligence investigation
(including, without limitation, a review of all customer and supplier contracts)
of the Borrower, the other Loan parties and their respective Subsidiaries in
scope, and with results, satisfactory to the Initial Lenders; the Borrower and
each of the Guarantors shall have given the Administrative Agent such access to
their respective books and records as the Administrative Agent may have
requested (including access so as to permit the Administrative Agent to conduct
a field audit, the results of which shall be satisfactory to the Administrative
Agent) in order to carry out its investigations, appraisals and analyses, and
the Administrative Agent shall have received all additional financial, business
and other information regarding the Borrower and its Subsidiaries and properties
as they shall have requested (including the report of J.H. Cohn LLP).
All of the information, taken as a whole, provided by or on behalf of the
Borrower or any of its Subsidiaries to the Administrative Agent and the Initial
Lenders prior to their commitment in respect of the Facilities (the
"Pre-Commitment Information") shall be true and correct in all material
respects, and no development or change shall have occurred, and no additional
information shall have come to the attention of the Administrative Agent or the
Initial Lenders, that (i) has resulted in or could reasonably be expected to
result in a material change in, or material deviation from, the Pre-Commitment
Information, taken as a whole, or (ii) has had or could reasonably be expected
to have a Material Adverse Effect. The Administrative Agent shall be reasonably
satisfied with the results, taken as a whole, of interviews conducted and other
investigations made with respect to the Borrower's relationships with its
customers.
(h) The Borrower and each Guarantor shall have delivered a certificate, in
form and substance reasonably satisfactory to the Administrative Agent,
attesting to the Solvency of the Borrower or Guarantor, as applicable,
immediately before and immediately after giving effect to the Transaction, from
its respective Chief Financial Officer.
63
<PAGE>
(i) The Borrower shall have demonstrated to the Administrative Agent's
reasonable satisfaction that: (i) the operations of the Borrower and its
Subsidiaries comply in all material respects with applicable Environmental Laws
and health and safety statutes and regulations, including, without limitation,
regulations promulgated under the Federal Resource Conservation and Recovery
Act; (ii) such operations are not the subject of any federal, state or local
investigation evaluating the need for remedial action involving an expenditure
to respond to such Environmental Actions; and (iii) neither the Borrower nor any
Guarantor has or could reasonably be expected to have any material contingent
liability in connection with any Environmental Action.
(j) The Administrative Agent shall be reasonably satisfied that (i) the
Borrower and its Subsidiaries will be able to meet in all material respects
their respective obligations under all employee and retiree welfare plans, (ii)
the employee benefit plans of the Borrower and its Subsidiaries are, in all
material respects, funded in accordance with the minimum statutory requirements,
(iii) no material "reportable event" (as defined in ERISA, but excluding events
for which reporting has been waived) has occurred as to any such employee
benefit plan and (iv) no termination of, or withdrawal from, any such employee
benefit plan has occurred or is contemplated that could reasonably be expected
to result in a material liability. The Borrower shall have delivered to the
Administrative Agent certified copies of each employment agreement and other
compensation arrangement with each executive officer of each Loan Party.
(k) The Administrative Agent shall be reasonably satisfied with the amount,
types and terms and conditions of all insurance maintained by or, after giving
effect to the Acquisitions, to be maintained by the Borrower and its
Subsidiaries, and the Administrative Agent shall have received endorsements
naming the Administrative Agent, on behalf of the Lenders, as loss payee or an
additional insured, as applicable, under all insurance policies to be maintained
with respect to the properties of the Borrower and its Subsidiaries forming any
part of the Lenders' Collateral under the Security Agreement and the other Loan
Documents and Collateral Documents.
(l) The Administrative Agent shall have received satisfactory opinions of
counsel for the Borrower and the Guarantors and local and special counsel to the
extent reasonably requested by the Administrative Agent, as to the Transaction.
(m) There shall exist no Default or Event of Default under any of the Loan
Documents, and all legal matters incident to the Initial Extension of Credit
shall be reasonably satisfactory to counsel for the Administrative Agent.
(n) All accrued reasonable fees and expenses of the Administrative Agent
and the Initial Lenders (including the fees and expenses of counsel for the
Administrative Agent and local counsel for the Administrative Agent) shall have
been paid.
(o) Each of the Acquisitions shall have been consummated (prior to or
concurrently with the Initial Extension of Credit) (and the rights of the
Borrower to consummate the CH Acquisition shall have been assigned to CH
Subsidiary) pursuant to the terms and conditions of
64
<PAGE>
the Acquisition Agreement therefor (and none of the material terms or conditions
of any Acquisition Agreement shall have been waived or modified except with the
consent of the Administrative Agent and the Required Lenders) and in compliance
with all applicable laws and with all necessary consents and approvals. The
final terms and conditions of the Acquisition Documents and the resulting
corporate structure of the Borrower and its Subsidiaries following the
Acquisitions shall be reasonably satisfactory in all respects to the
Administrative Agent and the Lenders, and the Administrative Agent shall have
received certified copies of each of the Acquisition Documents, each of which
shall be satisfactory to the Lenders and in full force and effect; and shall
have had such discussions with such members of management of the Acquisition
Targets as the Administrative Agent shall have requested.
(p) The Administrative Agent shall be satisfied that there are no state
takeover laws and no supermajority charter provisions applicable to any
Acquisition, or that any conditions to avoiding such restrictions have been
satisfied.
(q) The Administrative Agent shall have received all Senior Subordinated
Debt Documents (including without limitation the Letter Agreement and the Escrow
Agreement), certified as true and correct by a Responsible Officer of the
Borrower, all of which Senior Subordinated Debt Documents shall be satisfactory
to the Administrative Agent, together with a certification that at least
$15,000,000 in cash shall have been received by the Borrower from the issuance
of the Senior Subordinated Debt on or before the Closing Date and that 100% of
said proceeds were utilized for the purpose of affecting the Acquisitions.
(r) All Advances made under this Agreement shall be in full compliance with
all applicable requirements of law, including, without limitation, Federal
Reserve Regulations T, U, and X.
(s) The Administrative Agent shall have received a duly executed and
delivered counterparts of landlord waivers from all landlords and leasehold
mortgage holders and bailee letters from all warehousemen and bailees with
respect to any Inventory located at a location that is not owned by the
Borrower, as deemed necessary or desirable in the Administrative Agent's sole
discretion, to preserve or otherwise in respect of the Administrative Agent's
rights in Collateral. The Administrative Agent shall also have received such
bank consent agreements, third party consents, intercreditor agreements or other
agreements, as deemed necessary or desirable in the Administrative Agent's sole
discretion, to preserve or otherwise in respect of the Administrative Agent's
rights in the Collateral.
(t) The Administrative Agent shall have received such other approvals,
opinions or documents as any Lender through the Administrative Agent may
reasonably request, and all legal matters incident to such Borrowing shall be
satisfactory to counsel for the Administrative Agent.
SECTION 3.2 Conditions Precedent to Each Borrowing and Issuance. The
obligation of each appropriate Lender to make an Advance (other than a Letter of
Credit Advance made by the Issuing Bank or a Revolving Credit Lender pursuant to
Section 2.3(c) and a Swing Line
65
<PAGE>
Advance made by a Revolving Credit Lender pursuant to Section 2.2(b)), and the
obligation of the Issuing Bank to issue a Letter of Credit (including the
initial issuance thereof) or renew a Letter of Credit and the right of the
Borrower to request the issuance or renewal of a Letter of Credit, shall each be
subject to the further conditions precedent that on the date of each such
Borrowing or issuance or renewal:
(a) Each of the conditions precedent listed in Section 3.1 shall have been
satisfied or waived in accordance with this Agreement.
(b) The following statements shall be true and the Administrative Agent
shall have received a certificate signed by a duly authorized Responsible
Officer of the Borrower, dated the date of such Borrowing or issuance or
renewal, stating that (and each of the giving of the applicable Notice of
Borrowing, Notice of Swing Line Borrowing, or Notice of Issuance or Notice of
Renewal and the acceptance by the Borrower of the proceeds of a Borrowing or of
a Letter of Credit or the renewal of a Letter of Credit shall constitute a
representation and warranty by the Borrower that both on the date of such notice
and on the date of such Borrowing or issuance or renewal such statements are
true):
(i) the representations and warranties contained in each Loan Document are
correct on and as of such date, before and after giving effect to such Borrowing
or issuance or renewal and to the application of the proceeds therefrom, as
though made on and as of such date (except for such representations and
warranties that expressly relate to an earlier date and except for changes in
the ordinary course of business which are not prohibited hereunder and none of
which individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect); and
(ii) no event has occurred and is continuing, or would result from such
Borrowing or issuance or renewal or from the application of the proceeds
therefrom, that consti tutes a Default or an Event of Default.
(c) The Administrative Agent shall have received such other approvals,
opinions or documents as any appropriate Lender through the Administrative Agent
may reasonably request, and all legal matters incident to such Borrowing or
issuance of such Letter of Credit shall be satisfactory to counsel for the
Administrative Agent.
SECTION 3.3 Determinations Under Section 3.1. For purposes of determining
compliance with the conditions specified in Section 3.1, each Initial Lender
shall be deemed to have consented to, approved or accepted or to be satisfied
with each document or other matter required thereunder to be consented to or
approved by or acceptable or satisfactory to the Initial Lenders unless an
officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received written notice from such
Initial Lender prior to the Initial Extension of Credit specifying its objection
thereto and, if the Initial Extension of Credit consists of a Borrowing, such
Initial Lender shall not have made available to the Administrative Agent such
Initial Lender's ratable portion of such Borrowing.
66
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants as follows:
SECTION 4.1 Organization. Each Loan Party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) is duly qualified and in good standing as
a foreign corporation in each other jurisdiction in which it owns or leases
property or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed could not
reasonably be expected to have a Material Adverse Effect and (c) has all
requisite corporate power and authority (including, without limitation, all
governmental licenses, permits and other approvals) to own or lease and operate
its properties and to carry on its business as now conducted and as proposed to
be conducted.
SECTION 4.2 Subsidiaries. Set forth on Schedule 4.2 hereto is a complete
and accurate list of the Borrower and all Subsidiaries of each Loan Party,
showing as of the date hereof (and updated on a quarterly basis to reflect
changes permitted under this Agreement) (i) the jurisdiction of its
incorporation or formation, (ii) the jurisdictions in which such Loan Party is
duly qualified and in good standing as a foreign corporation or Person, (iii)
the number of shares of each class of capital stock or other equity interests
authorized, and the number outstanding, and as to each of them that is a legal
entity other than a corporation (but not a natural person), and the record
owners (other than shares of the Borrower publicly held other than by
Affiliates) of such equity interests, in each case after giving effect to the
Acquisitions and any Permitted Acquisitions and the percentage of the
outstanding shares or other interests of each such class owned (directly or
indirectly) by such Loan Party and the number of shares or other interests
covered by all outstanding options, warrants, rights of conversion or purchase
and similar rights after giving effect to the Acquisitions and any Permitted
Acquisition. All of the outstanding capital stock or other interests of all of
the Borrower and each of such Subsidiaries has been validly issued, is fully
paid and non-assessable and is owned by such Loan Party (except for the publicly
owned stock of the Borrower) or one or more of its Subsidiaries free and clear
of all Liens, except those created under the Collateral Documents.
SECTION 4.3 Corporate Power, Authorization. The execution, delivery and
performance by each Loan Party of this Agreement, the Notes, each other Loan
Document and each Acquisition Document to which it is or is to be a party, and
the consummation of the Transaction, are within such Loan Party's corporate
powers, have been duly authorized by all necessary corporate action, and do not
(a) contravene such Loan Party's charter or bylaws, (b) violate any law
(including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation T, U or X of the Board of
Governors of the Federal Reserve System),
67
<PAGE>
order, writ, judgment, injunction, decree, determination or award, (c) conflict
with or result in the breach of, or constitute a default under, any material
contract, loan agreement, indenture, mortgage, deed of trust, lease or other
material instrument or agreement binding on or affecting any Loan Party, any of
its Subsidiaries or any of their respective properties where the conflict,
breach or default relates to an instrument, agreement or other document
involving assets, revenues or liabilities in excess of $250,000 individually or
$500,000 in the aggregate or otherwise could reasonably be expected to have a
Material Adverse Effect, or (d) except for the Liens created under the
Collateral Documents, result in or require the creation or imposition of any
Lien upon or with respect to any of the properties of any Loan Party or any of
its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of
any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument or agreement, the
violation or breach of which could reasonably be expected to have a Material
Adverse Effect.
SECTION 4.4 Governmental Authorizations, Approvals. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or any other third party is or was required for (a)
the due execution, delivery, recordation, filing or performance by any Loan
Party of this Agreement, the Notes, any other Loan Document or any Acquisition
Document to which it is or is to be a party, or for the consummation of the
Transaction, (b) the grant by any Loan Party of the Liens granted by it pursuant
to the Collateral Documents, (c) the perfection or maintenance of the Liens
created by the Collateral Documents (including the first priority nature
thereof) which Liens are able to be perfected by filings or the taking of
possession with respect to the Collateral or such other actions as may be
required by the Administrative Agent and agreed upon by the Borrower or (d) the
exercise by the Administrative Agent or any Lender Party of its rights under the
Loan Documents or the remedies in respect of the Collateral pursuant to the
Collateral Documents, except for the authorizations, approvals, actions, notices
and filings listed on Schedule 4.4, all of which have been duly obtained, taken,
given or made and are in full force and effect, except for such actions
regarding the perfection of certain items of Collateral not required to be taken
by the Administrative Agent or except where the failure to receive any
authorizations, approvals, actions, notices or filings under instruments,
agreements or other documents relates to an instrument, agreement or other
document involving assets, revenues or liabilities in excess of $250,000
individually, or $500,000 in the aggregate or otherwise would not be reasonably
likely to have a Material Adverse Effect. All applicable waiting periods in
connection with the Transaction have expired without any action having been
taken by any competent authority restraining, preventing or imposing materially
adverse conditions upon the Transaction or the rights of the Loan Parties or
their Subsidiaries freely to transfer or otherwise dispose of, or to create any
Lien on, any properties now owned or hereafter acquired by any of them.
SECTION 4.5 Due Execution, Validity, Enforceability. This Agreement and
each Acquisition Document has been, and each of the Notes and each other Loan
Document has been or when delivered hereunder will have been, duly executed and
delivered by each Loan Party thereto. This Agreement and each Acquisition
Document is, and each of the Notes and each other Loan Document has been or when
delivered hereunder will be, the legal, valid and binding
68
<PAGE>
obligation of each Loan Party thereto, enforceable against such Loan Party in
accordance with its terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally, except that such laws
shall not materially interfere with the practical realization of the benefits of
the Security Documents or the security interests or Liens created thereby except
for (i) possible delay, (ii) situations which may arise under Chapter 11 of the
Bankruptcy Code, and (iii) equitable orders of the Bankruptcy Court, and (b) to
the extent that such enforceability is subject to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
SECTION 4.6 Financial Statements. The Borrower has delivered or at Closing
will deliver to the Administrative Agent (i) the balance sheets of the Borrower
as at December 31, 1997, and the related statements of income and cash flows for
the fiscal year then ended, accompanied by an opinion of KPMG Peat Marwick LLP
with respect to such financial statements, (ii) the balance sheet of Columbia
House as at December 31, 1997, and the related statements of income and cash
flows for the fiscal year then ended, accompanied by an opinion of Price
Waterhouse Coopers LLP, (iii) the balance sheet of Radio Spirits as at December
31, 1997, and the related statements of income and cash flows for the fiscal
year then ended, accompanied by an opinion of BD&A, and (iv) the balance sheet
of Premier as at January 31, 1998, and the related statements of income and cash
flows for the fiscal year then ended, accompanied by a report of Edward A. Mach,
CPA as to the review of such financial statements. The Borrower has further
delivered or at Closing will deliver to the Administrative Agent, (i) an
unaudited pro forma balance sheet of AIC as at July 31, 1998 and unaudited
statements of income of AIC for the year ended December 31, 1997 and the seven
months ended July 31, 1998, (ii) the consolidated balance sheet of the Borrower
and its Subsidiaries as at September 30, 1998 and the related consolidated
statements of income and cash flows for the nine months then ended, (iii) the
balance sheet of Columbia House as at September 30, 1998 and the related
statements of income and cash flows for the nine months then ended, (iv) the
balance sheet of Radio Spirits as at September 30, 1998 and the related
statements of income and cash flows for the nine months then ended, (v) the
balance sheet of Premier as at July 31, 1998 and the related statements of
income and cash flows for the six months then ended. The financial statements of
the Borrower and its Subsidiaries (excluding the Acquisition Targets) referred
to above have been duly certified by the Chief Financial Officer of the
Borrower, copies of which have been furnished to each Lender Party, present
fairly, subject, in the case of the interim balance sheet as at September 30,
1998 and said statements of income and cash flows for the nine months then
ended, to normal year-end audit adjustments, the Consolidated (and, with respect
to the balance sheets dated December 31, 1997, consolidating) financial
condition of the Borrower and its Subsidiaries as at such date and the
Consolidated (and, with respect to the statements of income dated December 31,
1997, consolidating) results of the operations of the Borrower and its
Subsidiaries for the period ended on such date, all in accordance with GAAP
applied on a consistent basis, and, since September 30, 1998, there has been no
change that could reasonably be expected to have a Material Adverse Effect on
the Borrower and its Subsidiaries or, to its knowledge, material adverse effect
on the business, financial condition, results of operations, performance,
reasonably foreseeable business prospects or properties of the Acquisition
Targets taken as a whole; provided that after the date
69
<PAGE>
of this Agreement the immediately preceding reference to the Borrower and its
Subsidiaries shall be deemed to include reference to the businesses of the
Acquisition Targets acquired pursuant to the Acquisitions. Nothing has come to
the attention of the Borrower which causes it to believe that the financial
statements of any of the Acquisition Targets contain an untrue statement of
material fact or omit to state a material fact necessary to make the financial
statements not misleading which fact or omission could reasonably be expected to
have a material adverse effect on the business, condition (financial or
otherwise), results of operations, performance, reasonably foreseeable business
prospects or properties of any Acquisition Target.
SECTION 4.7 Pro Forma Financial Statements. (a) The Consolidated pro forma
balance sheet of the Borrower and its Subsidiaries, and for Columbia House,
Radio Spirits, Premier and AIC and their respective Subsidiaries in each case as
at June 30, 1998, and the related Consolidated pro forma statement of income and
cash flows of the Borrower and its Subsidiaries and Columbia House, Radio
Spirits, Premier and AIC and their respective Subsidiaries for the period then
ended, have been furnished to the Administrative Agent and present the
Consolidated pro forma financial condition of the Borrower and its Subsidiaries
and Columbia House, Radio Spirits, Premier and AIC and their respective
Subsidiaries as at such date and the Consolidated pro forma results of
operations of the Borrower and its Subsidiaries and Columbia House, Radio
Spirits, Premier and AIC and their respective Subsidiaries for the period ended
on such date, in each case after giving effect to the Transaction. The Borrower
believes that the pro forma financial statements described above were prepared
on a reasonable basis based upon the information available to the Borrower at
the time of preparation thereof.
(b) The projections delivered on the Closing Date (and after the date of
this Agreement, the budgets delivered to the Lenders pursuant to Section 7.5
hereof) have been prepared on the basis of the assumptions accompanying them and
reflect as of the date thereof the Borrower's good faith projections, after
reasonable analysis, of the matters set forth therein, based on such assumptions
(it being understood that projected financial information is not to be viewed as
facts and that the actual results during the period or periods covered thereby
may differ from the projected results and that the differences may be material).
SECTION 4.8 Accurate Information. None of the Information Memorandum, any
Pre-Commitment Information or any information, exhibit or report furnished by
any Loan Party to the Administrative Agent or any Lender Party in connection
with the Loan Documents or pursuant to the terms of the Loan Documents contained
any untrue statement of a material historical fact or omitted to state a
material historical fact necessary to make the statements made therein not
misleading, provided that with regard to any forward-looking statements
contained in such documents or information, exhibits or reports, such
forward-looking statements are based on assumptions that were reasonable as of
the time at which they were made.
SECTION 4.9 Litigation. Other than the litigation disclosed on Schedule 4.9
(the "Disclosed Litigation"), there is no action, suit, investigation,
litigation or proceeding affecting the Borrower, any other Loan Party or any of
their respective Subsidiaries, including, without
70
<PAGE>
limitation, any Environmental Action, pending or, to its knowledge, threatened
before any court, governmental agency or arbitrator that could reasonably be
expected to have a Material Adverse Effect, and there has been no change in the
status, or financial effect on any Loan Party or any of its Subsidiaries, of the
Disclosed Litigation from that described on Schedule 4.9 that could reasonably
be expected to have a Material Adverse Effect.
SECTION 4.10 Regulation U. Neither the Borrower nor any other Loan Party
nor any of their respective Subsidiaries is engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock.
SECTION 4.11 ERISA.
(a) Except as set forth on Schedule 4.11 hereto, neither the Borrower nor
any of its ERISA Affiliates maintains or has maintained any Plans or
Multiemployer Plans. Set forth on Schedule 4.11 is a complete and accurate list
of all Welfare Plans and all defined contribution plans in respect of which any
Loan Party could have liability.
(b) Except as set forth in the financial statements referred to in Section
4.6 and in Article 7, neither the Borrower, any of the other Loan Parties nor
any of their respective Subsidiaries has any material liability with respect to
"expected post retirement benefit obligations" within the meaning of Statement
of Financial Accounting Standards No. 106.
SECTION 4.12 Casualty. Neither the business nor the properties of any Loan
Party or any of its Subsidiaries are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy or other casualty (whether or not
covered by insurance) that could reasonably be expected to have a Material
Adverse Effect.
SECTION 4.13 Environmental Matters.
(a) The operations and properties of each Loan Party and each of its
Subsidiaries comply in all known material respects with all applicable
Environmental Laws and Environmental Permits, all known past non-compliance with
such Environmental Laws and Environmental Permits has been resolved without
ongoing obligations or costs, and no circumstances exist that could reasonably
be expected to (i) form the basis of an Environmental Action against any Loan
Party or any of its Subsidiaries or any of their properties that could
reasonably be expected to have a Material Adverse Effect or (ii) cause any such
property to be subject to any material restrictions on ownership, occupancy, use
or transferability under any Environmental Law.
(b) Except as disclosed in the environmental assessment reports listed on
Schedule 4.13 hereto, (i) none of the properties currently or formerly owned or
operated by any Loan Party or any of its Subsidiaries is listed or proposed for
listing on the NPL or on the CERCLIS or any analogous foreign, state or local
list or is adjacent to any such property; (ii) there are no and, to the best of
its knowledge, never have been any underground or aboveground
71
<PAGE>
storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons
in which Hazardous Materials are being or, to the best of its knowledge, have
been treated, stored or disposed on any property currently owned or operated by
any Loan Party or any of its Subsidiaries or on any property formerly owned or
operated by any Loan Party or any of its Subsidiaries; (iii) there is no
asbestos or asbestos-containing material on any property currently owned or
operated by any Loan Party or any of its Subsidiaries; and (iv) Hazardous
Materials have not been released, discharged or disposed of on any property
currently owned or operated by any Loan Party or any of its Subsidiaries, or any
property formerly owned or operated by any Loan Party or any of its
Subsidiaries.
(c) Except as disclosed in the environmental assessment reports listed on
Schedule 4.13, no Loan Party nor any of its Subsidiaries is undertaking or has
not completed, either individually or together with other potentially
responsible parties, any investigation or assessment or Remedial, Response or
Removal action relating to any actual or threatened release, discharge or
disposal of Hazardous Materials at any site, location or operation, either
voluntarily or pursuant to the order of any governmental or regulatory authority
or the requirements of any Environmental Law; and all Hazardous Materials
generated, used, treated, handled or stored at, or transported to or from, any
property currently owned or operated by any Loan Party or any of its
Subsidiaries or any property formerly owned or operated by any Loan Party or any
of its Subsidiaries have been disposed of in a manner not reasonably expected to
result in material liability to any Loan Party or any of its Subsidiaries.
SECTION 4.14 Restrictive Agreements. Except as set forth on Schedule 4.14,
no Loan Party nor any of its Subsidiaries is a party to any indenture, loan or
credit agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction that could reasonably be expected to have a
Material Adverse Effect.
SECTION 4.15 Priority of Liens. The Collateral Documents, together with all
filings and delivery to the Administrative Agent or its agent of instruments
requiring possession for perfection create in favor of the Administrative Agent,
for the ratable benefit of the Lenders, a valid and perfected first priority
security interest in the Collateral which security interest is able to be
perfected by filings or the taking of possession with respect to the Collateral,
to the extent the Administrative Agent actually takes such possession, securing
the payment of the Obligations, and all filings and other actions necessary or
reasonably desirable to perfect and protect such security interest as requested
by the Administrative Agent have been duly taken. The Loan Parties are the legal
and beneficial owners of the Collateral free and clear of any Lien, except for
the liens and security interests created or expressly permitted under the Loan
Documents, and except for the CH Deferred Purchase Price Rights.
SECTION 4.16 Taxes.
(a) Each Loan Party and each of its Subsidiaries has filed, has caused to
be filed or has been included in all tax returns (Federal, state, local and
foreign) required to be filed and has paid all taxes shown thereon to be due,
together with applicable interest and penalties.
72
<PAGE>
(b) Set forth on Schedule 4.16 is a complete and accurate list of each
taxable year of each Loan Party and each of its Subsidiaries for which Federal
income tax returns have been filed and for which the expiration of the
applicable statute of limitations for assessment or collection has not occurred
by reason of extension or otherwise (an "Open Year").
(c) There is no unpaid amount of adjustments to the Federal income tax
liability of each Loan Party and each of its Subsidiaries proposed by the
Internal Revenue Service to the Borrower or any of its Subsidiaries with respect
to Open Years. No issues have been raised by the Internal Revenue Service to the
Borrower or any of its Subsidiaries in respect of Open Years that, in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(d) There is no unpaid amount of adjustments to the state, local and
foreign tax liability of each Loan Party and each of its Subsidiaries proposed
by any state, local or foreign taxing authorities to the Borrower or any of its
Subsidiaries (other than amounts arising from adjustments to Federal income tax
returns). No issues have been raised by such taxing authorities to the Borrower
or any of its Subsidiaries that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(e) No "ownership change" as defined in Section 382(g) of the Internal
Revenue Code, and no event that would result in the application of the "separate
return limitation year" or "consolidated return change of ownership" limitations
under the Federal income tax consolidated return regulations, has occurred with
respect to any Loan Party.
SECTION 4.17 Compliance with Securities Laws. No Loan Party and none of any
Loan Party's Subsidiaries is an "investment company," or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
Neither the making of any Advances, nor the issuance of any Letters of Credit,
nor the application of the proceeds or repayment thereof by the Borrower, nor
the consummation of the Transaction, will violate any provision of such Act or
any rule, regulation or order of the Securities and Exchange Commission
thereunder or any takeover, disclosure or other federal, state or foreign
securities law or Regulations T, U or X of the Federal Reserve Board. The
Borrower is not subject to regulation under any federal, state or foreign
statute or regulation which limits its ability to incur Debt.
SECTION 4.18 Solvency. The Borrower is, individually and together with its
Subsidiaries, Solvent.
SECTION 4.19 Debt.
(a) Set forth on Schedule 4.19(a) is a complete and accurate list of all
Debt of the Borrower and its Subsidiaries the principal amount of each such Debt
which is greater than $250,000 (the "Existing Debt"), showing as of the date
hereof immediately before giving effect to the Transactions the principal amount
outstanding thereunder and the maturity date thereof.
73
<PAGE>
(b) Set forth on Schedule 4.19(b) is a complete and accurate list of all
Debt of the Borrower and its Subsidiaries the principal amount of each such Debt
which is greater than $100,000, which Debt shall remain outstanding after giving
effect to the Transactions (the "Surviving Debt"), showing as of the date hereof
the principal amount outstanding thereunder, the maturity date thereof and the
amortization schedule therefor.
SECTION 4.20 No Defaults, Compliance with Laws.
(a) Except as set forth on Schedule 4.20 hereto, no Loan Party is in
default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party or by which it is bound, or
any other agreement or other instrument by which any of the properties or assets
owned by it or used in the conduct of its business is affected, which default
would be reasonably likely to have a Material Adverse Effect, except to the
extent that any such default in respect of an order or judgment is being
contested in good faith and by proper proceedings and adequate reserves and does
not otherwise constitute an Event of Default under this Agreement.
(b) Each Loan Party has complied and is in compliance in all respects with
all applicable laws, rules, ordinances, regulations, resolutions, orders, writs,
decrees and other similar documents and instruments of all courts and
governmental authorities, bureaus and agencies, domestic and foreign, including,
without limitation, any Regulatory Authority and all applicable provisions of
the Americans with Disabilities Act (42 U.S.C. ss. 12101-12213) and the
regulations issued thereunder and all applicable Environmental Laws,
non-compliance with which could reasonably be expected to have a Material
Adverse Effect.
SECTION 4.21 Owned Real Property. Set forth on Schedule 4.21 is a complete
and accurate list of all real property owned by any Loan Party or any of its
Subsidiaries or in which any Loan Party has an interest as a contract vendee,
showing as of the date hereof the street address, county or other relevant
jurisdiction, state, record owner and book and estimated fair value thereof.
Such Loan Party or such Subsidiary has good, marketable and insurable fee simple
title to such real property, free and clear of all Liens, other than Permitted
Real Property Encumbrances. Each Mortgage creates, as security for the
obligations purported to be secured thereby, a valid and enforceable perfected
security interest in and Lien on all of the Mortgaged Property (and will create
a valid and enforceable perfected security interest in and Lien on all fixtures
and improvements related to such Mortgaged Property and affixed or added thereto
on or after the Closing Date) in favor of the Administrative Agent (or such
other trustees that may be named therein) for the benefit of the Secured
Parties, superior to and prior to the rights of all third Persons (except that
the security interest created in the Mortgaged Property may be subject to the
Permitted Real Property Encumbrances related thereto) and subject to no other
Liens (other than Permitted Real Property Encumbrances).
SECTION 4.22 Leased Real Property. Set forth on Schedule 4.22 is a complete
and accurate list of all leases of real property under which any Loan Party or
any of its Subsidiaries is the lessee, showing as of the date hereof the street
address, county or other relevant jurisdic-
74
<PAGE>
tion, state, lessor, lessee, expiration date and annual rental cost thereof. To
the best knowledge of each Loan Party, each such lease is the legal, valid and
binding obligation of the lessor thereof, enforceable in accordance with its
terms, except (a) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and (b) to the extent that such
enforceability is subject to general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
SECTION 4.23 Material Contracts. Set forth on Schedule 4.23 is a complete
and accurate list of all Material Contracts of each Loan Party and its
Subsidiaries, showing as of the date hereof the parties, subject matter and term
thereof. Except as could not reasonably be expected to have a Material Adverse
Effect, each such Material Contract has been duly authorized, executed and
delivered by each Loan Party and its Subsidiaries, as the case may be, and any
other parties thereto, has not been amended or otherwise modified, is in full
force and effect and is binding upon and enforceable against each Loan Party and
its Subsidiaries, as the case may be, and any other parties thereto in
accordance with its terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and (b) to the extent
that such enforceability is subject to general principles of equity (regardless
of whether such enforcement is considered in a proceeding in equity or at law).
There exists no material default under any Material Contract by the Borrower or
any of its Subsidiaries party thereto and, to the best knowledge of each Loan
Party, there exists no default under any Material Contract by any other party
thereto.
SECTION 4.24 Investments. Set forth on Schedule 4.24 is a complete and
accurate list of all Investments in excess of $250,000 held by any Loan Party or
any of its Subsidiaries, showing as of the date hereof the amount, obligor or
issuer and maturity, if any, thereof.
SECTION 4.25 Intellectual Property. Set forth on Schedule 4.25 is a
complete and accurate list of all patents, trademarks, trade names, service
marks and copyrights, and all applications therefor and licenses thereof, of
each Loan Party or any of its Subsidiaries, showing as of the date hereof the
jurisdiction in which registered, the registration number, the date of
registration and the expiration date. Each Loan Party and each of their
respective Subsidiaries owns or has rights to use all patents, trademarks, trade
names, service marks, copyrights and other intellectual property necessary to
conduct its business as now or heretofore conducted by it or proposed to be
conducted by it. Each Loan Party and each of their respective Subsidiaries
conducts its business and affairs without infringement of or interference with
any patent, trademark, trade name, service mark, copyright or other intellectual
property of any other Person except for infringements or interferences that
would have an immaterial effect on the Borrower and its Subsidiaries taken as a
whole or on the rights and remedies of the Lender Parties and the Administrative
Agent. The Intellectual Property Security Agreement, together with all filings
and other actions required to be taken in connection therewith, creates, as
security for the obligations purported to be secured thereby, a valid and
enforceable perfected security interest in and Lien on all of the Collateral
purported to be covered thereby in favor of the Administrative Agent for
75
<PAGE>
the benefit of the Secured Parties, superior to and prior to the rights of all
third Persons except for Permitted Liens.
SECTION 4.26 Acquisition Documents. (a) Each Acquisition Document to which
any Loan Party or any of its respective Subsidiaries is a party has been duly
executed and delivered by such Loan Party or such Subsidiary, as the case may
be, and, to the best knowledge of the Borrower, each Acquisition Document has
been duly executed and delivered by the parties thereto other than the Borrower
and its Subsidiaries, and is in full force and effect. The representations and
warranties of any Loan Party and each of its respective Subsidiaries contained
in each Acquisition Document to which such Loan Party or such Subsidiary, as the
case may be, is a party are true and correct in all material respects on the
date hereof and will be true and correct in all material respects on the Closing
Date and the Acquisition Date, as if made on each of such dates, and the
Administrative Agent and each Lender Party shall be entitled to rely upon such
representations and warranties with the same force and effect as if they were
incorporated in this Agreement and made to the Administrative Agent and each
Lender Party directly as of the date hereof, the Closing Date, and the
Acquisition Date.
(b) True and correct copies of each of the Acquisition Documents have been
delivered to the Administrative Agent, and as of the Closing Date, the
Acquisitions shall have been consummated in accordance therewith, and no party
thereto shall have waived any material term or condition contained therein.
SECTION 4.27 Fees. No broker's or finder's fees or commissions or any
similar fees or commissions will be payable by any Loan Party or any of its
Subsidiaries with respect to the incurrence and maintenance of the Obligations,
any other transaction contemplated by the Loan Documents or any services
rendered in connection with any such transactions, except for such fees and
commissions payable by any Loan Party or any of its Subsidiaries which in the
aggregate do not exceed $200,000. The Borrower hereby covenants and agrees to
indemnify the Administrative Agent and each Lender Party against and hold the
Administrative Agent and each Lender Party harmless from any claim, demand or
liability for broker's or finder's fees or similar fees or commissions.
SECTION 4.28 Government Consents for Conduct of Business.
(a) Except as set forth on Schedule 4.4, each Loan Party has, and is in
good standing with respect to, all approvals, permits, licenses, consents,
authorizations, franchises, certificates, and inspections of all Regulatory
Agencies and are otherwise necessary for a Loan Party to continue to conduct
business and own, use, operate, and maintain its property and assets as
heretofore conducted, owned, used, operated, and maintained which, if not
obtained (whether directly or by lawful and effective assignment) or not
maintained in good standing, could reasonably be expected to have a Material
Adverse Effect. No such approval, permit, license, consent, authorization,
franchise, or certificate is conditioned or limited any more so than as is
generally the case with respect to Persons engaged in the same or similar lines
of business. Each such approval, permit, license, consent, authorization,
franchise, or certificate was duly and
76
<PAGE>
validly granted or issued, is in full force and effect, and neither has been,
nor, to the knowledge of any Loan Party, has been threatened to be, amended,
modified, suspended, rescinded, revoked, forfeited, or assigned. Further, to its
knowledge, no condition(s) exist(s) or event(s) has (have) occurred that, with
the giving of notice or lapse of time or both, could result in the amendment,
modification, suspension, rescission, revocation, forfeiture, or non-renewal of
any such approval, permit, license, consent, authorization, franchise, or
certificate.
ARTICLE 5
AFFIRMATIVE COVENANTS
While any of the Commitments is outstanding and, in the event any Advance
remains outstanding, so long as the Borrower or any other Loan Party are
indebted to any of the Lender Parties or the Administrative Agent under any of
the Loan Documents, any Letter of Credit is outstanding and until payment in
full of the Notes and full and complete performance of all of its other
obligations arising hereunder, the Borrower shall:
SECTION 5.1 Compliance with Law. Comply, and cause each of its Subsidiaries
to comply, in all material respects, with all applicable laws, rules,
regulations and orders, such compliance to include, without limitation,
compliance with ERISA; provided, however, that the Borrower and its Subsidiaries
shall not be required to comply with any such laws, rules, regulation and orders
to the extent that its obligation to do so is being contested in good faith and
by proper proceedings and adequate reserves are being maintained in connection
with such circumstances.
SECTION 5.2 Payment of Taxes, Etc. Timely pay and discharge, and cause each
of its Subsidiaries to timely pay and discharge, (a) all taxes, assessments and
governmental charges or levies imposed upon it or upon its property and (b) all
lawful claims that, if unpaid, might by law become a Lien upon its property;
provided, however, that the Borrower and its Subsidiaries shall not be required
to pay or discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which appropriate
reserves are being maintained, unless and until any Lien resulting therefrom
attaches to its property and becomes enforceable against the Borrower or any of
its Subsidiaries.
SECTION 5.3 Compliance with Environmental Laws. Comply, and cause each of
its Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew and cause each of
its Subsidiaries to obtain and renew all Environmental Permits reasonably
necessary for its operations and properties; and conduct, and cause each of its
Subsidiaries to conduct, any investigation, study, sampling and testing, and
undertake any Removal, Remedial or other Response action necessary to remove and
clean up all Hazardous Materials from any of its properties, in accordance with
the requirements of all Environmental
77
<PAGE>
Laws; provided, however, that the Borrower and its Subsidiaries shall not be
required to comply with any such Environmental Law or Environmental Permit or
undertake any such cleanup, Removal, Remedial, Response or other action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and adequate reserves as reasonably determined by the
Administrative Agent are being maintained with respect to such circumstances.
SECTION 5.4 Preparation of Environmental Reports. The Borrower agrees that
the Administrative Agent may, upon reasonable prior notice, from time to time
(but in any event no more frequently than once every two years) in its
reasonable discretion, retain, at the Borrower's expense, an independent
professional consultant to prepare environmental site assessment reports for the
Borrower or any of its Subsidiaries and/or to review any report relating to
Hazardous Materials prepared by or for the Borrower and, upon a reasonable
belief that the Borrower or any of its Subsidiaries has breached any covenant or
representation with respect to environmental matters or that there has been a
material violation of Environmental Laws by the Borrower or one of its
Subsidiaries, the Administrative Agent may conduct its own investigation of such
matter at any facility or property currently owned, leased, operated or used by
the Borrower or one of its Subsidiaries and the Borrower agrees to use its
commercially reasonable efforts to obtain permission for the Administrative
Agent's professional consultant to conduct its own investigation of any such
matter at any facility or property previously owned, leased, operated or used by
the Borrower or one of its Subsidiaries. The Borrower and its Subsidiaries
hereby grant to the Administrative Agent, its employees, consultants and
contractors, the right to enter into or onto the facilities or properties
currently owned, leased, operated or used by the Borrower or its Subsidiaries
upon reasonable notice to the Borrower to perform such assessments on such
property as are reasonably necessary to conduct such a review and/or
investigation. Any such investigation of any such facility or property shall be
conducted, unless otherwise agreed to by the Borrower and the Administrative
Agent, during normal business hours and, to the extent reasonably practicable,
shall be conducted so as not to interfere with the ongoing operations at any
facility or property or to cause any damage or loss to any facility or property.
The Borrower and the Administrative Agent hereby acknowledge and agree that any
report of any investigation conducted at the request of the Administrative Agent
will be obtained and shall be used by the Administrative Agent and Lender
Parties for the purpose of internal credit decisions to monitor and police the
Advances and/or protect the Administrative Agent's and Lender Parties' security
interests in the Collateral. The Administrative Agent agrees to deliver a copy
of any such report to the Borrower with the understanding that the Borrower
acknowledges and agrees that (i) the Borrower will indemnify and hold harmless
the Administrative Agent and each Lender Party from any costs, losses or
liabilities relating to the Borrower's use of or reliance on such report and
(ii) neither the Administrative Agent nor any Lender Party makes any
representation or warranty with respect to such report.
SECTION 5.5 Maintenance of Insurance. (a) Maintain, and cause each of their
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which such Borrower or such Subsidiary operates
including, without limitation, the policies described on
78
<PAGE>
Schedule 5.5 (or other policies comparable thereto); (b) file with the
Administrative Agent upon its request a detailed list of the insurance then in
effect, stating the names of the insurance companies, the amounts and rates of
the insurance, the dates of the expiration thereof and the properties and risks
covered thereby; and (c) deliver to the Administrative Agent, in form and
substance reasonably satisfactory to the Administrative Agent, endorsements to
(A) all "all-risk" and casualty and (if any) business interruption insurance
naming the Administrative Agent, on behalf of itself and the Lenders, as loss
payee if permitted thereunder (or assignee, in the case of business interruption
insurance, if any) insuring in the case of "all-risk" against loss or damage by
fire, lightening, windstorm, explosion, hail, tornado, and if to the extent in a
flood hazard area, a flood insurance policy, and (B) all general liability and
other liability policies naming the Administrative Agent, on behalf of itself
and the Lenders, as additional insured if permitted thereunder, and providing,
in any event, that such insurance policies shall not be canceled without thirty
(30) days' prior written notice thereof by the respective insurer to the
Administrative Agent and shall contain standard non-contributory mortgagee
clause endorsement in favor of the Administrative Agent with respect to hazard
insurance coverage.
SECTION 5.6 Preservation of Corporate Existence, Etc. Except as otherwise
expressly permitted in the Loan Documents preserve and maintain, and cause each
of its Subsidiaries to preserve and maintain, its existence, legal structure,
legal name, and to the extent necessary for it to conduct its business, rights
(charter and statutory) permits, licenses, approvals, privileges and franchises.
SECTION 5.7 Visitation Rights.
(a) At any reasonable time and from time to time during normal business
hours, upon reasonable notice, permit the Administrative Agent, or, after the
occurrence of a Default, the Lender Parties, or any agents or representatives
thereof, to examine and make copies of and abstracts from the records and books
of account of and visit the properties of the Borrower and its Subsidiaries, and
to discuss the affairs, finances and accounts of the Borrower and any such
Subsidiaries with any of their officers or directors.
(b) Permit the Administrative Agent and the Lender Parties to conduct such
commercial finance examinations and/or Collateral audits of the Borrower and its
Subsidiaries during each calendar year as the Administrative Agent may
reasonably request during normal business hours and so as not to interfere with
the ongoing operations of the Borrower and its Subsidiaries.
SECTION 5.8 Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Borrower and each Subsidiary in accordance with GAAP.
SECTION 5.9 Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its properties
that are reasonably necessary in the
79
<PAGE>
conduct of its business in good working order and condition, ordinary wear and
tear excepted and except for insured casualty losses on such properties.
SECTION 5.10 Compliance with Terms of Leaseholds. Make all payments and
otherwise perform all obligations in respect of all leases of real property to
which the Borrower or any of its Subsidiaries is a party, keep such leases in
full force and effect and not allow such leases to lapse or be terminated or any
rights to renew such leases to be forfeited or canceled, notify the
Administrative Agent of any default by any party with respect to such leases and
cooperate with the Administrative Agent in all respects to cure any such
default, and cause each of its Subsidiaries to do so except, in any case, where
the failure to do so, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 5.11 Performance of Material Contracts. Perform and observe, and
cause each of its Subsidiaries to perform and observe, all of the material terms
and provisions of each Material Contract to be performed or observed by it,
maintain, and cause each of its Subsidiaries to maintain, each such Material
Contract in full force and effect, and enforce, and cause each of its
Subsidiaries to enforce, each such Material Contract in accordance with its
terms, except where the failure to do so would not be reasonably likely to have
a Material Adverse Effect and except where its failure to do so is being
contested in good faith and by proper proceedings.
SECTION 5.12 Transactions with Affiliates. Notwithstanding anything in this
Agreement to the contrary, except as set forth in Schedule 5.12 hereto, conduct,
and cause each of its Subsidiaries to conduct, all transactions otherwise
permitted under the Loan Documents with any of their Affiliates on terms that
are fair and reasonable and no less favorable to the Borrower or such Subsidiary
than it would obtain in a comparable arms-length transaction with a Person not
an Affiliate; provided, however, that this Section 5.12 shall not be deemed to
prohibit any intercompany transactions solely between the Borrower and its
Wholly-Owned Subsidiaries carried out in the ordinary course of business,
subject, however, to any applicable provisions of Article 6, and shall not be
deemed to prohibit the transactions contemplated by the Senior Subordinated Debt
Documents as in effect on the date hereof, including the Warrants (as defined
therein).
SECTION 5.13 Agreement to Grant Additional Security.
(a) Promptly, and in any event within thirty (30) days after the
acquisition of assets of the type that would have constituted Collateral at the
date hereof and investments of the type that would have constituted Collateral
on the date hereof (other than assets with a fair market value of less than
$50,000), including the capital stock of any direct or indirect Subsidiary of
the Borrower, notify the Administrative Agent of the acquisition of such assets
or investments and, to the extent not already Collateral in which the
Administrative Agent has a perfected security interest pursuant to the
Collateral Documents, such assets and investments will become additional
Collateral hereunder to the extent the Administrative Agent deems the pledge of
such assets practicable (the "Additional Collateral"), and the Borrower will,
and will cause each of its direct and indirect Subsidiaries to, take all
necessary action, including the filing of appropriate financing
80
<PAGE>
statements under the provisions of the UCC, applicable foreign, domestic or
local laws, rules or regulations in each of the offices where such filing is
necessary or appropriate to grant Administrative Agent a perfected Lien in such
Collateral (or comparable interest under foreign law in the case of foreign
Collateral) pursuant to and to the full extent required by the Collateral
Documents and this Agreement.
(b) Promptly, and in any event no later than thirty (30) days after a
request with respect thereto, cause each of the Borrower's direct and indirect
Subsidiaries (except such as the Administrative Agent shall exempt) to become
party to, or to execute and deliver, a Subsidiary Guaranty, guarantying to the
Administrative Agent and the Lenders the prompt payment, when and as due, of all
Obligations of the Loan Parties under the Loan Documents, including all
obligations under any hedging agreements.
(c) Promptly, and in any event no later than thirty (30) days after a
request with respect thereto, cause each Guarantor created or established after
the date hereof to grant to the Administrative Agent, for the ratable benefit of
the Lenders, a first priority Lien on all property (tangible and intangible) of
such Guarantor, including, without limitation, all of the capital stock of any
of its Domestic Subsidiaries and 65% of the stock of any of its Foreign
Subsidiaries, upon terms similar to those set forth in the Collateral Documents
and otherwise satisfactory in form and substance to the Administrative Agent.
The Borrower shall cause each Guarantor, at its own expense, to become a party
to a Security Agreement, an Intellectual Property Security Agreement, a Mortgage
and any other Collateral Document and to execute, acknowledge and deliver, or
cause the execution, acknowledgment and delivery of, and thereafter register,
file or record in any appropriate governmental office, any document or
instrument reasonably deemed by Administrative Agent to be necessary or
desirable for the creation and perfection of the foregoing Liens (including
legal opinion, title insurance, consents, corporate documents and any additional
or substitute security agreements or mortgages or deeds of trust). The Borrower
will cause each such Guarantor to take all actions requested by Administrative
Agent (including, without limitation, the filing of UCC-1's) in connection with
the granting of such security interests.
