As filed with the Securities and Exchange Commission on February 13, 1998.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G)
OF THE SECURITIES EXCHANGE ACT OF 1934
CAMELOT MUSIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3735306
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8000 FREEDOM AVENUE, N.W.
NORTH CANTON, OHIO 44720
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 494-2282
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
<PAGE>
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This Registration Statement contains certain "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward looking statements include statements in "Business -- The
Business Restructuring" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company's actual financial condition
and results of operation could differ materially from those anticipated
depending upon, among other things, changes in the competitive environment for
the Company's products, technological changes affecting the pre-recorded music
industry, the continued availability of customary trade terms from the Company's
suppliers, the successful completion of the acquisition of the stores of The
Wall Music, Inc. and the integration of such stores into the Company, the
release by the music industry of "hit releases" and general economic factors in
markets where the Company's products are sold.
<PAGE>
ITEM 1. BUSINESS
General
Camelot Music Holdings, Inc. ("CMH" or "Registrant") was incorporated
under Delaware law on September 30, 1993. CMH acquired all of the outstanding
common stock of Camelot Music, Inc., a Pennsylvania corporation ("Camelot"), on
November 12, 1993 (the "Acquisition"). CMH and Camelot, collectively with their
subsidiaries, are hereinafter referred to as the "Company". The Company is one
of the largest retailers of pre-recorded music in the United States, with
revenues of approximately $396.5 million in its fiscal year ended March 1, 1997
and 305 stores. The Company also sells pre-recorded videocassettes, blank audio
and videocassettes and related products. Camelot was founded in 1956 as a music
rack jobber and opened its first retail store in 1965. The Company grew to 200
stores by 1987 and to 400 stores by 1994. On December 10, 1997, the Company
entered into a definitive agreement to purchase substantially all of the assets
and assume certain liabilities of The Wall Music, Inc., a Pennsylvania
corporation ("The Wall"), which is also a retailer of pre-recorded music. Upon
consummation of such acquisition, the Company will operate approximately 450
stores throughout the United States. All of these stores are leased, and the
vast majority are located in shopping malls.
The principal executive offices of CMH are located at 8000 Freedom
Avenue, N.W., North Canton, Ohio, 44720, and its telephone number is (330)
494-2282.
Background
On November 12, 1993, Investcorp S.A. arranged for certain
institutional investors and Camelot senior management to purchase the stock of
Camelot for $420 million (the "Camelot Acquisition"). This purchase price was
funded with $80 million in cash, $240 million of borrowings from institutional
lenders (the "Camelot Acquisition Lenders"), $50 million of subordinated
debentures (the "Subordinated Debentures") and $50 million of Camelot's
preferred stock held by CMH. Camelot's repayment obligations to the Camelot
Acquisition Lenders were governed by the provisions of a certain Credit
Agreement dated as of November 12, 1993 (the "Credit Agreement") and were
collateralized by Camelot's real property and certain of its other assets. CMH
guaranteed these obligations and pledged its equity interest in Camelot in
support of its guarantee.
Throughout much of the 1980s, the Company, and the music retail
industry in general, enjoyed rapid growth in sales and earnings fueled by the
introduction of new products and the release of extremely popular records. The
most important new product was the compact disc ("CD"). The popularity of the CD
format caused many consumers to replace their old vinyl album and cassette
collections with CDs.
Subsequent to the Camelot Acquisition, the expansion of the retail
music business attracted new entrants into the industry, and competition
increased dramatically. Camelot was forced to compete not only with its
traditional mall-based rivals, but also with music clubs offering, for example,
eight CDs for a penny, and with large, off-mall electronics retailers that began
to use low-priced CDs and cassettes to attract customers. At approximately the
same time, the replacement CD market contracted as more and more consumers
completed the replacement of their old vinyl record and cassette collections
with CDs.
This increased competition and contraction of the replacement CD
market together with the absence of new "mega hits" and a lack of new technology
formats combined to depress profit margins for pre-recorded music retailers
generally in the mid-1990s. Traditional mall-based music retailers, such as
Camelot, saw their share of pre-recorded audio and video revenues decrease as
new competitors attracted by the growth in the industry in the 1980s
proliferated. Several music retailers such as Wherehouse Entertainment, Inc.,
Peaches Entertainment, Peppermint Records, Strawberries, Inc. and Kemp Mill
Music, filed for bankruptcy; others underwent out-of-court financial
restructurings.
These industry conditions, combined with Camelot's substantial
obligations to service its debt, impaired Camelot's business and caused Camelot
to violate several covenants in the Credit Agreement. In December 1995, Camelot
could no longer meet the requirements for further borrowings under the Credit
Agreement. This inability to borrow severely restricted Camelot's ability to pay
its major inventory suppliers.
Chapter 11 Petitions; Plan of Reorganization
Throughout the first half of 1996, the Company attempted to resolve
its difficulties in the context of an out-of-court restructuring. While Camelot
made substantial progress in obtaining concessions from certain creditor
constituencies, the Company determined that bankruptcy filings would provide the
best means of achieving the required restructuring of Camelot's obligations.
On August 9, 1996 (the "Petition Date"), CMH and Camelot (as well as
Camelot's wholly owned inactive subsidiaries, G.M.G. Advertising, Inc. ("GMG")
and Grapevine Records and Tapes, Inc. ("Grapevine" and, collectively with CMH,
Camelot and GMG, the "Debtors") filed voluntary petitions for relief under
Chapter 11 of title 11 of the United States Code, as amended (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). As of the Petition Date, Camelot had, among other
obligations, total debt outstanding under the Credit Agreement and pursuant to
the Subordinated Debentures of approximately $354 million and trade payables of
approximately $55 million net of goods returned. As of the Petition Date, CMH
had total debt of approximately $108 million, relating to debentures that it had
issued in connection with the Camelot Acquisition, and approximately $296
million relating to its guaranty of Camelot's obligations under the Credit
Agreement.
The Debtors' Second Amended Joint Plan of Reorganization, dated
November 7, 1997 (the "Plan of Reorganization") was confirmed by the Bankruptcy
Court on December 12, 1997 and became effective on January 27, 1998 (the
"Effective Date"). The Plan of Reorganization was the product of negotiations
among the Debtors, the Camelot Acquisition Lenders, Camelot's major inventory
suppliers and the Official Committee of Unsecured Creditors appointed in the
bankruptcy case.
The Financial Restructuring
Under the Plan of Reorganization, substantially all of the claims
against Camelot existing as of the Petition Date were exchanged for shares of
Common Stock of CMH, par value $0.01 per share (the "Common Stock").
Specifically, approximately $380.1 million of unsecured claims against Camelot
were exchanged for approximately 7,600,000 shares of Common Stock at the ratio
of one share of Common Stock for each $47.95 of claim, and approximately $41.5
million of secured claims received approximately 2,200,000 shares of Common
Stock, at the ratio of one share of Common Stock for each $18.75 of claim. An
additional 560,000 shares of Common Stock could be issued in the event that
certain disputed claims against Camelot are ultimately allowed. Furthermore,
under the Plan of Reorganization, all prepetition interests in CMH have been
cancelled.
The Company's obligations under the Credit Agreement were fully
satisfied through the distributions of Common Stock described above. During the
bankruptcy proceedings, the Company entered into an agreement with various
lenders to obtain debtor-in-possession financing (the "DIP Agreement"). The DIP
Agreement was terminated in connection with the consummation of the Plan of
Reorganization. At the time of its termination, there were no outstanding
borrowings thereunder. On the Effective Date, the Company entered into a new
revolving credit facility (the "New Working Capital Facility") with a syndicate
of financial institutions providing advances of up to $50 million during peak
periods and $35 million during non-peak periods. Such amounts likely will be
reduced, however, to $35 million and $20 million respectively, if the
acquisition of The Wall is not consummated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - - Liquidity and
Capital Resources."
The Business Restructuring
In 1995 and 1996 the intense competition among existing retailers and
new entrants, combined with a lack of new hit releases, had an adverse impact on
certain of the Company's retail markets. In conjunction with the financial
restructuring, the Company responded by restructuring its business. The
Company's restructuring included closing underperforming stores, improving
operating efficiencies and identifying and eliminating unproductive inventory
through returns to suppliers or liquidation sales. To reduce its portfolio of
stores to a strong core of profitable locations in desirable geographic markets,
the Company focused on improving profitability of existing stores and closing
unprofitable stores.
<PAGE>
The table below sets forth the store openings and closings over the
past two fiscal years and the first three quarters of fiscal 1997. Store
closings were not concentrated in a particular geographic region.
<TABLE>
<CAPTION>
39 WEEKS ENDED
NOVEMBER 29, 1997 FISCAL 1996 FISCAL 1995
-------- ----------- -----------
<S> <C> <C> <C>
Beginning of the Period 315 388 401
Openings 0 0 14
Closings (8) (73) (27)
---- ---- ----
End of the Period 307 315 388
==== ==== ====
</TABLE>
In addition to the store closings detailed above, the Company obtained
temporary rent concessions on approximately one-half of the remaining stores in
the portfolio. The effect of these concessions is anticipated to reduce store
occupancy expense by approximately $4 million over a four year period. The
concessions will be renegotiated at the end of their terms.
The Company currently operates 305 stores and expects that it will
acquire approximately 145 additional stores through the acquisition of The Wall
(See "The Wall Acquisition" below).
The Wall Acquisition
The Company has entered into a definitive agreement whereby a
subsidiary of Camelot will purchase substantially all of the assets and assume
certain liabilities (related to hired employees and customer obligations
aggregating approximately $3 million) of The Wall for approximately $26 million,
plus net working capital delivered at closing which is estimated to be $47
million (the "Wall Acquisition"). The Wall is a specialty music retailer
operating 150 stores in ten (10) states. The Wall sells CDs, cassettes,
pre-recorded videocassettes and other entertainment products and related
accessories. The purchase price will be funded with cash from operations and, to
the extent necessary, through a drawing on a letter of credit to be issued under
the New Working Capital Facility. The Company believes that the operations of
The Wall will complement the Company's operations by providing entry into
important markets in the Northeast and Middle Atlantic regions, where the
Company has relatively few locations. The Wall Acquisition will also enable the
Company to capitalize on synergies through the elimination of duplicative
corporate overhead expenses and the more productive utilization of the Company's
distribution center. The Company does not intend to renew the lease of The
Wall's distribution center when it expires in August 1998 and will operate the
distribution activity of the combined companies from the Company's existing
facility. All severance obligations resulting from the closing of The Wall's
facility will be borne by The Wall. If The Wall is unable to convey the leases
to all of its stores, the purchase price will be decreased accordingly. The
Company anticipates that the number of non-transferred leases will not be
material.
Products
The Company's stores focus on providing a broad selection of
pre-recorded music, but also carry a limited selection of pre-recorded
videocassettes, blank audio and videocassettes, and related products. During the
past several years, sales of pre-recorded music have accounted for approximately
90% of the Company's revenues. The Company seeks to establish itself as the
mall-based music specialist. Its motto is "No One Knows Music Better".
The Company's stores offer a wide array of compact discs and
pre-recorded audio cassettes. Sales of CDs are expected to continue to become a
larger portion of total pre-recorded music sales, while sales of pre-recorded
audio cassettes are expected to decline as a proportion of such sales. The
Company's strategy is to provide a greater number of titles to choose from than
its mall-based rivals. The Company's stores typically carry between
approximately 19,000 and 25,000 titles of pre-recorded music depending on store
size and location. These titles include "hits," which represent the best selling
newer releases, and catalog items, which represent older but still popular
releases that customers purchase to build their collections.
The Company insures the availability of the most popular hits while
maximizing the selection of popular catalog titles. Store management works with
corporate merchandise allocators to tailor product offering to local customer
tastes and to maximize the availability of the most popular items at each store
relative to store size and location.
The Company also offers pre-recorded video cassettes, blank audio and
videocassettes, music and tape care products, carrying cases, storage units,
sheet music and personal electronics for sale in its stores. Typically, the
Company's stores carry approximately 750 to 1,000 titles of pre-recorded
videocassettes depending on the size and location of each store. The Company has
discontinued sales of lower margin laser and computer software products in an
effort to focus on its higher margin pre-recorded music business.
Distribution
Central to the Company's strategy of providing broad merchandise
selection to its customers is its ability to distribute product quickly and
cost-effectively to its stores. The Company's distribution center, located
adjacent to the corporate headquarters in North Canton, Ohio, receives and ships
the vast majority of merchandise (although many new releases are shipped
directly to the stores from suppliers). Distribution center employees pick, pack
and ship over 37 million units annually. The Company's sophisticated inventory
management systems link together store point-of-sale merchandising and
distribution systems, enabling the distribution center to replenish inventory in
stores within 2 to 4 days of sale, depending upon geographic proximity to the
distribution facility.
The distribution center currently operates at approximately 35% of
total capacity, providing sufficient excess capacity to support significant
future store growth, including through the Wall Acquisition.
Inventory is shipped to every store at least once a week via several
common carriers, supplemented with expedited shipments as required by individual
store sales velocity analysis. All carriers are "less-than-load" carriers
enabling the Company to maximize transportation efficiencies while minimizing
costs.
Marketing
The Company employs marketing and advertising programs to increase
customer awareness of Camelot as the mall music specialist. The programs include
regular use of local, regional and national media outlets such as radio,
television, newspaper, magazines, freestanding inserts, direct mail and the
Company's site on the World Wide Web. While emphasizing Camelot's music
specialist position, the Company's marketing programs also promote the immediate
availability of new "hit" music releases as well as the Company's extensive
catalog selection.
In the retail entertainment industry, music and video companies
generally provide funds on a title-by-title basis to promote new releases and,
occasionally, on a label-wide basis. When the Company runs pre-authorized
advertising with respect to a specific title or label, the related supplier
generally reimburses the Company for 100% of the cost of such advertising as
well as the associated costs of production and development of the creative
concept. A significant portion of the Company's total advertising costs have
been funded by suppliers through these programs.
Camelot discontinued the manual "punch card" version of its "Repeat
Performer" frequent buyer program in mid-1997, thereby reducing expenses. In
place of the manual version of the Repeat Performer program, the Company
initiated a limited chainwide roll-out of an electronic, automated frequent
buyer program to its most frequent and highest spending customers. The manual
version of the program was not capable of tracking sales or providing
customer-specific or transaction-specific data. The automated Repeat Performer
program captures demographic and music preference data upon customer sign-up as
well as item-specific transaction data each time Repeat Performer customers make
a purchase. Customers are rewarded for attaining specific purchase levels by
receiving discounts on merchandise. The rewards encourage loyalty and promote
use of the bar-coded Repeat Performer card at each transaction. The Company
thereby obtains valuable information about the buying preferences of its most
loyal customers. The collected data is used to develop customer-specific direct
mail programs which are designed to generate increased sales levels and purchase
frequency. The direct mail programs generally are funded by music and video
companies who wish to promote their products directly to Camelot customers who
are known to purchase items similar to the advertised titles.
Suppliers
The Company purchases its pre-recorded music directly from a large
number of manufacturers. Approximately 75% of purchases are made from six
suppliers. Approximately 20 other vendors account for an additional 18% of
purchases. Historically, Camelot has enjoyed trade terms that have generally
included (a) the ability to return unsold current releases at invoice cost less
customary merchandise return charges, (b) a 2% discount for payments made within
60 days of invoice and (c) credit limits sufficient to permit at least 60 days
dating on inventory purchases. Return privileges enable the Company to ensure
that it will have sufficient product in stock to meet customer demand without
subjecting the Company to extensive risk that a particular item will not meet
sales expectations. During the bankruptcy proceedings, the Company's access to
these customary trade terms was severely limited. In connection with its
emergence from bankruptcy, the Company obtained commitments from approximately
40 suppliers, including its six largest vendors, to provide the Company with
customary trade terms. The Company believes that the resumption of customary
trade terms and the enjoyment of positive vendor relations, are fundamental to
its success in the marketplace.
Employees
As of January 23, 1998, the Company employed approximately 1,130
full-time employees and 2,790 part-time employees. As of such date, the Company
employed approximately 160 individuals at its corporate headquarters, 250 at its
distribution center, and 3,510 at its stores. None of the Company's employees is
represented by a union. The Company believes that its employee relations are
good.
Competition
The pre-recorded music market remains competitive. Consumers have
numerous options through which to purchase pre-recorded music and other home
entertainment products, including chain retailers specializing in pre-recorded
music, consumer electronic superstores, non-mall multimedia superstores,
discount stores, grocery, convenience and drug stores, direct-mail programs via
telephone, the Internet or television and local music retailers. Additionally,
consumers have more home entertainment options available with the increasing
penetration of personal computers into homes. The impact of these trends in
recent years has been a reduction in customer traffic and revenues for
mall-based music retailers such as the Company.
While several major retail chains have recently opened and expanded
their store presence in the markets in which the Company operates, there has
been some easing in the competitive environment in 1997 as a result of the
closing of under-performing stores by several mall-based competitors and the
downsizing of music departments within certain non-mall competitors. Pricing
pressures have also eased as a result of less near- or below-cost pricing by
certain non-mall competitors. Several major suppliers of pre-recorded music have
begun to enforce minimum advertised pricing ("MAP") programs, which provide
incentives for retailers to comply with the terms of the programs. Enforcement
of the MAP programs has contributed to stabilizing retail prices of pre-recorded
music in 1997.
The Company expects that the retail sales environment will continue to
present challenges into the foreseeable future. In response to these challenges,
the Company will focus on (a) securing and maintaining the most desirable
locations within quality regional malls, (b) efficient inventory management, and
(c) offering broad, market-specific merchandise selections at competitive
prices.
Seasonality
The Company's business is seasonal in nature, with approximately 35%
of annual revenues, and 67% of annual operating cash flow, generated in the
Company's fiscal fourth quarter. Quarterly results are affected by, among other
things, new product offerings, store openings and closings, and sales
performance of existing stores. Consumer spending in the peak retail season may
be affected by factors outside the Company's control, including consumer demand,
weather that affects consumer traffic and general economic conditions. A failure
to generate substantial holiday season sales could have a material adverse
effect on the Company.
ITEM 2. FINANCIAL INFORMATION
Selected Historical Financial Information
The following table sets forth selected financial information for the
Company as of and for the fiscal years ended March 1, 1997, March 2, 1996,
February 25, 1995 and for the period October 1, 1993 (inception) to February 26,
1994, and as of November 29, 1997 and for the 39 weeks ended November 29, 1997
and November 30, 1996, respectively. For the period prior to inception, selected
financial information of the predecessor entity is included for the period
August 31, 1993 to September 30, 1993 and for the fiscal years ended August 31,
1993 and August 31,1992. Such selected financial information should be read in
conjunction with the audited and unaudited historical consolidated financial
statements of the Company, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere in this Registration Statement.
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR STORE DATA)
<TABLE>
<CAPTION>
CM Holdings, Inc.
39 Weeks Ended (2)
INCOME STATEMENT DATA: Nov 29, Nov 30,
----------------------------
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Sales $ 260,340 $ 264,436
Costs and Expenses:
Cost of sales.......................................... 170,966 174,593
Selling, general and administrative expenses........... 80,573 88,769
Depreciation and amortization.......................... 16,842 17,402
Write-down of long-lived assets........................ - 4,920
Expiration of put agreements........................... - -
Restructuring charge................................... - -
----------- -------------
Total costs and expenses............................... 268,381 285,684
----------- -------------
Loss before interest and other expenses,
reorganization items and income taxes.................. (8,041) (21,248)
Interest and other (income) expense, net............... (3,442) 18,113
----------- -------------
Loss before reorganization items and income taxes...... (4,599) (39,361)
Reorganization expense................................. 6,072 26,552
----------- -------------
Loss before income tax expense (benefit)............... (10,671) (65,913)
Provision for income taxes............................. - -
----------- -------------
Net loss .............................................. $ (10,671) $ (65,913)
=========== =============
BALANCE SHEET DATA: (END OF PERIOD)
Working capital........................................ $ 127,001 $135,975
Total assets........................................... 279,161 283,059
Current portion of long-term debt...................... - -
Long-term obligations.................................. 7,920 22,836
Liabilities subject to compromise...................... 485,296 490,470
Stockholders' equity (deficit)......................... (278,975) (269,853)
Store Count:
Number of Stores Open at the End of Period ............ 307 319
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CM Holdings, Inc.
Oct. 1 1993
Fiscal Year Ended (3) (Inception) to
INCOME STATEMENT DATA: Mar 1, Mar 2, Feb 25, Feb. 26,
------------------------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Audited)
<S> <C> <C> <C> <C>
Sales $ 396,502 $ 455,652 $ 459,077 $ 206,246
Costs and Expenses:
Cost of sales.......................................... 263,072 302,481 289,887 123,227
Selling, general and administrative expenses........... 117,558 135,441 128,158 53,249
Depreciation and amortization.......................... 23,290 26,570 21,146 7,465
Write-down of long-lived assets........................ 6,523 202,869 - -
Expiration of put agreements........................... - 3,413 - -
Restructuring charge................................... - 5,238 - 8,330
----------- ----------- ---------- ----------
Total costs and expenses............................... 410,443 676,012 439,191 192,271
----------- ----------- ---------- ----------
Income (loss) before interest and other expenses,
reorganization items and income taxes.................. (13,941) (220,360) 19,886 13,975
Interest and other expenses, net....................... 18,578 43,297 35,681 12,241
----------- ----------- ---------- ----------
Loss before reorganization items and income taxes...... (32,519) (263,657) (15,795) 1,734
Reorganization expense................................. 31,845 - - -
----------- ----------- ---------- ----------
(Loss) income before income tax expense (benefit)...... (64,364) (263,657) (15,795) 1,734
Provision (benefit) for income taxes................... - 474 3,070 2,678
----------- ----------- ---------- ----------
Net loss ............................................... $ (64,364) $ (264,131) $ (18,865) $ (944)
=========== =========== ========== ==========
BALANCE SHEET DATA: (END OF PERIOD)
Working capital........................................ $ 125,329 $ (167,129) $ 58,127 $ 30,448
Total assets........................................... 258,648 308,670 551,370 545,484
Current portion of long-term debt...................... - 285,878 12,565 2,555
Long-term obligations.................................. 7,407 179,118 381,382 342,202
Liabilities subject to compromise...................... 484,811 - - -
Stockholders' equity (deficit)......................... (268,304) (203,940) 56,778 75,643
Store Count:
Number of Stores Open at the End of Period ............ 315 388 401 392
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Predecessor Entity (1)
30 Days
Ended Fiscal Year Ended (3)
INCOME STATEMENT DATA: Sept 30,(2) Aug 31, Aug 31,
-----------------------------------------------
1993 1993 1992
---- ---- ----
(Unaudited) (Audited) (Audited)
<S> <C> <C> <C>
Sales $ 28,958 $ 421,467 $ 366,098
Costs and Expenses:
Cost of sales.......................................... 17,737 256,773 219,107
Selling, general and administrative expenses........... 9,611 116,174 102,561
Depreciation and amortization.......................... 1,135 13,110 9,180
Write-down of long-lived assets........................ - - -
Expiration of put agreements........................... - - -
Restructuring charge................................... - - -
---------- ---------- ----------
Total costs and expenses............................... 28,483 386,057 330,848
---------- ---------- ----------
Income before interest and other expenses
and income taxes....................................... 475 35,410 35,250
Interest and other expenses, net....................... 281 3,232 794
---------- ---------- ----------
Income before income tax expense (benefit)............. 194 32,178 34,456
Provision for income taxes............................. 34 10,949 11,724
---------- ---------- ----------
Net income ............................................ $ 160 $ 21,229 $ 22,732
========== ========== ==========
BALANCE SHEET DATA: (END OF PERIOD)
Working capital........................................ $ 73,329 $ 73,263 $ 73,121
Total assets........................................... 236,052 227,720 202,149
Current portion of long-term debt...................... 9,202 578 523
Long-term obligations.................................. 25,802 25,786 22,445
Liabilities subject to compromise...................... - - -
Stockholders' equity .................................. 130,578 130,418 109,750
Store Count:
Number of Stores Open at the End of Period ............ 366 365 324
<FN>
(1) The financial statements for the predecessor entity relate to Camelot
Music, Inc. which was acquired by CM Holdings, Inc. effective September 30,
1993.
(2) In the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been recorded in the interim
financial statements presented. The Company's business is seasonal, and
therefore, the interim results are not indicative of the results for a full
year.
(3) Each fiscal year consisted of 52 weeks except the fiscal year ended March
2, 1996 which consisted of 53 weeks.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's fiscal year ends on the Saturday closest to February 28
of each year. References herein to "Interim 1997" and "Interim 1996" relate to
the 39 weeks ended November 29, 1997 and November 30, 1996, respectively.
References herein to "Fiscal 1996", "Fiscal 1995" and "Fiscal 1994" relate to
the 52 weeks ended March 1, 1997, the 53 weeks ended March 2, 1996 and the 52
weeks ended February 25, 1995, respectively.
In connection with the consummation of the Plan of Reorganization, the
Company will adopt "fresh-start" accounting in accordance with AICPA Statement
of Position 90-7, "Financial Reporting by Entities Under the Bankruptcy Code"
effective for financial reporting purposes on January 31, 1998. Financial
statements for periods subsequent to the Effective Date are not yet available
for inclusion in this Registration Statement. Therefore, the Company has
provided unaudited pro forma financial statements incorporating fresh-start
accounting as of November 29, 1997 and for the thirty-nine week period ended
November 29, 1997 and for the fifty-two week period ended March 1, 1997. See
pages F-25 through F-29.
As a result of the implementation of fresh-start accounting, the financial
statements of the Company after consummation of the Plan of Reorganization are
not comparable to the Company's financial statements for prior periods. The pro
forma effect of the consummation of the Plan of Reorganization, including the
gain on extinguishment of prepetition debt of approximately $479.7 million and
adjustments to record assets at their estimated fair values, was an overall
reduction in total assets of approximately $13.9 million, a reduction in total
liabilities of approximately $487.3 million and an improvement in stockholders'
equity of approximately $473.4 million.
The market for pre-recorded music and related products continues to be
competitive. Consumers have numerous options through which to purchase these
products including chain retailers specializing in pre-recorded music, consumer
electronic superstores, non-mall multimedia superstores, discount stores,
grocery, convenience and drug stores, direct mail programs via telephone, the
Internet or television and local music retailers. The low prices offered by many
of these outlets created price competition that, together with the lack of hit
releases in those periods, adversely impacted the Company's revenues and results
of operations in 1995 and 1996. The Company believes that this price competition
eased somewhat in 1997 because, like the Company, many other pre-recorded music
retailers closed underperforming stores or downsized their operations.
Additionally, several major suppliers have begun to enforce MAP programs. See
"Business--Competition."
The decrease in cash flow from operations caused in part by the
competitive environment described above caused the Company to increase its
borrowings under the Credit Agreement to maintain a level of inventory
sufficient to operate its business. At the Petition Date, the principal amount
of the Company's outstanding borrowings under the Credit Agreement totalled
$285.8 million. In connection with its emergence from bankruptcy, the Company
issued approximately 9.8 million shares of Common Stock in satisfaction of
substantially all of its prepetition debt and other liabilities. In addition,
the Company expended approximately $8.6 million for administrative claims upon
emergence and expects to fully satisfy (within 6 years of the Effective Date)
priority tax claims of between $1.6 million and $7.9 million. See "Legal
Proceedings."
RESULTS OF OPERATIONS
Interim 1997 Compared to Interim 1996
Sales. Total sales for Interim 1997 decreased 1.5% to $260.3 million
compared to $264.4 million for Interim 1996. The decrease in total sales for
Interim 1997 was primarily due to the net decrease in the store count which was
partially offset by comparable store sales increases. Comparable store sales
increased 6% as a result of a stronger new release schedule and retail price
increases on selected catalog titles partly due to decreased competition in the
marketplace. The Company operated 307 stores at the end of Interim 1997 compared
to 319 stores at the end of Interim 1996.
Profit Margin. Gross profit as a percentage of sales improved to 34.3% in
Interim 1997 from 34.0% in Interim 1996. The increase in gross margin was the
result of increases in retail selling prices and the greater weighting of higher
margin catalog sales, offset in part by lower margins earned on non-music
products such as laser and software products that the Company was in the process
of discontinuing. The Company recorded a charge of $2.0 million in Interim 1997
for the discontinuance of product lines.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $8.2 million to $80.6 million in Interim 1997
from $88.8 million in Interim 1996. Selling, general and administrative
expenses, as a percentage of sales, were 30.9 % for Interim 1997 compared to
33.6% in Interim 1996. The improvement in expense ratio was principally due to
operating efficiencies such as temporary rent concessions which have reduced
store occupancy costs as a percentage of sales, and the replacement of the
expensive manual "punch card" version of the repeat customer reward program with
a more limited, cost effective automated program.
Depreciation and Amortization. Depreciation and amortization decreased $0.6
million to $16.8 million in Interim 1997 from $17.4 million in Interim 1996. The
reduction was primarily attributable to store closings.
As a result of the Company's financial performance and the bankruptcy
proceedings, management reevaluated the carrying amount of its property, plant
and equipment during Interim 1996. Based on this evaluation, the Company
determined that certain property was impaired, resulting in a write-down of $4.9
million to estimated fair value.
Interest and other Income (Expense). In Interim 1997 the Company's net
interest and other income was $3.4 million compared to an expense of $18.1
million in Interim 1996. Net interest and other income (expense) includes the
Company's financing charges, offset by other non-operating income earned by the
Company. As required by bankruptcy law, the Company ceased accruing interest on
all prepetition obligations as of the Petition Date. As a result, financing
costs decreased $18.5 million to $0.5 million in Interim 1997, compared to $19.0
million in Interim 1996. This expense was offset by income recorded as a result
of a reversal of $3.0 million in frequent buyer reward redemption reserves no
longer required.
Reorganization Expense. Reorganization expense, net of interest income,
decreased $20.5 million to $6.1 million in Interim 1997 compared to $26.6
million in Interim 1996. During Interim 1997, the reorganization expense related
principally to professional fees incurred in connection with the bankruptcy
proceedings. During Interim 1996, the reorganization expense primarily reflected
a provision for store closings (including related lease rejection damage claims)
as well as professional fees.
Income Taxes. There was no income tax provision (benefit) recorded in
either Interim 1997 or Interim 1996. Differences between the effective tax rate
and the statutory tax rate are due to the recording of valuation allowances
against deferred tax assets.
Fiscal 1996 Compared to Fiscal 1995
Sales. Sales in Fiscal 1996 decreased 13.0% to $396.5 million from
$455.7 million in Fiscal 1995. The decrease in total sales was primarily due to
the closing of 73 stores in Fiscal 1996, a decrease in comparable store sales of
3.2% and the impact of one less week in Fiscal 1996. Comparable store sales
declined in Fiscal 1996 due to the lack of strong product releases and the
challenging retail sales environment.
Profit Margin. Gross profit as a percentage of sales remained constant
at 33.6%. The Company was unable to increase its gross margin percentage year
over year due to significant price competition and lack of strong product
releases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $17.8 million to $117.6 million in Fiscal
1996 from $135.4 million in Fiscal 1995. Selling, general and administrative
expenses, as a percentage of sales, were 29.6% and 29.7%, respectively. The
decrease was principally due to the reduction in the number of stores operated
by the Company from 388 to 315 and the implementation of programs to reduce
corporate and store operating costs such as payroll, supplies and other
controllable expenses
Depreciation and Amortization. Depreciation and amortization decreased
$3.3 million to $23.3 million in Fiscal 1996 from $26.6 million in Fiscal 1995.
The decrease was a result of store closings.
Goodwill Write-Downs and Adoption of New Accounting Standards. During
Fiscal 1995, the Company adopted Financial Accounting Standards Board Statement
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("Statement 121"), issued in March 1995.
In connection with the adoption of Statement 121, the Company recorded
an impaired asset write-down of $202.9 million for Fiscal 1995, including $201.1
million associated with the write-down of goodwill, principally related to the
1993 Camelot Acquisition. Additional impaired asset write-downs of $6.5 million
were recorded in Fiscal 1996.
Management identified significant adverse changes in the Company's
business climate late in the third quarter of Fiscal 1995 that persisted into
Fiscal 1996. These changes were largely due to increasing competition which led
to operating results and projections that were less than expected. As a result,
management reviewed the carrying values of long-lived assets, primarily goodwill
and property for recoverability and possible impairment, particularly in light
of sales declines that began in 1995 and continued during 1996. These sales
declines resulted from general declines in customer traffic in malls, the
increase in non-mall, high-volume, low-priced superstores and the lack of strong
music product releases. While the Company's mall-based music stores reacted with
increased promotional pricing, the Company's higher cost structure relative to
these non-mall superstores, which was principally related to occupancy costs,
limited the Company's ability to compete effectively.
Other Expenses. In Fiscal 1995, the Company incurred a charge of $3.4
million for the expiration of put agreements, which had been issued in November
1993.
Additionally, due to the increasingly competitive retail environment,
the Company incurred a restructuring charge of $5.2 million, primarily related
to store closings prior to the Petition Date.
Reorganization expense, net of interest income, was $31.8 million in Fiscal
1996 as a result of the bankruptcy proceedings, including professional fees of
$4.9 million, the write-off of financing fees from the Camelot Acquisition of
$16.0 million, a provision for store closing costs of $4.9 million and related
lease rejection claims of $7.6 million.
Interest and Other Expenses (Net). In connection with the bankruptcy
proceedings, the Company did not record interest on its prepetition debt
subsequent to the Petition Date. After the Petition Date, borrowings under the
DIP Agreement were significantly lower than the prepetition debt obligations.
Therefore, the Company's financing costs in Fiscal 1996 were $19.3 million,
compared to $41.8 million in Fiscal 1995. Other expenses included the net costs
of corporate owned life insurance programs of $1.3 million in Fiscal 1996 and
$1.5 million in Fiscal 1995. The Fiscal 1996 expenses also reflect the receipt
of $2 million upon the termination of a business development agreement.
Fiscal 1995 Compared to Fiscal 1994
Sales. Total sales in Fiscal 1995 decreased 0.7% to $455.7 million
compared to $459.1 for Fiscal 1994. The decrease in total sales was due to the
closing of 13 stores and a 5.5% decline in comparable store sales, partially
offset by an additional week in Fiscal 1995.
Comparable store sales decreased in Fiscal 1995 due to increased
competition in the marketplace from new non-mall competitors, lower retail
prices in response to competition and a general downturn in music industry
overall unit sales as a result of the lack of significant new releases.
Profit Margin. Gross profit as a percentage of sales decreased to
33.6% in Fiscal 1995 from 36.9% in Fiscal 1994. Increasing competition in the
marketplace reduced the Company's ability to raise prices and diminished gross
margins. Also, the shift in sales mix from higher margin pre-recorded
audiocassettes to lower margin CDs, increased inventory shrink, and increased
penalties incurred because of an increase in product returned to vendors, all
contributed to declining gross profit percentages.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $7.2 million to $135.4 million in Fiscal
1995 from $128.2 million in Fiscal 1994. As a percentage of sales, such expenses
increased to 29.7% from 27.9%. The increase was primarily the result of
increased store occupancy costs due to increased charges and payroll costs
associated with strengthening corporate management and the impact of one extra
week in Fiscal 1995.
Depreciation and Amortization. Depreciation and amortization increased
$5.5 million to $26.6 million in Fiscal 1995 from $21.1 million in Fiscal 1994.
The increase was due to the impact of depreciation on significant store
expansion and remodeling projects completed in Fiscal 1994 and Fiscal 1995.
Goodwill Write-Down. During Fiscal 1995, the Company experienced
adverse business conditions resulting principally from increased competition in
its marketplace, which led to diminished operating results and downward
revisions to forecasted future results. Accordingly, as described above,
management determined that certain long-lived assets were impaired and wrote
those assets down by $202.9 million.
Other Expenses. In Fiscal 1995, the Company incurred a restructuring
charge of $5.2 million. Financing costs in Fiscal 1995 increased to $41.8
million, from $34.2 million in Fiscal 1994, principally due to increased
borrowings by the Company in Fiscal 1995 under the Credit Agreement. Other
expenses included the net cost of corporate owned life insurance programs of
$1.5 million in Fiscal 1995 and Fiscal 1994.
Liquidity and Capital Resources
Prior to the Petition Date, the Company's primary sources of funds
were cash flows from operations and borrowings under the Credit Agreement. The
Company's cash needs fluctuate during the course of the year. During the first
three quarters, cash flow typically is consumed by payments to suppliers and
store maintenance or renovation expenditures. Historically, the Company relied
on borrowings under the Credit Agreement to provide it with liquidity to
purchase inventory for sale during the December holiday season, after which the
Company's cash position provided sufficient cash to repay all such outstanding
borrowings.
During the bankruptcy proceedings, the Company entered into the DIP
Agreement with a syndicate of financial institutions that provided maximum
availability of $35 million. Funds borrowed under the DIP Agreement, together
with cash provided by operations, were sufficient to finance the Company's
operating needs during the bankruptcy proceedings.
The Company's obligations under the Credit Agreement were fully
satisfied through distributions of Common Stock under the Plan of
Reorganization. The DIP Agreement was terminated in connection with the
consummation of the Plan of Reorganization. At such time, there were no
outstanding borrowings thereunder.
On the Effective Date, the Company entered into the New Working
Capital Facility with a syndicate of financial institutions providing advances
of up to $50 million during peak periods and $35 million during non-peak periods
(although such amounts will likely be reduced to $35 million and $20 million,
respectively, if the Wall Acquisition is not consummated), bearing interest at
floating rates and maturing on the fourth anniversary of the Effective Date. The
aggregate availability under the New Working Capital Facility is limited to a
borrowing base equal to 35% of inventory during peak periods and 30% of
inventory during non-peak periods. Funds advanced pursuant to the New Working
Capital Facility will be collateralized by a first priority lien on
substantially all assets of the Company. The Company is subject to certain
negative covenants under the New Working Capital Facility, including
restrictions on (i) creation of indebtedness, liens, or contingent obligations,
(ii) mergers or fundamental change in the business of the Company, (iii)
transfers of property, business or assets, (iv) extensions of credit or capital
contributions or investments (v) capital expenditures, (vi) minimum consolidated
EBITDA levels, (vii) dividends, and other customary covenants.
As of the Effective Date the Company had cash and working capital of
approximately $60 million and $120 million, respectively. The Company's primary
sources of funds are expected to be cash from operations supplemented by
borrowings under the New Working Capital Facility. The Company's primary ongoing
cash requirements will be to finance working capital, primarily inventory
purchases, and to make capital expenditures for store and information system
improvements. Management believes that cash flows from its restructured
operations, anticipated normalized trade terms from major suppliers and
available working capital, supplemented by the borrowings under the New Working
Capital Facility, will allow the Company to meet its working capital and capital
expenditure needs in the fiscal year ending February 27, 1999 ("Fiscal 1998") as
well as to fund its acquisition of The Wall.
The Company's capital expenditures for Fiscal 1996 were $4.3 million,
which were primarily attributable to store remodeling, maintenance and
expansions. The Company currently anticipates that capital expenditures
aggregating approximately $10.1 million will be incurred in the fiscal year
ending February 28, 1998, of which $4.2 million relates primarily to store
remodeling, maintenance and expansions, and the balance of which relates to
enhanced information systems (including anticipated integration of The Wall's
operations). Management has implemented a plan to reconfigure the Company's
information systems to address the Year 2000 problems, and believes that the
costs associated with correcting the remaining issues will total approximately
$1 million to be expended over the next two years.
Recently Issued Accounting Pronouncements
Financial Accounting Standards Board Statement No. 128 "Earnings per
Share" ("Statement No. 128"), issued in February 1997 and effective for fiscal
years ending after December 15, 1997, establishes and simplifies standards for
computing and presenting earnings per share ("EPS"). The Company will comply
with Statement No. 128 as it begins to report earnings per share in the future.
Financial Accounting Standards Board Statement No. 130 "Reporting
Comprehensive Income" ("Statement No. 130"), issued in June 1997 and effective
for fiscal years ending after December 15, 1997, establishes standards for
reporting and display of the total net income and the components of all other
nonowner changes in equity, or comprehensive income (loss) in the statement of
operations, in a separate statement of comprehensive income (loss) or within the
statement of changes of stockholder's equity. The Company has had no significant
items of other comprehensive income.
Inflation
The Company believes that the moderate inflation environment in the
Company's markets in the past several years has not had a material impact on the
Company's revenues or results of operations. Borrowings under the New Working
Capital Facility, however, will be at variable rates of interest and increases
in such interest rates, if not mitigated by other Company actions, could
adversely impact the Company's results of operations.
ITEM 3. PROPERTIES
Retail Stores
As of January 31, 1998, the Company operated 305 leased retail music
stores. Lease terms generally range between two to ten years. Approximately 296
of these stores are located in regional shopping malls and the balance are
located in strip centers or free standing buildings. The Company's store sizes
and formats vary depending on the demographics and competitive conditions in
each location, as well as on site access and visibility, traffic patterns and
the availability of real estate. The large majority of the Company's stores are
less than 5,000 square feet in size, the average being 3,841 square feet,
although the Company does have nine stand-alone "super stores." The Company
believes that none of its store leases is individually material to the Company.
Substantially all of the Company's leases provide for the payment of
(i) fixed monthly rentals, (ii) a percentage of gross revenues of the store in
excess of specified sales levels, and (iii) operating expenses for maintenance,
property taxes, insurance and utilities. The following table lists the number of
leases due to expire in each of the fiscal years shown:
YEAR LEASES YEAR LEASES
1998 28 2002 39
1999 37 2003 29
2000 26 2004 35
2001 41 2005 & Beyond 70
The Company expects that as these leases expire, it will be able to
either obtain lease renewals, if desired, or to obtain leases for other suitable
locations. No assurances can be given, however, that such renewals or new leases
will be on terms and conditions, including rental rates, comparable to those of
the expiring leases. Included as leases expiring in Fiscal 1998 are several
leases that have expired pursuant to their terms but that are occupied by the
Company on a month to month basis and are under negotiation for renewal.
The Company's stores are located in 34 states, with a concentration in
the Midwestern and Southern states. The following table lists the number of
stores by state.
STATE LEASES STATE LEASES
Texas 34 California 9
Florida 33 South Carolina 9
Ohio 26 Indiana 8
North Carolina 18 Alabama 8
Georgia 14 Michigan 8
Pennsylvania 14 Kentucky 7
Tennessee 13 Virginia 7
Missouri 11 Oklahoma 6
Washington 11 Other states - each 59
fewer than 6 stores
Illinois 10
Corporate Offices and Distribution Center
The Company owns its corporate office facility and distribution center
located in North Canton, Ohio. The facility consists of approximately 228,000
square feet of distribution and 68,000 square feet of office space.
The Company-owned facilities have been either newly constructed or
substantially upgraded within the past six years and are maintained on a
continuing basis. The Company believes that the facilities are adequate for the
Company's ongoing operating needs. Further, the Company estimates that its
distribution facility is large enough to support approximately 1,000 retail
stores. The building is located on 21 acres of land of which approximately 10
acres are currently unused and available for future expansion.
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following chart sets forth the name and address of any person or
group known to CMH to be a beneficial owner as of the Effective Date of more
than five percent of the Common Stock, the number of shares held by such
beneficial owner, and the percentage of the total shares of the Common Stock
owned by such beneficial owner. The information contained in the chart is based
on the distributions of Common Stock made by the Company on the Effective Date
in connection with the consummation of the Plan of Reorganization.
NAME AND ADDRESS AMOUNT PERCENT OF
OWNED CLASS
Van Kampen-Merritt Prime Rate Income Trust 1,994,718 20.28%
1 Parkview Plaza
Oakbrook Terrace, Illinois
60180
Fernwood Associates, L.P. 1,549,595 15.76%
667 Madison Avenue
20th Floor
New York, New York 10021
Merrill Lynch, Pierce, Fenner & Smith 1,466,362 14.91%
Incorporated
Debt & Equity Market Group
World Financial Center
North Tower
New York, New York 10281-1307
Oaktree Capital Management, LLC 961,740 8.76%
(in its capacity as general partner and
investment manager of OCM Opportunities
Fund, L.P. and Columbia/HCA Master
Retirement Trust (separate account I))
550 South Hope Street
22nd Floor
Los Angeles, California 90071
First Union National Bank 652,952 6.64%
301 South Cole Street BC-5
Charlotte, North Carolina 28258
Yale University 549,944 5.59%
c/o Daystar Partners LLC
411 Theodore Fremd Avenue
Rye, New York 10580
The Company believes that the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
Security Ownership of Management
The following table sets forth the number of shares of Common Stock
that are deemed to be beneficially owned by the Directors of CMH, the Named
Executive Officers (as defined below) and all Directors and executive officers
of CMH as a group. The Company is reporting beneficial ownership of shares
subject to options assuming that the per share trading price of the Company's
Common Stock exceeds certain thresholds which will cause 50% of the options
issued to become immediately exercisable.
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP (1) CLASS
- ---- ------------------------ ----------
James E. Bonk 55,000 (2)
Jack K. Rogers 40,000 (2)
Lee Ann Thorn 20,000 (2)
Lewis S. Garrett 20,000 (2)
Charles R. Rinehimer III 20,000 (2)
All Directors and executive 155,000 1.53%
officers as a group
- --------------
(1) All shares reported as beneficially owned are subject to options issued on
the Effective Date which may be exercisable within 60 days if the per share
trading price of the Common Stock exceeds certain thresholds. See
"Executive Compensation."
(2) Amount is less than one percent (1%).
The persons named in the table have sole voting and investment powers
with respect to all shares of Common Stock shown as beneficially owned by them.
Changes in Control
The Company is not aware of any arrangements the operation of which
may at a subsequent date result in a change in control of CMH.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers and Directors
The following table sets forth information regarding those persons
currently serving as the executive officers and directors of CMH. Certain
biographical information regarding each of such persons is provided below the
table.
Name Age Position
- ---- --- --------
James E. Bonk 50 President and Chief Executive Officer,
Chairman of the Board of Directors
Jack K. Rogers 48 Executive Vice President, Chief Operating
Officer, Secretary, and Director
George R. Zoffinger 50 Director
Stephen H. Baum 56 Director
Herbert J. Marks 52 Director
Matthew S. Barrett 38 Director
Lewis S. Garrett 48 Vice President of Buying and Merchandising
Charles R. Rinehimer III 50 Vice President of Stores
Lee Ann Thorn 37 Chief Financial Officer, Treasurer
JAMES E. BONK, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE
BOARD OF DIRECTORS, has served as President, Chief Executive Officer and
Chairman of the Board of CMH since January 1998, and as President, Chief
Executive Officer and Director of Camelot since November 1993. Prior to that
time he served as Executive Vice President, Chief Operating Officer and Director
of Camelot since June 1986. Mr. Bonk joined the Company as a store manager in
1968 and held various positions of increasing responsibility from 1968 through
1986.
JACK K. ROGERS, EXECUTIVE VICE PRESIDENT, SECRETARY, CHIEF OPERATING
OFFICER AND DIRECTOR, has served as Executive Vice President, Chief Operating
Officer and a Director of CMH since January 1998. He previously served Camelot
as Executive Vice President and Chief Financial Officer from November 1993 to
January 1998 and as Vice President Finance and Chief Financial Officer and
Director of Camelot from June 1988 to November 1993.
GEORGE R. ZOFFINGER, DIRECTOR, has served as a Director of CMH since
January 1998. He has been President and Chief Executive Officer of Value
Property Trust since 1995. Mr. Zoffinger served as Chairman of the Board of
CoreStates New Jersey National Bank from 1994 through its merger into CoreStates
Bank, N.A. in 1996. From 1991 through 1994, he served as President and Chief
Executive Officer of Constellation Bancorp and its principal subsidiary,
Constellation Bank, N.A.
STEPHEN H. BAUM, DIRECTOR, has served as a Director of CMH since
January 1998. He is a principal of The Mead Point Group, an advisor to senior
management of service enterprises. Mr. Baum is chief judge for the Connecticut
Award for Excellence and was a senior examiner with the Malcolm Baldridge
National Quality Award for several years. He co-founded The Mead Point Group in
1991. Prior to founding The Mead Point Group, Mr. Baum was a partner for 10
years with Booz, Allen & Hamilton, where he led the consumer services practice.
HERBERT J. MARKS, DIRECTOR, has served as a Director of CMH since
January 1998. He has served RBC Dominion Securities as Vice President and
Manager of the Merger Arbitrage Group since 1997. He has also served as Managing
Director of Tribeca Investments, L.L.C. (a subsidiary of the Travelers Group),
Director of Research for Kellner Dileo & Co. and Senior Vice President and
Manager of the Risk Arbitrage Department of Kidder Peabody & Co.
MATTHEW S. BARRETT, DIRECTOR, has served as a Director of CMH since
January 1998. He has served as Managing Director of Oaktree Capital Management,
LLC since April 1995. He previously served as a Senior Vice President of Trust
Company of the West, Asset Management from January 1991 to March 1995. Mr.
Barrett currently serves on the boards of directors of Acorn Products, Inc. and
Biocyphert Laboratories, Inc.
LEWIS S. GARRETT, VICE PRESIDENT OF BUYING AND MERCHANDISING, has
served as Vice President of Buying and Merchandising of CMH since January 1998.
He joined Camelot in 1972. Since 1986 he has served as Vice President of Buying
and Merchandising of Camelot, supervising all of the Company's buying and
allocation functions. In addition, Mr. Garrett is the Chairman of The National
Association of Recording Merchandisers Retailers' Advisory Committee.
CHARLES R. RINEHIMER III, VICE PRESIDENT OF STORES, has served as Vice
President of Stores of CMH since January 1998 and Vice President of Stores of
Camelot since May 1994. Previously, Mr. Rinehimer served as Vice President of
Store Operations for American Greetings (Summit Corporation) from 1989 to May
1994.
LEE ANN THORN, CHIEF FINANCIAL OFFICER AND TREASURER, has served as
Chief Financial Officer and Treasurer of CMH and Camelot since January 1998.
Prior to that time she served as Vice President of Finance and Treasurer of
Camelot from November 1993 to January 1998, and also served as Director of Taxes
and Payroll for Camelot from May 1988 to November 1993.
In accordance with Section 8.02 of the Plan of Reorganization, four
(4) members of the Board of Directors of CMH (Messrs. Zoffinger, Baum, Marks and
Barrett) were appointed by the Camelot Acquisition Lenders in their capacity as
the holders of a majority of the Common Stock. A fifth member of the Board of
Directors, also appointed pursuant to such arrangement, has resigned, and the
Company expects that the vacancy created thereby will be filled by the Board of
Directors as soon as possible.
The Directors of the Company are elected annually for one year terms.
ITEM 6. EXECUTIVE COMPENSATION
Directors' Compensation
Directors of CMH who are not also employees or officers of CMH will be
provided an annual retainer of $12,000, which will be paid in quarterly
installments. In addition, Directors who are not also employees or officers of
CMH will receive $1,000 per board meeting and $500 per committee meeting, as
well as expense reimbursement. Directors who are also employees or officers of
CMH will receive no additional compensation for their services as Directors.
Officers' Compensation
The compensation discussion that follows has been prepared based on
the actual compensation and benefits earned during Fiscal 1996, as well as
various employee retention and compensation arrangements which were entered into
in connection with the bankruptcy proceedings.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by the Chief
Executive Officer and the other four most highly compensated executive officers
of CMH (collectively, the "Named Executive Officers") during Fiscal 1996.
<TABLE>
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION (2)
- ------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
James E. Bonk 1996 $316,680 $200,000 $ 2,802
President and Chief
Executive Officer
Jack K. Rogers 1996 $208,360 $137,000 $ 2,708
Executive Vice
President, Chief
Operating Officer and
Secretary
Lee Ann Thorn 1996 $135,000 $100,000 $ 2,625
Chief Financial Officer
and Treasurer
Lewis S. Garrett 1996 $165,000 $102,500 $ 2,631
Vice President, Buying
and Merchandising
Charles R. Rinehimer III 1996 $165,000 $102,500 $ 2,625
Vice President, Stores
<FN>
- ------------
(1) Represents (a) a contractual bonus of $25,000 paid to each of James E.
Bonk, Jack K. Rogers and Lee Ann Thorn, (b) a contractual bonus of $20,000
paid to each of Lewis S. Garrett and Charles R. Rinehimer III and (c)
incentive bonuses earned by Messrs. Bonk and Rogers, Ms. Thorn and Messrs.
Garrett and Rinehimer of $175,000, $112,500, $75,000, $82,500 and $82,500,
respectively.
(2) Represents employer contributions to the Company's defined contribution
benefit plan on behalf of the Named Executive Officers.
</FN>
</TABLE>
Severance and Employment Arrangements
The Company maintains written severance agreements with Mr. Bonk and
eight other members of senior management, including the other Named Executive
Officers. The severance arrangements with Mr. Bonk are a part of his employment
contract, described below. The contracts with the other eight members of senior
management provide severance benefits in the event the executive is terminated
without cause (as defined in such agreements). The benefits under these latter
contracts are for 12 months of salary continuation subject to mitigation, except
that the contract with Mr. Rogers provides for severance benefits of eighteen
months with only the final six months subject to mitigation.
As of the Effective Date, Camelot amended and extended its employment
agreement with Mr. Bonk. Under the terms of the agreement, which expires on
December 31, 2000, Mr. Bonk will receive a base salary of at least $400,000 per
year and is entitled to participate in the Company's option and bonus plans.
This agreement also provides Mr. Bonk with the following severance payments and
continued benefits: (i) a lump sum payment of one year's base salary (in the
event of Mr. Bonk's death or disability or upon the failure of the Company to
renew the agreement for an additional three-year term); and (ii) monthly base
salary payments and benefits continuation over the greater of (a) two years or
(b) the balance of the term of the agreement if the Company terminates him
without cause or in the event of constructive discharge (as defined in such
employment agreement) including a change of control of CMH. These payments are
subject to mitigation, but only for periods beyond 18 months in the case of the
salary payments. The agreement also contains a covenant not to compete with the
business of Camelot for a specified period of time in the event of termination.
Stock Option Plan
The Plan of Reorganization provided for the adoption of the Camelot
Music Holdings, Inc. 1998 Stock Option Plan (the "Option Plan") The Option Plan
became effective as of the Effective Date and is administered by the
Compensation Committee of the Board of Directors (or such other committee of the
Board of Directors as it may designate; hereinafter, the "Committee"). Executive
and other key salaried employees, including officers, and directors (whether or
not also employees) of CMH and its subsidiaries, including Camelot, are eligible
to receive stock option grants under the Option Plan, as described below.
Options granted under the Option Plan may be either "incentive stock options"
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or stock options other than ISOs. Subject to
certain limitations prescribed by the Option Plan, the Board of Directors may
amend, alter, suspend or terminate the Option Plan, and the Committee may amend
options outstanding under the Option Plan.
As of the Effective Date, 7.5% of the total issued and outstanding shares
of Common Stock were reserved for issuance upon exercise of stock options under
the Option Plan. As further shares of Common Stock are issued in respect of the
ongoing bankruptcy claims reconciliation process, the number of shares reserved
for the Option Plan will be adjusted so that at all times the number of shares
of Common Stock reserved for issuance upon exercise of options will equal 7.5%
of the total shares of Common Stock outstanding on a fully diluted basis. In
addition, the Option Plan provides that the Committee shall adjust the shares
available under the Option Plan and subject to outstanding options to preserve
the benefits intended under the Option Plan or with respect to any options upon
certain changes in the outstanding Common Stock, such as by reason of a stock
dividend or stock split or a recapitalization, reorganization, merger, issuance
of rights to purchase Common Stock or other securities of the Company (other
than under the Option Plan), or an extraordinary dividend, spin-off, liquidation
or other substantial distribution of Company assets. The Option Plan provides
that in the event of a change in control of the Company, as defined in the Plan
of Reorganization, all outstanding options shall become fully exercisable, and
the Committee shall have discretion, either by the terms of the option or by a
resolution adopted prior to the occurrence of such event, to substitute for
Common Stock covered by any outstanding options, cash or other stock or
securities or other consideration issuable by another party to, or receivable by
Company shareholders in connection with, such transaction, adjusted for the
exercise price of the option and as otherwise provided in the Option Plan.
Pursuant to the Option Plan, as of the Effective Date, options to
purchase 689,000 shares of Common Stock (representing approximately 82% of the
total shares of Common Stock reserved for issuance under the Option Plan) were
granted to 80 members of Camelot's management with an exercise price of $20.75
per share. Both the number of shares subject to such options granted on the
Effective Date and the exercise price thereof are subject to adjustment as
further shares of Common Stock are issued in respect of the ongoing bankruptcy
claims reconciliation process, and in accordance with the Option Plan's
provisions regarding changes in capital of the Company, referred to above. All
such options granted on the Effective Date are intended to qualify as ISOs and
will become exercisable no later than four years from the Effective Date;
however, up to 50% of these options may become exercisable prior to the second
anniversary of the Effective Date, with the balance becoming exercisable at any
time thereafter, if the fair market value of the Common Stock exceeds certain
thresholds established at the time such options were granted. On the Effective
Date, Mr. Bonk and Mr. Rogers were granted options under the Option Plan to
purchase 110,000 and 80,000 shares of Common Stock, respectively, and Messrs.
Garrett and Rinehimer and Ms. Thorn were each granted options under the Option
Plan to purchase 40,000 shares of Common Stock. In the aggregate, the number of
options granted to these five senior executives represents 45% of the total
number of shares for which options were granted as of the Effective Date under
the Option Plan.
Options to purchase the balance of the shares of Common Stock reserved
under the Option Plan may be granted by the Committee subsequent to the
Effective Date, and such options will have exercise prices and shall be
exercisable at such times (not extending beyond 10 years from the grant date of
the option) and subject to such conditions as determined by the Committee, in
accordance with the Option Plan, at the time such options are granted. However,
ISOs may not be granted under the Plan after the expiration of 10 years
following the Effective Date, to the extent required by the Code, and may not
have an exercise price less than 100% of the fair market value of the stock
covered thereby on the ISO's date of grant. Options granted under the Option
Plan generally may not be exercised after 10 years from the date granted and are
subject to earlier termination upon termination of the optionee's employment
with CMH or its subsidiaries under certain circumstances specified in the Option
Plan and the optionee's option. The Option Plan provides that the exercise price
of an option may be paid in any manner permitted by applicable law and
prescribed by the Committee in the option, including, in the Committee's
discretion, a broker-assisted exercise program. Options granted as of the
Effective Date provide that the option exercise price may be paid by personal
check, bank draft or money order; through delivery of a full recourse promissory
note with the consent of, and upon such payment and other terms and conditions
as prescribed by, the Committee; or using such a broker-assisted exercise
program.
Stock Options and Stock Appreciation Rights
No stock options or stock appreciation rights were granted or
exercised in Fiscal 1996. The following table sets forth all options held by the
Named Executive Officers at the end of Fiscal 1996 under CMH's prepetition stock
option plan. All of such options related to shares of Class C CMH common stock
and were unexercisable at such time. Pursuant to the terms of the Plan of
Reorganization, all shares of Class C CMH common stock were cancelled on the
Effective Date.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
NAME OPTIONS/SARS AT FISCAL YEAR-END
James E. Bonk 12,500
Jack K. Rogers 5,000
Lee Ann Thorn 900
Lewis S. Garrett 5,000
Charles R. Rinehimer III 0
Compensation Committee Interlocks and Insider Participation
Shortly before December 12, 1997, the date on which the Plan of
Reorganization was confirmed by the Bankruptcy Court, Jon P. Hedley and Charles
J. Philippin, two of CMH's three Directors, resigned. Messrs. Hedley and
Philippin had been the only members of CMH's Compensation Committee.
Accordingly, upon their resignations, such Committee was effectively dissolved.
Mr. Philippin had also been President of CMH until his resignation, and Mr.
Hedley had been the Vice President, Secretary and Treasurer of CMH until his
resignation. Messrs. Hedley and Philippin were also both members of senior
management of Investcorp S.A. which the Company believes held, through various
affiliates, the vast majority of the outstanding equity interests in, and the
direct debt obligations of, CMH.
CMH expects to appoint a Compensation Committee consisting of a
majority of Directors who are not also employees of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of the end of Fiscal 1996, the Company was indebted to Oaktree
Capital Management, LLC ("Oaktree") in the principal amount of $31.4 million
plus accrued interest of $1.1 million. Such amounts were owed under the Credit
Agreement. Under the Plan of Reorganization, the claims of Oaktree were
discharged in exchange for shares of Common Stock. See "Business--The Financial
Restructuring." Matthew S. Barrett is a Managing Director of Oaktree, and he has
served as a Director of CMH since January 1998.
ITEM 8. LEGAL PROCEEDINGS
For a description of the voluntary Chapter 11 bankruptcy proceedings
commenced by the Company, see "Business--Chapter 11 Petitions; Plan of
Reorganization."
The Internal Revenue Service ("IRS") has asserted in the bankruptcy
proceedings a priority tax claim against CMH and Camelot of approximately $7.9
million (the "IRS Claim"). Under the Plan of Reorganization, the allowed
priority tax claim of the IRS will be paid over six years, with quarterly
amortization of interest and principal, at an interest rate of 9%. The Company
acknowledges a priority tax obligation to the IRS of approximately $0.8 million,
and disputes the validity of the balance of the IRS Claim, the large majority of
which relates to a proposed disallowance by the IRS of certain deductions for
interest payments made by Camelot in connection with its corporate-owned life
insurance program (the "COLI Deductions"). The Debtors have filed an objection
(the "COLI Objection") to the IRS Claim to the extent that the IRS seeks to
disallow the COLI Deductions. In response to the COLI Objection, the IRS has
filed a motion (the "Withdrawal Motion") with the United States District Court
for the District of Delaware (the "District Court") seeking to have the COLI
Objection resolved by the District Court rather than the Bankruptcy Court. The
Company is contesting the Withdrawal Motion. The IRS also has filed a motion
with the Bankruptcy Court seeking a stay of any hearing on the COLI Objection
pending resolution of the Withdrawal Motion.
In addition, from time to time, the Company is a party to various
legal actions arising in the normal course of its business. The Company does not
believe that such actions, if adversely determined, would individually or in the
aggregate have a material adverse effect on the Company.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
In February 1998, an application was made to list the Common Stock for
quotation on the OTC Bulletin Board. As of the date of this filing, the
application is still pending. There is currently no established public trading
market for any class of equity securities of CMH. The Company expects to apply
for listing or admission to trading of the Common Stock on the Nasdaq Stock
Market. Notwithstanding the foregoing, the Company is unable to predict whether
or not an active trading market for the Common Stock will develop. Even if such
a market does develop, due to industry and other conditions beyond the control
of the Company, there can be no assurance that such a market would continue to
exist.
As of the Effective Date, 689,000 shares of Common Stock were subject
to outstanding options held by employees of the Company. No options are held by
any individuals other than employees of the Company. See "Security Ownership of
Certain Beneficial Owners and Management." As of the Effective Date, there were
730 record holders of Common Stock.
CMH has not declared any cash dividends on any class of common equity
since the beginning of Fiscal 1995 and does not anticipate paying cash dividends
on the Common Stock in the foreseeable future. Furthermore, the New Working
Capital Facility imposes certain limitations on CMH's ability to pay cash
dividends.
The Common Stock issued on the Effective Date was issued pursuant to
the exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act") (and of any state or local laws) provided by
Section 1145(a)(1) of the Bankruptcy Code. The Common Stock may be resold by the
holders thereof without registration unless, as more fully described below, any
such holder is deemed to be an "underwriter" with respect to such securities, as
defined in Section 1145(b)(1) of the Bankruptcy Code. Generally, Section
1145(b)(1) defines an "underwriter" as any person who (a) purchases a claim
against, interest in, or claim for an administrative expense in the case
concerning, the debtor, if such purchase is with a view to distribution of any
security received or to be received in exchange for such claim or interest, (b)
offers to sell securities offered or sold under the plan for the holders of such
securities, (c) offers to buy securities offered or sold under the plan from the
holders of such securities, if such offer to buy is made with a view to
distribution of such securities and under an agreement made in connection with
the plan, with the consummation of the plan or with the offer or sale of
securities under the plan or (d) is an "issuer" as such term is used in Section
2(11) of the Securities Act with respect to the securities. Although the
definition of the term "issuer" appears in Section 2(4) of the Securities Act,
the reference (contained in Section 1145(b)(1)(D) of the Bankruptcy Code) to
Section 2(11) of the Securities Act, purports to include as "underwriters" all
persons who directly or indirectly, through one or more intermediaries, control,
are controlled by or are under common control with, an issuer of securities.
"Control" (as such term is defined in Rule 405 of Regulation C under the
Securities Act) means the possession, direct or indirect, 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. The
following holders (the "Securities Holders") of Common Stock who, due to the
magnitude of their holdings as of the Effective Date, may be deemed to be
"underwriters" pursuant to Section 1145(b) of the Bankruptcy Code, are parties
with CMH to a Registration Rights Agreement, dated as of January 27, 1998 (the
"Registration Rights Agreement") affording them certain demand and piggyback
registration and other rights, all as more fully set forth therein and as
described below: Van Kampen - Merritt Prime Rate Income Trust; Fernwood
Associates, L.P.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; and
Oaktree.
In general, under Rule 144 under the Securities Act as currently in
effect, a person (or persons whose shares must be aggregated), including a
person who may be deemed an "affiliate" of the Company, who has beneficially
owned "restricted securities" for at least one year, may sell within any three
month period that number of shares that does not exceed the greater of 1% of the
then outstanding shares of the Common Stock or the reported average weekly
trading volume of the then outstanding shares of Common Stock for the four weeks
preceding each such sale. The sales under Rule 144 also are subject to certain
manner of sale restrictions and notice requirements and to the availability of
current public information about the Company. In addition, a person (or persons
whose shares must be aggregated) who owns restricted securities, who is not
deemed an "affiliate" of the Company at any time during the 90 days preceding a
sale and who acquired such shares at least two years prior to their resale, is
entitled to sell such shares under Rule 144(k) without regard to the foregoing
requirements. Sales of restricted securities by affiliates of the Company, even
after the two year holding period, must continue to be made in broker's
transactions subject to the volume limitations described above. As defined in
Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly
through the use of one or more intermediaries, controls, or is controlled by, or
is under common control with, such issuer.
As noted above, there is no active trading market for the Common
Stock, and no prediction can be made of the effect, if any, that sales of shares
of Common Stock under Rule 144 or the availability of shares for sale will have
on the market price of the Common Stock prevailing from time to time after the
date of this Registration Statement on Form 10. The Company is unable to
estimate the number of shares that may be sold in the public market under Rule
144, because such amount will depend on the trading volume in and the market
price for the Common Stock and other factors. Nevertheless, sales of substantial
amounts of shares in the public market, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock.
Pursuant to the Registration Rights Agreement, any Securities Holder
or Securities Holders may, subject to certain limitations, require CMH to file a
registration statement with respect to some or all of the Common Stock held by
such Securities Holder or Holders (subject to minimum threshold requirements);
provided, that no more than two demands may be made during the First Phase (a
period of approximately 15 months from the Effective Date); and provided,
further, that if, during the First Phase, the initial demand registration is a
shelf registration, no further demands may be made during the First Phase. In
the event of a demand registration, the non-requesting Securities Holders and
CMH would enjoy "piggy-back" rights with respect to such demand registration,
allowing them to participate in the registration on the same terms and
conditions as the initiating Securities Holder or Holders; provided, that if
marketing factors require a limitation on the number of shares offered, first
shares being offered by CMH and then shares offered by piggy-backing
stockholders would be reduced. In addition, if CMH offers Common Stock pursuant
to a registration statement (other than a registration on Form S-4 or S-8), the
Securities Holders would enjoy similar piggy-back rights; provided, that if
marketing factors require a limitation on the number of shares offered, the
shares being offered by the piggy-backing stockholders would be reduced. The
Securities Holders also enjoy the right to participate in private sales of
Common Stock by CMH; provided, that if marketing factors require a limitation on
the number of shares offered, the shares being offered by the piggy-backing
stockholders would be reduced. Subject to certain exceptions, CMH will bear all
of its own expenses, and certain expenses incurred by the Securities Holders
(including reasonable fees and disbursements of counsel) in connection with any
registration of Common Stock pursuant to the Registration Rights Agreement. In
addition, CMH will indemnify the Securities Holders for certain liabilities,
including liabilities under the Securities Act, in connection with any such
registration.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
No equity interests in CMH exist other than those represented by the
shares of the Common Stock. The Common Stock was issued pursuant to the Plan of
Reorganization in satisfaction of certain allowed claims against Camelot in
reliance on the exemption provided by Section 1145 of the Bankruptcy Code. Aside
from the issuance of shares of Common Stock under the Plan of Reorganization,
there have been no recent sales of unregistered securities by CMH. See
"Business--Chapter 11 Petitions; Plan of Reorganization" and "--The Financial
Restructuring."
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Common Stock
On the Effective Date, CMH issued 9,835,559 shares of Common Stock in
satisfaction of allowed claims against Camelot. As much as an additional 560,000
shares of Common Stock could be issued to the holders of disputed claims in the
event that such claims are ultimately allowed in the amounts asserted by the
holders thereof. Except as required by law, the respective holders of Common
Stock will vote on all matters as a single class, and each holder of Common
Stock will be entitled to one vote for each share of Common Stock that it owns.
Holders of Common Stock will not have cumulative voting rights. All outstanding
shares of the Common Stock are fully paid and nonassessable. The holders of
Common Stock will be entitled to such dividends (whether payable in cash,
property or capital stock) as may be declared from time to time by the Board of
Directors of CMH from funds, property or stock legally available therefor, and
will be entitled after payment of all prior claims, to receive pro rata all
assets of CMH upon the liquidation, dissolution or winding up of CMH. Generally,
holders of Common Stock have no conversion or preemptive rights to purchase or
subscribe for securities of CMH. There are no redemption or sinking fund
provisions available to the Common Stock.
The transfer agent and registrar for the Common Stock is The Bank of
New York.
Certain Provisions of Delaware Law
CMH is subject to Section 203 ("Section 203") of the Delaware General
Corporation Law (the "DGCL"). In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (iii) on or subsequent to
such date the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66-2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Section 203 defines business combination broadly to
include mergers or sales, stock issuances, transactions that would result in
disproportionate benefit to the interested stockholder and similar arrangements.
In general, Section 203 defines an interested stockholder as any entity or
person who, together with affiliates and associates, beneficially owns 15% or
more of the outstanding voting stock of a corporation. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to CMH and, accordingly, may discourage attempts to acquire CMH.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Existing Indemnification Obligations
Section 145 of the DGCL permits CMH to indemnify its directors,
officers, employees and agents (each an "Insider") against liability for each
such Insider's acts taken in his or her capacity as an Insider in a civil
action, suit or proceeding if such actions were taken in good faith and in a
manner which the Insider believed to be in or not opposed to the best interests
of CMH, and in a criminal action, suit or proceeding, if the Insider had no
reasonable cause to believe his or her conduct was unlawful, including under
certain circumstances, suits by or in the right of CMH for any expenses,
including attorneys' fees, and for any liabilities which the Insider may have
incurred in consequence of such action, suit or proceeding under conditions
stated in said Section 145; provided, that CMH may modify the extent of such
indemnification by individual contracts with its directors and executive
officers.
CMH's Second Amended and Restated Certificate of Incorporation (the
"Certificate") provides that, to the fullest extent permitted by the DGCL, CMH
will indemnify all present or former directors or officers (and their respective
heirs, executors or administrators) of CMH from any pending, threatened or
completed action, suit or proceeding (brought in the right of CMH or otherwise),
by reason of the fact that such person is or was serving as an officer or
director of CMH, or at the request of CMH as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, for and against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person (or such heirs, executors or administrators) in
connection with such action, suit or proceeding, including appeals.
As permitted by Section 102(b)(7) of the DGCL, the Certificate
provides that a director of CMH will not be personally liable to CMH or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of a director's duty of loyalty to a
company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as amended, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
The Certificate permits CMH to secure insurance on behalf of any
director, officer, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether CMH would have the power
to indemnify such person against such liability under the DGCL. CMH's directors
and officers are covered under a liability insurance policy. Such policy affords
CMH's directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts.
Treatment of Indemnification Obligations Under the Plan of Reorganization
Under the Plan of Reorganization, all obligations of CMH to indemnify
or to pay contribution or reimbursement to individuals who served as directors
or officers of CMH at any time during the bankruptcy proceedings were expressly
assumed and affirmed by the Company. All other indemnity, contribution or
reimbursement obligations of CMH were rejected and terminated under the Plan of
Reorganization.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item appear in this
Registration Statement on Form 10 commencing on page F-1. See "Financial
Statements and Exhibits."
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements of the Company are included in this
Registration Statement on Form 10 at the page indicated below:
Condensed Consolidated Balance Sheet (Unaudited) as of
November 29, 1997...........................................................F-2
Condensed Consolidated Statements of Operations (Unaudited)
for the 39 weeks ended November 29, 1997 and the 39 weeks
ended November 30, 1996.....................................................F-3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the 39 weeks ended November 29, 1997 and the 39 weeks
ended November 30, 1996.....................................................F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)............F-5
Report of Independent Accountants...........................................F-8
Consolidated Balance Sheets as of March 1, 1997 and March 2, 1996...........F-9
Consolidated Statements of Operations for the 52 weeks ended
March 1, 1997, the 53 weeks ended March 2, 1996
and the 52 weeks ended February 25, 1995...................................F-10
Consolidated Statements of Stockholders' (Deficit) Equity for
the 52 weeks ended March 1, 1997, the 53 weeks ended March 2, 1996
and the 52 weeks ended February 25, 1995...................................F-11
Consolidated Statements of Cash Flows for the 52 weeks ended
March 1, 1997, the 53 weeks ended March 2, 1996
and the 52 weeks ended February 25, 1995...................................F-12
Notes to Consolidated Financial Statements.................................F-13
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
as of November 29, 1997....................................................F-26
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the 39 weeks ended November 29, 1997.......................F-27
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
for the 52 weeks ended March 1, 1997.......................................F-28
Notes to Pro Forma Condensed Consolidated Financial Statements.............F-29
(b) Exhibits
2.1 Second Amended Joint Plan of Reorganization, dated November 7, 1997.
2.2 Asset Purchase Agreement by and among Camelot Music, Inc., The Wall Music,
Inc., and WH Smith Group Holdings (USA), Inc., dated as of December 10,
1997.
2.3 Assignment of Purchase Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen certificate of Common Stock.
10.1 Revolving Credit Agreement, dated as of January 27, 1998, among Camelot
Music, Inc., the several lenders named therein and The Chase Manhattan
Bank, as agent for the lenders.
10.2 Registration Rights Agreement, dated as of January 27, 1998, by and among
the Registrant and the security holders named therein.
10.3 Second Amended and Restated Employment Agreement, dated as of January 1,
1998, between Camelot Music, Inc. and James E. Bonk.
10.4 Camelot Music Holdings, Inc. 1998 Stock Option Plan.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Condensed Consolidated Balance Sheet (Unaudited) as of
November 29, 1997...........................................................F-2
Condensed Consolidated Statements of Operations (Unaudited)
for the 39 weeks ended November 29, 1997 and the 39 weeks
ended November 30, 1996.....................................................F-3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the 39 weeks ended November 29, 1997 and the 39 weeks
ended November 30, 1996.....................................................F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)............F-5
Report of Independent Accountants...........................................F-8
Consolidated Balance Sheets as of March 1, 1997 and March 2, 1996...........F-9
Consolidated Statements of Operations for the 52 weeks ended
March 1, 1997, the 53 weeks ended March 2, 1996
and the 52 weeks ended February 25, 1995...................................F-10
Consolidated Statements of Stockholders' (Deficit) Equity for
the 52 weeks ended March 1, 1997, the 53 weeks ended March 2, 1996
and the 52 weeks ended February 25, 1995...................................F-11
Consolidated Statements of Cash Flows for the 52 weeks ended
March 1, 1997, the 53 weeks ended March 2, 1996
and the 52 weeks ended February 25, 1995...................................F-12
Notes to Consolidated Financial Statements.................................F-13
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
as of November 29, 1997....................................................F-26
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the 39 weeks ended November 29, 1997.......................F-27
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
for the 52 weeks ended March 1, 1997.......................................F-28
Notes to Pro Forma Condensed Consolidated Financial Statements.............F-29
F-1
<PAGE>
CM HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
November 29, 1997
(in thousands of dollars)
ASSETS
FISCAL
1997
------
Current assets:
Cash and cash equivalents $ 45,689
Accounts receivable 3,099
Inventories 141,106
Other current assets 2,027
---------
Total current assets 191,921
---------
Property, plant and equipment, net 46,671
---------
Other non-current assets:
Goodwill, net of accumulated amortization 39,693
Other assets 876
---------
Total other non-current assets 40,569
---------
Total assets $279,161
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable, trade $ 42,024
Accrued expenses and other liabilities 22,896
---------
Total current liabilities 64,920
---------
Long-term liabilities 7,920
Liabilities subject to compromise 485,296
---------
Total liabilities 558,136
---------
Stockholders' deficit:
Common stock 10
Additional paid-in capital 79,990
Accumulated deficit (358,975)
---------
Total stockholders' deficit (278,975)
---------
Total liabilities and stockholders' deficit $279,161
=========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
<PAGE>
CM HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
for the 39 weeks ended November 29, 1997
and the 39 weeks ended November 30, 1996
(in thousands of dollars)
FISCAL FISCAL
1997 1996
--------- ---------
Net sales $260,340 $264,436
-------- --------
Cost and expenses:
Cost of sales 170,966 174,593
Selling, general and administrative 80,573 88,769
Depreciation and amortization 16,842 17,402
Write-down of long-lived assets - 4,920
--------- ---------
Total cost and expenses 268,381 285,684
--------- ---------
Loss before interest and other (income)
expenses (net) and reorganization expense (8,041) (21,248)
--------- ---------
Interest and other (income) expenses, net:
Interest expense 186 17,297
Amortization of financing fees 344 1,741
Other (3,972) (925)
--------- ---------
Total interest and other (income) expenses, net (3,442) 18,113
--------- ---------
Loss before reorganization expense (4,599) (39,361)
--------- ---------
Reorganization expense 6,072 26,552
--------- ---------
Loss before income taxes (10,671) (65,913)
--------- ---------
Provision for income taxes - -
--------- ---------
Net loss $(10,671) $(65,913)
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
<PAGE>
CM HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the 39 weeks ended November 29, 1997 and the 39 weeks
ended November 30, 1996 1996 (in thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Fiscal
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,671) $(65,913)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization excluding financing fees 16,842 17,402
Amortization of financing fees 344 1,741
Write-down of long-lived assets - 4,920
Other, net - 901
Changes in assets and liabilities:
Accounts receivable (2,120) (3,562)
Inventories (29,724) (31,813)
Other current assets 2,978 (2,903)
Accounts payable, trade 30,626 (424)
Accrued expenses and other liabilities 523 20,711
Changes due to reorganization activities:
Accrued professional fees 1,193 442
Write-off of financing costs - 12,214
Provision for store closing costs - 3,285
Provision for lease rejection damages - 7,474
Employment termination costs - 764
Write-off of capital lease obligation - (1,677)
Other expenses directly related to bankruptcy - 262
--------- ---------
Net cash provided by (used in) operating activities 9,991 (36,176)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (5,348) (2,282)
Proceeds from sale of equipment 6 239
Other assets (145) 4
--------- ---------
Net cash used in investing activities (5,487) (2,039)
--------- ---------
Cash flows from financing activities:
Payment of financing fees (75) (590)
Proceeds from lines of credit and other short-term borrowings - 24,000
Payment of lines of credit and other short-term borrowings - (8,600)
Payment on long-term debt - (27)
--------- ---------
Net cash (used in) provided by financing activities (75) 14,783
--------- ---------
Increase (decrease) in cash and cash equivalents 4,429 (23,432)
Cash and cash equivalents at beginning of year 41,260 29,619
--------- ---------
Cash and cash equivalents at end of year $45,689 $ 6,187
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for:
Interest $ 78 $ 2,378
Income taxes 32 99
Reorganization expense 3,569 3,928
Non-cash reorganization activities:
Reclassification of liabilities subject to compromise $ - $482,996
Decrease in accounts payable, accrued expenses and other liabilities - (86,236)
Reduction of debt - (396,760)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
<PAGE>
CM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except where otherwise indicated)
1. BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements include the
accounts of CM Holdings, Inc. ("Holdings") and its wholly owned subsidiary,
Camelot Music, Inc. ("Camelot") and Camelot's wholly owned subsidiaries after
elimination of all intercompany accounts and transactions. Holdings, together
with Camelot is herein referred to as the Company.
The accompanying interim condensed consolidated financial statements are
unaudited, however in the opinion of management, all adjustments necessary
for a fair presentation of such consolidated financial statements have been
recorded in the interim financial statements presented. The Company's
business in seasonal and therefore the interim results are not indicative
of the results for a full year. The significant accounting policies and
certain financial information which is required for financial statements in
accordance with generally accepted accounting principles, but not for
interim financial statement reporting purposes, have been condensed or
omitted. The accompanying condensed consolidated financial statements of
the Company should be read in conjunction with the audited financial
statements of the Company for the fiscal year ended March 1, 1997.
2. CHAPTER 11 PROCEEDINGS:
On December 12, 1997, the Bankruptcy Court entered an order confirming the
Company's Plan of Reorganization (the "Plan") which was submitted by the
Company on October 1, 1997 and amended on November 7, 1997. The Company
expects the effective date of the Plan to be on or about January 27, 1998.
Pursuant to the Plan, administrative claims of approximately $6,800 will be
fully paid in cash upon emergence and the priority claims of approximately
$1,600 will be fully satisfied within six years of the effective date. The
remaining prepetition claims will be settled principally with the issuance
of equity in the reorganized company to the claim holders. The stockholders
in the Company will receive no recovery nor will they be issued any shares
in the reorganized company under the Plan. Under the Plan, approximately 10
million common shares in the reorganized company are expected to be issued
to the claim holders. The reorganized company expects to register the
common shares on the NASDAQ "over the counter market" with the filing of a
Form 10 with the Securities and Exchange Commission on or about January 31,
1998.
As of the effective date of the Plan, the Company will adopt "fresh-start"
accounting as prescribed by AICPA Statement of Position ("SOP") 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code". Under the provisions of fresh-start accounting:
The reorganization value of the Company will be allocated to the Company's
assets in conformity with the procedures specified by Accounting Principles
Board ("APB") Opinion No. 16, "Business Combinations", for transactions
reported on the basis of the purchase method. If any portion of the
reorganization value cannot be attributed to specific tangible assets of
the Company, such amounts will be reported as the intangible asset
identified as "reorganization value in excess of amounts allocable to
identifiable assets". This excess will be amortized in conformity with APB
Opinion No. 17, "Intangible Assets", over a twenty year period. Each
liability existing at the plan confirmation date, other than deferred
income taxes, will be stated at present value of amounts to be paid
determined at appropriate current interest rates. Deferred income taxes
will be reported in conformity with the liability method of accounting for
income taxes. Benefits, if any, realized from preconfirmation net operating
loss carryforwards will first reduce reorganization value in excess of
amounts allocable to identifiable assets and other intangibles until
exhausted and thereafter be reported as a direct addition to paid-in
capital. Additionally, the effects of the adjustments on the reported
amounts of individual assets and liabilities resulting from the adoption of
fresh-start reporting and the effects of the forgiveness of debt will be
reflected in the predecessor Company's final consolidated statement of
operations. Forgiveness of debt, if any, will be reported as an
extraordinary item. Adopting fresh-start reporting will result in a new
reporting entity with no beginning retained earnings or deficit.
F-5
<PAGE>
3. LIABILITIES SUBJECT TO COMPROMISE:
In the accompanying consolidated balance sheet as of November 29, 1997,
liabilities subject to compromise are comprised of the following:
FISCAL
1997
------------
Bank debt and related interest $295,617
Subordinated debentures and related interest 58,489
Senior debentures and related interest 57,651
Trade claims 54,992
Lease claims 14,479
Priority tax claims 1,311
Other claims 2,757
------------
Total $485,296
============
These amounts represent management's best estimate of all known or
potential claims. Such claims were subject to future adjustments with
respect to disputed claims depending on negotiations with creditors and
actions of the Bankruptcy Court in the Chapter 11 case. In connection with
the confirmation of the Plan, the Company resolved substantially all
outstanding disputed claims and therefore believes that any future
adjustments required will not be significant.
4. REORGANIZATION EXPENSE:
Reorganization expense for the 39 weeks ended November 29, 1997 and
November 30, 1996 are comprised of the following:
FISCAL FISCAL
1997 1996
------------- ---------------
Professional fees $ 4,122 $ 3,562
Write-off of financing costs - 12,214
Provision for store closing costs - 4,125
Lease rejection damages - 7,688
Employment termination costs 16 764
Employment retention and stay bonuses 2,800 -
Write-off of capital lease obligation - (1,677)
Other expenses (net) directly related
to bankruptcy 758 385
Interest income (1,624) (509)
------------- ---------------
Total $ 6,072 $26,552
============= ===============
5. FINANCING ARRANGEMENTS:
On the Effective Date, the debtor-in-possession facility ("DIP") was
canceled pursuant to its original terms. There were no amounts outstanding
under the DIP facility on the Effective Date.
Also, on the Effective Date, the Company entered into a revolving credit
facility with a syndicate of financial institutions providing advances of up to
$50,000 during peak periods and $35,000 during non-peak periods, subject to
reduction if the Wall acquisition does not close (see Note 7). The aggregate
availability under the New Working Capital Facility is limited to a borrowing
base equal to 35% of inventory during peak periods and 30% of inventory during
non-peak periods. The new facility matures 4 years from the Effective Date and
borrowings bear interest at the Alternate Base Rate, as defined or LIBOR plus
1.75%. Borrowings under the facility are secured by substantially all of the
Company's assets. The facility contains certain covenants including limitations
on capital expenditures, dividends and require the Company to maintain certain
minimum EBITDA levels.
6. COMMITMENTS AND CONTINGENCIES:
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of its business, including proposed
assessments by the Internal Revenue Service aggregating approximately
$7,800 of which the Company has accrued $800. In the opinion of management,
all such matters not accrued for are without merit or involve such amounts
that unfavorable disposition will not have a material impact on the
consolidated financial position or results of operations of the Company.
F-6
<PAGE>
7. ACQUISITION:
On December 10, 1997 the Company signed an Asset Purchase Agreement to
acquire The Wall Music, Inc. ("The Wall") for $26,000 plus net working
capital assets transferred at the date of closing which are projected to be
approximately $47,000. The Wall is a mall-based music store chain that
operates over 150 stores in the Mid-Atlantic region of the United States.
This transaction is anticipated to close in late Fiscal 1997. The
acquisition will be accounted for by the purchase method of accounting.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders of
CM Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of CM Holdings,
Inc. and Subsidiary as of March 1, 1997 and March 2, 1996 and the related
consolidated statements of operations, stockholders' (deficit) equity and cash
flows for each of the fifty-two and fifty-three week periods ended March 1,
1997, respectively. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and the significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
On August 9, 1996, CM Holdings, Inc. and its Subsidiary filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code. On October 1, 1997, the Company submitted its plan of reorganization to
the Bankruptcy Court which was amended on November 7, 1997 and subsequently
confirmed on December 12, 1997. The Company expects the effective date of the
plan to be on or about January 27, 1998. As discussed in Note 2 to the
consolidated financial statements, as of the effective date of the plan, the
Company will adopt "Fresh-Start" accounting as prescribed by AICPA Statement of
Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code".
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CM Holdings, Inc.
and Subsidiary as of March 1, 1997 and March 2, 1996, and the consolidated
results of their operations and their cash flows for each of the fifty-two and
fifty-three week periods ended March 1, 1997, respectively, in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in fiscal 1995
the Company changed its method of accounting for the impairment of long-lived
assets.
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
July 18, 1997, except as to the
information presented in the
first paragraph of Note 19, for
which the date is December 10, 1997
and the information presented
in Notes 2, 7, 8, 9, 10, 16, and 19
dated as of December 12, 1997,
for which the date is December 12, 1997
F-8
<PAGE>
CONSOLIDATED BALANCE SHEETS
March 1, 1997 and March 2, 1996
(in thousands of dollars)
ASSETS FISCAL FISCAL
1996 1995
---------- ----------
Current assets:
Cash and cash equivalents $ 41,260 $ 29,619
Accounts receivable 979 1,349
Inventories 112,537 131,741
Other current assets 5,287 3,654
---------- ----------
Total current assets 160,063 166,363
---------- ----------
Property, plant and equipment, net 56,738 80,124
---------- ----------
Other non-current assets:
Goodwill, net of accumulated amortization of
$4,025 in 1996 and $2,032 in 1995 41,188 43,181
Intangible assets, net 350 18,017
Other assets 309 985
---------- ----------
Total other non-current assets 41,847 62,183
---------- ----------
Total assets $ 258,648 $ 308,670
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable, trade $ 11,398 $ 21,164
Accrued expenses and other liabilities 23,336 26,450
Current portion of long-term debt - 285,878
---------- ----------
Total current liabilities 34,734 333,492
---------- ----------
Long-term liabilities:
Long-term trade accounts payable - 57,393
Long-term debt, less current portion - 112,586
Other long-term liabilities 7,407 9,139
---------- ----------
Total long-term liabilities 7,407 179,118
Liabilities subject to compromise 484,811 -
Commitments and contingencies (Notes 2, 8, 15 and 17) - -
---------- ----------
Total liabilities 526,952 512,610
Stockholders' deficit:
Common stock 10 10
Additional paid-in capital 79,990 79,990
Accumulated deficit (348,304) (283,940)
---------- ----------
Total stockholders' deficit (268,304) (203,940)
---------- ----------
Total liabilities and stockholders' deficit $ 258,648 $308,670
========== ==========
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
for the 52 weeks ended March 1, 1997, the 53 weeks ended March 2, 1996, and the
52 weeks ended February 25, 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1995 1994
----------- ---------- -------------
<S> <C> <C> <C>
Net sales $ 396,502 $ 455,652 $ 459,077
----------- ---------- -------------
Cost and expenses:
Cost of sales 263,072 302,481 289,887
Selling, general and administrative 117,558 135,441 128,158
Depreciation and amortization 23,290 26,570 21,146
Write-down of long-lived assets 6,523 202,869 -
Expiration of put agreements - 3,413 -
Restructuring charge - 5,238 -
----------- ---------- -------------
Total cost and expenses 410,443 676,012 439,191
----------- ---------- -------------
(Loss) income before interest and other expenses
(net), reorganization expense and income taxes (13,941) (220,360) 19,886
----------- ---------- -------------
Interest and other expenses, net:
Interest expense, net 17,418 38,056 30,655
Amortization of financing fees 1,856 3,738 3,544
Other (696) 1,503 1,482
----------- ---------- -------------
Total interest and other expenses, net 18,578 43,297 35,681
----------- ---------- -------------
Loss before reorganization expense and income taxes (32,519) (263,657) (15,795)
Reorganization expense 31,845 - -
----------- ---------- --------------
Loss before income taxes (64,364) (263,657) (15,795)
Provision (benefit) for income taxes:
Current - 376 (3,889)
Deferred - 98 6,959
----------- ---------- --------------
Total provision (benefit) for income taxes - 474 3,070
----------- ---------- -------------
Net loss $ (64,364) $ (264,131) $ (18,865)
=========== ========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
for the 52 weeks ended March 1, 1997, the 53 weeks ended March 2, 1996, and the
52 weeks ended February 25, 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCKS PAID-IN PUT ACCUMULATED
------------------------
SHARES DOLLARS CAPITAL OPTIONS DEFICIT TOTAL
----------- ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at February 26, 1994 1,000 $ 10 $ 79,990 $ (3,413) $ (944) $ 75,643
Net loss - - - - (18,865) (18,865)
----------- ------------ ------------ ------------ ------------- -----------
Balances at February 25, 1995 1,000 10 79,990 (3,413) (19,809) 56,778
Net loss - - - - (264,131) (264,131)
Expiration of put agreements - - - 3,413 3,413
----------- ------------ ------------ ------------ ------------- -----------
Balances at March 2, 1996 1,000 10 79,990 - (283,940) (203,940)
Net loss - - - - (64,364) (64,364)
----------- ------------ ------------ ------------ ------------- -----------
Balances at March 1, 1997 1,000 $ 10 $ 79,990 $ - $ (348,304) $(268,304)
=========== ============ ============ ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the 52 weeks ended March 1, 1997, the 53 weeks ended March 2, 1996, and the
52 weeks ended February 25, 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (64,364) $ (264,131) $ (18,865)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization excluding financing fees 23,290 26,570 21,146
Amortization of financing fees 1,856 3,738 3,544
Noncash portion of restructuring charges - 4,345 -
Write-down of long-lived assets 6,523 202,869 -
Expiration of put agreements - 3,413 -
Other, net 451 607 -
Restructuring charge - 893 91
Deferred income taxes - 98 7,543
Changes in assets and liabilities:
Accounts receivable and refundable income taxes 2,578 3,437 (3,611)
Inventories 15,216 28,418 (21,588)
Other current assets (2,197) (283) (292)
Other assets 131 427 (130)
Accounts payable, trade (12,540) 20,149 3,985
Accrued expenses and other liabilities 17,509 (8,414) (5,660)
Accrued income taxes 647 5,401 -
Changes due to reorganization activities:
Accrued professional fees 1,717 - -
Write-off of financing costs 15,953 - -
Provision for store closing costs 3,988 - -
Provision for lease rejection damages 7,658 - -
Employment termination costs 803 - -
Write-off of capital lease obligation (1,677) - -
Other expenses directly related to bankruptcy (1,261) - -
---------- ----------- -----------
Net cash provided by (used in) operating activities 16,281 27,537 (13,837)
---------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (4,330) (20,873) (20,418)
Proceeds from sale of equipment 239 137 37
Other assets and liabilities, net 93 409 1,606
---------- ----------- -----------
Net cash used in investing activities (3,998) (20,327) (18,775)
---------- ----------- -----------
Cash flows from financing activities:
Payment of financing fees (615) - (175)
Proceeds from lines of credit and other short-term borrowings 25,000 195,500 258,950
Payments of lines of credit and other short-term borrowings (25,000) (174,000) (221,050)
Payments on long-term debt ( 27) (2,560) (2,555)
Other - - (255)
---------- ----------- -----------
Net cash (used in) provided by financing activities (642) 18,940 34,915
---------- ----------- -----------
Net increase in cash and cash equivalents $ 11,641 $ 26,150 $ 2,303
Cash and cash equivalents at beginning of year 29,619 3,469 1,166
---------- ----------- -----------
Cash and cash equivalents at end of year $ 41,260 $ 29,619 $ 3,469
========== =========== ===========
Supplemental disclosures of cash flow information: Cash paid
(received) during the fiscal year for:
Interest $ 2,585 $ 32,136 $ 23,194
Income taxes paid (refunded), net 129 (3,221) (850)
Reorganization items 5,956 - -
Non-cash reorganization activities:
Reclassification of liabilities subject to compromise $ 477,153 $ - $ -
Decrease in accounts payable, accrued expenses and
other liabilities (80,393) - -
Reduction of debt (396,760) - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
1. ORGANIZATION AND BUSINESS:
CM Holdings, Inc. ("Holdings") was incorporated on September 30, 1993, and
acquired all of the outstanding common stock of Camelot Music, Inc. (the
"Camelot Acquisition") on November 12, 1993. Holdings, together with
Camelot Music, Inc. ("Camelot"), is herein referred to as the Company. The
Company is a specialty music retailer and operates in thirty-five states
across the United States. The Company sells compact discs, cassettes,
pre-recorded video cassettes and other entertainment products and related
accessories.
INVESTCORP International Inc. ("III"), acted as the investment advisor in
the Camelot Acquisition. Companies affiliated with INVESTCORP S.A.
("INVESTCORP") own all of the currently outstanding voting stock of
Holdings. INVESTCORP owns indirectly less than 10% of Holdings' total
voting stock and total outstanding stock.
2. STATUS OF REORGANIZATION UNDER CHAPTER 11:
On August 9, 1996 (the "petition date"), Holdings and Camelot filed
voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11" or the "Bankruptcy Code") in the
United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The Chapter 11 proceedings are being jointly
administered, with the Company managing the business in the ordinary course
as debtors-in-possession subject to the control and supervision of the
Bankruptcy Court.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims in existence at the petition date (prepetition) are
stayed, absent specific Bankruptcy Court authorization to pay such claims.
The Company believes that appropriate provisions have been made in the
accompanying financial statements for the prepetition claims that could be
estimated at the date of these financial statements. Such claims are
reflected in the March 1, 1997 balance sheet as "liabilities subject to
compromise" (See Note 8). Additional claims (liabilities subject to
compromise) may arise subsequent to the petition date resulting from the
rejection of executory contracts, including leases, and from the
determination of the Bankruptcy Court (or agreed to by parties-in-interest)
of allowed claims for contingencies and disputed amounts. Claims
collateralized against the Company's assets (secured claims) are stayed,
although holders of such claims have the right to move the Bankruptcy Court
for relief from the stay. Secured claims are collateralized by a pledge of
stock of Camelot as well as certain non-store properties.
Under the Bankruptcy Code, a creditor's claim is treated as secured only to
the extent of the value of such creditor's collateral, and the balance of
such creditor's claim is treated as unsecured.
The Company received approval from the Bankruptcy Court to pay or otherwise
honor employee wages and benefits and certain other prepetition obligations
necessary for the continuing existence of the Company prior to a plan of
reorganization. Generally, unsecured debt does not accrue interest after
the petition date. In addition, the Company has determined that there is
insufficient collateral to cover the interest portion of scheduled payments
on most prepetition debt obligations. Therefore, the Company has
discontinued accruing interest on these obligations. Contractual interest
on these obligations amounts to $41,329, which is $26,334 in excess of
reported interest expense. Refer to Note 7 for a discussion of the credit
arrangements entered into subsequent to the Chapter 11 filings.
As debtor-in-possession, the Company has the right, subject to Bankruptcy
Court approval and certain other limitations, to assume or reject certain
executory contracts, including unexpired leases. In this context,
"assumption" means that the Company agrees to perform its obligations and
cure certain existing defaults under the contract or lease, and "rejection"
means that the Company is relieved from its obligations to perform further
on the contract or lease and is subject only to a claim for damages for the
breach thereof. Any claim for damages resulting from the rejection of an
executory contract or an unexpired lease is treated as a general unsecured
claim in the Chapter 11 proceedings. The Company has been reviewing its
executory contracts and has assumed 3 leases and rejected 88 leases to
date. An estimate of the allowed claims related to the rejected leases of
$14,349 has been provided for and included in liabilities subject to
compromise.
F-13
<PAGE>
The accompanying financial statements have been prepared on a going concern
basis, which contemplates continuity of operations, realization of assets
and liquidation of liabilities in the ordinary course of business. However,
as a result of the Chapter 11 filings, such realization of assets and
liquidation of liabilities is subject to uncertainty. While under the
protection of Chapter 11, in the normal course of business, the Company may
sell or otherwise dispose of assets and liquidate or settle liabilities for
amounts other than those reflected in the financial statements. Further, a
plan of reorganization could materially change the amounts and
classifications reported in the historical financial statements, which do
not give effect to any adjustments to the carrying value of assets or
amounts of liabilities that might be necessary as a consequence of a plan
of reorganization.
An official committee of unsecured creditors (the "Committee") was formed
to act in the Chapter 11 proceedings. The Committee has the right to review
and object to certain business transactions. Pursuant to the order of the
Bankruptcy Court, the Committee retained counsel and other professionals at
the expense of the Company.
On December 12, 1997, the Bankruptcy Court entered an order confirming the
Company's Plan of Reorganization (the "Plan") which was submitted by the
Company on October 1, 1997 and amended on November 7, 1997. The Company
expects the effective date of the Plan to be on or about January 27, 1998.
Pursuant to the Plan, administrative claims of approximately $6,800 will be
fully paid in cash upon emergence and the priority claims of approximately
$1,600 will be fully satisfied within six years of the effective date. The
remaining prepetition claims will be settled principally with the issuance
of equity in the reorganized company to the claim holders. The stockholders
in the Company will receive no recovery nor will they be issued any shares
in the reorganized company under the Plan. Under the Plan, approximately 10
million common shares in the reorganized company are expected to be issued
to the claim holders. The reorganized company expects to register the
common shares on the NASDAQ "over the counter market" with the filing of a
Form 10 with the Securities and Exchange Commission on or about January 31,
1998.
As of the effective date of the Plan, the Company will adopt "fresh-start"
accounting as prescribed by AICPA Statement of Position ("SOP") 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code". Under the provisions of fresh-start accounting:
The reorganization value of the Company will be allocated to the
Company's assets in conformity with the procedures specified by
Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations", for transactions reported on the basis of the purchase
method. If any portion of the reorganization value cannot be
attributed to specific tangible assets of the Company, such amounts
will be reported as the intangible asset identified as "reorganization
value in excess of amounts allocable to identifiable assets". This
excess will be amortized in conformity with APB Opinion No. 17,
"Intangible Assets", over a twenty year period. Each liability
existing at the plan confirmation date, other than deferred income
taxes, will be stated at present value of amounts to be paid
determined at appropriate current interest rates. Deferred income
taxes will be reported in conformity with the liability method of
accounting for income taxes. Benefits, if any, realized from
preconfirmation net operating loss carryforwards will first reduce
reorganization value in excess of amounts allocable to identifiable
assets and other intangibles until exhausted and thereafter be
reported as a direct addition to paid-in capital. Additionally, the
effects of the adjustments on the reported amounts of individual
assets and liabilities resulting from the adoption of fresh-start
reporting and the effects of the forgiveness of debt will be reflected
in the predecessor Company's final consolidated statement of
operations. Forgiveness of debt, if any, will be reported as an
extraordinary item. Adopting fresh-start reporting will result in a
new reporting entity with no beginning retained earnings or deficit.
3. SUMMARY OF SIGNICIANT ACCOUNTING POLICIES:
The significant accounting policies used in the preparation of the
consolidated financial statements are as follows:
F-14
<PAGE>
A. FINANCIAL REPORTING FOR BANKRUPTCY PROCEEDINGS: In Fiscal 1996,
the Company has accounted for all transactions related to the
Chapter 11 proceedings in accordance with SOP 90-7 for entities
reporting during reorganization proceedings before filing of a
reorganization plan. Accordingly, liabilities subject to
compromise under the Chapter 11 proceedings have been segregated
on the consolidated balance sheet and are recorded at the amounts
that have been or are expected to be allowed on known claims
rather than estimates of consideration those claims may receive
in a plan of reorganization. In addition, the consolidated
statements of operations and cash flows separately disclose
expenses and cash transactions, respectively, related to the
Chapter 11 proceedings.
B. PRINCIPLES OF CONSOLIDATION AND RECLASSIFICATIONS: The
accompanying consolidated financial statements include the
accounts of Holdings and its wholly owned subsidiary Camelot and
its currently inactive subsidiaries - G.M.G. Advertising, Inc.
and Grapevine Records and Tapes, Inc. (collectively, the
"Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Certain amounts in the Fiscal 1994 and Fiscal 1995 consolidated
financial statements have been reclassified to conform to Fiscal
1996 presentation.
C. FISCAL PERIODS: The Company's fiscal year ends on the Saturday
closest to February 28. Fiscal years or period ends are
designated in the consolidated financial statements and the
related notes by the calendar year in which the fiscal year
commences.
D. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The
preparation of consolidated 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 consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
E. CASH AND CASH EQUIVALENTS: The Company considers all highly
liquid investments with a maturity of three months or less when
purchased to be cash equivalents. Cash equivalents are stated at
cost, which approximates market value.
F. CONCENTRATION OF CREDIT RISK: The Company maintains a centralized
cash management program whereby its excess cash balances are
invested in short term funds and are considered cash equivalents.
Certain cash balances are insured by the Federal Deposit
Insurance Corporation up to $100. As of March 1, 1997 and March
2, 1996 uninsured bank cash balances were $40,725 and $24,119,
respectively.
G. INVENTORIES: Inventories are valued at the lower of cost or
market. Cost is determined principally by the average cost
method. Inventory consists primarily of resaleable prerecorded
music, video cassettes, video games and other products.
H. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is
stated at cost. Significant additions and improvements are
capitalized while expenditures for maintenance and repairs are
charged to operations as incurred. The cost of assets retired or
otherwise disposed of and the related accumulated depreciation
are eliminated from the accounts in the year of disposal. Gains
and losses resulting from disposals are included in operations.
Depreciation is computed using the straight-line method based on
the following ranges of estimated useful lives:
Buildings and improvements 10-40 years
Leasehold improvements Shorter of life of
lease or 5 years
Furniture, fixtures and equipment 5-7 years
F-15
<PAGE>
I. FAIR VALUE OF LONG-LIVED ASSETS: The Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS No. 121") in the fifty-three weeks ended
March 2, 1996. Accordingly, the Company records impairment losses
on long-lived assets used in operations, and the related
goodwill, when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of
those assets.
J. GOODWILL: Goodwill which represents the adjusted amount of the
cost of acquisitions in excess of fair value was amortized using
the straight-line method over a 40 year period until March 2,
1996. The remaining amount is being amortized using the
straight-line method over a 22 year period (See Note 12).
K. FINANCING COSTS: Financing costs are amortized over the terms of
the related financings, which vary with the terms of the related
agreements. As a result of the Chapter 11 proceedings, the net
book value of the financing costs related to prepetition
financing was written off during the fifty-two weeks ended March
1, 1997.
L. OTHER INTANGIBLE ASSETS: Favorable lease values and non-compete
agreements acquired in connection with store acquisitions were
being amortized using the straight-line method over estimated
useful lives. Primarily as a result of store closings, the net
book value of these assets was written off during the fifty-two
weeks ended March 1, 1997.
Costs incurred to internally develop software are charged to
operations.
M. LONG TERM TRADE ACCOUNTS PAYABLE: Long term trade accounts
payable consist of amounts with extended terms greater than one
year.
N. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS: It was not
practicable to estimate the fair market value of the Company's
prepetition debt obligations as the Company is currently in
Chapter 11 proceedings. The ultimate plan of reorganization could
significantly impact the estimated fair value of these
obligations.
O. ADVERTISING COSTS: The Company expenses nonreimbursable
advertising costs as costs are incurred. The amount charged to
advertising expense during Fiscal 1996, 1995 and 1994 was $6,128,
$6,458 and $6,767, respectively.
P. INCOME TAXES: The Company uses the liability method of accounting
for income taxes. Deferred tax assets and liabilities are
determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The effect on deferred taxes
of a change in tax rates is recognized in the period that
includes the enactment date.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
FISCAL FISCAL
1996 1995
-------- --------
Land and buildings $ 12,365 $ 12,941
Leasehold improvements 31,643 35,989
Office furniture and fixtures 1,899 1,889
Store furniture and fixtures 41,175 44,514
Machinery and equipment 13,139 12,894
Remodeling in-progress 1,499 1,207
Property under capital lease - 950
-------- --------
101,720 110,384
Less accumulated depreciation and amortization (44,982) (30,260)
-------- --------
Total $ 56,738 $ 80,124
======== ========
F-16
<PAGE>
5. OTHER INTANGIBLE ASSETS:
Other intangible assets consisted of the following:
FISCAL FISCAL
1996 1995
-------- --------
Financing costs $ 615 $ 25,883
Favorable lease values - 475
Non-compete agreements - 2,731
-------- --------
615 29,089
Less accumulated amortization (265) (11,072)
-------- --------
Total $ 350 $ 18,017
======== ========
6. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consisted of the following:
FISCAL FISCAL
1996 1995
-------- --------
Payroll and related costs $ 6,775 $ 5,371
Frequent Shopper program liability 6,101 6,724
Taxes other than income 3,892 4,298
Gift certificate liability 2,456 2,585
Other 4,112 7,472
-------- --------
Total $ 23,336 $ 26,450
======== ========
7. FINANCING ARRANGEMENTS:
As of March 2, 1996, $285,878 of debt covered by the terms of the loan
agreements was reclassified as a current liability due to the violation of
loan covenants and anticipated future violations under loan agreements.
In addition, as a result of Chapter 11 proceedings, all remaining
indebtedness of the Company as of the petition date became immediately due
and payable in accordance with the terms of the instruments governing such
indebtedness.
While the Chapter 11 proceedings are pending, however, the Company is
prohibited from making any payments of obligations owing as of the petition
date, except as permitted by the Bankruptcy Court and contractual terms of
debt obligations have been suspended subject to settlement. Furthermore,
the Company is not able to borrow additional funds under any of its
prepetition credit arrangements.
The Company has obtained debtor-in-possession financing with a syndicate of
financial institutions whereby a maximum of $35 million revolving credit
facility (DIP facility), which includes a letter of credit sub-facility of
$10 million, is available to fund working capital, issue letters of credit
and make other payments during the Chapter 11 proceedings. The DIP facility
is available through the earlier of February 9, 1998 or the effective date
of the plan of reorganization. The maximum amount available under the DIP
facility is subject to a borrowing base limitation equal to 35% of eligible
inventory (as defined) during the peak period (as defined) and 30% of
eligible inventory during the non-peak period, plus cash and investments
held at the Company's cash management bank less the Company's cash
collateral. Borrowings under the DIP facility bear interest, at the
Company's option, at the Base Rate (defined as the higher of the Prime Rate
or the base CD rate plus 1% or the Federal Funds Effective Rate plus 1/2%)
plus 1% (9.25% at March 1, 1997).
F-17
<PAGE>
Interest on Base Rate loans is payable monthly in arrears. The Company pays
a commitment fee of 1/2% on the average daily unused portion of the DIP
facility. The Company had no outstanding borrowings against the DIP
facility at March 1, 1997. At March 1, 1997, the Company had $3,270 of
letters of credit outstanding.