(d) Promptly, and in any event not later than thirty (30) days after a
request with respect thereto, (i) deliver to the Administrative Agent the
original of all instruments, documents and chattel paper, and all other
Collateral of which the Administrative Agent determines it should have physical
possession in order to perfect its security interest therein, duly pledged,
endorsed or assigned to the Administrative Agent without restriction; (ii)
obtain landlord waivers, in form and substance reasonably satisfactory to the
Administrative Agent, with respect to any Inventory or other tangible Collateral
located at a location that is not owned by the Borrower or a Subsidiary; (iii)
deliver to the Administrative Agent warehouse receipts covering any portion of
the Inventory or other Collateral located in warehouses and for which warehouse
receipts are issued; (iv) when an Event of Default exists, transfer Inventory to
locations designated by the Administrative Agent; (v) if any Collateral is at
any time in the possession or control of any warehousemen, bailee or the
Borrower's agents or processors, notify the Administrative Agent thereof and
notify such person of the Administrative Agent's security interest in such
Collateral and obtain a bailee letter, in form and substance reasonably
satisfactory to the Administrative
81
<PAGE>
Agent, from such person and instruct such person to hold all such Collateral for
the Administrative Agent's account subject to the Administrative Agent's
instructions; (vi) if at any time any Inventory or other Collateral is located
on any real property of the Borrower which is subject to a mortgage or other
Lien, obtain a mortgagee waiver, in form and substance reasonably satisfactory
to the Administrative Agent, from the holder of each mortgage or other Lien on
such real property; and (vii) take all such other actions and obtain all such
other agreements as the Administrative Agent may reasonably deem necessary or
desirable in respect of any Collateral.
(e) The security interests required to be granted pursuant to this Section
shall be granted pursuant to the Collateral Documents or, in the Administrative
Agent's discretion, such other security documentation (which shall be
substantially similar to the Collateral Documents already executed and delivered
by the Borrower and the Guarantors) as is reasonably satisfactory in form and
substance to Administrative Agent (the "Additional Collateral Documents") and
shall constitute valid and enforceable perfected security interests prior to the
rights of all third Persons and subject to no other Liens except Liens permitted
under Section 6.1. The Additional Collateral Documents and other instruments
related thereto shall be duly recorded or filed in such manner and in such
places and at such times as are required by law to establish, perfect, preserve
and protect the Liens, in favor of Administrative Agent, for the benefit of the
Lender Parties, granted pursuant to the Additional Collateral Documents and, all
taxes, fees and other charges payable in connection therewith shall be paid in
full by the Borrower. At the time of the execution and delivery of Additional
Collateral Documents, the Borrower shall cause to be delivered to Administrative
Agent such agreements, opinions of counsel, and other related documents as may
be reasonably requested by the Administrative Agent or the Required Lenders to
assure themselves that this Section has been complied with.
SECTION 5.14 Performance of Acquisition Documents. Perform and observe, or
cause the relevant Subsidiary to perform and observe, all of the material terms
and provisions of each Acquisition Document to be performed or observed by it or
such Subsidiary, maintain each such Acquisition Document in full force and
effect, enforce each such Acquisition Document in accordance with its terms,
take all such action to such end as may be from time to time requested by the
Administrative Agent required in order to enforce its material rights under the
Acquisition Documents and, upon request of the Administrative Agent, make to
each other party to each such Acquisition Document such demands and requests for
action or for information and reports as the Borrower or any Subsidiary is
entitled to make under such Acquisition Document required in order to enforce
its material rights under the Acquisition Documents.
SECTION 5.15 Year 2000 Compatibility. Take all action necessary to assure
that its computer based systems, hardware and software used in each Loan Party's
business and operations are able to operate and effectively receive, transmit,
process, store, retrieve or retransmit data including dates on and after January
1, 2000, and, at the request of the Administrative Agent, the Loan Parties shall
provide evidence to the reasonable satisfaction of the Administrative Agent of
such year 2000 compatibility.
82
<PAGE>
ARTICLE 6
NEGATIVE COVENANTS
While any of the Commitments is outstanding and, in the event any Advance
remains outstanding, so long as the Borrower or any other Loan Party is indebted
to any of the Lender Parties or the Administrative Agent under any of the Loan
Documents, any Letter of Credit is outstanding and until payment in full of the
Notes and full and complete performance of all of its other obligations arising
hereunder, the Borrower covenants that it will not, at any time, and will not
permit any Loan Party to do, agree to do or permit to be done, any of the
following without the prior written consent of the Required Lenders:
SECTION 6.1 Liens, Etc. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on
or with respect to any of its properties of any character (including, without
limitation, accounts receivable, Inventory and other Collateral) whether now
owned or hereafter acquired, or sign or file or suffer to exist, or permit any
of its Subsidiaries to sign or file or suffer to exist, under the Uniform
Commercial Code or any other statute of any jurisdiction, a financing statement
that names the Borrower or any of its Subsidiaries as debtor, or sign or suffer
to exist, or permit any of its Subsidiaries to sign or suffer to exist, any
security agreement authorizing any secured party thereunder to file any such
financing statement, or assign, or permit any of its Subsidiaries to assign, any
accounts or other right to receive income, excluding, however, from the
operation of the foregoing restrictions the following:
(a) Liens created under the Loan Documents;
(b) Permitted Liens;
(c) Liens existing on the date hereof and described on Schedule 6.1(c);
(d) Purchase money Liens securing Debt permitted under Section 6.2(c)(i)
upon real property or Equipment acquired or held by the Borrower or any of its
Subsidiaries in the ordinary course of business to secure the purchase price of
such real property or Equipment or to secure Debt incurred solely for the
purpose of financing the acquisition, construction or improvement of any such
real property or Equipment to be subject to such Liens, or Liens existing on any
such real property or Equipment at the time of acquisition (other than any such
Liens created in contemplation of such acquisition that do not secure the
purchase price), or extensions, renewals or replacements of any of the foregoing
for the same or a lesser amount; provided, however, that no such Lien shall
extend to or cover any property other than the real property or Equipment being
acquired, constructed or improved, and no such extension, renewal or replacement
shall extend to or cover any property not theretofore subject to the Lien being
extended, renewed or replaced;
83
<PAGE>
(e) Liens arising in connection with Capitalized Leases permitted under
Section 6.2(c)(i) or true operating leases; provided, that no such Lien shall
extend to or cover any Collateral or any assets other than the assets subject to
such Capitalized Leases or operating leases, as the case may be;
(f) (i) Liens created under the Radio Spirits Subordinated Security
Agreement; and
(ii) Liens on the same assets as described under clause (f)(i) granted to
secure the Senior Subordinated Debt but only on terms and conditions
satisfactory to the Administrative Agent as acknowledged in writing; provided
that said Liens shall in any event be co-terminous with the Liens referred to in
clause (f)(i) above and the holder of such Liens shall have no rights to vote as
a secured creditor in any proceeding of the type described in Section 9.6.
(g) The replacement, extension or renewal of any Lien permitted by clauses
(a) through (f) above upon or in the same property theretofore subject thereto
in connection with the replacement, extension or renewal (without increase in
the amount or any change in any direct or contingent obligor) of the Debt
secured thereby.
SECTION 6.2 Debt. Create, incur, assume or suffer to exist, or permit any
of its Subsidiaries to create, incur, assume or suffer to exist, any Debt other
than:
(a) In the case of the Borrower, Debt incurred pursuant to the Loan
Documents;
(b) In the case of the Borrower, debt owed to any Wholly-Owned Subsidiary
of the Borrower, and in the case of any of the Subsidiaries of the Borrower,
Debt owed to the Borrower or to a Wholly-Owned Subsidiary of the Borrower;
provided, that all such Debt owed by any Subsidiary to the Borrower shall be
evidenced by a promissory note, such promissory note shall be pledged to the
Administrative Agent pursuant to the terms of the Security Agreement or such
other document (including, without limitation, the Note Assignment Agreement)
and, in the case of Debt owed by any Subsidiary, there shall be no restrictions
whatsoever on the ability of such Subsidiary to repay such Debt; and
(c) In the case of the Borrower and any of its Subsidiaries:
(i) Debt (A) secured by Liens permitted by Section 6.1(d) and (B)
Capitalized Leases, collectively not to exceed in the aggregate $500,000 at any
time outstanding;
(ii) endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
(iii) the Surviving Debt;
84
<PAGE>
(iv) Senior Subordinated Debt, provided that (A) principal and interest
shall be payable or paid by the Borrower only in accordance with the terms and
conditions of the applicable Subordinated Debt Documents and (B) the Borrower
may, as required by the Senior Subordinated Debt Documents, cause its existing
Subsidiaries and any Subsidiaries of the Company hereafter formed and/or
acquired by the Company (or any Subsidiary of the Company) to issue guaranties
of the Borrower's Obligations under the Senior Subordinated Debt, which
guaranties shall be substantially similar to the Subsidiary Guaranty issued
pursuant to this Agreement, except that such guaranties will be subordinated to
the Obligations of such Subsidiaries under the Subsidiary Guaranty or Guaranties
issued or to be issued under this Agreement consistent with the subordination
provisions set forth in the Convertible Senior Subordinated Note included in the
Senior Subordinated Debt, will guaranty the Obligations of the Borrower under
such Note and otherwise be in form and substance reasonably satisfactory to the
Administrative Agent and the holder of such Note;
(v) Subordinated Debt, provided that principal shall be payable or paid by
the Borrower subsequent to the maturity date of the Obligations under the
Facilities with interest payments, if approved by the Required Lenders in
connection with approval of the terms of such Subordinated Debt, payable prior
to maturity on terms agreed to by the Required Lenders;
(vi) Debt (other than as borrowed hereunder) incurred or assumed in
connection with Permitted Acquisitions or Permitted Club Acquisitions not to
exceed in the aggregate $500,000 at any time outstanding.
(vii) Unsecured Debt incurred in connection with the conversion of the
obligations under any Future Acquisition Puts into Debt of the Borrower or its
Subsidiaries pursuant to the terms of the agreements governing such Future
Acquisition Puts, provided that all of the Debt described in this clause (vii)
constitutes Subordinated Debt; and
(viii) any Debt extending the maturity of, or refunding or refinancing, in
whole or in part, the Debt referred to in this Section 6.2(c), provided that (A)
the principal amount of such Debt shall not be increased above the principal
amount thereof outstanding immediately prior to the refinancing (but, in respect
of the Senior Subordinated Debt, may be increased to Eighteen Million Five
Hundred Thousand ($18,500,000) Dollars in respect of the first refinancing of
the Senior Subordinated Debt that exists on the Closing Date), and the direct
and contingent obligors shall not be changed, as a result of or in connection
with such extension, refunding or refinancing, except that any Subsidiary of the
Company in existence at, or formed or acquired by the Company (or any Subsidiary
of the Company) subsequent to, the date of any of such extension of the maturity
of, or refunding or refinancing, in whole or in part, of the Senior Subordinated
Debt, shall be permitted to guarantee such Debt as so extended, refunded or
refinanced, to the same extent as such Subsidiaries are permitted to guarantee
such Debt pursuant to Section 6.2(c)(iv) hereof, and no prepayment premium or
penalty of any kind shall be incurred in connection therewith, and the terms
thereof are no less favorable to the Borrower or the Lender Parties or the
Administrative Agent (except as and to the extent set forth in respect of Senior
Subordinated Debt under clause (viii)(B) below) than the terms of the refunded
or refinanced
85
<PAGE>
Debt and the fees, expenses and other costs associated therewith are reasonably
acceptable to the Administrative Agent in the exercise of its reasonable
discretion; (B) no amendment, modification or supplement to the terms of any
Debt or any refinanced or refunded Debt shall be made except if and to the
extent permitted under Section 6.13, but amendments and modifications to any
replacement for the Senior Subordinated Debt which are not inconsistent with the
terms of Section 6.13(b) shall be deemed acceptable to the Lenders and the
Administrative Agent; and (C) with respect to the first refinancing of the
Senior Subordinated Debt that exists on the Closing Date, the principal amount
of the replacement Debt shall at least equal the sum of (i) the principal amount
then outstanding of such Senior Subordinated Debt which is refinanced and (ii)
the fees, expenses and other costs payable by the Borrower or its Subsidiaries
in connection with such refinancing (subject to the limit of $18,500,000 of
clause (viii)(A) above).
SECTION 6.3 Accounts Payable. No accounts payable of the Borrower or any of
its Subsidiaries arising from the purchase of property or services, including,
without limitation, Inventory acquired for resale shall be outstanding for
longer than 150 days from the date of incurrence, except (a) accounts payable
which by their terms become payable after 150 days from incurrence or (b)
accounts payable that are subject to good faith dispute by the Borrower.
SECTION 6.4 Fundamental Changes.
(a) Merge into or consolidate with any Person or permit any Person to merge
into it, or permit any of its Subsidiaries to do so, except that so long as no
Default or Event of Default shall have occurred and be continuing and so long as
no Default or Event of Default would result therefrom, (A) Wholly-Owned
Subsidiaries of the Borrower may make Permitted Acquisitions and Permitted Club
Acquisitions; (B) any Subsidiary of the Borrower may consolidate with or merge
into the Borrower or any Wholly-Owned Subsidiary of the Borrower if the Borrower
or such Wholly-Owned Subsidiary will be the surviving corporation; (C) any
Subsidiary may sell, lease, transfer, contribute or otherwise dispose of its
assets, in whole or in part, to Borrower or any other Wholly-Owned Subsidiary of
the Borrower, and may, following any such disposition in whole, liquidate and
dissolve and the Borrower may transfer, contribute or otherwise dispose of its
assets in whole or in part to any Wholly-Owned Subsidiary of the Borrower; (D)
the Borrower may on a single occasion transfer any or all of its accounts
receivable to its Wholly-Owned Subsidiary, ABC Investment Corp., and such
Subsidiary may transfer any or all of its accounts receivable to the Borrower
(in each case subject to the continuing existence of the Administrative Agent's
perfected security interest therein) and (E) a merger of the Borrower with and
into a newly-formed Delaware Wholly-Owned Subsidiary of the Borrower for the
sole purpose of effecting a reincorporation of the Borrower in Delaware,
provided that the Borrower shall have given the Administrative Agent not less
than ten (10) Business Days prior written notice and prior to effecting such
Merger Borrower shall take all actions, if any, reasonably required by the
Administrative Agent to preserve the Administrative Agent's security interest in
the Collateral and all other rights and remedies of the Lenders and the
Administrative Agent under the Loan Documents or otherwise then existing by law;
86
<PAGE>
(b) Except as otherwise expressly permitted herein, liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution), convey, sell,
assign, lease, transfer or otherwise dispose of (or agree to do any of the
foregoing at any future time) all or substantially all of its property, business
or assets, or permit any of its Subsidiaries to do any of the foregoing;
(c) Except as otherwise expressly permitted herein, acquire or permit any
Subsidiary to acquire all or substantially all of the assets or any capital
stock of any other Person, except that (A) the Borrower may consummate the
Acquisitions in accordance with the terms and conditions of the Acquisition
Documents, (B) Wholly-Owned Subsidiaries of the Borrower may consummate
Permitted Acquisitions and Permitted Club Acquisitions and (C) the Borrower or
any Wholly-Owned Subsidiary of the Borrower may acquire any asset permitted to
be sold, leased, transferred, contributed or otherwise disposed of by Borrower
or any of its Subsidiaries pursuant to Section 6.4(a)(C).
SECTION 6.5 Sales, Etc. of Assets. Except as otherwise expressly set forth
in Section 6.4 with respect to transfers or other dispositions between the
Borrower and any of its Subsidiaries or between or among such Subsidiaries,
sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries
to sell, lease, transfer or otherwise dispose of, any assets or grant any option
or other right to purchase, lease or otherwise acquire any assets, except:
(a) Sales of Inventory in the ordinary course of business;
(b) Sales of obsolete or surplus Equipment or Equipment which is no longer
useful in the ordinary course of business;
(c) Sales of assets (other than an asset included in Section 6.5(a), (b),
(d), (e), (f) or (g) the aggregate purchase price of which in any Fiscal Year
does not exceed $1,000,000 and provided that no such sale shall be made if (A)
such sale would impair the value or composition of the Collateral beyond the
dollar value of the asset sale in any material respect, or (B) Default or Event
of Default then exists or would exist after giving effect thereto;
(d) The sale of any fixed asset by the Borrower or any of its Subsidiaries
(other than an asset included in Section 6.5(a), (b), (c) or (f)) so long as (i)
the purchase price paid to the Borrower or such Subsidiary for such asset shall
be no less than the fair market value of such asset at the time of such sale,
(ii) the purchase price for such asset shall be paid to the Borrower or such
Subsidiary solely in cash and (iii) the aggregate purchase price paid to the
Borrower and all of its Subsidiaries for such asset and all other assets sold by
the Borrower and its Subsidiaries (other than an asset included in Section
6.5(a), (b), (c) or (f)) in any Fiscal Year pursuant to this clause (d) shall
not exceed $1,000,000; and provided that no such sale shall be made if (A) such
sale would impair the value or composition of the Collateral beyond the dollar
value of the asset sale in any material respect, or (B) Default or Event of
Default then exists or would exist after giving effect thereto;
87
<PAGE>
provided that in the case of sales of assets pursuant to Section 6.5 (c) or (d)
the Borrower shall, on the date of receipt thereof, apply the entire Net Cash
Proceeds from such sale in accordance with Section 2.6(b)(ii);
(e) Sell or liquidate Cash Equivalents in the ordinary course of business;
(f) Sale of Premier's assets which are unrelated to classic video or
old-time radio;
(g) Sales of accounts receivable not exceeding $250,000 during any fiscal
year of the Borrower for collection in the ordinary course of business, but not
from and after the occurrence of a Default or Event of Default; and
(h) Transactions in the ordinary course of business including, without
limitation, relating to rental, lease or licensing of customer lists and
programs and similar rights to third party users in which revenues are shared by
the Borrower (or one of its Subsidiaries), provided that in respect of each of
the foregoing, no rights in any assets of the Borrower or any of its
Subsidiaries shall be granted to any person that would limit the Borrower's
rights in such assets in any materially adverse way or the Administrative
Agent's rights with respect thereto in any materially adverse way or that would
diminish the value of the assets to the Borrower or its Subsidiaries or its
value as collateral to the Administrative Agent in any materially adverse way.
SECTION 6.6 Investments in Other Persons. Make or hold, or permit any of
its Subsidiaries to make or hold, any Investment utilizing cash (or if not
utilizing cash, then subject to the terms of Section 6.6(m)) in any Person other
than:
(a) Investments by the Borrower and its Subsidiaries in their Subsidiaries
outstanding on the date hereof and described on Schedule 6.6(a), and additional
investments in Wholly-Owned Subsidiaries of the Borrower (but excluding in any
event OTR Joint Venture except as permitted under Section 6.6(g)); provided,
however, that no more than an aggregate amount equal to $500,000 shall be
invested from and after the date hereof in Foreign Subsidiaries; and, provided,
further, that with respect to Investments in any newly acquired or created
Wholly-Owned Subsidiary, any such Subsidiary shall become a Guarantor pursuant
to the terms of the Subsidiary Guaranty and an additional grantor pursuant to
the terms of the Security Agreement and Intellectual Property Security Agreement
and shall comply with the provisions of Section 5.13;
(b) Loans and advances to officers and other employees in the ordinary
course of the business of the Borrower and its Subsidiaries in an aggregate
principal amount not to exceed $250,000 at any time outstanding;
(c) Investments by the Borrower and its Subsidiaries in Cash Equivalents;
(d) Investments consisting of intercompany Debt permitted under Section
6.2(b);
88
<PAGE>
(e) Investments existing on the date hereof and described on Schedule
6.6(e) hereto;
(f) Investments by the Borrower and its Subsidiaries in deposit accounts
opened in the ordinary course of business;
(g) Investments by the Borrower and its Subsidiaries in joint ventures in
an aggregate amount not to exceed $1,000,000 and in respect of which the
Borrower's and its Subsidiaries' liabilities contingent or otherwise cannot
exceed such $1,000,000 in the aggregate ;
(h) Investments consisting of accounts receivable in the ordinary course of
business;
(i) Investments in the form of Permitted Acquisitions and Permitted Club
Acquisition;
(j) The Investments comprising the Acquisitions;
(k) Investments in interest rate swaps, currency rate swaps or other
similar derivative instruments entered into for a valid business purpose and not
for speculation;
(l) Investments received in the ordinary course of business in connection
with the settlement of debts, including receivables, owed to the Borrower or its
Subsidiaries; and
(m) Investments utilizing Equity Interests issued by the Borrower and not
utilizing cash or other assets of any Loan Party, but only on the following
terms and conditions:
(i) no such Investment would, before or after giving effect thereto,
conflict with or be inconsistent with any of the other provisions of this
Agreement (including, without limitation, provisions relating to Permitted
Acquisitions or Permitted Club Acquisitions) or cause a Default or Event of
Default; and
(ii) no such Investment would result in any liability or obligation being
incurred at any time by the Borrower or any of its Subsidiaries, except as
otherwise expressly permitted by this Agreement.
SECTION 6.7 Dividends, Etc. Subject to Section 6.18, declare or pay any
dividends, pur chase, redeem, retire, defease or otherwise acquire for value any
of its capital stock or any warrants, rights or options to acquire such capital
stock, now or hereafter outstanding, return any capital to its stockholders as
such, make any distribution of assets, capital stock, warrants, rights, options,
obligations or securities to its stockholders as such, or permit any of its
Subsidiaries to do any of the foregoing or permit any of its Subsidiaries to
purchase, redeem, retire, defease or otherwise acquire for value any capital
stock of the Borrower or any warrants, rights or options to acquire such capital
stock or to issue or sell any such capital stock or any warrants, rights or
options to acquire such capital stock, except:
89
<PAGE>
(a) The Borrower may declare and pay dividends and make distributions
payable solely in Equity Interests of the Borrower, including common stock,
warrants, options and rights to purchase common stock, but only on the condition
that no such instrument or security by its terms shall mandate or require the
Borrower to, and no holder thereof shall have the right to require the Borrower
to, declare or pay any dividends or distributions in respect thereof or
purchase, redeem, retire, defease or otherwise acquire for value any of its
capital stock, warrants, options or rights to acquire such capital stock;
(b) A Subsidiary of the Borrower may declare and pay dividends and
distributions to the Borrower or to another Subsidiary that is a Wholly-Owned
Subsidiary of the Borrower;
(c) The Borrower may consummate the Acquisitions and satisfy the
Acquisition Puts, provided that satisfaction of the Acquisition Puts shall be
subject to the conditions that no Default or Event of Default then exists or
would exist after giving effect to the satisfaction of any such Acquisition
Puts, and the Administrative Agent shall have received a Compliance Certificate
duly executed by the Borrower evidencing the Borrower's compliance with the
covenants set forth in Article 8 before and after giving effect to the
satisfaction of any Acquisition Put;
(d) For issuances of stock expressly permitted by Section 6.18 and
issuances of warrants to any Lender Party and for repurchases, required for
regulatory compliance, of warrants held by financial institutions; or
(e) The Borrower or any Subsidiary may enter into obligations to repurchase
the Borrower's Equity Interests issuable in connection with Permitted
Acquisitions (the "Future Acquisition Puts"); provided that the total contingent
liability under all Future Acquisition Puts shall not exceed $2,500,000 at any
time outstanding through December 31, 1999 and $4,000,000 at any time
outstanding thereafter (excluding for this calculation the contingent liability
of each Future Acquisition Put or portion thereof which cannot be exercised even
if a default exists in respect thereof or documents relating thereto by the
holder thereof prior to the Termination Date) and that no Default or Event of
Default then exists or would exist after giving effect to the satisfaction of
any such Future Acquisition Puts (and all documents evidencing such Future
Acquisition Puts shall reflect the existence of such condition to the Borrower's
honoring the exercise of any such Future Acquisition Put), and the
Administrative Agent shall have received a Compliance Certificate duly executed
by the Borrower evidencing the Borrower's compliance with the covenants set
forth in Article 8 before and after giving effect to the satisfaction of any
Future Acquisition Put.
SECTION 6.8 Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof except as expressly permitted hereby.
SECTION 6.9 Charter Amendments. Amend, or permit any of its Subsidiaries to
amend, its certificate or articles of incorporation or bylaws if such amendment
could impair the interests or rights of the Administrative Agent or any Lender
Party.
90
<PAGE>
SECTION 6.10 Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or reporting
practices except as described in clauses (a), (b), (c) and (d) of the definition
of Accounting Changes in Section 1.3.
SECTION 6.11 Prepayments, Etc. of Debt. (a) Prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof in any
manner, or make any payment in violation of any subordination terms of, any
Debt, other than (i) prepayment of the Advances in accordance with the terms of
this Agreement and (ii) (A) notwithstanding the provisions of Sections 5.12 and
6.20 hereof and any other Section limiting the terms of or prepayment of the
Senior Subordinated Debt, but subject to the proviso at the conclusion of this
clause (ii), repayment to the holder of the Senior Subordinated Debt of
$1,000,000 of the Senior Subordinated Debt pursuant to the terms and conditions
of that certain Escrow Agreement, dated on or about the date hereof (the "Escrow
Agreement") among the Borrower, Norton Herrick and Fleet National Bank and (B)
notwithstanding any other provisions of the Loan Documents, including Sections
5.12 and 6.20 hereof, payment of such amounts, if any, which are payable by the
Borrower pursuant to the terms and conditions of that certain letter agreement,
dated on or about the date hereof (the "Letter Agreement") between the Borrower
and Norton Herrick executed and delivered in connection with the Senior
Subordinated Debt; (b) amend, modify or change in any manner any term or
condition of any Existing Debt or Surviving Debt, except to the extent that such
benefit inures to the benefit of the Borrower and could not be adverse to the
interests or rights of the Lender Parties or the Administrative Agent, or (c)
permit any of its Subsidiaries to do any of the foregoing other than to repay
any Debt payable to the Borrower.
SECTION 6.12 Amendment, Etc. of Acquisition Documents. Cancel or terminate
any Acquisition Document or consent to or accept any cancellation or termination
thereof, amend, modify or change in any manner any term or condition (other than
any immaterial term or condition) of any Acquisition Document or give any
consent, waiver or approval thereunder, waive any default under or any breach of
any term or condition (other than any immaterial term or condition) of any
Acquisition Document or take any other action in connection with any Acquisition
Document that would, in any such case, impair the value of the interests or
rights of the Borrower thereunder (except in an immaterial way), or would impair
the interests or rights of the Administrative Agent or any Lender Party (except
in an immaterial way but only after not less than ten (10) days' prior written
notice of any of the foregoing such proposed actions shall have been received by
the Lenders and Administrative Agent but in no event shall any such action
whether or not immaterial relate to any Acquisition Puts or the CH Deferred
Purchase Price Rights), or permit any of its Subsidiaries to do any of the
foregoing.
SECTION 6.13 Amendment, Etc. of Material Contracts, Including Debt. (a)
Cancel or terminate any Material Contract or consent to or accept any
cancellation or termination thereof, amend or otherwise modify any Material
Contract or give any consent, waiver or approval thereunder, waive any default
under or breach of any Material Contract or take any other action in connection
with any Material Contract that would materially impair the value of the
interests or rights of the Borrower thereunder or that could impair the
interests or rights of the Administrative Agent or any Lender Party (except in
an immaterial way and not in any event
91
<PAGE>
from and after the occurrence of any Default or Event of Default hereunder) , or
permit any of their Subsidiaries to do any of the foregoing; provided however,
that the Borrower or its Subsidiaries may take any such actions if individually
or in the aggregate such actions could not reasonably be expected to have a
Material Adverse Effect; or
(b) Modify, amend or supplement:
(i) any documentation entered into in connection with any Subordinated Debt
(excluding for purposes of this clause (i) the Senior Subordinated Debt
Documents), except as approved by the Administrative Agent in its sole
discretion; or
(ii) the Senior Subordinated Debt Documents if the effect of such
amendment, supplement or modification is to: (A) increase the interest rate on
the Senior Subordinated Debt in excess of thirteen (13%) per annum, except that
in respect of any portion of the Senior Subordinated Debt held by Norton Herrick
or any of his Affiliates no increase in the interest rate on such portion of the
Senior Subordinated Debt shall be permitted or may be effected prior to January
1, 2000 and thereafter may not exceed 11% (other than an increase not to exceed
11% for the periods from October 1, 1999 through December 31, 1999 so long as
such increase is solely in the form of non-current pay interest which accrues
and is not payable in cash until final maturity of the Senior Subordinated Debt)
(provided that nothing contained herein shall preclude imposition of any default
rate of interest in the amount provided in the Senior Subordinated Debt
Documents), (B) accelerate or shorten the dates upon which payments of principal
or interest are due on the Senior Subordinated Debt; (C) change the redemption
or prepayment provisions of the Senior Subordinated Debt (other than any such
change which would reduce the amount of any scheduled redemption or prepayment
or of any premium or interest payable in connection therewith or that would
defer the date on which any such redemption or prepayment is otherwise scheduled
to be made); (D) make more restrictive any of the covenants contained in the
Senior Subordinated Debt Documents, or add any events of default, or modify any
events of default so as to be triggered sooner in each case in comparison with
any such covenants or events of default contained in the Senior Subordinated
Debt Documents as in effect prior to such proposed amendment, except for changes
that individually and in the aggregate are immaterial and provided that
modifications to the terms of replacement Senior Subordinated Debt refinancing
the Senior Subordinated Debt existing on the Closing Date in regard to certain
types of covenants that are customary for subordinated debt transactions of
similar type and amount (such as financial covenants identical to those
contained herein but looser to such reasonable extent as the Required Lenders
may agree) that do not adversely affect the rights of the Lenders or the
Administrative Agent in any way other than immaterial ways shall be deemed
acceptable to the Lenders and the Administrative Agent so long as copies of all
documents relating to such replacement Senior Subordinated Debt shall have been
received by the Administrative Agent in sufficient time for review to confirm
compliance with the foregoing, with the delivery of such confirmation not to be
unreasonably withheld and the determination of approval or objection not to be
unreasonably delayed; (E) change any provisions of Article 3 (or comparable
provisions) of the Senior Subordinated Debt Documents or modify any of the
defined terms used in such Article 3 (or comparable provisions), (F) provide for
any additional security in respect of the
92
<PAGE>
obligations under the Senior Subordinated Debt Documents, in each case, without
the prior written consent of the Required Lenders; or (G) change any provision
of the Letter Agreement or the Escrow Agreement in any respect; provided that
the Borrower shall be permitted to effect any amendment, supplement or
modification required pursuant to the terms of the Letter Agreement; or
(c) Modify, amend, supplement or terminate any agreements, instruments or
documents relating to the incurrence (if consented to by the Administrative
Agent except to the extent such consent is not required under Section 6.2(c)(vi)
of this Agreement) of any Debt or other obligations, contingent or otherwise, of
the Borrowers or any Subsidiary permitted under Section 6.2(c)(vi) owing under
any Permitted Acquisition documents or Permitted Club Acquisition documents or
arising in connection with any Permitted Acquisition or Permitted Club
Acquisition other than modifications, amendments and/or supplements which are
immaterial and other than refinancing, in accordance with the provisions of
Section 6.2(c)(viii), of up to $500,000 in principal amount of indebtedness
permitted to be incurred in connection with Permitted Acquisitions in accordance
with the terms of Section 6.2(c)(vi).
SECTION 6.14 Negative Pledge. Enter into or suffer to exist, or permit any
of the Subsidiaries of the Borrower to enter into or suffer to exist, any
agreement prohibiting or conditioning the creation or assumption of any Lien
upon any of its properties or assets, other than as provided in the Loan
Documents.
SECTION 6.15 Partnerships, New Subsidiaries.
(a) Become a general partner in any general or limited partnership or joint
venture (other than as expressly permitted pursuant to Section 6.6(g)), or
permit any of its Subsidiaries to do so, or
(b) Create any new Subsidiary, unless such newly created Subsidiary shall
become a Guarantor pursuant to the terms of the Subsidiary Guaranty and an
additional grantor pursuant to the terms of the Security Agreement and
Intellectual Property Security Agreement and all shares of the capital stock of
such Subsidiary are pledged to the Administrative Agent pursuant to the Security
Agreement.
SECTION 6.16 Speculative Transactions. Except for non-speculative
transactions expressly permitted under Section 6.6(k), engage, or permit any of
its Subsidiaries to engage, in any transaction involving commodity options or
futures contracts or derivatives or any similar speculative transactions.
SECTION 6.17 Capital Expenditures. Make, or permit any of its Subsidiaries
to make, any Capital Expenditures that would cause the aggregate of all such
Capital Expenditures made by the Borrower and its Subsidiaries to exceed
$1,000,000 in any Fiscal Year of the Borrower.
93
<PAGE>
SECTION 6.18 Issuance of Stock. Except as otherwise expressly permitted
under Sections 6.4, 6.6, 6.7 and 6.15 hereof, the Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, issue, sell,
assign, pledge or otherwise encumber or dispose of any shares of capital stock
or other Equity Interests of the Borrower or any Subsidiary of the Borrower,
except (a) to the Borrower or a Subsidiary of Borrower, (b) to qualify directors
if required by applicable law, (c) as set forth in Schedule 6.18; (d) pursuant
to the Acquisitions in accordance with the express provisions of the respective
Acquisition Documents as in effect on the date hereof (or as they may be amended
as and to the extent permitted under this Agreement) including, without
limitation, in respect of Acquisition Puts in accordance with the summary of
terms of the Acquisition Puts set forth on Schedule 6.18, provided that no term
of the Acquisition Documents or Acquisition Puts is inconsistent with such
summary of terms on Schedule 6.18; (e) issuances of Equity Interests of the
Borrower in replacement for or repayment of the Senior Subordinated Debt, in
whole or in part, in existence on the date of this Agreement (but not in
replacement for or repayment of any replacement or refinancing of such Senior
Subordinated Debt in existence on the date of this Agreement), so long as such
Equity Interests (i)shall be in an amount at least equal to the sum of the
principal amount then outstanding of such Senior Subordinated Debt which is
replaced or repaid plus the fees, expenses and other costs payable by the
Borrower or its Subsidiaries in connection with such replacement or repayment
and (ii) do not mandate or require the Borrower to, and no holder thereof shall
have the right to require the Borrower to, declare or pay any cash dividends or
cash distributions in respect thereof or purchase, redeem, retire, defease or
otherwise acquire for cash any such Equity Interests, except for payments of
cash dividends in respect of such Equity Interests on substantially the same
economic terms and having substantially the same economic effect as the payments
of interest on the Senior Subordinated Debt in effect on the Closing Date and
having a cash dividend not in excess of 8.5% per annum and payable on dates
comparable to (or less frequently than) the payment dates set forth in the
Senior Subordinated Debt in effect on the Closing Date and subject to blockage
of such payments upon substantially the same terms as apply to such payments of
interest, and (iii) do not contain any rights, whether or not on conversion or
otherwise, that, if exercisable or exercised on the date of issuance could
result in a Change of Control, or if exercisable or exercised at any time
thereafter could reasonably be expected to result in a Change of Control, and
provided that the amount and terms of any fees and expenses and other costs
associated therewith are reasonably acceptable to the Administrative Agent; (f)
issuances of Future Acquisition Puts, if any; and (g) issuances of Equity
Interests of the Borrower not otherwise covered by clauses (a) through (f) above
but only on the condition that no such instrument or security by its terms shall
mandate or require the Borrower to, and no holder thereof shall have the right
to require the Borrower to, (i) declare or pay any cash dividends or cash
distributions in respect thereof or (ii) purchase, redeem, retire, defease or
otherwise acquire for cash any of its capital stock, warrants, options or rights
to acquire such capital stock or (iii) issue securities in respect thereof which
payments of or in respect of which are not subordinate to the Obligations under
the Loan Documents, and, provided, further that no such Equity Interests shall
contain any rights, whether or not on conversion or otherwise that, if
exercisable or exercised on the date of issuance could result in a Change of
Control, or if exercisable or exercised at any time thereafter could reasonably
be expected to result in a Change of Control,
94
<PAGE>
and any references in this Agreement to permitted issuances of Equity Interests
shall be subject to the terms of this subsection 6.18(g).
SECTION 6.19 Operations in Subsidiaries. (i) Fail after nine months
following the Closing Date to transfer the membership database from the Borrower
to one or more of its Wholly-Owned Subsidiaries (other than Acquisition Corp or
Holding Corp.) or (ii) fail from and after such nine-month period to commence
all new agreements and licenses in one or more of its Wholly-Owned Subsidiaries
(provided that the Borrower may be a party to any such agreement or license so
long as substantially all of the economic benefits thereof accrue to the
Subsidiary), or (iii) from and after the date which is nine months following the
Closing Date intentionally expand or increase the business, assets or revenues
of the Borrower (itself on an unconsolidated basis) in any way other than an
immaterial way, or accept business opportunities or acquire assets in other than
the Wholly-Owned Subsidiaries of the Borrower as distinct from the Borrower
itself, it being understood that Subsidiaries of the Borrower are not restricted
in any way by the provisions of this Section 6.19, and provided that (a) the
foregoing shall not be deemed to limit acceptance of business opportunities by
non-Wholly-Owned Subsidiaries or joint ventures of the Borrower and/or its
Subsidiaries to the extent not otherwise limited under this Agreement; and (b)
in the event of an inconsistency between the terms of this Section 6.19 and any
other provisions of this Agreement, the terms of this Section 6.19 shall govern.
SECTION 6.20 Management Fees. Notwithstanding any other provision contained
in this Agreement or any of the other Loan Documents, pay, or be or become
obligated to pay, any Management Fees to any Person or any interest on any
deferred obligation therefor, including, without limitation, to any shareholder,
director, officer or employee of any Borrower, or any Loan Party.
SECTION 6.21 Shelf Registration. Fail to cause a shelf registration on Form
S-3 for an offering to be made on a continuous basis pursuant to Rule 415 under
the Securities Act of 1933, which shelf registration statement registers for
resale the shares of the Borrower's Common Stock issued in connection with (or
issuable upon exercise of any warrants issued in connection with) any of the
Acquisitions or otherwise issued or issuable on the Closing Date, to be declared
effective on or prior to the 180th day following the Closing Date (or fail to
list the shares registered under such shelf registration for trading on the
AMEX, subject to notice of official issuance, by such 180th day) or fail to have
filed within sixty days after the Closing Date such shelf registration; and the
Borrower shall keep the shelf registration statement effective (except for
periods of not more than 20 consecutive days required in order to amend,
supplement or otherwise correct any disclosures in such registration statement)
until the earlier of (a) the second anniversary of the date hereof and (b) the
date that is one week after all shares issued in connection with any Acquisition
(or issuable under such warrants) and included in the shelf registration
statement have been sold.
95
<PAGE>
ARTICLE 7
REPORTING REQUIREMENTS
While any of the Commitments is outstanding and, in the event any Advance
remains outstanding, so long as the Borrower or any other Loan Party is indebted
to any of the Lender Parties or the Administrative Agent under any of the Loan
Documents, any Letter of Credit is outstanding and until payment in full of the
Notes and full and complete performance of all of its other obligations arising
hereunder, the Borrower shall furnish to the Administrative Agent and Lender
Parties:
SECTION 7.1 Default Notice. As soon as possible and in any event within
five (5) Business Days after a Responsible Officer of the Borrower obtains
knowledge of the occurrence of any Default or any event, development or
occurrence reasonably likely to have a Material Adverse Effect, a statement of
the Chief Financial Officer of the Borrower setting forth details of such
Default or event, development or occurrence and the action that the Borrower has
taken and proposes to take with respect thereto.
SECTION 7.2 Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month which is not a fiscal
quarter end, a Consolidated balance sheet, statement of income and cash flows
for each month commencing April 1999, as of the end of such month of the
Borrower and its Subsidiaries, and consolidating balance sheet and statements of
income of the Borrower and its Subsidiaries, for the period commencing at the
end of the previous month and ending with the end of such month and Consolidated
statement of income and a Consolidated statement of cash flows of the Borrower
and its Subsidiaries, and consolidating statements of income of the Borrower and
its Subsidiaries, for the period commencing at the end of the previous Fiscal
Year and ending with the end of such month, setting forth in each case
commencing April 2000 in comparative form the corresponding figures for the
corresponding period of the prior Fiscal Year, all in reasonable detail and duly
certified by the chief financial officer of the Borrower.
SECTION 7.3 Quarterly Financials. As soon as available and in any event
within fifty (50) days after the end of each of the first three fiscal quarters
of each Fiscal Year:
(a) a Consolidated balance sheet of the Borrower and its Subsidiaries, and
consolidating balance sheets of the Borrower and its Subsidiaries, as of the end
of such quarter and a Consolidated statement of income and a Consolidated
statement of cash flows of the Borrower and its Subsidiaries, and consolidating
statements of income and consolidating statements of cash flows of the Borrower
and its Subsidiaries, for the period commencing at the end of the previous
fiscal quarter and ending with the end of such fiscal quarter; and
(b) a Consolidated statement of income and a Consolidated statement of cash
flows of the Borrower and its Subsidiaries and consolidating statements of
income and consolidating statements of cash flows of the Borrower and its
Subsidiaries for the period commencing at the
96
<PAGE>
end of the previous Fiscal Year and ending with the end of such fiscal quarter,
setting forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding Fiscal Year and the corresponding figures
from the budgets for such period and for the Fiscal Year which includes such
period, all of the foregoing in reasonable detail and duly certified by the
chief financial officer of the Borrower as having been prepared in accordance
with GAAP (subject to normal year-end audit adjustments), together with (i) a
Compliance Certificate (provided that the Compliance Certificate must be
delivered in no event later than forty-five (45) days after the end of each of
the first three fiscal quarters of each Fiscal Year) of said officer stating,
inter alia, that no Default has occurred and is continuing or, if a Default has
occurred and is continuing, a statement as to the nature thereof and the action
that the Borrower has taken and proposes to take with respect thereto and (ii) a
schedule in form reasonably satisfactory to the Administrative Agent of the
computations used by the Borrower in determining compliance with the financial
covenants contained in Article 8, provided, that in the event of any change in
GAAP used in the preparation of such financial statements, the Borrower shall
also provide, if necessary for the determination of compliance with Article 8, a
statement of reconciliation conforming such financial statements to GAAP;
provided, further, that to the extent that comparable information is set forth
in the Borrower's quarterly report on Form 10-Q filed with the Securities and
Exchange Commission for each such quarter, delivery to the Administrative Agent
and the Lender Parties of such 10-Q within the time period specified above shall
be acceptable for purposes of this Section 7.3.
SECTION 7.4 Annual Financials. As soon as available and in any event within
one hundred five (105) days after the end of each Fiscal Year with respect to
all deliveries pursuant to this Section 7.4 except for the certificate referred
to in clause (c) below which, in any event, shall be delivered within ninety
(90) days after the end of each Fiscal Year, a copy of the annual audit report
for such year for the Borrower and its Subsidiaries, including therein a
Consolidated balance sheet of the Borrower and its Subsidiaries, and
consolidating balance sheets of Borrower and its Subsidiaries, as of the end of
such Fiscal Year and a Consolidated statement of income and a Consolidated
statement of cash flows of the Borrower and its Subsidiaries, and consolidating
statements of income and consolidating statements of cash flows of the Borrower
and its Subsidiaries, for such Fiscal Year, in each case setting forth in
comparative form the corresponding figures for the prior Fiscal Year and the
corresponding figures from the budget for such Fiscal Year and in each case
accompanied (in the case of such Consolidated financial statements) by an
opinion with respect to such Consolidated financial statements acceptable to the
Administrative Agent of Deloitte & Touche or other independent certified public
accountants of recognized national standing reasonably acceptable to the
Administrative Agent together with (a) a letter of such accounting firm to the
Administrative Agent and Lender Parties stating that in the course of the
regular audit of the business of the Borrower and its Subsidiaries, which audit
was conducted by such accounting firm in accordance with generally accepted
auditing standards, such accounting firm has obtained no knowledge that a
Default has occurred and is continuing, or if, in the opinion of such accounting
firm, a Default has occurred and is continuing, a statement as to the nature
thereof, (b) a schedule in form reasonably satisfactory to the Administrative
Agent of the computations used by such accountants in determining, as of the end
of such Fiscal Year, compliance with the covenants contained in Article 8,
provided, that in the
97
<PAGE>
event of any change in GAAP used in the preparation of such financial
statements, the Borrower shall also provide, if necessary for the determination
of compliance with Article 8, a statement of reconciliation conforming such
financial statements to GAAP and (c) a certificate of the Chief Financial
Officer of the Borrower stating that no Default has occurred and is continuing
or, if a Default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower has taken and proposes to take with
respect thereto.
SECTION 7.5 Annual Forecasts. As soon as available and in any event no
later than sixty (60) days after the end of each Fiscal Year, an annual
operating budget prepared by management of the Borrower, including projected
consolidated and consolidating balance sheets, income statements and cash flow
statements on a quarterly basis and a description of the assumptions used in
preparing such budget and such other relevant notes to such budget.
SECTION 7.6 ERISA Events and ERISA Reports. (i) Promptly and in any event
within thirty (30) days after any Loan Party or any ERISA Affiliate knows or has
reason to know that any ERISA Event has occurred, a statement of the Chief
Financial Officer of the Borrower describing such ERISA Event and the action, if
any, that such Loan Party or such ERISA Affiliate has taken and proposes to take
with respect thereto and (ii) on the date any records, documents or other
information must be furnished to the PBGC with respect to any Plan pursuant to
Section 4010 of ERISA, a copy of such records, documents and information.
SECTION 7.7 Plan Terminations. Promptly and in any event within ten (10)
Business Days after receipt thereof by any Loan Party or any ERISA Affiliate,
copies of each notice from the PBGC stating its intention to terminate any Plan
or to have a trustee appointed to administer any Plan or correspondence from the
PBGC indicating it is considering termination of any Plan.
SECTION 7.8 Actuarial Reports. Promptly upon receipt thereof by any Loan
Party or any ERISA Affiliate, a copy of the annual actuarial valuation report
for each Plan the funded current liability percentage (as defined in Section
302(d)(8)(B) of ERISA) of which is less than 90% or the unfunded current
liability (as defined in Section 302(d)(8)(A) of ERISA) of which exceeds
$500,000. The present value of benefit liabilities as of the latest actuarial
valuation date for such Plan (but not prior to 12 months prior to the date
hereof), determined on the basis of a shut down of the company in accordance
with actuarial assumptions used by the PBGC in single-employer plan
terminations, shall not exceed the market value of assets exclusive of any
contributions due to the Plan by more than $500,000.
SECTION 7.9 Plan Annual Reports. Upon the request, from time to time, of
the Administrative Agent, promptly and in any event within thirty (30) days
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Plan.
SECTION 7.10 Annual Plan Summaries. As soon as available and in any event
within one hundred twenty (120) days after the end of each Fiscal Year, an
annual summary of actuarial
98
<PAGE>
valuation and other information with respect to each Plan in form, substance and
detail satisfactory to the Administrative Agent.
SECTION 7.11 Multiemployer Plan Notices. Promptly and in any event within
five (5) Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, copies of each notice
concerning, or other correspondence with respect to, (i) the imposition of
Withdrawal Liability by any such Multiemployer Plan, (ii) the reorganization or
termination, within the meaning of Title IV of ERISA, of any such Multiemployer
Plan or (iii) the amount of liability incurred, or that may be incurred, by such
Loan Party or any ERISA Affiliate in connection with any event described in
clause (i) or (ii).
SECTION 7.12 Litigation. Promptly after the commencement thereof, notice of
all material actions, suits, investigations, litigation and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, Federal, state, local or foreign, affecting any Loan Party or
any of its Subsidiaries and, promptly after the occurrence thereof, notice of
any change in the status or the financial effect on any Loan Party or any of its
Subsidiaries of the Disclosed Litigation from that described on Schedule 4.9
that in each case could reasonably be expected to have a Material Adverse
Effect.
SECTION 7.13 Securities Reports. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and reports that
any Loan Party or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special reports, and all final registration
statements, that any Loan Party or any of its Subsidiaries files with the
Securities and Exchange Commission or any other governmental authority or with
any national securities exchange.
SECTION 7.14 Creditor Reports. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other holder of the
securities of any Loan Party or of any of its Subsidiaries pursuant to the terms
of any indenture, loan or credit agreement or similar agreement or instrument
and not otherwise required to be furnished to the Lender Parties pursuant to any
other clause of this Article 7.
SECTION 7.15 Agreement Notices. Promptly upon receipt thereof, copies of
all notices, requests and other documents received by any Loan Party or any of
its Subsidiaries under or pursuant to any Material Contract or indenture, loan
or credit agreement or similar agreement or instrument regarding or related to
any breach or default by any party thereto or any event that could materially
impair the value of the interests or the rights of any Loan Party or any of its
Subsidiaries (other than immaterial interests or rights) or otherwise have a
Material Adverse Effect and copies of any amendment, modification or waiver of
any provisions of any Material Contract or indenture, loan or credit agreement
or similar agreement or indenture and, from time to time upon request by the
Administrative Agent, such information and reports regarding the foregoing as
the Administrative Agent may reasonably request.
99
<PAGE>
SECTION 7.16 Revenue Agent Reports. Within ten (10) days after receipt,
copies of all Revenue Agent Reports (Internal Revenue Service Form 886), or
other written proposals of the Internal Revenue Service, that propose, determine
or otherwise set forth any adjustments to the Federal income tax liability of
the affiliated group (within the meaning of Section 1504(a)(1) of the Internal
Revenue Code) of which the Borrower is a member aggregating $250,000 or more.
SECTION 7.17 Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or of any
noncompliance by any Loan Party or any of its Subsidiaries with any
Environmental Law or Environmental Permit that could reasonably be expected to
have a Material Adverse Effect.
SECTION 7.18 Real Property. Upon the request, from time to time, of the
Administrative Agent, promptly and in any event within thirty (30) days after
any such request, a report supplementing Schedules 4.21 and 4.22 hereto,
including an identification of all real and leased property disposed of by the
Borrower or any of its Subsidiaries during such Fiscal Year, a list and
description (including the street address, county or other relevant
jurisdiction, state, record owner and, in the case of leases of property,
lessor, lessee, expiration date and annual rental cost thereof) of all real
property acquired or leased during such Fiscal Year and a description of such
other changes in the information included in such Schedules as may be necessary
for such Schedules to remain accurate and complete in all respects.
SECTION 7.19 Insurance. Upon the request, from time to time, of the
Administrative Agent, promptly and in any event within thirty (30) days after
any such request, a report summarizing the insurance coverage (specifying type,
amount and carrier) in effect for each Loan Party and its Subsidiaries and
containing such additional information as the Administrative Agent may
reasonably request.
SECTION 7.20 [Intentionally left blank.]
SECTION 7.21 Management Letters. As soon as available and in any event
within ten (10) Business Days after the receipt thereof, copies of any
"management letter" or similar letter received by the Borrower or its Board of
Directors (or any Committee thereof) from its indepen dent public accountants.
SECTION 7.22 Permitted Acquisition Documents. Within twenty (20) Business
Days following the consummation of each Permitted Acquisition and each Permitted
Club Acquisition, complete copies of the related material documents evidencing
such Permitted Acquisition or such Permitted Club Acquisition, certified as true
and correct by an appropriate officer of the Borrower.
SECTION 7.23 Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries or the
Collateral as the Administrative Agent or any Lender Party (through the
Administrative Agent) may from time to time reasonably request.
100
<PAGE>
ARTICLE 8
FINANCIAL COVENANTS
While any of the Commitments is outstanding and, in the event any Advance
remains outstanding, so long as the Borrower or any other Loan Party is indebted
to any of the Lender Parties or the Administrative Agent under any of the Loan
Documents, any Letter of Credit is outstanding and until payment in full of the
Notes and full and complete performance of all of its other obligations arising
hereunder, the Borrower shall:
SECTION 8.1 Minimum EBITDA. Maintain on a Consolidated basis with respect
to the Borrower and its Subsidiaries as of the end of each fiscal period of the
Borrower set forth below EBITDA at not less than the respective amounts set
forth below:
Period Minimum EBITDA
------ --------------
(a) fiscal quarter ending on
March 31, 1999 $0.00 (i.e., no negative amount)
(b) two fiscal quarters ending on
June 30, 1999 $2,500,000
(c) three fiscal quarters ending on
September 30, 1999 $6,000,000
(d) four fiscal quarters ending on
the dates specified below:
December 31, 1999 $10,000,000
March 31, 2000 $11,000,000
June 30, 2000 $12,000,000
September 30, 2000 $12,000,000
December 31, 2000 $13,000,000
December 31, 2001 $15,000,000
December 31, 2002 $16,000,000
101
<PAGE>
December 31, 2003 $16,000,000
SECTION 8.2 Consolidated Senior Debt to EBITDA Ratio Maintain on a
Consolidated basis with respect to the Borrower and its Subsidiaries as of the
end of each fiscal period of the Borrower set forth below, a ratio of
Consolidated Senior Debt to EBITDA of not more than the ratio set forth below;
provided, however, that with respect to the fiscal quarters ending on June 30,
1999 and September 30, 1999, EBITDA shall be calculated as provided at the end
of this Article 8.
Period Maximum Ratio
------ -------------
(a) two fiscal quarters ending on
June 30, 1999 5.25 to 1.00
(b) three fiscal quarters ending on
September 30, 1999 4.00 to 1.00
(c) most recently completed
four fiscal quarters ending on the
dates specified below:
December 31, 1999 3.00 to 1.00
March 31, 2000 3.00 to 1.00
June 30, 2000 2.75 to 1.00
September 30, 2000 2.75 to 1.00
December 31, 2000 2.50 to 1.00
December 31, 2001 and on
each December 31 thereafter 2.00 to 1.00
SECTION 8.3 Consolidated Debt to EBITDA Ratio. Maintain on a Consolidated
basis with respect to the Borrower and its Subsidiaries as of the end of each
period set forth below a Consolidated Debt to EBITDA Ratio of not more than the
ratio set forth below; provided, however, that with respect to the fiscal
quarters ending on September 30, 1999, EBITDA shall be calculated as provided at
the end of this Article 8:
102
<PAGE>
Period Maximum Ratio
------ -------------
(a) three fiscal quarters ending on
September 30, 1999 6.00 to 1.00
(b) most recently completed
four fiscal quarters ending on the
dates specified below:
December 31, 1999 4.50 to 1.00
March 31, 2000 4.50 to 1.00
June 30, 2000 4.25 to 1.00
September 30, 2000 4.00 to 1.00
December 31, 2000 3.75 to 1.00
December 31, 2001
and each December 31 thereafter 3.50 to 1.00
SECTION 8.4 Interest Coverage Ratio. Maintain as of the end of each period
set forth below, a ratio of (i) EBITDA for the most recently completed four
fiscal quarters of the Borrower to (ii) Consolidated Interest Expense to the
extent paid in cash during such period for such period of not less than the
ratio set forth below for such period.
Period Minimum Ratio
------ -------------
(a) most recently completed
four fiscal quarters ending on the
dates specified below:
December 31, 1999 1.75 to 1.00
March 31, 2000 2.00 to 1.00
June 30, 2000 2.25 to 1.00
September 30, 2000 2.25 to 1.00
December 31, 2000 2.50 to 1.00
103
<PAGE>
December 31, 2001
and each December 31 thereafter 2.50 to 1.00
SECTION 8.5 Fixed Charge Coverage Ratio. Maintain as of the end of each
period set forth below a Fixed Charge Coverage Ratio for the most recently
completed four fiscal quarters of the Borrower of not less than the ratio set
forth below for such period.
Period Minimum Ratio
------ -------------
(a) four fiscal quarters ending on the
dates specified below:
December 31, 1999 1.20 to 1.00
March 31, 2000 1.20 to 1.00
June 30, 2000 1.20 to 1.00
September 30, 2000 1.20 to 1.00
December 31, 2000 1.20 to 1.00
December 31, 2001
and each December 31 thereafter 1.20 to 1.00
With respect to Section 8.2 as to the first three full fiscal quarters ending
after the Closing Date, EBITDA shall be calculated on an annualized basis, such
that (a) with respect to the two full fiscal quarters ending on June 30, 1999,
EBITDA shall be calculated by multiplying EBITDA for the period from January 1,
1999 to June 30, 1999 by 2, and (b) with respect to the three full fiscal
quarters ending on September 30, 1999, EBITDA shall be calculated by multiplying
EBITDA for the period from January 1, 1999 to September 30, 1999 by 4/3.
With respect to Section 8.3 as to the first three full fiscal quarters ending
after the Closing Date, EBITDA shall be calculated on an annualized basis, such
that with respect to the three full fiscal quarters ending on September 30,
1999, EBITDA shall be calculated by multiplying EBITDA for the period from
January 1, 1999 to September 30, 1999 by 4/3.
104
<PAGE>
ARTICLE 9
EVENTS OF DEFAULT
If any of the following ("Events of Default") shall occur and be
continuing:
SECTION 9.1 Payment. (a) The Borrower shall fail to pay any principal of
any Advance when the same shall become due and payable or (b) the Borrower shall
fail to pay any interest on any Advance, or any Loan Party shall fail to make
any other payment under any Loan Document, in each case under this clause (b)
within three (3) Business Days after the same becomes due and payable; or
SECTION 9.2 Representations and Warranties. Any representation or warranty
made by any Loan Party (or any of its officers) under or in connection with any
Loan Document shall prove to have been incorrect in any material respect when
made or confirmed; or
SECTION 9.3 Certain Covenants. The Borrower shall fail to perform or
observe any term, covenant or agreement contained in Section 2.14, 5.5, 5.6,
5.7, 5.13, or 5.14, Article 6 or Article 8 and such failure shall, if caused by
a violation of the provisions of Section 6.1(b), (d) or (e), 6.6, 6.14, 6.16,
6.17 and if able to be remedied, remain unremedied for fifteen (15) days after
the date of such failure; or
SECTION 9.4 Other Covenants. Any Loan Party shall fail to perform any other
term, covenant or agreement contained in any Loan Document or other documents
executed or delivered to any of the Lenders in connection with this Agreement on
its part to be performed or observed if such failure shall remain unremedied for
thirty (30) days after the earlier of the date on which (a) a Responsible
Officer of any Loan Party becomes aware of such failure or (b) written notice
thereof shall have been given to the Borrower by the Administrative Agent or any
Lender Party; or
SECTION 9.5 Other Defaults. Any Loan Party or any of its Subsidiaries shall
fail to pay any principal of, premium or interest on or any other amount payable
in respect of any Debt that is outstanding in a principal or notional amount of
at least $500,000 either individually or in the aggregate (but excluding Debt
outstanding hereunder) of such Loan Party or such Subsidiary (as the case may
be), when the same becomes due and payable after any applicable grace period
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt, in each case if the effect of
such event or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt or otherwise to cause, or to permit the holder thereof to
cause, such Debt to mature; or any such Debt shall be declared to be due and
payable or required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased, or an offer
to prepay, redeem, purchase or defease such Debt shall be required to be made,
in each case prior to the stated maturity thereof; or
105
<PAGE>
SECTION 9.6 Bankruptcy, Etc.. Any Loan Party or any of its Subsidiaries
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it) that is being diligently contested by it in good
faith, any such proceeding shall remain undismissed or unstayed for a period of
sixty (60) days or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar official for, it or any
substantial part of its property) shall occur, or any Loan Party or any of its
Subsidiaries shall take any corporate action to authorize any of the actions set
forth above in this Section 9.6; or
SECTION 9.7 Judgments.
(a) Any judgment or order for the payment of money in excess of Five
Hundred Thousand ($500,000) Dollars individually or in the aggregate (other than
such a judgment or order which is fully covered by insurance for which the
appropriate insurer has acknowledged responsibility in writing) shall be
rendered against any Loan Party or any of its Subsidiaries and (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order and (ii) there shall be a period of fifteen (15) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(b) Any non-monetary judgment or order shall be rendered against any Loan
Party or any of its Subsidiaries that is reasonably likely to have a Material
Adverse Effect; or
SECTION 9.8 Loan Documents. Any material provision of any Loan Document
after delivery thereof shall for any reason cease to be valid and binding on or
enforceable against any Loan Party which is party to it, or any such Loan Party
shall so state in writing; or
SECTION 9.9 Liens. Any Collateral Document after delivery thereof, together
with all filings and other required perfection actions taken in connection
therewith, shall for any reason cease to or otherwise not create a valid and
perfected first priority lien on and security interest in the Collateral
purported to be covered thereby (other than non-perfection of Liens on specific
collateral as identified expressly in the Security Agreement or Intellectual
Property Security Agreement); or any Event of Default shall have occurred under
the Radio Spirits Subordinated Security Agreement or the Senior Subordinated
Security Agreement or the secured party under either thereof shall have taken
any action in violation of the terms thereof; or the bailee under any bailee
letter relating to inventory of any Loan Party shall take any action in respect
of such
106
<PAGE>
inventory having a value of $500,000 or more that could adversely affect the
Administrative Agent's rights in collateral covered thereby in a material way;
or
SECTION 9.10 Change of Control. Any Change of Control shall occur; or
SECTION 9.11 ERISA Events.
(a) Any ERISA Event shall have occurred with respect to a Plan and the sum
(determined as of the date of occurrence of the last such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans with
respect to which an ERISA Event shall have occurred and then exist (or the
liability of the Loan Parties and the ERISA Affiliates related to such ERISA
Events) exceeds $500,000; or
(b) Any Loan Party or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to
such Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Loan Parties and the
ERISA Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $500,000 or requires payments exceeding 300,000 per
annum; or
(c) Any Loan Party or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
and as a result of such reorganization or termination the aggregate annual
contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years of such Multiemployer Plans immediately preceding the plan year in which
such reorganization or termination occurs by an amount exceeding $300,000; or
SECTION 9.12 Subordination Provisions. The subordination provisions
contained in any instrument pursuant to which the Subordinated Debt permitted
under Section 6.2(c)(iv) is created or in any instrument evidencing such
Subordinated Debt shall cease, for any reason, to be in full force and effect or
enforceable in accordance with their terms (other than as the result of payment
or prepayment in accordance with the terms hereof); or
SECTION 9.13 Management. Norton Herrick shall cease for any reason
whatsoever, including, without limitation, death or disability (as such
disability shall be determined in the sole and absolute judgment of the
Administrative Agent) to be and continuously perform the duties of Chairman of
the Borrower or, if such cessation shall occur as a result of the death or such
disability, neither (i) Michael Herrick nor (ii) another successor reasonably
satisfactory to the Administrative Agent, shall have become and shall have
commenced to perform the duties of Chairman of the Borrower within thirty (30)
days after such cessation; provided, however, that if Michael Herrick or another
such reasonably satisfactory successor shall have been so elected and shall have
commenced performance of such duties within such period, the name of Michael
107
<PAGE>
Herrick or such other successor, as the case may be, shall be deemed to have
been inserted in place of Norton Herrick, in this Section 9.13; or
SECTION 9.14 No Pledge of Certain Stock. Norton Herrick, Michael Herrick
and/or Howard Herrick or any of their Affiliates shall create or suffer to be
imposed a Lien on any of the shares of capital stock of the Borrower at any time
owned by any of them of record and/or beneficially either (a) at any time when a
Default or Event of Default then exists hereunder or would exist after giving
effect thereto or (b) under any of the circumstances described below in this
Section 9.14, (i) if Norton Herrick, Michael Herrick, Howard Herrick and/or
their Affiliates allow a Lien to be imposed on that quantity of Owned Herrick
Shares which would cause the shares of the Borrower owned (whether beneficially
and/or of record) by Norton Herrick, Michael Herrick, Howard Herrick and their
Affiliates in the aggregate which are not subject to any Lien to be less than
the number of shares required to be owned in clauses (a)(i), (ii), (iii) or (iv)
of the definition of Change of Control as of the date of the imposition of such
Lien (whether or not any Lien thereon shall have been foreclosed on or otherwise
made use of directly or indirectly in any respect by the creditor(s) holding or
having any benefit of such Lien), the intent of the parties hereto being that a
Default shall exist under this Agreement if a Lien is granted on shares of
capital stock of the Borrower if a potential Change of Control could arise
therefrom (as determined under this clause (i) as of the date of the granting of
any such Lien), whether or not a Change of Control would actually exist on the
date of grant or existence of such Lien; or (ii) if a Lien is imposed on more
than forty-nine (49%) percent of Owned Herrick Shares as of the Closing Date
(or, if such shareholdings increase after the Closing Date, then not more than
49% of such shares owned after the Closing Date); or (iii) if a Lien is imposed
on more than 350,000 of Owned Herrick Shares in favor of any single Person or in
favor of any Person taken together with its Affiliates or in favor of any group
of Persons (whether or not Affiliates) acting together or forming a partnership,
limited partnership, syndicate or group of any kind or similar combination (as
such amount may be appropriately adjusted as a result of stock splits, stock
dividends, reverse stock splits, reclassifications or similar corporate
transactions);
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the Commitments of each appropriate Lender (other than the Commitment in
respect of Letter of Credit Advances by the Issuing Bank or a Revolving Credit
Lender pursuant to Section 2.3(c) and Swing Line Advances by a Revolving Credit
Lender pursuant to Section 2.2(b)) and of the Issuing Bank to issue Letters of
Credit to be terminated, whereupon the same shall forthwith terminate, and (ii)
shall at the request, or may with the consent, of the Required Lenders, (A) by
notice to the Borrower, declare the Notes, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Notes, all such interest and all such
other amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower and (B) by notice to each party required
under the terms of any agreement in support of which a Standby Letter of Credit
is issued, request that all Obligations under such agreement be declared to be
due and payable; provided, however, that in the event of an actual or deemed
entry of an order for relief with respect to any Loan Party or any of its
Subsidiaries under the
108
<PAGE>
Federal Bankruptcy Code, (x) the obligation of each Lender to make Advances
(other than Letter of Credit Advances by the Issuing Bank or a Revolving Credit
Lender pursuant to Section 2.3(c) and Swing Line Advances by a Revolving Credit
Lender pursuant to Section 2.2(b)) and of the Issuing Bank to issue Letters of
Credit shall automatically be terminated and (y) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
If any Event of Default shall have occurred and be continuing, the
Administrative Agent may, or shall at the request of the Required Lenders,
irrespective of whether it is taking any of the actions described in Article 9
or otherwise, make demand upon the Borrower to, and forthwith upon such demand
the Borrower will, pay to the Administrative Agent on behalf of the Lender
Parties in same day funds at the Administrative Agent's office designated in
such demand, for deposit in the L/C Cash Collateral Account, an amount equal to
the aggregate Available Amount of all Letters of Credit then outstanding. If at
any time the Administrative Agent determines that any funds held in the L/C Cash
Collateral Account are subject to any right or claim of any Person other than
the Administrative Agent and the Lender Parties or that the total amount of such
funds is less than the aggregate Available Amount of all Letters of Credit, the
Borrower will, forthwith upon demand by the Administrative Agent, pay to the
Administrative Agent, as additional funds to be deposited and held in the L/C
Cash Collateral Account, an amount equal to the excess of (a) such aggregate
Available Amount over (b) the total amount of funds, if any, then held in the
L/C Cash Collateral Account that the Administrative Agent determines to be free
and clear of any such right and claim.
ARTICLE 10
THE ADMINISTRATIVE AGENT
SECTION 10.1 Authorization and Action. (a) Each Lender Party (in its
capacities as a Lender, the Issuing Bank and/or the Swing Line Bank) hereby
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement and
the other Loan Documents as are delegated to the Administrative Agent by the
terms hereof and thereof, together with such powers and discretion as are
reasonably incidental thereto. The Administrative Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents and shall not be a trustee or fiduciary for any Lender
Party.
(b) As to any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the Notes), the
Administrative Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lender
Parties and all holders of Notes and any action taken or failure to act pursuant
thereto shall be binding on all the Lender Parties; provided, however, that the
Administrative Agent shall not be
109
<PAGE>
required to take any action that exposes the Administrative Agent to personal
liability or that is contrary to this Agreement, any other Loan Document or
applicable law and except for action expressly required by the Administrative
Agent hereunder or under the Loan Documents, the Administrative Agent shall in
all cases be fully justified in failing or refusing to act hereunder or
thereunder unless it shall be indemnified to its satisfaction by the Lender
Parties against any and all liability and expense that may be incurred by it by
reason of taking or continuing to take any such action.
SECTION 10.2 Agent's Reliance, Etc. Neither the Administrative Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent: (a) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender that is the payee of such Note, as assignor, and an
Eligible Assignee, as assignee, as provided in Section 11.7; (b) may consult
with legal counsel (including counsel for any Loan Party), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender Party and shall not be responsible to any Lender
Party for recitals, any statements, warranties or representations (whether
written or oral) made in or in connection with the Loan Documents; (d) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of any Loan Document on the part of
any Loan Party or to inspect the property (including the books and records) of
any Loan Party; (e) shall not be responsible to any Lender Party for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of, or the perfection or priority of any lien or security interest created or
purported to be created under or in connection with, any Loan Document or any
other instrument or document furnished pursuant thereto; (f) shall incur no
liability under or in respect of any Loan Document by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telegram,
telecopy or telex) believed by it to be genuine and signed or sent by or on
behalf of the proper party or parties; and (g) may employ agents and
attorneys-in-fact and shall not be answerable for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
SECTION 10.3 Fleet and Affiliates. With respect to its Commitments, the
Advances made by it and the Notes issued to it, Fleet shall have the same rights
and powers under the Loan Documents as any other Lender Party and may exercise
the same as though it were not the Administrative Agent; and the term "Lender
Party" or "Lender Parties" shall, unless otherwise expressly indicated, include
Fleet in its individual capacity. Fleet and its affiliates may accept deposits
from, lend money to, act as trustee under indentures of, accept investment
banking engagements from and generally engage in any kind of business with, any
Loan Party, any of its Subsidiaries and any Person who may do business with or
own securities of any Loan Party or any such Subsidiary and may accept fees and
other consideration from the Borrower or its Affiliates, for services in
connection with this Agreement, the other Loan Documents or
110
<PAGE>
otherwise, all as if Fleet were not the Administrative Agent and without any
duty to account therefor to the Lender Parties.
SECTION 10.4 Lender Party Credit Decision. Each Lender Party acknowledges
that it has, independently and without reliance upon the Administrative Agent or
any other Lender Party and based on the financial statements referred to in
Section 4.6 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender Party also acknowledges that it will, independently and
without reliance upon the Administrative Agent or any other Lender Party 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.
SECTION 10.5 Indemnification.
(a) Each Lender Party severally agrees to indemnify the Administrative
Agent (to the extent not promptly reimbursed by the Borrower) from and against
such Lender Party's ratable share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of any of the Loan Documents or any transaction
contemplated hereby and thereby or any action taken or omitted by the
Administrative Agent under any of the Loan Documents; provided, however, that no
Lender Party shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements to the extent resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender Party agrees to reimburse the Administrative Agent promptly upon demand
for its ratable share of any costs and expenses (including, without limitation,
fees and expenses of counsel) payable by the Borrower under Section 11.4, to the
extent that the Administrative Agent is not promptly reimbursed for such costs
and expenses by the Borrower.
(b) Each Lender Party severally agrees to indemnify the Issuing Bank (to
the extent not promptly reimbursed by the Borrower) from and against such Lender
Party's ratable share (determined as provided below) of any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Issuing Bank in any way relating to or
arising out of any of the Loan Documents or any action taken or omitted by the
Issuing Bank under any of the Loan Documents; provided, however, that no Lender
Party shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Issuing Bank's gross negligence or willful misconduct.
Without limitation of the foregoing, each Lender Party agrees to reimburse the
Issuing Bank promptly upon demand for its ratable share of any costs and
expenses (including, without limitation, fees and expenses of counsel) payable
by the Borrower under Section 11.4, to the extent that the Issuing Bank is not
promptly reimbursed for such costs and expenses by the Borrower.
111
<PAGE>
(c) For purposes of Sections 10.5(a) and 10.5(b), the Lender Parties'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (i) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lender Parties, (ii) their
respective Pro Rata Shares of the aggregate Available Amount of all Letters of
Credit outstanding at such time, (iii) the aggregate unused portions of their
respective Term Commitments at such time, and (iv) their respective Unused
Revolving Credit Commitments at such time; provided, that the aggregate
principal amount of Swing Line Advances owing to the Swing Line Bank and Letter
of Credit Advances owing to the Issuing Bank shall be considered to be owed to
the Revolving Credit Lenders ratably in accordance with their respective
Revolving Credit Commitments. In the event that any Defaulted Advance shall be
owing by any Defaulting Lender at any time, such Lender Party's Commitment with
respect to the Facility under which such Defaulted Advance was required to have
been made shall be considered to be unused for purposes of this Section 10.5 to
the extent of the amount of such Defaulted Advance. The failure of any Lender
Party to reimburse the Administrative Agent or the Issuing Bank, as the case may
be, promptly upon demand for its ratable share of any amount required to be paid
by the Lender Parties to the Administrative Agent or the Issuing Bank, as the
case may be, as provided herein shall not relieve any other Lender Party of its
obligation hereunder to reimburse the Administrative Agent or the Issuing Bank,
as the case may be, for its ratable share of such amount, but no Lender Party
shall be responsible for the failure of any other Lender Party to reimburse the
Administrative Agent or the Issuing Bank, as the case may be, for such other
Lender Party's ratable share of such amount. Without prejudice to the survival
of any other agreements of any Lender Party hereunder, the agreement and
obligations of each Lender Party contained in this Section 10.5 shall survive
the payment in full of principal, interest and all other amounts payable
hereunder and under the other Loan Documents.
SECTION 10.6 Successor Administrative Agents. The Administrative Agent may
resign as to any or all of the Facilities at any time by giving written notice
thereof to the Lender Parties and the Borrower and may be removed as to all of
the Facilities at any time with or without cause by the Required Lenders. Upon
any such resignation or removal, the Required Lenders shall have the right to
appoint a successor Administrative Agent as to such of the Facilities as to
which the Administrative Agent has resigned or been removed. If no successor
Administrative Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within thirty (30) days after the retiring
Administrative Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lender Parties, appoint a successor Administrative
Agent, which shall be a Lender which is a commercial bank organized under the
laws of the United States or of any State thereof and having a combined capital
and surplus of at least $250,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent as to all of
the Facilities and upon the execution and filing or recording of such financing
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as the Required Lenders may request, in order to
continue the perfection of the Liens granted or purported to be granted by the
Collateral Documents, such successor Administrative Agent shall succeed to and
become vested with all the rights, powers, discretion, privileges and duties of
the retiring Administrative Agent,
112
<PAGE>
and the retiring Administrative Agent shall be discharged from all of its duties
and obligations under this Agreement and the other Loan Documents. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent as to less than all of the Facilities and upon the
execution and filing or recording of such financing statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Required Lenders may request, in order to continue the
perfection of the Liens granted or purported to be granted by the Collateral
Documents, such successor Administrative Agent shall succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent as to such Facilities, other than with respect to
funds transfers and other similar aspects of the administration of Borrowings
under such Facilities, issuances of Letters of Credit (notwithstanding any
resignation as Administrative Agent with respect to the Letter of Credit
Facility) and payments by the Borrower in respect of such Facilities, and the
retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement as to such Facilities, other than as aforesaid.
After any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent as to all of the Facilities, the provisions of this Article
10 shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Administrative Agent as to any Facilities under this Agreement.
SECTION 10.7 Events of Default. The Administrative Agent shall not be
deemed to have knowledge of the occurrence of a Default (other than the
non-payment of principal of or interest on Loans) unless the Administrative
Agent has received notice from a Lender or the Borrower specifying such Default
and stating that such notice is a "Notice of Default". In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give notice thereof to the Lenders (and shall give
each Lender notice of each such non-payment). The Administrative Agent shall
(subject to Section 10.1(b) hereof) take such action with respect to such
Default as shall be directed by the Required Lenders.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes or any other Loan Document, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed (or, in the case of the Collateral
Documents, consented to) by the Required Lenders and Revolving Credit Lenders
holding greater than 50% of the aggregate Revolving Credit Commitments, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that (a) no amendment,
waiver or consent shall, unless in writing and signed by all of the Lenders
(other than any Lender Party that is, at such time, a Defaulting Lender), do any
of the following at any time: (i) change the percentage of (A) the Commitments,
(B) the aggregate unpaid principal amount of the Advances or (C) the aggregate
Available Amount of outstanding Letters of Credit that, in each case, shall be
required for the Lenders or any of them to take any action hereunder; (ii)
release all or
113
<PAGE>
substantially all of the Collateral in any transaction or series of related
transactions or permit the creation, incurrence, assumption or existence of any
Lien on any material portion of the Collateral in any transaction or series of
related transactions to secure any liabilities or obligations other than
Obligations owing to the Secured Parties under the Loan Documents; (iii) release
any of the Guarantors from their Subsidiary Guaranty; (iv) amend this Section
11.1 or the definition of Required Lenders; or (v) limit the liability of any
Loan Party under any of the Loan Documents and (b) no amendment, waiver or
consent shall, unless in writing and signed by the Required Lenders and each
Lender that has a Commitment under the Term Facility or Revolving Credit
Facility if affected by such amendment, waiver or consent, (i) increase the
Commitments of such Lender or subject such Lender to any additional obligations,
(ii) reduce the principal of, or interest on, the Notes held by such Lender or
any fees or other amounts payable hereunder to such Lender, (iii) change any
date fixed for any payment of principal of, or interest on, the Notes held by
such Lender or any fees or other amounts payable hereunder to such Lender or
(iv) change the order of application of any prepayment set forth in Section 2.6
in any manner that materially affects such Lender; provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by the Swing
Line Bank or the Issuing Bank, as the case may be, in addition to the Lenders
required above to take such action, affect the rights or obligations of the
Swing Line Bank or the Issuing Bank, as the case may be, under this Agreement or
any other Loan Document; and provided, further, that no amendment, waiver or
consent shall, unless in writing and signed by the Administrative Agent in
addition to the Lenders required above to take such action, affect the rights or
duties of the Administrative Agent under this Agreement or any other Loan
Document.
SECTION 11.2 Notices Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered, by
overnight courier services or personally served,
(a) if to the Borrower:
Audio Book Club, Inc.
20 Community Place
Post Office Box 2346
Morristown, New Jersey 07962-2346
Attention: Mr. Norton Herrick
Chairman, Co-Chief Executive Officer
Telephone No.: (973) 539-9528
Facsimile No.: (973) 539-1273
and
Audio Book Club, Inc.
2295 Corporate Blvd., NW
Suite 222
P.O. Box 5010
114
<PAGE>
Boca Raton, FL 33431
Attention: Mr. Norton Herrick
Chairman, Co-Chief Executive Officer
Telephone No.: (561) 241-9880
Facsimile No.: (561) 241-9887
with a copy to:
Werbel & Carnelutti, P.C.
711 Fifth Avenue
New York, New York 10022
Attention: Stephen M. Davis, Esq.
Telephone No.: (212)832-8300
Facsimile No.: (212) 832-3353
(b) if to the Administrative Agent:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02110
Attention: Thomas Flanagan
Telephone No.: (617) 346-4911
Facsimile No.: (617) 346-5093
with a copy to:
Winston & Strawn
200 Park Avenue
New York, New York 10166
Attention: Susan Berkwitt-Malefakis, Esq.
Telephone No.: (212) 294-6703
Facsimile No.: (212) 294-4700
(c) if to any Initial Lender or the Initial Issuing Bank, at its Domestic
Lending Office specified opposite its name on Schedule I attached hereto.
(d) if to any other Lender Party, at its Domestic Lending Office specified
in the Assignment and Acceptance pursuant to which it became a Lender Party;
or, as to the Borrower or the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties and,
as to each other party, at such other address as shall be designated by such
party in a written notice to the Borrower and the Administrative Agent. All such
notices and communications shall, (i) when mailed by certified mail, return
receipt requested, be effective three (3) days after mailing, (ii) when
telegraphed,
115
<PAGE>
telecopied or telexed be effective upon delivery to the telegraph company, upon
transmission by telecopier or upon confirmation by telex answerback, (iii) when
delivered in person, be effective when delivered, and (iv) when delivered by
overnight courier, be effective two (2) Business Days after delivery to the
courier properly addressed, except that notices and communications to the
Administrative Agent pursuant to Article 2, 3 or 10 shall not be effective until
received by the Administrative Agent. Delivery by telecopier of an executed
counterpart of this Agreement, the Notes or any other Loan Document or of any
Exhibit hereto or thereto or of any amendment or waiver of any provision thereof
shall be as effective as delivery of a manually executed counterpart thereof.
SECTION 11.3 No Waiver; Remedies; Counterclaims. No failure on the part of
any Lender Party or the Administrative Agent to exercise, and no delay in
exercising, any right hereunder or under any Note or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law or in equity. The due payment and
performance of the Obligations shall be without regard to any counterclaim,
right of offset or any other claim whatsoever that the Borrower or other Loan
Party may have against any Lender Party or the Administrative Agent and without
regard to any other obligation of any nature whatsoever that any Lender Party or
the Administrative Agent may have to the Borrower or Loan Party, and no such
counterclaim or offset shall be asserted by the Borrower (unless such
counterclaim or offset would, under applicable law, be permanently and
irrevocably lost if not brought in such action) in any action, suit or
proceeding instituted by any Lender Party or the Administrative Agent for
payment or performance of the Obligations.
SECTION 11.4 Costs and Expenses.
(a) The Borrower agrees to pay on demand (i) all reasonable costs and
expenses of the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification and amendment of the Loan
Documents (including, without limitation, (A) all reasonable due diligence,
collateral review, syndication (including printing, distribution and bank
meetings), transportation, computer, duplication, appraisal, audit, insurance,
consultant, search, filing and recording fees and expenses, (B) the fees and
expenses of counsel for the Administrative Agent with respect thereto, including
advising the Administrative Agent as to its rights and responsibilities, or the
perfection, protection or preservation of rights or interests under the Loan
Documents, negotiating with any Loan Party or with other creditors of any Loan
Party or any of its Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default, and presenting claims in or
otherwise participating in or monitoring any bankruptcy, insolvency or other
similar proceeding involving creditors' rights generally and any proceeding
ancillary thereto), (C) and the fees and expenses of J.H. Cohn LLP with respect
to the verification of any cost savings and (ii) all costs and expenses of the
Administrative Agent and the Lender Parties in connection with the enforcement
of the Loan Documents, whether in any action, suit or litigation or any
bankruptcy, insolvency or other similar proceeding affecting
116
<PAGE>
creditors' rights generally or otherwise (including, without limitation, the
fees and expenses of counsel for the Administrative Agent and each Lender Party
with respect thereto).
(b) The Borrower agrees to indemnify and hold harmless the Administrative
Agent, each Lender Party and each of their respective Affiliates and their
respective officers, directors, employees, agents and advisors (each, an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any commenced
or threatened investigation, litigation or proceeding arising out of, related to
or in connection with (and whether under any federal securities law or any other
statute of any jurisdiction or any regulation or at common) law or otherwise
against any Indemnified Party, (i) the Transaction or any other transaction of
Borrower or any of its Subsidiaries or other Affiliates and any of the other
transactions contemplated by the Loan Documents, (ii) any Permitted Acquisition
and any other acquisition or proposed acquisition or similar business
combination or proposed business combination by the Borrower or any of its
Subsidiaries or other Affiliates of all or any portion of the shares of capital
stock or substantially all of the property and assets of any other Person or any
acts, practices or omissions of the Borrower, any of its Subsidiaries or its
agents related thereto, or any withdrawals, termination or cancellation of any
such proposed transaction for any reason, (iii) the Facilities, the actual or
proposed use of the proceeds of the Advances or the Letters of Credit by the
Borrower or any of its Subsidiaries or other Affiliates and any of the other
transactions contemplated by the Loan Documents, or (iv) the actual or alleged
presence of Hazardous Materials on any property of any Loan Party or any of its
Subsidiaries or any Environmental Action relating in any way to any Loan Party
or any of its Subsidiaries, in each case whether or not such investigation,
litigation or proceeding is brought by any Loan Party, its directors, officers,
employees, stockholders or creditors or an Indemnified Party or any Indemnified
Party is otherwise a party thereto and whether or not the Transaction or any
other transaction contemplated hereby is consummated, except to the extent such
claim, damage, loss, liability or expense is found in a final, non-appealable
judgment by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. The Borrower also
agrees not to assert any claim against the Administrative Agent, any Lender
Party or any of their respective Affiliates, or any of their respective
officers, directors, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise relating to the Acquisitions, the Facilities, the actual or
proposed use of the proceeds of the Advances or the Letters of Credit, the Loan
Documents or any of the Transaction or other transactions contemplated thereby,
other than claims for direct, as opposed to consequential, damages.
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance is made by the Borrower to or for the account of a Lender Party other
than on the last day of the Interest Period for such Advance, as a result of a
payment or Conversion pursuant to Section 2.9(b)(i) or a prepayment pursuant to
Section 2.6(a) or (b) or acceleration of the maturity of the Notes pursuant to
Article 9, the Borrower shall, upon demand by such Lender Party (with
117
<PAGE>
a copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Lender Party any amounts required to compensate
such Lender Party for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or re-employment of deposits or other funds required by any
Lender Party to fund or maintain such Advance.
(d) If any Loan Party fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of such Loan Party by the Administrative Agent, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of any Loan
Party hereunder or under any other Loan Document, the agreements and obligations
of the Borrower contained in Sections 2.10 and 2.12 and this Section 11.4 shall
survive the payment in full of principal, interest and all other amounts payable
hereunder and under any of the other Loan Documents.
SECTION 11.5 Right of Set-off. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Article 9 to authorize the Administrative
Agent to declare the Notes due and payable pursuant to the provisions of Article
9, each Lender Party and each of its respective Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and otherwise apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender Party or such Affiliate to or for the credit or the
account of the Borrower or any of its Subsidiaries against any and all of the
Obligations of the Borrower now or hereafter existing under this Agreement and
the Note or Notes (if any) held by such Lender Party, irrespective of whether
such Lender Party shall have made any demand under this Agreement or such Note
or Notes and although such obligations may be unmatured. Each Lender Party
agrees promptly to notify the Borrower and the Administrative Agent after any
such set-off and application; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender Party and its respective Affiliates under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender Party and its respective Affiliates may have
at law, in equity or otherwise.
SECTION 11.6 Binding Effect This Agreement shall become effective when it
shall have been executed by the Borrower and the Administrative Agent and when
the Administrative Agent shall have been notified by each Initial Lender and the
Initial Issuing Bank that each such Initial Lender and the Initial Issuing Bank
has executed it and thereafter shall be binding upon and inure to the benefit of
the Borrower, the Administrative Agent and each Lender Party and their
respective successors and assigns, except that the Borrower shall not have the
right to assign any of its rights hereunder or any interest herein without the
prior written consent of the Lender Parties.
118
<PAGE>
SECTION 11.7 Assignments and Participations.
(a) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment or Commitments, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i)
without the prior written consent of the Administrative Agent (which may be
withheld for any reason) each such assignment shall be of a uniform, and not a
varying, percentage of all rights and obligations under and in respect of each
of the Facilities on a pro rata basis with respect to each Facility, and no
Facility may be assigned in full or in part without a contemporaneous assignment
to the same assignee of each of the other Facilities, (ii) except in the case of
an assignment to a Person that, immediately prior to such assignment, was a
Lender or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$5,000,000, (iii) no such assignments shall be permitted without the prior
consent of the Administrative Agent (which may be withheld for any reason) until
the Administrative Agent shall have notified the Lender Parties that syndication
of the Commitments hereunder has been completed, but in any event not later than
90 days following the Closing Date, (iv) no such assignment shall be permitted
if, immediately after giving effect thereto, the Borrower would be required to
make payments to or on behalf of the assignee Lender Party pursuant to Section
2.10(a) or (b) and the assignor Lender Party was not, at the time of such
assignment, entitled to receive any payment pursuant to Section 2.10(a) or (b),
and (v) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Note or Notes subject to such
assignment and a processing and recordation fee of $3,500.
(b) Upon such execution, delivery, acceptance and recording, from and after
the effective date specified in such Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender or Issuing Bank, as the
case may be, hereunder and (y) the Lender or Issuing Bank assignor thereun der
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and 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
Lender's or Issuing Bank's rights and obligations under this Agreement, such
Lender or Issuing Bank shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance, the Lender
Party assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender Party 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 any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest
119
<PAGE>
created or purported to be created under or in connection with, this Agreement
or any other Loan Document or any other instrument or document furnished
pursuant hereto or thereto; (ii) such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any other Loan Party or the performance
or observance by any Loan Party of any of its obligations under any Loan
Document or any other instrument or document furnished pursuant thereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.6 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; (iv)
such assignee will, independently and without reliance upon the Administrative
Agent, such assigning Lender Party or any other Lender Party 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; (v) such assignee confirms that it is an Eligible Assignee; (vi) such
assignee appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers and discretion under this
Agreement and the other Loan Documents as are delegated to the Administrative
Agent by the terms hereof and thereof, together with such powers and discretion
as are reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Lender or
Issuing Bank, as the case may be.
(d) The Administrative Agent shall maintain at its address referred to in
Section 11.2 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lender Parties and the Commitment under each Facility of, and principal amount
of the Advances owing under each Facility to, each Lender Party from time to
time (the "Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lender Parties may treat each Person whose name is
recorded in the Register as a Lender Party hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender Party at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender Party and an assignee, together with any Note or Notes subject
to such assignment and the appropriate processing and reconciliation fee, the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit A hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower. In the case of any
assignment by a Lender, within five (5) Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the
Administrative Agent in exchange for the surrendered Note or Notes a new Note to
the order of such Eligible Assignee in an amount equal to the Commitment assumed
by it under a Facility pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Commitment hereunder under such Facility, a new
Note to the order of the assigning Lender in an amount equal to the Commitment
120
<PAGE>
retained by it hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note or Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit B, C or I
hereto, as the case may be .
(f) The Issuing Bank may assign to an Eligible Assignee all of its rights
and obligations under the undrawn portion of its Letter of Credit Commitment at
any time; provided, however, that (i) each such assignment shall be to an
Eligible Assignee and (ii) the parties to each such assignment shall execute and
deliver to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with a processing and
recordation fee of $3,500.
(g) Each Lender Party may sell participations to one or more Persons (other
than any Loan Party or any of its Affiliates) in or to all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitments, the Advances owing to it and the Note or Notes,
if any, held by it) at any time and from time to time and without the consent of
or notice to the Borrower or any Guarantor; provided, however, that (i) such
Lender Party's obligations under this Agreement (including, without limitation,
its Commitments) shall remain unchanged, (ii) such Lender Party shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender Party shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent
and the other Lender Parties shall continue to deal solely and directly with
such Lender Party in connection with such Lender Party's rights and obligations
under this Agreement and (v) no participant under any such participation shall
have any right to approve any amendment, waiver or other modification of any
provision of this Agreement or any other Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver, modification or consent would reduce the principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation, or release
all or substantially all of the Collateral.
(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.7, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided, however, that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
received by it from such Lender Party.
(i) Notwithstanding any other provision set forth in this Agreement, any
Lender Party may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Note or Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
121
<PAGE>
(j) Fleet may syndicate the Facilities to other lenders. Any such
syndication will be managed by Fleet. The Borrower shall assist Fleet in forming
such syndication and shall provide Fleet and any potential lender, assignee or
participant, promptly upon request, with all information deemed reasonably
necessary by them to complete successfully such syndication, including, without
limitation, all information and projections prepared by the Borrower or their
officers or advisers relating to the transactions contemplated herein. The
Borrower shall make appropriate officers and representatives of the Borrower and
their Subsidiaries available to participate in information meetings for
potential syndicate members and participants at such times and places as Fleet
may reasonably request. In connection with such syndication, Fleet may, in its
sole discretion, allocate to other Lenders portions of any fees payable to Fleet
in connection with the Facilities.
SECTION 11.8 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be as effective as delivery of a manually executed counterpart
of this Agreement.
SECTION 11.9 No Liability of the Issuing Bank. The Borrower assumes all
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any of its officers, directors, employees or agents shall be liable or
responsible for: (a) the use that may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall
be liable to the Borrower, to the extent of any direct, but not consequential,
damages suffered by the Borrower that the Borrower proves were caused by (i) the
Issuing Bank's willful misconduct or gross negligence in determining whether
documents presented under any Letter of Credit comply with the terms of the
Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful
payment under a Letter of Credit after the presentation to it of a draft and
certificates strictly complying with the terms and conditions of the Letter of
Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
SECTION 11.10 Confidentiality. Neither the Administrative Agent nor any
Lender Party shall disclose any Confidential Information to any Person without
the consent of the Borrower, other than (a) to the Administrative Agent or to
the Administrative Agent's or such Lender Party's Affiliates and their officers,
directors, employees, agents and advisors and to actual or
122
<PAGE>
prospective Eligible Assignees and participants, and then only on a confidential
basis, (b) as required by any law, rule or regulation or judicial process and
(c) as requested or required by any state, federal or foreign authority or
examiner regulating banks or banking. In the event of any required disclosure
under clauses (a), (b), or (c) above, the Administrative Agent and the other
Lender Parties agree to use reasonable efforts to inform the Borrower as
promptly as practicable prior to the disclosure of any such Confidential
Information.
SECTION 11.11 Survival of Agreements and Representations; Construction.
All agreements, representations and warranties made herein shall survive
the delivery of this Agreement and the Notes. The headings used in this
Agreement and the table of contents are for convenience only and shall not be
deemed to constitute a part hereof
SECTION 11.12 Assurances.
(a) At any time and from time to time, upon the request of the
Administrative Agent, the Borrower and each other Loan Party shall execute,
deliver and acknowledge or cause to be executed, delivered and acknowledged,
such further documents and instruments and do such other acts and things as the
Administrative Agent may reasonably request in order to fully effect the
purposes of this Agreement, the other Loan Documents and any other agreements,
instruments and documents delivered pursuant hereto or in connection with the
Loans, including, without limitation, the execution and delivery to the
Administrative Agent of mortgages in form and substance satisfactory to the
Administrative Agent covering all real property or interests therein acquired by
the Borrower or other Loan Party, and all leases of real property entered into
by the Borrower or other Loan Party as tenant or lessee, after the date of this
Agreement, promptly after such acquisition or the entering into of any such
lease.
(b) Upon receipt of an affidavit of an officer of the Administrative Agent
or any Lender as to the loss, theft, destruction or mutilation of any Note or
Collateral Document which is not of public record, and, in the case of any such
mutilation, upon the surrender and cancellation of such Note or Collateral
Document, the Borrower will issue, in lieu thereof, a replacement Note or other
Collateral Document in the same principal amount thereof (in the case of any
Note) and otherwise of like tenor.
SECTION 11.13 Severability.
The provisions of this Agreement are severable, and if any clause or
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Agreement in any jurisdiction. Each of the
covenants, agreements and conditions contained in this Agreement is independent
and compliance by the Borrower with any of them shall not excuse non-compliance
by the Borrower with any other. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not
123
<PAGE>
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
SECTION 11.14 JURISDICTION, ETC.
(a) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY
NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN
NEW YORK CITY, NEW YORK AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY
LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY
LENDER PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY
JURISDICTION.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONAL LY WAIVES, TO
THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
SECTION 11.15 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS (OTHER THAN THE MORTGAGES WHICH SHALL BE GOVERNED BY THE LAW OF THE
JURISDICTION WHERE THE PROPERTY COVERED THEREBY IS LOCATED) SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO ITS RULES PERTAINING TO CONFLICTS OF LAWS OTHER THAN
GENERAL OBLIGATIONS LAW SECTION 5-1401.
124
<PAGE>
SECTION 11.16 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE LOAN PARTIES,
THE ADMINISTRATIVE AGENT AND THE LENDER PARTIES VOLUNTARILY, INTENTIONALLY AND
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, THE ADVANCES OR
THE ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR THE LENDER PARTIES AND THE ADMINISTRATIVE AGENT TO ENTER
INTO THIS AGREEMENT AND TO MAKE ADVANCES HEREUNDER.
SECTION 11.17 FINAL AGREEMENT. THIS WRITTEN AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. THE PARTIES HERETO ACKNOWLEDGE AND AFFIRM THE STATEMENT MADE IN THE
PRECEDING SENTENCE.