Long-term debt, in accordance with its contracted terms, is summarized as
follows:
FISCAL FISCAL
1996 1995
-------- --------
Senior credit facility:
Tranche A Term Loan $ 57,000 $ 57,000
Tranche B Term Loan 78,000 78,000
Tranche C Term Loan 60,000 60,000
Revolving Credit Commitment 90,800 90,800
Subordinated Debentures 55,748 55,748
Senior Debentures 55,212 55,212
Capital Lease Obligation - 1,704
-------- ---------
396,760 398,464
-------- ---------
Less long-term debt classified as current - (285,878)
Less amounts included as liabilities
subject to compromise (396,760) -
-------- ---------
$ - $ 112,586
======== =========
As a result of the uncertainties relating to the Chapter 11 proceedings,
future minimum repayments of long-term debt have not been presented.
Currently, the Company is permitted to make principal and interest payments
on the DIP facility. No other principal or interest may be paid without the
approval of the Bankruptcy Court. The Company accrued interest on its
unsecured and undersecured obligations through the petition date; however,
due to the uncertainties relating to a final plan of reorganization, the
Company ceased accruing interest on such obligations effective on the
petition date.
Set forth in the following paragraphs is a description of the terms of the
Company's various long-term debt agreements as in effect on the petition
date. Such provisions do not necessarily presently govern the respective
rights of the Company and the various lenders. Instead, the rights of the
parties will likely be determined in connection with the Chapter 11
proceedings currently pending in the Bankruptcy Court.
SENIOR CREDIT FACILITY: In connection with the Camelot Acquisition, the
Company entered into a Credit Agreement with a group of financial
institutions which provided for a $325 million Credit Facility, proceeds of
$244 million of which were used to finance a portion of the Camelot
Acquisition. The Senior Credit Facility was comprised of the following
instruments:
THE TRANCHE A TERM LOAN: Principal was payable in semi-annual
installments ranging from $2 to $12 million commencing August 31, 1994
through February 28, 1999. Interest payments were due quarterly based
upon (i) the prime rate plus 1%; or (ii) the eurodollar rate plus
2.5%.
THE TRANCHE B TERM LOAN: Principal was payable in semi-annual
installments ranging from $0.5 to $20 million commencing August 31,
1994 through February 28, 2001. Interest payments were due quarterly
based upon (i) the prime rate plus 1.5%; or (ii) the eurodollar rate
plus 3%.
THE TRANCHE C TERM LOAN: Principal was payable in two installments of
$30 million due on August 31, 2001 and February 28, 2002. Interest
payments were due quarterly based upon (i) the prime rate plus 2%; or
(ii) the eurodollar rate plus 3.5%.
F-18
<PAGE>
THE REVOLVING CREDIT COMMITMENT: This commitment of $125 million
extended through February 28, 1999. Borrowings under this commitment
were made at prime rate plus 1% or the eurodollar rate plus 2.5%. The
Company was obligated to pay a commitment fee of 1/2 of 1% per annum
on the average daily amount of the available revolving credit
commitment. Such fees were payable quarterly, in arrears. The Company
had $34.2 million available under the commitment at March 2, 1996.
Additionally, the Revolving Credit Commitment is reduced by the
issuance of Standby or Commercial Letters of Credit for the benefit of
third parties. At March 2, 1996, no Standby Letters of Credit were
outstanding.
The Senior Credit Facility was collateralized by a pledge of the stock of
Camelot as well as certain non-store properties. Holdings had guaranteed
the payment of principal and interest. Financing costs of $15,196 were
incurred in connection with the Senior Credit Facility of which $3,500 was
paid to III.
Borrowings outstanding at March 1, 1997 of $285,800, and related accrued
interest of $9,817, were classified as liabilities subject to compromise
because the principal balance is undersecured.
Subordinated Debentures: In connection with the Camelot Acquisition,
Camelot issued subordinated debentures to AIBC Investcorp Finance B.V.
("AIBC"), an affiliate of INVESTCORP. AIBC purchased $50 million of 11%
subordinated debentures which are due March 1, 2004. The subordinated
debentures were issued at a discount of $5.3 million. Other financing costs
of $70 were also incurred in connection with the debentures. Interest on
the debentures required semiannual payments on March 1 and September 1 in
each year.
On December 19, 1994, Holdings acquired $43 million of the total $50
million, 11% debentures from AIBC and the note representing such amount was
registered in the name of Holdings.
The Company was required to redeem 25% of the debentures on March 1, 2003,
an additional 25% of the debentures on September 1, 2003, and the remaining
50% of the debentures on March 1, 2004. The debentures were subject to
optional redemption on September 1 and March 1 of any year at prices
ranging from 105% to 100% of outstanding principal.
On September 1, 1995 and March 1, 1996 the total amount of interest due,
$2,811 and $2,937, respectively, were paid through issuance of payment in
kind ("PIK") notes. These amounts have been classified as liabilities
subject to compromise.
The agreement contains various financial covenants which are similar to
those contained in the Senior Credit Facility.
Senior Debentures: In connection with the Camelot Acquisition, Holdings
issued senior debentures to AIBC. AIBC purchased $50 million of 10% senior
debentures which are due March 1, 2004. The debentures were purchased at a
discount of $5.1 million. Interest on the debentures require semiannual
payments on March 1 and September 1 in each year, commencing March 1, 1994.
Holdings was required to redeem 25% of the debentures on March 1, 2003, an
additional 25% of the debentures on September 1, 2003, and the remaining
50% of the debentures March 1, 2004. The debentures were subject to
optional redemption on September 1 and March 1 of any year at prices
ranging from 105% to 100% of outstanding principal.
On September 1, 1995 and March 1, 1996 the total amounts of interest due,
$2,556 and $2,656, respectively, were paid through issuance of PIK notes.
These amounts have been classified as liabilities subject to compromise.
The agreement contains various covenants which are similar to those
contained in the Senior Credit Facility.
The Company's various prepetition loan agreements had covenants which,
among other things, limited the payment of dividends and capital
expenditures, specified levels of consolidated net worth and minimum
consolidated adjusted operating profit as well as maintenance of specified
ratios including interest coverage and current ratios. However, as a result
of the automatic stay resulting from the Chapter 11 proceedings, the
Company's lenders may not enforce any rights, exercise any remedies or
realize on any claims in the event that the Company fails to comply with
any of the covenants contained in the various prepetition loan agreements.
F-19
<PAGE>
The Company is subject to various financial and other covenants under the
terms of the DIP facility including, among other things, minimum EBITDA (as
defined in the DIP facility) and limitations on indebtedness, investments,
payments of indebtedness and capital expenditures. The Company is in
compliance with the DIP facility covenants at March 1, 1997 or has obtained
appropriate waivers.
On December 12, 1997 as described in Note 2, the Plan was confirmed.
Pursuant to the terms of the Plan all of the prepetition debt will be
settled with the issuance of common stock to the prepetition debt claim
holders.
8. LIABILITIES SUBJECT TO COMPROMISE:
Liabilities subject to compromise at March 1, 1997 include the following:
Bank debt and related interest $295,617
Subordinated debentures and related interest of $2,741 58,489
Senior debentures and related interest of $2,439 57,651
Trade claims 54,675
Lease claims 14,349
Priority tax claims 1,219
Other claims 2,811
-------
Total $484,811
========
Liabilities subject to compromise under the Chapter 11 proceedings include
substantially all current and long-term debt and trade and other payables
as of the petition date. As discussed in Note 2, payment of these
liabilities, including the maturity of debt obligations, is stayed while
the Company continues to operate as a debtor-in-possession.
As part of the Chapter 11 proceedings, the Company has notified all known
or potential claimants for the purpose of identifying all prepetition
claims against the Company. The Bankruptcy Court entered an order setting
January 30, 1997 as the bar date (the "Bar Date") for submission of proofs
of claim in the Chapter 11 proceedings. With certain exceptions, a creditor
who fails to submit on or before the Bar Date a proof of Claim in respect
of a claim against the Company is forever barred from asserting such claim
against the Company. Additional bankruptcy claims and prepetition
liabilities may arise by termination of various contractual obligations and
as certain contingent and/or potentially disputed bankruptcy claims are
settled for amounts which differ from those shown on the balance sheet.
On December 12, 1997, as described in Note 2, the Company's Plan was
confirmed whereby substantially all claims arising in connection with the
Chapter 11 proceedings have been resolved. Accordingly, management believes
that the amount of liabilities subject to compromise as reported are fairly
stated.
F-20
<PAGE>
9. STOCKHOLDERS' (DEFICIT) EQUITY:
The following is a summary of the capitalization of Holdings at March 1,
1997 and March 2, 1996:
Class A Stock: 910 shares authorized; 850 shares issued and outstanding
Class C Stock: 557 shares authorized; 143.75 shares issued and outstanding
Class D Voting Stock: 6.25 shares authorized, issued and outstanding
Class E Stock: 375.01 shares authorized; no shares issued and outstanding
Common Stock: 1,848.26 shares authorized; no shares issued or outstanding
The Class A Stock, Class C Stock, Class D Stock and Common Stock have $.01
par values per share. The Class E Stock has a $1.00 par value per share.
The transfer of any shares of stock are restricted as specified in
Holdings' Certificate of Designation (the "Certificate").
Conversion of Stock: In the event of an initial public offering or sale of
the Company, as defined in the Certificate, all issued and outstanding
shares of Class A, Class C, Class D and Class E Stock not otherwise
redeemed by the Company shall automatically convert into shares of Common
Stock on a one-for-one basis.
VOTING RIGHTS: Holders of shares of Class D Stock are entitled to one vote
for each share of such stock held. Until a change of control of the
Company, as defined in the Certificate, holders of Class A, Class C and
Class E Stock have no voting rights, except that the holders of these
shares shall have the right to one vote for each share held as to the
approval of any change to the Certificate of Incorporation that would
increase or decrease the par value of such stock, or change the powers,
preferences, or special rights of such stock, so as to have a material
adverse effect on such holders. Effective upon a change of control, holders
of shares of Class A, Class C and Class E Stock shall be entitled to one
vote for each share of stock held.
LIQUIDATION RIGHTS: In the event of liquidation of the Company, each holder
of Class E Stock shall be entitled to receive $133.33 per share before any
payment or distribution shall be made or set aside for payment on the Class
A, Class C or Class D Stock, and each holder of Class A and Class C Stock
shall be entitled to receive $.001 per share before any payment or
distribution shall be made or set aside for payment on the Class D Stock.
Any remaining assets or proceeds therefrom are to be distributed to all
stockholders on a pro rata basis.
DIVIDEND RIGHTS: Dividends are payable to all stockholders on a pro rata
basis upon declaration of such dividends by the Board of Directors.
On December 12, 1997, the Company's Plan was confirmed in Bankruptcy Court
whereby the reorganized company will emerge and issue approximately 10
million common shares of stock to the various claim holders pursuant to the
terms of the Plan. The stockholders in the Company will receive no recovery
nor will they be issued any shares in the reorganized company under the
Plan.
10. STOCK OPTION AND PURCHASE AGREEMENTS:
STOCK OPTION AGREEMENTS: Holdings established a Management Stock Incentive
Plan (the "Incentive Plan") for key employees of the Company ("Eligible
Employees"). The Incentive Plan provides for the grant of options that
qualify as incentive stock options ("ISO's") under the Internal Revenue
Code, as amended, as well as options that do not qualify as ISO's
("Non-qualified Options") (collectively referred to as the "Options").
Additionally, the Incentive Plan provides for the grant of stock
appreciation rights and for the sale or grant of restricted stock.
Grants under the Incentive Plan can generally occur over a ten year period.
Shares purchased under the Incentive Plan are subject to certain
transferability restrictions. Also, in the event an eligible employee
ceases to be employed by Camelot, Holdings has the option to repurchase the
shares. If this option is not exercised, and if the employee's termination
is due to death or disability, then the employee may require Holdings to
purchase such shares.
Under the terms of the Incentive Plan, a total of 52.632 shares have been
reserved for the issuance of stock options and restricted shares. As of
February 25, 1995, the Board of Directors of the Company granted Options
for 47.7 shares. During the Fiscal 1996 and Fiscal 1995, 0.5 and 14.7
Options, respectively were forfeited and no Options were issued. These
Options become exercisable on the tenth anniversary of the date of grant.
The right to exercise is accelerated in annual installments of 20% provided
that the Company meets certain annual or cumulative performance criteria.
Through Fiscal 1996 this performance criteria has not been met.
Exercisability also will be accelerated upon the earlier to occur of an
initial public offering or sale of the Company. The exercise price of all
Options granted was at the estimated market value of $80.00 per share.
F-21
<PAGE>
STOCK PURCHASE AGREEMENTS: Holdings and its shareholders have entered into
various stock purchase agreements with certain key employees of the
Company. Under the terms of the agreements, certain shareholders of
Holdings may sell their Class C Stock in Holdings to certain key employees
for $80.00 per share. The shares have certain transferability restrictions.
In the event an employee ceases to be employed by Camelot, Holdings has the
option to repurchase the shares. If this option is not exercised, and if
the employee's termination is due to death or disability, then the employee
may require Holdings to purchase such shares for $80.00 per share until
August 31, 1995 and at a fair market value thereafter. At March 1, 1997,
45.0 shares were issued and outstanding under stock purchase agreements.
On December 12, 1997, the Company's Plan was confirmed in Bankruptcy Court
whereby the reorganized company will emerge and issue approximately 10
million common shares of stock to the various claim holders pursuant to the
terms of the Plan. The stockholders in the Company will receive no recovery
nor will they be issued any shares in the reorganized company under the
Plan.
11. PUT AGREEMENTS:
Effective November 12, 1993 Holdings entered into Put Agreements ("Put")
with four existing shareholders. The Put provided Holdings an option to
sell 375.01 shares of its Class E preferred stock at an aggregate purchase
price of $50.0 million. In consideration for the Put, Holdings paid fees of
$3.4 million to the four shareholders. The Put was exercisable upon the
execution by the Company of a purchase agreement to acquire a company in a
business similar to Camelot. The Put, pursuant to its original terms,
expired on December 31, 1995.
12. FAIR VALUE OF LONG-LIVED ASSETS:
Management identified significant adverse changes in the Company's business
climate late in the 3rd quarter of the fifty-three weeks ended March 2,
1996 that persisted subsequent to year end. These changes were largely due
to increasing competition in the Company's marketplace, which led to
operating results and forecasted future results that were less than
previously planned. These factors led to the conclusion that there was a
potential impairment in the recorded value of goodwill and certain
property, plant and equipment.
Management performed an analysis of the recoverability of its long-lived
assets based upon a variety of valuation methods including discounted cash
flow and EBITDA multiples. In management's judgment, there was an
impairment of certain of the Company's property, plant and equipment and
the carrying value of the Company's goodwill should be reduced resulting in
an impairment loss of $202,869 which is included in the accompanying fiscal
1995 statement of operations.
As a result of the Company's financial performance and the Chapter 11
proceedings, the Company closed 73 locations during fiscal 1996. In
addition, the Company has re-evaluated the carrying amount of its property,
plant and equipment. Based on this evaluation, the Company determined that
property, plant and equipment with a carrying amount of $17,152 was
impaired, resulting in a write-down of $6,523 to estimated fair value,
which amount is included in the Fiscal 1996 consolidated statement of
operations.
13. RESTRUCTURING CHARGE:
In response to an increasingly competitive retail environment, the Company
began a "reengineering" project during fiscal 1995 in order to lower costs
through corporate overhead reductions and the identification of under
performing stores. As part of this project, the Company identified required
changes in corporate and retail operations and, therefore, assessed the
realizable value of certain assets and the cost of restructuring measures.
As a result, in Fiscal 1995, restructuring charges of $5,238 were recorded.
14. REORGANIZATION EXPENSE:
The net expense resulting from the Company's Chapter 11 filing has been
segregated from expenses related to ordinary operations in the accompanying
consolidated financial statements and includes the following for the
fifty-two weeks ended March 1, 1997:
Professional fees $ 4,866
Write-off of financing costs 15,953
Provision for store closing costs 4,917
Lease rejection damages 7,573
Employment termination costs 803
Write-off of capital lease obligation (1,677)
Other expenses (net) directly related to bankruptcy 253
Interest income (843)
---------
Total $ 31,845
========
Interest income is attributable to the accumulation of cash and cash
equivalents subsequent to the petition date.
F-22
<PAGE>
15. LEASES:
The Company leases its retail stores under noncancelable leases expiring in
various years through fiscal 2007. Several of the leases are subject to
renewal options under various terms.
Minimum rental commitments are summarized as follows:
FISCAL YEARS
1997 $ 24,001
1998 22,869
1999 21,103
2000 19,381
2001 17,217
Thereafter 37,979
---------
Total minimum payments $ 142,550
=========
Rental expense totaled $29,361, $33,404 and $30,189 for Fiscal years 1996,
1995 and 1994, respectively. Rental expense included contingent rentals of
$2,187, $2,813 and $2,820 for Fiscal years 1996, 1995 and 1994,
respectively. The contingent rentals are based on sales volume.
The Company has received extensions of its time to assume or reject these
leases from the Bankruptcy Court. The Company is in the process of
negotiating lease term revisions with its landlords and evaluating each
lease in terms of its ongoing operations.
16. INCOME TAXES:
The provision (benefit) for income taxes includes current and deferred
income taxes as follows:
FISCAL FISCAL FISCAL
1996 1995 1994
----------- ----------- -----------
Current taxes:
Federal $ - $ 538 $ (3,465)
State and local - (162) (424)
----------- ----------- -----------
- 376 (3,889)
Deferred taxes:
Federal - - 6,081
State and local - 98 878
----------- ----------- -----------
- 98 6,959
----------- ----------- -----------
Total $ - $ 474 $ 3,070
=========== ========== ===========
The effective rate of the provision for income taxes reconciles to the U.S.
statutory rate as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% (35.0)%
Goodwill amortization - - 15.8
Corporate owned life insurance - - (6.7)
State taxes, net of federal benefits - - (1.7)
Valuation allowance - - 48.1
Due to uncertainty of utilization of net operating
loss carryforwards, no current federal income
tax expense (benefit) was recorded (35.0) (34.9) -
Other adjustments, net - 0.1 (1.1)
------------- ------------- -------------
Effective tax rate 0.0% 0.2% 19.4%
============= ============= =============
</TABLE>
F-23
<PAGE>
The Company had total deferred tax assets, prior to valuation allowance, of
$55,989 and $39,141 and deferred tax liabilities of $192 and $1,802 at
March 1, 1997 and March 2, 1996, respectively. Included in such amount, at
March 1, 1997, the Company had net operating loss carryforwards of $76
million for federal and state income tax purposes that expire in years 2010
through 2012. For financial reporting purposes, a valuation allowance of
$28 million has been recognized to offset the deferred tax assets related
to the net operating loss carryfowards. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes.
On December 12, 1997, as described in Note 2, the Plan was confirmed.
Accounting for the emergence from bankruptcy will result in a reduction in
net operating loss carryforwards and the related deferred tax assets and a
corresponding reduction in the valuation allowance. These reductions will
have no impact on current or future earnings or on cash flows.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
FISCAL FISCAL
1996 1995
-------- --------
Net current deferred income tax assets:
Inventory reserves $ 2,775 2,207
Reorganization costs 4,967 -
Other, net 3,986 3,163
-------- --------
11,728 5,370
Net long-term deferred income tax assets:
Depreciation differences 4,361 2,022
Amortization of financing fees 5,749 287
Net federal and state operating
loss carryforwards 28,306 23,860
Leases 2,265 2,418
Other, net 3,388 3,382
-------- --------
44,069 31,969
-------- --------
Valuation allowance (55,797) (37,339)
-------- --------
Net deferred tax assets on consolidated
balance sheet $ - $ -
========= ========
17. COMMITMENTS AND CONTINGENCIES:
The Company's contingencies are generally subject to the effects of the
Chapter 11 proceedings, which are discussed in Note 2. The following
discussion does not purport to reflect or provide for all the consequences
of the ongoing Chapter 11 proceedings. Primarily due to the uncertainty
concerning the ultimate outcome of the Chapter 11 proceedings, the ultimate
liability and effect on the financial statements from such matters cannot
currently be determined.
OTHER CLAIMS AND LEGAL ACTION: The Company is a party to various other
claims, legal actions and complaints arising in the ordinary course of its
business, including proposed assessments by the Internal Revenue Service
aggregating approximately $7.9 million of which the Company has accrued
$0.8. In the opinion of management, all such matters not accrued for are
without merit or involve such amounts that unfavorable disposition will not
have a material impact on the financial position or results of operations
of the Company.
SELF-INSURANCE COMMITMENTS: The Company is self-insured with respect to
workers' compensation benefits within the State of Ohio and medical
benefits for all of its employees. The Company maintains insurance coverage
for workers' compensation claims in excess of $300 per incident and for
annual medical claims in excess of $75 per employee.
MANAGEMENT CONSULTING AGREEMENT: The Company entered into a five year
management consulting agreement with INVESTCORP. Fees under this agreement
are $500 per year payable annually, in advance, with the first three years
paid on November 12, 1993. The final two year payment has not been paid to
INVESTCORP as a result of the Chapter 11 proceedings.
18. ELECTIVE SAVINGS AND PROFIT SHARING PLAN:
The Company sponsors an Elective Savings 401(k) and Profit Sharing Plan.
The Plan covers substantially all employees and provides for a 22.5% to 50%
matching contribution of employee elective contributions up to a maximum of
10% of wages, not to exceed the statutory limit. Such matching
contributions were approximately $309, $266 and $334 in Fiscal 1996, 1995
and 1994, respectively. The Company may, at the discretion of the Board of
Directors, contribute additional funds to the Plan as deemed appropriate.
No such contributions were made during Fiscal 1996 and 1995, respectively,
and $200 were made in Fiscal 1994.
19. SUBSEQUENT EVENTS:
ACQUISITION OF THE WALL: On December 10, 1997 the Company signed an Asset
Purchase Agreement to acquire The Wall Music, Inc. ("The Wall") for $26,000
plus net working capital assets transferred at the date of closing which
are projected to be approximately $47,000. The Wall is a mall-based music
store chain that operates over 150 stores in the Mid-Atlantic region of the
United States. This transaction is anticipated to close in late Fiscal
1997. The acquisition will be accounted for by the purchase method of
accounting.
CONFIRMATION OF PLAN OF REORGANIZATION: See Note 2 to the consolidated
financial statements.
F-24
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Plan of Reorganization was confirmed on December 12, 1997 and
became effective on January 27, 1998. The following unaudited Pro Forma
Financial Information is based on the Consolidated Financial Statements of the
Company as of November 29, 1997, for the thirty-nine week period ended November
29, 1997 and for the fifty-two week period ended March 1, 1997. The Pro Forma
Condensed Consolidated Balance Sheet has been adjusted to give effect to the
Plan of Reorganization which became effective on January 27, 1998 as if it had
become effective on November 29, 1997. The Pro Forma Condensed Consolidated
Statements of Operations have been adjusted to give effect to the Plan of
Reorganization as if it became effective on March 2, 1996. The unaudited pro
forma consolidated financial statements include certain adjustments, which
management believes are reasonable, to the historical consolidated financial
statements of the Company to give effect to certain assumptions described in
Notes to Pro Forma Financial Information. The assumptions do not purport to
reflect all of the effects that would have occurred had the Plan of
Reorganization become effective on March 2, 1996. The pro forma adjustments were
made to reflect the Company's adoption of "fresh-start" accounting as prescribed
by AICPA Statement of Position ("SOP") 90-7, "Financial Reporting by Entities
Under the Bankruptcy Code."
The unaudited Pro Forma Condensed Consolidated Statements of
Operations do not purport to be indicative of the results of operations of the
Company had the Plan of Reorganization become effective on March 2, 1996 nor of
the future results of operations of the Company. The unaudited pro forma
condensed consolidated statements should be read in conjunction with the audited
Consolidated Financial Statements and the unaudited Interim Condensed
Consolidated Financial Statements, in each case including the Notes thereto,
included elsewhere herein.
F-25
<PAGE>
CAMELOT MUSIC HOLDINGS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
November 29, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
ASSETS
PREDECESSOR PRO FORMA
HISTORICAL DEBIT CREDIT AS ADJUSTED
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 45,689 $ (8,116)(a)(b)(c)(d)(k) 37,573
Accounts receivable 3,099 3,099
Inventories 141,106 141,106
Deferred income taxes - $ 7,800(f)(g) 7,800
Other current assets 2,027 2,027
---------- ---------- ---------- ----------
Total current assets 191,921 7,800 (8,116) 191,605
---------- ---------- ---------- ----------
Property, plant and equipment, net 46,671 (1,500)(e)(f) 45,171
---------- ---------- ---------- ----------
Other non-current assets:
Goodwill, net of accumulated amortization 39,693 (39,693)(e)(f)(g)(h) -
Other intangible assets, net - 16,372(d)(e)(f)(g)(h)(k) 16,372
Deferred income taxes - 11,200(f)(g) 11,200
Other assets 876 876
---------- ---------- ---------- ---------
Total other non-current assets 40,569 27,572 (39,693) 28,448
---------- ---------- ---------- ---------
Total assets $ 279,161 $ 35,372 $ (49,309) $ 265,224
========== ========== ========== =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable, trade $ 42,024 $ 42,024
Accrued expenses and other liabilities 22,896 $ (908)(a)(b) 21,988
---------- ---------- ---------- ---------
Total current liabilities 64,920 (908) 64,012
---------- ---------- ---------- ---------
Long-term liabilities:
Other long-term liabilities 7,920 (1,150)(a)(c) 6,770
---------- ---------- ---------- ---------
Total long-term liabilities 7,920 (1,150) 6,770
---------- ---------- ---------- ---------
Liabilities subject to compromise 485,296 (485,296) (d) -
---------- ---------- ---------- ---------
Total liabilities 558,136 (487,354) 70,782
Stockholders' (deficit) equity:
New common stock - $ 102(f)(h) 102
Common stock 10 (10)(f)(h) -
Additional paid-in capital 79,990 114,350(a)(f)(h) 194,340
Accumulated deficit (358,975) (120,763)(f)(h) 479,738 (a)(d) -
---------- ---------- ---------- ----------
Total stockholders' (deficit) equity: (278,975) (120,773) 594,190 194,442
---------- ---------- ---------- ----------
Total liabilities and stockholders'
(deficit) equity $ 279,161 $(608,127) $ 594,190 $ 265,224
========== ========== ========== ==========
</TABLE>
See notes to pro forma consolidated financial statements.
F-26
<PAGE>
CAMELOT MUSIC HOLDINGS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
for the 39 weeks ended November 29, 1997
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
PREDECESSOR PRO-FORMA
HISTORICAL DEBIT CREDIT AS ADJUSTED
<S> <C> <C> <C> <C>
Net sales $ 260,340 $ (3,861)(i) $ 256,479
---------- --------- --------- ----------
Cost and expenses:
Cost of sales 170,966 $ (3,644)(i) 167,322
Selling, general and administrative 80,573 (1,079)(i) 79,494
Depreciation and amortization 16,842 595 (l) (1,854)(i)(l) 15,583
---------- --------- --------- ----------
Total cost and expenses 268,381 595 (6,577) 262,399
---------- --------- --------- ----------
Loss before interest and other
expenses (net) and reorganization expense (8,041) (4,456) 6,577 (5,920)
---------- --------- --------- ----------
Interest and other expenses, net:
Interest expense 186 (186)(n) -
Amortization of financing fees 344 94(k) (344)(j) 94
Other (3,972) (3,972)
---------- --------- --------- ----------
Total interest and other expenses, net (3,442) 94 (530) (3,878)
---------- --------- --------- ----------
Loss before reorganization expense (4,599) (4,550) 7,107 (2,042)
Reorganization expense 6,072 (6,072)(o) -
---------- --------- ----------
Loss before income taxes (10,671) 13,179 (6,072)(o) (2,042)
Provision for income taxes - -
---------- --------- --------- ----------
Net loss $ (10,671) $ 3,266 $ 5,957 $ (2,042)
========== ========= ========= ==========
Net loss per common share:
Basic $( 0.21)(p)
===========
Diluted $( 0.21)(p)
===========
Average-weighted number of
shares outstanding 9,835,559
===========
</TABLE>
See notes to pro forma consolidated financial statements.
F-27
<PAGE>
CAMELOT MUSIC HOLDINGS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
for the 52 weeks ended March 1, 1997
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
PREDECESSOR PRO FORMA
HISTORICAL DEBIT CREDIT AS ADJUSTED
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net sales $ 396,502 $ (25,241)(m) $ 371,261
---------- ---------- --------- ----------
Cost and expenses:
Cost of sales 263,072 $(16,799)(m) 246,273
Selling, general and administrative 117,558 (8,731)(m) 108,827
Depreciation and amortization 23,290 793(l) (3,468)(l)(m) 20,615
Write-down of long-lived assets 6,523 (4,194)(m) 2,329
---------- ---------- --------- ----------
Total cost and expenses 410,443 793 (33,192) 378,044
---------- ---------- --------- ----------
Loss before interest and other expenses (net),
reorganization expense and income taxes (13,941) (26,034) 33,192 (6,783)
---------- ---------- --------- ----------
Interest and other expenses, net:
Interest expense 17,418 (17,418)(n) -
Amortization of financing fees 1,856 125(k) (1,856)(j) 125
Other (696) (696)
---------- ---------- --------- ----------
Total interest and other expenses, net 18,578 125 (19,274) (571)
---------- ---------- --------- ----------
Loss Before Reorganization Expense (32,519) (26,159) 52,466 (6,212)
Reorganization expense 31,845 (31,845)(o) -
---------- ---------- --------- ----------
(Loss) before income taxes 64,364 (26,159) 84,311 (6,212)
Provision for income taxes - -
---------- ---------- --------- ----------
Net loss $ (64,364) $ (26,159) $ 84,311 $ (6,212)
========== ========== ========= ==========
Net loss per common share:
Basic $( 0.63)(p)
===========
Diluted $( 0.63)(p)
===========
Average-weighted number of
shares outstanding 9,835,559
===========
</TABLE>
See notes to pro forma consolidated financial statements.
F-28
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
As of the effective date of the Plan of Reorganization, the Company
will adopt "fresh-start" accounting as prescribed by AICPA Statement of Position
("SOP") 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code". Under the provisions of fresh-start accounting:
The reorganization value of the Company will be allocated to the
Company's assets in conformity with the procedures specified by Accounting
Principles Board ("APB") Opinion No. 16, "Business Combinations", for
transactions reported on the basis of the purchase method. Each liability
existing at the plan confirmation date, other than deferred income taxes, will
be stated at present value of amounts to be paid determined at appropriate
current interest rates. Deferred income taxes will be reported in conformity
with the liability method of accounting for income taxes. Additionally, the
effects of the adjustments on the reported amounts of individual assets and
liabilities resulting from the adoption of fresh-start reporting and the effects
of the forgiveness of debt will be reflected in the predecessor company's final
consolidated statement of operations. Forgiveness of debt, if any, will be
reported as an extraordinary item. Adopting fresh-start reporting will result in
a new reporting entity with no beginning retained earnings or deficit.
(a) To reflect cash payments made upon emergence from bankruptcy pursuant to the
Plan of Reorganization.
(b) To reflect cash payments made upon emergence from bankruptcy for retention
and emergence bonuses. An additional $543 retention bonus and $435 emergence
bonus will be paid out in the future pursuant to the Plan of Reorganization.
(c) To reflect cash payment for Supplemental Employee Retirement Plan liability
pursuant to the Plan of Reorganization.
(d) To reflect extraordinary gain on discharge of debt.
(e) To reflect estimated adjustment to property plant and equipment based on
preliminary assessment of fair market value.
(f) To eliminate predecessor goodwill and reflect identified intangible assets.
It should be noted that the final allocation of the reorganization value may be
significantly different based on final analysis of fair market value of
inventories, property, plant and equipment, other intangible assets and lease
obligations.
(g) To establish deferred income tax assets using the liability method of
accounting for income taxes related to the basis differences created by
fresh-start accounting. Based upon the level of projected future taxable income
over the periods in which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the benefits
of deductible differences.
(h) To reflect elimination of predecessor common stock and accumulated deficit
and issuance of new common stock and additional paid in capital in the
reorganized company.
(i) To reflect adjustment for results of 10 stores closed in conjunction with
the Plan of Reorganization. The adjustment to cost of sales reflects $1,150 of
lost vendor discounts due to several vendors disallowing discounts during the
reorganization.
(j) To reflect elimination of predecessor financing costs amortization expense.
(k) To reflect financing costs paid upon emergence from bankruptcy for the New
Working Capital Facility and to amortize these costs on a straight-line basis
over four years.
(l) To reflect elimination of amortization on predecessor goodwill and to
amortize other intangible assets on a straight-line basis over 20 years.
(m) To reflect adjustment for results of 83 stores closed in conjunction with
the reorganization. The adjustment to cost of sales also reflects $731 of lost
vendor discounts due to several vendors disallowing discounts during the
reorganization.
(n) To reflect elimination of interest expense. Management has estimated that
had the restructuring occurred on March 2, 1996, no borrowings would have been
necessary during fiscal 1996.
(o) To eliminate the net expense resulting from the Company's Chapter 11 filing.
(p) Basic earnings per share is computed by dividing the loss available to
common shareholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing the loss
available to common shareholders by the weighted average number of common shares
outstanding plus the number of additional common shares that would have been
outstanding if options for the Company's stock would have been exercised.
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, as amended, Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 13, 1998
CAMELOT MUSIC HOLDINGS, INC.
(Registrant)
By: /s/ Jack K. Rogers
----------------------------
Name: Jack K. Rogers
Title: Executive Vice President,
Chief Operating Officer and Secretary
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
PAGE
----
<S> <C>
2.1 Second Amended Joint Plan of Reorganization, dated November 7, 1997............. 62
2.2 Asset Purchase Agreement by and among Camelot Music, Inc., The Wall Music,
Inc., and WH Smith Group Holdings (USA), Inc., dated as of December 10,
1997............................................................................. 88
2.3 Assignment of Purchase Agreement................................................. 123
3.1 Second Amended and Restated Certificate of Incorporation of the Registrant....... 124
3.2 Amended and Restated Bylaws of the Registrant.................................... 128
4.1 Specimen certificate of Common Stock............................................. 135
10.1 Revolving Credit Agreement, dated as of January 27, 1998, among Camelot
Music, Inc., the several lenders named therein and The Chase Manhattan
Bank, as agent for the lenders.................................................... 138
10.2 Registration Rights Agreement, dated as of January 27, 1998, by and among
the Registrant and the security holders named therein............................. 186
10.3 Second Amended and Restated Employment Agreement, dated as of January 1,
1998, between Camelot Music, Inc. and James E. Bonk............................... 216
10.4 Camelot Music Holdings, Inc. 1998 Stock Option Plan............................... 224
21.1 Subsidiaries of the Registrant.................................................... 239
27.1 Financial Data Schedule........................................................... 240
</TABLE>
EXHIBIT 2.1
[BLACKLINED TO REFLECT
TECHNICAL MODIFICATIONS]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
CM HOLDINGS, INC., )
CAMELOT MUSIC, INC., ) Case Nos. 96-1247
G.M.G. ADVERTISING, INC. ) through 96-1250 (PJW)
and GRAPEVINE RECORDS )
AND TAPES, INC., ) Jointly Administered
)
Debtors. )
SECOND AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION
OF
CM HOLDINGS, INC., CAMELOT MUSIC, INC.,
G.M.G. ADVERTISING, INC.
AND GRAPEVINE RECORDS AND TAPES, INC.
November 7, 1997
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attn: Howard S. Beltzer (HSB-5721)
Evan C. Hollander (ECH-0191)
Michael C. O'Sullivan (MCO-2355)
(212) 819-8200
and
Young, Conaway, Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899
Attn: James L. Patton, Jr. (No. 2022)
S. David Peress (No.2679)
(302) 571-6600
Co-Counsel for Debtors and
Debtors in Possession
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION................................................................. 1
ARTICLE I. DEFINITIONS AND RULES OF INTERPRETATION...................... 1
1.01. Definitions.................................................. 1
1.02. Rules of Interpretation...................................... 14
1.03. Incorporation of Exhibits.................................... 14
ARTICLE II. PROVISIONS FOR TREATMENT OF
ADMINISTRATIVE EXPENSE CLAIMS.............................. 15
2.01. Allowance of Administrative Expense Claims................... 15
2.02. Payment of Administrative Expense Claims..................... 15
ARTICLE III. PROVISIONS FOR TREATMENT OF PRIORITY TAX
CLAIMS..................................................... 16
3.01. Priority Tax Claims.......................................... 16
ARTICLE IV. CLASSIFICATION OF CLAIMS AND INTERESTS....................... 16
4.01. Class 1 Claims............................................... 16
4.02. Class 2 Claims............................................... 17
4.03. Class 3 Claims............................................... 17
4.04. Class 4 Claims............................................... 17
4.05. Class 5 Claims............................................... 17
4.06. Class 6 Claims............................................... 18
4.07. Class 7 Interests............................................ 18
ARTICLE V. PROVISIONS FOR TREATMENT OF CLAIMS AND
INTERESTS.................................................. 18
5.01. Prepetition Lender Secured Claims (Class 1-A)................ 18
5.02. Miscellaneous Secured Claims (Classes 2-A through 2-D)....... 19
5.03. Classified Priority Claims (Classes 3-A through 3-D)......... 20
5.04. Prepetition Lender Deficiency Claims (Class 4-A)............. 20
5.05. General Unsecured Claims (Classes 5-A through 5-D)........... 20
5.06. Subordinated Debenture Claims (Class 6-A).................... 22
5.07. Interests (Classes 7-A through 7-D).......................... 22
ARTICLE VI. IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED BY THE
PLAN; ACCEPTANCE OR REJECTION OF THE PLAN.................. 23
6.01. Acceptance by an Impaired Class of Creditors................. 23
6.02. Voting Classes............................................... 23
6.03. Classes Not Receiving or Retaining Property
Deemed to Reject the Plan.................................. 23
6.04. Unimpaired Classes Conclusively Presumed to
Accept the Plan............................................ 23
6.05. Confirmation Pursuant to Section 1129(b)..................... 23
ARTICLE VII. UNEXPIRED LEASES AND EXECUTORY
CONTRACTS.................................................. 24
7.01. Assumption and Rejection..................................... 24
7.02. Assignment................................................... 24
7.03. Cure of Defaults............................................. 24
7.04. Rejection Damages............................................ 25
ARTICLE VIII. OPERATION AND MANAGEMENT OF
REORGANIZED DEBTORS........................................ 25
8.01. Corporate Governance; Directors and Officers................. 25
8.02. Appointment of Directors; Retention of Officers.............. 26
8.03. Option Plan.................................................. 26
ARTICLE IX. MEANS FOR IMPLEMENTATION OF THE PLAN......................... 28
9.01. Creation of New Subsidiaries; Transfer Agreements;
Wall Asset Purchase Agreement.............................. 28
9.02. Operations Between the Confirmation Date and
the Effective Date......................................... 28
9.03. Revesting and Transfer of Assets............................. 28
9.04. Cancellation of Securities................................... 29
9.05. Closing of Books Related to Cancelled Securities............. 29
9.06. Allowance of Claims Subject to Section 502(d)................ 29
9.07. Right of Setoff.............................................. 29
ARTICLE X. PROVISIONS COVERING DISTRIBUTIONS............................ 30
10.01. Timing of Distributions...................................... 30
10.02. New Common Stock............................................. 30
10.03. New Common Stock Distributions............................... 30
10.04. Fractional Shares............................................ 30
10.05. Administration of Exchange Option............................ 31
10.06. Fractional Dollars........................................... 31
10.07. Compliance With Tax Requirements............................. 32
10.08. Persons Deemed Holders of Registered Securities.............. 32
10.09. Distribution of Unclaimed Property........................... 32
ARTICLE XI. RESOLUTION OF DISPUTED CLAIMS................................ 33
11.01. Objections to Claims......................................... 33
11.02. Procedure.................................................... 33
11.03. Estimation................................................... 33
ARTICLE XII. DISCHARGE, RELEASE AND PRESERVATION OF CLAIMS................ 33
12.01. Discharge and Termination.................................... 33
12.02. Distributions in Complete Satisfaction....................... 34
12.03. Injunction................................................... 34
12.04. Release by Debtors and Debtors in Possession................. 34
12.05. Release by Holders of Claims and Interests................... 35
12.06. Exculpation.................................................. 36
12.07. Indemnification Obligations.................................. 36
12.08. Preservation of Insurance.................................... 37
12.09. Subordination................................................ 37
ARTICLE XIII. CONDITIONS TO CONSUMMATION OF THE PLAN....................... 37
13.01. Conditions................................................... 37
13.02. Consummation................................................. 38
ARTICLE XIV. RETENTION OF JURISDICTION.................................... 39
14.01. Jurisdiction of Bankruptcy Court............................. 39
14.02. Exception to Jurisdiction of Bankruptcy Court................ 40
ARTICLE XV. MISCELLANEOUS PROVISIONS..................................... 41
15.01. Binding Effect of the Plan................................... 41
15.02. Nonvoting Stock.............................................. 41
15.03. Authorization of Corporate Action............................ 41
15.04. Listing of Stock............................................. 41
15.05. Retiree Benefits............................................. 41
15.06. Withdrawal of the Plan....................................... 42
15.07. Final Order.................................................. 42
15.08. Notice ..................................................... 42
15.09. Dissolution of Committee..................................... 43
15.10. Amendments and Modifications................................. 43
15.11. Time......................................................... 43
15.12. Section 1145 Exemption....................................... 43
15.13. Section 1146 Exemption....................................... 43
EXHIBITS(1)
Exhibit A Camelot Distribution Co. Transfer Agreement
Exhibit B Camelot Midwest Region Transfer Agreement
Exhibit C Camelot Northeast Region Transfer Agreement
Exhibit E Camelot Southeast Region Transfer Agreement
Exhibit F Camelot Western Region Transfer Agreement
Exhibit G Customary Trade Terms Commitment and Option Exercise Notice
Exhibit H Qualified Option Plan
- --------
(1) The Exhibits to this Plan are voluminous and in some cases have not been
finalized, and accordingly will be compiled in a separate package to be Filed
with the Bankruptcy Court at least five (5) Business Days prior to the first
scheduled date for Confirmation Hearing.
<PAGE>
DEBTORS' SECOND AMENDED JOINT CHAPTER 11
PLAN OF REORGANIZATION
THE DEBTORS PROPOSE THIS SECOND AMENDED JOINT PLAN OF REORGANIZATION
PURSUANT TO SECTION 1121(a) OF THE BANKRUPTCY CODE. REFERENCE SHOULD BE MADE TO
THE DEBTORS' DISCLOSURE STATEMENT, APPROVED BY THE BANKRUPTCY COURT ON NOVEMBER
7, 1997, WHICH PROVIDES PERTINENT INFORMATION REGARDING THE DEBTORS' BUSINESS
AND THIS JOINT PLAN.
Capitalized terms shall have the meanings set forth in Article I hereof.
INTRODUCTION
Unconsolidated Plan
The Debtors' Chapter 11 Cases are being jointly administered pursuant to an
order of the Bankruptcy Court, and the Plan is being presented as a joint plan
of reorganization of the Debtors for administrative purposes only. The Plan is
not predicated upon a substantive consolidation of the Chapter 11 Cases and
nothing herein shall be otherwise construed. Claims against, and Interests in,
the Debtors (other than Administrative Expense Claims and Priority Tax Claims)
are classified in Article IV hereof and treated in Article V hereof.
ARTICLE I.
DEFINITIONS AND RULES OF INTERPRETATION
1.01. Definitions. As used herein:
"ADMINISTRATIVE EXPENSE CLAIM" means a cost or expense of administration of
any of the Chapter 11 Cases allowable under Sections 503(b) and 507(a)(1) of the
Bankruptcy Code, including (i) Fee Claims, (ii) any fees assessed against the
Debtors' estates under 28 U.S.C. ss. 1930, (iii) Ordinary Course Administrative
Expense Claims, (iv) Approved Chapter 11 Liabilities and (v) Reclamation Claims.
"AFFILIATE" means a Person that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with, a
specified Person.
"ALLOWED" means with respect to a Claim (other than an Administrative
Expense Claim) that the Claim is allowed pursuant to the Plan in an amount set
forth herein, or:
A. Either (i) is set forth in a proof of claim that was timely Filed,
or that by order of the Bankruptcy Court is not and will not be required to
be Filed, or (ii) has been or hereafter is listed in the Schedules as
liquidated in amount and not disputed or contingent; and
B. Either (i) no objection to the allowance thereof has been
interposed within the applicable period of time fixed by the Plan, the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, or (ii) such
an objection has been so interposed and such Claim has been allowed by a
Final Order;
and means, with respect to an Administrative Expense Claim, an Administrative
Expense Claim that becomes "Allowed" as set forth in Section 2.01.
"APPROVED CHAPTER 11 LIABILITIES" means any and all liabilities that have,
with the approval of the Bankruptcy Court, been assumed by, or otherwise become
binding upon, any of the Debtors at any time during the course of the Chapter 11
Cases through the Effective Date and includes, so long as approved by the
Bankruptcy Court and not paid prior to the Effective Date, (i) all agreements
relating to any indebtedness incurred by any of the Debtors during the course of
the Chapter 11 Cases or credit extended to any of the Debtors at any such time,
(ii) all contracts and other obligations undertaken by, or imposed upon, any of
the Debtors at any such time, and (iii) all unexpired leases and executory
contracts entered into prior to the Petition Date and assumed by any of the
Debtors at any such time.
"ASSUMED CONTRACTS" means the executory contracts assumed by Camelot
pursuant to Section 365(a) or Section 1123(b)(2) of the Bankruptcy Code as of
the Effective Date.
"ASSUMED LEASES" means the non-residential real property leases assumed by
Camelot pursuant to Section 365(a) or Section 1123(b)(2) of the Bankruptcy Code
as of the Effective Date.
"ASSUMPTION CLAIM" means any Claim arising under Section 365(b)(1)(A) and
(B) of the Bankruptcy Code with respect to any Assumed Contract or Assumed
Lease.
"BANK AGENT" means The Chase Manhattan Bank, as Agent under the Prepetition
Credit Agreement.
"BANKRUPTCY CODE" means title 11 of the United States Code, as amended and
supplemented from time to time.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Delaware.
"BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure and the
Local Rules of the Bankruptcy Court, as amended and supplemented from time to
time.
"BIG SIX VENDORS" means BMG Distribution, Sony Music Entertainment, Inc.,
Universal Music and Video Distribution, Inc., Warner/Elektra/Atlantic
Corporation, PolyGram Group Distribution, Inc., and EMI Music Distribution.
"BUSINESS DAY" means any day other than a Saturday, Sunday or "legal
holiday" as defined in Bankruptcy Rule 9006(a).
"CAMELOT" means Camelot Music, Inc., a wholly-owned subsidiary of CMH.
"CAMELOT CORPORATE HEADQUARTERS LEASE" means the agreement to be entered
into between Reorganized Camelot and Camelot Distribution Co., Inc. as of the
Effective Date, governing the lease of Camelot's corporate headquarters facility
by Camelot Distribution Co., Inc. to Reorganized Camelot.
"CAMELOT DISTRIBUTION CO., INC." means Camelot Distribution Co., Inc., a
Delaware corporation and the transferee of assets under the Camelot Distribution
Co. Transfer Agreement, and the lessor under the Camelot Corporate Headquarters
Lease.
"CAMELOT DISTRIBUTION CO. TRANSFER AGREEMENT" means the Transfer Agreement
(substantially in the form of Exhibit A to the Plan) to be entered into between
Camelot and Camelot Distribution Co., Inc. as of the Effective Date, providing
for the transfer of certain assets to, and the assumption of certain liabilities
by, Camelot Distribution Co., Inc.
"CAMELOT MIDWEST REGION, INC." means Camelot Midwest Region, Inc., a
Delaware corporation and the New Regional Subsidiary that is the transferee of
assets under the Camelot Midwest Region Transfer Agreement.
"CAMELOT MIDWEST REGION TRANSFER AGREEMENT" means the Transfer Agreement
(substantially in the form of Exhibit B to the Plan) to be entered into between
Camelot and Camelot Midwest Region, Inc. as of the Effective Date, providing for
the transfer of certain assets to, and the assumption of certain liabilities by,
Camelot Midwest Region, Inc.
"CAMELOT NORTHEAST REGION, INC." means Camelot Northeast Region, Inc., a
Delaware corporation and the New Regional Subsidiary that is the transferee of
assets under the Camelot Northeast Region Transfer Agreement and the transferee
of assets of The Wall in the event that such transfer is consummated on or after
the Effective Date.
"CAMELOT NORTHEAST REGION TRANSFER AGREEMENT" means the Transfer Agreement
(substantially in the form of Exhibit C to the Plan) to be entered into between
Camelot and Camelot Northeast Region, Inc. as of the Effective Date, providing
for the transfer of certain assets to, and the assumption of certain liabilities
by, Camelot Northeast Region, Inc.
"CAMELOT SOUTHEAST REGION, INC." means Camelot Southeast Region, Inc., a
Delaware corporation and the New Regional Subsidiary that is the transferee of
assets under the Camelot Southeast Region Transfer Agreement.
"CAMELOT SOUTHEAST REGION TRANSFER AGREEMENT" means the Transfer Agreement
(substantially in the form of Exhibit E to the Plan) to be entered into between
Camelot and Camelot Southeast Region, Inc. as of the Effective Date, providing
for the transfer of certain assets to, and the assumption of certain liabilities
by, Camelot Southeast Region, Inc.
"CAMELOT WESTERN REGION, INC." means Camelot Western Region, Inc., a
Delaware corporation and the New Regional Subsidiary that is the transferee of
assets under the Camelot Western Region Transfer Agreement.
"CAMELOT WESTERN REGION TRANSFER AGREEMENT" means the Transfer Agreement
(substantially in the form of Exhibit F to the Plan) to be entered into between
Camelot and Camelot Western Region, Inc. as of the Effective Date, providing for
the transfer of certain assets to, and the assumption of certain liabilities by,
Camelot Western Region, Inc.
"CANCELLED SECURITY" means any note, bond, debenture, stock certificate or
other instrument or investment security evidencing (i) an Impaired Claim or
Impaired Interest outstanding immediately prior to the Effective Date or (ii) an
obligation under the DIP Facility.
"CASH" means money, currency and coins, negotiable checks and balances in
bank accounts.
"CAUSES OF ACTION" means any and all actions, causes of action,
liabilities, obligations, rights, suits, debts, sums of money, damages,
judgments, claims and demands whatsoever, whether known or unknown, in law,
equity or otherwise.
"CHANGE IN CONTROL" means the occurrence of any of the following:
(i) (A) any Person who is not a shareholder of Reorganized CMH on the
Effective Date, together with any Affiliate of such Person, in the
aggregate become beneficial owners, directly or indirectly, of 35% or
more of the New Common Stock then outstanding or (B) any Person who is
a shareholder of Reorganized CMH on the Effective Date, together with
any Affiliate of such Person, in the aggregate become beneficial
owners, directly or indirectly, of 50% or more of the New Common Stock
then outstanding; or
(ii) individuals who on the Effective Date constituted the board of
directors of Reorganized Camelot or Reorganized CMH (together with any
new directors whose election by the board of directors of Reorganized
Camelot or Reorganized CMH , or whose nomination for election by the
shareholders of Reorganized Camelot or Reorganized CMH, was approved
by a vote of a majority of the directors of Reorganized Camelot or
Reorganized CMH then still in office who were either directors on the
Effective Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority
of the Board of Directors of Reorganized Camelot or Reorganized CMH
then in office; or
(iii)the shareholders of Reorganized CMH approve any transaction or series
of transactions under which any of the Reorganized Debtors, the New
Regional Subsidiaries or Camelot Distribution Co., Inc. are merged or
consolidated with any other company, other than (A) a merger or
consolidation which would result in the voting securities of
Reorganized CMH or the direct or indirect subsidiary thereof party to
such merger or consolidation outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
50% of the combined voting power of the voting securities of the
merged entity immediately after such merger or consolidation or (B)
any transaction or series of transactions implemented pursuant to the
Plan; or
(iv) the shareholders of Reorganized CMH approve a plan of liquidation of
any of the Reorganized Debtors, the New Regional Subsidiaries or
Camelot Distribution Co., Inc., or an agreement for the sale or
disposition of all or substantially all of the assets of any of the
Reorganized Debtors, the New Regional Subsidiaries or Camelot
Distribution Co., Inc., other than a sale or disposition of all or
substanti- ally all of the assets of any of the Reorganized Debtors,
the New Regional Subsidiaries or Camelot Distribution Co., Inc. to an
Affiliate of such respective Person or Persons.
"CHAPTER 11 CASES" means the cases under Chapter 11 of the Bankruptcy Code
voluntarily commenced by the Debtors on the Petition Date.
"CLAIM" means any claim against one or more of the Debtors within the
meaning of Section 101(5) of the Bankruptcy Code.
"CLASS" means any group of Claims or Interests as classified pursuant to
Article IV of the Plan.
"CLASSIFIED PRIORITY CLAIMS" means any and all Claims entitled to priority
in payment under Section 507(a) of the Bankruptcy Code other than Administrative
Expense Claims and Priority Tax Claims.
"CMH" means CM Holdings, Inc.
"CMH GUARANTY" means the Holdings Guarantee dated as of November 12, 1993
by and among CMH (as guarantor) and the Prepetition Lenders, pursuant to which
CMH guaranteed all of Camelot's obligations to the Prepetition Lenders arising
under or in connection with the Prepetition Credit Agreement.
"CMH SENIOR DEBENTURES" means the 11% Senior Debentures and the 10% Senior
Debentures of CMH.
"CMH SENIOR DEBENTURE CLAIMS" means any and all Claims against CMH arising
under or in respect of the CMH Senior Debentures or the indebtedness evidenced
thereby or the CMH Senior Debenture Indentures or any instrument, agreement,
breach, tort, wrongful conduct, act, omission or event in any respect and in any
manner arising therefrom or related thereto.
"CMH SENIOR DEBENTURE INDENTURES" means the 10% Indenture and the 11%
Indenture.
"COMMITTEE" means the Official Committee of Unsecured Creditors of the
Debtors appointed by the United States Trustee pursuant to ss. 1102(a) of the
Bankruptcy Code.
"CONFIRMATION" means the entry by the Bankruptcy Court of the Confirmation
Order.
"CONFIRMATION DATE" means the date on which the Confirmation Order is
entered on the docket maintained by the Clerk of the Bankruptcy Court.
"CONFIRMATION HEARING" means the hearing before the Bankruptcy Court on the
Confirmation of the Plan.
"CONFIRMATION ORDER" means an order entered by the Bankruptcy Court
confirming the Plan.
"CUSTOMARY TRADE TERMS" means the normal and customary trade terms,
including, without limitation, credit terms, discounts (including, without
limitation, the 2% prompt payment discount), dating, cooperative advertising
payments and other trade terms, extended by an Eligible Supplier to Camelot
prior to December 1, 1995, or if such Eligible Supplier did not extend customary
trade terms to Camelot prior to December 1, 1995, such trade terms as it
generally extends to creditworthy customers with sales volume comparable to the
Debtors.