[SIGNATURE PAGES FOLLOW]
125
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
------------------------------------
Title: Chief Executive Officer
FLEET NATIONAL BANK, as Administrative
Agent, as Initial Issuing Bank and as Swing Line
Bank
By: /s/ Alex Sade
------------------------------------
Title: Director
S-1
[TO CREDIT AGREEMENT]
<PAGE>
INITIAL LENDERS:
FLEET NATIONAL BANK
By: /s/ Alex Sade
------------------------------------
Title: Director
ING (U.S.) CAPITAL CORPORATION
By:
------------------------------------
Title: Vice President
S-2
[TO CREDIT AGREEMENT]
<PAGE>
EXHIBIT A TO THE
CREDIT AGREEMENT
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of December ___, 1998,
(as amended, supplemented, restated or otherwise modified from time to time, the
"Credit Agreement"; the terms defined therein being used herein as therein
defined) among Audio Book Club, Inc., a Florida corporation (the "Borrower"),
the Lender Parties party thereto and Fleet National Bank, as Initial Issuing
Bank, as Swing Line Bank and as Administrative Agent for the Lender Parties (the
"Administrative Agent").
The "Assignor" and the "Assignee" referred to on Schedule I hereto agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, an interest in and to the
Assignor's rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule I hereto of all
outstanding rights and obligations under the Credit Agreement Facility or
Facilities as specified on Schedule I hereto. After giving effect to such sale
and assignment, the Assignee's Term Commitments and Revolving Credit Commitments
and the amount of the Term Advances and Revolving Credit Advances owing to the
Assignee will be as set forth on Schedule I hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of, or the perfection or priority of any lien or security interest
created or purported to be created under or in connection with, the Loan
Documents or any other instrument, agreement or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of any Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan Document
or any other instrument, agreement or document furnished pursuant thereto; and
(iv) attaches the Term Note or Notes and the Revolving Credit Note or Notes held
by the Assignor and requests that the Administrative Agent exchange such Note or
Notes for a new Term Note or Notes and a new Revolving Credit Note or Notes
payable to the order of the Assignee in an amount equal to the Term Commitments
and Revolving Credit Commitments assumed by the Assignee pursuant hereto or new
Term Note or Notes and Revolving Credit Note or Notes payable to the order of
the Assignee in an amount equal to the Term Commitments and the Revolving Credit
<PAGE>
Commitments assumed by the Assignee pursuant hereto and to the order of the
Assignor in an amount equal to the Term Commitments and Revolving Credit
Commitments retained by the Assignor under the Credit Agreement, respectively,
as specified on Schedule I hereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to therein,
including, without limitation, those referred to in Section 4.6 thereof and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (ii)
agrees that it will, independently and without reliance upon the Administrative
Agent, the Assignor or any other Lender Party 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 the Credit Agreement;
(iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto; (v) agrees that it will perform
in accordance with their terms all of the obligations that by the terms of the
Credit Agreement and the other Loan Documents are required to be performed by it
as a Lender Party; and (vi) attaches any U.S. Internal Revenue Service forms or
other forms required under Section 2.12 of the Credit Agreement.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent, together with the processing and
recordation fee specified in the Credit Agreement, for acceptance and recording
by the Administrative Agent. The effective date for this Assignment and
Acceptance (the "Effective Date") shall be the later of the date of acceptance
hereof by the Administrative Agent or the date specified on Schedule I hereto.
5. Upon such acceptance and recording by the Administrative Agent, as of
the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender Party thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent, from and
after the Effective Date, the Administrative Agent shall make all payments under
the Credit Agreement and the Term Note or Notes and the Revolving Credit Note or
Notes in respect of the interest assigned hereby (including, without limitation,
all payments of principal, interest and commitment fees with respect thereto) to
the Assignee. The Assignor and Assignee shall make all appropriate adjustments
in payments under the Credit Agreement and the Term Note or Notes and
<PAGE>
the Revolving Credit Note or Notes for periods prior to the Effective Date
directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York (without giving effect to its
conflicts of law principles).
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule I to this Assignment and Acceptance by telecopier shall
be as effective as delivery of a manually executed counterpart of this
Assignment and Acceptance.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be duly executed by their authorized officers as of
the Effective Date.
[NAME OF ASSIGNOR], as Assignor
By:______________________________
Title:___________________________
Dated:_______________, ______
[NAME OF ASSIGNEE], as Assignee
By:______________________________
Title:___________________________
Dated:_____________ ___, ________
Domestic Lending Office:
_________________________________
_________________________________
_________________________________
Eurodollar Lending Office:
_________________________________
_________________________________
_________________________________
Accepted this ____ day of
_____________,_______
- - -------------, ------
FLEET NATIONAL BANK, as Administrative Agent
By:_____________________________________
Title:__________________________________
[Consented to this ____ day of _________, ___
AUDIO BOOK CLUB, INC.
By:___________________________________
Title:__________________________________]1/
1/ The Borrower's signature shall be required only if no Event of Default is
then existing and continuing.
<PAGE>
SCHEDULE I
to
ASSIGNMENT AND ACCEPTANCE OF
____________________ ("ASSIGNOR") AND
___________________ ("ASSIGNEE")
As to the Revolving Credit Facility in respect of which an interest is being
assigned:
Percentage interest assigned: __________%
Assignee's Revolving Credit Commitment: $__________
Aggregate outstanding principal amount
of Revolving Credit Advances assigned: $__________
Principal amount of Revolving Credit
Note payable to Assignee: $__________
Principal amount of Revolving Credit
Note payable to Assignor: $__________
Effective Date (if other than date of
acceptance by Administrative Agent): __________, ______
<PAGE>
EXHIBIT B TO THE
CREDIT AGREEMENT
FORM OF REVOLVING CREDIT PROMISSORY NOTE
$____________ Dated: December ___, 1998
FOR VALUE RECEIVED, the undersigned, Audio Book Club, Inc., a Florida
corporation (the "Borrower"), HEREBY PROMISES TO PAY on December __, 2003 to the
order of (the "Lender") for the account of its Applicable Lending Office (as
defined in the Credit Agreement referred to below) the lesser of
____________________ ($_________) or the aggregate principal amount of the
Revolving Credit Advances (as defined in the Credit Agreement referred to below)
owing to the Lender by the Borrower pursuant to the Credit Agreement, dated as
of December ___, 1998 (as amended, supplemented, restated or otherwise modified,
the "Credit Agreement"; terms defined therein being used herein as therein
defined), among the Borrower, the Lender and certain other Lender Parties party
thereto and Fleet National Bank, as Initial Issuing Bank, as Swing Line Bank,
and as Administrative Agent for the Lender and the other Lender Parties.
This Promissory Note evidences all Revolving Credit Advances made by Lender
to Borrower under the Credit Agreement. The unpaid principal balance of this
Promissory Note shall be paid or prepaid at the times, in the amounts and in the
manner provided by the Credit Agreement. The Borrower promises to pay interest
on the unpaid principal amount of each Revolving Credit Advance from the date of
such Revolving Credit Advance until such principal amount is paid in full, at
such interest rates, and payable at such times, as are specified in the Credit
Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Fleet National Bank, as Administrative Agent for the Lender
Parties, at One Federal Street, Boston, MA 02110, Account No. , Attention: Loan
Administration, in same day funds. Each Revolving Credit Advance owing to the
Lender by the Borrower and the maturity thereof, and all payments made on
account of principal thereof, shall be recorded by the Lender in its internal
records and, prior to any transfer hereof, endorsed on the grid attached hereto
or any continuation thereof, which is part of this Promissory Note; provided,
however, that the failure of such Lender to so record any such information or
any error in so recording any such information shall not, however, limit or
otherwise affect the obligations of the Borrower hereunder or under any other
Loan Document.
<PAGE>
This Promissory Note is one of the Revolving Credit Notes referred to in,
and is entitled to the benefits of, the Credit Agreement. The Credit Agreement,
among other things, (i) provides for the making of Revolving Credit Advances by
the Lender to the Borrower from time to time in an aggregate amount not to
exceed at any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such Revolving Credit Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The obligations of the
Borrower under this Promissory Note, and the obligations of the other Loan
Parties under the Loan Documents, are secured by the Collateral as provided in
the Collateral Documents.
This Promissory Note shall be governed by and construed in accordance with
the laws of the State of New York without regard to its rules pertaining to
conflicts of laws, other than General Obligations Law Section 5-1401, and shall
be deemed to be under seal.
AUDIO BOOK CLUB, INC.
By:______________________________
Name: ___________________________
Title: __________________________
<PAGE>
REVOLVING CREDIT ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Amount of Amount of Unpaid Principal Notation Made
Date Revolving Credit Principal Paid or Balance by
Advance Prepaid
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C TO THE
CREDIT AGREEMENT
TERM PROMISSORY NOTE
$__________ Dated: December ___, 1998
FOR VALUE RECEIVED, the undersigned, Audio Book Club, Inc., a Florida
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of (the
"Lender") for the account of its Applicable Lending Office (as defined in the
Credit Agreement referred to below) the principal amount of the Term Advance (as
defined in the Credit Agreement referred to below) owing to the Lender by the
Borrower pursuant to the Credit Agreement, dated as of December ___, 1998 (as
amended, supplemented, restated or otherwise modified, the "Credit Agreement";
terms defined therein being used herein as therein defined), among the Borrower,
the Lender and certain other Lender Parties party thereto, and Fleet National
Bank, as Initial Issuing Bank, as Swing Line Bank, and as Administrative Agent
for the Lender and the other Lender Parties.
This Promissory Note evidences the Term Advance made by the Lender to
Borrower under the Credit Agreement. The unpaid principal balance of this
Promissory Note shall be paid or prepaid at the times, in the amounts and in the
manner provided by the Credit Agreement. The Borrower promises to pay interest
on the unpaid principal amount of the Term Advance from the date of such Term
Advance until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Fleet National Bank, as Administrative Agent for the
Lender, at One Federal Street, Boston, MA 02110, Account No. , Attention: Loan
Administration, in same day funds.
This Promissory Note is one of the Term Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of a Term Advance by the Lender to the
Borrower in an amount not to exceed the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from such Term Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The
<PAGE>
obligations of the Borrower under this Promissory Note, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Collateral Documents.
This Promissory Note shall be governed by and construed in accordance with
the laws of the State of New York without regard to its rules pertaining to
conflicts of laws, other than General Obligations Law Section 5-1401, and shall
be deemed to be under seal.
AUDIO BOOK CLUB, INC.
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
EXHIBIT D TO THE
CREDIT AGREEMENT
FORM OF NOTICE OF BORROWING
[Date]
Fleet National Bank, as Administrative
Agent under the Credit Agreement
referred to below
One Federal Street
Boston, Massachusetts 02110
Attention: Loan Administration
Ladies and Gentlemen:
The undersigned, on behalf of Audio Book Club, Inc. (the "Borrower"),
refers to the Credit Agreement, dated as of January ___, 1999 (as amended,
supplemented, restated or otherwise modified, the "Credit Agreement"; the terms
defined therein being used herein as therein defined), among the Borrower,
certain Lender Parties party thereto, Fleet National Bank, as Initial Issuing
Bank, as Swing Line Bank and as Administrative Agent for said Lender Parties,
and hereby gives the Administrative Agent notice, irrevocably, pursuant to
Section 2.2 of the Credit Agreement that the undersigned hereby requests a
Borrowing under the Credit Agreement, and in that connection sets forth below
the information relating to such Borrowing (the "Proposed Borrowing") as
required by Section 2.2 of the Credit Agreement:
(1) The Business Day of the Proposed Borrowing is _____________, _____.
(2) The Facility under which the Proposed Borrowing is to be made is the
_______________ Facility.
(3) The Type of Advances comprising the Proposed Borrowing is [Prime Rate
Advance][Eurodollar Rate Advance].
<PAGE>
(4) The aggregate amount of the Proposed Borrowing is $_________.
[(5) The initial Interest Period for each Eurodollar Rate Advance made as
part of the Proposed Borrowing is _______ month[s].]
The undersigned hereby certifies on behalf of the Borrower that the
following statements are true and correct on the date hereof, and will be true
on the borrowing date:
(a) the representations and warranties contained in each Loan Document are
correct on and as of the date of the Proposed Borrowing, both before
and after giving effect to the Proposed Borrowing and to the
application of the proceeds therefrom, as though made on and as of
such date, except for such representations and warranties that
expressly relate to an earlier date and except for changes in the
ordinary course of business not prohibited by the Credit Agreement and
which have not and would not individually or in the aggregate have a
Material Adverse Effect;
(b) no event has occurred and is continuing, or would result from the
Proposed Borrowing or from the application of the proceeds therefrom,
that constitutes a Default;
Very truly yours,
AUDIO BOOK CLUB, INC.
By:______________________________
Name:____________________________
Title:___________________________
-2-
<PAGE>
EXHIBIT E TO THE SECURITY AGREEMENT
Dated as of December 31, 1998
From
AUDIO BOOK CLUB, INC.,
ABC INTERNET SERVICES, INC.,
CLASSIC RADIO HOLDING CORP.,
CLASSIC RADIO ACQUISITION CORP.,
ABC INVESTMENT CORP.
and
CH ACQUISITIONS CORP.
as Grantors
to
FLEET NATIONAL BANK,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECURITY AGREEMENT.................................................................................... 1
PRELIMINARY STATEMENTS................................................................................ 1
Section 1. Grant of Security................................................................ 2
Section 2. Security for Obligations......................................................... 6
Section 3. Grantors Remain Liable........................................................... 6
Section 4. Delivery of Security Collateral and Account Collateral........................... 6
Section 5. Maintaining the L/C Cash Collateral Account...................................... 6
Section 6. Investing of Amounts in the L/C Cash Collateral Account.......................... 7
Section 7. Release of Amounts............................................................... 7
Section 8. Representations and Warranties................................................... 7
Section 9. Further Assurances............................................................... 9
Section 10. As to Equipment and Inventory................................................... 10
Section 11. Insurance....................................................................... 10
Section 12. Place of Perfection; Record; Collection of Receivables.......................... 11
Section 13. Voting Rights; Dividends; Etc................................................... 12
Section 14. As to the Assigned Agreements................................................... 14
Section 15. Payments Under the Assigned Agreements.......................................... 14
Section 16. Transfers and Other Liens; Additional Shares.................................... 15
Section 17. Administrative Agent Appointed Attorney-in-Fact................................. 15
Section 18. Administrative Agent May Perform................................................ 16
Section 19. Administrative Agent's Duties................................................... 16
Section 20. Remedies........................................................................ 16
Section 21. Registration Rights; Private Sale............................................... 17
Section 22. Indemnity and Expenses.......................................................... 18
Section 23. Security Interest Absolute...................................................... 19
Section 24. Amendments; Waivers; Etc........................................................ 19
Section 25. Addresses for Notices........................................................... 20
Section 26. Continuing Security Interest; Assignments under the Credit Agreement............ 20
Section 27. Release and Termination......................................................... 20
Section 28. Governing Law; Terms............................................................ 21
Section 29. JURISDICTION.................................................................... 21
Section 30. WAIVER OF JURY TRIAL............................................................ 22
Section 31. Counterparts.................................................................... 22
</TABLE>
i
<PAGE>
Schedules
Schedule I Pledged Shares and Pledged Debt
Schedule II Locations of Equipment and Inventory
Schedule III Trade Names
Exhibits
Exhibit A Form of Cash Collateral Account Letter
Exhibit B Form of Consent and Agreement
Exhibit C Form of Security Agreement Supplement
ii
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of December 31, 1998, by
and among Audio Book Club, Inc., a Florida corporation having an office at 2295
Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431 (the "Borrower"
or a "Grantor"), ABC Internet Services, Inc., a New York corporation having an
office at 2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431
("ABC"), Classic Radio Holding Corp., a Delaware corporation having an office at
2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431 ("Classic
Holding"), Classic Radio Acquisition Corp., a Delaware corporation having an
office at 2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431
("Classic Acquisition"), ABC Investment Corp., a Delaware corporation, with an
office at 103 Springer Building, 3411 Silver Side Road, Wilmington, Delaware
19810, and CH Acquisitions Corp., a Delaware corporation having an office at
2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431 ("CH
Acquisitions Corp.") the Additional Grantors (as defined in Section 24(c)
hereof) (the Additional Grantors, together with the Borrower, ABC, Classic
Holding, Classic Acquisition, ABC Investment Corp. and CH Acquisitions Corp.,
the "Grantors") and Fleet National Bank ("Fleet"), as administrative agent (in
such capacity, together with its successors in such capacity, the
"Administrative Agent") for the Secured Parties (as defined in the Credit
Agreement referred to below).
PRELIMINARY STATEMENTS
(1) The Borrower has entered into a Credit Agreement, dated as of even date
herewith (said Agreement, as it may hereafter be amended, restated,
supplemented, extended or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein and not otherwise defined herein being
used herein as therein defined), with the banks, financial institutions and
other institutional lenders party thereto (the "Lenders"), Fleet, as Initial
Issuing Bank, as Swing Line Bank and as Administrative Agent.
(2) Each Grantor is the owner of the shares (such shares being the "Pledged
Shares") set forth opposite such Grantor's name in Part I of Schedule I hereto
and issued by the corporations named therein and of the indebtedness for
borrowed money (the "Pledged Debt") set forth opposite such Grantor's name in
Part II of Schedule I and issued by the obligors named therein.
(3) If and when determined by the Administrative Agent, the Administrative
Agent will open a non-interest bearing cash collateral account (the "L/C Cash
Collateral Account") with Fleet at its office at Fleet National Bank, One
Federal Street, Boston, Massachusetts 02110, (or at such other institution as
may be acceptable to the Administrative Agent), in the name of the Borrower but
under the sole control and dominion of the Administrative Agent and subject to
the terms of this Agreement.
1
<PAGE>
(4) Each Grantor other than the Borrower is a wholly-owned Subsidiary of
the Borrower and will derive substantial benefit from the Advances made to, and
the issuance of Letters of Credit on behalf of, the Borrower.
(5) It is a condition precedent to the Lenders' making of Advances, the
Issuing Bank's issuing of Letters of Credit under the Credit Agreement and the
Hedge Banks entering into Bank Hedge Agreements with the Borrower from time to
time that the Borrower shall have granted the assignment and security interest
and made the pledge and assignment contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances under the Credit Agreement, the Issuing Bank to issue
Letters of Credit under the Credit Agreement and the Hedge Banks to enter into
Bank Hedge Agreements with the Borrower from time to time, each of the Grantors
hereby agrees with the Administrative Agent, for the benefit of the
Administrative Agent and the ratable benefit of the Secured Parties, as follows:
Section 1. Grant of Security. Each of the Grantors hereby assigns and
pledges to the Administrative Agent, for the benefit of the Administrative Agent
and the ratable benefit of the Secured Parties, and hereby grants to the
Administrative Agent, for the benefit of the Administrative Agent and the
ratable benefit of the Secured Parties, a security interest in the following
(collectively, the "Collateral"):
(a) all of such Grantor's machinery and equipment in all of its forms,
whether now owned or hereafter arising or acquired, wherever located, now or
hereafter existing, all fixtures and all parts thereof and all accessions
thereto (any and all such equipment, fixtures, parts and accessions, the
"Equipment");
(b) all of such Grantor's inventory in all of its forms, whether now owned
or hereafter arising or acquired, wherever located, now or hereafter existing
(including, without limitation, (i) raw materials and work in process, (ii)
finished goods, (iii) materials used or consumed in the manufacture or
production thereof, (iv) goods in which such Grantor has an interest in mass or
a joint or other interest or right of any kind (including, without limitation,
goods in which such Grantor has an interest or right as consignee) and (v) goods
that are returned to or repossessed by such Grantor), and all accessions
thereto, products thereof and documents therefor (any and all such inventory,
accessions, products and documents, the "Inventory");
(c) all of such Grantor's accounts, contract rights, chattel paper,
instruments, deposit accounts and other claims of any kind, whether now owned or
hereafter arising or acquired, now or hereafter existing, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services, and all rights now or hereafter existing in and to all security
agreements, leases and other contracts securing or otherwise relating to any
such accounts, contract rights, chattel paper, instruments, deposit accounts or
claims, except that the Grantor shall not grant, for so long as such grant would
be prohibited by the terms of any such agreements, leases or other
2
<PAGE>
contracts or by applicable law, a security interest in any such agreements,
leases or other contracts with respect to which the grant of any security
interest or collateral assignment contemplated hereby is prohibited by its terms
or by applicable law (any and all such accounts, contract rights, chattel paper,
instruments, deposit accounts and claims, to the extent not referred to in
clause (d), (e) or (f) below, being the "Receivables", and any and all such
leases, security agreements and other contracts being the "Related Contracts");
(d) all of such Grantor's right, title and interest, whether now existing
or hereafter arising or acquired, in and to the following (the "Security
Collateral"), without duplication:
(i) the Pledged Shares and the certificates representing the Pledged
Shares, including without limitation, the shares of capital stock of all of
such Grantor's Subsidiaries, and the certificates representing the Pledged
Shares; provided, however, that only 65% of the shares of capital stock of
such Grantor's Foreign Subsidiaries shall be pledged, and all dividends,
cash, instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of
such Pledged Shares;
(ii) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Debt;
(iii) all additional shares of stock of any issuer of the Pledged
Shares from time to time acquired by such Grantor in any manner, provided,
however, that only 65% of the shares of capital stock of such Grantor's
Foreign Subsidiaries shall be pledged pursuant to this Agreement, and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares;
(iv) all additional indebtedness for borrowed money from time to time
owed to such Grantor by any obligor of the Pledged Debt and the instruments
evidencing such indebtedness, and all interest, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such indebtedness;
(v) all additional "investment property" (as defined in the UCC) now
owned or hereafter arising or acquired by such Grantor including, without
limitation, (A) all securities, whether certificated or uncertificated,
including, without limitation, stocks, bonds, interests in limited
liability companies, partnership interests, treasuries, certificates of
deposit, and mutual fund shares; (B) all security entitlements of such
Grantor including, without limitation, the rights of such Grantor to any
securities
3
<PAGE>
account and the financial assets held by a securities intermediary in such
securities account and any free credit balance or other money owing by any
securities intermediary with respect to that account; (C) all securities
accounts held by such Grantor; (D) all commodity contracts held by such
Grantor; and (E) all commodity accounts held by such Grantor.
(e) each of the agreements to which such Grantor is now or may hereafter
become a party, and each Hedge Agreement to which such Grantor is now or may
hereafter become a party, in each case as such agreements may be amended,
restated or otherwise modified from time to time, unless and for so long as the
Grantor is not permitted to grant a security interest therein or collateral
assignment thereof (collectively, the "Assigned Agreements"), including, without
limitation, (i) all rights of such Grantor to receive moneys due and to become
due under or pursuant to the Assigned Agreements, (ii) all rights of such
Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to the Assigned Agreements, (iii) claims of such Grantor for
damages arising out of or for breach of or default under the Assigned
Agreements, and (iv) the right of such Grantor to terminate the Assigned
Agreements, to perform thereunder and to compel performance and otherwise
exercise all remedies thereunder (all such Collateral being the "Agreement
Collateral");
(f) all of such Grantor's right, title and interest, whether now existing
or hereafter arising or acquired, in and to the following (collectively, the
"Account Collateral"):
(i) the L/C Cash Collateral Account, all funds held therein and all
certificates and instruments, if any, from time to time representing or
evidencing the L/C Cash Collateral Account;
(ii) all deposit accounts of such Grantor, all funds held therein and
all certificates and instruments, if any, from time to time representing or
evidencing such deposit accounts;
(iii) all Collateral Investments (as hereinafter defined) from time to
time and all certificates and instruments, if any, from time to time
representing or evidencing the Collateral Investments;
(iv) all notes, certificates of deposit, deposit accounts, checks and
other instruments from time to time hereafter delivered to or otherwise
possessed by the Administrative Agent for or on behalf of such Grantor in
substitution for or in addition to any or all of the then existing Account
Collateral; and
(v) all interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the then existing Account Collateral;
4
<PAGE>
(g) all of such Grantor's corporate and business records, customer lists,
credit files, computer program printouts and other computer materials and
records;
(h) without limitation of any of the foregoing, all of such Grantor's
general intangibles, including, without limitation,
(i) all choses in action, claims and causes of action or rights of
recovery or set-off of every kind and character, and the goodwill of
the business of such Grantor as a going concern;
(ii) (A) all rights of such Grantor to receive moneys due and to become due
under or pursuant to any general intangibles, (B) all rights of such
Grantor to receive proceeds of any insurance, indemnity, warranty or
guaranty with respect to any general intangibles, (C) claims of such
Grantor for damages arising out of or for breach of or default under
any general intangibles, and (D) the right of such Grantor to
terminate any general intangibles, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder;
(iii) all of such Grantor's right, title and interest, whether now owned or
hereafter arising or acquired, in and to the following (individually a
"Copyright" and collectively, "Copyrights"): (A) all copyrights and
general intangibles of like nature (whether registered or
unregistered), now owned or existing or hereafter adopted or acquired,
all registrations and recordings thereof, and all applications in
connection therewith, including all registrations, recordings and
applications in the United States Copyright Office or in any similar
office or agency of the United States, any state or territory thereof,
or any other country or any political subdivision thereof, and (B) all
reissues, extensions or renewals thereof;
(iv) all rights of such Grantor now owned or hereafter arising or acquired
under any and all agreements granting any right to use any Copyright;
(v) all of such Grantor's right, title and interest, whether now existing
or hereafter arising or acquired, in and to the following
(individually a "Patent" and collectively, "Patents"): (A) all letters
patent of the United States or any other country, all registrations
and recordings thereof, and all applications for letters patent of the
United States or any other country, including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
State or Territory thereof,
5
<PAGE>
or any other country, and (B) all reissues, continuations,
continuations-in-part or extensions thereof;
(vi) all rights of such Grantor now owned or hereafter arising or acquired
under any and all agreements granting any right with respect to any
invention on which a Patent is in existence;
(vii) all of such Grantor's right, title and interest, whether now existing
or hereafter arising or acquired, in and to the following
(individually a "Trademark" and collectively, "Trademarks"): (A) all
trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature (whether
registered or unregistered), now owned or existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
state or territory thereof, or any other country or any political
subdivision thereof; and (B) all reissues, extensions or renewals
thereof; and
(viii) all rights of such Grantor now owned or hereafter arising or
acquired under all agreements granting any right to use any Trademark
or Trademark registration.
(i) all proceeds of any and all of the foregoing Collateral (including,
without limitation, proceeds that constitute property of the types described in
clauses (a) - (h) of this Section 1) and, to the extent not otherwise included,
all (i) payments under insurance (whether or not the Administrative Agent is the
loss payee thereof), or any indemnity, warranty or guaranty, payable by reason
of loss or damage to or otherwise with respect to any of the foregoing
Collateral and (ii) cash.
Section 2. Security for Obligations. This Agreement secures the payment of
all Obligations of each Grantor now or hereafter existing under the Loan
Documents, whether for principal, interest, fees, expenses or otherwise (all
such Obligations being the "Secured Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
that constitute part of the Secured Obligations and would be owed by such
Grantor to the Administrative Agent or the Secured Parties under the Loan
Documents and the Bank Hedge Agreements but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Grantor.
Section 3. Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the contracts and
agreements included
6
<PAGE>
in the Collateral to which it is a party to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Administrative
Agent of any of the rights hereunder shall not release any Grantor from any of
its duties or obligations under the contracts and agreements included in the
Collateral to which it is a party and (c) neither the Administrative Agent nor
any Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Administrative Agent or any Secured Party be obligated to perform any of the
obligations or duties of any Grantor under such contracts and agreements
included in the Collateral to which it is a party or to take any action to
collect or enforce any claim for payment assigned hereunder.
Section 4. Delivery of Security Collateral and Account Collateral. All
certificates or instruments representing or evidencing Security Collateral or
Account Collateral (except those relating to cash accounts and deposit
instruments not required by the Administrative Agent to be delivered to the
Administrative Agent on the Closing Date (but which it retains the right to
require) shall be delivered to and held by or on behalf of the Administrative
Agent pursuant hereto and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Administrative Agent. The
Administrative Agent shall have the right, upon the occurrence and during the
continuation of an Event of Default and on five (5) business days' notice to the
Borrower, to transfer to or to register in the name of the Administrative Agent
or any of its nominees any or all of the Security Collateral and the Account
Collateral, subject only to the revocable rights specified in Section 13(a). In
addition, the Administrative Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing Security Collateral or
Account Collateral for certificates or instruments of smaller or larger
denominations.
Section 5. Maintaining the L/C Cash Collateral Account. So long as any
Advance shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender shall have any Commitment under the Credit Agreement or any Hedge Bank or
any Loan Party shall have any obligations under any Hedge Agreement:
(a) The Borrower will maintain the L/C Cash Collateral Account with Fleet.
(b) It shall be a term and condition of the L/C Cash Collateral Account,
notwithstanding any term or condition to the contrary in any other agreement
relating to the L/C Cash Collateral Account and, except as otherwise provided by
the provisions of Section 7 and Section 20, that no amount (including interest
on Collateral Investments) shall be paid or released to or for the account of,
or withdrawn by or for the account of, any Grantor or any other Person from the
L/C Cash Collateral Account.
The L/C Cash Collateral Account shall be subject to such applicable laws, and
such applicable regulations, of the Board of Governors of the Federal Reserve
System and of any other appropriate banking or governmental authority, as may
now or hereafter be in effect.
7
<PAGE>
Section 6. Investing of Amounts in the L/C Cash Collateral Account. If
requested by the Borrower, the Administrative Agent will, subject to the
provisions of Section 7 and Section 20, from time to time invest (a) amounts on
deposit in the L/C Cash Collateral Account in such Cash Equivalents as the
Borrower may select, in each case which investments shall be made in the name of
the Administrative Agent on behalf of the Borrower, and (b) interest paid on the
Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of
any such Cash Equivalents that may mature or be sold, in each case in such Cash
Equivalents as the Borrower may select, in each case which investments shall be
made in the name of the Administrative Agent on behalf of the Borrower (the Cash
Equivalents referred to in clauses (a) and (b) above being collectively
"Collateral Investments"). Interest and proceeds that are not invested or
reinvested in Collateral Investments as provided above shall be deposited and
held in the L/C Cash Collateral Account.
Section 7. Release of Amounts. Upon the drawing of any Letter of Credit for
which funds are on deposit in the L/C Cash Collateral Account, such funds shall
be applied to reimburse the Issuing Bank or the Revolving Credit Lenders, as
applicable, as provided in the Credit Agreement.
Section 8. Representations and Warranties. Each Grantor represents and
warrants as follows:
(a) All of such Grantor's existing Equipment and Inventory are located at
the places specified for such Grantor on Schedule II hereto. The chief place of
business and chief executive office of such Grantor and the office where such
Grantor keeps its records concerning the Receivables, and, to the extent
possessed, the original copies of each Assigned Agreement and all originals of
all chattel paper that evidence Receivables, are currently located at the
address specified below the name of such Grantor on the signature pages hereof
(or in the case of any Additional Grantor at the address specified below the
name of such Additional Grantor on the signature page of the Security Agreement
Supplement (as defined in Section 24(c)) executed and delivered by such
Additional Grantor). None of the material Receivables or Agreement Collateral is
evidenced by a promissory note or other instrument.
(b) Such Grantor is the legal and beneficial owner of the Collateral
pledged by such Grantor hereunder free and clear of any Lien, except for
security interests created or permitted under the Loan Documents (including,
without limitation, any Liens disclosed on Schedule 6.1(c) to the Credit
Agreement). No effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed: (i) in favor of the Administrative
Agent relating to this Agreement or (ii) with respect to Permitted Liens or as
otherwise permitted pursuant to the Credit Agreement.
(c) Set forth below each Grantor's name on Schedule III hereto is a
complete and accurate list of (i) all names under which such Grantor is or has
been doing business within the last five years (including, without limitation,
all trade names, division names and fictitious names), (ii) all trade names that
such Grantor owns or is licensed to use (including the expiration date of such
8
<PAGE>
license) and (iii) all trade names that such Grantor has established the right
to use (collectively, the "Trade Names"). Such Grantor has not changed within
the past six months its name or identity, by reorganization or otherwise, or its
address set forth below the name of such Grantor on the signature pages hereof
or the Security Agreement Supplement executed and delivered by it, as the case
may be, except as set forth on Schedule III hereto.
(d) Except as set forth for each Grantor on Schedule II hereto, such
Grantor has exclusive possession and control of the existing Equipment and
Inventory pledged by such Grantor hereunder.
(e) The Pledged Shares owned by such Grantor have been duly authorized and
validly issued and are fully paid and non-assessable. To the best knowledge of
such Grantor, the Pledged Debt owed to such Grantor has been duly authorized,
authenticated or issued and delivered and, is the legal, valid and binding
obligation of the issuers thereof and is not in default.
(f) The Pledged Shares constitute the percentage of the issued and
outstanding shares of stock of the issuers thereof indicated on Schedule I. The
Pledged Debt is outstanding in the principal amount indicated on Schedule I.
(g) The Assigned Agreements to which such Grantor is a party have been duly
authorized, executed and delivered by such Grantor. There exists no default
under any material Assigned Agreement to which such Grantor is a party, by
Grantor or, to Grantor's knowledge, any other party thereto, except under any
Assigned Agreement which involves a sum not in excess of $50,000 individually or
$250,000 in the aggregate per annum for any default which individually or in the
aggregate with other defaults would not reasonably be expected to have a
Material Adverse Effect. If reasonably required by the Administrative Agent each
party to the Assigned Agreements to which such Grantor is a party, other than
such Grantor, has executed and delivered to such Grantor a consent, in
substantially the form of Exhibit C hereto, to the assignment of the Agreement
and Collateral to the Administrative Agent pursuant to this Agreement.
(h) Upon either the filing by the Administrative Agent or its
representatives of the proper financing statements referred to in Section
3.1(a)(ii) of the Credit Agreement or the taking of possession thereof, as
applicable, this Agreement, the pledge of the Security Collateral pursuant
hereto and the pledge and assignment of the Account Collateral pursuant hereto
create a valid and perfected first priority security interest in the Collateral
of such Grantor which can be perfected by such filings or by the taking of
possession, to the extent possession is so taken by the Administrative Agent,
securing the payment of the Secured Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest
shall have been duly taken.
(i) No consent of any other Person and no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body or other third party is required either (i) for the grant by
such Grantor of the assignment and security interest granted hereby, for the
pledge by such Grantor of the Security Collateral pursuant hereto or for the
9
<PAGE>
execution, delivery or performance of this Agreement by such Grantor, (ii) for
the perfection or maintenance of the pledge, assignment and security interest
created hereby (including the first priority nature of such pledge, assignment
or security interest), except for the filing of financing and continuation
statements under the Uniform Commercial Code, which financing statements are in
proper form and are duly executed and except for any other actions required to
be taken as requested by the Administrative Agent which have been duly taken, or
(iii) for the exercise by the Administrative Agent of its voting or other rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement, except as may be required in connection with the
disposition of any portion of the Security Collateral by laws affecting the
offering and sale of securities generally.
(j) The Inventory which has been produced by such Grantor has been produced
in compliance with all requirements of the Fair Labor Standards Act.
Section 9. Further Assurances.
(a) Each of the Grantors agrees that from time to time, at the expense of
the Borrower, such Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary,
or that the Administrative Agent may reasonably request, in order to perfect and
protect any pledge, assignment or security interest granted or purported to be
granted hereby or to enable the Administrative Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, such Grantor will, upon any such reasonable
request of the Administrative Agent: (i) upon the occurrence and during the
continuance of an Event of Default mark conspicuously each document included in
the Inventory pledged by such Grantor hereunder, each chattel paper included in
the Receivables pledged by such Grantor hereunder, each Related Contract pledged
by such Grantor hereunder, each Assigned Agreement pledged by such Grantor
hereunder and each of its records pertaining to the Collateral with a legend, in
form and substance satisfactory to the Administrative Agent, indicating that
such document, chattel paper, Related Contract, Assigned Agreement or Collateral
is subject to the security interest granted hereby; (ii) if any Collateral
pledged by such Grantor hereunder shall be evidenced by a promissory note or
other instrument or chattel paper, deliver and pledge to the Administrative
Agent hereunder such note or instrument or chattel paper duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Administrative Agent; and (iii) execute such
financing or continuation statements, or amendments thereto, and such other
instruments or notices as may be reasonably requested by the Administrative
Agent in order to perfect and preserve the pledge, assignment and security
interest granted or purported to be granted hereby.
(b) Each Grantor hereby authorizes the Administrative Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral pledged by such Grantor hereunder, without the
signature of such Grantor where permitted by law in order to perfect and
preserve the pledge, assignment and security interest granted or purported to be
granted hereby. A copy of each such statement and amendment will be timely
10
<PAGE>
provided to such Grantor. A photocopy or other reproduction of this Agreement or
any financing statement covering its Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) Each Grantor will furnish to the Administrative Agent from time to time
statements and schedules further identifying and describing the Collateral and
such reports in connection with its Collateral as the Administrative Agent may
reasonably request, all in reasonable detail.
(d) Each Grantor hereby agrees, upon the request of the Administrative
Agent at any time following the occurrence and during the continuance of an
Event of Default, and at the expense of the Borrower, (i) within fourteen (14)
days after such request deliver to the Administrative Agent a letter agreement
among such Grantor, Fleet and the Administrative Agent in respect of the main
cash concentration account of such Grantor, which agreement shall be in
substantially the form of Exhibit A hereto, (ii) within twenty-one (21) days
after such request deliver to the Administrative Agent a letter agreement, in
substantially the form of Exhibit B hereto, in respect of each lockbox and
blocked deposit account of such Grantor, (iii) within thirty (30) days after
such request, take whatever action (including, without limitation, the filing of
Uniform Commercial Code financing statements) as may be reasonably necessary or
advisable in the sole discretion of the Administrative Agent to vest in the
Administrative Agent (or in any representative of the Administrative Agent
designated by it), for the benefit of the Administrative Agent and the ratable
benefit of the Secured Parties, valid and subsisting Liens on the main cash
concentration accounts of the Borrower and each other Grantor and the lockboxes
and blocked deposit accounts of the Grantors, and (iv) at any time and from time
to time, promptly execute and deliver any and all further instruments and
documents and take all such other action as the Administrative Agent may deem
reasonably necessary in obtaining the full benefits of the Liens on, or in
preserving the Liens in, such main concentration accounts, lockboxes and blocked
deposit accounts.
Section 10. As to Equipment and Inventory. (a) Each Grantor shall keep the
Equipment and Inventory (other than Inventory sold in the ordinary course of
business) pledged by such Grantor hereunder at the places therefor specified in
Section 8(a) or, upon fifteen (15) days' prior written notice to the
Administrative Agent, at such other places in a jurisdiction where all action
required by this Agreement to maintain the security interest of the
Administrative Agent in such Equipment and Inventory granted hereby shall have
been taken with respect to such Equipment and Inventory.
(b) Each Grantor shall cause the Equipment pledged by such Grantor
hereunder which individually or in the aggregate is material to such Grantor's
business to be maintained and preserved in good working condition, repair and
working order, ordinary wear and tear excepted and except for insured casualty
losses and shall forthwith, or in the case of any loss or damage to any of such
Equipment, as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Each Grantor shall
promptly furnish to the Administrative Agent a statement
11
<PAGE>
respecting any loss or damage to any of the Equipment pledged by such Grantor
hereunder (other than immaterial loss or damage) or loss or damage to Equipment
which individually or in the aggregate is not material to such Grantor's
business.
(c) Each Grantor shall timely pay when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Equipment and
Inventory pledged by such Grantor hereunder; provided, however, that such
Grantor shall not be required to pay any such tax, assessment, charge or claim
that is being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien resulting
therefrom attaches to its property and becomes enforceable against the Borrower
or any of its Subsidiaries. In producing the Inventory pledged by such Grantor
hereunder, each Grantor shall comply in all material respects with all
requirements of the Fair Labor Standards Act.
Section 11. Insurance.
(a) Each Grantor shall, at its own expense, maintain insurance with respect
to the Equipment and Inventory pledged by such Grantor hereunder in such
amounts, against such risks, in such form and with such insurers, as required by
the Credit Agreement. Each policy for liability insurance shall provide for all
losses to be paid on behalf of the Administrative Agent and each Grantor as
their interests may appear and each policy for property damage insurance shall
provide for all losses (except so long as the payor shall not have received
notice from the Administrative Agent to the effect that an Event of Default
shall have occurred and is continuing for losses of less than $250,000 per
occurrence) to be paid directly to the Administrative Agent and with respect to
losses of $250,000 or more per occurrence but not in excess of $500,000 per
occurrence or $500,000 in the aggregate, the Administrative Agent shall, unless
an Event of Default shall have occurred and then be continuing, make such
insurance proceeds available to the subject Grantor for the repair or
replacement of the subject Collateral. Each such policy shall in addition (i)
name such Grantor and the Administrative Agent as insured parties thereunder
(without any representation or warranty by or obligation upon the Administrative
Agent) as their interests may appear, (ii) contain the agreement by the insurer
that any loss thereunder in excess of $250,000 per occurrence unless an Event of
Default shall have occurred and be continuing shall be payable to the
Administrative Agent notwithstanding any action, inaction or breach of
representation or warranty by such Grantor, (iii) provide that there shall be no
recourse against the Administrative Agent for payment of premiums or other
amounts with respect thereto and (iv) provide that the insurer shall endeavor to
provide at least thirty (30) days' prior written notice of cancellation or of
lapse to the Administrative Agent. Each Grantor shall, if so requested by the
Administrative Agent, deliver to the Administrative Agent original or duplicate
policies of such insurance and, as often as the Administrative Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, each Grantor shall, at the request of the
Administrative Agent, duly exercise and deliver instruments of assignment of its
insurance policies to comply with the requirements of Section 9 and cause the
insurers to acknowledge notice of such assignment.
12
<PAGE>
(b) Reimbursement under any liability insurance maintained by any Grantor
pursuant to this Section 11 may be paid directly to the Person who shall have
incurred liability covered by such insurance. In case of any loss involving
damage to Equipment or Inventory which individually or in the aggregate is
material to such Grantor's business when subsection (c) of this Section 11 is
not applicable, the Grantor that owns such Equipment or Inventory shall make or
cause to be made the necessary repairs to or replacements of such Equipment or
Inventory out of available net proceeds of insurance maintained by such Grantor
pursuant to this Section 11.
(c) Upon the occurrence and during the continuance of any Event of Default
or the loss (equal to or in excess of $500,000 per occurrence or in the
aggregate) of any Equipment or Inventory, all insurance payments in respect of
such Equipment or Inventory shall, except as provided in Section 11(a), be paid
to and applied by the Administrative Agent as specified in Section 20(b).
Section 12. Place of Perfection; Record; Collection of Receivables.
(a) Each of the Grantors shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Collateral, and, to the extent possessed, the original copies of the Assigned
Agreements and all originals of all chattel paper that evidence Receivables, at
the location therefor specified in Section 8(a) or, upon fifteen (15) days'
prior written notice to the Administrative Agent, at such other locations in a
jurisdiction where all actions required by this Agreement to maintain the
security interest of the Administrative Agent in such Collateral granted hereby
shall have been taken with respect to the Collateral. Each of the Grantors shall
hold and preserve such records, Assigned Agreements and chattel paper and shall
permit representatives of the Administrative Agent at any time during normal
business hours to inspect and make abstracts from such records and chattel
paper.
(b) Except as otherwise provided in this subsection (b), each of the
Grantors shall continue to collect, at its own expense, all amounts due or to
become due such Grantor under the Receivables pledged by such Grantor hereunder
provided that, so long as no Event of Default has occurred and is continuing,
each Grantor may settle or compromise the amount of payment of any of its
Receivables, release wholly or partly any Obligor thereof, or allow any credit
or discount thereon in the ordinary course of business. In connection with such
collections, each Grantor may take such action as such Grantor may deem
necessary or advisable to enforce collection of the Receivables pledged by such
Grantor hereunder; provided, however, that the Administrative Agent shall have
the right at any time, upon the occurrence and during the continuance of an
Event of Default and upon five business (5) days' written notice to the Borrower
of its intention to do so, to notify the obligors under any Receivables of the
assignment of such Receivables to the Administrative Agent and to direct such
Obligors to make payment of all amounts due or to become due to such Grantor
thereunder directly to the Administrative Agent and, upon such notification and
at the expense of such Grantor, to enforce collection of any such Receivables,
and to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done. After receipt by
any Grantor of the notice from the Administrative Agent
13
<PAGE>
referred to in the proviso of the preceding sentence upon the occurrence and
during the continuance of an Event of Default, (i) all amounts and proceeds
(including instruments) received by such Grantor in respect of the Receivables
pledged by such Grantor hereunder shall be received in trust for the benefit of
the Administrative Agent hereunder, shall be segregated from other funds of such
Grantor and shall be forthwith paid over to the Administrative Agent in the same
form as so received (with any necessary endorsement) to be applied as provided
by Section 20(b) and (ii) without the prior consent of the Administrative Agent,
such Grantor shall not adjust, settle or compromise the amount or payment of any
of its Receivables, release wholly or partly any Obligor thereof, or allow any
credit or discount thereon.
Section 13. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be continuing:
(i) The Grantors shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Security Collateral or any part
thereof for any purpose not inconsistent with the terms of this Agreement
or the other Loan Documents; provided, however, that the Grantors shall not
exercise or refrain from exercising any such right if such action would
reasonably be expected to have a material adverse effect on the value of
the Security Collateral or any part thereof.
(ii) The Grantors shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Security Collateral;
provided, however, that any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Security
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Security Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Security
Collateral
shall be, and shall be forthwith, delivered to the Administrative Agent to hold
as Security Collateral and shall, if received by any of the Grantors, be
received in trust for the benefit of the Administrative Agent, be segregated
from the other property or funds of such Grantor and be forthwith delivered to
the Administrative Agent as Security Collateral in the same form as so received
(with any necessary endorsement); provided further, however, that the Grantors
shall be entitled to retain any such payments referred to in clause (A), (B) or
(C) above to the extent such payments are made between the Borrower and its
Subsidiaries or between the Borrower's Subsidiaries and in each case are
otherwise permitted by the terms of the Credit Agreement, including without
limitation Sections
14
<PAGE>
6.4 and 6.7 thereof and in each case to the extent relating to Investments prior
to the occurrence and during the continuance of a Default subject however to any
prepayment requirements under the Credit Agreement.
(iii) The Administrative Agent shall execute and deliver (or cause to
be executed and delivered) to each of the Grantors all such proxies and
other instruments as such Grantor may request for the purpose of enabling
such Grantor to exercise, prior to the occurrence and during the
continuance of an Event of Default, the voting and other rights that it is
entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments that it is authorized to receive and retain
pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of Default:
(i) All rights of each of the Grantors (x) to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 13(a)(i) shall automatically
cease and (y) to receive the dividends and interest payments that it would
otherwise be authorized to receive and retain pursuant to Section 13(a)(ii)
shall automatically cease, and all such rights shall thereupon be vested
solely in the Administrative Agent, which shall thereupon have the sole
right to exercise or refrain from exercising such voting and other
consensual rights and to receive and hold as Security Collateral such
dividends and interest payments.
(ii) All dividends and interest payments that are received by any of
the Grantors contrary to the provisions of paragraph (i) of this Section
13(b) shall be received in trust for the benefit of the Administrative
Agent, shall be segregated from other funds of such Grantor and shall be
forthwith paid over to the Administrative Agent as Security Collateral in
the same form as so received (with any necessary endorsement).
Section 14. As to the Assigned Agreements.
(a) Each of the Grantors shall, at its expense:
(i) perform and observe all the material terms and provisions of the
Assigned Agreements to which such Grantor is a party to be performed or
observed by it, maintain such Assigned Agreements in full force and effect
and enforce such Assigned Agreements in accordance with their terms, except
where the failure to do so would not be reasonably likely to have a
Material Adverse Effect and take all such action to such end as may be from
time to time reasonably requested by the Administrative Agent; and
(ii) furnish to the Administrative Agent promptly upon receipt thereof
copies of all material notices received by such Grantor (other than those
created or arising in the ordinary course) under or pursuant to the
Assigned Agreements to which such Grantor is a party relating to any breach
or default by any party which could reasonably be expected to have a
Material
15
<PAGE>
Adverse Effect, and from time to time (A) furnish to the Administrative
Agent such information and reports regarding the Collateral pledged by such
Grantor hereunder as the Administrative Agent may reasonably request and
(B) upon the reasonable request of the Administrative Agent, make to each
other party to any such Assigned Agreement such demands and requests for
information and reports or for action as such Grantor is entitled to make
thereunder.