"CUSTOMARY TRADE TERMS COMMITMENT AND OPTION EXERCISE NOTICE" means an
agreement (substantially in the form annexed as Exhibit G to the Plan) duly
executed by an Eligible Supplier and delivered to Camelot and the Bank Agent at
least fifteen (15) days prior to the first scheduled date of the Confirmation
Hearing (and revokable in a writing delivered to Camelot and the Bank Agent at
any time up to the Business Day prior to the commencement of the Confirmation
Hearing), pursuant to which such Eligible Supplier (i) commits to sell goods to
Camelot Distribution Co., Inc. on Customary Trade Terms effective as of the
Effective Date, (ii) commits to provide Camelot Distribution Co., Inc. with
credit limits sufficient to insure a minimum of 60 days dating (or, if greater,
such number of days dating as is customarily extended by such Eligible Supplier
to creditworthy customers) with respect to each item of inventory purchased,
(iii) may exercise the Exchange Option and (iv) provides Camelot Distribution
Co., Inc. with a credit equal to the value of any customary discounts
(including, without limitation, the 2% prompt payment discount) denied by such
Eligible Supplier to the Debtors from and after June 1, 1997.
"DEBTORS" means CMH, Camelot, GMG and Grapevine, debtors and debtors in
possession in the Chapter 11 Cases.
"DGCL" means the Delaware General Corporation Law.
"DIP AGENT" means The Chase Manhattan Bank, as agent for the DIP Lenders.
"DIP FACILITY" means the Revolving Credit and Guaranty Agreement dated as
of August 9, 1996 to which the Debtors are parties.
"DIP LENDERS" means those lenders party to the DIP Facility.
"DISBURSING AGENT" means Reorganized Camelot or Reorganized CMH in its
capacity as disbursing agent under Article X of the Plan, or any other party
designated by Reorganized Camelot or Reorganized CMH to serve as disbursing
agent that is reasonably acceptable to the Committee. A Disbursing Agent shall
not be required to give any bond or surety or other security for the performance
of its duties unless otherwise ordered by the Bankruptcy Court.
"DISCLOSURE STATEMENT" means the disclosure statement approved by Order of
the Bankruptcy Court concerning the Plan, distributed to Holders of Claims
entitled to vote for the purpose of making an informed decision as to whether to
accept or reject the Plan in accordance with Section 1126(b) of the Bankruptcy
Code and Bankruptcy Rule 3018.
"DISPUTED" means, in respect of any Claim, that such Claim has been
asserted or Filed, but has not been (i) Allowed or (ii) disallowed or expunged
pursuant to an Order of the Bankruptcy Court.
"EFFECTIVE DATE" means the first Business Day after the conditions set
forth in Section 13.01 have been satisfied or waived as provided therein.
"11% INDENTURE" means the Indenture dated as of December 19, 1994 between
CMH, as borrower, and AIBC Services, N.V., as trustee, as amended, modified,
restated or supplemented from time to time.
"11% SENIOR DEBENTURES" means the 11% Senior Debentures of CMH due March 1,
2001 issued pursuant to the 11% Indenture.
"ELIGIBLE SUPPLIER" means a supplier of prerecorded music, video or other
entertainment products, personal electronic products, blank tapes or discs or
any other merchandise purchased by Camelot for sale that (i) was the Holder of a
General Unsecured Claim as of the Petition Date and (ii) is identified by
Camelot as a continuing supplier of such products to Camelot Distribution Co.,
Inc. in a schedule Filed by Camelot at least 30 days prior to the first
scheduled date of the Confirmation Hearing.
"ESTATES" means the bankruptcy estates created pursuant to Section 541 of
the Bankruptcy Code by the commencement of the Chapter 11 Cases.
"EXCHANGE OPTION" means the right of an Eligible Supplier pursuant to
Section 5.05(a)(iv) of the Plan, at its option exercisable by timely delivery of
a Customary Trade Terms Commitment and Option Exercise Notice, to (i) tender to
the Holders of Allowed Prepetition Lender Secured Claims the entire distribution
to which it is entitled in respect of its Allowed Class 5-A General Unsecured
Claim under the Plan, in exchange for a Cash distribution from the Secured Claim
Distribution in an amount equal to 50% of such Eligible Supplier's Allowed Class
5-A General Unsecured Claim, or (ii) (a) retain 25% of its Allowed Class 5-A
General Unsecured Claim and receive shares of New Common Stock therefor in an
amount equal to the product of the Unsecured Claim Common Stock Distribution
Ratio and the retained amount of such Claim, and (b) tender to the Holders of
Allowed Prepetition Lender Secured Claims the balance of the distribution to
which such Eligible Supplier is entitled in respect of its Allowed Class 5-A
General Unsecured Claim, for a Cash distribution from the Secured Claim
Distribution in an amount equal to 37.5% of such Eligible Supplier's Allowed
Class 5-A General Unsecured Claim.
"FEE CLAIM" means a Claim under Sections 330, 331 or 503(b) of the
Bankruptcy Code for compensation for professional services rendered and
reimbursement of expenses incurred in the Chapter 11 Cases through the Effective
Date.
"FILED" means delivered to, received by and entered upon the legal docket
in the Chapter 11 Cases or any related adversary proceedings by the Clerk of the
Bankruptcy Court, provided, however, that with respect to proofs of claim only,
Filed shall mean delivered and received in the manner approved by the Bankruptcy
Court in that certain Order Fixing Bar Date for Filing Proofs of Claim and
Approving Notice Thereof dated December 6, 1996.
"FINAL ORDER" means an order, judgment, ruling or decree issued and entered
upon the legal docket in the Chapter 11 Cases or any related adversary
proceedings by the Clerk of the Bankruptcy Court or any other court of competent
jurisdiction that has not been reversed, stayed, modified or amended and as to
which the time to appeal, reargue, petition for certiorari or seek rehearing has
expired, and as to which no appeal, reargument, petition for certiorari, or
rehearing is pending or as to which any right to appeal, reargue, petition for
certiorari or seek rehearing has been waived in writing in a manner satisfactory
to the applicable Debtor or, if an appeal, reargument, petition for certiorari
or rehearing thereof has been denied, the time to take any further appeal or to
seek certiorari or further reargument or rehearing has expired.
"546(G)* AGREEMENT" means an agreement entered into after the Petition Date
by Camelot and a supplier, and approved or authorized by order of the Bankruptcy
Court, which provides, among other things, for returns of goods sold to Camelot
prior to the Petition Date for credit against such supplier's Class 5-A General
Unsecured Claim.
"GENERAL UNSECURED CLAIMS" means all Claims other than Priority Claims,
Secured Claims and Subordinated Debenture Claims.
"GMG" means G.M.G. Advertising, Inc., a wholly-owned subsidiary of Camelot.
"GRAPEVINE" means Grapevine Records and Tapes, Inc., a wholly-owned
subsidiary of Camelot and the transferee of assets of The Wall under the Wall
Asset Purchase Agreement in the event that such transfer is consummated prior to
the Effective Date.
"HOLDER" means, in respect of any Claim or Interest, the holder or owner
of, or Person otherwise entitled to enforce, such Claim or Interest.
"IMPAIRED" means impaired as that term is defined in Section 1124 of the
Bankruptcy Code.
"INITIAL DISTRIBUTION DATE" means the date ten (10) days subsequent to the
Effective Date, or as soon as practicable thereafter.
"INTERESTS" means any and all equity or ownership interests in the Debtors
and all stock certificates and other investment securities, whether or not
certificated, representing any such equity or ownership interests and any and
all options, warrants, subscription agreements and contractual rights to acquire
any such equity or ownership interests.
"MAC" means Music Acquisition Corp.
"MISCELLANEOUS SECURED CLAIMS" means any and all Secured Claims other than
the Prepetition Lender Secured Claims.
"NET EQUITY VALUE" means the residual value of Reorganized CMH after
deduction for all liabilities and anticipated Cash obligations upon emergence
from and in connection with the Chapter 11 Cases.
"NEW COMMON STOCK" means the common stock of Reorganized CMH ($0.01 par
value), having one vote per share, without preemptive rights or cumulative
voting rights.
"NEW REGIONAL SUBSIDIARIES" means Camelot Midwest Region, Inc., Camelot
Northeast Region, Inc., Camelot Southeast Region, Inc. and Camelot Western
Region, Inc.
"NEW WORKING CAPITAL FACILITY" means that certain definitive written
agreement providing for a revolving credit facility and a term loan in an amount
and on terms, conditions and collateral security satisfactory to and approved by
the Debtors, the Reorganized Debtors, the New Regional Subsidiaries and/or
Camelot Distribution Co., Inc., as appropriate, the lenders party thereto, the
agent thereunder and the Committee, together with all collateral and ancillary
documents to be executed in connection therewith.
"NEW WORKING CAPITAL FACILITY AGREEMENT" means that certain definitive
written agreement providing for the New Working Capital Facility.
"OPTION PLAN ACCOUNT" means the bookkeeping account established for the
purpose of recording the shares of New Common Stock available for issuance under
the Qualified Option Plan.
"ORDINARY COURSE ADMINISTRATIVE EXPENSE CLAIMS" means the actual, necessary
costs and expenses of preserving the Estates and operating the business of the
Debtors, incurred and payable in the ordinary course of business by the Debtors
after the Petition Date.
"PERSON" means any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
estate, entity, trust, trustee, United States trustee, unincorporated
organization, government, governmental unit (as defined in the Bankruptcy Code),
agency or political subdivision thereof.
"PETITION DATE" means August 9, 1996.
"PLAN" means this Second Amended Joint Chapter 11 Plan of Reorganization,
as amended or modified from time to time by the Debtors in accordance with the
terms hereof and Section 1127 of the Bankruptcy Code.
"PREPETITION CREDIT AGREEMENT" means the Credit Agreement dated as of
November 12, 1993 by and among Camelot (as successor by merger with MAC), the
Prepetition Lenders and the Bank Agent, as amended, modified or supplemented
from time to time.
"PREPETITION LENDERS" means the Holders of the Prepetition Lender Claims.
"PREPETITION LENDER CLAIMS" means the Claims of the Prepetition Lenders
against Camelot and CMH arising under or in connection with the Prepetition
Credit Agreement and the CMH Guaranty.
"PREPETITION LENDER DEFICIENCY CLAIMS" means the portion of the Prepetition
Lender Claims that are General Unsecured Claims against Camelot pursuant to
Section 506(a) of the Bankruptcy Code.
"PREPETITION LENDER SECURED CLAIM OPTION" means the right of a Holder of a
Prepetition Lender Secured Claim to elect to receive shares of New Common Stock
at the Secured Claim Common Stock Distribution Ratio to the extent of such
Holders Ratable Share of the balance of the Cash available in the Secured Claim
Distribution after giving effect to the Exchange Option.
"PREPETITION LENDER SECURED CLAIMS" means the portion of the Prepetition
Lender Claims that are Secured Claims against Camelot pursuant to Section 506(a)
of the Bankruptcy Code.
"PREPETITION LOAN DOCUMENTS" means the Prepetition Credit Agreement, the
schedules thereto and the collateral and ancillary documents executed and
delivered pursuant thereto.
"PRIORITY CLAIMS" means Classified Priority Claims, Administrative Expense
Claims and Priority Tax Claims.
"PRIORITY TAX CLAIMS" means any and all Claims entitled to priority in
payment under Section 507(a)(8) of the Bankruptcy Code.
"QUALIFIED OPTION PLAN" means the stock option plan (substantially in the
form of Exhibit H to the Plan) to be adopted by Reorganized CMH on the Effective
Date for the purpose of granting options for the purchase of New Common Stock to
the participants in such plan.
"RATABLE SHARE" means, with reference to any distribution on account of any
Allowed Claim in any Class, a distribution equal in amount to the ratio
(expressed as a percentage) that the amount of such Allowed Claim bears to the
amount of all Allowed Claims in that Class.
"RECLAMATION CLAIMS" means any and all rights of reclamation identified as
valid in accordance with that certain Order of the Bankruptcy Court Determining
Validity of Reclamation Claims, dated January 10, 1997.
"RELEASE OBLIGOR" has the meaning assigned to that term in Section 12.05.
"REORGANIZED CAMELOT" means Camelot Music, Inc., the successor to Camelot
under the Plan.
"REORGANIZED CMH" means CM Holdings, Inc., the successor to CMH under the
Plan.
"REORGANIZED DEBTORS" means Reorganized Camelot, Reorganized CMH and
Reorganized Grapevine.
"REORGANIZED GRAPEVINE" means Grapevine Records and Tapes, Inc., the
successor to Grapevine under the Plan.
"SCHEDULES" means the Schedules of Assets and Liabilities and the Statement
of Financial Affairs that were filed with the Bankruptcy Court by the Debtors on
or about October 23, 1996, as such have been and from time to time may be
amended or supplemented by any of the Debtors in accordance with Bankruptcy Rule
1009.
"SECURED CLAIM" means a Claim secured by a lien on property in which any of
the Estates have an interest, as determined pursuant to Section 506(a) of the
Bankruptcy Code, or that is subject to setoff under Section 553 of the
Bankruptcy Code, to the extent of the value of the Holder's interest in the
Estate's interest in such property or to the extent of the amount subject to
setoff, as applicable.
"SECURED CLAIM COMMON STOCK DISTRIBUTION RATIO" means one (1) share of New
Common Stock for each $18.75 of Allowed Prepetition Lender Secured Claims, and
which may be expressed as a fraction, the numerator of which equals 1 and the
denominator of which equals 18.75.
"SECURED CLAIM DISTRIBUTION" means $41,884,000 in a combination of Cash
and, to the extent that Holders of the Prepetition Lender Secured Claims
exercise the Prepetition Lender Secured Claim Option, shares of New Common
Stock.
"SUBORDINATED DEBENTURES" means the 11% Subordinated Debentures of Camelot
due March 1, 2004 outstanding under the Subordinated Indenture.
"SUBORDINATED DEBENTURE CLAIMS" means any and all Claims against Camelot
arising under or in respect of the Subordinated Indenture or the Subordinated
Debentures or the indebtedness evidenced thereby or any instrument, agreement,
breach, tort, wrongful conduct, act, omission or event in any respect and in any
manner arising therefrom or related thereto, as Allowed pursuant to Section
5.06(a).
"SUBORDINATED INDENTURE" means the Indenture dated as of November 12, 1993
between Camelot, as successor to MAC, and AIBC Services, N.V., as trustee, as
amended, modified, restated or supplemented from time to time.
"SUBORDINATION PROVISIONS" means the provisions of Article Eleven of the
Subordinated Indenture.
"TRANSFER AGREEMENTS" means the Camelot Midwest Region Transfer Agreement,
the Camelot Distribution Co. Transfer Agreement, the Camelot Northeast Region
Transfer Agreement, the Camelot Southeast Region Transfer Agreement and the
Camelot Western Region Transfer Agreement.
"10% INDENTURE" means the Indenture dated as of November 12, 1993 between
CMH, as borrower and AIBC Investcorp Finance, B.V., as trustee, as amended,
modified, restated or supplemented from time to time.
"10% SENIOR DEBENTURES" means the 10% Senior Debentures of CMH due March 1,
2004 outstanding under the 10% Indenture.
"THE WALL" means The Wall Music, Inc., a Pennsylvania corporation and the
seller under the Wall Asset Purchase Agreement.
"UNSECURED CLAIM COMMON STOCK DISTRIBUTION RATIO" means one (1) share of
New Common Stock for each $47.95 of Allowed Class 4-A, 5-A and 6-A Claims, and
which may be expressed as a fraction, the numerator of which equals 1 and the
denominator of which equals 47.95.
"WALL ASSET PURCHASE AGREEMENT" means the asset purchase agreement
(substantially in the form of Exhibit I to the Plan) pursuant to which Grapevine
or Camelot Northeast Region, Inc., as appropriate, shall purchase, if at all,
substantially all of the assets of The Wall.
1.02. Rules of Interpretation. References herein to a "Section," when not
qualified by a reference to another document, are references to the sections of
the Plan. Whenever from the context it appears appropriate, each term stated in
either the singular or the plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. The words "herein," "hereof," "hereto,"
"hereunder" and others of similar import, refer to the Plan as a whole and not
to the part in which such words appear. The words "includes" and "including" are
not limiting and mean that the things specifically identified are set forth for
purposes of illustration, clarity or specificity and do not in any respect
qualify, characterize or limit the generality of the class within such things
are included. Captions and headings to articles, sections and exhibits are
inserted for convenience of reference only, are not a part of the Plan, and
shall not be used to interpret the Plan. The rules of construction set forth in
Section 102 of the Bankruptcy Code shall apply. In computing any period of time
prescribed or allowed by the Plan, the provisions of Bankruptcy Rule 9006(a) and
Section 15.11 shall apply, but Bankruptcy Rule 9006(a) shall govern.
1.03. Incorporation of Exhibits. All Exhibits to the Plan are part of the
Plan and incorporated herein as fully as if set forth at length herein. The
Exhibits to the Plan will be Filed with the Bankruptcy Court at least three (3)
days prior to the first scheduled date for the hearing to consider approval of
the Disclosure Statement.
ARTICLE II.
PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSE
CLAIMS
2.01. Allowance of Administrative Expense Claims. Except as otherwise
provided in the Plan, Administrative Expense Claims shall become Allowed as
follows:
(a) Ordinary Course Administrative Expense Claims and Approved Chapter
11 Liabilities. An Ordinary Course Administrative Expense Claim that is not
disputed by Camelot or Reorganized Camelot by written notice given to the
Holder of such Claim prior to the date on which such payment is last due
shall become Allowed on such date and payable in accordance with Section
2.02 of the Plan. An Approved Chapter 11 Liability shall become Allowed on
the date on which such payment is last due and shall be payable in
accordance with Section 2.02 of the Plan.
(b) Reclamation Claims. A Reclamation Claim shall become Allowed as an
Administrative Expense Claim only to the extent that the Holder of such
Reclamation Claim has not received payment of such Reclamation Claim prior
to the Effective Date.
(c) Fee Claims. A Fee Claim shall become Allowed if Allowed or
approved by the Bankruptcy Court upon an application Filed not later than
90 days after the date that the Confirmation Order becomes a Final Order.
(d) All Other Administrative Expense Claims. All other Administrative
Expense Claims (including Ordinary Course Administrative Expense Claims
that are Disputed by Camelot or Reorganized Camelot as set forth in Section
2.01(a)) shall become Allowed only if the Holder of such Claim files with
the Bankruptcy Court and serves on Reorganized Camelot within 45 days after
the date that Camelot, or Reorganized Camelot, provides written notice that
such Claim is a Disputed Claim, a motion requesting payment of such
Administrative Expense Claim and only if and to the extent such Claim is
Allowed by the Bankruptcy Court pursuant to a Final Order.
2.02. Payment of Administrative Expense Claims. Reorganized Camelot shall
assume and pay Allowed Administrative Expense Claims, other than Ordinary Course
Administrative Expense Claims and Approved Chapter 11 Liabilities, in full and
in Cash on the latest of (i) the date which is fifteen (15) days after the
Effective Date, (ii) the date on which such Administrative Expense Claim becomes
Allowed, and (iii) a date agreed by Reorganized Camelot and such Holder.
Reorganized Camelot shall assume and pay Allowed Ordinary Course Administrative
Expense Claims and Allowed Approved Chapter 11 Liabilities on the last date on
which payment is due or would otherwise be permitted to be made in accordance
with the terms and conditions of the particular transaction and any agreements
relating thereto.
ARTICLE III.
PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS
3.01. Priority Tax Claims. The Holder of an Allowed Priority Tax Claim
shall receive, on account of such Allowed Priority Tax Claim, a Cash payment in
the amount of such Allowed Priority Tax Claim six years after the assessment of
the tax on which such Claim is based, plus simple interest annually in arrears
on such amount from the Effective Date through such day at the interest rate
publicly quoted on the Effective Date for obligations backed by the full faith
and credit of the United States of America maturing in 90 days. At the option of
Reorganized Camelot, any Allowed Priority Tax Claim may be (i) paid on such
alternative terms as may be agreed to by Reorganized Camelot and the Holder of
such Allowed Priority Tax Claim or (ii) prepaid in whole or in part, without
premium or penalty, at any time.
ARTICLE IV.
CLASSIFICATION OF CLAIMS AND INTERESTS
For purposes of the Plan all Claims against, and Interests in, the Debtors
(other than Administrative Expense Claims and Priority Tax Claims) are
classified as described below. In accordance with 1123(a)(1) of the Bankruptcy
Code, Administrative Expense Claims and Priority Tax Claims have not been
classified and are excluded from the following Classes. A Claim or Interest will
be deemed classified in a particular Class only to the extent that such Claim or
Interest qualifies within the description of that Class and will be deemed
classified in a different Class to the extent that any remainder of such Claim
or Interest qualifies within the description of such different Class. Further, a
Claim or Interest shall not be classified in any Class for distribution purposes
until such Claim or Interest becomes an Allowed Claim or Allowed Interest and
then only to the extent that such Claim or Interest has not been paid, released
or otherwise satisfied prior to the Effective Date.
4.01. Class 1 Claims: Prepetition Lender Secured Claims.
Class 1-A Claims: Class 1-A Claims shall consist of all Prepetition
Lender Secured Claims against Camelot.
4.02. Class 2 Claims: Miscellaneous Secured Claims.
Class 2-A Claims: Class 2-A Claims shall consist of all Miscellaneous
Secured Claims against Camelot.
Class 2-B Claims: Class 2-B Claims shall consist of all Miscellaneous
Secured Claims against CMH.
Class 2-C Claims: Class 2-C Claims shall consist of all Miscellaneous
Secured Claims against GMG.
Class 2-D Claims: Class 2-D Claims shall consist of all Miscellaneous
Secured Claims against Grapevine.
4.03. Class 3 Claims: Classified Priority Claims.
Class 3-A Claims: Class 3-A Claims shall consist of all Classified
Priority Claims against Camelot.
Class 3-B Claims: Class 3-B Claims shall consist of all Classified
Priority Claims against CMH.
Class 3-C Claims: Class 3-C Claims shall consist of all Classified
Priority Claims against GMG.
Class 3-D Claims: Class 3-D Claims shall consist of all Classified
Priority Claims against Grapevine.
4.04. Class 4 Claims: Prepetition Lender Deficiency Claims.
Class 4-A Claims: Class 4-A Claims shall consist of all Prepetition
Lender Deficiency Claims against Camelot.
4.05. Class 5 Claims: General Unsecured Claims.
Class 5-A Claims: Class 5-A Claims shall consist of all General
Unsecured Claims against Camelot other than the
Class 4-A Prepetition Lender Deficiency Claims.
Class 5-B Claims: Class 5-B Claims shall consist of all General
Unsecured Claims against CMH.
Class 5-C Claims: Class 5-C Claims shall consist of all General
Unsecured Claims against GMG.
Class 5-D Claims: Class 5-D Claims shall consist of all General
Unsecured Claims against Grapevine.
4.06. Class 6 Claims: Subordinated Debenture Claims.
Class 6-A Claims: Class 6-A Claims shall consist of all Subordinated
Debenture Claims against Camelot.
4.07. Class 7 Interests.
Class 7-A Interests: Class 7-A Interests shall consist of all
Interests in Camelot.
Class 7-B Interests: Class 7-B Interests shall consist of all
Interests in CMH.
Class 7-C Interests: Class 7-C Interests shall consist of all
Interests in GMG.
Class 7-D Interests: Class 7-D Interests shall consist of all
Interests in Grapevine.
ARTICLE V.
PROVISIONS FOR TREATMENT
OF CLAIMS AND INTERESTS
5.01. Prepetition Lender Secured Claims (Class 1-A).
(a) Allowance of Prepetition Lender Secured Claims. The Prepetition Lender
Secured Claims shall be Allowed in the amount of $41,884,000.
(b) Treatment. Subject to the Exchange Option, each Holder of an Allowed
Prepetition Lender Secured Claim shall receive, on account of such Claim, in
accordance with Section 10.05 of the Plan, its Ratable Share of the Secured
Claim Distribution in the form of Cash or New Common Stock at the Secured Claim
Common Stock Distribution Ratio. In accordance with the Exchange Option, the
Holders of the Prepetition Lender Secured Claims will (i) reduce their Ratable
Share of Cash from the Secured Claim Distribution by their Ratable Share of 50%
of the Allowed Class 5-A General Unsecured Claims tendered by Eligible Suppliers
that have timely exercised the Exchange Option, and (ii) receive in exchange
therefor their Ratable Share of the distributions to which such Eligible
Suppliers would have otherwise been entitled on account of the tendered portion
of their Allowed Class 5-A General Unsecured Claims.
(c) Prepetition Lender Secured Claim Option. Each Holder of an Allowed
Prepetition Lender Secured Claim shall have the right, exercisable at its sole
option, to exercise the Prepetition Lender Secured Claim Option.
(d) Satisfaction of ss. 507(b) Rights. The distribution pursuant to Section
5.01(b) of the Plan shall be in full satisfaction of any and all rights of the
Holders of Prepetition Lender Secured Claims under ss. 507(b) of the Bankruptcy
Code.
(e) Impairment. Class 1-A is Impaired.
5.02. Miscellaneous Secured Claims (Classes 2-A through 2-D).
(a) Treatment. With regard to each Allowed Miscellaneous Secured Claim, on
the Effective Date, the applicable Reorganized Debtor, at its sole option, shall
either (i) assume such Claim, and those legal, equitable and contractual rights
to which the Holder of such Claim is entitled shall not be altered by the Plan,
or (ii) provide such other treatment in respect of such Claim as will cause such
Claim not to be Impaired. The Debtors' failure to object to any such Claim
during the pendency of the Chapter 11 Cases shall not prejudice, diminish,
affect or impair the applicable Reorganized Debtor's right to contest or defend
itself against such Claim in any lawful manner or forum when and if such Claim
is sought to be enforced by the Holder thereof. Each Miscellaneous Secured Claim
and any lien lawfully granted or existing on any property of the Estates on the
Petition Date as security for a Miscellaneous Secured Claim shall, unless such
Claim is paid in full on or prior to the Effective Date, (x) survive the
Confirmation and consummation of the Plan, the Debtors' discharge under Section
1141(d) of the Bankruptcy Code and Section 12.01 of the Plan, and transfer of
the property securing such Miscellaneous Secured Claim under the Plan, (y)
remain enforceable against either the applicable Reorganized Debtor or the
transferee of the property securing such Miscellaneous Secured Claim under the
Plan in accordance with the contractual terms of any lawful agreements
enforceable by the Holder of such Claim on the Petition Date until the Allowed
amount of such Claim is paid in full, and (z) remain subject to avoidance by the
applicable Reorganized Debtor under the Bankruptcy Code.
(b) Impairment. Classes 2-A through 2-D are not Impaired.
5.03. Classified Priority Claims (Classes 3-A through 3-D).
(a) Treatment. Each Holder of an Allowed Classified Priority Claim shall
receive, on account of such Claim, payment of the Allowed amount of such Claim
in full and in Cash to the extent that the Holder of such Allowed Classified
Priority Claim has not received payment of such Claim as of the Effective Date.
(b) Impairment. Classes 3-A through 3-D are not Impaired.
5.04. Prepetition Lender Deficiency Claims (Class 4-A).
(a) Allowance of Prepetition Lender Deficiency Claims. The Prepetition
Lender Claims shall be Allowed in the amount of $295,775,392 and the Prepetition
Lender Deficiency Claims shall be Allowed in the amount of $253,891,392.
(b) Treatment. Each Holder of an Allowed Prepetition Lender Deficiency
Claim shall receive, on account of such Claim, its Ratable Share of shares of
New Common Stock in an amount equal to the product of the Unsecured Claim Common
Stock Distribution Ratio and the sum of the Allowed Prepetition Lender
Deficiency Claims and the Allowed Subordinated Debenture Claims.
(c) Impairment. Class 4-A is Impaired.
5.05. General Unsecured Claims (Classes 5-A through 5-D).
(a) Class 5-A General Unsecured Claims.
(i) Treatment. Subject to the terms of Section 5.05(a)(ii), (iii) and (iv)
below, each Holder of an Allowed Class 5-A General Unsecured Claim shall receive
on account of such Claim, shares of New Common Stock in an amount equal to the
product of the Unsecured Claim Common Stock Distribution Ratio and the Allowed
amount of such Holder's Class 5-A General Unsecured Claim.
(ii) Effect of Returns under Section 546(g)*. If any Holder of a Class 5-A
General Unsecured Claim, or its predecessor in interest, received goods returned
by Camelot after the Petition Date for credit to the Class 5-A General Unsecured
Claim of such Holder pursuant to a 546(g)* Agreement, then the Allowed amount of
such Class 5-A General Unsecured Claim shall be reduced in accordance with the
applicable 546(g)* Agreement. The right of such Holder to receive any
distribution to be made under the Plan on account of such Class 5-A General
Unsecured Claim, as adjusted, shall not otherwise be increased, reduced,
impaired or affected by any such return of goods.
(iii) Effect of Allowance of Reclamation Claims. If a Holder of a Class 5-A
General Unsecured Claim, or its predecessor in interest, holds or has received
payment of a Reclamation Claim, such General Unsecured Claim shall be reduced by
the Allowed amount of such Reclamation Claim.
(iv) Eligible Supplier Exchange Option. Each Holder of a Class 5-A General
Unsecured Claim that is an Eligible Supplier shall have the right, exercisable
at its sole option by timely delivery of a Customary Trade Terms Commitment and
Option Exercise Notice, to exercise the Exchange Option. In order to exercise
the Exchange Option, such Eligible Supplier must deliver to Camelot and the Bank
Agent at least fifteen (15) days prior to the first scheduled date of the
Confirmation Hearing (unless Camelot and the Bank Agent waive such requirement)
a Customary Trade Terms Commitment and Option Exercise Notice duly executed by
such Eligible Supplier.
(v) Impairment. Class 5-A is Impaired.
(b) Classes 5-B and 5-C General Unsecured Claims.
(i) No Distribution. The Holders of Classes 5-B and 5-C General Unsecured
Claims shall receive no distribution under the Plan.
(ii) Impairment. Classes 5-B and 5-C are Impaired.
(c) Class 5-D General Unsecured Claims.
(i) Treatment. Each Holder of an Allowed Class 5-D General Unsecured Claim
shall receive, on account of such Claim, payment of the Allowed amount of such
Claim in Cash, or such other treatment in respect of such Claim as will cause
such Claim not to be Impaired.
(ii) Impairment. Class 5-D is not Impaired.
5.06. Subordinated Debenture Claims (Class 6-A).
(a) Allowance of Subordinated Debenture Claims. The Subordinated Debenture
Claims shall be Allowed in the amount of $58,490,487.
(b) Enforcement of Subordination Provisions. In accordance with and in
enforcement of the Subordination Provisions, all distributions that any Holder
of an Allowed Subordinated Debenture Claim would otherwise be entitled to
receive under the Plan on account of such Allowed Subordinated Debenture Claim
shall be delivered to the Holders of the Allowed Prepetition Lender Deficiency
Claims.
(c) No Distribution. The Holders of Subordinated Debenture Claims shall
receive no distribution under the Plan.
(d) Impairment. Class 6-A is impaired.
5.07. Interests (Classes 7-A through 7-D).
(a) Class 7-A Interests.
(i) No Distribution. The Holders of the Class 7-A Interests shall retain
such Interests, which shall be reinstated under the Plan, but shall not receive
any distribution under the Plan on account of such Class 7-A Interests.
(ii) Impairment. Class 7-A is not Impaired.
(b) Class 7-B and 7-C Interests.
(i) No Distribution. The Classes 7-B and 7-C Interests shall be cancelled
on the Effective Date, and the Holders of the Classes 7-B and 7-C Interests
shall not receive or retain any property under the Plan on account of their
Classes 7-B and 7-C Interests.
(ii) Impairment. Classes 7-B and 7-C are Impaired.
(c) Class 7-D Interests.
(i) No Distribution. The Holders of the Class 7-D Interests shall retain
such Interests, which shall be reinstated under the Plan, but shall not receive
any distribution under the Plan on account of such Class 7-D Interests.
(ii) Impairment. Class 7-D is not Impaired.
ARTICLE VI.
IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED BY THE
PLAN; ACCEPTANCE OR REJECTION OF THE PLAN
6.01. Acceptance by an Impaired Class of Creditors. Consistent with Section
1126(c) of the Bankruptcy Code, and except as provided in Section 1126(e) of the
Bankruptcy Code, an Impaired Class of Claims shall have accepted the Plan if the
Plan is accepted by the Holders of at least two-thirds in dollar amount and more
than one-half in number of the Allowed Claims of such Class that have timely and
properly voted to accept or reject the Plan.
6.02. Voting Classes. Prepetition Lender Secured Claims (Class 1-A),
Prepetition Lender Deficiency Claims (Class 4-A) and General Unsecured Claims
against Camelot (Class 5-A) are Impaired by the Plan, and only the Holders of
Allowed Claims in such Classes at the time the vote on the Plan is solicited
shall be entitled to vote to accept or reject the Plan.
6.03. Classes Not Receiving or Retaining Property Deemed to Reject the
Plan. General Unsecured Claims against CMH and GMG (Classes 5-B and 5-C),
Subordinated Debenture Claims (Class 6-A), and Interests in CMH and GMG (Classes
7-B and 7-C) are Impaired by the Plan and do not receive or retain any property
under the Plan. Under Section 1126(g) of the Bankruptcy Code, the Holders of
Claims and Interests in such Classes are deemed to reject the Plan, and the
votes of Holders in such Classes will not be solicited.
6.04. Unimpaired Classes Conclusively Presumed to Accept the Plan.
Miscellaneous Secured Claims (Classes 2-A through 2-D), Classified Priority
Claims (Classes 3-A through 3-D), General Unsecured Claims against Grapevine
(Class 5-D) and Interests in Camelot and Grapevine (Classes 7-A and 7-D) are not
Impaired by the Plan. Under Section 1126(f) of the Bankruptcy Code, such Classes
of Claims and Interests are conclusively presumed to accept the Plan, and the
votes of Holders in such Classes will not be solicited.
6.05. Confirmation Pursuant to Section 1129(b). If all of the applicable
requirements for Confirmation of the Plan are met as set forth in Section
1129(a) (1) through (13) of the Bankruptcy Code except subsection (a)(8)
thereof, the Debtors intend to request that the Bankruptcy Court confirm the
Plan pursuant to Section 1129(b) of the Bankruptcy Code, notwithstanding the
requirements of Section 1129(a)(8) thereof, on the basis that the Plan is fair
and equitable, and does not discriminate unfairly, with respect to each Class of
Claims or Interests that is impaired under, and has not accepted, the Plan.
ARTICLE VII.
UNEXPIRED LEASES AND EXECUTORY CONTRACTS
7.01. Assumption and Rejection. Except as otherwise provided in the Plan,
all executory contracts and unexpired leases that have not been assumed or
rejected by Camelot prior to the Confirmation Date and that are not the subject
of a motion to reject pending before the Bankruptcy Court on the Confirmation
Date shall be deemed assumed as of the date that the Confirmation Order becomes
a Final Order.
7.02. Assignment.
(a) Leases. Those unexpired leases of non-residential real property assumed
or deemed assumed by Camelot at any time during the pendency of the Chapter 11
Cases (and not otherwise assigned), as well as those non-residential real
property leases with respect to which a motion to assume is pending as of the
Confirmation Date, shall, on the Effective Date, be assigned (together with all
attendant leasehold improvements) to the respective New Regional Subsidiary
containing stores in the region in which the store subject to such lease is
located, unless prior to the Confirmation Date the Debtors elect that such lease
shall be assigned to another Person.
(b) Executory Contracts. Those executory contracts and unexpired leases of
personal property assumed or deemed assumed by Camelot at any time during the
pendency of the Chapter 11 Cases (and not otherwise assigned), as well as those
executory contracts and unexpired leases of personal property with respect to
which a motion to assume is pending as of the Confirmation Date, shall, on the
Effective Date, (i) be assigned to Camelot Distribution Co., Inc. and/or the New
Regional Subsidiaries to the extent provided in the Transfer Agreements, or (ii)
be retained as obligations of Reorganized Camelot to the extent that the
Transfer Agreements do not provide for the transfer of such executory contracts
and unexpired leases of personal property to Camelot Distribution Co., Inc. or
the New Regional Subsidiaries.
7.03. Cure of Defaults. As to any unexpired lease or executory contract
assumed pursuant to the Plan, Reorganized Camelot shall, pursuant to the
provisions of Section 1123(a)(5)(G) of the Bankruptcy Code, cure or provide
adequate assurance of a prompt cure of all defaults (except those specified in
Section 365(b)(2) of the Bankruptcy Code) existing under and pursuant to such
executory contract or lease by paying or demonstrating the ability to pay the
amount, if any, of such Assumption Claim. The Debtors shall file with the
Bankruptcy Court, and serve on the counter-party to each such executory contract
or unexpired lease, a schedule setting forth the amount of each Assumption Claim
at least fifteen (15) days prior to the date first scheduled for the
Confirmation Hearing. Any counterparty to an executory contract or unexpired
lease that does not agree with the amount of its Assumption Claim as scheduled
by the Debtors, may File an objection to the amount so scheduled by the Debtors
no later than two (2) days prior to the date first scheduled for the
Confirmation Hearing. If an objection to the amount of an Assumption Claim is so
Filed, the Assumption Claim shall be deemed a Disputed Claim, and the Bankruptcy
Court shall determine the amount actually due and owing in respect of the
Assumption Claim or shall approve any settlement of such Assumption Claim. Any
scheduled Assumption Claim with respect to which an objection is not timely
Filed will be paid on the Initial Distribution Date. Payment of any such
Assumption Claim shall cure and be in full satisfaction, release and discharge
of such Assumption Claim and all such defaults (including any other Claims Filed
by any such party as a result of such defaults).
7.04. Rejection Damages. Each Person that is a party to an executory
contract or unexpired lease that is rejected as of the Confirmation Date shall
File, not later than thirty (30) days after the Confirmation Date (unless an
earlier date has been established by the Bankruptcy Court for such claimant, in
which case such earlier date shall control), a proof of claim for damages
alleged to have arisen from the rejection of such executory contract or
unexpired lease, or be forever barred from asserting such a Claim against the
Debtors, the Reorganized Debtors, the New Regional Subsidiaries or Camelot
Distribution Co., Inc. Each Person that is party to an executory contract or
unexpired lease subject to a motion to reject that is pending before the
Bankruptcy Court on the Confirmation Date shall File, not later than thirty (30)
days after the date that the Bankruptcy Court approves such motion, a proof of
claim for damages alleged to have arisen from the rejection of such executory
contract or unexpired lease, or be forever barred from asserting such a Claim
against the Debtors, the Reorganized Debtors, the New Regional Subsidiaries or
Camelot Distribution Co., Inc.
ARTICLE VIII.
OPERATION AND MANAGEMENT
OF REORGANIZED DEBTORS
8.01. Corporate Governance; Directors and Officers. Except where otherwise
expressly provided in the Plan, the corporate governance of the Reorganized
Debtors, the New Regional Subsidiaries and Camelot Distribution Co., Inc. and
the election and appointment of the directors and officers of the Reorganized
Debtors, the New Regional Subsidiaries and Camelot Distribution Co., Inc. shall
be carried out in accordance with the respective articles of incorporation and
by-laws of the Reorganized Debtors, the New Regional Subsidiaries and Camelot
Distribution Co., Inc. and the laws of the respective states in which the
Reorganized Debtors, the New Regional Subsidiaries and Camelot Distribution Co.,
Inc. are incorporated.
8.02. Appointment of Directors; Retention of Officers. The initial board of
directors of Reorganized CMH as of the Effective Date shall be selected as
follows prior to the Confirmation Date: two (2) directors will consist of the
Chief Executive Officer and the Chief Financial Officer of Camelot, and five (5)
directors will be selected by the Prepetition Lenders (in consultation with the
Big Six Vendors) in their capacity as the Holders of a majority of the New
Common Stock as of the Effective Date. The tenure and manner of selection of
directors and officers of the Reorganized Debtors, the New Regional Subsidiaries
and Camelot Distribution Co., Inc. shall be as provided in the articles of
incorporation and by-laws of the Reorganized Debtors, the New Regional
Subsidiaries and Camelot Distribution Co., Inc., respectively. On the Effective
Date, the authority, power and incumbency of the persons then acting as
directors of the Debtors shall be terminated and such directors shall be deemed
to have resigned, and the directors of the Reorganized Debtors, the New Regional
Subsidiaries and Camelot Distribution Co., Inc. that are selected in accordance
with Sections 8.01 and 8.02 shall have responsibility for the management,
control and operations of Reorganized Camelot, the New Regional Subsidiaries and
Camelot Distribution Co., Inc. At least five (5) business days prior to the
Confirmation Hearing, the Debtors will file with the Bankruptcy Court a schedule
setting forth the names of the persons to be appointed as the directors of the
Reorganized Debtors, the New Regional Subsidiaries and Camelot Distribution Co.,
Inc. pursuant to this Section 8.02.
8.03. Option Plan. As of the Effective Date, a number of shares of New
Common Stock equal to 7.5% of the total number of shares of New Common Stock to
be authorized on the Effective Date pursuant to Section 10.02 of the Plan (i) in
respect of Class 1-A, Class 4-A, Class 5-A and Class 6-A Claims, whether then
Disputed or Allowed and (ii) in respect of the Qualified Option Plan, shall be
reserved for the Qualified Option Plan, and a number of shares of New Common
Stock shall be recorded under the Option Plan Account equal to 7.5% of the total
number of shares of New Common Stock (i) issued on the Effective Date in respect
of Allowed Claims and (ii) recorded on the Effective Date under the Option Plan
Account. In accordance with the Qualified Option Plan, options to purchase
shares recorded under the Option Plan Account shall be granted as of the
Effective Date to the employees of Reorganized Camelot listed in the Qualified
Option Plan. After the Effective Date, as further shares of New Common Stock are
issued in respect of Allowed Claims, the number of shares of New Common Stock
recorded under the Option Plan Account shall be adjusted so that at all times
the aggregate number of shares of New Common Stock recorded under the Option
Plan Account on and after the Effective Date shall equal 7.5% of the total
number of shares of New Common Stock (i) issued under the Plan and (ii) recorded
under the Option Plan Account. Additionally, after the Effective Date, as
further shares of New Common Stock are issued in respect of Allowed Claims,
outstanding options to purchase shares of New Common Stock recorded under the
Option Plan Account shall be appropriately adjusted by Reorganized Camelot such
that the potential proportionate interest in the total number of issued shares
of New Common Stock of each holder of such an option, if he were to exercise his
option and purchase all shares of New Common Stock subject thereto, will not be
diminished from the potential proportionate interest in the total number of
issued shares of New Common Stock of such holder if he were to have exercised
such option on the Effective Date and purchased all shares of New Common Stock
subject thereto. Such options shall be exercisable by the recipients thereof for
ten (10) years from the date of grant thereof. Such options granted on the
Effective Date (as such options are appropriately adjusted by Reorganized
Camelot with respect to shares recorded under the Option Plan Account after the
Effective Date to take account of additional Allowed Claims) shall have an
exercise price of $20.75 per share, subject to proportionate adjustment (as
described in the Qualified Option Plan) to the extent that the per share fair
market value of the New Common Stock has changed since the Effective Date due to
the issuance of additional shares in respect of Claims Allowed after the
Effective Date. Prior to the fourth anniversary of the Effective Date, with
respect to the options granted on the Effective Date to purchase shares of New
Common Stock recorded under the Option Plan Account on the Effective Date, in
order for such options to purchase the first 1/3 of the shares of New Common
Stock recorded under the Option Plan Account to become exercisable, the per
share fair market value (as defined in the Qualified Option Plan) of the New
Common Stock must exceed the per share exercise price of such options by more
than 15%; in order for such options to purchase the second 1/3 of the shares of
New Common Stock recorded under the Option Plan Account to become exercisable,
the per share fair market value (as defined in the Qualified Option Plan) of the
New Common Stock must exceed the per share exercise price of such options by
30%; and in order for such options to purchase the balance of the shares of New
Common Stock recorded under the Option Plan Account to become exercisable, the
per share fair market value (as defined in the Qualified Option Plan) of the New
Common Stock must exceed the per share exercise price of such options by 45%.
Notwithstanding any such increase in per share market value, as set forth more
fully in the Qualified Option Plan and the stock option award agreements
thereunder, such options shall not become exercisable for more than 50% of the
shares of New Common Stock recorded under the Option Plan Account prior to the
second anniversary of the Effective Date, and such options shall not become
exercisable for the balance of the shares of New Common Stock recorded under the
Option Plan Account sooner than the second anniversary of the Effective Date.
Notwithstanding anything else to the contrary, the exercisability of all such
options shall be accelerated upon the earlier to occur of (i) a Change in
Control or (ii) the fourth anniversary of the Effective Date.
ARTICLE IX.
MEANS FOR IMPLEMENTATION OF THE PLAN
9.01. Creation of New Subsidiaries; Transfer Agreements; Wall Asset
Purchase Agreement. On or prior to the Effective Date, the New Regional
Subsidiaries and Camelot Distribution Co., Inc. will be created and incorporated
under the DGCL. On the Effective Date, Camelot's non-residential real property
leases, together with all assets within the stores subject to such leases, and
all contracts and other obligations exclusively attendant to any store or group
of stores within a region controlled by a given New Regional Subsidiary, shall
be assigned to the respective New Regional Subsidiaries pursuant to the Transfer
Agreements. Also on the Effective Date, Camelot's real property and the
improvements thereon shall be transferred to Camelot Distribution Co., Inc.,
together with all the assets contained in Camelot's distribution center and all
the liabilities attendant to the operation of the distribution center, pursuant
to the Camelot Distribution Co. Transfer Agreement. Reorganized Camelot will
simultaneously enter into a lease with Camelot Distribution Co., Inc. pursuant
to which it shall lease its corporate headquarters from Camelot Distribution
Co., Inc. Furthermore, either Camelot Northeast Region, Inc. (if on or after the
Effective Date) or Grapevine (if prior to the Effective Date) may enter into and
perform the Wall Asset Purchase Agreement.
9.02. Operations Between the Confirmation Date and the Effective Date. The
Debtors shall continue to operate as debtors in possession, subject to the
supervision of the Bankruptcy Court, during the period from the Confirmation
Date through and until the Effective Date; provided, however, that nothing
herein shall preclude the Debtors from taking any steps that they deem necessary
or desirable to prepare for and effect the consummation of the Plan, including
the incorporation of the New Regional Subsidiaries and Camelot Distribution Co.,
Inc., the transfer of assets pursuant to the Transfer Agreements, and the
acquisition of substantially all of the assets of The Wall pursuant to the Wall
Asset Purchase Agreement.
9.03. Revesting and Transfer of Assets. The property of the Estates that is
not specifically disposed of pursuant to the Plan shall revest in the
Reorganized Debtors on the Effective Date, and Camelot, the New Regional
Subsidiaries and Camelot Distribution Co., Inc. shall enter into and perform the
Transfer Agreements and all ancillary documentation. Except as specifically
provided in the Plan or in the Confirmation Order, as of the Effective Date, the
Reorganized Debtors, the New Regional Subsidiaries and Camelot Distribution Co.,
Inc. may operate their businesses and may use, acquire, and dispose of property
free of any restrictions of the Bankruptcy Code, the Bankruptcy Rules, and the
Bankruptcy Court. As of the Effective Date, all property of the Reorganized
Debtors, the New Regional Subsidiaries and Camelot Distribution Co., Inc. shall
be free and clear of all Claims and Interests, except as specifically provided
in the Plan or in the Confirmation Order. The Reorganized Debtors, the New
Regional Subsidiaries and Camelot Distribution Co., Inc. shall not be liable or
responsible for any Claim against the Debtors or the Estates except as expressly
assumed by the Reorganized Debtors, the New Regional Subsidiaries and Camelot
Distribution Co., Inc. pursuant to the Plan. Without limiting the foregoing,
Reorganized Camelot may pay amounts that it incurs after the Effective Date for
professional fees and expenses without application to or approval by the
Bankruptcy Court.
9.04. Cancellation of Securities. On the Effective Date, the Prepetition
Loan Documents, including all notes and other instruments outstanding thereunder
or issued pursuant thereto and all related security documents, mortgages and
guarantees, the Subordinated Debentures, the 11% Senior Debentures, the 10%
Senior Debentures, the Subordinated Indenture, the 11% Indenture and the 10%
Indenture and all obligations of the Debtors or the Estates under or in respect
of any of the foregoing, and all the Class 7-B and 7-C Interests shall be
cancelled and discharged and fully satisfied by the Confirmation of the Plan and
the distributions to be made pursuant to the Plan.
9.05. Closing of Books Related to Cancelled Securities. On the Effective
Date, each of the respective transfer books maintained for the Cancelled
Securities shall be closed. Except for the right to receive the distributions,
if any, to be made pursuant to the Plan, the Holder of a Cancelled Security
shall have no rights arising from or relating to such Cancelled Security after
the Effective Date, including rights of subordination or subrogation that may be
construed to be inherent in or ancillary or related to such Cancelled Security.
9.06. Allowance of Claims Subject to Section 502(d). Allowance of Claims
shall be in all respects subject to the provisions of Section 502(d) of the
Bankruptcy Code, except that no Claim that is Allowed in an amount set forth in
the Plan shall be disallowed under Section 502(d) of the Bankruptcy Code.
9.07. Right of Setoff. Except for any Claim that is Allowed in an amount
set forth in the Plan, the Reorganized Debtors shall have the right to set off
against any Claim and the distributions to be made pursuant to the Plan in
respect of such Claim, any and all debts, liabilities and claims of every type
and nature whatsoever which the Estates or the Reorganized Debtors may have
against the Holder of such Claim, and neither any prior failure to do so nor the
allowance of such Claim, whether pursuant to the Plan or otherwise, shall
constitute a waiver or release of any such right of setoff.
ARTICLE X.
PROVISIONS COVERING DISTRIBUTIONS
10.01. Timing of Distributions. An initial distribution of property under
the Plan shall be made by the Disbursing Agent on the Initial Distribution Date.
Subsequent interim distributions may be made from time to time in the reasonable
discretion of the Disbursing Agent, but in no event less frequently than
annually. Furthermore, a final distribution of property shall be made by the
Disbursing Agent no later than 120 days from the date that all Disputed Claims
have been resolved in accordance with Article XI of the Plan.
10.02. New Common Stock. As of the Effective Date, Reorganized CMH shall be
authorized to issue the New Common Stock, including (i) in respect of Class 1-A
Claims, one share of New Common Stock for each $18.75 of Class 1-A Claims, (ii)
in respect of Class 4-A, Class 5-A and Class 6-A Claims, one share of New Common
Stock for each $47.95 of Class 4-A, Class 5-A and Class 6-A Claims (regardless
of whether any such Claims are then Disputed or Allowed), and (iii) in respect
of the Qualified Option Plan, additional shares of New Common Stock such that
the number of shares of New Common Stock reserved for issuance in respect of the
Qualified Option Plan equals 7.5% of the aggregate number of shares of New
Common Stock (i) authorized to be issued in respect of Class 1-A, Class 4-A,
Class 5-A and Class 6-A Claims and (ii) reserved for issuance in respect of the
Qualified Option Plan.
10.03. New Common Stock Distributions. Subject to the Exchange Option, on
the Initial Distribution Date, the Disbursing Agent shall (i) make distributions
of New Common Stock to Holders of Allowed Class 1-A, Class 4-A and Class 5-A
Claims as provided by Article V of the Plan, and (ii) record shares of New
Common Stock under the Option Plan Account as provided in Section 8.03 of the
Plan. Additional shares of New Common Stock shall be (i) issued and distributed
to the Holders of Allowed Class 4-A and Class 5-A Claims that were Disputed on
the Effective Date and (ii) recorded under the Option Plan Account, in the event
that any Class 4-A and Class 5-A Claims that were Disputed on the Effective Date
become Allowed Claims, so that at all times the aggregate number of shares of
New Common Stock (i) distributed to the Holders of Allowed Claims equals 92.5%
of the sum of the New Common Stock (a) issued under the Plan and (b) recorded
under the Option Plan Account, and (ii) recorded under the Option Plan Account
equals 7.5% of the sum of the New Common Stock (a) issued under the Plan and (b)
recorded under the Option Plan Account.
10.04. Fractional Shares. Fractional shares of New Common Stock shall not
be issued under the Plan. Whenever any distribution of a fraction of a share of
New Common Stock would otherwise be called for, the actual distribution made
shall reflect a rounding of such fraction to the nearest whole share (up or
down), with half shares being rounded down.
10.05. Administration of Exchange Option. The Disbursing Agent shall
administer the Exchange Option and, on the Initial Distribution Date, shall
reduce the Cash amount of the Secured Claim Distribution that would otherwise be
available under the Plan for the Holders of Allowed Prepetition Lender Secured
Claims by an amount of Cash equal to 50% of the amount of the Class 5-A General
Unsecured Claims tendered by Eligible Suppliers that have timely exercised the
Exchange Option (regardless of whether such tendered Class 5-A General Unsecured
Claims of Eligible Suppliers are then Disputed or Allowed). The amount of Cash
reduced shall be placed in an interest bearing account to the extent that such
Eligible Suppliers' Class 5-A General Unsecured Claims are Disputed as of the
Initial Distribution Date. The Disbursing Agent shall also, in accordance with
Article XI of the Plan, (i) withhold any electing Eligible Supplier's payment
from the Secured Claim Distribution until such time as such Eligible Supplier's
Class 5-A General Unsecured Claim becomes Allowed, and (ii) withhold all shares
of New Common Stock that would have otherwise been distributed under the Plan to
such Eligible Supplier on account of its Class 5-A General Unsecured Claim but
for its exercise of the Exchange Option. If and when an electing Eligible
Supplier's Class 5-A General Unsecured Claim becomes Allowed, the Disbursing
Agent shall (in accordance with Section 10.01 of the Plan) distribute to such
Eligible Supplier Cash from the Secured Claim Distribution in an amount equal to
50% of the Allowed Class 5-A General Unsecured Claim tendered by such Eligible
Supplier (together with interest accrued and paid), in accordance with the
Exchange Option, and shall distribute the shares of New Common Stock tendered by
such Eligible Supplier to the Holders of the Allowed Prepetition Lender Secured
Claims, based upon their Ratable Shares. Furthermore, if and to the extent a
Disputed Class 5-A General Unsecured Claim tendered by an Eligible Supplier is
disallowed or consensually reduced, the Disbursing Agent shall distribute to the
Holders of Allowed Prepetition Lender Secured Claims (in accordance with Section
10.01 of the Plan), based upon their Ratable Shares, additional amounts of Cash
or New Common Stock (in accordance with the Prepetition Lender Secured Claim
Option) from the Secured Claim Distribution equal to 50% of that portion of the
tendered Disputed Class 5-A General Unsecured Claim that was disallowed or
consensually reduced (together with interest accrued and paid with respect to
additional Cash distributions).
10.06. Fractional Dollars. Notwithstanding any other provision of the Plan,
payments of fractions of dollars shall not be made. Whenever any payment of a
fraction of a dollar under the Plan would otherwise be called for, the actual
payment made shall reflect a rounding of such fraction to the nearest whole
dollar (up or down), with half dollars being rounded down.
10.07. Compliance With Tax Requirements. In connection with each
distribution with respect to which the filing of an information return (such as
an Internal Revenue Service Form 1099 or 1042) or withholding is required, the
Reorganized Debtors shall file such information return with the Internal Revenue
Service and provide any required statements in connection therewith to the
recipients of such distribution or effect any such withholding and deposit all
moneys so withheld as required by law. With respect to any Person from whom a
tax identification number, certified tax identification number or other tax
information required by law to avoid withholding has not been received by the
Reorganized Debtors (or the Disbursing Agent), the Reorganized Debtors may, at
their option, withhold the amount required and distribute the balance to such
Person or decline to make such distribution until the information is received.
In any event, however, the Reorganized Debtors shall not be obligated to
liquidate New Common Stock to honor any withholding obligation.
10.08. Persons Deemed Holders of Registered Securities. Except as otherwise
provided herein, the Reorganized Debtors and the Disbursing Agent shall be
entitled to treat the record Holder of a registered security as the sole Holder
of the Claim or Interest in respect thereof for purposes of all notices,
payments or other distributions under the Plan. No notice of any transfer of any
such security shall be binding on the Reorganized Debtors or the Disbursing
Agent, unless such transfer has been properly registered in accordance with the
provisions of the governing indenture or agreement on or prior to the date on
which the Bankruptcy Court enters an Order approving the Disclosure Statement.
If there is any dispute regarding the identity of the Person entitled to any
payment or distribution in respect of any Claim under the Plan, no payment or
distribution need be made in respect of such Claim until such dispute has been
resolved by the parties or the Bankruptcy Court resolves the dispute pursuant to
a Final Order. Notwithstanding the foregoing, the Reorganized Debtors and the
Disbursing Agent shall be entitled to rely on the Bank Agent to determine the
Holders of the Prepetition Lender Claims.
10.09. Distribution of Unclaimed Property. Any claimant to whom a
distribution of property is made under the Plan that fails to claim such
property within one year following the distribution of such property by the
Disbursing Agent shall have its Claim expunged, and such property shall
irrevocably revert to the Reorganized Debtors, without regard to escheatment or
other similar laws.
ARTICLE XI.
RESOLUTION OF DISPUTED CLAIMS
11.01. Objections to Claims. Any party in interest may object to a Claim,
except a Claim that is Allowed as set forth in the Plan. Any such objection by a
party in interest other than the Debtors or the Reorganized Debtors must be
Filed and served no later than the date first scheduled for the Confirmation
Hearing. Objections to Claims, except Claims that are Allowed pursuant to the
Plan or as to which the Bankruptcy Court has set an earlier objection deadline,
may be Filed and served by the Debtors or the Reorganized Debtors on the later
of (a) the 30th day following the Effective Date, (b) 30 days after the filing
of the proof of claim setting forth such Claim, or (c) any later date set by
order of the Bankruptcy Court, which the Debtors or the Reorganized Debtors may
request on an ex parte basis.
11.02. Procedure. Unless otherwise ordered by the Bankruptcy Court, the
Debtors or the Reorganized Debtors shall litigate the merits of each Disputed
Claim until it is abandoned or otherwise withdrawn by the Holder, determined by
Final Order or compromised and settled by the Debtors or the Reorganized
Debtors, subject to any required approval of the Bankruptcy Court.
11.03. Estimation. In order to effectuate distributions pursuant to the
Plan and avoid undue delay in the administration of the Estates, the Debtors
(prior to the Effective Date) and the Reorganized Debtors (after the Effective
Date) shall have the right to seek an order of the Bankruptcy Court, after
notice and a hearing (which notice may be limited to the holder of such Disputed
Claim and which hearing may be held on an expedited basis), estimating a
Disputed Claim pursuant to Section 502(c) of the Bankruptcy Code.
ARTICLE XII.
DISCHARGE, RELEASE AND PRESERVATION OF CLAIMS
12.01. Discharge and Termination. Except for distributions under the Plan
and as otherwise provided in the Plan or in the Confirmation Order, on the
Effective Date, the Confirmation Order shall operate as a discharge, pursuant to
Section 1141(d)(1) of the Bankruptcy Code, and release of any and all debts (as
such term is defined in Section 101(12) of the Bankruptcy Code) of, and Claims
against, one or more of the Debtors that arose at any time before the
Confirmation Date, including, but not limited to, all principal and interest,
whether accrued before, on or after the Petition Date, regardless of whether (i)
a proof of claim in respect of such Claim has been Filed or deemed Filed, (ii)
such Claim has been Allowed pursuant to Section 502 of the Bankruptcy Code, or
(iii) the Holder of such Claim has voted on the Plan, or has voted to reject the
Plan. Without limiting the generality of the foregoing, on the Effective Date,
the Debtors shall be discharged from any debt that arose before the Confirmation
Date, and any debt of a kind specified in Section 502(g), 502(h) or 502(i) of
the Bankruptcy Code, to the full extent permitted by Section 1141(d)(1)(A) of
the Bankruptcy Code. Except as otherwise specifically provided herein, nothing
in the Plan shall be deemed to waive, limit or restrict in any manner the
discharge granted upon Confirmation of the Plan pursuant to Section 1141 of the
Bankruptcy Code.
12.02. Distributions in Complete Satisfaction. The distributions and rights
provided under the Plan shall be in complete satisfaction, discharge and
release, effective as of the Effective Date, of all Claims against and Interests
in the Debtors and the Estates and all liens upon any property of the Estates or
the Reorganized Debtors except for liens continuing pursuant to Section 5.02(a).
The Holders of liens satisfied, discharged and released under the Plan shall
execute any and all documentation reasonably requested by the Debtors or the
Reorganized Debtors evidencing the satisfaction, discharge and release of such
liens.
12.03. Injunction. The discharge and release provided in Section 12.01
shall also operate as an injunction restraining any Person from commencing or
continuing any action, suit or proceeding, or employing any process, or
otherwise acting, to collect, offset or recover any Claim discharged or released
under the Plan to the fullest extent authorized or provided by the Bankruptcy
Code, including Sections 524 and 1141 thereof. The Confirmation Order shall
constitute an injunction enjoining any Person from enforcing or attempting to
enforce any Cause of Action against any present or former director, officer,
employee, attorney, accountant, financial advisor, investment banker or agent of
any of the Debtors (but excluding any former officer or director of Camelot, GMG
or Grapevine who served in such capacity prior to November 12, 1993 who was not
an officer or director of Camelot, GMG or Grapevine as of the Petition Date)
based on, arising from or relating to, in whole or in part, any act, omission,
or other occurrence taking place on or prior to the Effective Date with respect
to or in any way relating to the Chapter 11 Cases, all of which Causes of Action
will be deemed released on the Effective Date.
12.04. Release by Debtors and Debtors in Possession. Pursuant to Section
1123(b)(3) of the Bankruptcy Code, on the Effective Date, the Debtors, in their
individual capacities and as Debtors in Possession, for and on behalf of the
Estates, shall release and discharge the following:
(a) Certain Bankruptcy-Related Causes of Action. Any and all Causes of
Action existing as of the Effective Date that may be asserted against (i)
any Eligible Supplier that timely executes a Customary Trade Terms
Commitment and Option Exercise Notice or (ii) the Prepetition Lenders by
any of the Debtors or Debtors in Possession, including, without limitation,
Causes of Action under Sections 510, 542, 544, 545, 546, 547, 548, 549, 550
and 553 of the Bankruptcy Code or under similar state laws; and
(b) Other Causes of Action. Any and all Causes of Action existing as
of the Effective Date against any present or former directors, officers,
employees, attorneys, accountants, financial advisors, investment bankers,
or agents of or acting for the Debtors or the Estates, all members of the
Committee in their capacity as Committee members, the Prepetition Lenders,
any Eligible Supplier that timely executes a Customary Trade Terms
Commitment and Option Exercise Notice, and all professionals retained by
the Committee or any such Person (but excluding any former officer or
director of Camelot, GMG or Grapevine who served in such capacity prior to
November 12, 1993 who was not an officer or director of Camelot, GMG or
Grapevine as of the Petition Date) (each a "Released Person") in any manner
arising from, based on or relating to, in whole or in part, the subject
matter of, or the transaction or event giving rise to, any Claim or
Interest that is treated in the Plan, the business or contractual
arrangements between any Debtor and any Released Person, the restructuring
of Claims and Interests prior to or in the Chapter 11 Cases, or any act,
omission, occurrence or event in any manner related to any such Claim,
Interest, restructuring or the Chapter 11 Cases.
The Reorganized Debtors, the New Regional Subsidiaries and Camelot Distribution
Co., Inc. shall be bound, to the same extent the Debtors are bound, by all of
the releases set forth above.
12.05. Release by Holders of Claims and Interests. Each Person who votes to
accept the Plan or that accepts any distribution on its Claim made pursuant to
the Plan (a "Release Obligor") shall be presumed conclusively to have
absolutely, unconditionally, irrevocably and forever, released and discharged
the Debtors, the Estates, the Reorganized Debtors, the New Regional Subsidiaries
and Camelot Distribution Co., Inc., each Released Person, and any Person that
may be liable derivatively through any of the foregoing, from any Claim or Cause
of Action existing as of the Effective Date arising from, based on or relating
to, in whole or in part, the subject matter of, or the transaction or event
giving rise to, the Claim or Interest of such Release Obligor, any act,
omission, occurrence or event in any manner related to such subject matter,
transaction or event, the Chapter 11 Cases, or the business or contractual
arrangements between any Release Obligor and any Debtor, except for the
obligations of the Debtors, the Reorganized Debtors, the New Regional
Subsidiaries and Camelot Distribution Co., Inc. expressly set forth therefor in
the Plan. The Confirmation Order shall constitute an injunction enjoining any
Release Obligor from attempting to enforce any Claim or Cause of Action
described in the immediately preceding sentence against any Person receiving a
release pursuant to the immediately preceding sentence.
12.06. Exculpation. Neither the Debtors, the Estates, the Reorganized
Debtors, the New Regional Subsidiaries nor Camelot Distribution Co., Inc., nor
any present officer, director, employee, agent, attorney, accountant, investment
banker or financial advisor to any of them, shall be obligated in any manner
under the Plan or in respect or by reason of the filing, negotiation,
prosecution, Confirmation, consummation or implementation of the Plan or the
attempted restructuring of the indebtedness of the Debtors prior to the Petition
Date or any action taken or not taken in connection therewith, or shall have or
incur any liability to any Holder of a Claim or Interest or any other Person in
respect of any such matters or any information provided or statement made in the
Disclosure Statement or omitted therefrom, except that (i) the Debtors, the
Reorganized Debtors, the New Regional Subsidiaries and Camelot Distribution Co.,
Inc. shall fulfill the obligations expressly set forth therefor in the Plan and
(ii) each Person shall remain liable, to the extent provided by law, for its own
willful misconduct or gross negligence as determined pursuant to a Final Order.
Each such Person shall be entitled to rely upon the advice of counsel with
respect to its duties and responsibilities under the Plan and shall be fully
protected in acting or in refraining from acting in accordance with such advice
or in any manner approved or ratified by the Bankruptcy Court.
12.07. Indemnification Obligations.
(a) Termination of Indemnification Obligations. Except as set forth in
Section 12.07(b), all obligations of the Debtors or the Estates to indemnify, or
to pay contribution or reimbursement to, any of its present or former directors,
officers, agents, employees and representatives or any Holder of a Claim or
Interest treated in the Plan (other than those indemnification obligations under
any Assumed Lease), or any trustee or agent acting for any such Holder, or any
person in any manner engaged, employed or indemnified in connection with the
issuance or sale of any Cancelled Securities or any agent, attorney, accountant,
financial advisor, investment banker, employee or representative or any heirs,
representatives, successors or assigns of any indemnified person, that may be
outstanding, accrued or existing, or might reasonably have been asserted, on the
Confirmation Date (whether pursuant to articles of incorporation, by-laws,
contractual obligations or any applicable law or otherwise) in respect of any
past, present or future action, suit or proceedings shall be discharged under
the Plan, and all undertakings and agreements for or relating to any such
indemnification, contribution or reimbursement are hereby rejected and
terminated.
(b) Limited Continuing Indemnification. No obligation of any of the
Debtors, whether arising pursuant to law or its articles of incorporation or
by-laws or by contract or otherwise, to indemnify, or to pay contribution or
reimbursement to, any individual who served as a director or officer of the
Debtors at any time during the Chapter 11 Cases shall be (i) discharged or
impaired under the Plan, (ii) subordinated under Section 510 of the Bankruptcy
Code or otherwise, or (iii) disallowed. Any such obligation that, under the
Bankruptcy Code, has the priority of an Administrative Expense Claim shall be
entitled to such priority. No proof of claim shall be required to preserve any
such obligation. The Reorganized Debtors shall assume and agree to pay all such
obligations and further, shall defend, indemnify and hold harmless each such
individual from and against all related claims, damages, losses, liabilities,
costs and expenses (including the reasonable fees and disbursements of legal
counsel selected and employed by such indemnified person, whether or not suit is
brought); provided, however, that, in addition to any other existing limitation
on such indemnity, no individual shall be indemnified in respect of any claim,
damages, liability, loss, cost or expense that is finally determined by a court
of competent jurisdiction to have been caused by such individual's own willful
misconduct or gross negligence.
12.08. Preservation of Insurance. The Debtors' discharge provided in the
Plan shall not diminish or impair the enforceability of any insurance policies
that may cover claims against the Debtors or any other Person. Additionally, the
Debtors' discharge provided in the Plan will not impair the continuation of
workers' compensation programs in effect, including self-insurance programs.
12.09. Subordination. Distributions under the Plan take into account the
relative priorities of the Claims and Interests in each Class in connection with
any and all contractual, legal or equitable subordination provisions or rights
relating thereto. Accordingly, (i) any distributions under the Plan shall be
received and retained free of and from any obligations to hold or transfer the
same to any other creditor, and shall not be subject to levy, garnishment,
attachment or other legal process by any Holder by reason of claimed contractual
subordination rights, and (ii) the Confirmation Order shall constitute an
injunction enjoining any Person from enforcing or attempting to enforce any
contractual, legal or equitable subordination rights to property distributed
under the Plan, in each case other than as provided in the Plan.
ARTICLE XIII.
CONDITIONS TO CONSUMMATION OF THE PLAN
13.01. Conditions. The Plan shall not become effective, the Effective Date
shall not occur, and no obligations and rights set forth in the Plan as of the
Effective Date or thereafter shall come into existence, unless each of the
following conditions is met or waived by the Debtors (with the consent of the
Bank Agent with respect to subsections (g) and (h) of this Section 13.01 and the
consent of the co-chairs of the Committee with respect to subsection (f) of this
Section 13.01) on or before the Effective Date:
(a) Confirmation Order. The Confirmation Order shall have been entered
and shall have become a Final Order.
(b) Reorganized Debtors. The articles of incorporation and by-laws of
the Reorganized Debtors shall have been amended to the extent necessary to
effect or permit each of the transactions contemplated in the Plan.
(c) Funding under New Working Capital Facility. The Reorganized
Debtors and/or any New Regional Subsidiary or Camelot Distribution Co.,
Inc. and a lender or lenders shall have entered into the New Working
Capital Facility Agreement, and all conditions to closing set forth in such
agreement shall have been satisfied or waived, subject to the actions to be
taken under the Plan on the Effective Date.
(d) Delivery of Documents. All documents required to be delivered
under the Plan and under the Transfer Agreements on or prior to the
Effective Date shall have been executed and delivered by the parties
thereto.
(e) Approval of Corporate Action. The Bankruptcy Court shall have
entered an order (contemplated to be part of the Confirmation Order)
authorizing and directing the Debtors, the Reorganized Debtors, the New
Regional Subsidiaries and Camelot Distribution Co., Inc. to take all
actions necessary or appropriate to enter into, implement and consummate
the contracts, instruments, releases, indentures and other agreements or
documents created or adopted in connection with the Plan.
(f) Customary Trade Terms. Each of the Big Six Vendors shall have
provided Camelot with a Customary Trade Terms Commitment and Option
Exercise Notice.
(g) Allowance of Prepetition Lender Claims. The Prepetition Lender
Claims shall be Allowed in the amount of $295,775,392, the Prepetition
Lender Secured Claims shall be Allowed in the amount of $41,884,000, and
the Prepetition Lender Deficiency Claims shall be Allowed in the amount of
$253,891,392.
(h) Allowance of Subordinated Debenture Claims. The Subordinated
Debenture Claims shall be Allowed in the amount of $58,490,487 and the Plan
will provide for the enforcement of the Subordination Provisions.
13.02. Consummation. The Plan shall become effective, and the Effective
Date shall occur, when the conditions set forth in Section 13.01 are met or
waived as provided therein. The Reorganized Debtors shall thereupon perform the
obligations required under the Plan to be performed by them on the Effective
Date. The filing with the Bankruptcy Court of a certificate of a responsible
officer of the Reorganized Debtors to the effect that the conditions in Section
13.01 have been met or waived and that the Reorganized Debtors have
substantially performed the obligations required under the Plan to be performed
by them on the Effective Date shall establish conclusively that the Plan has
been substantially consummated.
ARTICLE XIV.
RETENTION OF JURISDICTION
14.01. Jurisdiction of Bankruptcy Court. Notwithstanding the entry of the
Confirmation Order or the Effective Date having occurred, the Bankruptcy Court
will retain jurisdiction of the Chapter 11 Cases for the following purposes:
(a) To hear and determine any and all pending applications for the
rejection, assumption or assignment of executory contracts and leases, any
objections to Claims resulting therefrom, and the allowance of any Claims
resulting therefrom;
(b) To hear and determine any and all applications, adversary
proceedings, contested matters and other litigated matters pending on the
Effective Date or permitted to be commenced thereafter under the Bankruptcy
Code and the Bankruptcy Rules;
(c) To ensure that the distributions to Holders of Allowed Claims are
accomplished as provided herein;
(d) To hear and determine any objections to Claims Filed both before
and after Confirmation; to allow or disallow, in whole or in part, any
Disputed Claim; and to hear and determine other issues presented by or
arising under the Plan;
(e) To enter and implement such orders as may be appropriate in regard
to the Confirmation Order and the Plan;
(f) To hear and determine all applications of professionals for
compensation and reimbursement of expenses under Sections 330, 331 or
503(b) of the Bankruptcy Code;
(g) To hear the Debtors' or the Reorganized Debtors' application, if
any, to modify the Plan in accordance with Section 1127 of the Bankruptcy
Code (after Confirmation, the Debtors or the Reorganized Debtors may also,
so long as they do not adversely affect the interest of Holders of Allowed
Claims, institute proceedings in the Bankruptcy Court to remedy any defect
or omission or reconcile any inconsistencies in the Plan or Confirmation
Order, in such manner as may be necessary to carry out the purposes and
effects of the Plan);
(h) To hear and determine disputes arising in connection with the
interpretation of the Plan or its implementation, including disputes among
Holders of Allowed Claims and disputes arising under any other agreements,
documents or instruments executed in connection with the Plan;
(i) To construe and to take any action to enforce the Plan and issue
such orders and injunctions as may be necessary for the consummation and
implementation of the Plan;
(j) To determine such other matters and for such purposes as may be
provided in the Confirmation Order;
(k) To hear and determine any motions or contested matters involving
taxes, tax refunds, tax Claims, tax attributes and tax benefits and similar
or related matters, with respect to the Debtors or the Estates arising on
or prior to the Effective Date or relating to the period of administration
of the Chapter 11 Cases or the Plan;
(l) To hear and determine any other matters related hereto and not
inconsistent with Chapter 11 of the Bankruptcy Code; and
(m) To enter a final decree closing the Chapter 11 Cases.
14.02. Exception to Jurisdiction of Bankruptcy Court. Notwithstanding
anything contained in the Plan to the contrary, the Bankruptcy Court shall not
retain jurisdiction over matters relating exclusively to the enforcement of
rights and remedies under the New Working Capital Facility or otherwise arising
solely under the New Working Capital Facility.
ARTICLE XV.
MISCELLANEOUS PROVISIONS
15.01. Binding Effect of the Plan. The provisions of the Plan shall be
binding upon and inure to the benefit of the Debtors, the Estates, the
Reorganized Debtors, the New Regional Subsidiaries, Camelot Distribution Co.,
Inc., any Holder of any Claim or Interest treated herein, and each of their
respective predecessors, successors, assigns, agents, officers and directors
and, to the fullest extent permitted under Section 1141(a) of the Bankruptcy
Code and other applicable law, each other Person affected by the Plan.
15.02. Nonvoting Stock. In accordance with Section 1123(a)(6) of the
Bankruptcy Code, the amended articles of incorporation of the Reorganized
Debtors and the articles of incorporation of the New Regional Subsidiaries and
Camelot Distribution Co., Inc. shall contain provisions prohibiting the issuance
of nonvoting equity securities by the Reorganized Debtors, the New Regional
Subsidiaries and Camelot Distribution Co., Inc., respectively.
15.03. Authorization of Corporate Action. The entry of the Confirmation
Order shall constitute authorization for the Debtors and the Reorganized Debtors
to take or cause to be taken all corporate actions necessary or appropriate to
consummate and implement the provisions of the Plan prior to, on and after the
Effective Date, and all such actions taken or caused to be taken shall be deemed
to have been authorized and approved by the Bankruptcy Court. All such actions
shall be deemed to have occurred and shall be in effect pursuant to applicable
nonbankruptcy law and the Bankruptcy Code, without any requirement of further
action by the stockholders or directors of the Debtors or the Reorganized
Debtors. On the Effective Date, the appropriate officers and directors of the
Debtors and the Reorganized Debtors are authorized and directed to execute and
deliver the agreements, documents and instruments contemplated by the Plan in
the name and on behalf of the Debtors and the Reorganized Debtors.
15.04. Listing of Stock. CMH or Reorganized CMH shall use its reasonable
best efforts to cause the New Common Stock to be listed or admitted to trading
on the NASDAQ or another nationally recognized securities exchange.
15.05. Retiree Benefits. On and after the Effective Date, the Reorganized
Debtors shall continue to pay any retiree benefits, as that term is defined in
Section 1114(a) of the Bankruptcy Code, to the extent required by Section
1129(a)(13) of the Bankruptcy Code, without prejudice to the Reorganized
Debtors' rights under applicable nonbankruptcy law to modify, amend or terminate
the foregoing arrangements.
15.06. Withdrawal of the Plan. The Debtors reserve the right, at any time
prior to the entry of the Confirmation Order, to revoke or withdraw the Plan. If
they do so, the Plan shall be null and void. If the Debtors revoke or withdraw
the Plan without the consent of the Committee, the Debtors' exclusive periods to
file a plan of reorganization and to solicit acceptances thereto under Section
1121 of the Bankruptcy Code shall be automatically terminated on the date of
such revocation or withdrawal, as to the Committee only, without further order
of the Bankruptcy Court.
15.07. Final Order. Except as otherwise expressly provided in the Plan, any
requirement in the Plan for a Final Order may be waived by the Debtors or, after
the Effective Date, the Reorganized Debtors upon written notice to the
Bankruptcy Court. No such waiver shall prejudice the right of any party in
interest to seek a stay pending appeal of any order that is not a Final Order.
15.08. Notice. All notices required to be given to the Debtors under the
Plan, if any, shall be in writing and shall be sent by first class mail, postage
prepaid, or by overnight courier to:
Camelot Music, Inc.
8000 Freedom Avenue, N.W.
North Canton, Ohio 44720
Attn: Jack K. Rogers
Tel: (330) 494-2282
with copies to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attn: Howard S. Beltzer
Evan C. Hollander
Michael C. O'Sullivan
Tel: (212) 819-8200
and
Young, Conaway, Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899
Attn: James L. Patton, Jr.
S. David Peress
Tel: (302) 571-6600
Any of the above may, from time to time, change its address for future notices
and other communications hereunder by filing a notice of the change of address
with the Bankruptcy Court. Any and all notices given under the Plan shall be
effective when received.
15.09. Dissolution of Committee. When the Plan becomes effective as set
forth in Section 13.02, the Committee shall cease to exist and its members and
professional advisors shall be released and discharged from all further
authority, duties, responsibilities and obligations relating to, arising from or
in connection with the Chapter 11 Cases.
15.10. Amendments and Modifications. The Debtors or the Reorganized
Debtors, with the consent of the Committee, may modify the Plan both before and
after Confirmation in accordance with the provisions of Section 1127 of the
Bankruptcy Code.
15.11. Time. Unless otherwise specified herein, in computing any period of
time prescribed or allowed by the Plan, the day of the act or event from which
the designated period begins to run shall not be included. The last day of the
period so computed shall be included, unless it is not a Business Day, in which
event the period runs until the end of the next succeeding day that is a
Business Day.
15.12. Section 1145 Exemption. To the fullest extent permitted under
Section 1145 of the Bankruptcy Code, the offer or sale under the Plan of the New
Common Stock and the options for the purchase of New Common Stock, and any
transactions by a stockbroker complying with Section 1145(a)(4) of the
Bankruptcy Code in such securities, shall be and are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, and any state or local law requiring registration for offer or sale of
a security or registration or licensing of an issuer of, underwriter of, or
broker or dealer in, such securities. The offer and sale of the New Common Stock
and the options for the purchase of New Common Stock under the Plan are deemed
to be a public offering of the New Common Stock and the options for the purchase
of New Common Stock. Certain Holders of New Common Stock who, due to the
magnitude of their holdings as of the Effective Date, may be deemed
"underwriters" pursuant to Section 1145(b) of the Bankruptcy Code, will become
parties with Reorganized CMH to a registration rights agreement affording them
certain limited registration and other rights, all as more fully set forth
therein.
15.13. Section 1146 Exemption. To the fullest extent permitted under
Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of
any security under the Plan, or the execution, delivery or recording of an
instrument of transfer under the Plan, or the revesting, transfer or sale of any
real or other property of or to the Debtors, the Reorganized Debtors, the New
Regional Subsidiaries or Camelot Distribution Co., Inc. under the Plan
(including, without limitation, the transfer of property in accordance with the
Transfer Agreements and the Wall Asset Purchase Agreement), shall not be taxed
under any state or local law imposing a stamp tax, transfer tax or similar tax
or fee. Consistent with the foregoing, each recorder of deeds or similar
official for any county, city or governmental unit in which any instrument
hereunder is to be recorded shall, pursuant to the Confirmation Order, be
ordered and directed to accept such instrument, without requiring the payment of
any documentary stamp tax, deed stamps, stamp tax, transfer tax, mortgage
recording tax, intangible tax or similar tax.
Wilmington, Delaware
November 7, 1997
CM HOLDINGS, INC.
Debtor and Debtor in Possession
By: /s/ Jack K. Rogers
----------------------
Jack K. Rogers
Executive Vice President and
Chief Financial Officer
CAMELOT MUSIC, INC.
Debtor and Debtor in Possession
By: /s/ Jack K. Rogers
----------------------
Jack K. Rogers
Executive Vice President and
Chief Financial Officer
G.M.G. ADVERTISING, INC.
Debtor and Debtor in Possession
By: /s/ Jack K. Rogers
----------------------
Jack K. Rogers
Executive Vice President and
Chief Financial Officer
GRAPEVINE RECORDS AND TAPES, INC.
Debtor and Debtor in Possession
By: /s/ Jack K. Rogers
----------------------
Jack K. Rogers
Executive Vice President and
Chief Financial Officer
White & Case
1155 Avenue of the Americas
New York, New York 10036
(212) 819-8200
Howard S. Beltzer (HSB-5721)
Evan C. Hollander (ECH-0191)
Michael C. O'Sullivan (MCO-2355)
and
Young, Conaway, Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899
(302) 571-6600
James L. Patton, Jr. (No. 2022)
S. David Peress (No. 2679)
Co-Counsel for Debtors and
Debtors in Possession
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
BY AND AMONG
CAMELOT MUSIC, INC.
as Purchaser
and
THE WALL MUSIC, INC.
as Seller
and
WH SMITH GROUP HOLDINGS (USA), INC.
as Parent
Dated as of December 10, 1997
- -------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT (this "Agreement") dated as of December 10,
1997 by and among CAMELOT MUSIC, INC., a corporation organized under the laws of
the Commonwealth of Pennsylvania (the "Purchaser"), THE WALL MUSIC, INC., a
corporation organized under the laws of the Commonwealth of Pennsylvania (the
"Seller"), and WH SMITH GROUP HOLDINGS (USA), INC., a corporation organized
under the laws of the State of Nevada (the "Parent").
W I T N E S S E T H :
---------------------
WHEREAS, the Purchaser is engaged in the business of owning and
operating mall-based recorded music retail stores; and
WHEREAS, on August 9, 1996 (the "Petition Date"), the Purchaser filed
a voluntary petition for reorganization under Chapter 11, title 11 of the United
States Code (as the same is in effect for cases filed on the Petition Date, the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"), and since the Petition Date has been
operating its business as a debtor and debtor in possession; and
WHEREAS, the Purchaser desires to purchase certain assets of
the Seller from the Seller and to assume certain liabilities and contracts of
the Seller, and the Seller desires to sell such assets to the Purchaser and to
assign such liabilities and contracts to the Purchaser, in each case upon the
terms and subject to the conditions set forth herein; and
WHEREAS, the Parent owns one hundred percent (100%) of the issued and
outstanding capital stock of the Seller, and the Parent expects to derive
substantial benefits from the transactions contemplated by this Agreement; and
WHEREAS, the Purchaser intends to assign its rights and obligations
under this Agreement to the Acquiring Corporation.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. The following terms shall have the
respective meanings specified therefor below (such meanings to be equally
applicable to both the singular and the plural forms of the terms defined).
"Accrued Gift Certificate Reserve" shall mean all liability for all
gift certificates sold by the Seller during the twelve months prior to the
Closing Date and not redeemed as of the Closing Date.
"Accrued Store Credit Reserve" shall mean all liability for store
credits issued to customers of the Seller for returned merchandise which are
unused and unexpired as of the Closing Date.
"Accrued Vacation Reserve" shall mean all liability in respect of any
earned and unused vacation time of any Hired Employees as of the Closing Date.
"Acquiring Corporation" shall mean Camelot Northeast Region, Inc., a
Delaware corporation and a wholly owned subsidiary of the Purchaser.
"Affiliate" shall mean, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such other Person, whether through ownership of voting securities,
by contract or otherwise.
"Agreement" shall mean this Agreement, as amended, modified or
supplemented from time to time.
"Airport Stores" shall mean stores engaged in pre-recorded music
retailing owned either now or in the future by the Seller or its Affiliates and
located within airports or hotels.
"Airport Stores Agreement" shall mean an agreement to be entered into
between the Purchaser and the Seller and/or their relevant Affiliates on or
prior to the Closing Date embodying the terms set forth in Exhibit 8.6 attached
hereto.
"Allocation" shall have the meaning specified in Section 11.1(a).
"Apportioned Current Assets" shall mean any amounts in respect of Operating
Expenses to be satisfied by the Seller pursuant to Section 2.4 and
which, with respect to each Transferred Store, are attributable to the ownership
and operation of such Transferred Store after the later to occur of the Closing
Date and the Assignment Date with respect to the Transferred Lease relating to
such Transferred Store.
"Apportioned Current Liabilities" shall mean any amounts in respect of
Operating Expenses to be satisfied by the Purchaser pursuant to Section 2.4 and
which with respect to each Transferred Store are attributable to the ownership
and operation of such Transferred Store on or before the later to occur of the
Closing Date and the Assignment Date with respect to the Transferred Lease
relating to such Transferred Store.
"Apportionment Schedule" shall mean a schedule, delivered in
accordance with Section 2.4(c), which sets forth each Apportioned Current Asset
and each Apportioned Current Liability.
"Approval Order" shall have the meaning specified in Section 4.1.
"Assets Transferred" shall mean Store Cash, Purchased Inventory,
Purchased Receivables, Vendor Credits Receivable, and Apportioned Current
Assets.
"Assigned Contracts" shall have the meaning specified in Section
2.1(d).
"Assigned Leases" shall have the meaning specified in Section 2.1(b).
"Assigned Non-Transferred Lease" shall mean a Non-Transferred Lease (i) for
which the Assignment Date occurs during the Non-Transferred Lease Assignment
Period and (ii) which has a remaining term of twelve (12) months or greater as
of such Assignment Date, including for the purpose of calculating such remaining
term any renewal term which is reasonably acceptable to the Purchaser.
"Assigned Non-Transferred Lease Amount" shall be an amount calculated
for each Assigned Non-Transferred Lease in accordance with Section 2.10(b).
"Assigned Permits" shall have the meaning specified in Section 2.1(h).
"Assignment Date" shall mean, with respect to each Assigned Lease, the
date on which such Lease is validly assigned to the Purchaser.
"Assignment Information Requirements" shall mean the information
regarding the Purchaser which the Seller is required, under certain of the
Assigned Leases, to present to the landlords in connection with the assignment
of such Assigned Leases to the Purchaser.
"Assumed Liabilities" shall have the meaning specified in Section 2.3.
"Bankruptcy Case" shall mean the case under Chapter 11 of the
Bankruptcy Code in respect of the Purchaser currently pending before the
Bankruptcy Court, Case No. 96-1248 (PJW).
"Bankruptcy Code" shall have the meaning specified in the recitals
hereto.
"Bankruptcy Court" shall have the meaning specified in the recitals
hereto. "Books and Records" shall mean all books, records, files and data,
including customer lists and telephone numbers, certificates, copies of material
tax returns (other than income tax returns) which have been filed during the six
(6) year period ending on the Closing Date, and other documents related
primarily to the conduct of the Business or the ownership of the Purchased
Assets and all material sales and promotional literature of the Seller,
including personnel records and files (to the extent legally transferable);
provided that Books and Records shall not include books and records relating
exclusively to the organizational proceedings of the Seller and shall not
include the Seller's stock register.
"Business" shall mean retail sales by the Seller and the Seller's
Subsidiaries of pre-recorded music and related items (other than such sales at
the Airport Stores), and all the business activities and operations relating to,
connected with, or arising out of such sales, as conducted on the date hereof.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day on which banks in New York, New York are authorized or required by law or
other governmental action to close.
"Business Employee" shall mean an employee of the Seller, or an
independent contractor or officer or director of the Seller as of the Closing
Date.
"Capital Lease Payable" shall mean the remaining payments after the
Closing Date under any capital lease which is an Assigned Contract.
"Cash Equivalents" shall mean certificates of deposit, time deposits,
bankers' acceptances, commercial paper and government securities with maturities
of less than one year.
"Claim" shall have the meaning specified in Section 13.4(a).
"Closing" shall have the meaning specified in Section 3.1.
"Closing Date" shall have the meaning specified in Section 3.1.
"Closing Date Deficiency" shall have the meaning specified in Section
2.8(a).
"COBRA" shall have the meaning specified in Section 5.16(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor law, and the rules and regulations promulgated thereunder.
"Competing Business" shall have the meaning specified in Section
15.1(a).
"Condition" shall mean the business, operations, condition (financial
or otherwise) or results of operations of the Business, the Seller, the
Purchased Assets or the Assumed Liabilities.
"Confidentiality Agreements" shall mean the Confidentiality Agreements
among the Seller, the Parent and the Purchaser dated February 4, 1997 and March
10, 1997.
"Damages" shall mean all damages, losses, costs or expenses
(including, without limitation, reasonable attorney's fees and expenses) whether
or not resulting from third party claims.
"Determination Date" shall mean the date which is sixty (60) calendar
days after the Closing Date.
"Employee Benefit Plans" shall have the meaning specified in Section
5.16(a).
"Encumbrance" shall mean any encumbrance, lien, security interest,
charge, option, right of first refusal, easement, mortgage, indenture, deed of
trust, right of way or other restriction of any kind or nature.
"Environmental Claims" shall mean administrative, regulatory or
judicial actions, suits, demand letters, written claims, liens, written notices
of noncompliance or violation or proceedings relating to any Environmental Law
or any environmental permit (for purposes of this definition only, referred to
as "Claims"), including (a) Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (b) Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any applicable federal, state or local
statute, law, rule, regulation, ordinance, code or rule of common law in effect
and in each case as amended as of the Closing Date, relating to the environment
or Hazardous Materials, including the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq.;
the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901 et
seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251 et
seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Clean
Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.
300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq.; and
their state and local counterparts and equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, or any successor law, and the rules and regulations
thereunder.
"Escrow Account" shall mean the escrow account to be established under
the Escrow Agreement.
"Escrow Agreement" shall mean an agreement to be entered into on or
prior to the Closing Date among the Seller, the Purchaser and an escrow agent
reasonably acceptable to the Seller and the Purchaser.
"Escrow Amount" shall mean two million dollars ($2,000,000).
"Excluded Assets" shall have the meaning specified in Section 2.2.
"Excluded Liabilities" shall have the meaning specified in Section
2.3(b).
"Final Order" shall mean an order of the Bankruptcy Court or any court
exercising jurisdiction over the Bankruptcy Case, the operation or effect of
which has not been reversed, stayed, modified or amended and as to which the
time to appeal or to seek certiorari, review or rehearing has expired and as to
which no appeal or petition for review or rehearing is pending or as to which
any right to appeal or seek review or rehearing has been waived in writing in a
manner reasonably satisfactory to the Purchaser and the Seller, or if an appeal,
reargument, petition for certiorari or rehearing thereof has been sought, such
order has not been stayed or has been affirmed by the highest court to which the
order was appealed or from which the reargument or rehearing was sought, and the
time to take any further appeal or to seek further reargument or rehearing has
expired.
"Final Post-Closing Adjustment Amount" shall mean the Post-Closing
Adjustment Amount as determined after the final resolution of any disputes in
accordance with Section 2.7(c).
"Franchise Agreement" shall have the meaning specified in Section
7.17.
"Franchised Store" shall have the meaning specified in Section 7.17.
"GAAP" shall mean generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants.
"Hazardous Materials" shall mean (a) any petroleum or petroleum
products, asbestos in any form that is or could be friable, and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls of 50 ppm or greater and (b) any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
or words of similar import, under any applicable Environmental Law.
"Hired Employee" shall mean an individual who is offered employment in
accordance with the terms of Section 12.1(a) and who is actually employed by the
Purchaser on or within sixty (60) calendar days of the Closing Date.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indemnifying Party" shall have the meaning specified in Section
13.4(a).
"Indemnitee" shall have the meaning specified in Section 13.4(a).
"Intellectual Property" shall mean copyrights, licenses, patents and
patent applications, trade names, registered and unregistered trademarks and
service marks, software programs and databases.
"Interim Payment Amount" shall mean twenty-four million dollars
($24,000,000), or such other amount determined in accordance with Section 2.6,
and paid to the Seller in accordance with Section 2.5.
"Interim Payment Date" shall mean the date that is thirty (30)
calendar days after the Closing Date, or if such day is not a Business Day, the
first Business Day thereafter.
"Inventory" shall mean all of the Seller's inventory located in the
Seller's stores, returns warehouse, distribution center or in transit or
otherwise.
"Letter of Credit" shall mean a stand-by letter of credit,
substantially in the form of Exhibit 10.4 attached hereto, issued by The Chase
Manhattan Bank in the amount of twenty-four million dollars ($24,000,000).
"Liabilities Transferred" shall mean the Apportioned Current
Liabilities, the Capital Lease Payable, the Accrued Gift Certificate Reserve,
the Accrued Store Credit Reserve and the Accrued Vacation Reserve.
"Liquidated Damages Amount" shall mean the amount set forth in Exhibit
2.10(b) attached hereto with respect to a Non-Transferred Lease.
"Liquidated Damages Statement" shall mean the statement prepared by
the Seller which sets forth (a) the Non-Transferred Lease Adjustment Amount for
each Non-Transferred Lease as determined in accordance with Section 2.10 and
Exhibit 2.10(b) attached hereto, and (b) the Total Non-Transferred Lease
Adjustment Amount.
"Net Asset Transferred Amount" shall mean the amount determined in
accordance with the formula set forth in Exhibit 2.7(a) attached hereto.
"Non-Transferred Lease" shall mean an Assigned Lease which has not
been validly assigned to the Purchaser during the period beginning on the
Closing Date and ending on the Determination Date.
"Non-Transferred Lease Adjustment Amount" shall mean, for each
Non-Transferred Lease, the amount determined in accordance with Section 2.10.
"Non-Transferred Lease Assignment Period" shall mean the period
beginning on the day after the Determination Date and ending on the first
anniversary of the Determination Date.
"Operating Expenses" shall mean the following expenses relating to the
operation of the Business: (i) all payments required to be made by the tenant
under the Transferred Leases, including, without limitation, base rent,
Percentage Rent Charges, additional rent, real estate Taxes, insurance charges,
merchants' association dues and charges, mall marketing charges, mall marketing
funds, mall security, licenses, HVAC charges, sprinkler expense, common area,
community area and enclosed mall charges; and (ii) all other expenses
specifically related to the operation of the Transferred Stores, including,
without limitation, utility, maintenance, trash and telephone bills, prepaid
Billboard and other subscriptions, prepaid Muse fees, and personal property
Taxes, but not including payroll or related expenses.
"Operating Expense Invoice" shall mean an invoice in respect of an
Operating Expense.
"Percentage Rent Charge" shall mean contingent rent which is based on
sales of a particular store which are above a predetermined threshold as set
forth in the lease applicable to such store.
"Permitted Encumbrances" shall mean (a) Encumbrances consisting of
easements, permits and other restrictions or limitations on the use of real
property or irregularities in title thereto which do not materially detract from
the value of, or materially impair the use of, such property by the Seller in
the operation of the Business, (b) Encumbrances for current taxes, assessments
or governmental charges or levies on property not yet due and delinquent, (c)
Encumbrances arising by operation of law, (d) Encumbrances disclosed in the
Seller Balance Sheet, and (e) Encumbrances set forth in Schedule 5.8 attached
hereto.
"Person" shall mean any individual, partnership, joint venture,
company, corporation, trust, unincorporated organization or other enterprise, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Petition Date" shall have the meaning specified in the recitals
hereto.
"Post-Closing Adjustment Amount" shall mean the sum of (i) twenty-six
million dollars ($26,000,000), plus (ii) the Net Asset Transferred Amount, minus
(iii) forty-five million dollars ($45,000,000), minus (iv) the Interim Payment
Amount.
"Post-Closing Periods" shall mean all taxable years or periods that
begin after the Closing Date, and with respect to any taxable year or period
beginning before and ending after the Closing Date, the portion of such taxable
year or period beginning the first calendar day after the Closing Date.
"Pre-Closing Periods" shall mean all taxable years or periods that end
on or before the Closing Date, and with respect to any taxable year or period
beginning before and ending after the Closing Date, the portion of such taxable
year or period ending on and including the Closing Date.
"Purchased Assets" shall have the meaning specified in Section 2.1.
"Purchased Inventory" shall mean Inventory and Selling Supplies other
than Inventory and Selling Supplies located in stores subject to Non-Transferred
Leases.
"Purchased Receivables" shall mean all notes issued by Hired
Employees, all landlord receivables and all deposits, in both cases, in respect
of Transferred Leases (including any utility deposits), and the Soundscan
receivable, together with any guarantees and any other rights in respect
thereof.
"Purchaser" shall have the meaning specified in the preamble to this
Agreement.
"Purchaser Trade Vendors" shall mean trade vendors which are in
business on the Closing Date and are not, on the Closing Date, the subject of
bankruptcy proceedings and with which the Purchaser presently has, or within the
six-month period immediately preceding the Closing Date had, an active account.
"Relevant Markets" shall have the meaning specified in Section
15.1(a).
"Returns" shall mean all returns and reports for Taxes for Pre-Closing
Periods which are required to be filed by or with respect to the Purchased
Assets or the Business.
"Seller" shall have the meaning specified in the preamble to this
Agreement.
"Seller Audited Statements" shall have the meaning specified in
Section 5.5(a).
"Seller Balance Sheet" shall have the meaning specified in Section
5.5(a).
"Seller Balance Sheet Date" shall have the meaning specified in
Section 5.5(a).
"Seller Executives" shall mean Vice Presidents, Directors and Senior
Directors of the Seller.
"Seller Property" shall have the meaning specified in Section 5.20(a).
"Seller Transition Employee" shall mean those Business Employees whom
the Seller desires to employ after the Closing.
"Seller Unaudited Statements" shall have the meaning specified in
Section 5.5(b).
"Seller's Remaining Stores" shall mean the Seller's stores which are
the subject of Assigned Leases which have not been validly assigned to the
Purchaser as of the Closing Date.
"Seller's Subsidiaries" shall mean Wee Three Record Shops of New
Jersey, Inc., a New Jersey corporation, and The Wall Music Shops, Inc., a
Delaware corporation.
"Selling Supplies" shall mean supplies bought for use in the Seller's
stores in connection with the operation of the Business in the ordinary course,
including, but not limited to, printed material, security tags and shopping
bags.
"Statement of Assets and Liabilities Transferred" shall have the
meaning specified in Section 2.7(a).
"Store Cash" shall mean cash located in each of the Seller's stores as
of the close of business on the Closing Date in the amounts set forth in Exhibit
2.1.
"Supply Agreement" shall have the meaning specified in Section 7.16.
"Tax" or "Taxes" shall mean all taxes, assessments, charges, duties,
fees, levies or other governmental charges, including without limitation, all
federal, state, local, foreign and other income, franchise, profits, capital
gains, capital stock, transfer, sales, use, occupation, property, excise,
severance, windfall profits, stamp, license, payroll, withholding and other
taxes (whether payable directly or by withholding and whether or not requiring
the filing of a Return), all estimated taxes, deficiency assessments, additions
to tax, penalties and interest and shall include any liability for such amounts
as a result either of being a member of a combined, consolidated, unitary or
affiliated group or of a contractual obligation to indemnify any Person or other
entity.
"Third Party Claim" shall have the meaning specified in Section
13.4(b).
"Total Non-Transferred Lease Adjustment Amount" shall mean the lesser
of (a) the aggregate of all Non-Transferred Lease Adjustment Amounts as
determined pursuant to Section 2.10(b) and (b) two million five hundred thousand
dollars ($2,500,000).
"Transfer Taxes" shall have the meaning specified in Section 11.1(c).
"Transferred Lease" shall mean an Assigned Lease which is validly
assigned to the Purchaser during the period beginning on the Closing Date and
ending on the Determination Date.
"Transferred Store" shall mean a store which is the subject of a
Transferred Lease.
"Vendor Credits Receivable" shall mean issued and unused credit memos
issued by the Purchaser Trade Vendors and credit memos due from the Purchaser
Trade Vendors for inventory returned by the Seller on or prior to the Closing
Date.
"Warehouse Lease" shall mean the lease, dated June 27, 1990, between
Wee Three Records Shops, Inc., the predecessor by name change to the Seller, and
Anvil Construction Company, Inc., as amended, covering the Seller's warehouse,
headquarters and distribution center located in Philadelphia, Pennsylvania as in
effect on the date hereof.
"WARN Act" shall mean the Worker Adjustment and Retraining
Notification Act, as amended, 29 U.S.C. ss. 2901 et seq.
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
Section 2.1. Transfer of Assets. Upon the terms and subject to the
conditions of and exceptions contained in this Agreement, the Purchaser agrees
to purchase from the Seller, and the Seller agrees to sell, convey, transfer,
assign and deliver to the Purchaser on the Closing Date, against the receipt by
the Seller of the consideration specified in Section 2.5, free and clear of any
Encumbrances of any kind except for Permitted Encumbrances, all right, title and
interest of the Seller in and to all of the assets, other than those assets
described in Section 2.2 and those assets disposed of in accordance with the
terms of this Agreement, including, without limitation, Section 7.1, used in or
relating to the conduct of the Business, tangible and intangible, real, personal
and mixed, wheresoever situated and whether or not specifically referred to
herein or in any instrument of conveyance delivered pursuant hereto, and whether
or not any such asset has any value for accounting purposes (collectively, the
"Purchased Assets"), including, without limitation, the following:
(a) Store Cash, Purchased Receivables, Vendor Credits Receivable,
Apportioned Current Assets and deposits other than those included in
Purchased Receivables or relating to Excluded Assets or Excluded
Liabilities;
(b) subject to Section 3.4, all right, title and interest of the
Seller in and to all leases and subleases of real property set forth in
Schedule 5.7 attached hereto, as such leases and subleases have been
amended or modified prior to the Closing Date, together with all buildings,
facilities, fixtures and other improvements thereon and all easements,
rights-of-way, transferable licenses and permits and other appurtenances
thereto, (the "Assigned Leases");
(c) Purchased Inventory;
(d) all of the fixed assets, including machinery and equipment, spare
parts, supplies, computer hardware and related software, motor vehicles,
furniture and fixtures and other personal property owned, leased or used by
the Seller on the Closing Date other than any of the foregoing items
located in stores subject to Non-Transferred Leases and, subject to Section
3.4, all rights of the Seller under all contracts, commitments, purchase
orders, agreements, and leases (other than Assigned Leases) of the Seller
(collectively, the "Assigned Contracts");
(e) all of the Seller's right, title and interest in and to
Intellectual Property owned, licensed or used by the Seller on the Closing
Date (other than any interest that the Seller may have in the name "W.H.
Smith," "Waterstone's" or any similar name, or any trademark or logo
relating thereto), all documents embodying proprietary information and
copyright protected material and all evidence of ownership of such
Intellectual Property;
(f) all Books and Records;
(g) the Business as a going concern, including all of the Seller's
goodwill associated with the Business, including, without limitation, the
Seller's right, title and interest in, and right to use, the name "The
Wall" and any and all variants and derivatives thereof;
(h) subject to Section 3.4, all transferable federal, state or local
or other governmental and other third party permits (including occupancy
permits), certificates, licenses, consents and authorizations necessary or
useful in the operation of the Business (the "Assigned Permits");
(i) any rights of the Seller pertaining to any counterclaims, setoffs
or defenses it may have with respect to any Assumed Liabilities; and
(j) all insurance proceeds (or the right to receive such proceeds),
net of any deductible or co-payment payable to the relevant insurance
carrier for which the Seller or the Parent is liable, relating to claims in
respect of any of the Purchased Assets other than tangible current assets
of the types or categories of assets included in the calculation of the
Post-Closing Adjustment Amount, to the extent that such proceeds relate to
a loss resulting in a reduction in value of such Purchased Assets.
Section 2.2. Excluded Assets. Notwithstanding the provisions of
Section 2.1, the Purchased Assets shall not include the following items
(collectively, the "Excluded Assets"):
(a) all cash on hand, in transit and in banks and Cash Equivalents,
other than Store Cash;
(b) all notes and accounts receivable other than the Purchased
Receivables;
(c) the Warehouse Lease;
(d) the Seller's insurance policies listed on Schedule 5.14 attached
hereto;
(e) all Employee Benefit Plans;
(f) the Parent's and the Seller's rights under this Agreement;
(g) any shares of capital stock of the Seller's Subsidiaries;
(h) subject to Section 2.1(i), rights, claims, counterclaims,
privileges, causes of action and demands relating to any pending or
potential litigation;
(i) any refund, rebate, credit or similar claim for Taxes paid by the
Seller, the Seller's Subsidiaries, or any of their Affiliates, whether
known or unknown on the Closing Date, relating to the Business or the
Purchased Assets;
(j) any contracts and other assets described on Exhibit 2.2(j)
attached hereto; and
(k) all fixed assets, including machinery and equipment, spare parts,
supplies, computer hardware and related software, motor vehicles,
furniture, fixtures and personal property owned, leased or used by the
Seller and located in and used solely in stores subject to Non-Transferred
Leases.
Section 2.3. Assumption and Exclusion of Liabilities. (a) On the terms
and subject to the conditions of this Agreement, the Purchaser shall, on the
Closing Date, assume and shall agree to pay, perform and discharge when due the
following categories and types of liabilities and obligations (such liabilities
and obligations being the "Assumed Liabilities"):
(i) the Liabilities Transferred; and
(ii) liabilities and obligations under the Assigned Leases, the
Assigned Contracts and the Assigned Permits (other than liabilities and
obligations under an Assigned Contract or Assigned Permit relating solely
to a store subject to a Non-Transferred Lease), to the extent such Assigned
Leases, Assigned Contracts and Assigned Permits are validly assigned to the
Purchaser, and in each case to the extent such liabilities and obligations
arise or accrue subsequent to the Closing Date.
(b) Except for the Assumed Liabilities, the Seller shall retain, and
shall be responsible for paying, performing and discharging when due, and the
Purchaser shall not assume or have any responsibility for or in any way become
liable with respect to, any debts, liabilities and obligations of the Business
arising on or before the Closing Date, or of the Seller, the Seller's
Subsidiaries, the Parent or any of their respective Affiliates arising at any
time, whether known, unknown, contingent or otherwise (collectively, the
"Excluded Liabilities"). The Purchaser shall not be deemed to be a
successor-in-interest to the Parent, the Seller, any of the Seller's
Subsidiaries or of their respective Affiliates for any purposes whatsoever.
Section 2.4. Satisfaction and Apportionment of Operating Expenses. (a)
Except as set forth in this Section 2.4, the Seller shall timely satisfy all
Operating Expenses due on or prior to the Closing Date, and all Operating
Expenses set forth in all Operating Expense Invoices received by the Seller
prior to or on the Closing Date. Except as set forth in this Section 2.4, the
Purchaser shall timely satisfy all Operating Expenses due after the Closing
Date, and all Operating Expenses set forth in all Operating Expense Invoices
received by the Purchaser after the Closing Date. The Seller shall promptly
forward to the Purchaser any Operating Expense Invoices received by the Seller
after the Closing Date. With respect to Transferred Leases not validly assigned
to the Purchaser as of the Closing Date, the term "Closing Date" as used in this
Section 2.4(a) and Section 2.4(b) shall mean the applicable Assignment Date.
(b) Exhibit 2.4(b)(1) attached hereto sets forth the parties'
agreement and understanding with respect to the methodology for the
apportionment of Operating Expenses. In the event a particular type of Operating
Expense is not listed on Exhibit 2.4(b)(1) attached hereto, such Operating
Expense shall be prorated based on the number of days in the billing cycle for
such Operating Expense before and including, and after, the Closing Date,
respectively. The apportionment of the Percentage Rent Charge payable pursuant
to each Transferred Lease shall be determined in accordance with the information
which shall be set forth by the Seller on a schedule, substantially in the form
of Exhibit 2.4(b)(2) attached hereto, after the Closing Date and delivered to
the Purchaser as part of the Apportionment Schedule.
(c) The Seller shall deliver the Apportionment Schedule to the
Purchaser simultaneously with the Statement of Assets and Liabilities
Transferred. Any dispute with respect to the Apportionment Schedule shall be
resolved pursuant to Section 2.7(c) as if the Apportionment Schedule were part
of the Statement of Assets and Liabilities Transferred. Without limiting the
Seller's obligations under the penultimate sentence of Section 2.4(a), after the
Closing Date, each party shall, on a weekly basis, provide, or make available,
to the other party copies of the Operating Expense Invoices which it has
received and any evidence of the satisfaction of the Operating Expenses set
forth therein by such party.