(b) Each of the Grantors agrees that it shall not without the consent of
the Administrative Agent if any such action would reasonably be expected to be
adverse to the interests of, or impair the security value of such Collateral to,
the Administrative Agent or the Lenders (except if adverse, or causing an
impairment, in each case only in an immaterial way or with respect to Collateral
which individually or in the aggregate is not material to such Grantor's
business) and shall not in any event take any such action at any time following
the occurrence and during the continuance of a Default or an Event of Default:
(i) cancel or terminate any Assigned Agreement to which such Grantor
is a party, or consent to or accept any cancellation or termination
thereof;
(ii) amend or otherwise modify any Assigned Agreement to which such
Grantor is a party, or give any consent, waiver or approval thereunder;
(iii) waive any material default under or material breach of any
Assigned Agreement to which such Grantor is a party;
(iv) consent to or permit or accept any prepayment of amounts to
become due under or in connection with any Assigned Agreement to which such
Grantor is a party, except as expressly provided therein; or
(v) take any other action in connection with any Assigned Agreement to
which such Grantor is a party, that would impair the value of the interest
or rights of such Grantor thereunder or that would impair the interest or
rights of the Administrative Agent.
Section 15. Payments Under the Assigned Agreements. Following the
occurrence and continuance of an Event of Default, if requested by the
Administrative Agent, each of the Grantors shall effectively instruct each other
party to each Assigned Agreement to which such Grantor is a party, that all
payments due or to become due under or in connection with such Assigned
Agreement shall be made in accordance with the instructions of the
Administrative Agent. In such event the Administrative Agent shall instruct such
party to make (A) such payments to the Borrower so long as no Event of Default
shall have occurred and be continuing or (B) such payments to the Administrative
Agent if any Event of Default shall have occurred and be continuing. Any payment
made to the Administrative Agent under this Section 15 shall be applied as
provided in Section 20(b).
Section 16. Transfers and Other Liens; Additional Shares.
16
<PAGE>
(a) Each of the Grantors agrees that it shall not (i) sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except sales of Inventory in the ordinary
course of business or sales or other dispositions of other assets permitted by
the Credit Agreement, or (ii) create or suffer to exist any Lien upon or with
respect to any of the Collateral except for (A) the pledge, assignment and
security interest created by this Agreement and (B) any other Liens expressly
permitted under Section 6.1 of the Credit Agreement.
(b) Each of the Grantors agrees that it shall (i) cause each issuer of the
Pledged Shares which it controls not to issue any stock or other securities in
addition to or in substitution for the Pledged Shares issued by such issuer,
except to such Grantor and except as otherwise permitted by the Credit
Agreement, and (ii) pledge hereunder, immediately upon its acquisition (directly
or indirectly) thereof, any and all additional shares of stock or other
securities owned by such Grantor of each issuer of the Pledged Shares; provided,
however, that in no event shall more than 65% of the capital stock of any
Foreign Subsidiary of a Grantor be pledged pursuant to this Agreement except if
and to the extent otherwise provided in the Credit Agreement.
Section 17. Administrative Agent Appointed Attorney-in-Fact. Each of the
Grantors hereby irrevocably appoints the Administrative Agent such Grantor's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower or otherwise, upon the occurrence and during the
continuance of an Event of Default, to take any action and to execute any
instrument that the Administrative Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to the
Administrative Agent pursuant to Section 11,
(b) to ask for, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of its Collateral,
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) or (b) above, and
(d) to file any claims or take any action or institute any proceedings that
the Administrative Agent may deem necessary or desirable for the collection of
any of its Collateral or otherwise to enforce compliance with the terms and
conditions of any Assigned Agreement or the rights of the Administrative Agent
with respect to any of its Collateral.
Section 18. Administrative Agent May Perform. If any of the Grantors fails
to perform any agreement contained herein, the Administrative Agent may itself,
upon reasonable prior notice to such Grantor, perform, or cause performance of,
such agreement, and the reasonable and
17
<PAGE>
actual expenses of the Administrative Agent incurred in connection therewith
shall be payable by such Grantor under Section 22(b).
Section 19. Administrative Agent's Duties. The powers conferred on the
Administrative Agent hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Security Collateral, whether or not the
Administrative Agent or any Secured Party has or is deemed to have knowledge of
such matters, or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Collateral. The
Administrative Agent shall exercise reasonable care in the custody and
preservation of any Collateral in its possession and shall accord such
Collateral treatment equal to that which Fleet accords other similar property in
its possession.
Section 20. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) The Administrative Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party upon default under the
Uniform Commercial Code in effect in the State of New York at such time (the
"N.Y. Uniform Commercial Code") (whether or not the N.Y. Uniform Commercial Code
applies to the affected Collateral) and also may (i) require any or all of the
Grantors to, and each Grantor hereby agrees that it will at its expense and upon
request of the Administrative Agent forthwith, assemble all or part of the
Collateral as directed by the Administrative Agent and make it available to the
Administrative Agent at a place to be designated by the Administrative Agent
that is reasonably convenient to both parties and (ii) without notice except as
specified below and as required by law, sell the Collateral or any part thereof
in one or more parcels at public or private sale, at any of the Administrative
Agent's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Administrative Agent may deem commercially
reasonable. Each Grantor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to such Grantor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Administrative Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Administrative Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice except as required by law, be made at the time and
place to which it was so adjourned.
(b) Any cash held by or on behalf of the Administrative Agent as Collateral
and all cash proceeds received by the Administrative Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Administrative Agent, be held by the
Administrative Agent as Collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Administrative Agent
pursuant to Section 22)
18
<PAGE>
in whole or in part by the Administrative Agent for the ratable benefit of the
Secured Parties against, all or any part of the Secured Obligations in such
order as is specified by the Credit Agreement and, if the Credit Agreement does
not so specify an order of application against the Obligations, in such order as
the Administrative Agent shall elect, provided, however, that this Section 20(b)
shall be subject to the provisions of Section 11(a). Any surplus of such cash or
cash proceeds held by the Administrative Agent and remaining after payment in
full of all the Secured Obligations shall be paid over to the applicable
Grantors or to whomsoever may be lawfully entitled to receive such surplus.
(c) The Administrative Agent may exercise any and all rights and remedies
of any of the Grantors under or in connection with the Assigned Agreements or
otherwise in respect of the Collateral, including, without limitation, any and
all rights of any Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, any Assigned Agreement.
(d) All payments received by any Grantor under or in connection with any
Assigned Agreement or otherwise in respect of the Collateral shall be received
in trust for the benefit of the Administrative Agent, shall be segregated from
other funds of such Grantor and shall be forthwith paid over to the
Administrative Agent in the same form as so received (with any necessary
endorsement or assignment).
(e) The Administrative Agent may, with reasonable notice to any of the
Grantors and at any time or from time to time, charge, set-off or otherwise
apply all or any part of the Secured Obligations against the L/C Cash Collateral
Account or any part thereof; provided, however, that the failure to give notice
shall not affect the validity of such charge, set-off or application.
(f) Each Grantor will furnish to the Administrative Agent correct and
complete customer lists and updates thereof as the Administrative Agent may
reasonably request, all in reasonable detail.
Section 21. Registration Rights; Private Sale. (a) If the Administrative
Agent shall determine to exercise its right to sell all or any of the Security
Collateral pursuant to Section 20 pursuant to a public offering (it being
understood by each of the Grantors that the Administrative Agent shall be under
no obligation to do so and may, in its sole discretion, dispose of the Security
Collateral in any manner permitted by law that the Administrative Agent may
select), each Grantor agrees that, upon request of the Administrative Agent,
such Grantor will, at its own expense:
(i) execute and deliver, and cause each issuer of the Security
Collateral contemplated to be sold and the directors and officers thereof
to execute and deliver all such instruments and documents, and do or cause
to be done all such other acts and things as may be necessary or, in the
sole discretion of the Administrative Agent, desirable to register its
Security Collateral under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), to cause a registration statement relating
thereto to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to make all
amendments and supplements thereto and to the related prospectus that, in
the sole discretion of the Administrative
19
<PAGE>
Agent, are necessary or desirable, all in conformity with the requirements
of the Securities Act and the rules and regulations of the Securities and
Exchange Commission applicable thereto;
(ii) use its best efforts to qualify its Security Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as
requested by the Administrative Agent in its sole discretion;
(iii) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will satisfy
the provisions of Section 10(a) of the Securities Act;
(iv) provide the Administrative Agent with such other information and
projections as may be necessary or, in the sole discretion of the
Administrative Agent, desirable to enable the Administrative Agent to
effect the sale of its Security Collateral; and
(v) do or cause to be done all such other acts and things as may be
necessary to make such sale of its Security Collateral or any part thereof
valid and binding and in compliance with applicable law.
The Administrative Agent is authorized, in connection with any sale of the
Security Collateral pursuant to Section 20, to deliver or otherwise disclose to
any prospective purchaser of the Security Collateral (A) any registration
statement or prospectus, and all supplements and amendments thereto, prepared
pursuant to clause (i) above, (B) any information and projections provided to it
pursuant to clause (iv) above and (C) any other information in its possession
relating to the Security Collateral.
(b) The Grantors recognize that, upon the occurrence and during the
continuance of an Event of Default, the Administrative Agent may be unable to
effect a public sale of all or a part of the Security Collateral, and may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will be obligated 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 Grantors acknowledge that any such private
sales may be at places and on terms less favorable to the sellers than if sold
at public sales and agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner, and that the Administrative Agent has
no obligation to delay the sale of any such securities for the period of time
necessary to permit any such securities to be registered for public sale.
20
<PAGE>
Section 22. Indemnity and Expenses.
(a) Each of the Grantors hereby agrees, jointly and severally, to indemnify
the Administrative Agent from and against any and all claims, losses and
liabilities arising out of or resulting from this Agreement (including, without
limitation, enforcement of this Agreement), except claims, losses or liabilities
resulting from the Administrative Agent's gross negligence or willful misconduct
as determined by a final judgment of a court of competent jurisdiction.
(b) The Borrower will upon demand pay to the Administrative Agent the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, that the Administrative
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Administrative Agent or the Secured
Parties hereunder or (iv) the failure by the Borrower or any other Grantor to
perform or observe any of the provisions hereof.
Section 23. Security Interest Absolute. The obligations of each Grantor
under this Agreement are independent of the Secured Obligations, and a separate
action or actions may be brought and prosecuted against each Grantor to enforce
this Agreement, irrespective of whether any action is brought against the
Borrower or any other Grantor or whether the Borrower or any other Grantor is
joined in any such action or actions. All rights of the Administrative Agent and
the pledge, assignment and security interest hereunder, and all obligations of
each Grantor hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations or any other amendment or waiver
of or any consent to any departure from any Loan Document, including, without
limitation, any increase in the Secured Obligations resulting from the extension
of additional credit to the Borrower or any Guarantor or any of their
subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all or
any of the Secured Obligations, or any manner of sale or other disposition of
any collateral for all or any of the Secured Obligations or any other assets of
the Borrower or any Guarantor or any of their subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of the Borrower or any Guarantor or any of their subsidiaries; or
21
<PAGE>
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Grantor or a third party grantor of a
security interest.
Section 24. Amendments; Waivers; Etc.
(a) No amendment or waiver of any provision of this Agreement, and no
consent to any departure by any Grantor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Administrative
Agent, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
(b) No failure on the part of the Administrative Agent to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
(c) Upon the execution and delivery by any Person of a supplement to this
Agreement, in each case in substantially the form of Exhibit D hereto (each a
"Security Agreement Supplement"), (i) such Person shall be referred to as an
"Additional Grantor" and shall be and become a Grantor, and each reference in
this Agreement to an "Additional Grantor" or a "Grantor" shall also mean and be
a reference to such Additional Grantor and each reference in any other Loan
Document to a "Grantor" or a "Loan Party" shall also mean and be a reference to
such Additional Grantor, and (ii) the supplements attached to each Security
Agreement Supplement shall be incorporated into and become a part of and
supplement the Schedules to this Agreement, as appropriate, and the
Administrative Agent may attach such supplements to such Schedules, and each
reference to such Schedules shall mean and be a reference to such Schedules, as
supplemented pursuant hereto.
Section 25. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered
if to any Grantor addressed to it at the address set forth below its name on the
signature pages hereof; if to any Additional Grantor, addressed to it at the
address set forth below its name on the signature pages to the Security
Agreement Supplement executed and delivered by such Additional Grantor; if to
the Administrative Agent, addressed to it at its address set forth in Section
11.2 of the Credit Agreement or, as to each other party, at such other address
as shall be designated by such party in a written notice to the Grantors and the
Administrative Agent. All such notices and communications shall, when mailed by
certified mail, return receipt requested, telegraphed, telecopied or telexed, be
effective three (3) Business Days after mailing, or two (2) Business Days after
being deposited with a recognized overnight delivery service with all changes
prepaid or billed to the account of the sender, or upon transmission to the
telegraph company, upon delivery by telecopier or upon confirmation by telex
answerback, respectively, addressed as aforesaid. Any party hereto may change
the Person, address or telecopier number to whom or which notices are to be
given hereunder, by notice duly given hereunder; provided, however, that any
such notice shall be deemed to have been given hereunder only when actually
received by the party to which it is addressed.
22
<PAGE>
Section 26. Continuing Security Interest; Assignments under the Credit
Agreement. This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the later of (i)
the indefeasible payment in full in cash of the Secured Obligations and (ii) the
Termination Date, (b) be binding upon each Grantor, its successors and assigns
and (c) inure, together with the rights and remedies of the Administrative Agent
hereunder, to the benefit of the Administrative Agent, the Lender Parties and
their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any Lender may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment,
the Advances owing to it and the Note or Notes held by it) to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to such Lender herein or otherwise, in each case as
provided in Section 11.7 of the Credit Agreement. Notwithstanding the foregoing,
no Grantor may assign any of its rights or obligations under this Agreement
without the prior written consent of the Administrative Agent, which consent may
be withheld for any reason.
Section 27. Release and Termination.
(a) Upon any sale, lease, transfer or other disposition of any item of
Collateral in accordance with the express terms of the Loan Documents, the
Administrative Agent will, at the Grantors' expense, execute and deliver to each
Grantor such documents as such Grantor shall reasonably request to evidence the
release of such item of Collateral from the assignment and security interest
granted hereby; provided, however, that (i) at the time of such request and such
release no Default shall have occurred and be continuing, (ii) such Grantor
shall deliver to the Administrative Agent, at least ten (10) days prior to the
date of the proposed release, a written request for release describing the item
of Collateral and the terms of the sale, lease, transfer or other disposition in
reasonable detail, including the price thereof and any expenses in connection
therewith, together with a form of release for execution by the Administrative
Agent and a certification by such Grantor to the effect that the transaction is
in compliance with the Loan Documents and as to such other matters as the
Administrative Agent may request, and (iii) the proceeds of any such sale,
lease, transfer or other disposition required to be applied in accordance with
Section 2.6 or any other provision of the Credit Agreement shall be applied as
required by the terms of the Credit Agreement.
(b) Upon the latest of (i) the indefeasible payment in full in cash of the
Secured Obligations, (ii) the expiration, termination or cancellation of all of
the Letters of Credit and (iii) the Termination Date, the pledge, assignment and
security interest granted by each of the Grantors hereby shall terminate and all
rights to the Collateral shall revert to the appropriate Grantor. Upon any such
termination, the Administrative Agent will, at the Grantors' expense, execute
and deliver to the appropriate Grantor such documents as such Grantor shall
reasonably request to evidence such termination.
(c) To the extent any one or more provisions of this Agreement shall
conflict with one or more provisions in the Credit Agreement, the provisions of
the Credit Agreement shall control and supersede any such conflicting
provision(s) of this Agreement.
23
<PAGE>
Section 28. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein or in the Credit Agreement, terms used in Article 9 of the N.Y.
Uniform Commercial Code are used herein as therein defined.
Section 29. JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES
OF AMERICA SITTING IN NEW YORK CITY, NEW YORK AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY, OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH NEW YORK STATE
COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL
AFFECT ANY RIGHT THAT ANY LENDER PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS IN THE
COURTS OF ANY JURISDICTION.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
Section 30. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE LOAN PARTIES,
THE ADMINISTRATIVE AGENT AND THE SECURED PARTIES VOLUNTARILY, INTENTIONALLY AND
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, THE ADVANCES OR
24
<PAGE>
THE ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR THE SECURED PARTIES AND THE ADMINISTRATIVE AGENT TO
ENTER INTO THIS AGREEMENT AND TO MAKE ADVANCES PURSUANT TO THE LOAN DOCUMENTS.
Section 31. Counterparts. This Agreement may be executed in any number of
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Delivery by
telecopier of an executed counterpart of a signature page to this Agreement
shall be as effective as delivery of a manually executed counterpart to this
Agreement.
[SIGNATURE PAGE FOLLOWS]
25
<PAGE>
IN WITNESS WHEREOF, each of the Grantors has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
AUDIO BOOK CLUB, INC.
By:___________________________________
Title:________________________________
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
ABC INTERNET SERVICES, INC.
By:___________________________________
Title:________________________________
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
CLASSIC RADIO HOLDING CORP.
By:___________________________________
Title:________________________________
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
CLASSIC RADIO ACQUISITION CORP.
By:___________________________________
Title:________________________________
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
<PAGE>
ABC INVESTMENT CORP.
By:___________________________________
Title:________________________________
Address: 103 Springer Building
3411 Silver Side Road
Wilmington, DE 19810
CH ACQUISITIONS CORP.
By:___________________________________
Title:________________________________
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
<PAGE>
ACCEPTED:
FLEET NATIONAL BANK, AS ADMINISTRATIVE AGENT
By: _______________________________________
Title: ____________________________________
28
<PAGE>
EXHIBIT A TO
SECURITY AGREEMENT
[Grantor Name and Address]
_____________, ____
[Name of Depository Account Bank]
[Address]
Ladies and Gentlemen:
Reference is made to deposit account no.[_________] (the "Cash Collateral
Account") maintained with you by [GRANTOR NAME], a [_____________] corporation
(the "Grantor"). Pursuant to the Security Agreement, dated November ___, 1998
(as amended, supplemented, renewed, restated, extended or otherwise modified
from time to time, the "Security Agreement"; terms defined therein unless
otherwise defined herein being used herein as therein defined), the Grantor has
granted to Fleet National Bank, as administrative agent (together with any
successor appointed pursuant to Article X of the Credit Agreement (as
hereinafter defined), the "Administrative Agent") for the Secured Parties
referred to in the Credit Agreement, dated as of ________, ____ (as such
agreement may be amended, supplemented, renewed, extended or otherwise modified
from time to time, the "Credit Agreement"), by and among Audio Book Club, Inc.,
(the "Borrower"), the Lender Parties party thereto, the Secured Parties named
therein and Fleet National Bank, as Swing Line Bank, as Issuing Bank and as the
Administrative Agent, a security interest in certain property and assets of the
Grantor, including, among other things, the following (the "Account
Collateral"): (a) the Cash Collateral Account, all funds held therein and all
certificates and instruments, if any, from time to time representing or
evidencing the Cash Collateral Account; (b) all interest, dividends, cash,
instruments and other property and assets from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of the then
existing Account Collateral; and (c) all proceeds of any and all of the
foregoing Account Collateral and, to the extent not otherwise included, all (i)
payments under insurance (whether or not the Administrative Agent is the loss
payee thereof) or any indemnity, warranty or guaranty payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Account
Collateral, and (ii) cash. It is a condition to the continued maintenance of the
Cash Collateral Account with you that you agree to this letter agreement.
By signing this letter agreement, you acknowledge notice of the Security
Agreement and the terms and conditions thereof related to the Account Collateral
and confirm to the Administrative Agent that (a) the Cash Collateral Account is
maintained with you at your offices at
Exhibit A - Page 1
<PAGE>
the address set forth above, is entitled as set forth in subparagraph (i) below
and the account number therefor is as set forth in the first paragraph of this
letter agreement and (b) you have received no notice of any other pledge or
assignment of, or any lien on or security interest in, the Cash Collateral
Account. Further, you hereby agree with the Administrative Agent that:
(i) The Cash Collateral Account shall be maintained solely for the
benefit of the Administrative Agent, on behalf of itself and the other
Secured Parties, shall be entitled "[NAME OF GRANTOR], cash collateral
account for the benefit of Fleet National Bank, as Administrative Agent"
and shall be subject to written instructions only from an officer of the
Administrative Agent or, so long as you have not been notified by the
Administrative Agent or the Grantor that a Default has occurred and is
continuing and solely to the extent set forth in subparagraph (iv)(B)
below, an officer of the Grantor, as agent for, and with the consent of,
the Administrative Agent.
(ii) The Cash Collateral Account is and shall be subject to the terms
and conditions of the Security Agreement, and such applicable laws and
regulations of the Board of Governors of the Federal Reserve System and of
any other appropriate banking or governmental authority, as are in effect
from time to time, and to the extent any term or condition of this letter
agreement is inconsistent with the terms and conditions of the Security
Agreement, the terms and conditions of the Security Agreement shall govern.
(iii) You shall maintain a record of all deposits received in and all
disbursements made from the Cash Collateral Account and, in addition to
providing the Grantor with records and other documents of such deposits and
disbursements on a daily basis in accordance with the arrangements in
effect between you and the Grantor on the date hereof, furnish to the
Administrative Agent a monthly statement of the Cash Collateral Account to
be mailed to the Administrative Agent in accordance with the provisions of
this letter agreement.
(iv) (A) Upon the instructions of the Administrative Agent, you shall
transfer, in immediately available funds, on each of your business days,
all amounts to be applied by the Administrative Agent on such day to
obligations then due and payable under the Credit Agreement and the other
Loan Documents to the following account (the "Administrative Agent's
Account"), which amounts shall be specified to you by the Administrative
Agent:
Fleet Bank, as Administrative Agent
Account No. ___________________
One Federal Street
Boston, Massachusetts 02110
Attention: Loan Administration
Ref: __________________________
Any funds remaining in the Cash Collateral Account after effecting the
release of funds set forth in the immediately preceding sentence shall be
released to the Grantor in accordance
Exhibit A - Page 2
<PAGE>
with subparagraph (iv)(B) below.
(B) After transferring to the Administrative Agent all available
amounts on deposit in the Cash Collateral Account in accordance with
subparagraph (iv)(A) above, and so long as neither the Administrative Agent
nor the Grantor has notified you that an Event of Default has occurred and
is continuing, you shall transfer, in accordance with the instructions from
the Grantor, acting as agent for, and with the consent of, the
Administrative Agent, all or a portion of the available remaining amounts
on deposit in the Cash Collateral Account that are required for the conduct
of the business of the Grantor and its subsidiaries in the ordinary course,
which instructions shall specify the person or entity or the account
therefor to which such amounts shall be transferred.
(C) After complying with the provisions of subparagraphs (iv)(A) and
(iv)(B) above, you shall hold any remaining amounts in the Cash Collateral
Account as Collateral for the Secured Obligations.
Except as provided in subparagraph (iv)(B) above, in no event shall you
release any amounts on deposit in the Cash Collateral Account at the
request of any Person or entity other than the Administrative Agent. Each
such transfer of funds shall neither comprise only part of a remittance nor
reflect the rounding off of any funds so transferred.
(v) All transfers from the Cash Collateral Account referred to in
subparagraph (iv) above shall be made by you irrespective of, and without
deduction for, any counterclaim, defense, recoupment or set off and shall
be final, and you will not seek to recover from the Administrative Agent
for any reason any such payment once made.
(vi) All service charges and fees with respect to the Cash Collateral
Account shall be payable by the Grantor, but may be charged to another
account maintained by the Grantor with you (other than the Cash Collateral
Account or any Lock Box Account maintained with you). In the event you are
unable to obtain sufficient funds from such charges to cover such service
charges and fees, the Grantor shall indemnify you therefor.
(vii) The Administrative Agent shall be entitled to exercise any and
all rights of the Grantor in respect of the Cash Collateral Account in
accordance with the terms of the Security Agreement, and you shall comply
in all respects with such exercise. You hereby acknowledge that
notwithstanding any other provision of this letter agreement, upon notice
from the Grantor or the Administrative Agent of an Event of Default under
the Credit Agreement, you will only accept instructions in respect of the
Cash Collateral Account and the other Account Collateral from the
Administrative Agent.
(viii) The security interest of the Administrative Agent, on behalf of
the Secured Parties, in the Cash Collateral Account and the other Account
Collateral shall not be terminated until you receive notice of such
termination from the Administrative Agent.
Exhibit A - Page 3
<PAGE>
This letter agreement shall be binding upon you and your successors and
assigns and shall inure to the benefit of, and be enforceable by, the
Administrative Agent and the other Secured Parties and their respective
successors, transferees and assigns. You may terminate this letter agreement
upon thirty (30) days' prior written notice to the Grantor and the
Administrative Agent. Upon any such termination, you (a) shall close the Cash
Collateral Account and transfer all available funds in the Cash Collateral
Account in accordance with the instructions of the Administrative Agent and (b)
shall nonetheless remain obligated to transfer promptly to the Administrative
Agent, at the account designated by the Administrative Agent at such time, all
funds and other property received in respect of the Cash Collateral Account.
You shall exercise reasonable care in maintaining the Cash Collateral
Account and any Account Collateral received in respect thereof and in fulfilling
your obligations under or in respect of this letter agreement. You shall not be
held liable for any claims, damages, losses or expenses incurred by the Grantor
or the Administrative Agent in connection therewith other than for (a) claims,
damages, losses or expenses resulting from your gross negligence or wilful
misconduct or (b) failure to maintain the Cash Collateral Account or any such
Account Collateral or to fulfill your obligations under or in respect of this
letter agreement with reasonable care as required by the first sentence of this
paragraph. Any liability incurred by you pursuant to the terms of this paragraph
shall be limited to damages directly caused by you or resulting from, or in
connection with, your actions or omissions to act, and shall not be for any
incidental, indirect, punitive or consequential damages.
All notices and other communications provided for under this letter
agreement shall be by (a) telephone promptly confirmed in writing or (b) in
writing (including telegraphic, telecopy or telex communication) and delivered
by hand or overnight courier, telegraphed, telecopied or telexed, to each party
at the address set forth below the name of such party on the signature pages of
this letter agreement or to such other address as such party may specify in
writing to each other party. All such notices and communications shall (i) when
made by telephone, be effective when promptly confirmed in writing or (ii) when
delivered by hand or overnight courier, telegraphed, telecopied or telexed, be
effective upon delivery by hand, one (1) day after delivery to the courier
company, when delivered to the telegraph company, when transmitted by telecopier
or when confirmed by telex answerback, respectively, addressed as aforesaid.
This letter agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery by telecopier of an executed
counterpart of a signature page to this letter agreement shall be as effective
as delivery of a manually executed counterpart of this letter agreement.
Exhibit A - Page 4
<PAGE>
This letter agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without giving effect to its conflict
of laws principles).
Very truly yours,
FLEET NATIONAL BANK,
as Administrative Agent
By____________________________________
Name:
Title:
Person and Address for Notices:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02110
Attention: ___________________________
Telephone: ___________________________
Facsimile No.: _______________________
[NAME OF GRANTOR, as Grantor]
By________________________________
Name:
Title:
Person and Address for Notices:
[Name]
[Address]
[Address]
[Address]
Acknowledged and agreed to as
of the date first above written:
Exhibit A - Page 5
<PAGE>
[NAME OF DEPOSITORY ACCOUNT BANK]
By__________________________________
Name:
Title:
Person and Address for Notices:
[Name]
[Address]
[Address]
[Address]
Exhibit A - Page 6
<PAGE>
EXHIBIT B TO
SECURITY AGREEMENT
FORM OF CONSENT AND AGREEMENT
The undersigned hereby acknowledges notice of, and consents to the terms
and provisions of, the Security Agreement, dated as of November ___, 1998 (the
"Security Agreement"; the terms defined therein being used herein as therein
defined), from [Name of Grantor], (the "Grantor") to Fleet National Bank, as
administrative agent (the "Administrative Agent") for the Secured Parties
referred to therein, and hereby agrees with the Administrative Agent that:
(a) The undersigned will make all payments to be made by it under or
in connection with the ________ Agreement, dated _________, 19__ (the
"Assigned Agreement"), between the undersigned and Grantor in accordance
with the instructions of the Administrative Agent.
(b) All payments referred to in paragraph (a) above shall be made by
the undersigned irrespective of, and without deduction for, any
counterclaim, defense, recoupment or set-off and shall be final, and the
undersigned will not seek to recover from the Administrative Agent or any
Lender Party for any reason any such payment once made.
(c) The Administrative Agent shall be entitled to exercise any and all
rights and remedies of the Grantor under the Assigned Agreement and the
undersigned shall comply in all respects with any such exercise.
(d) The undersigned shall not, without the prior written consent of
the Administrative Agent, (i) cancel or terminate the Assigned Agreement or
consent to or accept any cancellation or termination thereof, (ii) amend,
restate or otherwise modify the Assigned Agreement or (iii) except as
expressly provided therein, make any prepayment of amounts to become due
under or in connection with the Assigned Agreement.
This Consent and Agreement shall be binding upon the undersigned and its
successors and assigns, and shall inure, together with the rights and remedies
of the Administrative Agent hereunder, to the benefit of the Administrative
Agent, the Lender Parties and their respective successors, transferees and
assigns. THIS CONSENT AND AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS
CONFLICTS OF LAWS PROVISIONS).
Exhibit B - Page 1
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Consent and
Agreement as of the date set forth below.
Dated: ________, 1998 [NAME OF OBLIGOR]
By:____________________________________
Title:_________________________________
Exhibit B - Page 2
<PAGE>
EXHIBIT C TO
SECURITY AGREEMENT
FORM OF SECURITY AGREEMENT SUPPLEMENT
____________, ___
Fleet Bank, as Administrative Agent
One Federal Street
Boston, MA 02110
Attention: Corporate Banking Group
Security Agreement, dated as of November ___, 1998,
made by Audio Book Club, Inc.
and the other Grantors party thereto, to Fleet National Bank,
as Administrative Agent for the Secured Parties
Ladies and Gentlemen:
Reference is made to the above-captioned Security Agreement (such Security
Agreement, as in effect on the date hereof and as it may hereafter be amended,
supplemented, restated, or otherwise modified from time to time, the "Security
Agreement"). Capitalized terms used and not otherwise defined herein have the
meanings ascribed to them in the Security Agreement.
The undersigned hereby agrees, as of the date first above written, to
become a Grantor under the Security Agreement as if it were an original party
thereto and agrees that each reference in the Security Agreement to "Grantor"
shall also mean and be a reference to the undersigned.
The undersigned hereby assigns and pledges to the Administrative Agent, for
the benefit of the Administrative Agent and the ratable benefit of the Lenders,
the Swing Line Bank and the Issuing Bank, and hereby grants to the
Administrative Agent, for the benefit of the Administrative Agent and the
ratable benefit of the Secured Parties, as security for the Secured Obligations,
a lien on, and security interest in, all of the right, title and interest of the
undersigned, whether now owned or hereafter acquired, in and to the Collateral
owned by the undersigned, including, but not limited to, the property listed on
the attached supplements to Schedules I through IV to the Security Agreement.
The undersigned hereby certifies that such supplements have been
Exhibit C - Page 1
<PAGE>
prepared by the undersigned in substantially the form of such Schedules and are
true, accurate and complete as of the date hereof.
The undersigned hereby makes each representation and warranty set forth in
Section 8 of the Security Agreement (as modified by the attached supplements to
the Schedules to the Security Agreement) to the same extent as each other
Grantor and hereby agrees to be bound as a Grantor by all of the terms and
provisions of the Security Agreement to the same extent as each other Grantor.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS
PROVISIONS).
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK
STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK
CITY, NEW YORK AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY
LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY
LENDER PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY
JURISDICTION.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
Exhibit C - Page 2
<PAGE>
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF THE LOAN DOCUMENTS (AS
DEFINED IN THE CREDIT AGREEMENT), THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE ADMINISTRATIVE AGENT, ANY LENDER OR THE ISSUING BANK IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Very truly yours,
[NAME OF ADDITIONAL GRANTOR]
[Address of chief executive office]
[Address of chief executive office]
By: ___________________________________
Title:_________________________________
Exhibit C - Page 3
<PAGE>
EXHIBIT G TO THE CREDIT AGREEMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT
December 31, 1998
from
AUDIO BOOK CLUB, INC.,
ABC INTERNET SERVICES, INC.,
CLASSIC RADIO HOLDING CORP.,
CLASSIC RADIO ACQUISITION CORP.,
ABC INVESTMENT CORP., and
CH ACQUISITIONS CORP.
as Grantors,
to
FLEET NATIONAL BANK,
as Administrative Agent
124870.5
<PAGE>
TABLE OF CONTENTS
INTELLECTUAL PROPERTY SECURITY AGREEMENT .................................. 1
PRELIMINARY STATEMENTS .................................................... 1
SECTION 1. Grant of Security .................................... 1
SECTION 2. Security for Obligations ............................. 3
SECTION 3. Grantors Remain Liable ............................... 3
SECTION 4. Representations and Warranties ....................... 3
SECTION 5. Further Assurances ................................... 6
SECTION 6. Transfers and Other Liens ............................ 8
SECTION 7. Administrative Agent Appointed Attorney-in-Fact ...... 8
SECTION 8. Administrative Agent May Perform ..................... 9
SECTION 9. The Administrative Agent's Duties .................... 9
SECTION 10. Remedies ............................................. 9
SECTION 11. Indemnity and Expenses ............................... 11
SECTION 12. Security Interest Absolute ........................... 11
SECTION 13. Amendments; Waivers; Supplements; Etc ................ 12
SECTION 14. Addresses for Notices ................................ 12
SECTION 15. Continuing Security Interest, Assignments ............ 13
SECTION 16. Release and Termination .............................. 13
SECTION 17. Execution in Counterparts ............................ 14
SECTION 18. Governing Law; Terms ................................. 14
EXHIBIT A ................................................................. 21
<PAGE>
SCHEDULES
Schedule I - Patents and Patent Applications
Schedule II - Trademark Registrations and Applications
Schedule III - Copyright Registrations and Applications
Schedule IV - Licenses
Schedule 4(i) - Litigation
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT dated December 31, 1998 made by
AUDIO BOOK CLUB, INC., a Florida corporation with an office at 2295 Corporate
Boulevard, Suite 222, Boca Raton, Florida 33431 (the "Borrower"), the Additional
Grantors, ABC INTERNET SERVICES, INC., a New York corporation with an office at
2295 Corporate Boulevard, Suite 222, Boca Raton, Florida 33431, CLASSIC RADIO
HOLDING CORP., a Delaware corporation with an office at 2295 Corporate
Boulevard, Suite 222, Boca Raton, Florida 33431, CLASSIC RADIO ACQUISITION
CORP., a Delaware corporation, with an office at 2295 Corporate Boulevard, Suite
222, Boca Raton, Florida 33431, ABC Investment Corp., a Delaware corporation,
with an office at 103 Springer Building, 3411 Silver Side Road, Wilmington, DE
19810 and CH ACQUISITIONS CORP., a Delaware corporation, with an office at 2295
Corporate Boulevard, Suite 222, Boca Raton, Florida 33431,(as defined in Section
13(c)) (the Additional Grantors, together with the Borrower, the "Grantors") to
FLEET NATIONAL BANK, as administrative agent (in such capacity, together with
successors in such capacity, the "Administrative Agent") for the Secured Parties
(as defined in the Credit Agreement referred to below).
PRELIMINARY STATEMENTS:
(1) The Borrower has entered into a Credit Agreement, dated of even date
herewith (said Agreement, as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time, being the "Credit Agreement"; the terms
defined therein and not otherwise defined herein being used herein as therein
defined) with the banks, financial institutions and other institutional lenders
party thereto (the "Lenders"), Fleet National Bank, as the Issuing Bank, and
Fleet National Bank, as the Administrative Agent.
(2) It is a condition precedent to the making of Advances by the Lenders,
the issuance of Letters of Credit by the Issuing Bank under the Credit Agreement
and the Hedge Banks' entering into the Bank Hedge Agreements with the Borrower
from time to time that the Borrower shall have granted the assignment and
security interest and made the pledge and assignment contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Secured Parties to make Advances under the Credit Agreement, the Issuing Bank to
issue Letters of Credit under the Credit Agreement, and the Hedge Banks to enter
into Bank Hedge Agreements with the Borrower from time to time, each of the
Grantors hereby agrees with the Administrative Agent for its benefit and the
ratable benefit of the Secured Parties as follows:
SECTION 1. Grant of Security. Each of the Grantors hereby assigns as
collateral and pledges to the Administrative Agent for its benefit and the
ratable
<PAGE>
benefit of the Secured Parties, and hereby grants to the Administrative Agent
for its benefit and the ratable benefit of the Secured Parties a security
interest in the following, in each case, as to each type of property described
below, whether now owned or hereafter acquired by such Grantor, and whether now
or hereafter existing (collectively, the "Intellectual Property Collateral"):
(a) all patents, patent applications and patentable inventions, including,
without limitation, each patent identified in Schedule I attached hereto and
made a part hereof and each patent application identified in such Schedule I,
and including, without limitation, (i) all inventions and improvements described
and claimed therein and the right to make, use or sell the same, (ii) the right
to sue or otherwise recover for any misappropriations thereof, (iii) all income,
royalties, damages and other payments now and hereafter due and/or payable with
respect thereto (including, without limitation, payments under all licenses
entered into in connection therewith, and damages and payments for past and
future infringements thereof), and (iv) all rights corresponding thereto
throughout the world and all reissues, divisions, continuations,
continuations-in-part, substitutes, renewals and extensions thereof, all
improvements thereon and all other rights of any kind whatsoever of each Grantor
accruing thereunder or pertaining thereto (the "Patents");
(b) all trademarks, service marks, trade names, trade dress or other
indicia of trade origin, trademark and service mark registrations, and
applications for trademark or service mark registrations and any renewals
thereof (to the extent that assignment of such application is permissible under
15 U.S.C. 1060), including, without limitation, each registration and
application identified in Schedule II attached hereto and made a part hereof,
and including, without limitation, (i) the right to sue or otherwise recover for
any and all past, present and future infringements and misappropriations
thereof, (ii) all income, royalties, damages and other payments now and
hereafter due and/or payable with respect thereto (including, without
limitation, payments under all licenses entered into in connection therewith,
and damages and payments for past or future infringements thereof), and (iii)
all rights corresponding thereto throughout the world and all other rights of
any kind whatsoever of the Grantor accruing thereunder or pertaining thereto,
together in each case with the goodwill of the business connected with the use
of, and symbolized by, each such trademark, service mark, trade name, trade
dress or other indicia of trade origin (the "Trademarks");
(c) all copyrights, whether statutory or common law, and whether or not the
underlying works of authorship have been published, and all works of authorship
and other intellectual property rights therein, all copyrights of works based
on, incorporated in, derived from or relating to works covered by such
copyrights, all right, title and interest to make and exploit all derivative
works based on or adopted from works covered by such copyrights, and all
copyright registrations and copyright applications, and any renewals or
extensions thereof, including, without limitation, each copyright registration
and copyright application identified in Schedule III attached hereto and made a
part hereof, and including, without limitation, (i) the right to reproduce,
prepare derivative works, distribute copies, perform or display any of the
foregoing, (ii) the right to sue or otherwise recover for any and all past,
present and future infringements and misappropriations thereof, (iii) all
income, royalties, damages and other payments now and
2
<PAGE>
hereafter due and/or payable with respect thereto (including, without
limitation, payments under all licenses entered into in connection therewith,
and damages and payments for past or future infringements thereof), and (iv) all
rights corresponding thereto throughout the world and all other rights of any
kind whatsoever of the Grantor accruing thereunder or pertaining thereto (the
"Copyrights");
(d) all license agreements (subject to the rights of the other parties
thereto) with any other Person in connection with any of the Patents, Trademarks
or Copyrights, or such other Person's patents, trade names, trademarks, service
marks, copyrights or works of authorship, or other intellectual property,
whether such Grantor is a licensor or licensee under any such license agreement,
including, without limitation, the license agreements listed on Schedule IV
attached hereto and made a part hereof, and any right to prepare for sale, sell
and advertise for sale, all Inventory (as defined in the Security Agreement) now
or hereafter owned by the Grantor and now or hereafter covered by any such
licenses (the "Licenses"); provided, however, that to the extent that the
consent of any other party to any of the Licenses is required, under the terms
thereof, for the collateral assignment thereof, then this Agreement shall not
effect any collateral assignment of (or otherwise be applied so as to cause a
default under) such Licenses; and
(e) all proceeds of any of the foregoing Patents, Trademarks, Copyrights
and Licenses, including, without limitation, any claims by such Grantor against
third parties for infringement of the Patents, Trademarks, Copyrights or
Licenses.
(f) As used in this Agreement, the terms (i) "ABC Intellectual Property
Collateral" shall mean the Intellectual Property Collateral of the Grantors not
acquired as a result of the consummation of the Acquisitions and (ii) "Acquired
Intellectual Property Collateral" shall mean the Intellectual Property
Collateral of the Grantors acquired as a result of the consummation of the
Acquisitions.
SECTION 2. Security for Obligations. This Agreement secures the payment of
all Obligations of each Grantor now or hereafter existing under the Loan
Documents, whether for principal, interest, fees, expenses or otherwise (all
such Obligations secured being the "Secured Obligations").
SECTION 3. Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the contracts and
agreements included in the Intellectual Property Collateral to which it is a
party to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Administrative Agent of any of the rights or
remedies hereunder shall not release any Grantor from any of its duties or
obligations under any of the contracts and agreements included in the
Intellectual Property Collateral, and (c) neither the Administrative Agent nor
any Secured Party shall have any obligation or liability under any of the
contracts and agreements included in the Intellectual Property Collateral by
reason of this Agreement, nor shall the Administrative Agent or any Secured
Party be obligated to perform any
3
<PAGE>
of the obligations or duties of any Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 4. Representations and Warranties. The Grantors jointly and
severally represent and warrant as follows:
(a) Each Grantor is the legal and beneficial owner of the Intellectual
Property Collateral pledged by such Grantor free and clear of any Lien, claim,
option or right of others, except for the liens and security interests created
under this Agreement or permitted under the Loan Documents (including, without
limitation, any Liens disclosed in Section 6.1 of the Credit Agreement);
provided, however, Grantors may possess derivative copyrights in works
considered to be in the "public domain" as to which third parties may also have
claims. No effective financing statement or other instrument similar in effect
covering all or any part of the Intellectual Property Collateral or listing any
Grantor or any of its Subsidiaries or any trade name of any Grantor or any of
its Subsidiaries as debtor is on file in any recording office (including,
without limitation, the United States Patent and Trademark Office and the United
States Copyright Office) (except that the foregoing representation as to the
Acquired Intellectual Property Collateral is made only to the knowledge of the
Grantors in respect of filings or recordings that are not Uniform Commercial
Code filings), except such as may have been filed in favor of the Administrative
Agent relating to this Agreement or one of the other Loan Documents, or as may
be permitted pursuant to the Credit Agreement.
(b) Set forth in Schedule I is a complete and accurate list of all patents
owned by each Grantor. Set forth in Schedule II is a complete and accurate list
of all trademark and service mark registrations and all trademark and service
mark applications owned by each Grantor. Set forth in Schedule III is a complete
and accurate list of all copyright registrations and copyright applications
owned by each Grantor. Set forth in Schedule IV is a complete and accurate list,
in all material respects, of all Licenses in which each Grantor is (i) a
licensor with respect to any of the Patents, Trademarks, or Copyrights or (ii) a
licensee of any other Person's patents, trade names, trademarks, service marks,
copyrights or works of authorship. Such Grantor has made all necessary filings
and recordations to protect and maintain its interest in the patents, patent
applications, trademark and service mark registrations, trademark and service
mark applications, copyright registrations and copyright applications and
Licenses set forth in Schedules I, II, III and IV hereto which are part of the
ABC Intellectual Property Collateral, except where the failure to make any such
filings and recordations would not have a Material Adverse Effect.
(c) Each patent, patent application, trademark or service mark
registration, trademark or service mark application, copyright registration, and
copyright application of each Grantor set forth in Schedule I, II or III hereto
(except for any which is immaterial to the business of such Grantor) is
subsisting and has not been adjudged invalid, unregisterable or unenforceable,
in whole or in part, and is valid, registrable and enforceable. Each License of
each Grantor identified in Schedule IV (except for any which is immaterial to
the business of such Grantor) is, to the best of each Grantor's knowledge,
subsisting and has not been adjudged invalid or
4
<PAGE>
unenforceable, in whole or in part, and is, to the best of each Grantor's
knowledge, valid and enforceable. No Grantor is aware of any uses of any item of
Intellectual Property Collateral (except for any which is immaterial to the
business of such Grantor) which would be expected to lead to such item becoming
invalid or unenforceable, including unauthorized uses by third parties and uses
which were not supported by the goodwill of the business connected with such
Intellectual Property Collateral.
(d) No Grantor has made any previous assignment, transfer or agreement
constituting a present or future assignment, transfer or encumbrance of any of
the Intellectual Property Collateral (except for any which is immaterial to the
business of such Grantor). Except as set forth on Schedule 4(d), no Grantor has
granted any license (other than those listed on Schedule IV hereto), release,
covenant not to sue, or non-assertion assurance to any Person with respect to
any part of the Intellectual Property Collateral (except for any which is
immaterial to the business of such Grantor).
(e) Each Grantor has used proper statutory notice in connection with its
use of each patent, each registered trademark and service mark and each
copyright contained in Schedule I, II or III (except for any which is immaterial
to the business of such Grantor).
(f) This Agreement creates in favor of the Administrative Agent, on behalf
of itself and the Lender Parties, a valid (upon filing of financing statements
and with the appropriate U.S. patent and trademark or copyright office) first
priority security interest in the Intellectual Property Collateral of each
Grantor which can be perfected by such filings, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest as requested by the Administrative
Agent have been duly taken; provided however, it is understood that with respect
to any rights which any Grantor may have in copyrights licensed or acquired from
third parties, a security interest in such copyrights can only be perfected
through filing in the U.S. Copyright Office if such copyrights have been
previously registered with the U.S. Copyright Office; and provided further,
except as set forth in the Schedules attached hereto, each Grantor makes no
representations or warranties about which, if any, of such copyrights have been
registered with the U.S. Copyright Office.
(g) Except as set forth in Schedule 4.4 of the Credit Agreement, and any
required consent of other parties to Licenses, no consent of any Person and no
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body or other Person is required (i) for
the grant by any Grantor of the assignment and security interest granted hereby,
for the pledge by any Grantor of the Intellectual Property Collateral pursuant
hereto, or for the execution, delivery or performance of this Agreement by each
Grantor, (ii) for the perfection or maintenance of the pledge, assignment and
security interest created hereby (including the first priority nature of such
pledge, assignment and security interest), except for the filing of financing
and continuation statements under the Uniform Commercial Code, which financing
statements have been duly filed, and the filing and recording of this Agreement
in the United States Patent and Trademark Office and the United States
5
<PAGE>
Copyright Office against each patent, patent application, trademark or service
mark registration, trademark or service mark application, copyright
registration, and copyright application of each Grantor set forth in Schedule I,
II or III hereto, or (iii) for the exercise by the Administrative Agent of its
rights provided for in this Agreement or the remedies in respect of the
Intellectual Property Collateral pursuant to this Agreement. To the extent that
any of the Licenses entered into after the date hereof is material to the
business of the subject Grantor or accounted for or could reasonably be expected
to account for more than $250,000 in gross revenues to the Grantors during
Borrower's current or subsequent fiscal year, such Grantor will hereafter
promptly use its commercially reasonable efforts (without being required to
incur any unreasonable expense) to obtain any required third party consent for
the assignment of such License hereunder.