Section 2.5. Purchase Price. In consideration for the sale,
conveyance, transfer, assignment and delivery by the Seller of the Purchased
Assets to the Purchaser, the Purchaser shall (a) assume the Assumed Liabilities
on the Closing Date, (b) pay to the Seller on the Closing Date forty-five
million dollars ($45,000,000) by wire transfer of immediately available funds to
the account specified by the Seller at least two Business Days prior to the
Closing, (c) deposit into the Escrow Account on the Closing Date the Escrow
Amount in immediately available funds, (d) pay to the Seller on the Interim
Payment Date the Interim Payment Amount and (e) pay to the Seller after the
Closing the amounts, if any, determined pursuant to Sections 2.8 and 2.10.
Section 2.6. Adjustment of Interim Payment Amount. The Interim Payment
Amount shall equal twenty-four million dollars ($24,000,000) unless such amount
is adjusted in accordance with this Section 2.6. During the period ending twenty
(20) calendar days after the Closing, the Seller shall make a good-faith
estimate of the Interim Payment Amount which shall be made in accordance with
the methodology set forth in Exhibit 2.6 attached hereto. In the event that such
estimate is more than one million dollars ($1,000,000) greater or less than
twenty-four million dollars ($24,000,000), then (i) the Seller, not later than
five (5) calendar days prior to the Interim Payment Date, shall furnish to the
Purchaser a certificate signed by its Chief Financial Officer, in substantially
the form attached hereto as Exhibit 2.6, setting forth such estimate, and (ii)
such estimate shall replace twenty-four million dollars ($24,000,000) as the
amount of the Interim Payment Amount.
Section 2.7. Statement of Transferred Assets and Liabilities. (a) Not
more than seventy (70) calendar days following the Closing Date, the Seller
shall prepare and deliver to the Purchaser a statement, substantially in the
form of Exhibit 2.7(a) attached hereto, which shall set forth the Net Asset
Transferred Amount (the "Statement of Assets and Liabilities Transferred").
(b) After the Closing Date, the Purchaser shall permit the Seller and
its representatives to have reasonable access to any Books and Records under the
Purchaser's control so that the Seller can timely prepare the Statement of
Assets and Liabilities Transferred. The Statement of Assets and Liabilities
Transferred shall be prepared in accordance with GAAP, and such principles shall
be applied in a manner consistent with the application of such principles in
connection with the preparation of the Seller Audited Statements, provided that
with respect to the Accrued Gift Certificate Reserve and the Accrued Store
Credit Reserve, the accounting methodology to be applied shall be, and shall be
applied in a manner consistent with the application of, the Seller's accounting
methodology consistently applied in the preparation of the Seller Audited
Statements, and provided further that the Accrued Vacation Reserve shall be
determined in accordance with the Books and Records and the Seller's existing
vacation policy.
(c) After preparation of the Statement of Assets and Liabilities
Transferred, the Seller shall promptly deliver the Statement of Assets and
Liabilities Transferred to the Purchaser and the Purchaser's accountants (which
shall be designated in writing to the Seller prior to the Closing Date),
together with a report, substantially in the form of Exhibit 2.7(c) attached
hereto, by the Seller's accountants attesting to the accuracy thereof, for their
review, and the Purchaser and the Purchaser's accountants may make inquiries of
the Parent, the Seller and the Seller's accountants regarding questions
concerning, or disagreements with, the Statement of Assets and Liabilities
Transferred arising in the course of such review and shall have access to such
working papers and related documentation as they may request. The Purchaser and
the Purchaser's accountants shall complete their review of the Statement of
Assets and Liabilities Transferred within thirty (30) calendar days of the
delivery of the Statement of Assets and Liabilities Transferred to the
Purchaser. Promptly following completion of their review, the Purchaser shall
submit to the Seller a letter regarding its agreement or disagreement with the
accuracy of the Statement of Assets and Liabilities Transferred, provided that
the Purchaser shall be deemed to agree with the principles applied in the
preparation of the Statement of Assets and Liabilities Transferred to the extent
that the Statement of Assets and Liabilities Transferred is prepared in
accordance with GAAP applied on a basis consistent with the preparation of the
Seller Audited Statements (or, with respect to the Accrued Gift Certificate
Reserve and the Accrued Store Credit Reserve, to the extent that the accounting
methodology so applied is, and is applied in a manner consistent with the
application of, the Seller's accounting methodology that was consistently
applied in the preparation of the Seller Audited Statements, or, with respect to
the Accrued Vacation Reserve, to the extent that it is determined in accordance
with the Books and Records and the Seller's existing vacation policy). Such
letter must state each item disagreed with, the basis or bases for such
disagreement, and the amount and extent thereof. Unless the Purchaser delivers a
letter disagreeing with the accuracy of the Statement of Assets and Liabilities
Transferred within such 30-day period, the Statement of Assets and Liabilities
Transferred shall be binding upon the parties. Following delivery of any such
letter indicating a disagreement, the Seller and the Purchaser shall use their
respective reasonable best efforts to resolve promptly such disagreement in good
faith. If a resolution of such disagreement has not been effected within fifteen
(15) calendar days (or longer, as mutually agreed by the parties) after delivery
of such letter, the Seller and the Purchaser shall submit such disagreement to a
nationally recognized independent accounting firm (other than an accounting firm
already retained by the Purchaser, the Seller or the Parent) jointly selected by
the Seller and the Purchaser. The determination of such firm with respect to
such disagreement and the accuracy of the Statement of Assets and Liabilities
Transferred as a result shall be completed within forty-five (45) calendar days
of the date of the submission of the disagreement to such firm and shall be
final and binding upon the parties hereto.
(d) The Seller shall pay the fees, costs and expenses of its
accountants and the Purchaser shall pay the fees, costs and expenses of its
accountants. The fees, costs and expenses of the independent accounting firm
selected in the event of a dispute shall be allocated between the Seller and the
Purchaser in the same proportion that the aggregate dollar amount of disputed
items which are so submitted that is unsuccessfully disputed by each such party
(as finally determined by such firm) bears to the total amount of such disputed
items so submitted.
(e) The Seller shall cause a nationally recognized inventory service
to perform a physical count of the Purchased Inventory (which, for purposes of
this Section 2.7(e) only, shall include Inventory located in all stores subject
to Assigned Leases) not more than five (5) calendar days prior to the Closing
Date. Such inventory count shall be adjusted by the Seller pursuant to standard
cutoff procedures to be as of the Closing Date. With respect to Purchased
Inventory located in any store which is covered by a Transferred Lease that is
not validly assigned to the Purchaser within seven (7) calendar days after the
Closing Date, the Seller shall cause a nationally recognized inventory service
to perform a physical count of the Purchased Inventory located in such store
within five (5) calendar days after the Assignment Date for such store. The
result of such inventory count shall be adjusted to reflect the Inventory in
such store as of the Assignment Date pursuant to standard accounting roll-back
procedures and shall replace the inventory count performed at such store
pursuant to the first sentence of this Section 2.7(e). The inventory count with
respect to all of the stores subject to Transferred Leases, as adjusted in
accordance with this Section 2.7(e), shall be used in connection with the
estimation of the Interim Payment Amount and in the preparation of the Statement
of Assets and Liabilities Transferred. The fees, costs and expenses of the
inventory service incurred in connection with the inventory count performed
prior to the Closing Date shall be shared equally by the Purchaser and the
Seller. The fees, costs and expenses of the inventory service incurred in
connection with any inventory count performed after the Closing Date in respect
of any Transferred Lease shall be satisfied by the Purchaser.
Section 2.8. Post-Closing Settlement. (a) If the Final Post-Closing
Adjustment Amount equals or exceeds the Escrow Amount, then the Seller shall be
entitled to the Escrow Amount, and the Purchaser shall pay to the Seller the
additional amount, if any, by which the Final Post-Closing Adjustment Amount
exceeds the Escrow Amount. If the Final Post-Closing Adjustment Amount is less
than the Escrow Amount (such deficiency being the "Closing Date Deficiency"),
then the Seller shall be entitled to the amount, if any, by which the Escrow
Amount exceeds the Closing Date Deficiency, and the Purchaser shall be entitled
to the balance. If the Closing Date Deficiency equals or exceeds the Escrow
Amount, then the Purchaser shall be entitled to the Escrow Amount and the Seller
shall pay to the Purchaser the amount, if any, by which the Closing Date
Deficiency exceeds the Escrow Amount.
(b) Any amount to which the Purchaser or the Seller is entitled
pursuant to Section 2.8(a) shall be paid no later than five (5) Business Days
after the determination of the Final Post-Closing Adjustment Amount by wire
transfer of immediately available funds to an account or accounts designated in
writing by the party entitled to such payment. Any interest earned on the Escrow
Amount pursuant to the Escrow Agreement shall be distributed to the Seller and
the Purchaser pro rata based on the proportion of the Escrow Amount to which the
Seller and the Purchaser, respectively, are entitled pursuant to Section 2.8(a).
Any additional amounts payable by either the Seller or the Purchaser pursuant to
Section 2.8(a) shall bear interest at nine percent (9%) per annum from and
including the thirty-first (31st) calendar day following the Closing Date until
the date of payment.
Section 2.9. Acquiring Corporation. Prior to the Closing Date, the
Purchaser may, in accordance with Section 16.6(b), assign all of its rights and
obligations hereunder to the Acquiring Corporation, which shall have a net worth
of not less than sixty-five million dollars ($65,000,000) immediately before the
Closing, and which shall acquire the Purchased Assets and assume the Assumed
Liabilities pursuant to the terms and subject to the conditions set forth
herein; provided that the Purchaser shall remain bound by all obligations of the
Purchaser under Sections 2.4, 2.5, 2.8, 7.4, 7.14, 13.3 and 15.2. After such
assignment, all references herein to the Purchaser (other than the references in
this Section 2.9 and Sections 3.1, 6.1, 7.7, 13.3 and 16.6(b) and in Article XV)
shall be deemed to be references to the Acquiring Corporation. It is the
Purchaser's intent to assign its rights and obligations hereunder to the
Acquiring Corporation.
Section 2.10. Purchase Price Adjustment for Non-Transferred Leases.
(a) In the event that the Assignment Date for any Assigned Lease is a date after
the Closing Date and prior to the Determination Date, there shall be no
adjustment to the Final Post-Closing Adjustment Amount related thereto, except
as otherwise expressly provided by Section 2.7(e), and no deduction from any
amounts to be paid to the Seller pursuant to Section 2.8 related thereto.
(b) The Seller shall deliver the Liquidated Damages Statement to the
Purchaser simultaneously with the Statement of Assets and Liabilities
Transferred. In the event that the remaining term of a Non-Transferred Lease as
of the Determination Date is twenty-four (24) months or greater, the
Non-Transferred Lease Adjustment Amount for such Non-Transferred Lease shall
equal the Liquidated Damages Amount set forth in Exhibit 2.10(b) attached hereto
with respect to such Non-Transferred Lease. In the event that the remaining term
of a Non-Transferred Lease as of the Determination Date is less than twenty-four
months, the Non-Transferred Lease Adjustment Amount for a Non-Transferred Lease
shall equal the Liquidated Damages Amount set forth in Exhibit 2.10(b) attached
hereto with respect to such Non-Transferred Lease multiplied by a fraction, the
numerator being the number of months remaining in the lease term as of the
Determination Date and the denominator being twenty-four (24). Any dispute with
respect to the Liquidated Damages Statement shall be resolved pursuant to
Section 2.7(c) as if the Liquidated Damages Statement were part of the Statement
of Assets and Liabilities Transferred.
(c) The Seller shall pay the Total Non-Transferred Lease Adjustment
Amount, if such Amount is a positive number, to the Purchaser on the date on
which the payment, if any, pursuant to Section 2.8 is scheduled to be made.
ARTICLE III
CLOSING
Section 3.1. Closing. The closing of the sale and purchase referred to
in Section 2.1 (the "Closing") shall take place at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, New York 10022 on the third (3rd)
Business Day following the satisfaction or waiver by the appropriate party or
parties of all the conditions contained in Articles VIII, IX and X, or at such
other place as the parties hereto shall designate in writing or on such other
date (which the parties to this Agreement anticipate will be on or prior to
January 30, 1998 but in no event shall be later than the earlier of (x) sixty
(60) calendar days after the delivery by the Purchaser to the Seller of
financial statements certified by an independent auditor evidencing that the
Acquiring Corporation has a net worth of at least sixty-five million dollars
($65,000,000) and (y) April 30, 1998). Such time and date are herein referred to
as the "Closing Date." The Purchaser agrees to use its best efforts to deliver
such financial statements as promptly as practicable after the date of this
Agreement, but in no event later than February 28, 1998.
Section 3.2. Deliveries by the Seller at the Closing. At the Closing,
the Seller shall deliver to the Purchaser each of the documents, instruments and
evidences of satisfaction of conditions required to be delivered by the Seller
as a condition to the Closing pursuant to Article IX, in form and substance
satisfactory to the Purchaser and its counsel.
Section 3.3. Deliveries by the Purchaser at Closing. At the Closing,
the Purchaser shall deliver to the Seller (a) the portion of the consideration
referred to in Section 2.5(b) to be delivered on the Closing Date and (b) each
of the documents, instruments and evidences of satisfaction of conditions
required to be delivered by the Purchaser as a condition to Closing pursuant to
Article X, in form and substance satisfactory to the Seller and its counsel.
Section 3.4. Consents. (a) The Seller and the Purchaser shall each use
their best efforts to obtain, on or prior to the Closing Date, the valid
assignment to the Purchaser of each of the Assigned Leases and with respect to
any Assigned Lease not assigned as of the Closing Date, within sixty (60)
calendar days after the Closing Date; provided that neither party, in using its
best efforts, shall be required to pay any amounts, other than de minimis
amounts or amounts expressly required to be paid under the applicable Assigned
Lease to obtain the assignment.
(b) To the extent that a claim can be made successfully that the
transactions contemplated by this Agreement will constitute the assignment of
any contract, lease, commitment, sales order, purchase order, account, license,
permit or undertaking requiring the consent of another party thereto, this
Agreement shall not constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof. Except as otherwise required
pursuant to Section 3.4(a), the Seller agrees that it will use its reasonable
best efforts to obtain the written consent of the other necessary parties to the
assignment of all such contracts, leases, commitments, sales orders, purchase
orders, accounts, licenses, permits and undertakings and if such consent is not
obtained, the Seller will cooperate with the Purchaser, as requested by the
Purchaser, in any lawful and contractually permitted arrangement designed to
provide the Purchaser the benefits under any such agreement, arrangement or
undertaking.
Section 3.5. Further Assurances. On or after the Closing Date and
without further consideration, the Seller shall, at the request of the
Purchaser, from time to time execute and deliver such further instruments of
conveyance, assignment and transfer, and shall take, or cause to be taken, such
other actions as the Purchaser may reasonably request for the more effective
conveyance, assignment and transfer of the Purchased Assets to the Purchaser,
and the Seller shall use its reasonable best efforts to assist the Purchaser in
the collection and reduction to possession of the Purchased Assets and the
exercise of rights with respect thereto and otherwise in the effectuation of the
intentions and purposes of this Agreement.
ARTICLE IV
BANKRUPTCY COURT APPROVAL
Section 4.1. Bankruptcy Court Order. In connection with the
transactions contemplated by this Agreement, the Purchaser has filed or shall
file as promptly as possible after the date hereof with the Bankruptcy Court a
motion for an order approving this Agreement (the "Approval Order"), in form and
substance reasonably satisfactory to the Seller. The Purchaser shall use its
reasonable best efforts with respect to seeking the entry of the Approval Order
by the Bankruptcy Court as promptly as practicable. The Purchaser shall instruct
its counsel to furnish the Seller and its counsel with copies of all notices,
filings and orders of and with the Bankruptcy Court and other courts pertaining
to the transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS OF THE SELLER AND THE PARENT
The representations and warranties contained in this Article V with
respect to any Purchased Assets and the elements thereof related to a
Transferred Lease which is validly assigned after the Closing Date shall be
deemed to be repeated as of the Assignment Date with respect to such Transferred
Lease. Each of the Seller and the Parent, jointly and severally, represents and
warrants to the Purchaser as follows:
Section 5.1. Existence and Good Standing. Each of the Seller and the
Parent is a corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania and the State of Nevada,
respectively. The Seller has the requisite corporate power and authority to own,
lease and operate its properties and to conduct the Business as now being
conducted. The Seller is duly qualified to do business as a foreign corporation
in each jurisdiction in which the nature of the Business makes such
qualification necessary, except where the failure to be so duly qualified would
not have a material adverse effect on the Condition.
Section 5.2. Authorization and Validity. Subject to the receipt of the
consents, waivers and approvals set forth in Schedule 5.2 attached hereto, each
of the Seller and the Parent has all requisite corporate power and authority to
execute and deliver this Agreement and all other documents and agreements to be
executed in connection herewith to which either or both of them is a party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and, to the extent applicable, all other documents
and agreements to be executed in connection herewith by the Seller and the
Parent and the consummation by each of them of the transactions contemplated
hereby or thereby have been duly authorized and approved by the Board of
Directors and stockholders of each of the Seller and the Parent, and no other
corporate action on the part of the Seller or the Parent or any of their
respective Affiliates is necessary to authorize the execution, delivery and
performance of this Agreement and all other documents and agreements to be
executed in connection herewith by the Seller or the Parent and the consummation
of the transactions contemplated hereby and thereby. This Agreement and all
other documents and agreements to be executed in connection herewith by the
Seller or the Parent have been duly executed and delivered by the Seller and/or
the Parent, as the case may be, and, assuming due execution of this Agreement by
the Purchaser, each constitutes a valid and binding obligation of the Seller
and/or the Parent, as the case may be, enforceable against the Seller and/or the
Parent, as the case may be, in accordance with its terms, except to the extent
that its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
Section 5.3. Consents and Approvals; No Violations. Except as set
forth in Schedule 5.3 attached hereto, the execution and delivery of this
Agreement and all other documents and agreements to be executed in connection
herewith by the Seller and/or the Parent, as the case may be, and the
consummation of the transactions contemplated hereby and thereby (a) will not
violate or contravene any provision of the Certificate of Incorporation or
By-laws of the Seller or the Parent, (b) will not violate or contravene any
statute, rule, regulation, order or decree of any public body or authority by
which the Seller or the Parent is bound or by which either of them or any of
their properties or assets are bound, (c) will not require any filing with, or
permit, consent or approval of, or the giving of any notice to, any governmental
or regulatory body, agency or authority, or any other Person and (d) will not
result in a violation or breach of, conflict with, or constitute (with due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation, payment or acceleration) under, or result in the
creation of any Encumbrance, other than Permitted Encumbrances (excluding from
the definition of Permitted Encumbrances any Encumbrances arising by operation
of law), upon any of the assets of the Seller or the Parent under, any note,
bond, mortgage, indenture, license, permit, agreement, lease, franchise
agreement or any other instrument or obligation to which the Seller or the
Parent is a party or by which either of them or any of their properties or
assets is or will be bound, excluding from the foregoing clauses (b), (c) and
(d) filings, notices, permits, consents and approvals, the absence of which, and
violations, breaches, defaults, conflicts and Encumbrances the consequences of
which, in the aggregate, would not have a material adverse effect on the
Condition or the Purchaser.
Section 5.4. Subsidiaries and Investments. The Seller's Subsidiaries
are the only Persons in which the Seller owns, directly or indirectly, any
equity interest. No Seller's Subsidiary has any assets or employees, nor does
any Seller's Subsidiary have any operations or liabilities.
Section 5.5. Seller Financial Statements; No Material Changes. (a) The
Seller has furnished the Purchaser with the audited consolidated balance sheet
(the "Seller Balance Sheet") of the Seller and the Seller's Subsidiaries as of
June 1, 1997 (the "Seller Balance Sheet Date") together with the related
consolidated statements of operations, stockholders' equity and cash flows for
the fiscal year then ended, together with the report of Deloitte & Touche with
respect to the fiscal year ending June 1, 1997 (collectively, the "Seller
Audited Statements"). The Seller Audited Statements, including the footnotes
thereto, have been prepared in accordance with GAAP and present fairly in all
material respects the financial position of the Seller and the Seller's
Subsidiaries at June 1, 1997, and the consolidated results of the operations and
cash flows of the Seller and the Seller's Subsidiaries for the period described
therein.
(b) The Seller has heretofore furnished the Purchaser with all balance
sheets and statements of operations, stockholders' equity and cash flows or
other financial statements or reports provided by the Seller to the Parent in
the ordinary course of business since the Seller Balance Sheet Date
(collectively with any such information provided pursuant to Section 9.7, the
"Seller Unaudited Statements"). The Seller Unaudited Statements have been or
will be prepared in accordance with accounting principles used by the Seller in
the ordinary course of preparing such financial information and reflect, or when
prepared will reflect, the application of those principles on a basis consistent
with those used by the Seller in the ordinary course of preparing such
information.
(c) Except as set forth in Schedule 5.5(c) attached hereto, since the
Seller Balance Sheet Date, (i) there has been no material adverse change in the
Condition; (ii) there has been no damage, destruction or loss to any material
asset or property, tangible or intangible, of the Seller and the Seller's
Subsidiaries, taken as a whole, ordinary wear and tear excepted; (iii) other
than in connection with the proposed sale of the Seller or the Business, the
Business has been conducted only in the ordinary course; (iv) neither the Seller
nor any of the Seller's Subsidiaries has incurred any material liabilities
(direct, contingent or otherwise) or engaged in any material transactions or
entered into any material agreements; (v) the Seller and the Seller's
Subsidiaries have not increased the compensation of any officer or granted any
general salary or benefits increase to their employees other than in the
ordinary course of business; and (vi) there has been no change by the Seller or
the Parent, in relation to the Business, in accounting principles, practices or
methods.
(d) Other than the Seller Audited Statements and the Seller Unaudited
Statements, no financial statements relating solely to the Seller or the
Business have been prepared, other than such statements relating to periods
prior to the periods covered by the Seller Audited Statements or the Seller
Unaudited Statements, as the case may be.
Section 5.6. Compliance with Laws. The Seller, the Seller's
Subsidiaries and the Parent, in connection with the Business, are each in
compliance in all material respects with all applicable laws, regulations,
orders, judgments and decrees. Without in any way limiting the foregoing, the
Seller and the Parent have complied with all of their respective material
obligations under the WARN Act.
Section 5.7. Real Property; Leases. Neither the Seller nor any Seller
Subsidiary owns any real property. Schedule 5.7 attached hereto lists each of
the Assigned Leases, and with respect to each Assigned Lease sets forth a
description of the term thereof, the base rent payable with respect thereto and
any security deposit relating thereto. The Seller is a party to no leases or
subleases of real property other than the Assigned Leases and the Warehouse
Lease. The Seller has heretofore delivered or made available to the Purchaser
true and complete copies of all such Assigned Leases and the Warehouse Lease
including all amendments, modifications and waivers with respect thereto. Except
as otherwise set forth in Schedule 5.7(b) attached hereto, each Assigned Lease
and the Warehouse Lease is in full force and effect; all rents and additional
rents due to date on each Assigned Lease and the Warehouse Lease have been paid;
the Seller has received no notice that it is or will be in default under any
Assigned Lease or the Warehouse Lease as of the Closing Date; no landlord is in
default of any of its obligations under any Assigned Lease or the Warehouse
Lease; and, to the knowledge of the Parent and the Seller after due inquiry,
there exists no event, occurrence, condition or act (including the consummation
of the transactions contemplated by this Agreement) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a default by the Seller under any Assigned Lease or the Warehouse
Lease. The Seller is currently the lessee under each of the Assigned Leases and
may exercise all rights of a lessee under each of the Assigned Leases. Each
Assigned Lease under which the Seller was not the original lessee was validly
assigned to the Seller, and any party which has a right of consent to such
assignment and of which the Seller has knowledge after due review of the
applicable Assigned Lease has consented to such assignment and any other party
having a right of consent to such assignment has either consented to such
assignment or has taken no action inconsistent with the granting of such
consent. Other than the real property covered by the Assigned Leases and the
Warehouse Lease, no owned or leased real property is used in connection with the
Business.
Section 5.8. Title to Properties; Encumbrances. (a) Except as set
forth in Schedule 5.8 attached hereto, the Seller has good, valid and marketable
title to the Purchased Assets, subject to no Encumbrances, except for Permitted
Encumbrances.
(b) All of the Purchased Assets are in good operating condition and
repair, ordinary wear and tear excepted and are fit for the purpose for which
they are being utilized. The sale to the Purchaser of the Purchased Assets
pursuant to this Agreement will pass to the Purchaser good and valid title to
the Purchased Assets free and clear of any Encumbrances (other than Permitted
Encumbrances).
Section 5.9. Intellectual Property. The Seller either (a) owns all
right, title and interest in and to the Intellectual Property used in the
Business free and clear of Encumbrances other than Permitted Encumbrances or (b)
has valid and transferable licenses to use all such Intellectual Property,
except where the lack of such right, title and interest or licenses would not
have a material adverse effect, in the aggregate, on the Condition. All
registered patents, registered trademarks and registered copyrights and all
other material Intellectual Property owned or licensed by the Seller is set
forth in Schedule 5.9 attached hereto, and Schedule 5.9 sets forth all
registered patents, registered trademarks and registered copyrights and all
other material Intellectual Property used in connection with or required by the
Business. Except as set forth in Schedule 5.9, neither the Seller nor any of the
Seller's Subsidiaries has granted to any other Person a license to use any
Intellectual Property listed in Schedule 5.9. Except as set forth in Schedule
5.9, no third-party consent will be required for the use of any Intellectual
Property as a consequence of the transactions contemplated by this Agreement.
Except as set forth in Schedule 5.9, each item of Intellectual Property listed
in Schedule 5.9 (other than software programs and databases) has been duly
registered with, filed in, or issued by the appropriate domestic or foreign
governmental agency, and each such registration, filing and issuance remains in
full force and effect, and the Seller has received no written notice of any
event, inquiry, investigation or proceeding threatening the validity or
enforceability of any such Intellectual Property. No such Intellectual Property
is the subject of any action, suit or proceeding, or written claim that is
pending or, to the knowledge of the Seller and the Parent after due inquiry,
threatened which: (i) accuses the Seller, any of the Seller's Subsidiaries or,
with respect to the Business, the Parent of infringing or otherwise violating
any Intellectual Property rights of any third party; (ii) accuses the Seller,
any of the Seller's Subsidiaries or, with respect to the Business, the Parent of
breaching any contract with respect to any Intellectual Property; or (iii)
raises any claim that is materially adverse to the interest of the Seller in
such Intellectual Property, except for such actions, suits, proceedings or
claims that, if adversely determined, could not, in the aggregate, reasonably be
expected to have a material adverse effect on the Condition.
Section 5.10. Litigation. Except as set forth in Schedule 5.10
attached hereto, there is no action, suit, proceeding at law or in equity,
arbitration or administrative or other proceeding by or before (or, to the
knowledge of the Seller or the Parent after due inquiry by the relevant home
office employees of the Seller and the Parent, any investigation by) any Person,
including, without limitation, any governmental or other instrumentality or
agency, pending, or, to the knowledge of the Seller or the Parent, threatened
against or affecting the Seller, the Seller's Subsidiaries, the Parent, the
Business or the Purchased Assets which, if adversely determined, could
reasonably be expected to materially and adversely affect the Purchaser's right
or ability to carry on the Business or could reasonably be expected to adversely
affect or materially delay the Seller's or the Parent's ability to consummate
the transactions contemplated hereby, or which, in the aggregate, could
reasonably be expected to have a material adverse effect on the Condition; and
neither the Seller nor the Parent has any actual knowledge of any valid basis
for any such action, proceeding or investigation. Neither the Seller, the
Seller's Subsidiaries, the Parent, the Business nor the Purchased Assets is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which, in the aggregate, could reasonably be expected to materially and
adversely affect the Purchaser's right or ability to carry on the Business,
could reasonably be expected to adversely affect or materially delay the
Seller's or the Parent's ability to consummate the transactions contemplated
hereby, or which, in the aggregate, could reasonably be expected to have a
material adverse effect on the Condition.
Section 5.11. Compensation of Employees. Set forth in Schedule 5.11
attached hereto is an accurate and complete list showing the names of all
persons employed by the Seller who are expected to receive more than $50,000 in
cash compensation in 1997 (including, without limitation, salary, commission and
bonus). Such list sets forth the present salary or hourly wage, expected 1997
cash compensation (including, without limitation, salary, commission and bonus)
and fringe benefits, of each such person, as well as of Richard Anderson and
Stephen Newton.
Section 5.12. Material Contracts. Except as set forth in Schedule 5.12
attached hereto, neither the Seller nor, with regard to the Business, the Parent
is a party to nor is bound by (a) any agreement, contract or commitment that
involves the performance of services or the delivery of goods and/or materials
by or to it of an amount or value in excess of $100,000, (b) any agreement,
contract or commitment not in the ordinary course of business relating to
expenditures or liabilities in excess of $50,000, (c) any agreement, contract or
commitment relating to capital expenditures in excess of $50,000 in the
aggregate, (d) any agreement, indenture or instrument relating to indebtedness,
liability for borrowed money or the deferred purchase price of property
(excluding trade payables in the ordinary course of business), (e) any loan or
advance to (other than advances to employees in the ordinary course of business
in amounts of $1,000 or less to any individual and $10,000 in the aggregate), or
investment in, any Person, any agreement, contract or commitment relating to the
making of any such loan, advance or investment or any agreement, contract or
commitment involving a sharing of profits, (f) any guarantee or other contingent
liability in respect of any indebtedness or obligation of any Person, (g) any
management service, consulting or any other similar type of contract, (h) any
agreement, contract or commitment limiting the ability of the Seller to engage
in any line of business or to compete with any Person, (i) any warranty,
guaranty or other similar undertaking with respect to a contractual performance
extended by the Seller, (j) any contract, agreement or arrangement whereby the
Seller shares services with any third party, (k) any capital lease or lease of
personal property, or (l) any amendment, modification or supplement in respect
of any of the foregoing. Except as otherwise set forth in Schedule 5.12, each
contract or agreement set forth in Schedule 5.12 as well as each Assigned
Contract not set forth therein is in full force and effect and there exists no
default or event of default or event, occurrence, condition or act (including
the consummation of the transactions contemplated hereby) on the part of the
Seller, the Seller's Subsidiaries or, to the knowledge of the Seller or the
Parent, any other Person which, with the giving of notice, the lapse of time or
the happening of any other event or condition, would become a default or event
of default thereunder.
Section 5.13. Liabilities. Except as set forth in the Seller Balance
Sheet or referred to in the footnotes thereto or in Schedule 5.13 attached
hereto, there is no material outstanding claim, liability or indebtedness,
contingent or otherwise, of the Seller, any Seller's Subsidiary or the Business
incurred subsequent to the Seller Balance Sheet Date other than those incurred
in the ordinary course of business.
Section 5.14. Insurance. Schedule 5.14 attached hereto contains an
accurate summary description of all policies of property, fire and casualty,
product liability, workers compensation and other forms of insurance owned or
held by the Seller or the Parent in connection with the Business, together with
a list of all material outstanding claims against any insurer relating to the
Business. Neither the Seller nor the Parent has received (a) any notice of
cancellation or non-renewal of any policy described in such Schedule 5.14 or
refusal of coverage thereunder, (b) any notice that any issuer of such policy
has filed for protection under applicable insolvency laws or is otherwise in the
process of liquidating or has been liquidated, or (c) any other indication that
such policies are no longer in full force or effect or that the issuer of any
such policy is no longer willing or able to perform its obligations thereunder.
Since the last renewal date of any insurance policy, there has not been any
material adverse change in the premiums payable pursuant to such policies.
Section 5.15. Employment Relations. Each of the Seller and the
Seller's Subsidiaries is in compliance with all federal, state or other
applicable laws, domestic or foreign, respecting employment and employment
practices, terms and conditions of employment and wages and hours, and
(a) neither the Seller nor any Seller's Subsidiary has, or is, engaged
in any unfair labor practice under applicable law;
(b) no unfair labor practice complaint against the Seller or any
Seller's Subsidiary is pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown or stoppage pending
or, to the knowledge of the Seller or the Parent after due inquiry,
threatened against or involving the Seller or any Seller's Subsidiary;
(d) neither the Seller nor any Seller's Subsidiary nor, with respect
to the Business, the Parent, is a party to any collective bargaining
agreement and no collective bargaining agreement is currently being
negotiated by the Seller, any Seller's Subsidiary or the Parent in
connection with the Business; and
(e) except as set forth in Schedule 5.15, no claim in respect of the
employment of any employee has been asserted in writing or, to the
knowledge of the Seller or the Parent after due inquiry, threatened,
against the Seller or any Seller's Subsidiary.
The representations and warranties contained in this Section 5.15
shall not be deemed to be breached to the extent that the failure of such
representations and warranties to be accurate, when viewed in the aggregate,
could not reasonably be expected to have a material adverse effect on the
Condition.
Section 5.16. Employee Benefit Plans. (a) Set forth in Schedule 5.16
attached hereto is an accurate and complete list of all domestic and foreign (i)
"employee benefit plans," within the meaning of Section 3(3) of ERISA; (ii)
bonus, stock option, stock purchase, restricted stock, equity-based, incentive,
profit-sharing, savings, pension or retirement, deferred compensation, medical,
life, disability, accident, salary continuation, severance, accrued leave,
vacation, sick pay, sick leave, welfare, fringe, multiemployer, multiple
employer, supplemental or excess retirement and unemployment benefit plans,
programs, arrangements, commitments, policies and/or practices (whether or not
insured); and (iii) employment, consulting, termination, and severance contracts
or agreements; in each case for active, inactive, retired or former employees,
officers, directors, and independent contractors of the Business, whether or not
any such plans, programs, arrangements, commitments, policies, contracts,
agreements and/or practices (referred to in (i), (ii) or (iii) above) are in
writing or are otherwise exempt from the provisions of ERISA; that have been
established, maintained or contributed to (or with respect to which an
obligation to contribute has been undertaken) or with respect to which any
potential liability is borne by the Seller or, with respect to the Business, the
Parent (including, for this purpose and for the purpose of all of the
representations in this Section 5.16, any predecessors to the Seller or to any
of the Seller's Subsidiaries and all employers (whether or not incorporated)
that are by reason of common control treated together with the Seller as a
single employer within the meaning of Section 414 of the Code) since September
2, 1974 (collectively, the "Employee Benefit Plans").
(b) Neither the Seller nor any of the Seller's Subsidiaries has
incurred, and, to the knowledge of the Seller and the Parent after due inquiry,
no event has occurred and no condition or circumstance exists that could result
directly or indirectly in, any unsatisfied liability under Title IV of ERISA
arising in connection with the termination of, or complete or partial withdrawal
from, any employee pension benefit plan covered or previously covered by Title
IV of ERISA, and the Seller and the Seller's Subsidiaries have paid and
discharged when due or accrued in the Seller Audited Statements all obligations
and liabilities arising under ERISA and the Code with respect to all Employee
Benefit Plans. The Seller and the Seller's Subsidiaries have complied in all
respects with the continuation coverage requirements of Part 6 of Subtitle B of
Title I of ERISA and Section 4980B(f) of the Code ("COBRA") and neither the
Seller nor any of the Seller's Subsidiaries is subject to any material
liability, including, without limitation, additional contributions, fines,
taxes, penalties or loss of tax deduction as a result of such administration and
operation. Full payment has been made of all amounts which the Parent, the
Seller or any of the Seller's Subsidiaries is required, and full compliance has
been achieved, under applicable law or under any Employee Benefit Plan or any
agreement relating to any Employee Benefit Plan to which the Seller or any such
Seller's Subsidiary is a party, to have paid as contributions or premiums
thereunder as of the last day of the most recent fiscal year of such Employee
Benefit Plan ended prior to the date hereof. Each Employee Benefit Plan intended
to be "qualified" under Section 401(a) of the Code, and each related trust
intended to be exempt from federal income taxation under Section 501(a) of the
Code, is so qualified (and/or exempt), and has received a favorable
determination letter from the Internal Revenue Service with respect to its
qualified or exempt status, and since the date of each such determination, no
event has occurred and no condition or circumstance has existed that resulted or
is likely to result in the revocation of any such determination or that could
adversely affect the qualified status of any such Employee Benefit Plan or the
exempt status of any such trust. There are no actions, suits, audits,
investigations or claims pending or asserted, or, to the knowledge of the Seller
or the Parent after due inquiry, threatened, anticipated or expected to be
asserted with respect to any Employee Benefit Plan or the assets of any such
plan (other than routine claims for benefits and appeals of denied claims
arising in the ordinary course).
(c) None of the Parent, the Seller nor any Seller's Subsidiary is a
party to any agreement that would require it to make any payment that would
constitute an "excess parachute payment" for purposes of Sections 280G and 4999
of the Code.
Section 5.17. Purchased Assets. Schedule 5.17(a) attached hereto
contains an accurate and complete list of or, where appropriate, description of
the categories of the Purchased Assets. Except as set forth in Schedule 5.17(b)
attached hereto, the Purchased Assets comprise all assets used in or relating to
the conduct of the Business.
Section 5.18. Books and Records. The respective minute books of the
Seller and the Seller's Subsidiaries, as previously made available to the
Purchaser and its representatives, contain materially accurate records of all
meetings of, and accurately reflect all material corporate action taken by the
Seller and the Seller's Subsidiaries (including action taken by written
consent). Except as set forth in Schedule 5.18 attached hereto, neither the
Seller nor the Seller's Subsidiaries has any of its records, systems, controls,
data or information recorded, stored, maintained, operated or otherwise wholly
or partly dependent on or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the direct
control of the Seller, and after consummation of the transactions contemplated
hereby, the Purchaser shall enjoy the same access to, and control over, such
records, systems, controls, data and information, or accurate copies of such
records, data and information, as the Seller and the Seller's Subsidiaries,
respectively, enjoyed prior to such consummation.
Section 5.19. Inventories. Except for items which are in the
possession or control of suppliers, the Purchased Inventory is in the physical
possession of the Seller, in transit to or from suppliers of the Seller or in
transit to the Seller's stores. Except for products which are returned or
determined to be defective or obsolete in the ordinary course of business as to
which appropriate reserves have been established, the Purchased Inventory
consists of items which are in good and merchantable condition and are of a
quality presently usable and salable consistent with past practice in the
ordinary course of the Business.
Section 5.20. Environmental Matters. Except as set forth in Schedule
5.20 attached hereto and except as would not, in the aggregate, have a material
adverse effect on the Condition:
(a) Hazardous Materials have not been generated, used, treated or
stored on or released or disposed of by the Seller, any Seller's Subsidiary
or, to the knowledge of the Seller and the Parent, by any other Person, on
any real property covered by the leases set forth in Schedule 5.7 ("Seller
Property"), except for limited quantities of Hazardous Materials used or
stored in the ordinary course of business and in compliance with all
applicable Environmental Laws.
(b) Each of the Seller, the Seller's Subsidiaries and the Parent is in
compliance with Environmental Laws and the requirements of any permits
issued under such Environmental Laws with respect to all Seller Property.
(c) There are no pending or, to the knowledge of the Seller or the
Parent after due inquiry, threatened, Environmental Claims against the
Seller, any Seller's Subsidiary or directly involving, or to the knowledge
of the Seller and the Parent, relating to any Seller Property.
(d) To the knowledge of the Seller and the Parent, there are no facts,
circumstances, conditions or occurrences regarding any Seller Property that
could reasonably be expected (i) to form the basis of an Environmental
Claim against the Seller, any of the Seller's Subsidiaries or any Seller
Property or assets or (ii) to cause such Seller Property or assets to be
subject to any restrictions on its ownership, occupancy, use or
transferability under any Environmental Law.
(e) There are not now and, to the knowledge of the Seller and the
Parent after due inquiry, never have been any underground storage tanks
located on any Seller Property.
Section 5.21. Broker's or Finder's Fees. No agent, broker, person or
firm acting on behalf of the Seller or any Affiliate of the Seller is, or will
be, entitled to any commission or broker's or finder's fees from any of the
parties hereto, or from any Affiliate of any of the parties hereto, in
connection with any of the transactions contemplated by this Agreement.
Section 5.22. Interests in Customers, Suppliers, Etc. To the knowledge
of the Seller and the Parent after due inquiry, except as set forth in Schedule
5.22 attached hereto, neither the Seller nor the Parent nor any officer or
director of either of them possesses, directly or indirectly, any ownership
interest in, or is a director, officer or employee of, any Person which is a
supplier, customer, lessor, lessee, licensor, developer or competitor of the
Business. Ownership of securities of a company whose securities are registered
under the Securities Exchange Act of 1934, as amended, of 5% or less of any
class of such securities shall not be deemed to be an ownership interest for
purposes of this Section 5.22.
Section 5.23. Taxes. (a) Tax Returns. Except where the failure to do
so would not, in the aggregate, have a material adverse effect on the Condition,
all Returns have been or will be timely filed when due, and such Returns as
filed are or will be accurate in all material respects.
(b) Payment of Taxes. Except as set forth in the Seller Balance Sheet
or in Schedule 5.23(b) attached hereto, all Taxes owed by or with respect to the
Purchased Assets or the Business (whether or not shown on any Return) for all
Pre-Closing Periods have been or will be fully paid by the Seller or the Parent
upon or prior to the date upon which such Taxes become due, except where the
failure to do so would not, in the aggregate, have a material adverse effect on
the Condition.
(c) Other Tax Matters. (i) Except as provided in Schedule 5.23(c)(i)
attached hereto, there is no action, suit, proceeding, investigation, audit, or
claim now pending or, to the knowledge of the Seller, the Seller's Subsidiaries
or the Parent after due inquiry, threatened by any authority regarding any Taxes
(other than income Taxes and de minimis amounts of other Taxes) relating to the
Purchased Assets or the Business for any Pre-Closing Period.
(ii) There are no liens or security interests, other than Permitted
Encumbrances, on any of the Purchased Assets that arose in connection with any
failure or alleged failure to pay any Taxes.
(iii) Except as provided in Schedule 5.23(c)(iii) attached hereto,
there are no agreements for the extension or waiver of the time for assessment
of any non-income Taxes relating to the Purchased Assets or the Business for any
Pre-Closing Period and none of the Seller, any Seller's Subsidiary or the Parent
has been requested to enter into any such agreement or waiver.
(iv) All Taxes which the Parent, the Seller or any Seller's Subsidiary
is (or was) required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the proper authorities to the
extent due and payable.
Section 5.24. Seller's and Parent's Efforts. Except as set forth on
Schedule 5.24 attached hereto, since the Seller Balance Sheet Date, the Seller
and the Parent have used commercially reasonable efforts to preserve the
Business and the goodwill of the customers, suppliers, advertisers and others
having business relations with the Seller, and to keep the Business intact, and
have maintained all of the Purchased Assets in good operating condition and
repair, ordinary wear and tear excepted.
Section 5.25. Solvency. Immediately prior to, and immediately
subsequent to, the consummation of the sale of the Purchased Assets pursuant to
this Agreement, the Parent, the Seller and the Seller's Subsidiaries will be
solvent corporations with the ability to pay their respective debts as they
become due. For purposes of this Agreement, "solvent" shall mean, with respect
to the Parent, the Seller or any Seller's Subsidiaries, that the present fair
saleable value of the Parent's, the Seller's and each Seller's Subsidiary's
assets, respectively, is greater than the amount that will be required to pay
its liability on its existing debts as they become absolute and matured.
ARTICLE VI
REPRESENTATIONS OF THE PURCHASER
The Purchaser represents and warrants to the Seller and the Parent as
follows:
Section 6.1. Existence and Good Standing of the Purchaser and
Acquiring Corporation. The Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. The Acquiring Corporation is, or will be as of the Closing Date, a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
Section 6.2. Authorization and Validity. Subject to any necessary
authority from the Bankruptcy Court and the receipt of various consents and
approvals set forth in Schedule 6.2 attached hereto, the Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Purchaser and the consummation on the part of the Purchaser of the
transactions contemplated hereby have been duly authorized and approved by all
necessary corporate action on the part of the Purchaser, and no other corporate
action on the part of the Purchaser is necessary to authorize the execution,
delivery and performance of this Agreement by the Purchaser and the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Purchaser and, assuming due execution of this Agreement by
the Seller and the Parent, is a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
Section 6.3. Consents and Approvals; No Violations. Except as set
forth in Schedule 6.3 attached hereto, the execution and delivery of this
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby (a) will not violate or contravene any provision of the Certificate of
Incorporation or By-laws of the Purchaser, (b) will not violate or contravene
any statute, rule, regulation, order or decree of any public body or authority
by which the Purchaser is bound or by which any of its properties or assets are
bound, (c) will not require any filing with, or permit, consent or approval of,
or the giving of any notice to, any governmental or regulatory body, agency or
authority or any other Person, and (d) will not result in a violation or breach
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation, payment
or acceleration) under, or result in the creation of any Encumbrance upon any of
the assets of the Purchaser under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease, franchise agreement or any other instrument or obligation to which the
Purchaser is a party, or by which it or any of its properties or assets may be
bound, excluding from the foregoing clauses (b), (c) and (d) filings, notices,
permits, consents and approvals, the absence of which, and violations, breaches,
defaults, conflicts and Encumbrances the consequences of which, in the
aggregate, would not have a material adverse effect on the Purchaser or the
Seller.
Section 6.4. Litigation. Except as set forth in Schedule 6.4 attached
hereto, there is no action, suit, proceeding at law or in equity, arbitration or
administrative or other proceeding by or before (or, to the knowledge of the
Purchaser after due inquiry, any investigation by) any Person, including,
without limitation, any governmental or other instrumentality or agency,
pending, or, to the knowledge of the Purchaser after due inquiry, threatened
against or affecting the Purchaser or the Purchaser's assets which, if adversely
determined, would materially and adversely affect the Purchaser's ability to
satisfy the Assumed Liabilities or would adversely affect or materially delay
the Purchaser's ability to consummate the transactions contemplated hereby.
Section 6.5. Financing. The Purchaser has, or will have as of the
Closing Date, financial resources or financing commitments from responsible
financial institutions available in connection with the acquisition of the
Purchased Assets and the assumption of the Assumed Liabilities which are, or as
of the Closing Date will be, in an aggregate amount sufficient to consummate the
transactions contemplated hereby.
Section 6.6. Broker's or Finder's Fees. No agent, broker, person or
firm acting on behalf of the Purchaser is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any Affiliate of any of the parties hereto, in connection with any of the
transactions contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. Conduct of the Business. During the period from the date
of this Agreement to the Closing Date, the Seller and, to the extent applicable,
the Parent shall each (a) conduct the Business in the ordinary course consistent
with past practice (including, without limitation, in connection with the
collection of accounts receivable and the incurrence and payment of accounts
payable and with pricing and marketing practices) and maintain satisfactory
relationships with suppliers, customers, lessors and others having business
relationships with the Seller or the Business, (b) maintain, consistent with
past practice and good business practices, all the Purchased Assets in customary
repair, order and condition, ordinary wear and tear excepted, and insurance upon
all the Purchased Assets in such amounts and of such kinds comparable to that in
effect on the date hereof, (c) maintain the Books and Records in the usual,
regular and ordinary manner, on a basis consistent with past practice and (d)
maintain, consistent with past practice and good business practices, inventory
levels. Notwithstanding the immediately preceding sentence, on or prior to the
Closing Date and except as may be first approved by the Purchaser or as is
otherwise permitted or required by this Agreement, neither the Seller nor the
Parent shall (a) increase the compensation payable or to become payable by the
Seller or the Parent to any officer, director, independent contractor or
employee of the Seller, except (i) in the ordinary course of business or (ii)
increases equal to no more than fifteen percent (15%) of the total annual
compensation of any employee who earned less than fifty thousand dollars
($50,000) per year before giving effect to such increase, (b) increase the
benefits payable or to become payable by the Seller or the Parent to any present
or former officer, director, independent contractor or employee of the Seller
under any Employee Benefit Plan (or other plan, program, arrangement,
commitment, policy, contract, agreement and/or policy relating to employee
benefits or compensation adopted subsequent to the date of this Agreement)
except (i) in the ordinary course of business or (ii) increases equal to no more
than fifteen percent (15%) of the total annual benefits payable to such any
employee, who earns less than fifty thousand dollars ($50,000) per year, (c)
enter into any contract or commitment except contracts and commitments in the
ordinary course of business consistent with past practice, (d) cancel or waive
any claims or rights which reasonably could be valued in excess of $100,000, (e)
sell, transfer or otherwise dispose of any Purchased Asset (other than in the
ordinary course of business), (f) make any capital expenditure or commitment
therefor in excess of $25,000 individually or $100,000 in the aggregate, (g)
make any change in any method of accounting practice, (h) write-off as
uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is reasonably likely to have a material adverse
effect on the Condition, or (i) agree, whether or not in writing, to do any of
the foregoing.
Section 7.2. Review of the Company. The Purchaser may, prior to the
Closing Date, through its representatives, review the properties, books and
records of the Seller and the Parent to familiarize itself with such properties
and the Business. The Seller and the Parent shall permit the Purchaser and its
representatives to have reasonable access to the premises and to such books and
records during normal working hours and to furnish the Purchaser with such
information and data with respect to the Seller and the Business as the
Purchaser may from time to time request. The Purchaser shall, and shall cause
its representatives to, conduct such review in such a manner as not to interfere
unreasonably with the operations of the Seller or the Parent. Such review shall
not, however, affect the representations or warranties of the Seller and the
Parent in this Agreement or the remedies of the Purchaser for breaches thereof.
Section 7.3. Confidentiality. Information obtained by the Purchaser
pursuant to Section 7.2 shall be subject to the provisions of the
Confidentiality Agreements. The Purchaser, the Seller and the Parent agree to
continue to be bound by the terms of the Confidentiality Agreements.
Section 7.4. Cooperation. Each party hereto shall, and the Seller
shall cause each of the Seller's Subsidiaries to, use its reasonable best
efforts, and each party hereto shall, and the Seller shall cause each of the
Seller's Subsidiaries to, cooperate with the other parties hereto, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from
governmental entities and third parties as shall be required in order to enable
each party hereto to effect the transactions contemplated on its part hereby,
and each party hereto shall, and the Seller shall cause each of the Seller's
Subsidiaries to, otherwise use their reasonable best efforts to cause the
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement to be satisfied;
provided that the Purchaser shall not be required to consent to any change in
the terms of any Assigned Lease, Assigned Contract or Assigned Permit which
could reasonably be expected to adversely affect the economic value to the
Purchaser of such Assigned Lease, Assigned Contract or Assigned Permit. Each
party hereto further agrees to deliver to the other parties hereto prompt
written notice of any event or condition known to such party, which if it
existed on the date of this Agreement, would result in any of the
representations and warranties of such party contained herein being untrue. The
Seller and the Parent agree to cooperate to the extent reasonably requested by
the Purchaser in restating the Seller Unaudited Statements in such a manner as
to be in accordance with GAAP.
Section 7.5. Exclusive Dealing. (a) During the period from the date of
entry of the Approval Order to the earlier of the termination of this Agreement
in accordance with its terms and the Determination Date, neither the Seller, the
Parent nor any of their respective Affiliates or representatives shall take any
action to, directly or indirectly, encourage, initiate, solicit or engage in
discussions or negotiations with, or provide any information to, any Person,
other than the Purchaser (and its Affiliates and representatives), concerning
any direct or indirect acquisition of the Seller or any direct or indirect
purchase of all or any part of the assets of the Seller (other than ordinary
course inventory sales) or any direct or indirect stock purchase, direct or
indirect merger or similar transaction directly or indirectly involving the
Seller.
(b) During the period from the date of entry of the Approval Order to
the earlier of the termination of this Agreement in accordance with its terms
and the Closing, subject, as applicable, to its obligations as a debtor in
possession under the Bankruptcy Code, neither the Purchaser nor any of its
Affiliates or representatives shall seek any relief or approval from the
Bankruptcy Court which is inconsistent with this Agreement or the Approval
Order.
(c) The parties agree that, through and including the date of entry of
the Approval Order, the provisions of the sixth and seventh paragraphs of the
Letter of Intent, dated October 27, 1997 from the Purchaser to the Seller, the
Parent and WH Smith Group plc shall remain in full force and effect.
Section 7.6. Use of Name. Except as expressly provided in the Airport
Stores Agreement, each of the Seller and the Parent hereby agrees that from and
after the Closing Date, it shall, and shall cause its respective subsidiaries
and Affiliates to, discontinue all use of the name "The Wall" alone or in any
combination of words for any and all purposes, and the Seller shall no more than
five (5) Business Days after the Closing Date file with the Secretary of State
of the Commonwealth of Pennsylvania an amendment to its Certificate of
Incorporation providing for a change in the corporate name of the Seller to a
name not using "The Wall" or any derivative thereof.
Section 7.7. Warehouse Lease. The Warehouse Lease (as well as any
security posted by the Seller to secure its obligations thereunder) is an
Excluded Asset and the obligations thereunder shall not constitute Assumed
Liabilities. Subject to the last sentence of this Section 7.7, beginning on the
Closing Date and until the expiration of the term of the Warehouse Lease on
August 31, 1998, the Seller and the Parent shall afford the Purchaser full
access to the premises covered by the Warehouse Lease. Given this right of
access, the Purchaser shall (i) pay to the Seller twenty-eight thousand dollars
($28,000) per month in advance, on the first day of the month following the
month in which the Closing Date occurs and the first day of every month
thereafter through August 1, 1998, for base rent payments including charges
payable to the landlord thereunder for common area maintenance charges and taxes
(prorated for any partial month periods), (ii) reimburse the Seller, upon
presentation of evidence reasonably satisfactory to the Purchaser, for any other
amount paid by the Seller on account of any claim arising by virtue of the
Purchaser's use and occupancy of the subject premises, subject to any defenses
that the Purchaser may have in respect of such obligation as against the Person
to whom such payment was made, or otherwise. Subject to Section 13.3(iv), the
Purchaser shall have no other liabilities in connection with the Warehouse
Lease, whether arising under the Warehouse Lease or otherwise, including,
without limitation, any obligations with respect to renovation, construction,
demolition, restoration or remodeling expenses. The Purchaser shall vacate the
subject premises on or prior to a date to be mutually agreed by the parties in
order to permit the Seller sufficient time to return the premises to the
appropriate condition specified in the Warehouse Lease prior to the end of such
Lease's term.
Section 7.8. Pyramid Litigation. The Seller agrees that it will, after
Closing, accept reasonable direction from the Purchaser with respect to the
conduct, prosecution or settlement of Brookstone Company, Inc. et al. v. Pyramid
Company of Hadley et al. (Case No. 96-CV-1215), currently pending in the United
States District Court for the Northern District of New York.
Section 7.9. Accountants' Consent. The Seller and the Parent shall use
their reasonable best efforts to cause Deloitte & Touche to consent to the use
of their audit of the Seller Audited Statements in the event that such Seller
Audited Statements are required to be filed by CM Holdings, Inc. or its
Affiliates with the Securities and Exchange Commission, or any successor agency
thereto.
Section 7.10. Updated Financial Information; Obligation to Disclose.