(h) Except as set forth on Schedule 4(i) hereto or Schedule 4.4 or 4.9 to
the Credit Agreement, no claim has been made to or by any Grantor and is
continuing or threatened to or by any Grantor that any item of Intellectual
Property Collateral (except that which is immaterial to such Grantor's business)
is invalid or unenforceable or that the use by any Grantor of any Intellectual
Property Collateral (except that which is immaterial to such Grantor's business)
does or may violate the rights of any Person. To the best of each Grantor's
knowledge, there is currently no infringement or unauthorized use of any item of
Intellectual Property Collateral (except that which is immaterial to such
Grantor's business) or could not reasonably be expected to result in a claim or
claiming against such Grantor for amount exceeding $250,000 individually or in
the aggregate.
(i) Each Grantor has taken all reasonably necessary steps to use consistent
standards of quality in the manufacture, distribution and sale of all products
sold and the provision of all services provided under or in connection with any
of the Intellectual Property Collateral, which is part of the ABC Intellectual
Property Collateral and material to such Grantor's business, and has taken all
commercially reasonable steps to ensure that all licensed users of any of the
Intellectual Property Collateral, which is part of the ABC Intellectual Property
Collateral and material to such Grantor's business, use such consistent
standards of quality.
(j) Nothing has come to the attention of any Grantor which causes it to
believe that any representation or warranty received by such Grantor and
contained in the Acquisition Agreements relating to the Acquired Intellectual
Property Collateral of such Grantor contains an untrue statement of material
fact or omits to state a material fact necessary to make the statements not
misleading which fact or omission could reasonably be expected to have a
material adverse effect on the business, condition (financial or otherwise),
results of operations, performance, reasonably foreseeable business prospects or
properties of such Grantor.
(k) For purposes of any of the representations, warranties or covenants
contained in this Agreement, the phrase "material to business of any Grantor" or
other similar phrase shall be deemed, when referring to effects of any events or
items on either Classic Radio Holding Corp. or Classic Radio Acquisition Corp.,
to refer to the effects of any such events or items on their respective
businesses taken as a whole and not individually.
6
<PAGE>
SECTION 5. Further Assurances. (a) Each of the Grantors jointly and
severally agrees that from time to time, at the expense of such Grantor, such
Grantor shall promptly execute and deliver all further instruments and
documents, and take all further action, that the Administrative Agent believes
may be reasonably necessary, or that the Administrative Agent may reasonably
request, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereby or to enable the
Administrative Agent to exercise and enforce its rights and remedies hereunder
with respect to any part of the Intellectual Property Collateral. Without
limiting the generality of the foregoing, each Grantor will, upon the reasonable
request of the Administrative Agent, with respect to the Intellectual Property
Collateral owned by such Grantor, execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be reasonably necessary, or as the Administrative Agent may
reasonably request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereby.
(b) Each Grantor hereby authorizes the Administrative Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Intellectual Property Collateral without the signature of
such Grantor where permitted by law. A photocopy or other reproduction of this
Agreement or any financing statement covering the Intellectual Property
Collateral or any part thereof will be sufficient as a financing statement where
permitted by law.
(c) Each Grantor will furnish to the Administrative Agent from time to time
statements and schedules further identifying and describing the Intellectual
Property Collateral and such other reports in connection with the Intellectual
Property Collateral as the Administrative Agent may reasonably request, all in
reasonable detail.
(d) Each Grantor agrees that, if it obtains an ownership interest in any
patent, patent application, patentable invention, trademark, service mark, trade
name, trade dress, other indicia of trade origin, trademark or service mark
registration, trademark or service mark application, copyright, copyright
registration, copyright application, work of authorship or License, which is not
now a part of the Intellectual Property Collateral, (i) the provisions of
Section 1 will automatically apply thereto, and (ii) any such patent, patent
application, patentable invention, trademark, service mark, trade name, trade
dress, indicia of trade origin, trademark or service mark registration,
trademark or service mark application (together with the goodwill of the
business connected with the use of same and symbolized by same), copyright,
copyright registration, copyright application, work of authorship or License
will automatically become part of the Intellectual Property Collateral;
provided, however, that to the extent the consent of any other party to any such
License is required, under the terms thereof, for the collateral assignment
thereof, then this Agreement shall not effect any collateral assignment of (or
otherwise be applied so as to cause a default under) such License for so long as
(but only for so long as) such consent would be required and has not been
obtained. Each Grantor further agrees that it shall deliver to the
Administrative Agent a written report, in reasonable detail, on an annual basis
(starting on or about December 31, 1999, and thereafter on or about December 31
of each succeeding year),
7
<PAGE>
setting forth each new patent, patent application, trademark or service mark
registration, trademark or service mark application, copyright registration,
copyright application or License that such Grantor has filed, acquired or
otherwise obtained in U.S. the preceding six month reporting period. Such
Grantor authorizes the Administrative Agent to modify this Agreement by amending
Schedules I, II, III and IV hereto (and shall cooperate with the Administrative
Agent in effecting any such amendment) to include any patent, patent
application, trademark or service mark registration, trademark or service mark
application, copyright registration, copyright application or License which
becomes part of the Intellectual Property Collateral.
(e) With respect to each patent, patent application, trademark or service
mark registration, trademark or service mark application, copyright registration
and copyright application set forth in Schedule I, II or III hereto (except for
those which individually and in the aggregate are immaterial to the Grantor's
business), each Grantor agrees to take all reasonably necessary steps,
including, without limitation, in the United States Patent and Trademark Office
and the United States Copyright Office or in any court, to (i) maintain each
such patent, trademark or service mark registration, and copyright registration,
and (ii) pursue each such patent application, trademark or service mark
application and copyright application now or hereafter included in the
Intellectual Property Collateral, including, without limitation, the filing of
responses to office actions issued by the United States Patent and Trademark
Office, the filing of affidavits under Sections 8 and 15 of the United States
Trademark Act, the filing of divisional, continuation, continuation-in-part and
substitute applications, the filing of applications for re-issue, renewal or
extensions, the payment of maintenance fees, and the participation in
interference, reexamination, opposition, cancellation, infringement and
misappropriation proceedings. Each Grantor agrees to take corresponding steps
with respect to each new or acquired patent, patent application, trademark or
service mark registration, trademark or service mark application, copyright
registration, or copyright application to which it is now or later becomes
entitled (except for those which individually and in the aggregate are
immaterial to the Grantor's business). Any and all expenses incurred in
connection with such activities will be borne by such Grantor. No Grantor shall
discontinue use of or otherwise abandon any patent, patent application,
trademark or service mark, trademark or service mark registration, trademark or
service mark application, copyright registration, or copyright application now
or hereafter included in the Intellectual Property Collateral (except for those
which individually and in the aggregate are immaterial to the Grantor's
business), unless the relevant Grantor shall have first determined in its sound
and reasonable business judgment that such use or pursuit or maintenance of same
is no longer desirable in the conduct of such Grantor's business, in which case,
such Grantor shall give written notice of any such abandonment or discontinuance
to the Administrative Agent pursuant to the annual reporting requirement
contained in Section 5(d) above.
(f) Each Grantor agrees to notify the Administrative Agent promptly and in
writing if it learns (i) that any item of the Intellectual Property Collateral
(except for those which individually and in the aggregate are immaterial to the
Grantor's business) has been determined to have become abandoned or dedicated to
the public, (ii) of the institution of any proceeding by or against such Grantor
(including, without limitation, the institution of any proceeding in the
8
<PAGE>
United States Patent and Trademark Office or any court) regarding any
infringement or unauthorized use of (or similar claim with respect to) item of
the Intellectual Property Collateral which is material to such Grantor's
business, or (iii) of any adverse determination in any such proceeding.
(g) In the event that a Grantor makes a determination in its reasonable
business judgment that any item of the Intellectual Property Collateral, which
is material to such Grantor's business, is infringed or misappropriated by a
third party, such Grantor shall promptly notify the Administrative Agent and
will take such actions as such Grantor or, following the occurrence and during
the continuance of a Default of an Event of Default, the Administrative Agent
deems reasonable and appropriate under the circumstances to protect such
Intellectual Property Collateral, including, without limitation, suing for
infringement or misappropriation and for an injunction against such infringement
or misappropriation. Any expense incurred in connection with such activities
will be borne by such Grantor.
(h) Each Grantor shall use proper statutory notice in connection with its
use of each of its patents, registered trademarks and service marks, and
copyrights contained in Schedule I, II or III (except for those which
individually and in the aggregate are immaterial to the Grantor's business).
(i) Each Grantor shall take all steps which it or, following the occurrence
and during the continuance of a Default or an Event of Default, the
Administrative Agent deems reasonable and appropriate under the circumstances to
preserve and protect its Intellectual Property Collateral, which is material to
such Grantor's business, including, without limitation, maintaining the quality
of any and all products or services used or provided in connection with any of
the Intellectual Property Collateral, consistent with the quality of the
products and services as of the date hereof, and taking all steps reasonably
appropriate to ensure that all licensed users of any of the Intellectual
Property Collateral use such consistent standards of quality.
SECTION 6. Transfers and Other Liens. Each of the Grantors agrees that it
shall not (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Intellectual
Property Collateral except as expressly permitted by the Credit Agreement, or
(ii) create or suffer to exist any Lien upon or with respect to any of the
Intellectual Property Collateral except for the pledge, assignment and security
interest created by this Agreement and except for Liens expressly permitted by
Section 6.1 of the Credit Agreement; provided, however, that this Section 6
shall not, unless an Event of Default has occurred and is then continuing,
prohibit, impair or limit the right or ability of any Grantor to grant licenses
in respect of any of the Intellectual Property Collateral in the ordinary course
of business.
SECTION 7. Administrative Agent Appointed Attorney-in-Fact. Each of the
Grantors hereby irrevocably appoints the Administrative Agent such Grantor's
attorney-in-fact,
9
<PAGE>
with full authority in the place and stead of such Grantor and in the name of
such Grantor or otherwise, upon the occurrence and during the continuance of an
Event of Default and upon notice to such Grantor to take any action and to
execute any instrument that the Administrative Agent may deem reasonably
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Intellectual Property Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above; and
(c) to file any claims or take any action or institute any proceedings that
the Administrative Agent may deem necessary or desirable to enforce the rights
of the Administrative Agent with respect to any of the Intellectual Property
Collateral.
SECTION 8. Administrative Agent May Perform. If any of the Grantors fails
to perform any agreement contained herein, the Administrative Agent may itself,
upon fifteen (15) days' notice to such Grantor, perform, or cause performance
of, such agreement, and the reasonable expenses of the Administrative Agent
incurred in connection therewith shall be borne by such Grantor.
SECTION 9. The Administrative Agent's Duties. The powers conferred on the
Administrative Agent hereunder are solely to protect its interest in the
Intellectual Property Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Intellectual
Property Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Administrative Agent shall have no duty as to any
Intellectual Property Collateral, whether or not the Administrative Agent or any
other Secured Party has or is deemed to have knowledge of such matters, or as to
the taking of any necessary steps to preserve rights against any parties or any
other rights pertaining to any Intellectual Property Collateral. The
Administrative Agent shall exercise reasonable care in the custody and
preservation of any Intellectual Property Collateral in its possession and shall
accord such Intellectual Property Collateral treatment equal to that which the
Administrative Agent accords its own property.
SECTION 10. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) The Administrative Agent may exercise in respect of the Intellectual
Property Collateral, in addition to other rights and remedies provided for
herein or in any other Loan Document or otherwise available to it, all the
rights and remedies of a secured party upon default under the New York Uniform
Commercial Code in effect in the State of New York at such
10
<PAGE>
time (the "N.Y. Uniform Commercial Code") (whether or not the N.Y. Uniform
Commercial Code applies to the affected Intellectual Property Collateral) and
also may (i) require any and all of the Grantors to, and each Grantor hereby
agrees that it will at its expense and upon request of the Administrative Agent
forthwith, assemble all or part of the documents and things embodying any part
of the Intellectual Property Collateral as directed by the Administrative Agent
and make them available to the Administrative Agent at a place and time to be
designated by the Administrative Agent; (ii) without notice except as specified
below and as required by law, sell the Intellectual Property Collateral or any
part thereof in one or more parcels at public or private sale, at any of the
Administrative Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Administrative Agent may deem
commercially reasonable; and (iii) occupy any premises owned or leased by any
Grantor where documents and things embodying the Intellectual Property
Collateral or any part thereof are assembled or located for a reasonable period
in order to effectuate its rights and remedies hereunder or under law, without
obligation to such Grantor in respect of such occupation. In the event of any
sale, assignment, or other disposition of any of the Intellectual Property
Collateral, the goodwill of the business connected with and symbolized by any of
the Intellectual Property Collateral subject to such disposition will be
included, and such Grantor will supply to the Administrative Agent or its
designee such Grantor's know-how and expertise, and documents and things
embodying the same, relating to the manufacture, distribution, advertising and
sale of products or the provision of services relating to any Intellectual
Property Collateral subject to such disposition and, including, but not limited
to, such Grantor's customer lists and other records and documents relating to
such Intellectual Property Collateral and to the manufacture, distribution,
advertising and sale of such products and services. Each Grantor agrees that, to
the extent notice of sale shall be required by law, at least ten (10) days'
written notice to such Grantor of the time and place of any public sale or the
time after which any private sale is to be made will constitute reasonable
notification. The Administrative Agent shall not be obligated to make any sale
of Intellectual Property Collateral regardless of notice of sale having been
given. The Administrative Agent may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice except as required by law, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the Administrative Agent in respect of
any sale of, collection from, or other realization upon, all or any part of the
Intellectual Property Collateral may, in the discretion of the Administrative
Agent, be held by the Administrative Agent as collateral for, and/or then or at
any time thereafter applied (after payment of any amounts payable to the
Administrative Agent pursuant to Section 11(b)), in whole or in part, by the
Administrative Agent, for the ratable benefit of the Secured Parties against all
or any part of the Secured Obligations in such order as the Loan Documents may
require and otherwise as the Administrative Agent may elect. Any surplus of such
cash or cash proceeds held by the Administrative Agent and remaining after
payment in full of all of the Secured Obligations shall be paid over to the
applicable Grantors or to whomever may be lawfully entitled to receive such
surplus.
11
<PAGE>
(c) The Administrative Agent may exercise any and all rights and remedies
of any of the Grantors in respect of the Intellectual Property Collateral.
(d) All payments received by any Grantor in respect of the Intellectual
Property Collateral shall be received in trust for the benefit of the
Administrative Agent, shall be segregated from other funds of such Grantor and
shall be forthwith paid over to the Administrative Agent in the same form as so
received (with any necessary or desirable endorsement or assignment).
SECTION 11. Indemnity and Expenses. (a) Each of the Grantors hereby jointly
or severally agrees to indemnify the Administrative Agent from and against any
and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting from the Administrative Agent's gross
negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction.
(b) The Borrower will, upon demand, pay to the Administrative Agent the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, that the Administrative
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use, or operation of, or the sale of, collection
from or other realization upon, any of the Intellectual Property Collateral,
(iii) the exercise or enforcement of any of the rights of the Administrative
Agent or the Lender Parties hereunder or (iv) the failure by any Grantor to
perform or observe any of the provisions hereof.
SECTION 12. Security Interest Absolute. The obligations of each Grantor
under this Agreement are independent of the Secured Obligations, and a separate
action or actions may be brought and prosecuted against any or all Grantors to
enforce this Agreement, irrespective of whether any action is brought against
the Borrower or whether the Borrower is joined in any such action or actions.
All rights of the Administrative Agent and the pledge, assignment and security
interest hereunder, and all obligations of each Grantor hereunder, shall be
absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
other agreement, instrument or document relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations or any other amendment,
restatement or other modification or waiver of or any consent to any departure
from any Loan Document, including, without limitation, any increase in the
Secured Obligations resulting from the extension of additional credit to the
Borrower or any Grantor or any of their Subsidiaries or otherwise;
12
<PAGE>
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment, restatement, other modification
or waiver of or consent to any departure from any guaranty, for all or any of
the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all or
any of the Secured Obligations, or any manner of sale or other disposition of
any collateral for all or any of the Secured Obligations or any other assets of
the Borrower, any Grantor or any of their Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of the Borrower or any Grantor or any of their Subsidiaries; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Grantor or a third party grantor of a
security interest.
SECTION 13. Amendments; Waivers; Supplements; Etc. (a) No amendment or
waiver of any provision of this Agreement, and no consent to any departure by
any Grantor herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Administrative Agent and the Grantors, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
(b) No failure on the part of the Administrative Agent to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
(c) Upon the execution and delivery by any Person of an intellectual
property security agreement supplement, in each case in substantially the form
of Exhibit A hereto (each an "Intellectual Property Security Agreement
Supplement"), (i) such Person shall be referred to as an "Additional Grantor"
and shall be and become a Grantor, and each reference in this Agreement to
"Grantor" shall also mean and be a reference to such Additional Grantor and each
reference in any other Loan Document to a "Grantor" or a "Loan Party" shall also
mean and be a reference to such Additional Grantor, and (ii) the annexes
attached to each Intellectual Property Security Agreement Supplement shall be
incorporated into and become a part of and supplement Schedules I, II, III and
IV, as appropriate, hereto and the Administrative Agent may attach such annexes
as supplements to such Schedules, and each reference to such Schedules shall
mean and be a reference to such Schedules, as so supplemented.
SECTION 14. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and, mailed, telegraphed, telecopied, telexed or delivered,
if to any Grantor, addressed to it at the address set forth below its name on
the signature pages hereof; if to any Additional Grantor, addressed to it at the
address set forth below its name on the signature page
13
<PAGE>
to the Intellectual Property Security Agreement Supplement executed and
delivered by such Additional Grantor; if to the Administrative Agent, addressed
to it at its address set forth in Section 11.2 of the Credit Agreement; or, as
to each other party, at such other address as shall be designated by such party
in a written notice to the Grantors and the Administrative Agent. All such
notices and communications shall be effective three (3) Business Days after
being mailed by certified mail, return receipt requested, two (2) Business Days
after being deposited with a recognized overnight delivery service with all
charges prepaid or billed to the account of the sender, upon delivery to the
telegraph company, upon personal delivery or transmission by telecopier or upon
confirmation by telex answerback, respectively, addressed as aforesaid.
SECTION 15. Continuing Security Interest, Assignments. This Agreement shall
create a continuing security interest in the Intellectual Property Collateral
and shall (a) remain in full force and effect until the latest of (i) the
indefeasible payment in full in cash of all of the Secured Obligations, (ii) the
expiration, termination or cancellation of all of the Letters of Credit and
(iii) the date of termination in whole of all Commitments under the Credit
Agreement, (b) be binding upon each Grantor, its successors and assigns and (c)
inure, together with the rights and remedies of the Administrative Agent
hereunder, to the benefit of the Lender Parties and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), any Lender may, subject to and in accordance with the requirements of the
Credit Agreement, assign or otherwise transfer all or any portion of its rights
and obligations under the Credit Agreement (including, without limitation, all
or any portion of its Commitment, the Advances owing to it and the Note or Notes
held by it) to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Lender herein or
otherwise, in each case as provided in Section 11.7 of the Credit Agreement).
SECTION 16. Release and Termination. (a) Upon any sale, lease, transfer or
other disposition of any item of Intellectual Property Collateral (subject to
compliance, if required, with any terms of the Loan Documents), the
Administrative Agent will, at the Grantors' expense, execute and deliver to such
Grantor such documents as such Grantor shall reasonably request to evidence the
release of such item of Intellectual Property Collateral from the assignment and
security interest granted hereby; provided, however, that (i) at the time of
such request and such release, no Default shall have occurred and be continuing,
(ii) such Grantor shall have delivered to the Administrative Agent, at least ten
(10) days prior to the date of the proposed release, a written request for
release describing the item of Intellectual Property Collateral and the terms of
the sale, lease, transfer or other disposition in reasonable detail, including
the price thereof and any expenses in connection therewith, together with a form
of release for execution by the Administrative Agent and a certification by such
Grantor to the effect that the transaction is in compliance with the Loan
Documents and as to such other matters as the Administrative Agent may
reasonably request and (iii) the proceeds of any such sale, lease, transfer or
other disposition required to be applied in accordance with Section 2.6 of the
Credit Agreement shall be paid to, or in accordance with the instructions of,
the Administrative Agent at the closing or thereafter, as the case may be.
14
<PAGE>
(b) Upon the latest of (i) the indefeasible payment in full in cash of the
Secured Obligations, (ii) the expiration, termination or cancellation (or full
cash collateralization thereof as provided in the Credit Agreement) of all of
the Letters of Credit and (iii) the date of termination in whole of all
Commitments under the Credit Agreement, the pledge, assignment and security
interest granted by each of the Grantors hereby shall terminate and all rights
to the Intellectual Property Collateral shall revert to the appropriate Grantor.
Upon any such termination, the Administrative Agent will, upon receipt of a
written request and at the Grantors' expense, execute and deliver to the
appropriate Grantor such documents as such Grantor shall reasonably request to
evidence such termination, and shall return to the appropriate Grantor all
Intellectual Property Collateral in the Administrative Agent's possession or
under its control.
(c) To the extent any one or more provisions of this Agreement shall
conflict with one or more provisions in the Credit Agreement, the provisions of
the Credit Agreement shall control and supersede any such conflicting
provision(s) of this Agreement.
SECTION 17. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be as effective as delivery of a manually executed counterpart
of this Agreement.
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (without giving
effect to its conflicts of law principles), except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of the Intellectual Property Collateral are governed by
the laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Credit Agreement, terms used in Article 9 of the N.Y.
Uniform Commercial Code are used herein as therein defined.
[SIGNATURE PAGE FOLLOWS]
15
<PAGE>
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer, thereunto duly authorized, as of the date
first above written.
AUDIO BOOK CLUB, INC.
By:________________________
Name:
Title:
Address: 2295 Corporate Boulevard
Suite 222
Boca Raton, Florida 33431
CLASSIC RADIO HOLDING CORP.
By:________________________
Name:
Title:
Address: 2295 Corporate Boulevard
Suite 222
Boca Raton, Florida 33431
CLASSIC RADIO ACQUISITION CORP.
By:________________________
Name:
Title:
Address: 2295 Corporate Boulevard
Suite 222
Boca Raton, Florida 33431
<PAGE>
ABC INTERNET SERVICES, INC.
By:________________________
Name:
Title:
Address: 2295 Corporate Boulevard
Suite 222
Boca Raton, Florida 33431
ABC INVESTMENT CORP.
By:________________________
Name:
Title:
Address:
CH ACQUISITIONS CORP.
By:________________________
Name:
Title:
Address: 2295 Corporate Boulevard
Suite 222
Boca Raton, Florida 33431
<PAGE>
[Intellectual Property Security Agreement Signature Page]
18
<PAGE>
STATE OF )
) ss:
COUNTY OF )
On the 31st day of December, 1998, before me personally came
_________________________ to me known, who, before me duly sworn, did depose and
say that he is _________________________ of Audio Book Club, Inc., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
_______________________________________
Notary Public
<PAGE>
STATE OF )
) ss:
COUNTY OF )
On the 31st day of December, 1998, before me personally came
_________________________ to me known, who, before me duly sworn, did depose and
say that he is _________________________ of ABC Internet Services, Inc., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
_______________________________________
Notary Public
<PAGE>
STATE OF )
) ss:
COUNTY OF )
On the 31st day of December, 1998, before me personally came
_________________________ to me known, who, before me duly sworn, did depose and
say that he is _________________________ of Classic Radio Holding Corp., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
_______________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF )
) ss:
COUNTY OF )
On the 31st day of December, 1998, before me personally came
_________________________ to me known, who, before me duly sworn, did depose and
say that he is _________________________ of Classic Radio Acquisition Corp., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
_______________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF )
) ss:
COUNTY OF )
On the 31st day of December, 1998, before me personally came
_________________________ to me known, who, before me duly sworn, did depose and
say that he is _________________________ of ABC Investment Corp., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
_______________________________________
Notary Public
[Notarial Seal]
23
<PAGE>
STATE OF )
) ss:
COUNTY OF )
On the 31st day of December, 1998, before me personally came
_________________________ to me known, who, before me duly sworn, did depose and
say that he is _________________________ of CH Acquisitions Corp., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
_______________________________________
Notary Public
[Notarial Seal]
[Notary page to Intellectual Property Security Agreement]
24
<PAGE>
EXHIBIT A
to
Intellectual Property Security Agreement
FORM OF INTELLECTUAL PROPERTY
SECURITY AGREEMENT SUPPLEMENT
________, 19__
Fleet National Bank, as Administrative Agent
under the Credit Agreement
referred to below
One Federal Street
Boston, MA 02110
Attention: Corporate Banking Group
Intellectual Property Security Agreement,
dated as of December 31, 1998,
made by AUDIO BOOK CLUB, INC.
and the other Grantors to
Fleet National Bank, as Administrative Agent
Ladies and Gentlemen:
Reference is made to the above-captioned Intellectual Property Security
Agreement (such Intellectual Property Security Agreement, as in effect on the
date hereof and as it may hereafter be amended, supplemented, restated or
otherwise modified from time to time, being the "Intellectual Property Security
Agreement") made by Audio Book Club, Inc., and the other Grantors to Fleet
National Bank, as Administrative Agent. The terms defined in the Intellectual
Property Security Agreement (or in the Credit Agreement referred to therein) and
not otherwise defined herein are used herein as therein defined.
The undersigned hereby agrees, as of the date first above written, to
become a Grantor under the Intellectual Property Security Agreement as if it
were an original party thereto and agrees that each reference in the
Intellectual Property Security Agreement to "Grantor" shall also mean and be a
reference to the undersigned.
25
<PAGE>
The undersigned hereby assigns and pledges to the Administrative Agent, for
the benefit of the Administrative Agent and the ratable benefit of the Secured
Parties, and hereby grants to the Administrative Agent, for the ratable benefit
of the Secured Parties, as security for the Secured Obligations, a lien on and
security interest in, all of the right, title and interest of the undersigned,
whether now owned or hereafter acquired, in and to Intellectual Property
Collateral owned by the undersigned, including, but not limited to, the property
listed on Annex I, II, III and IV hereto. Schedules I, II, III and IV to the
Intellectual Property Security Agreement are hereby supplemented by Annexes I,
II, III and IV hereto, respectively. The undersigned hereby certifies that such
Annexes have been prepared by the undersigned in substantially the form of
Schedules I, II, III and IV to the Intellectual Property Security Agreement and
are true, accurate and complete as of the date hereof.
The undersigned hereby makes each representation and warranty set forth in
Section 4 of the Intellectual Property Security Agreement (as supplemented by
the attached Annexes) to the same extent as each other Grantor and hereby agrees
to be bound as a Grantor by all of the terms and provisions of the Intellectual
Property Security Agreement to the same extent as each other Grantor.
This Intellectual Property Security Agreement Supplement shall be governed
by and construed in accordance with the laws of the State of New York.
Very truly yours,
[NAME OF ADDITIONAL INTELLECTUAL
PROPERTY GRANTOR]
By:____________________________________
Name:__________________________________
Title:_________________________________
Address:_______________________________
26
<PAGE>
EXHIBIT H TO THE CREDIT AGREEMENT
SUBSIDIARY GUARANTY
Dated as of December 31, 1998
From
ABC INTERNET SERVICES, INC.
ABC INVESTMENT CORP.
CLASSIC RADIO HOLDING CORP.,
CLASSIC RADIO ACQUISITION CORP.,
and
CH ACQUISITIONS CORP.
as Guarantors,
in favor of
FLEET NATIONAL BANK,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
Section Page
Section 1. Guaranty; Limitation of Liability ............................ 1
Section 2. Guaranty Absolute ............................................ 2
Section 3. Waivers and Acknowledgments .................................. 3
Section 4. Subrogation .................................................. 3
Section 5. Payments Free and Clear of Taxes, Etc ........................ 4
Section 6. Representations and Warranties ............................... 6
Section 7. Covenants .................................................... 7
Section 8. Amendments, Etc .............................................. 7
Section 9. Notices, Etc ................................................. 7
Section 10. No Waiver; Remedies .......................................... 7
Section 11. Right of Setoff .............................................. 7
Section 12. Indemnification .............................................. 8
Section 13. Continuing Guaranty; Assignments Under the Credit Agreement .. 8
Section 14. Governing Law; Jurisdiction; Waiver of July Trial, Etc ....... 8
Section 15. Counterparts ................................................. 9
i
<PAGE>
GUARANTY
GUARANTY (this "Guaranty"), dated as of December 31, 1998, made by each of
the Persons listed on the signature pages hereof, and the Additional Guarantors
(as defined in Section 8(b)) (such Persons so listed and the Additional
Guarantors being, each, a "Guarantor", and collectively, the "Guarantors") in
favor of Fleet National Bank, as Administrative Agent under the Credit Agreement
referred to below (the "Administrative Agent") for the benefit of the Secured
Parties (as defined in such Credit Agreement).
PRELIMINARY STATEMENT. Audio Book Club, Inc., a Delaware corporation (the
"Borrower"), has entered into a Credit Agreement, dated as of November___, 1998
(said Credit Agreement, as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time, being the "Credit Agreement";
capitalized terms used and not otherwise defined herein have the meanings
ascribed to them in the Credit Agreement), with the banks, financial
institutions and other institutions and other institutional lenders party
thereto and Fleet National Bank, as Initial Issuing Bank, as Swing Line Bank and
as the Administrative Agent. It is a condition precedent to the making of
Advances by the Lender Parties and the issuance of Letters of Credit by the
Issuing Bank under the Credit Agreement and to the entry by the Hedge Banks into
Bank Hedge Agreements with the Borrower, from time to time, that the Guarantors
shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender Parties to make Advances and Issuing Bank to issue Letters of Credit
under the Credit Agreement, and the Hedge Banks to enter into Bank Hedge
Agreements with the Borrower, from time to time, each Guarantor hereby agrees as
follows:
Section 1. Guaranty; Limitation of Liability.
(a) Each Guarantor hereby, jointly and severally, unconditionally and
irrevocably guarantees to the Secured Parties the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all Obligations of
the Borrower or any other Loan Party to the Secured Parties now or hereafter
existing under the Loan Documents, whether for principal, interest, fees,
expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and
agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Administrative Agent or any other Secured Party in enforcing any
rights under this Guaranty. Without limiting the generality of the foregoing,
each Guarantor's liability shall extend to all amounts that constitute part of
the Guaranteed Obligations and would be owed by the Borrower or any other Loan
Party to the Administrative Agent or any other Secured Party under the Loan
Documents but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
the Borrower.
(b) Each Guarantor, and by its acceptance of this Guaranty, the
Administrative Agent and each other Secured Party, hereby confirms that it is
the intention of all such parties that this Guaranty not constitute a fraudulent
transfer or conveyance for purposes of any Bankruptcy
1
<PAGE>
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal, state or foreign law which may be applicable to this
Guaranty. To effectuate the foregoing intention, the Administrative Agent, the
other Secured Parties and the Guarantors hereby irrevocably agree that the
Obligations of each Guarantor under this Guaranty shall be limited to the
maximum amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant under such
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the Obligations of such other Guarantor under this Guaranty, result
in the Obligations of such Guarantor under this Guaranty not constituting a
fraudulent transfer or conveyance. For purposes hereof, "Bankruptcy Law" means
Title 11, U.S. Code, or any similar federal or state law for the relief of
debtors.
Section 2. Guaranty Absolute. Each Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any other Secured Party with respect thereto. The
Obligations of each Guarantor under this Guaranty are independent of the
Guaranteed Obligations or any other Obligations of any other Loan Party under
the Loan Documents, and a separate action or actions may be brought and
prosecuted against any Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against the Borrower or any other Loan Party or
whether the Borrower or any other Loan Party is joined in any such action or
actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional, irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:
(a) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other Obligations of
any other Loan Party under the Loan Documents, or any amendment or waiver of or
any consent to departure from any Loan Document, including, without limitation,
any increase in the Guaranteed Obligations resulting from the extension of
additional credit to the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any Collateral, or
any taking, release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of Collateral, or proceeds thereof, to all or
any of the Guaranteed Obligations, or any manner of sale or other disposition of
any Collateral for all or any of the Guaranteed Obligations or any other
Obligations of any other Loan Party under the Loan Documents or any other assets
of the Borrower or any of its Subsidiaries;
2
<PAGE>
(e) any change, restructuring or termination of the corporate structure or
existence of the Borrower or any of its Subsidiaries;
(f) any failure of any Secured Party to disclose to the Borrower or any
Guarantor any information relating to the financial condition, operations,
properties or prospects of any other Loan Party now or in the future known to
any Secured Party (each Guarantor waiving any duty on the part of the Secured
Parties to disclose such information); or
(g) any other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by the
Administrative Agent or any other Secured Party that might otherwise constitute
a defense available to, or a discharge of, the Borrower, such Guarantor or any
other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be refused by any Secured Party or any other Person upon the
insolvency, bankruptcy or reorganization of the Borrower or any other Loan Party
or otherwise, all as though such payment had not been made.
Section 3. Waivers and Acknowledgments.
(a) Each Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that the Administrative Agent
or any other Secured Party protect, secure, perfect or insure any Lien or any
property subject thereto or exhaust any right or take any action against the
Borrower, any Guarantor or any other Person or any Collateral.
(b) Each Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) Each Guarantor acknowledges that it will receive material and
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in this
Section 3 are knowingly made in contemplation of such benefits.
Section 4. Subrogation. Each Guarantor will not exercise any rights that it
may now or hereafter acquire against the Borrower or any other guarantor that
arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under this Guaranty or any other Loan Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of the Administrative Agent or any other Secured Party against
the Borrower or any other guarantor or any Collateral, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Borrower
3
<PAGE>
or any other guarantor, directly or indirectly, in cash or other property or by
setoff or in any other manner, payment or security on account of such claim,
remedy or right, unless and until all of the Guaranteed Obligations and all
other amounts payable under this Guaranty shall have been independently paid in
full in cash, all Letters of Credit have expired or have been terminated or
canceled, all Bank Hedge Agreements shall have expired or terminated and the
Commitments shall have expired or terminated. If any amount shall be paid to a
Guarantor in violation of the preceding sentence at any time prior to the later
of (i) the indefeasible payment in full in cash of the Guaranteed Obligations
and all other amounts payable under this Guaranty and (ii) the later of (x) the
Termination Date, (y) the expiration, termination or cancellation or all Letters
of Credit, and (z) the expiration or termination of all Bank Hedge Agreements,
such amount shall be held in trust for the benefit of the Administrative Agent
and the other Secured Parties and shall forthwith be paid to the Administrative
Agent to be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Guaranty, whether matured or unmatured, in accordance
with the terms of the Loan Documents, or to be held as Collateral for any
Guaranteed Obligations or other amounts payable under this Guaranty thereafter
arising. If (i) a Guarantor shall make payment to the Administrative Agent or
any other Secured Party of all or any part of the Guaranteed Obligations, (ii)
all of the Guaranteed Obligations and all other amounts payable under this
Guaranty shall be indefeasibly paid in full in cash and (iii) the Termination
Date shall have occurred, all Letters of Credit have expired or have been
terminated or canceled and all Bank Hedge Agreements shall have expired or
terminated, the Administrative Agent and the other Secured Parties will
promptly, at such Guarantor's request and expense, execute and deliver to such
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to such Guarantor of
an interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.
Section 5. Payments Free and Clear of Taxes, Etc.
(a) Any and all payments made by each Guarantor hereunder shall be made, in
accordance with Section 2.12 of the Credit Agreement, free and clear of and
without deduction for any and all present or future Taxes. If any Guarantor
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Administrative Agent or any other Secured Party, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or such other Secured Party (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) such Guarantor shall make such deductions and
(iii) such Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, each Guarantor agrees to pay any present or future Other
Taxes.
(c) Each Guarantor will indemnify the Administrative Agent and each other
Secured Party for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes
4
<PAGE>
or Other Taxes imposed by any jurisdiction on amounts payable under this
Section) imposed on or paid by the Administrative Agent or such other Secured
Party (as the case may be) and any liability (including, without limitation,
penalties, additions to tax, interest and expenses) arising therefrom or with
respect thereto, except with respect to the Administrative Agent or any Secured
Party, as the case may be, for such a liability arising from the Administrative
Agent's or such Secured Party's, as the case may be, willful misconduct or gross
negligence. This indemnification shall be made within thirty (30) days from the
date on which the Administrative Agent or such other Secured Party, as the case
may be, makes written demand specifying in reasonable detail the basis therefor.
(d) Within thirty (30) days after the date of any payment of Taxes by or on
behalf of a Guarantor, such Guarantor will furnish to the Administrative Agent,
at its address referred to in Section 11.2 of the Credit Agreement, the original
receipt of payment thereof or a certified copy of such receipt. In the case of
any payment hereunder by or on behalf of a Guarantor through an account or
branch outside the United States or by or on behalf of such Guarantor by a payor
that is not a United States person, if such Guarantor determines that no Taxes
are payable in respect thereof, such Guarantor shall furnish, or shall cause
such payor to furnish, to the Administrative Agent, at such address, an opinion
of counsel acceptable to the Administrative Agent stating that such payment is
exempt from Taxes. For purposes of this subsection (d) and subsection (e), the
terms "United States" and "United States person" shall have the meanings
specified in Section 7701 of the Internal Revenue Code.
(e) Each Secured Party organized under the laws of a jurisdiction outside
the United States shall, on or prior to the date of its execution and delivery
of the Credit Agreement in the case of each Initial Lender or Initial Issuing
Bank, as the case may be, and on the date of the Assignment and Acceptance or
other agreement pursuant to which it became a Secured Party in the case of each
other Secured Party (but only so long thereafter as such Secured Party remains
lawfully able to do so), provide each of the Administrative Agent and Guarantors
with two originals of Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor or other form prescribed by the Internal Revenue
Service, certifying that such Secured Party is exempt from or is entitled to a
reduced rate of United States withholding tax on payments under the Credit
Agreement or the Notes. If the form provided by a Secured Party at the time such
Secured Party first becomes a party to the Credit Agreement indicates a United
States interest withholding tax rate in excess of zero, withholding tax at such
rate shall be considered excluded from Taxes unless and until such Secured Party
provides the appropriate form certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes
for periods governed by such form; provided, however, that if at the date of the
Assignment and Acceptance pursuant to which a Secured Party assignee becomes a
party to the Credit Agreement, the Secured Party assignor was entitled to
payments under subsection (a) in respect of United States withholding tax with
respect to interest paid at such date, then, to such extent, the term Taxes
shall include (in addition to withholding taxes that may be imposed in the
future or other amounts otherwise includable in Taxes) United States withholding
tax, if any, applicable with respect to the Secured Party assignee on such date.
If any form or document referred to in this subsection (e) and requested
5
<PAGE>
by a Guarantor pursuant to this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service Form 1001 or
4224, that the Secured Party reasonably considers to be confidential, the
Secured Party shall give notice thereof to such Guarantor and shall not be
obligated to include in such form or document such confidential information.
(f) For any period with respect to which a Secured Party has failed to
provide any Guarantor, following such Guarantor's request therefor pursuant to
subsection (e) above, with the appropriate form described in subsection (e)
(other than if such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or if such form otherwise
is not required under subsection (e)), such Secured Party shall not be entitled
to indemnification under subsection (a) or (c) with respect to Taxes imposed by
the United States; provided, however, that should a Secured Party become subject
to Taxes because of its failure to deliver a form required hereunder, such
Guarantor shall take all such steps as such Secured Party shall reasonably
request to assist such Secured Party to recover such Taxes.
(g) Any Secured Party claiming any additional amounts payable pursuant to
this Section 5 agrees to use best efforts (consistent with its internal policy
and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the judgment of such Secured Party, be otherwise
disadvantageous to such Secured Party.
(h) Without prejudice to the survival of any other agreement of each
Guarantor hereunder or under any other Loan Document, the agreements and
obligations of each Guarantor contained in this Section 5 shall survive the
payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty and the other Loan Documents.
Section 6. Representations and Warranties. The Guarantors hereby jointly
and severally represent and warrant as follows:
(a) There are no conditions precedent to the effectiveness of this Guaranty
that have not been satisfied or waived.
(b) Each Guarantor has, independently and without reliance upon the
Administrative Agent or any other Secured Party and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Guaranty, and each Guarantor has established
adequate means of obtaining from any other Loan Parties on a continuing basis
information pertaining to (and is now, and on a continuing basis will be,
completely familiar with) the financial condition, operations, properties and
prospects of the Borrower and the other Loan Parties.
6
<PAGE>
(c) Each of the representations and warranties applicable to the Guarantors
in the Credit Agreement is true and correct in all material respects on the date
hereof.
Section 7. Covenants. Each Guarantor hereby covenants and agrees that, so
long as any part of the Guaranteed Obligations shall remain unpaid, any Letter
of Credit shall be outstanding, any Bank Hedge Agreement shall not have expired
or terminated or any Lender Party shall have any Commitment, such Guarantor
will, unless the Administrative Agent and Required Lenders shall otherwise
consent in writing, perform or observe all of the terms, covenants and
agreements that this Guaranty and the other Loan Documents state that such
Guarantor shall perform or observe.
Section 8. Amendments, Etc. (a) No amendment or waiver of any provision of
this Guaranty, and no consent to any departure by any Guarantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Administrative Agent and Required Lenders, and then such waiver or consent shall
be effective only in the specific instance, and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders (other than any Lender Party
which is, at such time, a Defaulting Lender), (a) limit the liability of any
Guarantor hereunder or (b) postpone any date fixed for payment hereunder.
(b) Upon the execution and delivery by any Person of a supplemental
guaranty in substantially the form of Exhibit A hereto (each a "Guaranty
Supplement"), such Person shall be referred to as an "Additional Guarantor" and
shall be and become a Guarantor for all purposes hereunder and each reference in
this Guaranty to a "Guarantor" shall also mean and be a reference to such
Additional Guarantor and each reference in any other Loan Document to a
"Guarantor" or "Subsidiary Guarantor" shall also mean and be a reference to such
Additional Guarantor.
Section 9. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to it,
if to a Guarantor, addressed to it at the address listed for such Guarantor on
the signature pages hereof (or in the applicable Guaranty Supplement), if to the
Administrative Agent or any Lender Party, at its address specified in Section
11.2 of the Credit Agreement, if to any Hedge Bank, at its address specified in
the Bank Hedge Agreement to which it is a party, or, as to any party, at such
other address as shall be designated by such party in a written notice to each
other party. All such notices and other communications shall, when mailed by
certified mail, return receipt requested, telegraphed, telecopied or telexed, be
effective three (3) days after mailing, upon delivery to the telegraph company,
upon transmission by telecopier or upon confirmation by telex answerback,
respectively.
Section 10. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any other Secured Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude
7
<PAGE>
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 11. Right of Setoff. Upon the occurrence and during the continuance
of any Event of Default, each Lender Party and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender Party or such Affiliate to or for the credit or the
account of any Guarantor against any and all of the Obligations of such
Guarantor now or hereafter existing under this Guaranty, whether or not such
Lender Party shall have made any demand under this Guaranty and although such
Obligations may be unmatured. Each Lender Party agrees promptly to notify such
Guarantor after any such setoff and application; provided, however, that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of each Lender Party and its Affiliates under this
Section are in addition to the other rights and remedies (including, without
limitation, other rights of setoff) that such Lender Party and its respective
Affiliates has.
Section 12. Indemnification. Without limitation on any other Obligations of
any Guarantor or the remedies of the Secured Parties under this Guaranty, each
Guarantor shall, to the fullest extent permitted by law, indemnify, defend and
save and hold harmless each Secured Party from and against, and shall pay on
demand, any and all losses, liabilities, damages, costs, expenses and charges
(including the reasonable fees and disbursements of such Secured Party's legal
counsel) suffered or incurred by such Secured Party as a result of any failure
of any Guaranteed Obligations to be the legal, valid and binding obligations of
the Borrower or any other Guarantor enforceable against the Borrower or such
other Guarantor (as the case may be) in accordance with their terms.
Section 13. Continuing Guaranty; Assignments Under the Credit Agreement.
This Guaranty is a continuing guaranty and shall (a) remain in full force and
effect until the later of the indefeasible payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and the
later of (i) the Termination Date, (ii) the expiration, termination or
cancellation of all Letters of Credit, and (iii) the expiration or termination
of all Bank Hedge Agreements, (b) be binding upon each Guarantor, its successors
and assigns and (c) inure to the benefit of and be enforceable by the
Administrative Agent and the other Secured Parties and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Secured Party may assign or otherwise transfer all or
any portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or any portion of its Commitment, the Advances owing to
it and the Note or Notes held by it) to any other Person, and such other Person
shall thereupon become vested with all the benefits in respect thereof granted
to such Secured Party by this Guaranty or otherwise, in each case to the maximum
extent provided in Section 11.7 of the Credit Agreement.
Section 14. Governing Law; Jurisdiction; Waiver of July Trial, Etc.
8
<PAGE>
(A) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW
PRINCIPLES).
(B) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE
COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY,
AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH NEW YORK STATE COURT OR IN SUCH FEDERAL COURT LOCATED WITHIN THE STATE OF
NEW YORK. EACH GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
GUARANTY SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY OTHER
SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR IS TO BE A
PARTY IN THE COURTS OF ANY JURISDICTION.
(C) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF, OR RELATING TO, THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO
WHICH IT IS OR IS TO BE A PARTY, IN ANY NEW YORK STATE OR FEDERAL COURT. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
(D) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE, IN EQUITY OR AT LAW) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
9
<PAGE>
Section 15. Counterparts. This Agreement may be executed in any number of
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Delivery by
telecopier of an executed counterpart of a signature page to this Agreement
shall be as effective as delivery of a manually executed counterpart to this
Agreement.
[SIGNATURE PAGE FOLLOWS]
10
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
ABC INTERNET SERVICES, INC.
By:__________________________________
Title:_______________________________
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
ABC INVESTMENT CORP.
By:__________________________________
Title:_______________________________
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
CLASSIC RADIO HOLDING CORP.
By:__________________________________
Title:_______________________________
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
CLASSIC RADIO ACQUISITION CORP.
By:__________________________________
Title:_______________________________
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
<PAGE>
CH ACQUISITIONS CORP.
By:__________________________________
Title:_______________________________
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
<PAGE>
Accepted on behalf of
the Secured Parties:
FLEET NATIONAL BANK,
as Administrative Agent
By:____________________
Title:___________________
<PAGE>
EXHIBIT A
FORM OF GUARANTY SUPPLEMENT
__________, _____
Fleet National Bank, as Administrative Agent
One Federal Street
Boston, Massachusetts 02110
Attention: Corporate Banking Group
Credit Agreement, dated as of November ___, 1998, among
Audio Book Club, Inc., a Delaware corporation (the
"Borrower"), the Lenders party to the Credit Agreement,
Fleet National Bank, as Initial Issuing Bank, as Swing Line
Bank and as Administrative Agent and (the "Credit
Agreement")
Ladies and Gentlemen:
Reference is made to the above-defined Credit Agreement and to the Guaranty
referred to therein (such Guaranty, as in effect on the date hereof and as it
may hereafter be amended, modified, restated or supplemented from time to time,
(the "Guaranty"). Capitalized terms used and not otherwise defined herein have
the meanings ascribed to them in the Guaranty.
The undersigned hereby, jointly and severally, unconditionally and
irrevocably guarantees to the Secured Parties the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all of the
Guaranteed Obligations and agrees to pay any and all reasonable expenses
(including reasonable counsel fees and expenses) incurred by the Administrative
Agent or any other Secured Party on the terms set forth in the Guaranty as if it
were an original party thereto. On and after the date hereof, each reference in
the Guaranty to "Guarantor" shall also mean and be a reference to the
undersigned.
The undersigned hereby agrees to be bound as a Guarantor by all of the
terms and provisions of the Guaranty to the same extent as each other Guarantor.
THIS GUARANTY SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICT
OF LAWS PRINCIPLES).