(a) The Parent shall, within thirty (30) calendar days of the end of each fiscal
year in which the Parent has any obligations (including, without limitation,
contingent obligations) under this Agreement, provide the Purchaser with a
certificate, signed by the Chief Financial Officer of the Parent, to the effect
that as of such date, the net worth of the Parent exceeds thirty million dollars
($30,000,000).
(b) The Parent shall promptly advise the Purchaser at any time when
the Parent's net worth fails to exceed thirty million dollars ($30,000,000), and
the Parent will respond to any reasonable requests made by the Purchaser to the
Parent at any time to confirm that the Parent's net worth exceeds thirty million
dollars ($30,000,000).
Section 7.11. WARN Act Compliance. Each of the Seller and, with
respect to the Business, the Parent hereby agrees that prior to and after the
Closing Date, it shall comply with all of its obligations under the WARN Act.
Without in any way limiting the foregoing, from and after the Closing Date, the
Seller and the Parent shall retain all obligations under the WARN Act with
respect to any Business Employee who is not a Hired Employee, and with respect
to any Hired Employee, up to the date of his or her hiring by the Purchaser.
Section 7.12. Mail. (a) The Seller and the Parent authorize the
Purchaser, from and after the Closing Date, to receive and open all mail and
other communications received by the Purchaser addressed to the Seller or any
Seller's Subsidiary, and to act with respect to such communications in such
manner as the Purchaser may choose if such communications relate to the
Business, or, if they do not, to forward such communications promptly to the
Seller. The Seller and the Parent agree promptly to deliver to the Purchaser any
mail (including Operating Expense Invoices), cash, checks or other instruments
of payment to which the Purchaser is entitled (including, but not limited to,
any check or other evidence of indebtedness received by the Seller or the Parent
in respect of any Purchased Receivables) and shall hold such cash, checks or
instruments in trust for the Purchaser until delivery.
(b) The Purchaser shall as promptly as practicable notify the Seller
with respect to any Excluded Liability for which the Purchaser receives an
invoice or other demand for payment.
Section 7.13. Satisfaction of Excluded Liabilities. The Seller shall
satisfy the Excluded Liabilities, when due, in accordance with its standard and
customary business practices. In the event the Purchaser, its Affiliates or any
of their assigns elects to satisfy an Excluded Liability, the Purchaser or such
Affiliate shall have a right of reimbursement against the Seller, subject to any
defenses that the Seller may have in respect of such obligation as against the
Person to whom such payment was made, or otherwise. The parties agree and
acknowledge that the Seller shall be solely responsible for the satisfaction of
the Excluded Liabilities.
Section 7.14. Purchaser Information for Lease Assignments. The
Purchaser acknowledges that (a) the Purchaser has had access to the Assigned
Leases and (b) the Seller has previously provided to the Purchaser a description
of the Assignment Information Requirements. The Purchaser shall use its
reasonable best efforts to provide such information to the Seller in a form
which complies with the Assignment Information Requirements within two (2)
calendar days of the date hereof.
Section 7.15. Seller Updated Lease Information. Not less than five (5)
calendar days prior to the Closing Date, the Seller shall furnish the Purchaser
with a list of each of the Assigned Leases setting forth, as of the Closing
Date, the term thereof, the rent paid, any security deposit relating thereto and
an estimate of the rent prepaid or payable as of the Closing Date with respect
thereto.
Section 7.16. Supply Agreement. On or prior to the Closing Date, the
Purchaser and the Seller shall enter into a supply agreement, in form and
substance reasonably satisfactory to them, which shall set forth the terms and
conditions pursuant to which the Purchaser shall supply inventory to the
Seller's Remaining Stores (the "Supply Agreement"). The Supply Agreement shall
provide that the Purchaser shall use reasonable efforts to (a) service the
Seller's Remaining Stores' in-store inventory range and levels and (b) replenish
such inventory, in each case in accordance with the Seller's operating models
which shall be supplied to the Purchaser on the Closing Date. Inventory will be
sold at a price equal to the Purchaser's cost of such inventory plus three
percent (3%), payable in accordance with standard 60-day industry terms. The
Purchaser will accept all returns of inventory (except for cut-outs), and will
provide full credit for such returns against future purchases. The Purchaser or
its Affiliates will poll sales from the electronic point of sale system on a
daily basis for sales reporting and replenishment purposes. The Purchaser or its
Affiliates will provide the Seller with weekly sales reports. The term of the
Supply Agreement shall begin on the first Business Day after the Closing Date
and shall end on the Determination Date. The Seller shall retain any profits
earned by the Seller's Remaining Stores during the term of the Supply Contract.
Section 7.17. Franchise Agreement. On or prior to the Determination
Date, the Purchaser and the Seller shall enter into a franchise agreement, in
form and substance reasonably satisfactory to them (each, a "Franchise
Agreement"), with respect to each store designated by the Seller which is the
subject of a Non-Transferred Lease (each, a "Franchised Store"). Each Franchise
Agreement shall be substantially identical, and the term of each Franchise
Agreement shall be the lesser of the two years ending on the second anniversary
of the Determination Date and the remaining term as of the Determination Date of
the applicable Non-Transferred Lease. The Franchise Agreement shall provide that
the Purchaser shall use reasonable efforts to (a) service the Franchised Stores'
in-store inventory range and levels and (b) replenish such inventory, in each
case in accordance with the Seller's operating models which shall be supplied to
the Purchaser on the Closing Date. Inventory will be sold at a price equal to
the Purchaser's cost of such inventory plus three percent (3%), payable in
accordance with standard sixty (60) day industry terms. The Purchaser will
accept all returns of inventory (except for cut-outs), and will provide full
credit for such returns against future purchases. The Purchaser or its
Affiliates will poll sales from the electronic point of sale system on a daily
basis for sales reporting and replenishment purposes. The Purchaser or its
Affiliates will provide the Seller with weekly sales reports. Furthermore, each
Franchise Agreement shall provide that the Seller shall pay to the Purchaser a
franchise fee equal to fifteen percent (15%) of the store contribution for the
applicable store during the first year of the term of such Franchise Agreement,
and twenty-five percent (25%) of the store contribution through the remainder of
the Franchise Agreement's term. Such payments shall be made on an annual basis
sixty (60) calendar days after, to the extent applicable, each of the first
anniversary of the Determination Date and the termination of the Franchise
Agreement. The Seller shall not have the right to transfer or assign any
Franchise Agreement without the consent of the Purchaser.
Section 7.18. Assigned Non-Transferred Leases. (a) With respect to
each Assigned Non-Transferred Lease, the Purchaser shall accept the assignment
and purchase the related inventory and other assets in accordance with this
Section 7.18; provided that no material amendment shall have been made to such
Lease. In the event that the Seller obtains an assignment of a Non-Transferred
Lease during the Non-Transferred Lease Assignment Period, and such
Non-Transferred Lease has a remaining term of less than twelve months (including
for the purpose of calculating such remaining term any renewal term which is
reasonably acceptable to the Purchaser), the Purchaser may, but shall not be
obligated to, elect to accept the assignment and, if the Purchaser so elects,
the Seller and the Purchaser shall negotiate in good faith with respect to the
terms of such assignment and the purchase of the related inventory and other
assets.
(b) With respect to any Assigned Non-Transferred Lease and related
inventory and other assets, the Purchaser shall pay to the Seller, within five
Business Days of the Assignment Date, an amount equal to the sum of (i) the
Assigned Non-Transferred Lease Amount determined in accordance with the
directions set forth below, plus (ii) the Seller's cost of inventory, minus
(iii) the franchise fees paid, or to be paid, by the Seller to the Purchaser,
for the period or periods ending prior to the Assignment Date, minus (iv) any
accounts owing by the Seller to the Purchaser and plus (v) any accounts owing by
the Purchaser to the Seller. In addition, in connection with the occurrence of
the Assignment Date with respect to any Assigned Non-Transferred Lease, the
parties will apportion expenses and settle assets and liabilities, to the extent
not otherwise settled hereunder, on a basis consistent with the methodologies
set forth in this Agreement. The Assigned Non-Transferred Lease Amount with
respect to an Assigned Non-Trasnferred Lease shall be an amount equal to (i) the
Non-Transferred Lease Adjustment Amount with respect to such Lease as had been
determined in accordance with Section 2.10, minus an amount equal to (x) the
Liquidated Damages Amount with respect to such Lease, divided by twenty-four
(24), multiplied by (y) the number of months (pro rated for any partial month)
between the Determination Date and the Assignment Date.
(c) Notwithstanding any provision of this Section 7.18, the Seller
shall not be obligated to assign any Non-Transferred Lease to the Purchaser,
provided that the Purchaser shall have the right of first refusal with respect
to any proposed disposition during the term of the applicable Franchise
Agreement.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER, THE SELLER AND THE PARENT
The respective obligations of the Purchaser, the Seller and the Parent
to consummate the transactions contemplated by this Agreement are conditioned
upon satisfaction or waiver, at or prior to the Closing, of the following
conditions:
Section 8.1. Bankruptcy Court Approval. The Approval Order shall be a
Final Order.
Section 8.2. Injunctions. There shall not be outstanding any
preliminary or permanent injunction, decree or order of any court or
governmental department or agency prohibiting the consummation of the
transactions contemplated by this Agreement.
Section 8.3. Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered, promulgated, or
enforced by any court or governmental authority which prohibits the consummation
of the transactions contemplated by this Agreement or has the effect of making
such transactions illegal.
Section 8.4. HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the transactions contemplated by this Agreement
shall have expired or been terminated without any adverse action by the Federal
Trade Commission or the U.S. Department of Justice.
Section 8.5. Escrow Agreement. The Escrow Agreement shall have been
executed by the parties thereto and shall be in full force and effect.
Section 8.6. Airport Stores Agreement. The Airport Stores Agreement
shall be in full force and effect.
Section 8.7. Closing Date. Unless the parties otherwise agree in
writing, if the Closing Date is to occur before February 28, 1998, landlord
consents to the assignment of at least one hundred forty-five (145) Assigned
Leases must have been obtained.
ARTICLE IX
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
The obligations of the Purchaser to consummate the transactions
contemplated by this Agreement are conditioned upon satisfaction or waiver, at
or prior to the Closing, of the following conditions:
Section 9.1. Truth of Representations and Warranties. The
representations and warranties of the Seller and the Parent contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date (provided, however, that if any portion of any representation or
warranty is already qualified by materiality, for purposes of determining
whether this Section 9.1 has been satisfied with respect to such portion of such
representation or warranty, such portion of such representation or warranty as
so qualified must be true and correct in all respects) with the same effect as
though such representations and warranties had been made on and as of such
Closing Date, and each of the Seller and the Parent shall have delivered to the
Purchaser an officer's certificate, dated the Closing Date, to such effect.
Section 9.2. Performance of Agreements. The agreements of the Seller
and the Parent to be performed prior to the Closing pursuant to the terms of
this Agreement shall have been duly performed in all material respects, and each
of the Seller and the Parent shall have delivered to the Purchaser an officer's
certificate, dated the Closing Date, to such effect.
Section 9.3. Transfer Documentation. The Seller and the Parent shall
have executed and delivered to the Purchaser such bills of sale, endorsements,
assignments, releases, transfers in registered form, certificates or other
instruments of transfer and conveyance, in form and substance reasonably
satisfactory to the Purchaser and its counsel, as the Purchaser shall deem
necessary to vest in the Purchaser good and marketable title to the Purchased
Assets, free and clear of any Encumbrance, except for Permitted Encumbrances,
and without recourse to or representation by the Seller or the Parent except as
expressly provided herein.
Section 9.4. Governmental and Third-Party Approvals. (a) Subject to
Section 9.4(b), all governmental and third-party filings, consents and approvals
required to be obtained or made by the Seller and/or the Parent, to permit the
consummation of the transactions contemplated by this Agreement, shall have been
obtained or made.
(b) If the Closing Date shall occur on or after February 28, 1998,
landlord consents to the assignment of at least 138 Assigned Leases to the
Purchaser, or evidence reasonably satisfactory to the Purchaser that such
consents are not required to effect such assignments, shall have been obtained
and provided to the Purchaser.
Section 9.5. Proceedings. All proceedings to be taken in connection
with the transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Purchaser
and its counsel, and the Purchaser shall have received copies of all such
documents and other evidence as it or its counsel shall reasonably request to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
Section 9.6. WH Smith Group plc Guarantee. WH Smith Group plc shall
have executed a guarantee in favor of the Purchaser and its successors and
permitted assigns, in respect of all obligations of the Parent under this
Agreement, substantially in the form of Exhibit 9.6 attached hereto, which
guarantee shall provide that WH Smith Group plc shall only become liable under
such guarantee if, at any time when the Parent has any obligations (including,
without limitation, contingent obligations) under this Agreement, (a) the net
worth of the Parent shall fall below thirty million dollars ($30,000,000), or
(b) the Parent shall cease to be an Affiliate of WH Smith Group plc.
Section 9.7. Update of Certain Information. The Seller shall have
furnished the Purchaser with any Seller Unaudited Statements prepared subsequent
to the date hereof promptly after such preparation.
ARTICLE X
CONDITIONS TO THE SELLER'S AND THE PARENT'S OBLIGATIONS
The obligations of the Seller and the Parent to consummate the
transactions contemplated by this Agreement are conditioned upon satisfaction or
waiver, at or prior to the Closing, of the following conditions:
Section 10.1. Truth of Representations and Warranties. The
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
(provided, however, that if any portion of any representation or warranty is
already qualified by materiality, for purposes of determining whether this
Section 10.1 has been satisfied with respect to such portion of such
representation or warranty, such portion of such representation or warranty as
so qualified must be true and correct in all respects) with the same effect as
though such representations and warranties had been made on and as of such date,
and the Purchaser shall have delivered to the Seller an officer's certificate,
dated the Closing Date, to such effect.
Section 10.2. Performance of Agreements. The agreements of the
Purchaser to be performed prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed in all material respects, and the
Purchaser shall have delivered to the Seller an officer's certificate, dated the
Closing Date, to such effect.
Section 10.3. Proceedings. All proceedings to be taken in connection
with the assumption of the Assumed Liabilities and payment of the purchase price
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Seller and its counsel, and
the Seller shall have received copies of all such documents and other evidence
as it or its counsel shall reasonably request to establish the consummation of
such transactions and the taking of all proceedings in connection therewith.
Section 10.4. Letter of Credit. The Purchaser shall have arranged for
the issuance of the Letter of Credit for the benefit of the Seller and the
Seller shall have received the Letter of Credit. The Seller agrees that it will
not draw upon the Letter of Credit prior to five (5) Business Days after the
Interim Payment Date, and will only draw upon the Letter of Credit in an amount
equal to the Interim Payment Amount less any payment received by the Seller in
respect of the Interim Payment Amount pursuant to Section 2.5. The Seller, upon
receipt of the Interim Payment Amount from the Purchaser, shall surrender the
Letter of Credit to the issuer of the Letter of Credit.
ARTICLE XI
TAX MATTERS
Section 11.1. Tax Matters. (a) The Seller, the Parent and the
Purchaser agree to allocate the aggregate purchase price to be paid for the
Purchased Assets in accordance with Section 1060 of the Code (the "Allocation").
The Seller, the Parent and the Purchaser agree to reduce such allocation to
writing as soon as practicable (which in any event shall occur within ninety
(90) calendar days) after the Closing Date. In addition, the Seller, the Parent
and the Purchaser hereby undertake and agree to file timely any information that
may be required to be filed pursuant to Treasury Regulations promulgated under
Section 1060(b) of the Code. Neither the Seller, the Parent nor the Purchaser
shall file any tax return or other document or otherwise take any position which
is inconsistent with the Allocation.
(b) If the Seller, the Parent and the Purchaser do not reach an
agreement on the Allocation within ninety (90) calendar days after the Closing
Date, they shall promptly submit the issue for arbitration by (i) the accounting
firm selected pursuant to Section 2.7(c), or (ii) if no such firm was so
selected, a mutually acceptable, nationally recognized accounting firm (other
than any accounting firm already retained by the Purchaser, the Seller or the
Parent) for resolution within thirty (30) calendar days after such submission.
The Seller, the Parent and the Purchaser shall jointly share the fees and
expenses of such firm. The decision of such firm with respect to the Allocation
shall be final and non-appealable and binding on the parties hereto.
(c) Any stamp, transfer, documentary, sales, use, registration, and
other such taxes and fees (including any penalties and interest) required to be
paid in connection with this Agreement and the transactions contemplated hereby
(collectively, the "Transfer Taxes") shall be paid by the Purchaser, and the
Purchaser shall properly file on a timely basis all necessary tax returns,
reports, forms, and other documentation with respect to any Transfer Taxes and
provide to the Seller evidence of payment of all Transfer Taxes.
(d) The Seller and the Parent, jointly and severally, and their
respective Affiliates and successors, hereby indemnify and hold the Purchaser
and its officers, directors, Affiliates, successors and assigns harmless on an
after-tax basis for (i) all non-income Taxes relating to the Purchased Assets
and the Business for all Pre-Closing Periods, but only to the extent that such
Taxes are in an aggregate amount in excess of $35,000; (ii) except as provided
in Section 11.1(c), all Taxes resulting from, arising out of, or incurred with
respect to, the transactions contemplated by this Agreement; and (iii) all Taxes
incurred by or imposed on or with respect to the income of the Seller or any of
its Affiliates.
(e) The Purchaser and its successors hereby indemnify and hold the
Seller and its officers, directors, Affiliates, successors and assigns harmless
on an after-Tax basis for (i) all Transfer Taxes and (ii) all Taxes relating to
the Purchased Assets and the Business for all taxable periods or portions
thereof beginning immediately after the Closing Date, but with respect to
non-income Taxes, only to the extent that such non-income Taxes are in an
aggregate amount in excess of $35,000.
Section 11.2. Cooperation on Tax Matters. (a) The Purchaser, the
Seller and the Parent agree to furnish or cause to be furnished to each other,
as promptly as practicable, such information relating to the Business and
assistance as is reasonably necessary for the preparation and filing of any tax
return for any Pre-Closing Periods or Post-Closing Periods, claim for refund or
other required or optional filings relating to tax matters, for the preparation
for and the proof of facts during any tax audit, for the preparation for any tax
protest, for the prosecution or defense of any suit or other proceeding relating
to tax matters and for the answer to any governmental or regulatory inquiry
relating to tax matters.
(b) The Purchaser agrees to retain possession of all files and records
delivered to the Purchaser by the Seller, for a period of at least six (6) years
from the Closing Date. In addition, from and after the Closing Date, the
Purchaser agrees that it will provide reasonable access to the Seller and the
Parent and their attorneys, accountants and other representatives (after
reasonable notice and during normal business hours and without charge), to such
files and records as they may reasonably deem necessary to properly prepare for,
file, prove, answer, prosecute and/or defend any such Return, filing, audit,
protest, claim, suit, inquiry or other proceeding. The Parent and the Seller
shall, and shall cause their representatives to, conduct any reviews in such a
manner as not to interfere unreasonably with the operations of the Purchaser.
(c) The Seller agrees that it will not agree to or settle any property
tax appeal which was ongoing as of the date of this Agreement which would bind
the Purchaser regarding the assessment of property taxes payable by the
Purchaser pursuant to this Agreement. In addition, the Purchaser will be
entitled to control any property tax appeals initiated after, or ongoing as of,
the date of this Agreement which would bind the Purchaser regarding the
assessment of property taxes payable by the Purchaser pursuant to this
Agreement.
(d) The Purchaser and the Seller agree that neither will settle any
Tax matter that could materially impact the other without first obtaining the
consent of the other which consent may not be unreasonably withheld.
ARTICLE XII
EMPLOYEES AND EMPLOYEE PLANS
Section 12.1. Employees. (a) Except as provided by this Section 12.1,
to the extent requested by the Purchaser, the Seller and the Parent shall assist
the Purchaser in obtaining the employment of some or all of the employees of the
Seller. Within seven (7) calendar days after the date of this Agreement, the
Seller shall provide the Purchaser with a list setting forth the name and title
of each Business Employee, each such Business Employee's date of hire and the
location at which each such Business Employee works, and the Seller shall update
such list upon the Purchaser's reasonable request. Within fifteen (15) calendar
days after the date of this Agreement, the Seller shall provide the Purchaser
with a list of the Seller Transition Employees. Not less than five (5) calendar
days prior to the Closing Date, the Purchaser shall provide the Seller with a
list setting forth those Business Employees to whom the Purchaser desires to
offer employment, which list shall include, but need not be limited to, all of
the Seller's regional directors, operations managers and full- and part-time
store employees and the Seller shall assist and cooperate with the Purchaser in
connection with the Purchaser's hiring of any such Business Employee, unless
such Business Employee is a Seller Executive. Any of the Seller, the Parent and
the Purchaser may offer employment to any Seller Executive. The foregoing to the
contrary notwithstanding, nothing contained herein shall be construed or
interpreted as a contract of employment with any Business Employee or to give
any Hired Employee the right to be retained as an employee of the Purchaser or
its Affiliates after the Closing Date, or to restrict or otherwise inhibit the
Purchaser's or any such Affiliate's rights to terminate, or change the
conditions of, the employment of any Hired Employee.
(b) As of the Closing Date, each of the Hired Employees shall cease to
be covered by the Seller's Employee Benefit Plans. On and after their respective
dates of hire by the Purchaser, each Hired Employee shall be covered by the
employee benefit plans of the Purchaser that are applicable to similarly
situated employees of the Purchaser. For purposes of the Purchaser's employee
benefit plans, the Purchaser shall credit each Hired Employee with full credit
for service with the Seller prior to the Closing Date to the extent such service
was recognized for such purposes under similar Seller employee benefit plans. In
addition, the Purchaser shall use reasonable efforts to cause each Purchaser
group health plan to waive any pre-existing condition exclusions thereunder with
respect to the Hired Employees to the extent that such employees are enrolled in
the applicable group health plan of the Seller as of their respective dates of
hire by the Purchaser; provided that the Purchaser shall not be required to
expend material amounts of funds in connection with any such enrollment. Nothing
contained in this Article XII shall obligate or commit the Purchaser to continue
any of its benefit plans after the Closing Date or to maintain in effect any
such plan or any level or type of benefits. The Seller shall be responsible for
all post-retirement benefits, including, for example, any medical, dental or
life insurance coverage obligations, or pension, retirement, or deferred
compensation with respect to any Business Employee who is not a Hired Employee,
as well as any retired, former or inactive employee, independent contractor,
officer or director of the Seller.
(c) Except with respect to liabilities that are expressly assumed by
the Purchaser under this Article XII, the Seller shall remain obligated for all
obligations with respect to the Business Employees, including, without
limitation, (i) all wages, salaries or bonuses relating to services rendered
prior to, on or after the Closing Date, (ii) all benefits and benefit
entitlements under the Employee Benefit Plans earned or accrued prior to, on or
after the Closing Date and (iii) all employment-related claims related to facts
or events occurring prior to, on or after the Closing Date. The Purchaser shall
pay severance obligations to each Hired Employees which become payable after
such Hired Employee's date of hire by the Purchaser under any severance plan
then maintained by the Purchaser in which such employees are eligible to
participate, and the Purchaser shall recognize such employees' service with the
Seller for the purpose of determining such severance entitlements.
(d) The Seller agrees to comply with all notice and coverage
requirements under COBRA and the WARN Act with respect to any and all Business
Employees who are entitled to such notice and coverage, including, without
limitation, as a result of, or relating to, any of the transactions or events
contemplated by this Agreement, and the Seller shall be liable for any failure
to so comply.
(e) The Purchaser shall be fully responsible for any liability arising
under the WARN Act arising in connection with the termination of employment of
any Hired Employee after the Closing Date. The Purchaser shall have no liability
under the WARN Act for any Person other than Hired Employees or for any periods
prior to the Closing Date.
(f) The Seller shall cause (whether by plan amendment or otherwise),
effective no later than the later of the Closing Date or their respective dates
of hire by the Purchaser or an Affiliate of the Purchaser, all of the Hired
Employees hired by the Purchaser or an Affiliate of the Purchaser who are
participants in any of the Seller's or the Parent's tax-qualified pension,
profit-sharing, savings, or retirement plans to be fully vested in their
benefits and accounts thereunder, irrespective of whether or not such employees
have satisfied the vesting requirements otherwise applicable under any such
plan. The Purchaser shall take all reasonable and necessary action (whether by
plan amendment or otherwise) to permit its defined contribution plan that is
applicable to the Hired Employees to accept an "eligible rollover contribution"
(within the meaning of Section 401(a)(31) of the Code) in cash of all or a
portion of the balance of any Hired Employee's account under the W.H. Smith
401(k) Savings and Retirement Plan.
(g) The Seller and the Purchaser agree to exchange, in a diligent and
timely manner, such employee census or other data as shall be reasonably
necessary to calculate benefits under any plan and to take any and all actions
as shall be reasonably necessary and/or advisable to effect the provisions of
this Article XII.
(h) As promptly as practicable after the Closing Date, the Seller
shall furnish the Purchaser with a schedule setting forth the name of each Hired
Employee and any vacation pay accrued in respect of each such Hired Employee as
well as any other Transferred Liabilities attributable to each such Hired
Employee. The Seller represents and warrants that the amounts of such vacation
pay and any other such Transferred Liabilities will be calculated in accordance
with the Seller's standard policies with respect thereto as of the date hereof.
Section 12.2. Transition Services. Not less than thirty (30) calendar
days prior to the Closing Date, the Purchaser shall provide the Seller with a
list of the Business Employees who work in the Seller's corporate headquarters
in Philadelphia, Pennsylvania and who shall not be Hired Employees, but who the
Purchaser proposes shall be retained in the employment of the Seller in order to
provide certain transition and other services to the Purchaser. The Purchaser
and the Seller agree to use their reasonable best efforts to agree on the terms
and conditions (including payment terms) under which such Business Employees
shall provide services to the Purchaser and the method by which such Business
Employees shall allocate their services between the Seller and the Purchaser
after the Closing Date. However, with respect to any such Business Employee who
is a Seller Transition Employee, the Seller may, in its discretion during the
period ending on the earlier to occur of the date on which the Statement of
Assets and Liabilities Transferred is delivered and the date that is seventy
(70) calendar days after the Closing Date, determine the extent to which such
Seller Transition Employee will provide services to the Purchaser. During the
thirty (30) day period immediately following the period referred to in the
preceding sentence, the Seller shall use its reasonable efforts to cause such
Seller Transition Employees to provide services to and as directed by the
Purchaser.
ARTICLE XIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 13.1. Survival of Representations and Warranties. The
respective representations and warranties of the Seller and the Parent, on the
one hand, and the Purchaser, on the other hand, contained in this Agreement or
in any Schedule attached hereto or agreement or other document delivered
pursuant hereto shall survive the purchase and sale of the Purchased Assets and
the assumption of the Assumed Liabilities contemplated hereby until May 31,
1999; provided that the representations and warranties of the Seller and the
Parent contained in Sections 5.1, 5.2 and 5.8 shall survive indefinitely, and
those contained in Sections 5.20 and 5.23 shall survive for the applicable
statute of limitations periods.
Section 13.2. Indemnification by the Seller and the Parent. (a)
Subject to this Section 13.2(a), the Seller and the Parent, jointly and
severally, shall indemnify and hold the Purchaser and its Affiliates, and their
respective officers, directors, employees, and agents, and any successors to any
such Persons, harmless from and against all Damages incurred or suffered as a
result of or arising out of (i) the failure of any representation or warranty
made by the Seller or the Parent in this Agreement or in any Schedule attached
hereto or any agreement or other documents executed and delivered by the Seller
or the Parent pursuant hereto to be true and correct, (ii) the breach of or
failure to comply with any covenant or agreement made or to be performed by the
Seller or the Parent pursuant to this Agreement or any Schedule attached hereto
or any other agreement or document executed and delivered by the Seller or the
Parent pursuant hereto, (iii) the failure by the Seller or the Parent to comply
with its or their obligations under the WARN Act, including, without limitation,
failure to comply with their obligations under Section 7.11 with respect to
Business Employees who are not Hired Employees or (iv) the Seller's failure to
pay or discharge any valid Excluded Liability when due, and indemnification for
which, or similar rights in respect of which, is not separately available under
Section 7.13 or Section 11.1(d). The Parent and the Seller shall not be liable
under this Section 13.2(a) unless and until the amount for which they, taken
together, would otherwise be liable equals or exceeds $250,000 on account of all
obligations otherwise indemnifiable pursuant to this Section 13.2(a), in which
event the Parent and the Seller shall be jointly and severally liable for the
amount in excess thereof.
(b) Subject to this Section 13.2(b), the Seller and the Parent,
jointly and severally, shall indemnify and hold the Purchaser and its
Affiliates, and their respective officers, directors, employees, and agents, and
any successors to any such Persons, harmless from and against all Damages
incurred or suffered as a result of or arising out of (i) the removal of friable
asbestos from Seller Property, which asbestos was introduced to such Seller
Property by, or on behalf of at the direction of, the Seller, whether or not
such asbestos was in friable form at the time of its introduction, and (ii) the
removal of friable asbestos from Seller Property, which asbestos was not
introduced into such Seller Property by, or on behalf or at the direction of,
the Seller, whether or not such asbestos was in friable form at the time of its
introduction. With respect to clause (ii) above, the Seller and the Parent shall
be liable for Damages suffered by the Purchaser and its Affiliates with respect
to any store only to the extent that such Damages with respect to such store
exceed seventy-five thousand dollars ($75,000), and only to the extent of such
excess. Notwithstanding the foregoing, in the case of Damages indemnifiable
pursuant to this Section 13.2(b), (aa) the Purchaser agrees to use its
reasonable efforts to minimize such Damages, (bb) the Purchaser's claims in
respect of such Damages pursuant to this Section 13.2(b) or otherwise pursuant
to this Agreement shall not survive the applicable statute of limitations period
and (cc) in no event shall the Seller or the Parent be in any way responsible
for Damages suffered or incurred as a result of the removal, abatement or
handling of asbestos that is not in friable form.
Section 13.3. Indemnification by the Purchaser. The Purchaser shall
indemnify and hold the Seller, its Affiliates and their respective officers,
directors, employees, agents, and any successors to any such Persons harmless
from and against all Damages incurred or suffered as a result of or arising out
of (i) the failure of any representation or warranty made by the Purchaser in
this Agreement or in any Schedule attached hereto or any agreement or other
document executed and delivered to the Seller pursuant hereto to be true and
correct, (ii) the breach of or failure to comply with any covenant or agreement
made or to be performed by the Purchaser pursuant to this Agreement, (iii) the
Purchaser's failure to pay, discharge and perform any valid Assumed Liabilities
when due and indemnification for which is not separately available under Section
11.1(e), or (iv) the use or occupancy of the premises covered by the Warehouse
Lease by the Purchaser, or its Affiliates, agents or invitees; provided that the
Purchaser shall not be liable under Section 13.3(i), (ii) or (iii) unless and
until the amount for which it would otherwise be liable equals or exceeds
$250,000 on account of all obligations otherwise indemnifiable pursuant to
Section 13.3(i), (ii) or (iii) in which event the Purchaser shall be liable for
the amount in excess thereof.
Section 13.4. Indemnification Procedure. (a) Notice of Claims. Any
party seeking indemnification (an "Indemnitee") from any party (an "Indemnifying
Party") with respect to any claim, demand, action, proceeding or other matter
pursuant to this Agreement (the "Claim") shall promptly notify the Indemnifying
Party of the existence of the Claim, setting forth in reasonable detail the
facts and circumstances pertaining thereto and the basis for the Indemnitee's
right to indemnification. Such Indemnifying Party shall have a period of
twenty-five (25) Business Days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party fails to do so or rejects such claim
in whole or in part, such Indemnitee shall be free to pursue such remedies as
may be available to such party under applicable law or under this Agreement.
(b) Notice of Third Party Claims. If any third party shall notify any
Indemnitee with respect to any matter which may give rise to a Claim for
indemnification against an Indemnifying Party under this Agreement (such Claim,
a "Third Party Claim"), such Indemnitee shall notify the Indemnifying Party in
writing, and in reasonable detail, of the Third Party Claim promptly (and in any
event within fifteen (15) Business Days) after receipt by such Indemnitee of
notice of the Third Party Claim; provided that failure to give such notification
shall not affect the Indemnitee's right to indemnification hereunder except to
the extent the Indemnifying Party shall have been materially prejudiced as a
result of such failure (provided that the Indemnifying Party shall not be liable
for any expenses incurred during the period in which the Indemnitee failed to
give such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying
Party, promptly (and in any event within fifteen (15) Business Days) after the
Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.
(c) Legal Defense of Third Party Claims. If a Third Party Claim is
made against an Indemnitee, the Indemnifying Party shall be entitled to
participate in the defense thereof and, if it so chooses, to assume the defense
thereof with counsel selected by the Indemnifying Party, which counsel shall be
reasonably satisfactory to the Indemnitee. Should the Indemnifying Party so
elect to assume the defense of a Third Party Claim, the Indemnifying Party shall
not be liable to the Indemnitee for legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof. If the
Indemnifying Party assumes such defense, the Indemnitee shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Party, it being
understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the reasonable fees and expenses of
counsel employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense of the Third Party Claim (other than
during the period prior to the time the Indemnitee shall have given notice of
the Third Party Claim as provided above). If the Indemnifying Party so elects to
assume the defense of any Third Party Claim, each Indemnitee shall cooperate
with the Indemnifying Party in the defense or prosecution thereof.
Notwithstanding the foregoing:
(i) the Indemnifying Party shall not be entitled to assume or continue
the defense of any Third Party Claim (and shall be liable to the Indemnitee
for the fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if the Third Party Claim seeks as its
primary claim for relief an order, injunction or other equitable relief or
relief other than money damages against the Indemnitee which the Indemnitee
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages; provided that, if such equitable relief or
other relief portion of the Third Party Claim can be so separated from that
for money damages, the Indemnifying Party shall be entitled to assume or
continue the defense of the portion relating to money damages;
(ii) an Indemnifying Party shall not be entitled to assume or continue
the defense of any Third Party Claim (and shall be liable to the Indemnitee
for the fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if, in the reasonable opinion of outside
counsel to the Indemnitee (which opinion need not be in writing), a
conflict of interest between such Indemnitee and such Indemnifying Party
exists in respect of such Third Party Claim or such claim involves the
possibility of criminal sanction or criminal liability to the Indemnitee;
and
(iii) if at any time after assuming the defense of a Third Party Claim
an Indemnifying Party shall fail to prosecute, withdraw or be required to
withdraw from the defense of such Third Party Claim, the Indemnitee shall
be entitled to resume the defense thereof and the Indemnifying Party shall
be liable to the Indemnitee for the fees and expenses of counsel incurred
by the Indemnitee in such defense.
(d) Settlement of Third Party Claims. Except as otherwise provided
below in this Section 13.4(d), if the Indemnifying Party has assumed the defense
of any Third Party Claim, then
(i) in no event will the Indemnitee admit any liability with respect
to, or settle, compromise or discharge, any Third Party Claim without the
Indemnifying Party's prior written consent; provided that the Indemnitee
shall have the right to settle, compromise or discharge such Third Party
Claim without the consent of the Indemnifying Party if the Indemnitee
releases the Indemnifying Party from its indemnification obligation
hereunder with respect to such Third Party Claim and such settlement,
compromise or discharge would not otherwise adversely affect the
Indemnifying Party, and
(ii) the Indemnitee will agree to any settlement, compromise or
discharge of a Third Party Claim that the Indemnifying Party may recommend
and that by its terms obligates the Indemnifying Party to pay the full
amount of the liability in connection with such Third Party Claim and
releases the Indemnitee completely in connection with such Third Party
Claim and that would not otherwise adversely affect the Indemnitee.
Notwithstanding the foregoing, the Indemnitee may refuse to agree to
any such settlement, compromise or discharge if the Indemnitee agrees that the
Indemnifying Party's indemnification obligation with respect to such Third Party
Claim shall not exceed the amount that would be required to be paid by or on
behalf of the Indemnifying Party in connection with such settlement, compromise
or discharge, including, but not limited to, reasonable fees and expenses
(including attorneys' fees) incurred as of the date of the Indemnitee's refusal.
If the Indemnifying Party has not assumed the defense of a Third Party
Claim, then in no event shall the Indemnitee settle, compromise or discharge
such Third Party Claim without providing prior written notice to the
Indemnifying Party, which shall have the option within fifteen (15) Business
Days following receipt of such notice to:
(1) approve and agree to pay the settlement,
(2) approve the amount of the settlement, reserving the right to
contest the Indemnitee's right to indemnity pursuant to this Agreement,
(3) disapprove the settlement and assume in writing all past and
future responsibility for such Third Party Claim (including all of
Indemnitee's prior expenditures in connection therewith), or
(4) disapprove the settlement and continue to refrain from
participation in the defense of such Third Party Claim.
In the event the Indemnifying Party does not respond to such written
notice from the Indemnitee within such fifteen (15) Business Days, the
Indemnifying Party shall be deemed to have elected option (1).
(e) The Indemnitee shall be entitled to reimbursement of reasonable
expenses included in Damages with respect to any Claim (including, without
limitation, the cost of defense, preparation and investigation relating to such
Claim) as such expenses are incurred by the Indemnitee.
ARTICLE XIV
EVENTS OF TERMINATION
Section 14.1. Events of Termination. This Agreement may be terminated
by written notice at any time prior to the Closing Date:
(a) by mutual consent of the Seller, the Parent and the Purchaser;
(b) by the Purchaser, if there has been a material violation or breach
by the Seller or the Parent of any of their respective covenants,
representations or warranties contained in this Agreement (or any Schedule
attached hereto or any agreement or document executed and delivered by the
Seller or the Parent pursuant hereto) and such violation or breach has not
been waived by the Purchaser or, with respect to a covenant breach, cured
by the Seller within fourteen (14) calendar days after notice thereof from
the Purchaser;
(c) by the Seller, if there has been a material violation or breach by
the Purchaser of any of its covenants, representations or warranties
contained in this Agreement (or any Schedule attached hereto or any
agreement or document executed and delivered by the Purchaser pursuant
hereto) and such violation or breach has not been waived by the Seller or,
with respect to a covenant breach, cured by the Purchaser within fourteen
(14) calendar days after notice thereof from the Seller; or
(d) by the Purchaser or the Seller without liability on the part of
the terminating party on account of such termination (provided the
terminating party is not otherwise in default or in breach of this
Agreement), if the Closing Date shall not have occurred by the earlier of
April 30, 1998 and sixty (60) calendar days after the date on which the
Purchaser delivers the certified financial statements required by Section
3.1.
Section 14.2. Effect of Termination. (a) In the event of the
termination of this Agreement as provided in Section 14.1(a) or 14.1(d), this
Agreement, other than the provisions of this Section 14.2 and Section 7.3, shall
be terminated without further liability on the part of the Seller, the Parent or
the Purchaser hereunder.
(b) In the event of the termination of this Agreement as provided in
Section 14.1(b) or 14.1(c), this Agreement, other than the provisions of this
Section 14.2 and Section 7.3, shall be terminated without further liability on
the part of the Seller, the Parent or the Purchaser hereunder; provided that
nothing herein shall relieve any party from any liability resulting from any
breach of this Agreement.
ARTICLE XV
NON-COMPETITION
Section 15.1. Seller and Parent Non-Competition. Each of the Seller
and the Parent covenants and agrees that from and after the Closing Date and
after giving effect to the transactions contemplated hereby, each of the Seller,
the Parent and each of their Affiliates shall not directly or indirectly:
(a) at any time prior to the second anniversary of the Closing Date,
within any market area in which, after giving effect to the transactions
contemplated hereby, the Purchaser or any of its Affiliates is doing
business as of or subsequent to the Closing Date (collectively, the
"Relevant Markets"), own, have an ownership interest in, manage, render
services to, operate, join or control, or participate in, alone or with any
Person, the ownership, management, operation or control of any business,
firm, corporation or other entity which engages in pre-recorded music
retailing in malls, strip malls, power centers or stand-alone stores (each,
a "Competing Business"); provided that the provisions of this Section 15.1
shall not apply to beneficial ownership (as such term is defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of securities
of a corporation traded on a registered national securities exchange or on
the National Over The Counter Market which shall constitute in the
aggregate 5% or less of the total number of such securities outstanding;
(b) disclose any nonpublic information with respect to the Purchaser
or the Business;
(c) solicit any customer of, or supplier or lessor to, the Purchaser
not to conduct business with the Purchaser or to conduct its business with
a Competing Business or otherwise interfere with such customer, supplier or
lessor/lessee relationship; or
(d) solicit any employee (i) who is offered employment by the
Purchaser not to accept such offer of employment or (ii) who is employed by
the Purchaser to terminate such employment, unless the employment of such
employee by the Purchaser has previously been terminated.
Notwithstanding the foregoing, the Seller and the Parent shall not be
prohibited from (a) operating stores pursuant to the Supply Agreement or
Franchise Agreement as expressly provided by this Agreement, (b) operating
stores, twenty percent (20%) or less of the sales of which is attributable to
pre-recorded music sales, (c) acquiring and operating a business, firm,
corporation or other entity, twenty percent (20%) or less of the sales of which
is attributable to pre-recorded music sales, (d) operating the Airport Stores,
or (e) selling pre-recorded music in stores located in hotels.
Section 15.2 Purchaser Non-Competition. The Purchaser consents and
agrees that from and after the Closing Date and after giving effect to the
transactions contemplated hereby, on or prior to the sixtieth (60th) day after
the termination of the Franchise Agreement with respect to a Non-Transferred
Lease, neither it nor any of its Affiliates shall operate, join in or control,
or participate in, alone or with any Person, the ownership, management,
operation or control of any store which engages in pre-recorded music retailing
in a mall in which a store subject to such Non-Transferred Lease operated prior
to the Closing Date; provided that the provisions of this Section 15.2 shall not
apply with respect to (a) any store which the Purchaser or any of its Affiliates
operates as of the Closing Date, or (b) any mall where the applicable
Non-Transferred Lease is validly assigned to the Purchaser pursuant to this
Agreement.
Section 15.3. Breach. In the event of a breach of the provisions of
Section 15.1, in addition to any other remedies the Purchaser may have at law or
in equity, the Purchaser shall be entitled to seek an injunction or similar
remedy so as to enable it specifically to enforce such provisions. In the event
of a breach of the provisions of Section 15.2, in addition to any other remedies
the Seller or the Parent may have at law or in equity, the Seller or the Parent
shall be entitled to seek an injunction or similar remedy so as to enable it
specifically to enforce such provisions.
Section 15.4. Severability. It is the desire and intent of the parties
hereto that the provisions of this Article XV be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of this
Article XV should be adjudicated to be invalid or unenforceable, such portion
shall be deleted and such deletion shall apply only with respect to the
operation of such portion of this Article XV in the particular jurisdiction in
which adjudication is made; further, to the extent any provision hereof is
deemed unenforceable by virtue of its scope in terms of area or length of time,
but may be enforceable with limitations thereon, the parties agree that the same
shall, nevertheless, be enforceable to the fullest extent permissible under the
laws and public policies applied in such jurisdiction in which enforcement is
sought.
ARTICLE XVI
MISCELLANEOUS
Section 16.1. Expenses. Except as expressly set forth herein, the
parties hereto shall pay all of their own expenses incident to the negotiation,
preparation and carrying out of the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses of their own brokers,
finders, agents, representatives, financial consultants, accountants and
counsel.
Section 16.2. Governing Law. This Agreement shall be construed,
performed and enforced in accordance with, and governed by, the laws of the
State of New York, without giving effect to the principles of conflicts of laws
thereof. Until a final decree has been entered by the Bankruptcy Court closing
the Bankruptcy Case, the parties hereto irrevocably elect as the sole judicial
forum for the adjudication of any matters arising under or in connection with
this Agreement, and consent to the jurisdiction of, the Bankruptcy Court. After
the Bankruptcy Court so closes the Bankruptcy Case, the parties hereto
irrevocably elect as the sole judicial forum for the adjudication of any matters
arising under or in connection with this Agreement, and consent to the
jurisdiction of, the courts of the County of New York, State of New York or of
the United States of America for the Southern District of New York. On or prior
to the Closing Date, all of the parties hereto shall have appointed an agent for
the service of process in the States of Delaware and New York, and each party
shall have notified the other parties in writing of the identity and address of
such agent.
Section 16.3. Captions. The Article and Section captions used herein
are for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 16.4. Publicity. Except as otherwise required by law or
regulation as advised by counsel or as may be necessary or appropriate in
connection with the pending Chapter 11 proceedings in respect of the Purchaser,
none of the parties hereto shall issue any press release or make any other
public statement, in each case relating to or connected with or arising out of
this Agreement or the matters contained herein, without obtaining the prior
approval of the Seller and the Purchaser to the contents and the manner of
presentation and publication thereof.
Section 16.5. Notices. Any notice or other communications required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by telecopy or by registered or certified mail, postage prepaid, addressed as
follows:
If to the Purchaser, to:
Camelot Music, Inc.
8000 Freedom Avenue, N.W.
North Canton, Ohio 44720
Attention: James E. Bonk
President and Chief Executive Officer
Telecopy: (330) 494-8535
With a copy to its counsel:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Howard S. Beltzer, Esq.
Telecopy: (212) 354-8113
With a further copy to counsel to the Official Committee of Unsecured
Creditors in the Bankruptcy Case, but only until such Committee is dissolved
pursuant to the Plan:
Zalkin, Rodin & Goodman LLP
750 Third Avenue
New York, New York 10017
Attention: Richard Toder, Esq.
Telecopy: (212) 682-6331
If to the Seller, to:
The Wall Music, Inc.
3200 Windy Hill Road
Suite 1500, West Tower
Atlanta, Georgia 30339
Attention: Mr. Richard McNamara
Executive Vice President
Telecopy: (770) 618-2788
With a copy to its counsel:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022-6069
Attention: Alfred J. Ross, Jr., Esq.
Telecopy: (212) 848-7179
or such other address or number as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to have been given as of
the date so delivered, sent by telecopy or mailed.
Section 16.6. Benefit and Assignment. (a) Nothing in this Agreement,
whether expressed or implied, is intended or shall be construed to confer any
rights or remedies under or by reason of this Agreement on any Persons other
than the parties to it and their respective successors and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third Persons to any party to this Agreement, nor shall any
provision contained herein give any third party any right of subrogation or
action over against any party to this Agreement.
(b) This Agreement shall be binding on, and accrue to the benefit of,
the parties hereto and their respective successors and permitted assigns. This
Agreement may not be assigned by any party without the prior written consent of
the other parties. Any assignment that contravenes the terms of this Agreement
shall be void ab initio.
Notwithstanding the foregoing, subject to the provisions of Section 2.9, the
Purchaser may, by written notice delivered to the Seller and the Parent not less
than three (3) calendar days prior to the Closing Date, designate the Acquiring
Corporation to assume all or a portion of the obligations or rights of the
Purchaser hereunder.
Section 16.7. Counterparts. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
Section 16.8. Entire Agreement. Subject to Section 7.5(c), this
Agreement, including the Exhibits, Schedules and other documents referred to
herein which form a part hereof, contain the entire understanding of the parties
hereto with respect to the subject matter contained herein and therein. Subject
to Section 7.5(c), this Agreement supersedes all prior agreements and
understandings, written or oral, between the parties with respect to such
subject matter including, without limitation, the Letter of Intent referred to
in Section 7.5(c).
Section 16.9. Amendments. This Agreement may not be changed orally,
but only by an agreement in writing signed by the parties hereto. Any provision
of this Agreement can be waived, amended, supplemented or modified only by
written agreement of the parties hereto.
Section 16.10. Severability. If any provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that a provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled.
Section 16.11. Bulk Sales. The Purchaser hereby waives compliance by
the Seller and the Parent with the provisions of any bulk transfer or other
similar laws of any jurisdiction in connection with the sale of the Purchased
Assets.
Section 16.12. Projections. Without in any way limiting the Seller's
representations and warranties contained in Section 5.5, the Seller makes no
representations or warranties with respect to any estimates, projections,
forecasts, plans or budgets provided to the Purchaser.
IN WITNESS WHEREOF, the Purchaser, the Seller and the Parent
have caused their corporate names to be hereunto subscribed by their officers
thereunto duly authorized, all as of the day and year first above written.
CAMELOT MUSIC, INC.
By: /s/ James E. Bonk
------------------------------
Name: James E. Bonk
Title: President & C.E.O.
THE WALL MUSIC, INC.
By: /s/ R.J. McNamara
------------------------------
WH SMITH GROUP HOLDINGS (USA), INC.
By: /s/ Keith Hamill
------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1. Definitions............................................... 2
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
Section 2.1. Transfer of Assets........................................ 17
Section 2.2. Excluded Assets........................................... 20
Section 2.3. Assumption and Exclusion of Liabilities................... 21
Section 2.4. Satisfaction and Apportionment of Operating Expenses...... 22
Section 2.5. Purchase Price............................................ 23
Section 2.6. Adjustment of Interim Payment Amount...................... 24
Section 2.7. Statement of Transferred Assets and Liabilities........... 24
Section 2.8. Post-Closing Settlement................................... 28
Section 2.9. Acquiring Corporation..................................... 29
ARTICLE III
CLOSING
Section 3.1. Closing................................................... 31
Section 3.2. Deliveries by the Seller at the Closing................... 31
Section 3.3. Deliveries by the Purchaser at Closing.................... 32
Section 3.4. Consents.................................................. 32
Section 3.5. Further Assurances........................................ 33
ARTICLE IV
BANKRUPTCY COURT APPROVAL
Section 4.1. Bankruptcy Court Order.................................... 33
ARTICLE V
REPRESENTATIONS OF THE SELLER AND THE PARENT
Section 5.1. Existence and Good Standing............................... 34
Section 5.2. Authorization and Validity................................ 35
Section 5.3. Consents and Approvals; No Violations..................... 36
Section 5.4. Subsidiaries and Investments.............................. 37
Section 5.5. Seller Financial Statements; No Material Changes.......... 37
Section 5.6. Compliance with Laws...................................... 39
Section 5.7. Real Property; Leases..................................... 39
Section 5.8. Title to Properties; Encumbrances......................... 40
Section 5.9. Intellectual Property..................................... 41
Section 5.10. Litigation................................................ 42
Section 5.11. Compensation of Employees................................. 43
Section 5.12. Material Contracts........................................ 43
Section 5.13. Liabilities............................................... 45
Section 5.14. Insurance................................................. 45
Section 5.15. Employment Relations...................................... 45
Section 5.16. Employee Benefit Plans.................................... 47
Section 5.17. Purchased Assets.......................................... 49
Section 5.18. Books and Records......................................... 49
Section 5.19. Inventories............................................... 50
Section 5.20. Environmental Matters..................................... 50
Section 5.21. Broker's or Finder's Fees................................. 52
Section 5.22. Interests in Customers, Suppliers, Etc.................... 52
Section 5.23. Taxes..................................................... 52
Section 5.24. Seller's and Parent's Efforts............................. 54
Section 5.25. Solvency.................................................. 54
ARTICLE VI
REPRESENTATIONS OF THE PURCHASER
Section 6.1. Existence and Good Standing of the Purchaser
and Acquiring Corporation................................. 54
Section 6.2. Authorization and Validity................................ 55
Section 6.3. Consents and Approvals; No Violations..................... 55
Section 6.4. Litigation................................................ 56
Section 6.5. Financing................................................. 57
Section 6.6. Broker's or Finder's Fees................................. 57
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. Conduct of the Business................................... 57
Section 7.2. Review of the Company..................................... 59
Section 7.3. Confidentiality........................................... 60
Section 7.4. Cooperation............................................... 60
Section 7.5. Exclusive Dealing......................................... 61
Section 7.6. Use of Name............................................... 62
Section 7.7. Warehouse Lease........................................... 62
Section 7.8. Pyramid Litigation........................................ 63
Section 7.9. Accountants' Consent...................................... 63
Section 7.10. Updated Financial Information; Obligation to Disclose..... 64
Section 7.11. WARN Act Compliance....................................... 64
Section 7.12. Mail...................................................... 64
Section 7.13. Satisfaction of Excluded Liabilities...................... 65
Section 7.14. Purchaser Information for Lease Assignments............... 65
Section 7.15. Seller Updated Lease Information.......................... 66
Section 7.16. Supply Agreement.......................................... 66
Section 7.17. Franchise Agreement....................................... 67
Section 7.18. Assigned Non-Transferred Leases........................... 68
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER, THE SELLER AND THE PARENT
Section 8.1. Bankruptcy Court Approval................................. 70
Section 8.2. Injunctions............................................... 70
Section 8.3. Statutes.................................................. 70
Section 8.4. HSR Act................................................... 70
Section 8.5. Escrow Agreement.......................................... 70
Section 8.6. Airport Stores Agreement.................................. 71
Section 8.7. Closing Date.............................................. 71
ARTICLE IX
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
Section 9.1. Truth of Representations and Warranties................... 71
Section 9.2. Performance of Agreements................................. 72
Section 9.3. Transfer Documentation.................................... 72
Section 9.4. Governmental and Third-Party Approvals.................... 72
Section 9.5. Proceedings............................................... 73
Section 9.6. WH Smith Group plc Guarantee.............................. 73
Section 9.7. Update of Certain Information............................. 73
ARTICLE X
CONDITIONS TO THE SELLER'S AND THE PARENT'S OBLIGATIONS
Section 10.1. Truth of Representations and Warranties.................. 74
Section 10.2. Performance of Agreements................................ 74
Section 10.3. Proceedings.............................................. 74
Section 10.4. Letter of Credit......................................... 75
ARTICLE XI
TAX MATTERS
Section 11.1. Tax Matters.............................................. 75
Section 11.2. Cooperation on Tax Matters............................... 77
ARTICLE XII
EMPLOYEES AND EMPLOYEE PLANS
Section 12.1. Employees................................................ 79
Section 12.2. Transition Services...................................... 83
ARTICLE XIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 13.1. Survival of Representations and Warranties............... 84
Section 13.2. Indemnification by the Seller and the Parent............. 84
Section 13.3. Indemnification by the Purchaser......................... 86
Section 13.4. Indemnification Procedure................................ 87
ARTICLE XIV
EVENTS OF TERMINATION
Section 14.1. Events of Termination.................................... 92
Section 14.2. Effect of Termination.................................... 93
ARTICLE XV
NON-COMPETITION
Section 15.1. Seller and Parent Non-Competition........................ 94
Section 15.2 Purchaser Non-Competition.................................95
Section 15.3. Breach................................................... 96
Section 15.4. Severability............................................. 96
ARTICLE XVI
MISCELLANEOUS
Section 16.1. Expenses................................................. 97
Section 16.2. Governing Law............................................ 97
Section 16.3. Captions................................................. 98
Section 16.4. Publicity................................................ 98
Section 16.5. Notices.................................................. 98
Section 16.6. Benefit and Assignment...................................100
Section 16.7. Counterparts.............................................101
Section 16.8. Entire Agreement.........................................101
Section 16.9. Amendments...............................................101
Section 16.10. Severability.............................................101
Section 16.11. Bulk Sales...............................................102
Section 16.12. Projections..............................................102
EXHIBITS
2.1 Store Cash
2.2(j) Excluded Assets
2.4(b)(1) Operating Expense Apportionment Methodology
2.4(b)(2) Form of Percentage Rents Schedule
2.6 Form of Interim Payment Amount Statement
2.7(a) Form of Statement of Assets and Liabilities Transferred
2.7(c) Form of Auditor's Report
2.10(b) Liquidated Damages for Non-Transferred Leases
8.6 Airport Stores Term Sheet
9.6 Form of WH Smith Group plc Guarantee
10.4 Form of Letter of Credit
SELLER'S AND PARENT'S SCHEDULES
5.2 Authorization and Validity
5.3 Consents and Approvals
5.5(c) Events Since the Balance Sheet Date
5.7(a) Leases
5.7(b) Lease Representations
5.8 Title and Properties
5.9 Intellectual Property
5.10 Litigation
5.11 Employee Compensation
5.12 Material Contracts
5.13 Liabilities
5.14 Insurance
5.16 Employee Benefit Plans
5.17(a) Purchased Assets
5.17(b) Scope of Purchased Assets
5.18 Books and Records
5.20 Environmental Matters
5.22 Interests in Suppliers
5.23(b) Payment of Taxes
5.23(c)(i) Other Tax Matters
5.23(c)(iii) Non-Income Taxes
5.24 Seller's Efforts
PURCHASER'S SCHEDULES
6.2 Authorization and Validity
6.3 Consents and Approvals
6.4 Litigation
EXHIBIT 2.3
ASSIGNMENT
In accordance with Sections 2.9 and 16.6(b) of the Asset Purchase
Agreement, dated as of December 10, 1997 (the "Agreement"), by and among Camelot
Music, Inc., as Purchaser (the "Purchaser"), The Wall Music, Inc., as Seller,
and WH Smith Group Holdings (USA), Inc., as Parent, the Purchaser hereby assigns
to Camelot Northeast Region, Inc. (the "Acquiring Corporation"), and the
Acquiring Corporation hereby accepts assignment of and assumes, the rights and
obligations of the Purchaser under the Agreement, to the extent that such rights
and obligations are assignable under such Section 2.9.