A - 1
<PAGE>
THE UNDERSIGNED HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF
AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT
OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND
ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR
IS TO BE A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE
UNDERSIGNED HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
NEW YORK STATE COURT OR IN SUCH FEDERAL COURT LOCATED WITHIN THE STATE OF NEW
YORK. THE UNDERSIGNED AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THE
GUARANTY SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY OTHER
SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR IS TO BE A
PARTY IN THE COURTS OF ANY JURISDICTION.
THE UNDERSIGNED IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF, OR RELATING TO, THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, IN ANY NEW YORK STATE OR FEDERAL COURT. THE
UNDERSIGNED HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE, IN EQUITY OR AT LAW) ARISING OUT OF THE LOAN DOCUMENTS, THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF ANY SECURED PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Very truly yours,
[NAME OF ADDITIONAL
GUARANTOR]
By:_________________________
A - 2
<PAGE>
Title: _____________________
Address: ___________________
A - 3
<PAGE>
EXHIBIT I TO THE
CREDIT AGREEMENT
FORM OF SWING LINE PROMISSORY NOTE
$1,000,000 Dated: December ___, 1998
FOR VALUE RECEIVED, the undersigned, Audio Book Club, Inc., a Florida
corporation (the "Borrower"), HEREBY PROMISES TO PAY on December ___, 2003 to
the order of Fleet National Bank (the "Lender") for the account of its
Applicable Lending Office (as defined in the Credit Agreement referred to below)
the aggregate unpaid principal amount of the Swing Line Advances (as defined in
the Credit Agreement referred to below) owing to the Lender by the Borrower
pursuant to the Credit Agreement, dated as of December ___, 1998 (as amended,
supplemented, restated or otherwise modified, the "Credit Agreement"; terms
defined therein being used herein as therein defined), among the Borrower, the
other Loan Parties thereto, the Lender and certain other Lender Parties thereto,
Fleet National Bank, as Initial Issuing Bank, Fleet National Bank, as Swing Line
Bank, and Fleet National Bank, as Administrative Agent for the Lender and the
other Lender Parties.
This Promissory Note evidences all Swing Line Advances made by Lender to
Borrower under the Credit Agreement. The unpaid principal balance of this
Promissory Note shall be paid or prepaid at the times, in the amounts and in the
manner provided by the Credit Agreement The Borrower promises to pay interest on
the unpaid principal amount of each Swing Line Advance from the date of such
Swing Line Advance until such principal amount is paid in full, at such interest
rates, and payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Fleet National Bank, as Administrative Agent for the Lender
Parties, at One Federal Street, Boston, Massachusetts, 02110, Account No. ,
Attention: Loan Administration, in same day funds. Each Swing Line Advance owing
to the Lender by the Borrower and the maturity thereof, and all payments made on
account of principal thereof, shall be recorded by the Lender in its internal
records and, prior to any transfer hereof, endorsed on the grid attached hereto,
which is part of this Promissory Note; provided, however, that the failure of
such Lender to so record any such information or any error in so recording any
such information shall not, however, limit or otherwise affect the obligations
of the Borrower hereunder or under any other Loan Document.
This Promissory Note is one of the Notes referred to in, and is entitled to
the benefits of, the Credit Agreement. The Credit Agreement, among other things,
(i) provides for the making
<PAGE>
of Swing Line Advances by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Swing Line Advance being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms and conditions therein specified. The
obligations of the Borrower under this Promissory Note, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Collateral Documents.
This Promissory Note shall be governed by and construed in accordance with
the laws of the State of New York without regard to its rules pertaining to
conflicts of laws, other than General Obligations Law Section 5-1401, and shall
be deemed to be under seal.
AUDIO BOOK CLUB, INC.
By:_________________________
Name:_______________________
Title:______________________
2
<PAGE>
SWING LINE ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Amount of Amount of Unpaid Principal Notation Made
Date Swing Line Principal Paid or Balance by
Advance Prepaid
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
SUBSIDIARY GUARANTY
Dated as of December 31, 1998
From
ABC INTERNET SERVICES, INC.
ABC INVESTMENT CORP.
CLASSIC RADIO HOLDING CORP.,
CLASSIC RADIO ACQUISITION CORP.,
and
CH ACQUISITIONS CORP.
as Guarantors,
in favor of
FLEET NATIONAL BANK,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
Section Page
- - ------- ----
Section 1. Guaranty; Limitation of Liability 1
Section 2. Guaranty Absolute 2
Section 3. Waivers and Acknowledgments 3
Section 4. Subrogation 3
Section 5. Payments Free and Clear of Taxes, Etc. 4
Section 6. Representations and Warranties 6
Section 7. Covenants 7
Section 8. Amendments, Etc. 7
Section 9. Notices, Etc. 7
Section 10. No Waiver; Remedies 7
Section 11. Right of Setoff. 7
Section 12. Indemnification 8
Section 13. Continuing Guaranty; Assignments Under the Credit Agreement 8
Section 14. Governing Law; Jurisdiction; Waiver of July Trial, Etc. 8
Section 15. Counterparts 9
i
<PAGE>
GUARANTY
GUARANTY (this "Guaranty"), dated as of December 31, 1998, made by each of
the Persons listed on the signature pages hereof, and the Additional Guarantors
(as defined in Section 8(b)) (such Persons so listed and the Additional
Guarantors being, each, a "Guarantor", and collectively, the "Guarantors") in
favor of Fleet National Bank, as Administrative Agent under the Credit Agreement
referred to below (the "Administrative Agent") for the benefit of the Secured
Parties (as defined in such Credit Agreement).
PRELIMINARY STATEMENT. Audio Book Club, Inc., a Delaware corporation (the
"Borrower"), has entered into a Credit Agreement, dated as of November___, 1998
(said Credit Agreement, as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time, being the "Credit Agreement";
capitalized terms used and not otherwise defined herein have the meanings
ascribed to them in the Credit Agreement), with the banks, financial
institutions and other institutions and other institutional lenders party
thereto and Fleet National Bank, as Initial Issuing Bank, as Swing Line Bank and
as the Administrative Agent. It is a condition precedent to the making of
Advances by the Lender Parties and the issuance of Letters of Credit by the
Issuing Bank under the Credit Agreement and to the entry by the Hedge Banks into
Bank Hedge Agreements with the Borrower, from time to time, that the Guarantors
shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender Parties to make Advances and Issuing Bank to issue Letters of Credit
under the Credit Agreement, and the Hedge Banks to enter into Bank Hedge
Agreements with the Borrower, from time to time, each Guarantor hereby agrees as
follows:
Section 1. Guaranty; Limitation of Liability.
(a) Each Guarantor hereby, jointly and severally, unconditionally and
irrevocably guarantees to the Secured Parties the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all Obligations of
the Borrower or any other Loan Party to the Secured Parties now or hereafter
existing under the Loan Documents, whether for principal, interest, fees,
expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and
agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Administrative Agent or any other Secured Party in enforcing any
rights under this Guaranty. Without limiting the generality of the foregoing,
each Guarantor's liability shall extend to all amounts that constitute part of
the Guaranteed Obligations and would be owed by the Borrower or any other Loan
Party to the Administrative Agent or any other Secured Party under the Loan
Documents but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
the Borrower.
(b) Each Guarantor, and by its acceptance of this Guaranty, the
Administrative Agent and each other Secured Party, hereby confirms that it is
the intention of all such parties that this Guaranty not constitute a fraudulent
transfer or conveyance for purposes of any Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
<PAGE>
federal, state or foreign law which may be applicable to this Guaranty. To
effectuate the foregoing intention, the Administrative Agent, the other Secured
Parties and the Guarantors hereby irrevocably agree that the Obligations of each
Guarantor under this Guaranty shall be limited to the maximum amount as will,
after giving effect to such maximum amount and all other contingent and fixed
liabilities of such Guarantor that are relevant under such laws, and after
giving effect to any collections from, rights to receive contribution from or
payments made by or on behalf of any other Guarantor in respect of the
Obligations of such other Guarantor under this Guaranty, result in the
Obligations of such Guarantor under this Guaranty not constituting a fraudulent
transfer or conveyance. For purposes hereof, "Bankruptcy Law" means Title 11,
U.S. Code, or any similar federal or state law for the relief of debtors.
Section 2. Guaranty Absolute. Each Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any other Secured Party with respect thereto. The
Obligations of each Guarantor under this Guaranty are independent of the
Guaranteed Obligations or any other Obligations of any other Loan Party under
the Loan Documents, and a separate action or actions may be brought and
prosecuted against any Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against the Borrower or any other Loan Party or
whether the Borrower or any other Loan Party is joined in any such action or
actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional, irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:
(a) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other Obligations of
any other Loan Party under the Loan Documents, or any amendment or waiver of or
any consent to departure from any Loan Document, including, without limitation,
any increase in the Guaranteed Obligations resulting from the extension of
additional credit to the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any Collateral, or
any taking, release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of Collateral, or proceeds thereof, to all or
any of the Guaranteed Obligations, or any manner of sale or other disposition of
any Collateral for all or any of the Guaranteed Obligations or any other
Obligations of any other Loan Party under the Loan Documents or any other assets
of the Borrower or any of its Subsidiaries;
2
<PAGE>
(e) any change, restructuring or termination of the corporate structure or
existence of the Borrower or any of its Subsidiaries;
(f) any failure of any Secured Party to disclose to the Borrower or any
Guarantor any information relating to the financial condition, operations,
properties or prospects of any other Loan Party now or in the future known to
any Secured Party (each Guarantor waiving any duty on the part of the Secured
Parties to disclose such information); or
(g) any other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by the
Administrative Agent or any other Secured Party that might otherwise constitute
a defense available to, or a discharge of, the Borrower, such Guarantor or any
other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be refused by any Secured Party or any other Person upon the
insolvency, bankruptcy or reorganization of the Borrower or any other Loan Party
or otherwise, all as though such payment had not been made.
Section 3. Waivers and Acknowledgments.
(a) Each Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that the Administrative Agent
or any other Secured Party protect, secure, perfect or insure any Lien or any
property subject thereto or exhaust any right or take any action against the
Borrower, any Guarantor or any other Person or any Collateral.
(b) Each Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) Each Guarantor acknowledges that it will receive material and
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in this
Section 3 are knowingly made in contemplation of such benefits.
Section 4. Subrogation. Each Guarantor will not exercise any rights that it
may now or hereafter acquire against the Borrower or any other guarantor that
arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under this Guaranty or any other Loan Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of the Administrative Agent or any other Secured Party against
the Borrower or any other guarantor or any Collateral, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Borrower or any other guarantor, directly or indirectly, in cash or other
property or by setoff or in any other
3
<PAGE>
manner, payment or security on account of such claim, remedy or right, unless
and until all of the Guaranteed Obligations and all other amounts payable under
this Guaranty shall have been independently paid in full in cash, all Letters of
Credit have expired or have been terminated or canceled, all Bank Hedge
Agreements shall have expired or terminated and the Commitments shall have
expired or terminated. If any amount shall be paid to a Guarantor in violation
of the preceding sentence at any time prior to the later of (i) the indefeasible
payment in full in cash of the Guaranteed Obligations and all other amounts
payable under this Guaranty and (ii) the later of (x) the Termination Date, (y)
the expiration, termination or cancellation or all Letters of Credit, and (z)
the expiration or termination of all Bank Hedge Agreements, such amount shall be
held in trust for the benefit of the Administrative Agent and the other Secured
Parties and shall forthwith be paid to the Administrative Agent to be credited
and applied to the Guaranteed Obligations and all other amounts payable under
this Guaranty, whether matured or unmatured, in accordance with the terms of the
Loan Documents, or to be held as Collateral for any Guaranteed Obligations or
other amounts payable under this Guaranty thereafter arising. If (i) a Guarantor
shall make payment to the Administrative Agent or any other Secured Party of all
or any part of the Guaranteed Obligations, (ii) all of the Guaranteed
Obligations and all other amounts payable under this Guaranty shall be
indefeasibly paid in full in cash and (iii) the Termination Date shall have
occurred, all Letters of Credit have expired or have been terminated or canceled
and all Bank Hedge Agreements shall have expired or terminated, the
Administrative Agent and the other Secured Parties will promptly, at such
Guarantor's request and expense, execute and deliver to such Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to such Guarantor of an
interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.
Section 5. Payments Free and Clear of Taxes, Etc.
(a) Any and all payments made by each Guarantor hereunder shall be made, in
accordance with Section 2.12 of the Credit Agreement, free and clear of and
without deduction for any and all present or future Taxes. If any Guarantor
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Administrative Agent or any other Secured Party, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or such other Secured Party (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) such Guarantor shall make such deductions and
(iii) such Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, each Guarantor agrees to pay any present or future Other
Taxes.
(c) Each Guarantor will indemnify the Administrative Agent and each other
Secured Party for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section) imposed on or paid by the Administrative Agent or
such other Secured Party (as the case may be) and any liability (including,
without limitation, penalties, additions to tax, interest and expenses) arising
therefrom
4
<PAGE>
or with respect thereto, except with respect to the Administrative Agent or any
Secured Party, as the case may be, for such a liability arising from the
Administrative Agent's or such Secured Party's, as the case may be, willful
misconduct or gross negligence. This indemnification shall be made within thirty
(30) days from the date on which the Administrative Agent or such other Secured
Party, as the case may be, makes written demand specifying in reasonable detail
the basis therefor.
(d) Within thirty (30) days after the date of any payment of Taxes by or on
behalf of a Guarantor, such Guarantor will furnish to the Administrative Agent,
at its address referred to in Section 11.2 of the Credit Agreement, the original
receipt of payment thereof or a certified copy of such receipt. In the case of
any payment hereunder by or on behalf of a Guarantor through an account or
branch outside the United States or by or on behalf of such Guarantor by a payor
that is not a United States person, if such Guarantor determines that no Taxes
are payable in respect thereof, such Guarantor shall furnish, or shall cause
such payor to furnish, to the Administrative Agent, at such address, an opinion
of counsel acceptable to the Administrative Agent stating that such payment is
exempt from Taxes. For purposes of this subsection (d) and subsection (e), the
terms "United States" and "United States person" shall have the meanings
specified in Section 7701 of the Internal Revenue Code.
(e) Each Secured Party organized under the laws of a jurisdiction outside
the United States shall, on or prior to the date of its execution and delivery
of the Credit Agreement in the case of each Initial Lender or Initial Issuing
Bank, as the case may be, and on the date of the Assignment and Acceptance or
other agreement pursuant to which it became a Secured Party in the case of each
other Secured Party (but only so long thereafter as such Secured Party remains
lawfully able to do so), provide each of the Administrative Agent and Guarantors
with two originals of Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor or other form prescribed by the Internal Revenue
Service, certifying that such Secured Party is exempt from or is entitled to a
reduced rate of United States withholding tax on payments under the Credit
Agreement or the Notes. If the form provided by a Secured Party at the time such
Secured Party first becomes a party to the Credit Agreement indicates a United
States interest withholding tax rate in excess of zero, withholding tax at such
rate shall be considered excluded from Taxes unless and until such Secured Party
provides the appropriate form certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes
for periods governed by such form; provided, however, that if at the date of the
Assignment and Acceptance pursuant to which a Secured Party assignee becomes a
party to the Credit Agreement, the Secured Party assignor was entitled to
payments under subsection (a) in respect of United States withholding tax with
respect to interest paid at such date, then, to such extent, the term Taxes
shall include (in addition to withholding taxes that may be imposed in the
future or other amounts otherwise includable in Taxes) United States withholding
tax, if any, applicable with respect to the Secured Party assignee on such date.
If any form or document referred to in this subsection (e) and requested by a
Guarantor pursuant to this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service Form 1001 or
4224, that the Secured Party reasonably considers to be confidential, the
Secured Party shall give notice thereof to such Guarantor and shall not be
obligated to include in such form or document such confidential information.
5
<PAGE>
(f) For any period with respect to which a Secured Party has failed to
provide any Guarantor, following such Guarantor's request therefor pursuant to
subsection (e) above, with the appropriate form described in subsection (e)
(other than if such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or if such form otherwise
is not required under subsection (e)), such Secured Party shall not be entitled
to indemnification under subsection (a) or (c) with respect to Taxes imposed by
the United States; provided, however, that should a Secured Party become subject
to Taxes because of its failure to deliver a form required hereunder, such
Guarantor shall take all such steps as such Secured Party shall reasonably
request to assist such Secured Party to recover such Taxes.
(g) Any Secured Party claiming any additional amounts payable pursuant to
this Section 5 agrees to use best efforts (consistent with its internal policy
and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the judgment of such Secured Party, be otherwise
disadvantageous to such Secured Party.
(h) Without prejudice to the survival of any other agreement of each
Guarantor hereunder or under any other Loan Document, the agreements and
obligations of each Guarantor contained in this Section 5 shall survive the
payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty and the other Loan Documents.
Section 6. Representations and Warranties. The Guarantors hereby jointly
and severally represent and warrant as follows:
(a) There are no conditions precedent to the effectiveness of this Guaranty
that have not been satisfied or waived.
(b) Each Guarantor has, independently and without reliance upon the
Administrative Agent or any other Secured Party and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Guaranty, and each Guarantor has established
adequate means of obtaining from any other Loan Parties on a continuing basis
information pertaining to (and is now, and on a continuing basis will be,
completely familiar with) the financial condition, operations, properties and
prospects of the Borrower and the other Loan Parties.
(c) Each of the representations and warranties applicable to the Guarantors
in the Credit Agreement is true and correct in all material respects on the date
hereof.
Section 7. Covenants. Each Guarantor hereby covenants and agrees that, so
long as any part of the Guaranteed Obligations shall remain unpaid, any Letter
of Credit shall be outstanding, any Bank Hedge Agreement shall not have expired
or terminated or any Lender Party shall have any Commitment, such Guarantor
will, unless the Administrative Agent and Required Lenders shall otherwise
consent in writing, perform or observe all of the terms, covenants and
6
<PAGE>
agreements that this Guaranty and the other Loan Documents state that such
Guarantor shall perform or observe.
Section 8. Amendments, Etc. (a) No amendment or waiver of any provision of
this Guaranty, and no consent to any departure by any Guarantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Administrative Agent and Required Lenders, and then such waiver or consent shall
be effective only in the specific instance, and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders (other than any Lender Party
which is, at such time, a Defaulting Lender), (a) limit the liability of any
Guarantor hereunder or (b) postpone any date fixed for payment hereunder.
(b) Upon the execution and delivery by any Person of a supplemental
guaranty in substantially the form of Exhibit A hereto (each a "Guaranty
Supplement"), such Person shall be referred to as an "Additional Guarantor" and
shall be and become a Guarantor for all purposes hereunder and each reference in
this Guaranty to a "Guarantor" shall also mean and be a reference to such
Additional Guarantor and each reference in any other Loan Document to a
"Guarantor" or "Subsidiary Guarantor" shall also mean and be a reference to such
Additional Guarantor.
Section 9. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to it,
if to a Guarantor, addressed to it at the address listed for such Guarantor on
the signature pages hereof (or in the applicable Guaranty Supplement), if to the
Administrative Agent or any Lender Party, at its address specified in Section
11.2 of the Credit Agreement, if to any Hedge Bank, at its address specified in
the Bank Hedge Agreement to which it is a party, or, as to any party, at such
other address as shall be designated by such party in a written notice to each
other party. All such notices and other communications shall, when mailed by
certified mail, return receipt requested, telegraphed, telecopied or telexed, be
effective three (3) days after mailing, upon delivery to the telegraph company,
upon transmission by telecopier or upon confirmation by telex answerback,
respectively.
Section 10. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any other Secured Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 11. Right of Setoff. Upon the occurrence and during the continuance
of any Event of Default, each Lender Party and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender Party or such Affiliate to or for the credit or the
account of any Guarantor against any and all of the Obligations of such
Guarantor now or hereafter existing under this Guaranty, whether or not such
Lender Party shall have made any demand under this Guaranty
7
<PAGE>
and although such Obligations may be unmatured. Each Lender Party agrees
promptly to notify such Guarantor after any such setoff and application;
provided, however, that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of each Lender Party and its
Affiliates under this Section are in addition to the other rights and remedies
(including, without limitation, other rights of setoff) that such Lender Party
and its respective Affiliates has.
Section 12. Indemnification. Without limitation on any other Obligations of
any Guarantor or the remedies of the Secured Parties under this Guaranty, each
Guarantor shall, to the fullest extent permitted by law, indemnify, defend and
save and hold harmless each Secured Party from and against, and shall pay on
demand, any and all losses, liabilities, damages, costs, expenses and charges
(including the reasonable fees and disbursements of such Secured Party's legal
counsel) suffered or incurred by such Secured Party as a result of any failure
of any Guaranteed Obligations to be the legal, valid and binding obligations of
the Borrower or any other Guarantor enforceable against the Borrower or such
other Guarantor (as the case may be) in accordance with their terms.
Section 13. Continuing Guaranty; Assignments Under the Credit Agreement.
This Guaranty is a continuing guaranty and shall (a) remain in full force and
effect until the later of the indefeasible payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and the
later of (i) the Termination Date, (ii) the expiration, termination or
cancellation of all Letters of Credit, and (iii) the expiration or termination
of all Bank Hedge Agreements, (b) be binding upon each Guarantor, its successors
and assigns and (c) inure to the benefit of and be enforceable by the
Administrative Agent and the other Secured Parties and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Secured Party may assign or otherwise transfer all or
any portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or any portion of its Commitment, the Advances owing to
it and the Note or Notes held by it) to any other Person, and such other Person
shall thereupon become vested with all the benefits in respect thereof granted
to such Secured Party by this Guaranty or otherwise, in each case to the maximum
extent provided in Section 11.7 of the Credit Agreement.
Section 14. Governing Law; Jurisdiction; Waiver of July Trial, Etc.
(A) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW
PRINCIPLES).
(B) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE
COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY,
AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH GUARANTOR HEREBY
8
<PAGE>
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH NEW YORK STATE
COURT OR IN SUCH FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH
GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS GUARANTY SHALL AFFECT ANY
RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY MAY OTHERWISE
HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ANY OF THE
OTHER LOAN DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY IN THE COURTS OF ANY
JURISDICTION.
(C) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF, OR RELATING TO, THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO
WHICH IT IS OR IS TO BE A PARTY, IN ANY NEW YORK STATE OR FEDERAL COURT. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
(D) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE, IN EQUITY OR AT LAW) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Section 15. Counterparts. This Agreement may be executed in any number of
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Delivery by
telecopier of an executed counterpart of a signature page to this Agreement
shall be as effective as delivery of a manually executed counterpart to this
Agreement.
[SIGNATURE PAGE FOLLOWS]
9
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
ABC INTERNET SERVICES, INC.
By: /s/ Norton Herrick
--------------------------------
Title: Co-Chief Executive Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
ABC INVESTMENT CORP.
By: /s/ John Levy
--------------------------------
Title: Executive Vice President
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
CLASSIC RADIO HOLDING CORP.
By: /s/ Norton Herrick
--------------------------------
Title: Co-Chief Executive Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
CLASSIC RADIO ACQUISITION CORP.
By: /s/ Norton Herrick
--------------------------------
Title: Co-Chief Executive Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
<PAGE>
CH ACQUISITIONS CORP.
By: /s/ Norton Herrick
--------------------------------
Title: Co-Chief Executive Officer
-----------------------------
Address: 20 Community Place
P.O. Box 2346
Morristown, New Jersey 07962
<PAGE>
Accepted on behalf of
the Secured Parties:
FLEET NATIONAL BANK,
as Administrative Agent
By: /s/ Alex Sade
---------------------------
Title: Director
------------------------
<PAGE>
EXHIBIT A
FORM OF GUARANTY SUPPLEMENT
----------, -----
Fleet National Bank, as Administrative Agent
One Federal Street
Boston, Massachusetts 02110
Attention: Corporate Banking Group
Credit Agreement, dated as of November ___, 1998,
among Audio Book Club, Inc., a Delaware
corporation (the "Borrower"), the Lenders party to
the Credit Agreement, Fleet National Bank, as
Initial Issuing Bank, as Swing Line Bank and as
Administrative Agent and (the "Credit Agreement")
Ladies and Gentlemen:
Reference is made to the above-defined Credit Agreement and to the Guaranty
referred to therein (such Guaranty, as in effect on the date hereof and as it
may hereafter be amended, modified, restated or supplemented from time to time,
(the "Guaranty"). Capitalized terms used and not otherwise defined herein have
the meanings ascribed to them in the Guaranty.
The undersigned hereby, jointly and severally, unconditionally and
irrevocably guarantees to the Secured Parties the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all of the
Guaranteed Obligations and agrees to pay any and all reasonable expenses
(including reasonable counsel fees and expenses) incurred by the Administrative
Agent or any other Secured Party on the terms set forth in the Guaranty as if it
were an original party thereto. On and after the date hereof, each reference in
the Guaranty to "Guarantor" shall also mean and be a reference to the
undersigned.
The undersigned hereby agrees to be bound as a Guarantor by all of the
terms and provisions of the Guaranty to the same extent as each other Guarantor.
THIS GUARANTY SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICT
OF LAWS PRINCIPLES).
THE UNDERSIGNED HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF
AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT
OR FEDERAL COURT OF THE UNITED STATES OF
A - 1
<PAGE>
AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE GUARANTY OR ANY OF
THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY, OR FOR RECOGNITION
OR ENFORCEMENT OF ANY JUDGMENT, AND THE UNDERSIGNED HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH NEW YORK STATE COURT OR IN
SUCH FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. THE UNDERSIGNED AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW. NOTHING IN THE GUARANTY SHALL AFFECT ANY RIGHT THAT THE
ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS
TO WHICH IT IS OR IS TO BE A PARTY IN THE COURTS OF ANY JURISDICTION.
THE UNDERSIGNED IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF, OR RELATING TO, THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, IN ANY NEW YORK STATE OR FEDERAL COURT. THE
UNDERSIGNED HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE, IN EQUITY OR AT LAW) ARISING OUT OF THE LOAN DOCUMENTS, THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF ANY SECURED PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Very truly yours,
[NAME OF ADDITIONAL
GUARANTOR]
By:________________________________
Title: ____________________________
Address: __________________________
__________________________
A - 2
SECURITY AGREEMENT
Dated as of December 31, 1998
From
AUDIO BOOK CLUB, INC.,
ABC INTERNET SERVICES, INC.,
CLASSIC RADIO HOLDING CORP.,
CLASSIC RADIO ACQUISITION CORP.,
ABC INVESTMENT CORP.
and
CH ACQUISITIONS CORP.
as Grantors
to
FLEET NATIONAL BANK,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
SECURITY AGREEMENT .................................................. 1
PRELIMINARY STATEMENTS .............................................. 1
Section 1. Grant of Security ................................ 2
Section 2. Security for Obligations ......................... 6
Section 3. Grantors Remain Liable ........................... 6
Section 4. Delivery of Security Collateral and
Account Collateral ............................. 6
Section 5. Maintaining the L/C Cash Collateral Account ...... 6
Section 6. Investing of Amounts in the L/C
Cash Collateral Account ........................ 7
Section 7. Release of Amounts ............................... 7
Section 8. Representations and Warranties ................... 7
Section 9. Further Assurances ............................... 9
Section 10. As to Equipment and Inventory .................... 10
Section 11. Insurance ........................................ 10
Section 12. Place of Perfection; Record;
Collection of Receivables ...................... 11
Section 13. Voting Rights; Dividends; Etc .................... 12
Section 14. As to the Assigned Agreements .................... 14
Section 15. Payments Under the Assigned Agreements ........... 14
Section 16. Transfers and Other Liens;
Additional Shares .............................. 15
Section 17. Administrative Agent Appointed
Attorney-in-Fact ............................... 15
Section 18. Administrative Agent May Perform ................. 16
Section 19. Administrative Agent's Duties .................... 16
Section 20. Remedies ......................................... 16
Section 21. Registration Rights; Private Sale ................ 17
Section 22. Indemnity and Expenses ........................... 18
Section 23. Security Interest Absolute ....................... 19
Section 24. Amendments; Waivers; Etc ......................... 19
Section 25. Addresses for Notices ............................ 20
Section 26. Continuing Security Interest;
Assignments under the Credit Agreement ......... 20
Section 27. Release and Termination .......................... 20
Section 28. Governing Law; Terms ............................. 21
Section 29. JURISDICTION ..................................... 21
Section 30. WAIVER OF JURY TRIAL ............................. 22
Section 31. Counterparts ..................................... 22
i
<PAGE>
Schedules
Schedule I Pledged Shares and Pledged Debt
Schedule II Locations of Equipment and Inventory
Schedule III Trade Names
Exhibits
Exhibit A Form of Cash Collateral Account Letter
Exhibit B Form of Consent and Agreement
Exhibit C Form of Security Agreement Supplement
ii
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of December 31, 1998, by
and among Audio Book Club, Inc., a Florida corporation having an office at 2295
Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431 (the "Borrower"
or a "Grantor"), ABC Internet Services, Inc., a New York corporation having an
office at 2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431
("ABC"), Classic Radio Holding Corp., a Delaware corporation having an office at
2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431 ("Classic
Holding"), Classic Radio Acquisition Corp., a Delaware corporation having an
office at 2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431
("Classic Acquisition"), ABC Investment Corp., a Delaware corporation, with an
office at 103 Springer Building, 3411 Silver Side Road, Wilmington, Delaware
19810, and CH Acquisitions Corp., a Delaware corporation having an office at
2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida 33431 ("CH
Acquisitions Corp.") the Additional Grantors (as defined in Section 24(c)
hereof) (the Additional Grantors, together with the Borrower, ABC, Classic
Holding, Classic Acquisition, ABC Investment Corp. and CH Acquisitions Corp.,
the "Grantors") and Fleet National Bank ("Fleet"), as administrative agent (in
such capacity, together with its successors in such capacity, the
"Administrative Agent") for the Secured Parties (as defined in the Credit
Agreement referred to below).
PRELIMINARY STATEMENTS
(1) The Borrower has entered into a Credit Agreement, dated as of even date
herewith (said Agreement, as it may hereafter be amended, restated,
supplemented, extended or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein and not otherwise defined herein being
used herein as therein defined), with the banks, financial institutions and
other institutional lenders party thereto (the "Lenders"), Fleet, as Initial
Issuing Bank, as Swing Line Bank and as Administrative Agent.
(2) Each Grantor is the owner of the shares (such shares being the "Pledged
Shares") set forth opposite such Grantor's name in Part I of Schedule I hereto
and issued by the corporations named therein and of the indebtedness for
borrowed money (the "Pledged Debt") set forth opposite such Grantor's name in
Part II of Schedule I and issued by the obligors named therein.
(3) If and when determined by the Administrative Agent, the Administrative
Agent will open a non-interest bearing cash collateral account (the "L/C Cash
Collateral Account") with Fleet at its office at Fleet National Bank, One
Federal Street, Boston, Massachusetts 02110, (or at such other institution as
may be acceptable to the Administrative Agent), in the name of the Borrower but
under the sole control and dominion of the Administrative Agent and subject to
the terms of this Agreement.
<PAGE>
(4) Each Grantor other than the Borrower is a wholly-owned Subsidiary of
the Borrower and will derive substantial benefit from the Advances made to, and
the issuance of Letters of Credit on behalf of, the Borrower.
(5) It is a condition precedent to the Lenders' making of Advances, the
Issuing Bank's issuing of Letters of Credit under the Credit Agreement and the
Hedge Banks entering into Bank Hedge Agreements with the Borrower from time to
time that the Borrower shall have granted the assignment and security interest
and made the pledge and assignment contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances under the Credit Agreement, the Issuing Bank to issue
Letters of Credit under the Credit Agreement and the Hedge Banks to enter into
Bank Hedge Agreements with the Borrower from time to time, each of the Grantors
hereby agrees with the Administrative Agent, for the benefit of the
Administrative Agent and the ratable benefit of the Secured Parties, as follows:
Section 1. Grant of Security. Each of the Grantors hereby assigns and
pledges to the Administrative Agent, for the benefit of the Administrative Agent
and the ratable benefit of the Secured Parties, and hereby grants to the
Administrative Agent, for the benefit of the Administrative Agent and the
ratable benefit of the Secured Parties, a security interest in the following
(collectively, the "Collateral"):
(a) all of such Grantor's machinery and equipment in all of its forms,
whether now owned or hereafter arising or acquired, wherever located, now
or hereafter existing, all fixtures and all parts thereof and all
accessions thereto (any and all such equipment, fixtures, parts and
accessions, the "Equipment");
(b) all of such Grantor's inventory in all of its forms, whether now
owned or hereafter arising or acquired, wherever located, now or hereafter
existing (including, without limitation, (i) raw materials and work in
process, (ii) finished goods, (iii) materials used or consumed in the
manufacture or production thereof, (iv) goods in which such Grantor has an
interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which such Grantor has an interest
or right as consignee) and (v) goods that are returned to or repossessed by
such Grantor), and all accessions thereto, products thereof and documents
therefor (any and all such inventory, accessions, products and documents,
the "Inventory");
(c) all of such Grantor's accounts, contract rights, chattel paper,
instruments, deposit accounts and other claims of any kind, whether now
owned or hereafter arising or acquired, now or hereafter existing, whether
or not arising out of or in connection with the sale or lease of goods or
the rendering of services, and all rights now or hereafter existing in and
to all security agreements, leases and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel paper,
instruments, deposit accounts or claims, except that the Grantor shall not
grant, for so long as such grant would be prohibited by the terms of any
such agreements, leases or other
2
<PAGE>
contracts or by applicable law, a security interest in any such agreements,
leases or other contracts with respect to which the grant of any security
interest or collateral assignment contemplated hereby is prohibited by its
terms or by applicable law (any and all such accounts, contract rights,
chattel paper, instruments, deposit accounts and claims, to the extent not
referred to in clause (d), (e) or (f) below, being the "Receivables", and
any and all such leases, security agreements and other contracts being the
"Related Contracts");
(d) all of such Grantor's right, title and interest, whether now
existing or hereafter arising or acquired, in and to the following (the
"Security Collateral"), without duplication:
(i) the Pledged Shares and the certificates representing the
Pledged Shares, including without limitation, the shares of capital
stock of all of such Grantor's Subsidiaries, and the certificates
representing the Pledged Shares; provided, however, that only 65% of
the shares of capital stock of such Grantor's Foreign Subsidiaries
shall be pledged, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
Pledged Shares;
(ii) the Pledged Debt and the instruments evidencing the Pledged
Debt, and all interest, cash, instruments and other property from time
to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Pledged Debt;
(iii) all additional shares of stock of any issuer of the Pledged
Shares from time to time acquired by such Grantor in any manner,
provided, however, that only 65% of the shares of capital stock of
such Grantor's Foreign Subsidiaries shall be pledged pursuant to this
Agreement, and the certificates representing such additional shares,
and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares;
(iv) all additional indebtedness for borrowed money from time to
time owed to such Grantor by any obligor of the Pledged Debt and the
instruments evidencing such indebtedness, and all interest, cash,
instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all
of such indebtedness;
(v) all additional "investment property" (as defined in the UCC)
now owned or hereafter arising or acquired by such Grantor including,
without limitation, (A) all securities, whether certificated or
uncertificated, including, without limitation, stocks, bonds,
interests in limited liability companies, partnership interests,
treasuries, certificates of deposit, and mutual fund shares; (B) all
security
3
<PAGE>
entitlements of such Grantor including, without limitation, the rights
of such Grantor to any securities account and the financial assets
held by a securities intermediary in such securities account and any
free credit balance or other money owing by any securities
intermediary with respect to that account; (C) all securities accounts
held by such Grantor; (D) all commodity contracts held by such
Grantor; and (E) all commodity accounts held by such Grantor.
(e) each of the agreements to which such Grantor is now or may
hereafter become a party, and each Hedge Agreement to which such Grantor is
now or may hereafter become a party, in each case as such agreements may be
amended, restated or otherwise modified from time to time, unless and for
so long as the Grantor is not permitted to grant a security interest
therein or collateral assignment thereof (collectively, the "Assigned
Agreements"), including, without limitation, (i) all rights of such Grantor
to receive moneys due and to become due under or pursuant to the Assigned
Agreements, (ii) all rights of such Grantor to receive proceeds of any
insurance, indemnity, warranty or guaranty with respect to the Assigned
Agreements, (iii) claims of such Grantor for damages arising out of or for
breach of or default under the Assigned Agreements, and (iv) the right of
such Grantor to terminate the Assigned Agreements, to perform thereunder
and to compel performance and otherwise exercise all remedies thereunder
(all such Collateral being the "Agreement Collateral");
(f) all of such Grantor's right, title and interest, whether now
existing or hereafter arising or acquired, in and to the following
(collectively, the "Account Collateral"):
(i) the L/C Cash Collateral Account, all funds held therein and
all certificates and instruments, if any, from time to time
representing or evidencing the L/C Cash Collateral Account;
(ii) all deposit accounts of such Grantor, all funds held therein
and all certificates and instruments, if any, from time to time
representing or evidencing such deposit accounts;
(iii) all Collateral Investments (as hereinafter defined) from
time to time and all certificates and instruments, if any, from time
to time representing or evidencing the Collateral Investments;
(iv) all notes, certificates of deposit, deposit accounts, checks
and other instruments from time to time hereafter delivered to or
otherwise possessed by the Administrative Agent for or on behalf of
such Grantor in substitution for or in addition to any or all of the
then existing Account Collateral; and
(v) all interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing Account
Collateral;
4
<PAGE>
(g) all of such Grantor's corporate and business records, customer
lists, credit files, computer program printouts and other computer
materials and records;
(h) without limitation of any of the foregoing, all of such Grantor's
general intangibles, including, without limitation,
(i) all choses in action, claims and causes of action or rights
of recovery or set-off of every kind and character, and the goodwill
of the business of such Grantor as a going concern;
(ii) (A) all rights of such Grantor to receive moneys due and to
become due under or pursuant to any general intangibles, (B) all
rights of such Grantor to receive proceeds of any insurance,
indemnity, warranty or guaranty with respect to any general
intangibles, (C) claims of such Grantor for damages arising out of or
for breach of or default under any general intangibles, and (D) the
right of such Grantor to terminate any general intangibles, to perform
thereunder and to compel performance and otherwise exercise all
remedies thereunder;
(iii) all of such Grantor's right, title and interest, whether
now owned or hereafter arising or acquired, in and to the following
(individually a "Copyright" and collectively, "Copyrights"): (A) all
copyrights and general intangibles of like nature (whether registered
or unregistered), now owned or existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all
applications in connection therewith, including all registrations,
recordings and applications in the United States Copyright Office or
in any similar office or agency of the United States, any state or
territory thereof, or any other country or any political subdivision
thereof, and (B) all reissues, extensions or renewals thereof;
(iv) all rights of such Grantor now owned or hereafter arising or
acquired under any and all agreements granting any right to use any
Copyright;
(v) all of such Grantor's right, title and interest, whether now
existing or hereafter arising or acquired, in and to the following
(individually a "Patent" and collectively, "Patents"): (A) all letters
patent of the United States or any other country, all registrations
and recordings thereof, and all applications for letters patent of the
United States or any other country, including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
State or Territory thereof,
5
<PAGE>
or any other country, and (B) all reissues, continuations,
continuations-in-part or extensions thereof;
(vi) all rights of such Grantor now owned or hereafter arising or
acquired under any and all agreements granting any right with respect
to any invention on which a Patent is in existence;
(vii) all of such Grantor's right, title and interest, whether
now existing or hereafter arising or acquired, in and to the following
(individually a "Trademark" and collectively, "Trademarks"): (A) all
trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature (whether
registered or unregistered), now owned or existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
state or territory thereof, or any other country or any political
subdivision thereof; and (B) all reissues, extensions or renewals
thereof; and
(viii) all rights of such Grantor now owned or hereafter arising
or acquired under all agreements granting any right to use any
Trademark or Trademark registration.
(i) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the
types described in clauses (a) - (h) of this Section 1) and, to the extent
not otherwise included, all (i) payments under insurance (whether or not
the Administrative Agent is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral and (ii) cash.
Section 2. Security for Obligations. This Agreement secures the payment of
all Obligations of each Grantor now or hereafter existing under the Loan
Documents, whether for principal, interest, fees, expenses or otherwise (all
such Obligations being the "Secured Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
that constitute part of the Secured Obligations and would be owed by such
Grantor to the Administrative Agent or the Secured Parties under the Loan
Documents and the Bank Hedge Agreements but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Grantor.
Section 3. Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the contracts and
agreements included
6
<PAGE>
in the Collateral to which it is a party to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Administrative
Agent of any of the rights hereunder shall not release any Grantor from any of
its duties or obligations under the contracts and agreements included in the
Collateral to which it is a party and (c) neither the Administrative Agent nor
any Secured Party shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Administrative Agent or any Secured Party be obligated to perform any of the
obligations or duties of any Grantor under such contracts and agreements
included in the Collateral to which it is a party or to take any action to
collect or enforce any claim for payment assigned hereunder.
Section 4. Delivery of Security Collateral and Account Collateral. All
certificates or instruments representing or evidencing Security Collateral or
Account Collateral (except those relating to cash accounts and deposit
instruments not required by the Administrative Agent to be delivered to the
Administrative Agent on the Closing Date (but which it retains the right to
require) shall be delivered to and held by or on behalf of the Administrative
Agent pursuant hereto and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Administrative Agent. The
Administrative Agent shall have the right, upon the occurrence and during the
continuation of an Event of Default and on five (5) business days' notice to the
Borrower, to transfer to or to register in the name of the Administrative Agent
or any of its nominees any or all of the Security Collateral and the Account
Collateral, subject only to the revocable rights specified in Section 13(a). In
addition, the Administrative Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing Security Collateral or
Account Collateral for certificates or instruments of smaller or larger
denominations.
Section 5. Maintaining the L/C Cash Collateral Account. So long as any
Advance shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender shall have any Commitment under the Credit Agreement or any Hedge Bank or
any Loan Party shall have any obligations under any Hedge Agreement:
(a) The Borrower will maintain the L/C Cash Collateral Account with
Fleet.
(b) It shall be a term and condition of the L/C Cash Collateral
Account, notwithstanding any term or condition to the contrary in any other
agreement relating to the L/C Cash Collateral Account and, except as
otherwise provided by the provisions of Section 7 and Section 20, that no
amount (including interest on Collateral Investments) shall be paid or
released to or for the account of, or withdrawn by or for the account of,
any Grantor or any other Person from the L/C Cash Collateral Account.
The L/C Cash Collateral Account shall be subject to such applicable laws, and
such applicable regulations, of the Board of Governors of the Federal Reserve
System and of any other appropriate banking or governmental authority, as may
now or hereafter be in effect.
7
<PAGE>
Section 6. Investing of Amounts in the L/C Cash Collateral Account. If
requested by the Borrower, the Administrative Agent will, subject to the
provisions of Section 7 and Section 20, from time to time invest (a) amounts on
deposit in the L/C Cash Collateral Account in such Cash Equivalents as the
Borrower may select, in each case which investments shall be made in the name of
the Administrative Agent on behalf of the Borrower, and (b) interest paid on the
Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of
any such Cash Equivalents that may mature or be sold, in each case in such Cash
Equivalents as the Borrower may select, in each case which investments shall be
made in the name of the Administrative Agent on behalf of the Borrower (the Cash
Equivalents referred to in clauses (a) and (b) above being collectively
"Collateral Investments"). Interest and proceeds that are not invested or
reinvested in Collateral Investments as provided above shall be deposited and
held in the L/C Cash Collateral Account.
Section 7. Release of Amounts. Upon the drawing of any Letter of Credit for
which funds are on deposit in the L/C Cash Collateral Account, such funds shall
be applied to reimburse the Issuing Bank or the Revolving Credit Lenders, as
applicable, as provided in the Credit Agreement.
Section 8. Representations and Warranties. Each Grantor represents and
warrants as follows:
(a) All of such Grantor's existing Equipment and Inventory are located
at the places specified for such Grantor on Schedule II hereto. The chief
place of business and chief executive office of such Grantor and the office
where such Grantor keeps its records concerning the Receivables, and, to
the extent possessed, the original copies of each Assigned Agreement and
all originals of all chattel paper that evidence Receivables, are currently
located at the address specified below the name of such Grantor on the
signature pages hereof (or in the case of any Additional Grantor at the
address specified below the name of such Additional Grantor on the
signature page of the Security Agreement Supplement (as defined in Section
24(c)) executed and delivered by such Additional Grantor). None of the
material Receivables or Agreement Collateral is evidenced by a promissory
note or other instrument.
(b) Such Grantor is the legal and beneficial owner of the Collateral
pledged by such Grantor hereunder free and clear of any Lien, except for
security interests created or permitted under the Loan Documents
(including, without limitation, any Liens disclosed on Schedule 6.1(c) to
the Credit Agreement). No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in
any recording office, except such as may have been filed: (i) in favor of
the Administrative Agent relating to this Agreement or (ii) with respect to
Permitted Liens or as otherwise permitted pursuant to the Credit Agreement.
(c) Set forth below each Grantor's name on Schedule III hereto is a
complete and accurate list of (i) all names under which such Grantor is or
has been doing business within the last five years (including, without
limitation, all trade names, division names and fictitious names), (ii) all
trade names that such Grantor owns or is licensed to use (including the
expiration date of such
8
<PAGE>
license) and (iii) all trade names that such Grantor has established the
right to use (collectively, the " Trade Names"). Such Grantor has not
changed within the past six months its name or identity, by reorganization
or otherwise, or its address set forth below the name of such Grantor on
the signature pages hereof or the Security Agreement Supplement executed
and delivered by it, as the case may be, except as set forth on Schedule
III hereto.
(d) Except as set forth for each Grantor on Schedule II hereto, such
Grantor has exclusive possession and control of the existing Equipment and
Inventory pledged by such Grantor hereunder.
(e) The Pledged Shares owned by such Grantor have been duly authorized
and validly issued and are fully paid and non-assessable. To the best
knowledge of such Grantor, the Pledged Debt owed to such Grantor has been
duly authorized, authenticated or issued and delivered and, is the legal,
valid and binding obligation of the issuers thereof and is not in default.
(f) The Pledged Shares constitute the percentage of the issued and
outstanding shares of stock of the issuers thereof indicated on Schedule I.
The Pledged Debt is outstanding in the principal amount indicated on
Schedule I.
(g) The Assigned Agreements to which such Grantor is a party have been
duly authorized, executed and delivered by such Grantor. There exists no
default under any material Assigned Agreement to which such Grantor is a
party, by Grantor or, to Grantor's knowledge, any other party thereto,
except under any Assigned Agreement which involves a sum not in excess of
$50,000 individually or $250,000 in the aggregate per annum for any default
which individually or in the aggregate with other defaults would not
reasonably be expected to have a Material Adverse Effect. If reasonably
required by the Administrative Agent each party to the Assigned Agreements
to which such Grantor is a party, other than such Grantor, has executed and
delivered to such Grantor a consent, in substantially the form of Exhibit C
hereto, to the assignment of the Agreement and Collateral to the
Administrative Agent pursuant to this Agreement.
(h) Upon either the filing by the Administrative Agent or its
representatives of the proper financing statements referred to in Section
3.1(a)(ii) of the Credit Agreement or the taking of possession thereof, as
applicable, this Agreement, the pledge of the Security Collateral pursuant
hereto and the pledge and assignment of the Account Collateral pursuant
hereto create a valid and perfected first priority security interest in the
Collateral of such Grantor which can be perfected by such filings or by the
taking of possession, to the extent possession is so taken by the
Administrative Agent, securing the payment of the Secured Obligations, and
all filings and other actions necessary or desirable to perfect and protect
such security interest shall have been duly taken.
(i) No consent of any other Person and no authorization, approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (i)
for the grant by such Grantor of the assignment and security interest
granted hereby, for the pledge by such Grantor of the Security Collateral
pursuant hereto or for the
9
<PAGE>
execution, delivery or performance of this Agreement by such Grantor, (ii)
for the perfection or maintenance of the pledge, assignment and security
interest created hereby (including the first priority nature of such
pledge, assignment or security interest), except for the filing of
financing and continuation statements under the Uniform Commercial Code,
which financing statements are in proper form and are duly executed and
except for any other actions required to be taken as requested by the
Administrative Agent which have been duly taken, or (iii) for the exercise
by the Administrative Agent of its voting or other rights provided for in
this Agreement or the remedies in respect of the Collateral pursuant to
this Agreement, except as may be required in connection with the
disposition of any portion of the Security Collateral by laws affecting the
offering and sale of securities generally.
(j) The Inventory which has been produced by such Grantor has been
produced in compliance with all requirements of the Fair Labor Standards
Act.
Section 9. Further Assurances.
(a) Each of the Grantors agrees that from time to time, at the expense
of the Borrower, such Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be
necessary, or that the Administrative Agent may reasonably request, in
order to perfect and protect any pledge, assignment or security interest
granted or purported to be granted hereby or to enable the Administrative
Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the
foregoing, such Grantor will, upon any such reasonable request of the
Administrative Agent: (i) upon the occurrence and during the continuance of
an Event of Default mark conspicuously each document included in the
Inventory pledged by such Grantor hereunder, each chattel paper included in
the Receivables pledged by such Grantor hereunder, each Related Contract
pledged by such Grantor hereunder, each Assigned Agreement pledged by such
Grantor hereunder and each of its records pertaining to the Collateral with
a legend, in form and substance satisfactory to the Administrative Agent,
indicating that such document, chattel paper, Related Contract, Assigned
Agreement or Collateral is subject to the security interest granted hereby;
(ii) if any Collateral pledged by such Grantor hereunder shall be evidenced
by a promissory note or other instrument or chattel paper, deliver and
pledge to the Administrative Agent hereunder such note or instrument or
chattel paper duly indorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the
Administrative Agent; and (iii) execute such financing or continuation
statements, or amendments thereto, and such other instruments or notices as
may be reasonably requested by the Administrative Agent in order to perfect
and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) Each Grantor hereby authorizes the Administrative Agent to file
one or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral pledged by such Grantor
hereunder, without the signature of such Grantor where permitted by law in
order to perfect and preserve the pledge, assignment and security interest
granted or purported to be granted hereby. A copy of each such statement
and amendment will be timely
10
<PAGE>
provided to such Grantor. A photocopy or other reproduction of this
Agreement or any financing statement covering its Collateral or any part
thereof shall be sufficient as a financing statement where permitted by
law.
(c) Each Grantor will furnish to the Administrative Agent from time to
time statements and schedules further identifying and describing the
Collateral and such reports in connection with its Collateral as the
Administrative Agent may reasonably request, all in reasonable detail.
(d) Each Grantor hereby agrees, upon the request of the Administrative
Agent at any time following the occurrence and during the continuance of an
Event of Default, and at the expense of the Borrower, (i) within fourteen
(14) days after such request deliver to the Administrative Agent a letter
agreement among such Grantor, Fleet and the Administrative Agent in respect
of the main cash concentration account of such Grantor, which agreement
shall be in substantially the form of Exhibit A hereto, (ii) within
twenty-one (21) days after such request deliver to the Administrative Agent
a letter agreement, in substantially the form of Exhibit B hereto, in
respect of each lockbox and blocked deposit account of such Grantor, (iii)
within thirty (30) days after such request, take whatever action
(including, without limitation, the filing of Uniform Commercial Code
financing statements) as may be reasonably necessary or advisable in the
sole discretion of the Administrative Agent to vest in the Administrative
Agent (or in any representative of the Administrative Agent designated by
it), for the benefit of the Administrative Agent and the ratable benefit of
the Secured Parties, valid and subsisting Liens on the main cash
concentration accounts of the Borrower and each other Grantor and the
lockboxes and blocked deposit accounts of the Grantors, and (iv) at any
time and from time to time, promptly execute and deliver any and all
further instruments and documents and take all such other action as the
Administrative Agent may deem reasonably necessary in obtaining the full
benefits of the Liens on, or in preserving the Liens in, such main
concentration accounts, lockboxes and blocked deposit accounts.
Section 10. As to Equipment and Inventory.
(a) Each Grantor shall keep the Equipment and Inventory (other than
Inventory sold in the ordinary course of business) pledged by such Grantor
hereunder at the places therefor specified in Section 8(a) or, upon fifteen
(15) days' prior written notice to the Administrative Agent, at such other
places in a jurisdiction where all action required by this Agreement to
maintain the security interest of the Administrative Agent in such
Equipment and Inventory granted hereby shall have been taken with respect
to such Equipment and Inventory.
(b) Each Grantor shall cause the Equipment pledged by such Grantor
hereunder which individually or in the aggregate is material to such
Grantor's business to be maintained and preserved in good working
condition, repair and working order, ordinary wear and tear excepted and
except for insured casualty losses and shall forthwith, or in the case of
any loss or damage to any of such Equipment, as quickly as practicable
after the occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith that are
necessary or desirable to such end. Each Grantor shall promptly furnish to
the Administrative Agent a statement respecting
11
<PAGE>
any loss or damage to any of the Equipment pledged by such Grantor
hereunder (other than immaterial loss or damage) or loss or damage to
Equipment which individually or in the aggregate is not material to such
Grantor's business.
(c) Each Grantor shall timely pay when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory pledged by such Grantor hereunder; provided,
however, that such Grantor shall not be required to pay any such tax,
assessment, charge or claim that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being
maintained, unless and until any Lien resulting therefrom attaches to its
property and becomes enforceable against the Borrower or any of its
Subsidiaries. In producing the Inventory pledged by such Grantor hereunder,
each Grantor shall comply in all material respects with all requirements of
the Fair Labor Standards Act.
Section 11. Insurance.
(a) Each Grantor shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory pledged by such Grantor hereunder in
such amounts, against such risks, in such form and with such insurers, as
required by the Credit Agreement. Each policy for liability insurance shall
provide for all losses to be paid on behalf of the Administrative Agent and
each Grantor as their interests may appear and each policy for property
damage insurance shall provide for all losses (except so long as the payor
shall not have received notice from the Administrative Agent to the effect
that an Event of Default shall have occurred and is continuing for losses
of less than $250,000 per occurrence) to be paid directly to the
Administrative Agent and with respect to losses of $250,000 or more per
occurrence but not in excess of $500,000 per occurrence or $500,000 in the
aggregate, the Administrative Agent shall, unless an Event of Default shall
have occurred and then be continuing, make such insurance proceeds
available to the subject Grantor for the repair or replacement of the
subject Collateral. Each such policy shall in addition (i) name such
Grantor and the Administrative Agent as insured parties thereunder (without
any representation or warranty by or obligation upon the Administrative
Agent) as their interests may appear, (ii) contain the agreement by the
insurer that any loss thereunder in excess of $250,000 per occurrence
unless an Event of Default shall have occurred and be continuing shall be
payable to the Administrative Agent notwithstanding any action, inaction or
breach of representation or warranty by such Grantor, (iii) provide that
there shall be no recourse against the Administrative Agent for payment of
premiums or other amounts with respect thereto and (iv) provide that the
insurer shall endeavor to provide at least thirty (30) days' prior written
notice of cancellation or of lapse to the Administrative Agent. Each
Grantor shall, if so requested by the Administrative Agent, deliver to the
Administrative Agent original or duplicate policies of such insurance and,
as often as the Administrative Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, each
Grantor shall, at the request of the Administrative Agent, duly exercise
and deliver instruments of assignment of its insurance policies to comply
with the requirements of Section 9 and cause the insurers to acknowledge
notice of such assignment.
12
<PAGE>
(b) Reimbursement under any liability insurance maintained by any
Grantor pursuant to this Section 11 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In case of any
loss involving damage to Equipment or Inventory which individually or in
the aggregate is material to such Grantor's business when subsection (c) of
this Section 11 is not applicable, the Grantor that owns such Equipment or
Inventory shall make or cause to be made the necessary repairs to or
replacements of such Equipment or Inventory out of available net proceeds
of insurance maintained by such Grantor pursuant to this Section 11.
(c) Upon the occurrence and during the continuance of any Event of
Default or the loss (equal to or in excess of $500,000 per occurrence or in
the aggregate) of any Equipment or Inventory, all insurance payments in
respect of such Equipment or Inventory shall, except as provided in Section
11(a), be paid to and applied by the Administrative Agent as specified in
Section 20(b).
Section 12. Place of Perfection; Record; Collection of Receivables.
(a) Each of the Grantors shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning
the Collateral, and, to the extent possessed, the original copies of the
Assigned Agreements and all originals of all chattel paper that evidence
Receivables, at the location therefor specified in Section 8(a) or, upon
fifteen (15) days' prior written notice to the Administrative Agent, at
such other locations in a jurisdiction where all actions required by this
Agreement to maintain the security interest of the Administrative Agent in
such Collateral granted hereby shall have been taken with respect to the
Collateral. Each of the Grantors shall hold and preserve such records,
Assigned Agreements and chattel paper and shall permit representatives of
the Administrative Agent at any time during normal business hours to
inspect and make abstracts from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), each of the
Grantors shall continue to collect, at its own expense, all amounts due or
to become due such Grantor under the Receivables pledged by such Grantor
hereunder provided that, so long as no Event of Default has occurred and is
continuing, each Grantor may settle or compromise the amount of payment of
any of its Receivables, release wholly or partly any Obligor thereof, or
allow any credit or discount thereon in the ordinary course of business. In
connection with such collections, each Grantor may take such action as such
Grantor may deem necessary or advisable to enforce collection of the
Receivables pledged by such Grantor hereunder; provided, however, that the
Administrative Agent shall have the right at any time, upon the occurrence
and during the continuance of an Event of Default and upon five business
(5) days' written notice to the Borrower of its intention to do so, to
notify the obligors under any Receivables of the assignment of such
Receivables to the Administrative Agent and to direct such Obligors to make
payment of all amounts due or to become due to such Grantor thereunder
directly to the Administrative Agent and, upon such notification and at the
expense of such Grantor, to enforce collection of any such Receivables, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done. After
receipt by any Grantor of the notice from the Administrative Agent
13
<PAGE>
referred to in the proviso of the preceding sentence upon the occurrence
and during the continuance of an Event of Default, (i) all amounts and
proceeds (including instruments) received by such Grantor in respect of the
Receivables pledged by such Grantor hereunder shall be received in trust
for the benefit of the Administrative Agent hereunder, shall be segregated
from other funds of such Grantor and shall be forthwith paid over to the
Administrative Agent in the same form as so received (with any necessary
endorsement) to be applied as provided by Section 20(b) and (ii) without
the prior consent of the Administrative Agent, such Grantor shall not
adjust, settle or compromise the amount or payment of any of its
Receivables, release wholly or partly any Obligor thereof, or allow any
credit or discount thereon.
Section 13. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) The Grantors shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Security Collateral or
any part thereof for any purpose not inconsistent with the terms of
this Agreement or the other Loan Documents; provided, however, that
the Grantors shall not exercise or refrain from exercising any such
right if such action would reasonably be expected to have a material
adverse effect on the value of the Security Collateral or any part
thereof.
(ii) The Grantors shall be entitled to receive and retain any and
all dividends and interest paid in respect of the Security Collateral;
provided, however, that any and all
(A) dividends and interest paid or payable other than in
cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Security Collateral,
(B) dividends and other distributions paid or payable in
cash in respect of any Security Collateral in connection with a
partial or total liquidation or dissolution or in connection with
a reduction of capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any
Security Collateral
shall be, and shall be forthwith, delivered to the Administrative
Agent to hold as Security Collateral and shall, if received by any of
the Grantors, be received in trust for the benefit of the
Administrative Agent, be segregated from the other property or funds
of such Grantor and be forthwith delivered to the Administrative Agent
as Security Collateral in the same form as so received (with any
necessary endorsement); provided further, however, that the Grantors
shall be entitled to retain any such payments referred to in clause
(A), (B) or (C) above to the extent such payments are made between the
Borrower and its Subsidiaries or between the Borrower's Subsidiaries
and in each case are otherwise permitted by the terms of the Credit
Agreement, including without limitation Sections
14
<PAGE>
6.4 and 6.7 thereof and in each case to the extent relating to
Investments prior to the occurrence and during the continuance of a
Default subject however to any prepayment requirements under the
Credit Agreement.
(iii) The Administrative Agent shall execute and deliver (or
cause to be executed and delivered) to each of the Grantors all such
proxies and other instruments as such Grantor may request for the
purpose of enabling such Grantor to exercise, prior to the occurrence
and during the continuance of an Event of Default, the voting and
other rights that it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends or interest payments that it is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) All rights of each of the Grantors (x) to exercise or refrain
from exercising the voting and other consensual rights that it would
otherwise be entitled to exercise pursuant to Section 13(a)(i) shall
automatically cease and (y) to receive the dividends and interest
payments that it would otherwise be authorized to receive and retain
pursuant to Section 13(a)(ii) shall automatically cease, and all such
rights shall thereupon be vested solely in the Administrative Agent,
which shall thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to receive and
hold as Security Collateral such dividends and interest payments.
(ii) All dividends and interest payments that are received by any
of the Grantors contrary to the provisions of paragraph (i) of this
Section 13(b) shall be received in trust for the benefit of the
Administrative Agent, shall be segregated from other funds of such
Grantor and shall be forthwith paid over to the Administrative Agent
as Security Collateral in the same form as so received (with any
necessary endorsement).
Section 14. As to the Assigned Agreements.
(a) Each of the Grantors shall, at its expense:
(i) perform and observe all the material terms and provisions of
the Assigned Agreements to which such Grantor is a party to be
performed or observed by it, maintain such Assigned Agreements in full
force and effect and enforce such Assigned Agreements in accordance
with their terms, except where the failure to do so would not be
reasonably likely to have a Material Adverse Effect and take all such
action to such end as may be from time to time reasonably requested by
the Administrative Agent; and
(ii) furnish to the Administrative Agent promptly upon receipt
thereof copies of all material notices received by such Grantor (other
than those created or arising in the ordinary course) under or
pursuant to the Assigned Agreements to which such Grantor is a party
relating to any breach or default by any party which could reasonably
be expected to have a Material Adverse Effect, and from time to time
(A) furnish to the Administrative Agent such information and
15
<PAGE>
reports regarding the Collateral pledged by such Grantor hereunder as
the Administrative Agent may reasonably request and (B) upon the
reasonable request of the Administrative Agent, make to each other
party to any such Assigned Agreement such demands and requests for
information and reports or for action as such Grantor is entitled to
make thereunder.
(b) Each of the Grantors agrees that it shall not without the consent
of the Administrative Agent if any such action would reasonably be expected
to be adverse to the interests of, or impair the security value of such
Collateral to, the Administrative Agent or the Lenders (except if adverse,
or causing an impairment, in each case only in an immaterial way or with
respect to Collateral which individually or in the aggregate is not
material to such Grantor's business) and shall not in any event take any
such action at any time following the occurrence and during the continuance
of a Default or an Event of Default:
(i) cancel or terminate any Assigned Agreement to which such
Grantor is a party, or consent to or accept any cancellation or
termination thereof;
(ii) amend or otherwise modify any Assigned Agreement to which
such Grantor is a party, or give any consent, waiver or approval
thereunder;
(iii) waive any material default under or material breach of any
Assigned Agreement to which such Grantor is a party;
(iv) consent to or permit or accept any prepayment of amounts to
become due under or in connection with any Assigned Agreement to which
such Grantor is a party, except as expressly provided therein; or
(v) take any other action in connection with any Assigned
Agreement to which such Grantor is a party, that would impair the
value of the interest or rights of such Grantor thereunder or that
would impair the interest or rights of the Administrative Agent.
Section 15. Payments Under the Assigned Agreements. Following the
occurrence and continuance of an Event of Default, if requested by the
Administrative Agent, each of the Grantors shall effectively instruct each other
party to each Assigned Agreement to which such Grantor is a party, that all
payments due or to become due under or in connection with such Assigned
Agreement shall be made in accordance with the instructions of the
Administrative Agent. In such event the Administrative Agent shall instruct such
party to make (A) such payments to the Borrower so long as no Event of Default
shall have occurred and be continuing or (B) such payments to the Administrative
Agent if any Event of Default shall have occurred and be continuing. Any payment
made to the Administrative Agent under this Section 15 shall be applied as
provided in Section 20(b).
Section 16. Transfers and Other Liens; Additional Shares.
16
<PAGE>
(a) Each of the Grantors agrees that it shall not (i) sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option
with respect to, any of the Collateral, except sales of Inventory in the
ordinary course of business or sales or other dispositions of other assets
permitted by the Credit Agreement, or (ii) create or suffer to exist any
Lien upon or with respect to any of the Collateral except for (A) the
pledge, assignment and security interest created by this Agreement and (B)
any other Liens expressly permitted under Section 6.1 of the Credit
Agreement.
(b) Each of the Grantors agrees that it shall (i) cause each issuer of
the Pledged Shares which it controls not to issue any stock or other
securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to such Grantor and except as otherwise permitted by
the Credit Agreement, and (ii) pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional shares
of stock or other securities owned by such Grantor of each issuer of the
Pledged Shares; provided, however, that in no event shall more than 65% of
the capital stock of any Foreign Subsidiary of a Grantor be pledged
pursuant to this Agreement except if and to the extent otherwise provided
in the Credit Agreement.
Section 17. Administrative Agent Appointed Attorney-in-Fact. Each of the
Grantors hereby irrevocably appoints the Administrative Agent such Grantor's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower or otherwise, upon the occurrence and during the
continuance of an Event of Default, to take any action and to execute any
instrument that the Administrative Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to the
Administrative Agent pursuant to Section 11,
(b) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of its Collateral,
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) or (b) above,
and
(d) to file any claims or take any action or institute any proceedings
that the Administrative Agent may deem necessary or desirable for the
collection of any of its Collateral or otherwise to enforce compliance with
the terms and conditions of any Assigned Agreement or the rights of the
Administrative Agent with respect to any of its Collateral.
Section 18. Administrative Agent May Perform. If any of the Grantors fails
to perform any agreement contained herein, the Administrative Agent may itself,
upon reasonable prior notice to such Grantor, perform, or cause performance of,
such agreement, and the reasonable and
17
<PAGE>
actual expenses of the Administrative Agent incurred in connection therewith
shall be payable by such Grantor under Section 22(b).
Section 19. Administrative Agent's Duties. The powers conferred on the
Administrative Agent hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Security Collateral, whether or not the
Administrative Agent or any Secured Party has or is deemed to have knowledge of
such matters, or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Collateral. The
Administrative Agent shall exercise reasonable care in the custody and
preservation of any Collateral in its possession and shall accord such
Collateral treatment equal to that which Fleet accords other similar property in
its possession.
Section 20. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
upon default under the Uniform Commercial Code in effect in the State of
New York at such time (the "N.Y. Uniform Commercial Code") (whether or not
the N.Y. Uniform Commercial Code applies to the affected Collateral) and
also may (i) require any or all of the Grantors to, and each Grantor hereby
agrees that it will at its expense and upon request of the Administrative
Agent forthwith, assemble all or part of the Collateral as directed by the
Administrative Agent and make it available to the Administrative Agent at a
place to be designated by the Administrative Agent that is reasonably
convenient to both parties and (ii) without notice except as specified
below and as required by law, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Administrative
Agent's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Administrative Agent may deem commercially
reasonable. Each Grantor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to such Grantor of the time
and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Administrative Agent
shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. The Administrative Agent may adjourn any public
or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice except as
required by law, be made at the time and place to which it was so
adjourned.
(b) Any cash held by or on behalf of the Administrative Agent as
Collateral and all cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon all or
any part of the Collateral may, in the discretion of the Administrative
Agent, be held by the Administrative Agent as Collateral for, and/or then
or at any time thereafter applied (after payment of any amounts payable to
the Administrative Agent pursuant to Section 22)
18
<PAGE>
in whole or in part by the Administrative Agent for the ratable benefit of
the Secured Parties against, all or any part of the Secured Obligations in
such order as is specified by the Credit Agreement and, if the Credit
Agreement does not so specify an order of application against the
Obligations, in such order as the Administrative Agent shall elect,
provided, however, that this Section 20(b) shall be subject to the
provisions of Section 11(a). Any surplus of such cash or cash proceeds held
by the Administrative Agent and remaining after payment in full of all the
Secured Obligations shall be paid over to the applicable Grantors or to
whomsoever may be lawfully entitled to receive such surplus.
(c) The Administrative Agent may exercise any and all rights and
remedies of any of the Grantors under or in connection with the Assigned
Agreements or otherwise in respect of the Collateral, including, without
limitation, any and all rights of any Grantor to demand or otherwise
require payment of any amount under, or performance of any provision of,
any Assigned Agreement.
(d) All payments received by any Grantor under or in connection with
any Assigned Agreement or otherwise in respect of the Collateral shall be
received in trust for the benefit of the Administrative Agent, shall be
segregated from other funds of such Grantor and shall be forthwith paid
over to the Administrative Agent in the same form as so received (with any
necessary endorsement or assignment).
(e) The Administrative Agent may, with reasonable notice to any of the
Grantors and at any time or from time to time, charge, set-off or otherwise
apply all or any part of the Secured Obligations against the L/C Cash
Collateral Account or any part thereof; provided, however, that the failure
to give notice shall not affect the validity of such charge, set-off or
application.
(f) Each Grantor will furnish to the Administrative Agent correct and
complete customer lists and updates thereof as the Administrative Agent may
reasonably request, all in reasonable detail.
Section 21. Registration Rights; Private Sale. (a) If the Administrative
Agent shall determine to exercise its right to sell all or any of the Security
Collateral pursuant to Section 20 pursuant to a public offering (it being
understood by each of the Grantors that the Administrative Agent shall be under
no obligation to do so and may, in its sole discretion, dispose of the Security
Collateral in any manner permitted by law that the Administrative Agent may
select), each Grantor agrees that, upon request of the Administrative Agent,
such Grantor will, at its own expense:
(i) execute and deliver, and cause each issuer of the Security
Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver all such instruments and documents, and
do or cause to be done all such other acts and things as may be
necessary or, in the sole discretion of the Administrative Agent,
desirable to register its Security Collateral under the provisions of
the Securities Act of 1933, as amended (the "Securities Act"), to
cause a registration statement relating thereto to become effective
and to remain effective for such period as prospectuses are required
by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus that, in the sole discretion of
the Administrative
19
<PAGE>
Agent, are necessary or desirable, all in conformity with the
requirements of the Securities Act and the rules and regulations of
the Securities and Exchange Commission applicable thereto;
(ii) use its best efforts to qualify its Security Collateral
under the state securities or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of the Security
Collateral, as requested by the Administrative Agent in its sole
discretion;
(iii) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 10(a) of the Securities Act;
(iv) provide the Administrative Agent with such other information
and projections as may be necessary or, in the sole discretion of the
Administrative Agent, desirable to enable the Administrative Agent to
effect the sale of its Security Collateral; and
(v) do or cause to be done all such other acts and things as may
be necessary to make such sale of its Security Collateral or any part
thereof valid and binding and in compliance with applicable law.
The Administrative Agent is authorized, in connection with any sale of the
Security Collateral pursuant to Section 20, to deliver or otherwise disclose to
any prospective purchaser of the Security Collateral (A) any registration
statement or prospectus, and all supplements and amendments thereto, prepared
pursuant to clause (i) above, (B) any information and projections provided to it
pursuant to clause (iv) above and (C) any other information in its possession
relating to the Security Collateral.
(b) The Grantors recognize that, upon the occurrence and during the
continuance of an Event of Default, the Administrative Agent may be unable to
effect a public sale of all or a part of the Security Collateral, and may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will be obligated 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 Grantors acknowledge that any such private
sales may be at places and on terms less favorable to the sellers than if sold
at public sales and agrees that such private sales shall be deemed to have been
made in a commercially reasonable manner, and that the Administrative Agent has
no obligation to delay the sale of any such securities for the period of time
necessary to permit any such securities to be registered for public sale.
Section 22. Indemnity and Expenses.
(a) Each of the Grantors hereby agrees, jointly and severally, to
indemnify the Administrative Agent from and against any and all claims,
losses and liabilities arising out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting from the Administrative Agent's
gross negligence or willful misconduct as determined by a final judgment of
a court of competent jurisdiction.
20
<PAGE>
(b) The Borrower will upon demand pay to the Administrative Agent the
amount of any and all reasonable expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, that the
Administrative Agent may incur in connection with (i) the administration of
this Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the rights of the
Administrative Agent or the Secured Parties hereunder or (iv) the failure
by the Borrower or any other Grantor to perform or observe any of the
provisions hereof.
Section 23. Security Interest Absolute. The obligations of each Grantor
under this Agreement are independent of the Secured Obligations, and a separate
action or actions may be brought and prosecuted against each Grantor to enforce
this Agreement, irrespective of whether any action is brought against the
Borrower or any other Grantor or whether the Borrower or any other Grantor is
joined in any such action or actions. All rights of the Administrative Agent and
the pledge, assignment and security interest hereunder, and all obligations of
each Grantor hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other amendment
or waiver of or any consent to any departure from any Loan Document,
including, without limitation, any increase in the Secured Obligations
resulting from the extension of additional credit to the Borrower or any
Guarantor or any of their subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Secured Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Secured Obligations or
any other assets of the Borrower or any Guarantor or any of their
subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any Guarantor or any of their
subsidiaries; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Grantor or a third party grantor of a
security interest.
Section 24. Amendments; Waivers; Etc.
(a) No amendment or waiver of any provision of this Agreement, and no
consent to any departure by any Grantor herefrom, shall in any event be
effective unless the same shall be
21
<PAGE>
in writing and signed by the Administrative Agent, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given.
(b) No failure on the part of the Administrative Agent to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right.
(c) Upon the execution and delivery by any Person of a supplement to
this Agreement, in each case in substantially the form of Exhibit D hereto
(each a "Security Agreement Supplement"), (i) such Person shall be referred
to as an "Additional Grantor" and shall be and become a Grantor, and each
reference in this Agreement to an "Additional Grantor" or a "Grantor" shall
also mean and be a reference to such Additional Grantor and each reference
in any other Loan Document to a "Grantor" or a "Loan Party" shall also mean
and be a reference to such Additional Grantor, and (ii) the supplements
attached to each Security Agreement Supplement shall be incorporated into
and become a part of and supplement the Schedules to this Agreement, as
appropriate, and the Administrative Agent may attach such supplements to
such Schedules, and each reference to such Schedules shall mean and be a
reference to such Schedules, as supplemented pursuant hereto.
Section 25. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered
if to any Grantor addressed to it at the address set forth below its name on the
signature pages hereof; if to any Additional Grantor, addressed to it at the
address set forth below its name on the signature pages to the Security
Agreement Supplement executed and delivered by such Additional Grantor; if to
the Administrative Agent, addressed to it at its address set forth in Section
11.2 of the Credit Agreement or, as to each other party, at such other address
as shall be designated by such party in a written notice to the Grantors and the
Administrative Agent. All such notices and communications shall, when mailed by
certified mail, return receipt requested, telegraphed, telecopied or telexed, be
effective three (3) Business Days after mailing, or two (2) Business Days after
being deposited with a recognized overnight delivery service with all changes
prepaid or billed to the account of the sender, or upon transmission to the
telegraph company, upon delivery by telecopier or upon confirmation by telex
answerback, respectively, addressed as aforesaid. Any party hereto may change
the Person, address or telecopier number to whom or which notices are to be
given hereunder, by notice duly given hereunder; provided, however, that any
such notice shall be deemed to have been given hereunder only when actually
received by the party to which it is addressed.
Section 26. Continuing Security Interest; Assignments under the Credit
Agreement. This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the later of (i)
the indefeasible payment in full in cash of the Secured Obligations and (ii) the
Termination Date, (b) be binding upon each Grantor, its successors and assigns
and (c) inure, together with the rights and remedies of the Administrative Agent
hereunder, to the benefit of the Administrative Agent, the Lender Parties and
their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any
22
<PAGE>
Lender may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation, all or
any portion of its Commitment, the Advances owing to it and the Note or Notes
held by it) to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Lender herein or
otherwise, in each case as provided in Section 11.7 of the Credit Agreement.
Notwithstanding the foregoing, no Grantor may assign any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent, which consent may be withheld for any reason.
Section 27. Release and Termination.
(a) Upon any sale, lease, transfer or other disposition of any item of
Collateral in accordance with the express terms of the Loan Documents, the
Administrative Agent will, at the Grantors' expense, execute and deliver to
each Grantor such documents as such Grantor shall reasonably request to
evidence the release of such item of Collateral from the assignment and
security interest granted hereby; provided, however, that (i) at the time
of such request and such release no Default shall have occurred and be
continuing, (ii) such Grantor shall deliver to the Administrative Agent, at
least ten (10) days prior to the date of the proposed release, a written
request for release describing the item of Collateral and the terms of the
sale, lease, transfer or other disposition in reasonable detail, including
the price thereof and any expenses in connection therewith, together with a
form of release for execution by the Administrative Agent and a
certification by such Grantor to the effect that the transaction is in
compliance with the Loan Documents and as to such other matters as the
Administrative Agent may request, and (iii) the proceeds of any such sale,
lease, transfer or other disposition required to be applied in accordance
with Section 2.6 or any other provision of the Credit Agreement shall be
applied as required by the terms of the Credit Agreement.
(b) Upon the latest of (i) the indefeasible payment in full in cash of
the Secured Obligations, (ii) the expiration, termination or cancellation
of all of the Letters of Credit and (iii) the Termination Date, the pledge,
assignment and security interest granted by each of the Grantors hereby
shall terminate and all rights to the Collateral shall revert to the
appropriate Grantor. Upon any such termination, the Administrative Agent
will, at the Grantors' expense, execute and deliver to the appropriate
Grantor such documents as such Grantor shall reasonably request to evidence
such termination.
(c) To the extent any one or more provisions of this Agreement shall
conflict with one or more provisions in the Credit Agreement, the
provisions of the Credit Agreement shall control and supersede any such
conflicting provision(s) of this Agreement.
Section 28. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein
23
<PAGE>
or in the Credit Agreement, terms used in Article 9 of the N.Y. Uniform
Commercial Code are used herein as therein defined.
Section 29. JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES
OF AMERICA SITTING IN NEW YORK CITY, NEW YORK AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY, OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH NEW YORK STATE
COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL
AFFECT ANY RIGHT THAT ANY LENDER PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS IN THE
COURTS OF ANY JURISDICTION.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
Section 30. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE LOAN PARTIES,
THE ADMINISTRATIVE AGENT AND THE SECURED PARTIES VOLUNTARILY, INTENTIONALLY AND
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, THE ADVANCES OR
THE ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY SECURED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR THE SECURED PARTIES AND THE ADMINISTRATIVE AGENT TO
ENTER INTO THIS AGREEMENT AND TO MAKE ADVANCES PURSUANT TO THE LOAN DOCUMENTS.
Section 31. Counterparts. This Agreement may be executed in any number of
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one
24
<PAGE>
and the same instrument. Delivery by telecopier of an executed counterpart of a
signature page to this Agreement shall be as effective as delivery of a manually
executed counterpart to this Agreement.
[SIGNATURE PAGE FOLLOWS]
25
<PAGE>
IN WITNESS WHEREOF, each of the Grantors has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
-------------------------------------
Title: CO-CEO
----------------------------------
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
ABC INTERNET SERVICES, INC.
By: /s/ Norton Herrick
-------------------------------------
Title: CO-CEO
----------------------------------
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
CLASSIC RADIO HOLDING CORP.
By: /s/ Norton Herrick
-------------------------------------
Title: CO-CEO
----------------------------------
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
CLASSIC RADIO ACQUISITION CORP.
By: /s/ Norton Herrick
-------------------------------------
Title: CO-CEO
----------------------------------
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
<PAGE>
ABC INVESTMENT CORP.
By: /s/ John Levy
-------------------------------------
Title: EVP
----------------------------------
Address: 103 Springer Building
3411 Silver Side Road
Wilmington, DE 19810
CH ACQUISITIONS CORP.
By: /s/ Norton Herrick
-------------------------------------
Title: CEO
----------------------------------
Address: 2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
<PAGE>
ACCEPTED:
FLEET NATIONAL BANK, AS ADMINISTRATIVE AGENT
By: /s/ Alex Sade
-----------------------------------------
Title: President
--------------------------------------
<PAGE>
EXHIBIT A TO
SECURITY AGREEMENT
[Grantor Name and Address]
_____________, ____
[Name of Depository Account Bank]
[Address]
Ladies and Gentlemen:
Reference is made to deposit account no.[_________] (the "Cash Collateral
Account") maintained with you by [GRANTOR NAME], a [_____________] corporation
(the "Grantor"). Pursuant to the Security Agreement, dated November ___, 1998
(as amended, supplemented, renewed, restated, extended or otherwise modified
from time to time, the "Security Agreement"; terms defined therein unless
otherwise defined herein being used herein as therein defined), the Grantor has
granted to Fleet National Bank, as administrative agent (together with any
successor appointed pursuant to Article X of the Credit Agreement (as
hereinafter defined), the "Administrative Agent") for the Secured Parties
referred to in the Credit Agreement, dated as of ________, ____ (as such
agreement may be amended, supplemented, renewed, extended or otherwise modified
from time to time, the "Credit Agreement"), by and among Audio Book Club, Inc.,
(the "Borrower"), the Lender Parties party thereto, the Secured Parties named
therein and Fleet National Bank, as Swing Line Bank, as Issuing Bank and as the
Administrative Agent, a security interest in certain property and assets of the
Grantor, including, among other things, the following (the "Account
Collateral"): (a) the Cash Collateral Account, all funds held therein and all
certificates and instruments, if any, from time to time representing or
evidencing the Cash Collateral Account; (b) all interest, dividends, cash,
instruments and other property and assets from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of the then
existing Account Collateral; and (c) all proceeds of any and all of the
foregoing Account Collateral and, to the extent not otherwise included, all (i)
payments under insurance (whether or not the Administrative Agent is the loss
payee thereof) or any indemnity, warranty or guaranty payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Account
Collateral, and (ii) cash. It is a condition to the continued maintenance of the
Cash Collateral Account with you that you agree to this letter agreement.
By signing this letter agreement, you acknowledge notice of the Security
Agreement and the terms and conditions thereof related to the Account Collateral
and confirm to the Administrative Agent that (a) the Cash Collateral Account is
maintained with you at your offices at the address set forth above, is entitled
as set forth in subparagraph (i) below and the account
Exhibit A - Page 1
<PAGE>
number therefor is as set forth in the first paragraph of this letter agreement
and (b) you have received no notice of any other pledge or assignment of, or any
lien on or security interest in, the Cash Collateral Account. Further, you
hereby agree with the Administrative Agent that:
(i) The Cash Collateral Account shall be maintained solely for the
benefit of the Administrative Agent, on behalf of itself and the other
Secured Parties, shall be entitled "[NAME OF GRANTOR], cash collateral
account for the benefit of Fleet National Bank, as Administrative Agent"
and shall be subject to written instructions only from an officer of the
Administrative Agent or, so long as you have not been notified by the
Administrative Agent or the Grantor that a Default has occurred and is
continuing and solely to the extent set forth in subparagraph (iv)(B)
below, an officer of the Grantor, as agent for, and with the consent of,
the Administrative Agent.
(ii) The Cash Collateral Account is and shall be subject to the terms
and conditions of the Security Agreement, and such applicable laws and
regulations of the Board of Governors of the Federal Reserve System and of
any other appropriate banking or governmental authority, as are in effect
from time to time, and to the extent any term or condition of this letter
agreement is inconsistent with the terms and conditions of the Security
Agreement, the terms and conditions of the Security Agreement shall govern.
(iii) You shall maintain a record of all deposits received in and all
disbursements made from the Cash Collateral Account and, in addition to
providing the Grantor with records and other documents of such deposits and
disbursements on a daily basis in accordance with the arrangements in
effect between you and the Grantor on the date hereof, furnish to the
Administrative Agent a monthly statement of the Cash Collateral Account to
be mailed to the Administrative Agent in accordance with the provisions of
this letter agreement.
(iv) (A) Upon the instructions of the Administrative Agent, you shall
transfer, in immediately available funds, on each of your business days,
all amounts to be applied by the Administrative Agent on such day to
obligations then due and payable under the Credit Agreement and the other
Loan Documents to the following account (the "Administrative Agent's
Account"), which amounts shall be specified to you by the Administrative
Agent:
Fleet Bank, as Administrative Agent
Account No. ___________________
One Federal Street
Boston, Massachusetts 02110
Attention: Loan Administration
Ref: __________________________
Any funds remaining in the Cash Collateral Account after effecting the
release of funds set forth in the immediately preceding sentence shall be
released to the Grantor in accordance with subparagraph (iv)(B) below.
Exhibit A - Page 2
<PAGE>
(B) After transferring to the Administrative Agent all available
amounts on deposit in the Cash Collateral Account in accordance with
subparagraph (iv)(A) above, and so long as neither the Administrative
Agent nor the Grantor has notified you that an Event of Default has
occurred and is continuing, you shall transfer, in accordance with the
instructions from the Grantor, acting as agent for, and with the
consent of, the Administrative Agent, all or a portion of the
available remaining amounts on deposit in the Cash Collateral Account
that are required for the conduct of the business of the Grantor and
its subsidiaries in the ordinary course, which instructions shall
specify the person or entity or the account therefor to which such
amounts shall be transferred.
(C) After complying with the provisions of subparagraphs (iv)(A)
and (iv)(B) above, you shall hold any remaining amounts in the Cash
Collateral Account as Collateral for the Secured Obligations.
Except as provided in subparagraph (iv)(B) above, in no event shall you
release any amounts on deposit in the Cash Collateral Account at the
request of any Person or entity other than the Administrative Agent. Each
such transfer of funds shall neither comprise only part of a remittance nor
reflect the rounding off of any funds so transferred.
(v) All transfers from the Cash Collateral Account referred to in
subparagraph (iv) above shall be made by you irrespective of, and without
deduction for, any counterclaim, defense, recoupment or set off and shall
be final, and you will not seek to recover from the Administrative Agent
for any reason any such payment once made.
(vi) All service charges and fees with respect to the Cash Collateral
Account shall be payable by the Grantor, but may be charged to another
account maintained by the Grantor with you (other than the Cash Collateral
Account or any Lock Box Account maintained with you). In the event you are
unable to obtain sufficient funds from such charges to cover such service
charges and fees, the Grantor shall indemnify you therefor.
(vii) The Administrative Agent shall be entitled to exercise any and
all rights of the Grantor in respect of the Cash Collateral Account in
accordance with the terms of the Security Agreement, and you shall comply
in all respects with such exercise. You hereby acknowledge that
notwithstanding any other provision of this letter agreement, upon notice
from the Grantor or the Administrative Agent of an Event of Default under
the Credit Agreement, you will only accept instructions in respect of the
Cash Collateral Account and the other Account Collateral from the
Administrative Agent.
(viii) The security interest of the Administrative Agent, on behalf of
the Secured Parties, in the Cash Collateral Account and the other Account
Collateral shall not be terminated until you receive notice of such
termination from the Administrative Agent.
This letter agreement shall be binding upon you and your successors and
assigns and shall inure to the benefit of, and be enforceable by, the
Administrative Agent and the other Secured Parties and their respective
successors, transferees and assigns. You may terminate this letter
Exhibit A - Page 3
<PAGE>
agreement upon thirty (30) days' prior written notice to the Grantor and the
Administrative Agent. Upon any such termination, you (a) shall close the Cash
Collateral Account and transfer all available funds in the Cash Collateral
Account in accordance with the instructions of the Administrative Agent and (b)
shall nonetheless remain obligated to transfer promptly to the Administrative
Agent, at the account designated by the Administrative Agent at such time, all
funds and other property received in respect of the Cash Collateral Account.
You shall exercise reasonable care in maintaining the Cash Collateral
Account and any Account Collateral received in respect thereof and in fulfilling
your obligations under or in respect of this letter agreement. You shall not be
held liable for any claims, damages, losses or expenses incurred by the Grantor
or the Administrative Agent in connection therewith other than for (a) claims,
damages, losses or expenses resulting from your gross negligence or wilful
misconduct or (b) failure to maintain the Cash Collateral Account or any such
Account Collateral or to fulfill your obligations under or in respect of this
letter agreement with reasonable care as required by the first sentence of this
paragraph. Any liability incurred by you pursuant to the terms of this paragraph
shall be limited to damages directly caused by you or resulting from, or in
connection with, your actions or omissions to act, and shall not be for any
incidental, indirect, punitive or consequential damages.
All notices and other communications provided for under this letter
agreement shall be by (a) telephone promptly confirmed in writing or (b) in
writing (including telegraphic, telecopy or telex communication) and delivered
by hand or overnight courier, telegraphed, telecopied or telexed, to each party
at the address set forth below the name of such party on the signature pages of
this letter agreement or to such other address as such party may specify in
writing to each other party. All such notices and communications shall (i) when
made by telephone, be effective when promptly confirmed in writing or (ii) when
delivered by hand or overnight courier, telegraphed, telecopied or telexed, be
effective upon delivery by hand, one (1) day after delivery to the courier
company, when delivered to the telegraph company, when transmitted by telecopier
or when confirmed by telex answerback, respectively, addressed as aforesaid.
This letter agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery by telecopier of an executed
counterpart of a signature page to this letter agreement shall be as effective
as delivery of a manually executed counterpart of this letter agreement.
Exhibit A - Page 4
<PAGE>
This letter agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without giving effect to its conflict
of laws principles).
Very truly yours,
FLEET NATIONAL BANK,
as Administrative Agent
By________________________________
Name:
Title:
Person and Address for Notices:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02110
Attention: __________________________
Telephone: _________________________
Facsimile No.: _______________________
[NAME OF GRANTOR, as Grantor]
By________________________________
Name:
Title:
Person and Address for Notices:
[Name]
[Address]
[Address]
[Address]
Acknowledged and agreed to as
of the date first above written:
Exhibit A - Page 5
<PAGE>
[NAME OF DEPOSITORY ACCOUNT BANK]
By__________________________________
Name:
Title:
Person and Address for Notices:
[Name]
[Address]
[Address]
[Address]
Exhibit A - Page 6
<PAGE>
EXHIBIT B TO
SECURITY AGREEMENT
FORM OF CONSENT AND AGREEMENT
The undersigned hereby acknowledges notice of, and consents to the terms
and provisions of, the Security Agreement, dated as of November ___, 1998 (the
"Security Agreement"; the terms defined therein being used herein as therein
defined), from [Name of Grantor], (the "Grantor") to Fleet National Bank, as
administrative agent (the "Administrative Agent") for the Secured Parties
referred to therein, and hereby agrees with the Administrative Agent that:
(a) The undersigned will make all payments to be made by it under or
in connection with the ________ Agreement, dated _________, 19__ (the
"Assigned Agreement"), between the undersigned and Grantor in accordance
with the instructions of the Administrative Agent.
(b) All payments referred to in paragraph (a) above shall be made by
the undersigned irrespective of, and without deduction for, any
counterclaim, defense, recoupment or set-off and shall be final, and the
undersigned will not seek to recover from the Administrative Agent or any
Lender Party for any reason any such payment once made.
(c) The Administrative Agent shall be entitled to exercise any and all
rights and remedies of the Grantor under the Assigned Agreement and the
undersigned shall comply in all respects with any such exercise.
(d) The undersigned shall not, without the prior written consent of
the Administrative Agent, (i) cancel or terminate the Assigned Agreement or
consent to or accept any cancellation or termination thereof, (ii) amend,
restate or otherwise modify the Assigned Agreement or (iii) except as
expressly provided therein, make any prepayment of amounts to become due
under or in connection with the Assigned Agreement.
This Consent and Agreement shall be binding upon the undersigned and its
successors and assigns, and shall inure, together with the rights and remedies
of the Administrative Agent hereunder, to the benefit of the Administrative
Agent, the Lender Parties and their respective successors, transferees and
assigns. THIS CONSENT AND AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS
CONFLICTS OF LAWS PROVISIONS).
Exhibit B - Page 1
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Consent and
Agreement as of the date set forth below.
Dated: ________, 1998 [NAME OF OBLIGOR]
By:___________________________________
Title:________________________________
Exhibit B - Page 2
<PAGE>
EXHIBIT C TO
SECURITY AGREEMENT
FORM OF SECURITY AGREEMENT SUPPLEMENT
____________, ___
Fleet Bank, as Administrative Agent
One Federal Street
Boston, MA 02110
Attention: Corporate Banking Group
Security Agreement, dated as of November ___,
1998, made by Audio Book Club, Inc.
and the other Grantors party thereto, to Fleet National Bank,
as Administrative Agent for the Secured Parties
Ladies and Gentlemen:
Reference is made to the above-captioned Security Agreement (such Security
Agreement, as in effect on the date hereof and as it may hereafter be amended,
supplemented, restated, or otherwise modified from time to time, the "Security
Agreement"). Capitalized terms used and not otherwise defined herein have the
meanings ascribed to them in the Security Agreement.
The undersigned hereby agrees, as of the date first above written, to
become a Grantor under the Security Agreement as if it were an original party
thereto and agrees that each reference in the Security Agreement to "Grantor"
shall also mean and be a reference to the undersigned.
The undersigned hereby assigns and pledges to the Administrative Agent, for
the benefit of the Administrative Agent and the ratable benefit of the Lenders,
the Swing Line Bank and the Issuing Bank, and hereby grants to the
Administrative Agent, for the benefit of the Administrative Agent and the
ratable benefit of the Secured Parties, as security for the Secured Obligations,
a lien on, and security interest in, all of the right, title and interest of the
undersigned, whether now owned or hereafter acquired, in and to the Collateral
owned by the undersigned, including, but not limited to, the property listed on
the attached supplements to Schedules I through IV to the Security Agreement.
The undersigned hereby certifies that such supplements have been
Exhibit C - Page 1
<PAGE>
prepared by the undersigned in substantially the form of such Schedules and are
true, accurate and complete as of the date hereof.
The undersigned hereby makes each representation and warranty set forth in
Section 8 of the Security Agreement (as modified by the attached supplements to
the Schedules to the Security Agreement) to the same extent as each other
Grantor and hereby agrees to be bound as a Grantor by all of the terms and
provisions of the Security Agreement to the same extent as each other Grantor.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS
PROVISIONS).
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK
STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK
CITY, NEW YORK AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY
LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY
LENDER PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY
JURISDICTION.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF THE LOAN
Exhibit C - Page 2
<PAGE>
DOCUMENTS (AS DEFINED IN THE CREDIT AGREEMENT), THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF THE ADMINISTRATIVE AGENT, ANY LENDER OR THE ISSUING
BANK IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Very truly yours,
[NAME OF ADDITIONAL GRANTOR]
[Address of chief executive office]
[Address of chief executive office]
By: ________________________________
Title:______________________________
Exhibit 21
Subsidiaries of Audio Book Club, Inc.
<TABLE>
<CAPTION>
Name Ownership Jurisdiction of Incorporation
<S> <C> <C>
ABC Investment Corp. wholly-owned Delaware
ABC Internet Services Inc. wholly-owned New York
Classic Radio Holding Corp. wholly-owned Delaware
CH Acquisitions Corp. wholly-owned Delaware
Classic Radio Acquisition Corp. wholly-owned by Delaware
Classic Radio Holding Corp.
ABD Acquisition Corp. wholly-owned Delaware
Radio Spirits, Inc. wholly-owned Delaware
Multimedia Fulfillment, Inc. wholly-owned by Classic
Radio Holding Corp. Delaware
BooksAloud, Inc. wholly-owned Florida
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-KSB AT DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,686,330
<SECURITIES> 500,000
<RECEIVABLES> 6,341,352
<ALLOWANCES> 1,418,275
<INVENTORY> 5,330,319
<CURRENT-ASSETS> 14,802,200
<PP&E> 1,698,460
<DEPRECIATION> 369,885
<TOTAL-ASSETS> 12,770,020
<CURRENT-LIABILITIES> 8,231,012
<BONDS> 0
0
0
<COMMON> 37,244,187
<OTHER-SE> (21,136,325)
<TOTAL-LIABILITY-AND-EQUITY> 64,338,874
<SALES> 14,893,571
<TOTAL-REVENUES> 14,893,571
<CGS> 9,451,601
<TOTAL-COSTS> 9,451,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (180,370)
<INCOME-PRETAX> (6,985,264)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,985,264)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,985,264)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