IN WITNESS WHEREOF, the Purchaser and the Acquiring Corporation have caused
their corporate names to be hereunto subscribed by their officers duly thereunto
authorized.
CAMELOT MUSIC, INC.
By: /s/ Jack K. Rogers
------------------------------
Name: Jack K. Rogers
Title: Executive Vice President
and Chief Operating Officer
Date: February 9, 1998
CAMELOT NORTHEAST REGION, INC.
By: /s/ James E. Bonk
------------------------------
Name: James E. Bonk
Title: President and
Chief Executive Officer
Date: February 9, 1998
EXHIBIT 3.1
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CM HOLDINGS, INC.
It is hereby certified that:
1. (a) The current name of the corporation is CM Holdings, Inc.
(hereinafter called the "corporation").
(b) The original Certificate of Incorporation of the corporation was filed
with the Secretary of State of the State of Delaware on September 30, 1993.
2. Provision for the making of this Second Amended and Restated Certificate
of Incorporation is contained in an Order, dated December 12, 1997 (the
"Confirmation Order"), of the United States Bankruptcy Court for the District of
Delaware in Case No. 96- 1247 (PJW) confirming the Second Amended Joint Chapter
11 Plan of Reorganization of the corporation and certain of its affiliates (the
"Plan").
3. The Confirmation Order empowers and directs the corporation to execute
such documents and take, or cause to be taken, any and all actions required to
enable the effective implementation of the Plan and the Confirmation Order.
Sections 8.02 and 10.02 of the Plan contemplate the filing of this Second
Amended and Restated Certificate of Incorporation in order to effectuate such
Plan provisions.
4. In accordance with Sections 242, 245 and 303 of the General Corporation
Law of the State of Delaware, this Second Amended and Restated Certificate of
Incorporation restates and integrates and further amends the provisions of the
Amended and Restated Certificate of Incorporation filed on November 10, 1993, as
heretofore amended or supplemented (the "1993 Restated Certificate of
Incorporation").
5. The text of the 1993 Restated Certificate of Incorporation is hereby
amended and restated to read in its entirety as follows:
"FIRST: The name of the corporation is Camelot Music Holdings, Inc.
SECOND: The registered office of the corporation in the State of Delaware
is located at 1209 Orange Street, in the City of Wilmington, County of New
Castle; and the name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purposes of the corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: Section (1) The total number of shares of all classes of stock
which the corporation shall have authority to issue is 30,000,000 shares of
Common Stock, par value $.01 per share ("Common Stock"). The number of
authorized shares of Common Stock may be increased or decreased (but not below
the number of shares thereof then outstanding or the issuance of which is then
authorized under any stock option or similar plan to which the corporation is a
party) by the affirmative vote of the holders of a majority in voting power of
the stock of the corporation entitled to vote thereon.
Section (2) Each holder of Common Stock, as such, shall be entitled to one
vote for each share of Common Stock held of record by such holder on all matters
on which stockholders generally are entitled to vote.
Section (3) Pursuant to Section 9.04 of the Second Amended Joint Chapter 11
Plan of Reorganization (the "Plan"), as confirmed by the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") in Case
No. 96-1247 (PJW), as of the Effective Date (as that term is defined in the
Plan), any and all of the authorized capital stock of the corporation existing
immediately prior to the Effective Date, whether issued or unissued, including
any right to acquire such capital stock pursuant to any agreement, arrangement,
or understanding, or upon exercise of conversion rights, exchange rights,
warrants, options or other rights, was deemed cancelled and of no further force
or effect without any action on the part of the stockholders or Board of
Directors of the corporation. The holders of such cancelled capital stock and
any cancelled right to acquire such capital stock have no rights arising from or
relating to such capital stock (or the stock certificates representing such
cancelled stock) or any right to acquire such capital stock.
FIFTH: The Board of Directors shall be authorized to make, amend, alter,
change, add to or repeal the By-Laws of the corporation in any manner not
inconsistent with the laws of the State of Delaware, as now in effect or as may
be amended from time to time (the "laws of the State of Delaware"), subject to
the power of the stockholders to amend, alter, change, add to or repeal the
By-Laws made by the Board of Directors. The affirmative vote of the holders of
at least a majority in voting power of the stock of the corporation entitled to
vote generally in the election of directors shall be required in order to alter,
amend or repeal any provision of this Second Amended and Restated Certificate of
Incorporation.
SIXTH: Section (1) To the fullest extent permitted by the laws of the State
of Delaware:
(a) The corporation shall indemnify any person (and such person's heirs,
executors or administrators) who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(brought in the right of the corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal, including
appeals, by reason of the fact that such person is or was a director or officer
of the corporation or, if a director or officer of the corporation, by reason of
the fact that such person is or was serving at the request of the corporation as
a director, officer, partner, trustee, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise, for and
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person or such
heirs, executors or administrators in connection with such action, suit or
proceeding, including appeals. Notwithstanding the preceding sentence, the
corporation shall be required to indemnify a person described in such sentence
in connection with any action, suit or proceeding (or part thereof) commenced by
such person only if the commencement of such action, suit or proceeding (or part
thereof) by such person was authorized by the Board of Directors of the
corporation. Without limiting the indemnification rights provided in the first
sentence of this subsection (a) of this Section 1 of Article Sixth, the
corporation may indemnify any person (and such person's heirs, executors or
administrators) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (brought in the
right of the corporation or otherwise), whether civil, criminal, administrative
or investigative, and whether formal or informal, including appeals, by reason
of the fact that such person is or was an employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
partner, trustee, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise for and against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals.
(b) The corporation shall promptly pay expenses upon presentation of
appropriate documentation incurred by (i) any person whom the corporation is
obligated to indemnify pursuant to the first sentence of subsection (a) of this
Section 1 of Article Sixth and (ii) any person whom the corporation has
determined to indemnify pursuant to the third sentence of subsection (a) of this
Section 1 of Article Sixth in defending any action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding, including
appeals.
(c) The corporation may purchase and maintain insurance on behalf of any
person described in subsection (a) of this Section 1 of Article Sixth against
any liability asserted against such person, whether or not the corporation would
have the power to indemnify such person against such liability under the
provisions of this Section 1 of Article Sixth or otherwise.
(d) The provisions of this Section 1 of Article Sixth shall be applicable
to all actions, claims, suits or proceedings made or commenced after the
adoption of this Section 1 of Article Sixth, whether arising from acts or
omissions to act occurring before or after such adoption. The provisions of this
Section 1 of Article Sixth shall be deemed to be a contract between the
corporation and each director or officer who serves in such capacity at any time
while this Section 1 of Article Sixth and the relevant provisions of the laws of
the State of Delaware and other applicable law, if any, are in effect, and any
repeal or modification of this Section 1 of Article Sixth or any such law shall
not affect any rights or obligations then existing with respect to any state of
facts or any action, suit or proceeding then or theretofore existing, or any
action, suit or proceeding thereafter brought or threatened based in whole or in
part on any such state of facts (except to the extent required by any such law
of the State of Delaware or any such applicable law). If any provision of this
Section 1 of Article Sixth shall be found to be invalid or limited in
application by reason of any law or regulation, it shall not affect the validity
of the remaining provisions of this Section 1 of Article Sixth. The rights of
indemnification provided in this Section 1 of Article Sixth shall neither be
exclusive of, nor be deemed in limitation of, any rights to which an officer,
director, employee or agent may otherwise be entitled or permitted by contract,
pursuant to this Second Amended and Restated Certificate of Incorporation,
pursuant to the Plan, by vote of stockholders or directors or otherwise, or as a
matter of law, both as to actions in such person's official capacity and actions
in any other capacity while holding such office, it being the policy of the
corporation that indemnification of any person whom the corporation is obligated
to indemnify pursuant to the first sentence of subsection (a) of this Section 1
of Article Sixth shall be made to the fullest extent permitted by law.
(e) For purposes of this Article Sixth, references to "other enterprises"
shall include, but not be limited to, employee benefit plans; references to
"fines" shall include, but not be limited to, any excise taxes or penalties
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include, but not be limited
to, any service as a director, officer, employee, fiduciary or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries.
Section (2) A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the laws of the State of Delaware. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the corporation hereunder in
respect of any act or omission occurring prior to the time of such amendment,
modification or repeal.
SEVENTH: The business and affairs of the corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than three
directors nor more than twelve directors, the exact number of directors to be
determined from time to time by resolution adopted by affirmative vote of a
majority of the Board of Directors; provided, however, that the initial number
of directors shall be seven. In accordance with Section 8.02 of the Plan, the
initial directors shall be the persons designated in a notice filed with the
Bankruptcy Court (as such notice may be amended on or prior to the Effective
Date (as defined in the Plan)). A director shall hold office until the annual
meeting next following his election and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Election of directors by the
corporation need not be by written ballot unless requested by the Chairman of
the Board of Directors or by the holders of a majority of the voting power of
all shares present in person or represented by proxy at a meeting of the
stockholders at which directors are to be elected. Any newly created
directorship on the Board of Directors that results from an increase in the
number of directors and any vacancy occurring on the Board of Directors may be
filled only by a vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. Any director elected in
accordance with the preceding sentence will hold office until the next annual
meeting of the corporation and until his successor shall be elected and shall
qualify. Directors may be elected by the stockholders only at an annual meeting
of stockholders, provided that, if any applicable provision of the laws of the
State of Delaware expressly confers power on stockholders to fill such a
directorship at a special meeting of stockholders, such a directorship may be
filled at such meeting by the affirmative vote of a majority of the voting power
of all shares of the corporation entitled to vote generally in the election of
directors. Any director may be removed, with or without cause, by the
affirmative vote of a majority of the voting power of all shares of the
corporation entitled to vote generally in the election of directors.
EIGHTH: Any action required or permitted to be taken by the holders of the
Common Stock of the corporation may be effected at a duly called annual or
special meeting of such holders or by consent in writing by such holders. Except
as otherwise required by law, special meetings of stockholders of the
corporation may be called only by the Chief Executive Officer of the
corporation, by the Board of Directors pursuant to a resolution approved by a
majority of the Board of Directors or by the holders of 33 1/3% of the voting
power of all shares of the corporation entitled to vote generally in the
election of directors.
NINTH: The corporation shall be governed by Section 203 of the General
Corporation Law of the State of Delaware, as it may be amended from time to
time.
TENTH: To the extent prohibited by Section 1123 of Title 11 of the United
States Code (the "Bankruptcy Code"), the corporation will not issue non-voting
equity securities; provided, however, this Article Tenth (a) will have no
further force and effect beyond that required under Section 1123 of the
Bankruptcy Code, (b) will have such force and effect, if any, only for so long
as such Section 1123 is in effect and applicable to the corporation and (c) may
be amended or eliminated in accordance with applicable law as from time to time
in effect.
ELEVENTH: This Second Amended and Restated Certificate of Incorporation
takes the place and supersedes the existing Amended and Restated Certificate of
Incorporation as heretofore amended."
<PAGE>
IN WITNESS WHEREOF, CM HOLDINGS, INC. has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Jack K. Rogers, its
Executive Vice President and Chief Financial Officer, this day of January, 1998.
CM HOLDINGS, INC.
By /s/ Jack K. Rogers
----------------------------
Name: Jack K. Rogers
Title: Executive Vice President and
Chief Financial Officer
Attest:
__________________________
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
CAMELOT MUSIC HOLDINGS, INC.
January 27, 1998
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
CAMELOT MUSIC HOLDINGS, INC.
ARTICLE I.
STOCKHOLDERS.
Section 1. The annual meeting of the stockholders of the corporation
for the purpose of electing directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such
date, and at such time and place within or without the State of Delaware as may
be designated from time to time by the Board of Directors.
Section 2. Special meetings of the stockholders shall be called at any
time by the Secretary or any other officer, whenever directed by a majority of
the Board of Directors or by the Chief Executive Officer or by stockholders of
record having voting power of at least 33 1/3 percent of the stock issued and
outstanding and entitled to vote thereat. Any notice for the call of a special
meeting must be sent to the Chairman of the Board of Directors and the Secretary
and must state the purpose or purposes of the proposed meeting. The purpose or
purposes of the proposed meeting shall be included in the notice setting forth
such call for such special meeting.
Section 3. Except as otherwise provided by law, notice of the time,
place and, in the case of a special meeting, the purpose or purposes of the
meeting of stockholders shall be delivered personally or mailed not earlier than
sixty (60), nor less than ten (10), days prior thereto, to each stockholder of
record entitled to vote at the meeting at such address as appears on the records
of the corporation.
Section 4. The holders of a majority in voting power of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
the laws of the State of Delaware, as in effect from time to time (the "laws of
the State of Delaware") or by the Second Amended and Restated Certificate of
Incorporation of the corporation (the "Second Amended and Restated Certificate
of Incorporation"); but if at any regularly called meeting of stockholders there
be less than a quorum present, the stockholders present may adjourn the meeting
from time to time without further notice other than announcement at the meeting
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented any business may be transacted
which might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if, after the adjournment, a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 5. The Chairman of the Board of Directors, or in the
Chairman's absence or at the Chairman's direction, the President, or in the
President's absence or at the President's direction, any officer of the
corporation shall call all meetings of the stockholders to order and shall act
as Chairman of such meeting. The Secretary of the corporation or, in such
officer's absence, an Assistant Secretary shall act as secretary of the meeting.
If neither the Secretary nor an Assistant Secretary is present, the Chairman of
the meeting shall appoint a secretary of the meeting.
Section 6. At all meetings of stockholders, any stockholder entitled
to vote thereat shall be entitled to vote in person or by proxy, but no proxy
shall be voted after three years from its date, unless such proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for the stockholder as proxy pursuant to the
laws of the State of Delaware, the following shall constitute a valid means by
which a stockholder may grant such authority: (1) a stockholder may execute a
writing authorizing another person or persons to act for the stockholder as
proxy, and execution of the writing may be accomplished by the stockholder or
the stockholder's authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature; or (2) a
stockholder may authorize another person or persons to act for the stockholder
as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder. If
it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the judge or judges of stockholder votes (designated
pursuant to Section 10 of Article I) or, if there are no such judges, such other
persons making that determination shall specify the information upon which they
relied.
Any copy, facsimile telecommunication or other reliable reproduction
of the writing or transmission created pursuant to the preceding paragraph of
this Section 6 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Proxies shall be filed with the secretary of the meeting prior to or
at the commencement of the meeting to which they relate.
Section 7. When a quorum is present at any meeting, the vote of the
holders of a majority in voting power of the stock present in person or
represented by proxy and entitled to vote on the matter shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of the laws of the State of Delaware or of the Second Amended
and Restated Certificate of Incorporation or these Amended and Restated By-Laws,
a different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 8. In order that the corporation may determine the
stockholders (a) entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or (b) entitled to consent to corporate action in
writing without a meeting, or (c) entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date (i) in the case of
clause (a) above, shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, (ii) in the case of clause (b) above, shall not
be more than ten (10) days after the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and (iii) in the case of
clause (c) above, shall not be more than sixty (60) days prior to such action.
If for any reason the Board of Directors shall not have fixed a record date for
any such purpose, the record date for such purpose shall be determined as
provided by law. Only those stockholders of record on the date so fixed or
determined shall be entitled to any of the foregoing rights, notwithstanding the
transfer of any such stock on the books of the corporation after any such record
date so fixed or determined.
Section 9. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not so specified, at the place where the meeting is to be held. The list
shall also be produced at the time and kept at the place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
Section 10. The Board of Directors, in advance of all meetings of the
stockholders, shall appoint one or more judges of stockholder votes, who may be
stockholders or their proxies, but not directors of the corporation or
candidates for office. In the event that the Board of Directors fails to so
appoint judges of stockholder votes or, in the event that one or more judges of
stockholder votes previously designated by the Board of Directors fails to
appear or act at the meeting of stockholders, the Chairman of the meeting may
appoint one or more judges of stockholder votes to fill such vacancy or
vacancies. Judges of stockholder votes appointed to act at any meeting of the
stockholders, before entering upon the discharge of their duties, shall be sworn
faithfully to execute the duties of judge of stockholder votes with strict
impartiality and according to the best of their ability and the oath so taken
shall be subscribed by them. Judges of stockholder votes shall, subject to the
power of the Chairman of the meeting to open and close the polls, take charge of
the polls, and, after the voting, shall make a certificate of the result of the
vote taken.
Section 11. (A) (1) Nominations of persons for election to the Board
of Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the corporation's notice of meeting delivered pursuant to Section 3 of
Article I hereof, (b) by or at the direction of the Chairman of the Board of
Directors or (c) by any stockholder of the corporation who is entitled to vote
at the meeting, who complied with the notice procedures set forth below in
subparagraph (2) of this paragraph (A) of this Section 11 of Article I and who
was a stockholder of record at the time such notice was delivered to the
Secretary of the corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 11 of Article I, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation, and, in the case of
business other than nominations, such other business must be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the corporation not less
than seventy (70) days nor more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the public announcement of the date of the annual meeting is not
made at least eighty (80) days prior to the first anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered no later than the close of business on the tenth (10th) day following
the day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected; (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
(B) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
corporation's notice of meeting pursuant to Section 2 of Article I hereof.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant to
the corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the corporation who is entitled to vote
at the meeting, who complies with the notice procedures set forth in this By-Law
and who is a stockholder of record at the time such notice is delivered to the
Secretary of the corporation. Nominations by stockholders of persons for
election to the Board of Directors may be made at such a special meeting of
stockholders if the stockholder's notice as required by paragraph (A)(2) of this
Section 11 of Article I shall be delivered to the Secretary at the principal
executive offices of the corporation not earlier than the ninetieth (90th) day
prior to such special meeting and not later than the close of business on the
later of the seventieth (70th) day prior to such special meeting or, in the
event that the public announcement of the date of such special meeting is not
made at least eighty (80) days prior to such special meeting, the tenth (10th)
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) (1) Only persons who are nominated in accordance with the
procedures set forth in this Section 11 of Article I shall be eligible to serve
as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 11 of Article I.
Except as otherwise provided by law, the Second Amended and Restated
Certificate of Incorporation or these Amended and Restated By-Laws, the Chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Section 11 of Article I and, if any
proposed nomination or business is not in compliance with this Section 11 of
Article I, to declare that such defective nomination shall be disregarded or
that such proposed business shall not be transacted.
(2) For purposes of this Section 11 of Article I, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) For purposes of this Section 11 of Article I, no adjournment nor
notice of adjournment of any meeting shall be deemed to constitute a new notice
of such meeting, and in order for any notification required to be delivered by a
stockholder pursuant to this Section 11 of Article I to be timely, such
notification must be delivered within the periods set forth above with respect
to the originally scheduled meeting.
(4) Notwithstanding the foregoing provisions of this Section 11 of
Article I, a stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 11 of Article I. Nothing in this Section 11 of
Article I shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
ARTICLE II.
BOARD OF DIRECTORS.
Section 1. The business and affairs of the corporation will be managed
under the direction of the Board of Directors. The Board of Directors of the
corporation shall consist of such number of directors, not less than three nor
more than twelve, as shall from time to time be fixed exclusively by resolution
of the Board of Directors. A majority of the total number of directors then in
office (but not less than one-third of the number of directors constituting the
entire Board of Directors) shall constitute a quorum for the transaction of
business and, except as otherwise provided by laws of the State of Delaware or
by the Second Amended and Restated Certificate of Incorporation, the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. Directors need not be stockholders.
Section 2. Newly created directorships on the Board of Directors that
result from an increase in the number of directors and any vacancy occurring on
the Board of Directors may be filled only by a vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director; and the directors so chosen shall hold office for a term as set forth
in the Second Amended and Restated Certificate of Incorporation. If any
applicable provision of the laws of the State of Delaware expressly confers
power on stockholders to fill such a directorship at a special meeting of
stockholders, such a directorship may be filled at such meeting only by the
affirmative vote of at least a majority in voting power of all shares of the
corporation entitled to vote generally in the election of directors.
Section 3. Any director may resign at any time by giving written
notice of such director's resignation to the Chairman of the Board of Directors
or the Secretary. Any resignation will be effective upon actual receipt by any
such person or, if later, as of the date and time specified in such written
notice.
Section 4. Meetings of the Board of Directors shall be held at such
place within or without the State of Delaware as may from time to time be fixed
by resolution of the Board of Directors or as may be specified in the notice of
any meeting. Regular meetings of the Board of Directors shall be held at such
times as may from time to time be fixed by resolution of the Board of Directors
and special meetings of the Board of Directors may be held at any time upon the
call of the Chairman of the Board, the President or a majority of the directors
then in office, by oral, or written notice including, telegraph, telex or
transmission of a telecopy or other means of transmission, duly served on or
sent or mailed to each director to such director's address or telecopy number as
shown on the books of the corporation not less than one day before the meeting.
The notice of any meeting need not specify the purposes thereof. A meeting of
the Board of Directors may be held without notice immediately after the annual
meeting of stockholders at the same place at which such meeting is held. Notice
need not be given of regular meetings of the Board of Directors held at times
fixed by resolution of the Board of Directors. Notice of any meeting need not be
given to any director who shall attend such meeting in person (except when the
director attends a meeting for the express purpose of objecting at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened), or who shall waive notice thereof, before or after
such meeting, in writing.
Section 5. If at any meeting for the election of directors, the
corporation has outstanding more than one class or series of stock, and one or
more such classes or series thereof are entitled to vote separately as a class,
and there shall be a quorum of only one such class or series of stock, that
class or series of stock shall be entitled to elect its quota of directors
notwithstanding absence of a quorum of the other class or series of stock.
Section 6. The Board of Directors may from time to time establish
committees to serve at the pleasure of the Board of Directors which may be
comprised of members of the Board of Directors and/or persons not directors as
the Board of Directors may from time to time determine. Such committees shall
have such duties as the Board of Directors shall from time to time establish.
Any director may belong to any number of committees of the Board of Directors.
Section 7. Unless otherwise restricted by the Second Amended and
Restated Certificate of Incorporation or these Amended and Restated By-Laws, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. The members of the Board of Directors or any committee
thereof may participate in a meeting of such Board of Directors or committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this subsection shall
constitute presence in person at such a meeting.
Section 9. The Board of Directors may establish policies for the
compensation of directors and for the reimbursement of the expenses of
directors, in each case, in connection with services provided by directors to
the corporation.
ARTICLE III.
CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors shall be elected by the Board
and will, other than as provided in Section 5 of Article I, preside over all
meetings of the Board of Directors and the stockholders and shall see that all
orders and resolutions of the Board of Directors and its committees are
effectuated in accordance with their terms. Except as limited by resolution of
the Board of Directors, the laws of the State of Delaware, the provisions of the
Second Amended and Restated Certificate of Incorporation and these Amended and
Restated By-Laws, the Chairman of the Board of Directors shall have the
authority to execute all contracts, bonds, mortgages and other instruments of
the corporation.
ARTICLE IV.
OFFICERS.
Section 1. The Board of Directors, as soon as reasonably practicable
after each annual meeting of the stockholders, shall elect officers of the
corporation, including a President and a Secretary. The Board of Directors may
also from time to time elect such other officers (including one or more Vice
Presidents, a Treasurer, one or more Assistant Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers) as it may deem
proper or may delegate to any elected officer of the corporation the power to
appoint and remove any such other officers and to prescribe their respective
terms of office, authorities and duties. Any Vice President may be designated
Executive, Senior or Corporate, or may be given such other designation or
combination of designations as the Board of Directors may determine. Any two or
more offices may be held by the same person.
Section 2. All officers of the corporation elected by the Board of
Directors shall hold office for such term as may be determined by the Board of
Directors or until their respective successors are chosen and qualified. Any
officer may be removed from office at any time, either with or without cause,
(a) by the affirmative vote of a majority of the members of the Board of
Directors then in office, or, (b) in the case of an appointed officer, by any
elected officer upon whom such power of removal shall have been conferred by the
Board of Directors, in either case, subject to the provisions of such officer's
employment agreement, if any.
Section 3. Each of the officers of the corporation elected by the
Board of Directors or appointed by an officer in accordance with these Amended
and Restated By- Laws shall have the powers and duties prescribed by law, by
these Amended and Restated By-Laws or by the Board of Directors and, in the case
of appointed officers, the powers and duties prescribed by the appointing
officer, and, unless otherwise prescribed by these Amended and Restated By-Laws
or by the Board of Directors or such appointing officer, shall have such further
powers and duties as ordinarily pertain to that office.
Section 4. Unless otherwise provided in these Amended and Restated By-
Laws, in the absence or disability of any officer of the corporation, the Board
of Directors may, during such period, delegate such officer's powers and duties
to any other officer or to any director and the person to whom such powers and
duties are delegated shall, for the time being, hold such office.
ARTICLE V.
CERTIFICATES OF STOCK.
Section 1. The shares of stock of the corporation shall be represented
by certificates. Every holder of stock shall be entitled to have a certificate
signed by, or in the name of, the corporation by the Chairman of the Board of
Directors, or the President or a Vice President, and by the Treasurer or the
Secretary of the corporation, or as otherwise permitted by the laws of the State
of Delaware, representing the number of shares registered in certificate form.
Any or all the signatures on the certificate may be a facsimile.
Section 2. Transfers of stock shall be made on the books of the
corporation by the holder of the shares in person or by such holder's attorney
upon surrender and cancellation of certificates for a like number of shares.
Section 3. No certificate for shares of stock in the corporation shall
be issued in place of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of such loss, theft or
destruction and upon delivery to the corporation of a bond of indemnity in such
amount, upon such terms and secured by such surety, as the Board of Directors in
its discretion may require.
ARTICLE VI.
CORPORATE BOOKS.
The books of the corporation may be kept outside of the State of
Delaware at such place or places as the Board of Directors may from time to time
determine.
ARTICLE VII.
CHECKS, NOTES, PROXIES, ETC.
All checks and drafts on the corporation's bank accounts and all bills
of exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such officer or
officers or agent or agents as shall be thereunto authorized from time to time
by the Board of Directors. Proxies to vote and consents with respect to
securities of other corporations owned by or standing in the name of the
corporation may be executed and delivered from time to time on behalf of the
corporation by the Chairman of the Board of Directors, the President, or by such
officers as the Board of Directors may from time to time determine.
ARTICLE VIII.
FISCAL YEAR.
The fiscal year of the corporation shall end on the Saturday on or
closest to February 28 of each year and begin on the following Sunday.
ARTICLE IX.
CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
corporation. In lieu of the corporate seal, a facsimile thereof may be impressed
or affixed or reproduced.
ARTICLE X.
AMENDMENTS.
These Amended and Restated By-Laws may be amended, added to, rescinded
or repealed at any meeting of the Board of Directors or of the stockholders,
provided that notice of the proposed change was given in the notice of the
meeting of the stockholders or, in the case of a meeting of the Board of
Directors, in a notice given not less than two (2) days prior to the meeting;
provided, however, that, notwithstanding any other provisions of these Amended
and Restated By-Laws or any provision of the laws of the State of Delaware which
might otherwise permit a lesser vote of the stockholders, the affirmative vote
of the holders of at least a majority in voting power of all shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required in order for the stockholders to
alter, amend or repeal these Amended and Restated By-Laws or to adopt any
provision inconsistent herewith.
EXHIBIT 4.1
SPECIMEN COMMON STOCK CERTIFICATE
[Front of Certificate]
CAMELOT MUSIC HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
CMH
COMMON STOCK CUSIP
PAR VALUE $.01 PER SHARE SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES
OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
CAMELOT MUSIC HOLDINGS, INC. (the "Corporation"), a Delaware corporation. The
shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by the
holder's duly authorized attorney or legal representative, upon the surrender of
this certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the
Corporation's Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by facsimile signatures of its duly authorized officers and has caused
a facsimile of its corporate seal to be hereunto affixed.
Dated:
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
[Back of Certificate]
CAMELOT MUSIC HOLDINGS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF
THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST SHALL BE MADE TO THE CORPORATION'S
SECRETARY AT ITS PRINCIPAL OFFICE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- _______ Custodian __________
(Cust) (Minor)
under Uniform Gift to Minors Act
________________________________
(State)
UNIF TRF MIN ACT --
____ Custodian (until age ____)
(Cust)
_____ under Uniform Transfers
(Minor)
to Minors Act _____________
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE>
FOR VALUE RECEIVED, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X
X
NOTICE: THE SIGNATURES TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By
THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF LOST, STOLEN, MUTILATED OR DESTROYED,
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
EXHIBIT 10.1
- --------------------------------------------------------------------------------
REVOLVING CREDIT AGREEMENT
Dated as of January 27, 1998
Among
CAMELOT MUSIC, INC.,
as Borrower
THE LENDERS PARTY HERETO
and
THE CHASE MANHATTAN BANK,
as Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS................................................. 1
1.1 Defined Terms............................................ 1
1.2 Other Definitional Provisions............................ 18
SECTION 2 AMOUNT AND TERMS OF COMMITMENT.............................. 19
2.1 Commitments.............................................. 19
2.2 Notes ................................................. 19
2.3 Commitment Fee........................................... 20
2.4 Arrangement Fee.......................................... 20
2.5 Procedure for Borrowing.................................. 20
2.6 Conversion and Continuation Options...................... 21
2.7 Termination or Reduction of Commitments.................. 22
2.8 Optional and Mandatory Prepayments; Repayments of
Loans.................................................. 22
2.9 Interest Rates and Payment Dates......................... 23
2.10 Computation of Interest and Fees......................... 24
2.11 Agent Fees............................................... 25
2.12 Inability to Determine Interest Rate..................... 25
2.13 Pro Rata Treatment and Payments.......................... 25
2.14 Illegality............................................... 26
2.15 Requirements of Law...................................... 27
2.16 Taxes ................................................. 28
2.17 Indemnity................................................ 30
2.18 Proceeds of Loans and Letters of Credit.................. 31
SECTION 3 LETTERS OF CREDIT........................................... 31
3.1 L/C Commitment........................................... 31
3.2 Procedure for Issuance of Letters of Credit.............. 31
3.3 Letter of Credit Fees and Other Charges.................. 32
3.4 L/C Participations....................................... 33
3.5 Reimbursement Obligation of the Borrower. ............... 34
3.6 Obligations Absolute..................................... 34
3.7 Letter of Credit Payments................................ 35
3.8 Application.............................................. 35
SECTION 4 REPRESENTATIONS AND WARRANTIES.............................. 36
4.1 Financial Condition...................................... 36
4.2 No Change................................................ 37
4.3 Corporate Existence; Compliance with Law................. 37
4.4 Corporate Power; Authorization........................... 37
4.5 Enforceable Obligations.................................. 38
4.6 No Legal Bar............................................. 38
4.7 No Material Litigation................................... 38
4.8 Investment Company Act................................... 38
4.9 Federal Regulation....................................... 38
4.10 Taxes ................................................. 39
4.11 Subsidiaries............................................. 39
4.12 Ownership of Property and Assets......................... 39
4.13 ERISA ................................................. 39
4.14 Copyrights, Permits, Trademarks and Licenses............. 40
4.15 No Default............................................... 41
4.16 Security Documents....................................... 41
4.17 Environmental Matters.................................... 41
4.18 Accuracy and Completeness of Information................. 42
4.19 Insurance................................................ 43
SECTION 5 CONDITIONS PRECEDENT........................................ 43
5.1 Conditions to Initial Loan and Letter of Credit
and Effectiveness of Agreement......................... 43
5.2 Conditions to Each Loan and Letter of Credit............. 47
SECTION 6 AFFIRMATIVE COVENANTS....................................... 50
6.1 Financial Statements, Reports, etc. ..................... 50
6.2 Payment of Obligations................................... 52
6.3 Conduct of Business and Maintenance of Existence......... 53
6.4 Maintenance of Property; Insurance....................... 53
6.5 Inspection of Property; Books and Records;
Discussions; Inventory Review.......................... 53
6.6 Notices ................................................. 54
6.7 Supplemental Collateral; Guarantees...................... 54
6.8 Environmental Laws....................................... 55
6.9 Employee Benefits........................................ 56
6.10 Further Assurances....................................... 57
SECTION 7 NEGATIVE COVENANTS.......................................... 57
7.1 Indebtedness............................................. 57
7.2 Limitation on Liens...................................... 58
7.3 Limitation on Contingent Obligations..................... 60
7.4 Prohibition of Fundamental Changes....................... 61
7.5 Prohibition on Sale of Assets............................ 61
7.6 Limitation on Investments, Loans and Advances............ 62
7.7 Capital Expenditures..................................... 63
7.8 Consolidated EBITDA...................................... 63
7.9 Limitation on Dividends.................................. 64
7.10 Transactions with Affiliates............................. 64
7.11 Limitation on Changes in Fiscal Year..................... 65
7.12 Limitation on Lines of Business.......................... 65
7.13 Failure to Maintain Trade Credit......................... 65
7.14 Concentration Account.................................... 65
SECTION 8 EVENTS OF DEFAULT........................................... 66
SECTION 9 THE AGENT; THE ISSUING BANK................................. 69
9.1 Appointment.............................................. 69
9.2 Delegation of Duties..................................... 70
9.3 Exculpatory Provisions................................... 70
9.4 Reliance by Agent........................................ 70
9.5 Notice of Default........................................ 71
9.6 Non-Reliance on Agent and Other Lenders.................. 71
9.7 Indemnification.......................................... 72
9.8 The Agent in its Individual Capacity..................... 72
9.9 Successor Agent.......................................... 72
9.10 Issuing Bank as Issuer of Letters of Credit.............. 72
SECTION 10 MISCELLANEOUS.............................................. 73
10.1 Amendments and Waivers.................................. 73
10.2 Notices................................................. 74
10.3 No Waiver; Cumulative Remedies.......................... 75
10.4 Survival of Representations and Warranties.............. 75
10.5 Payment of Expenses and Taxes........................... 75
10.6 Successors and Assigns; Participations and
Assignments........................................... 77
10.7 Adjustments; Set-off.................................... 80
10.8 Counterparts............................................ 80
10.9 Integration............................................. 81
10.10 Governing Law; No Third Party Rights.................... 81
10.11 Acknowledgements........................................ 81
10.12 Submission to Jurisdiction; Waivers..................... 81
<PAGE>
SCHEDULES
Schedule I Addresses of Lenders; Commitment Amounts
Schedule 1.1(a) Mortgaged Property
Schedule 4.7 Material Litigation
Schedule 4.11 Subsidiaries
Schedule 4.12 Fee and Leased Properties
Schedule 4.13 Defined Benefit Plans
Schedule 4.14 Trademarks and Copyrights
Schedule 7.1 Indebtedness
Schedule 7.2 Liens
Schedule 7.3(d) Contingent Obligations
EXHIBITS
EXHIBIT A Form of Assignment and Acceptance
EXHIBIT B Form of Borrower Pledge Agreement
EXHIBIT C Form of Borrower Security Agreement
EXHIBIT D Form of Borrowing Base Certificate
EXHIBIT E Form of Camelot Distribution Mortgage
EXHIBIT F Form of Holdings Guarantee
EXHIBIT G Form of Holdings Pledge Agreement
EXHIBIT H Form of Subsidiaries Guarantee
EXHIBIT I Form of Subsidiaries Security Agreement
EXHIBIT J Form of Note
EXHIBIT K Form of Opinion of White & Case, Counsel to
the Loan Parties
EXHIBIT L-1 Form of Opinion of Stark & Knoll, Special
Real Estate Counsel to Camelot Distribution
EXHIBIT L-2 Form of Opinion of Obermayer, Rebmann,
Maxwell & Hippel LLP, Special Pennsylvania
Counsel to the Borrower
EXHIBIT M Form of Borrowing Certificate
<PAGE>
REVOLVING CREDIT AGREEMENT, dated as of January 27, 1998, among
CAMELOT MUSIC, INC., a Pennsylvania corporation (the "Borrower"), the several
lenders from time to time parties hereto (the "Lenders") and THE CHASE MANHATTAN
BANK, a New York banking corporation, as agent for the Lenders (in such
capacity, the "Agent").
INTRODUCTORY STATEMENT
On August 9, 1996 (the "Petition Date"), the Borrower and certain of
its Subsidiaries and/or Affiliates (collectively, the "Camelot Debtors") filed
voluntary petitions under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") and continued in the possession of their
assets and in the management of their businesses pursuant to Sections 1107 and
1108 of the Bankruptcy Code.
On December 12, 1997, the Bankruptcy Court entered an order (the
"Confirmation Order") confirming the Camelot Debtors' Second Amended Joint
Chapter 11 Plan of Reorganization (as in effect on the date hereof, the
"Reorganization Plan").
In connection with the confirmation and implementation of the
Reorganization Plan, the Lenders have agreed, subject to the terms and
conditions hereof, to make available to the Borrower revolving credit loans and
other extensions of credit in an aggregate amount not to exceed $50,000,000.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1 DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms defined in the
preamble and the Introductory Statement hereto shall have the meanings set forth
therein, and the following terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in
effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
For purposes hereof: "Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Agent as its prime rate in
effect at its principal office in New York City (the Prime Rate not being
intended to be the lowest rate of interest charged by the Agent in
connection with extensions of credit to debtors); "Base CD Rate" shall mean
the sum of (a) the product of (i) the Three-Month Secondary CD Rate and
(ii) a fraction, the numerator of which is one and the denominator of which
is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate;
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York
City received at approximately 10:00 A.M., New York City time, on such day
(or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Agent from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it; and "Federal
Funds Effective Rate" shall mean, for any day, the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by the
Agent from three federal funds brokers of recognized standing selected by
it. Any change in the ABR due to a change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
"Affiliate": of any Person (a) any Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is
under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect,
(x) to vote 10% or more of the securities having ordinary voting power for
the election of directors of such Person, whether by ownership of
securities, contract, proxy or otherwise, or (y) to direct or cause the
direction of the management and policies of such Person, whether by
ownership of securities, contract, proxy or otherwise.
"Aggregate Outstanding Extensions of Credit": as to any Lender at any
time, an amount equal to the sum of (a) the aggregate principal amount of
all Loans made by such Lender then outstanding and (b) such Lender's
Commitment Percentage of the L/C Obligations then outstanding.
"Agreement": this Revolving Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Application": an application, in such form as the Issuing Bank may
specify from time to time, requesting the Issuing Bank to open a Letter of
Credit.
"Asset Sale": any sale, sale-leaseback, transfer or other disposition
by any Loan Party of any of its property or assets, including the stock of
any Subsidiary of the Borrower (other than (a) in the ordinary course of
business, (i) the sale or rental of Inventory, (ii) the sale or discount of
accounts receivable in connection with the collection or compromise thereof
or (iii) the sale of property which is obsolete, worn out or otherwise no
longer useful in the Loan Parties' business and (b) the issuance of Capital
Stock in connection with the exercise of employee stock options).
"Assignment and Acceptance": an assignment and acceptance,
substantially in the form of Exhibit A.
"Available Commitment": as to any Lender, at a particular time, an
amount equal to the excess, if any, of (a) such Lender's Commitment over
(b) such Lender's Aggregate Outstanding Extensions of Credit.
"Board": the Board of Governors of the Federal Reserve System.
"Borrower Pledge Agreement": the pledge agreement, substantially in
the form of Exhibit B, to be made by the Borrower in favor of the Agent,
for the benefit of the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
"Borrower Security Agreement": the Security Agreement, substantially
in the form of Exhibit C, to be made by the Borrower in favor of the Agent,
for the benefit of the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
"Borrowing Base": means, as at any date of determination (a) during
the Peak Period, thirty-five percent (35%) of Eligible Inventory and (b)
during the Non- Peak Period, thirty percent (30%) of Eligible Inventory.
The Borrowing Base shall be computed using the Borrowing Base Certificate
most recently provided by the Borrower to the Agent pursuant to subsection
6.1(i); provided, however, the Agent shall have the right to review and
adjust, in its reasonable judgment, any computation of the Borrowing Base
(but not the percentages set forth above) to the extent such computation of
the Borrowing Base pursuant to such Borrowing Base Certificate is not in
accordance with this Agreement.
"Borrowing Base Certificate": a certificate, substantially in the form
of Exhibit D, executed and certified by a Responsible Officer of the
Borrower, which shall include appropriate exhibits and schedules as
referred to therein.
"Borrowing Date": any Business Day specified in (a) a Borrowing Notice
pursuant to subsection 2.5 as a date on which the Borrower requests the
Lenders to make Loans hereunder or (b) an Application pursuant to
subsection 3.2 as a date on which the Borrower requests the Issuing Bank to
issue a Letter of Credit hereunder.
"Borrowing Notice": as defined in subsection 2.5.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close, provided that when used in connection with a Eurodollar Loan, the
term "Business Day" shall also exclude any day on which banks are not open
for dealings in Dollar deposits in the London interbank market.
"Camelot Distribution": Camelot Distribution Co., Inc., a Delaware
corporation and a Subsidiary of the Borrower.
"Camelot Distribution Mortgage": the mortgage, substantially in the
form of Exhibit E, to be executed and delivered by Camelot Distribution in
favor of the Agent, for the benefit of the Lenders, as the same may be
amended, supplemented, or otherwise modified from time to time.
"Capital Expenditures": for any period, all amounts which would, in
accordance with GAAP, be set forth as capital expenditures (exclusive of
any amount attributable to capitalized interest) on the consolidated
statement of cash flows or other similar statement of the Borrower and its
consolidated Subsidiaries for such period.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cases": the Chapter 11 cases of the Camelot Debtors pending in the
Bankruptcy Court.
"Cash Equivalents": (a) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than one year from
the date of acquisition, (b) certificates of deposit, time deposits and
bank holding company commercial paper with maturities of one year or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with, or
backed by the assets of, any Lender or any domestic commercial bank having,
at the time of purchase, combined capital and surplus in excess of
$100,000,000, (c) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (a) and
(b) entered into with any financial institution meeting the qualifications
specified in clause (b) above, (d) commercial paper issued by any Lender or
the parent corporation of any Lender, and commercial paper rated A-1 or the
equivalent thereof by Standard & Poor's Ratings Group ("S&P") or P-1 or the
equivalent thereof by Moody's Investors Service, Inc. ("Moody's") and in
each case maturing within one year after the date of acquisition and (e)
marketable direct obligations issued by the District of Columbia or any
State of the United States or any political subdivision or instrumentality
thereof having at the time of purchase thereof a rating from either S&P or
Moody's in one of their two highest grades.
"Cash Management Bank": Chase (including its Affiliates) in its
capacity as the principal concentration bank in the cash management system
of the Loan Parties or any successor to Chase in such capacity.
"C/D Assessment Rate": for any day the net annual assessment rate
(rounded upwards, if necessary, to the next 1/100 of 1%) determined by the
Agent to be payable on such day to the Federal Deposit Insurance
Corporation or any successor ("FDIC") for FDIC's insuring time deposits
made in Dollars at offices of the Agent in the United States.
"C/D Reserve Percentage": for any day as applied to any Base CD Rate,
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board for determining the maximum reserve requirement for
a Depositary Institution (as defined in Regulation D of the Board) in
respect of new non-personal time deposits in Dollars having a maturity of
30 days or more.
"Change in Law": with respect to any Lender, the adoption of any law,
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or any change therein or in the interpretation or application
thereof by any Governmental Authority having jurisdiction over such Lender,
in each case after the Closing Date.
"Chase": The Chase Manhattan Bank, a New York banking corporation, and
its successors.
"Closing Date": the date on which this Agreement has been executed and
the conditions precedent to the effectiveness of this Agreement and the
making of the initial Loan or the issuance of the initial Letter of Credit
set forth in subsection 5.1 have been satisfied or waived.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commercial L/C": a commercial documentary Letter of Credit under
which the Issuing Bank agrees to make payments in Dollars for the account
of the Borrower in respect of obligations of a Loan Party in connection
with the purchase of goods or services in the ordinary course of business.
"Commitment": as to any Lender at any time, during the Non-Peak
Period, its Non-Peak Period Commitment, or during the Peak Period, its Peak
Period Commitment, as the case may be.
"Commitment Percentage" as to any Lender at any time, the percentage
of the aggregate Commitments then constituted by such Lender's Commitment.
"Commitment Period": the period from and including the Closing Date to
but not including the Termination Date.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code.
"Concentration Account": Account No. 323088910 or any successor
account established and maintained by the Borrower at the office of the
Cash Management Bank and which shall be used to concentrate at least three
times each week all store deposits and any other funds received by any Loan
Party from the operation of their businesses or otherwise.
"Consolidated EBITDA": for any period, the Consolidated Net Income for
such period, plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period,
the sum of (a) taxes measured by income, (b) interest expense (less
interest income), amortization or writeoff of debt discount, debt issuance,
warrant and other equity issuance costs and commissions, discounts,
redemption premium and other fees and charges associated with the Loans or
Standby L/Cs, (c) depreciation and amortization expense, (d) amortization
of Inventory write-up under APB 16, amortization of intangibles (including,
but not limited to, goodwill and costs of interest-rate caps) and
organization costs, (e) non-cash amortization of Financing Leases, (f) any
non-recurring charge or restructuring charge which in accordance with GAAP
is excluded from operating income, (g) the cumulative effect of any change
in accounting principles, and (h) any other write-downs, write-offs,
extraordinary losses, minority interests and other non-cash charges in
determining such Consolidated Net Income for such period.
"Consolidated Net Income": for any period, the consolidated net income
(or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, excluding extraordinary gains
or losses.
"Contingent Obligation": as to any Person, any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness, dividends
or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or
not contingent (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose
of assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against
loss in respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or
determinable amount (based on the maximum reasonably anticipated net
liability in respect thereof as determined by the Borrower in good faith)
of the primary obligation or portion thereof in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated net liability in respect thereof (assuming
such Person is required to perform thereunder) as determined by the
Borrower in good faith.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of the
property owned by it is bound.
"Default": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Disclosure Materials": collectively, (a) the materials distributed to
the Lenders pursuant to this Agreement and (b) the Disclosure Statement,
dated November 7, 1997, distributed to the Lenders in connection with
voting on the Reorganization Plan.
"Distribution Center": the real property and improvements thereon
located at 8000 Freedom Avenue, N.W., North Canton, Ohio, owned and
operated prior to the Effective Date by the Borrower and assigned to
Camelot Distribution in connection with the Reorganization Plan.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Effective Date": January 27, 1998, being the date on which the
Reorganization Plan became effective, as provided therein.
"Eligible Inventory": means, as at any date of determination, the
value determined at the lower of cost or market on a first-in, first-out
basis of all Inventory owned by and in the possession of the Loan Parties
and located in the United States of America, less (without duplication, and
only to the extent included in Inventory): (a) Inventory held, or claimed
to be held, on consignment or similar arrangement; (b) Inventory held at
the Distribution Center for return to vendors (to the extent not accounted
for in clauses (c) through (g) below); (c) store supplies; (d) reserve for
penalties, representing the amount the Loan Parties do not expect to
recover from vendors upon the return of merchandise; (e) Reserve for
Slow-moving Items; (f) reserve for video returns; and (g) reserve for
shrink (each of the above referenced reserves shall be taken from the books
and records of the Loan Parties determined in a manner consistent with the
Borrower's historic practices; provided, however, the Agent shall have the
right to review and adjust, in its reasonable judgment, any such reserves
for purposes of calculating the Borrowing Base to the extent the Agent
determines that any such reserves are unreasonable).
"Environmental Laws": any and all Federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority or requirements of law
(including court-ordered requirements of common law) regulating or imposing
liability or standards of conduct concerning, environmental or safety and
health protection matters, including, without limitation, Hazardous
Materials, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum equal to the
average (rounded upward to the nearest 1/100th of 1%) of the respective
rates notified to the Agent by each of the Reference Lenders as the rate at
which such Reference Lender is offered Dollar deposits at or about 10:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its Eurodollar Loans
are then being conducted for delivery on the first day of such Interest
Period for the number of days comprised therein and in an amount comparable
to the amount of its Eurodollar Loan to be outstanding during such Interest
Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8, provided
that any requirement for the giving of notice, the lapse of time, or both,
has been satisfied.
"Fee Property": as defined in subsection 4.12.
"Financing Lease": (a) any lease of property, real or personal, the
obligations under which are capitalized on a consolidated balance sheet of
the Borrower and its consolidated Subsidiaries and (b) any other such lease
to the extent that the then present value of any rental commitment
thereunder should, in accordance with GAAP, be capitalized on a balance
sheet of the lessee.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantees": the collective reference to the Holdings Guarantee, the
Subsidiaries Guarantee and any other guarantee which may from time to time
be executed and delivered by a Loan Party pursuant to subsection 6.7.
"Guarantor": any Person delivering a Guarantee contemplated by this
Agreement.
"Hazardous Materials": any hazardous materials, hazardous wastes,
hazardous pesticides, hazardous or toxic substances, defined, listed,
classified or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, petroleum, any other petroleum
products (including gasoline, crude oil or any fraction thereof)
polychlorinated biphenyls and urea-formaldehyde insulation.
"Holdings": Camelot Music Holdings, Inc., a Delaware corporation and
the owner of all of the Capital Stock of the Borrower.
"Holdings Guarantee": the Guarantee, substantially in the form of
Exhibit F, to be made by Holdings in favor of the Agent, for the benefit of
the Lenders, as the same may be amended, supplemented or otherwise modified
from time to time.
"Holdings Pledge Agreement": the pledge agreement, substantially in
the form of Exhibit G, to be made by Holdings in favor of the Agent, for
the benefit of the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
"Indebtedness": of a Person, at any date, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices), (b)
the undrawn face amount of all letters of credit issued for the account of
such Person and, without duplication, all drafts drawn thereunder and
unpaid reimbursement obligations with respect thereto, (c) all liabilities
(other than Lease Obligations) secured by any Lien on any property owned by
such Person, even though such Person has not assumed or become liable for
the payment thereof (provided that if the Person has not assumed or
otherwise become liable in respect of such Indebtedness, such Indebtedness
shall be deemed to be in an amount equal to the fair market value of the
property to which such Lien relates as determined in good faith by such
Person), (d) Financing Leases, (e) all indebtedness of such Person arising
under acceptances issued or created for the account of such Person, but
excluding trade and other accounts payable and accrued expenses incurred in
the ordinary course of business and payable in accordance with such
Person's customary practices and (f) any other indebtedness of such Person
which is evidenced by a note, bond, debenture or similar instrument.
"Insolvency": with respect to a Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of such term as used in Section
4245 of ERISA.
"Insolvent": with respect to a Multiemployer Plan, the condition that
such Plan is insolvent as such term is used in Section 4245 of ERISA.
"Interest Payment Date": (a) for ABR Loans, the last day of each
February, May, August and November to occur while such Loans are
outstanding and (b) for Eurodollar Loans, the last day of the Interest
Period applicable to such Eurodollar Loan.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on the Borrowing Date or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two or three months thereafter, as selected by
the Borrower in its Borrowing Notice or its notice of conversion, as
the case may be, given with respect thereto; and
(b) thereafter, with respect to such Eurodollar Loan, each period
commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two or three months
thereafter as selected by the Borrower by irrevocable notice to the
Agent not less than three Business Days prior to the last day of the
then current Interest Period with respect to such Eurodollar Loan;
provided that the foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day which is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period for any Eurodollar Loan that would
otherwise extend beyond the Termination Date shall end on the
Termination Date, or if the Termination Date shall not be a Business
Day, on the next preceding Business Day;
(iii) if the Borrower shall fail to give notice as provided above
in clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an ABR Loan (which conversion shall occur
automatically and without need for compliance with the conditions for
conversion set forth in subsection 2.6); and
(iv) any Interest Period that begins on the last day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month.
"Inventory": means all goods, merchandise and other personal property
which are held for sale or rental by the Loan Parties, including those held
for display or demonstration or out on lease, rental or to be furnished
under a contract of service, or are raw materials, components, work in
process or materials used or consumed, or to be used or consumed in the
business of the Loan Parties.
"Issuing Bank": Chase, as issuer of the Letters of Credit.
"L/C Cash Collateral Account": the account to be established by the
Borrower under the sole dominion and exclusive control of the Agent
maintained at the office of the Agent at 270 Park Avenue, New York, NY
10017 designated as the "Camelot Music L/C Cash Collateral Account" that
shall be used solely for the purposes set forth in subsections 2.8 and
3.4(c) and any other provision of this Agreement which requires the cash
collateralization of L/C Obligations.
"L/C Limit": (a) during the period from the Closing Date until the
Wall Closing Date, $1,000,000, (b) during the period from and including the
Wall Closing Date through the two month anniversary of the Wall Closing
Date, $25,000,000 and (c) after such two month anniversary of the Wall
Closing Date, $5,000,000.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit
which have not then been reimbursed pursuant to subsection 3.5.
"L/C Participating Interest": an undivided participating interest in
the face amount of each issued and outstanding Letter of Credit and the
Application relating thereto.
"Lease Obligations": of the Loan Parties, at any time, the rental
commitments of the Loan Parties, determined on a consolidated basis, under
leases for real and/or personal property (net of rental commitments from
sub-leases thereof), excluding obligations under Financing Leases.
"Leased Property": as defined in subsection 4.12.
"Letters of Credit": the collective reference to the Commercial L/Cs
and the Standby L/Cs.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including without limitation, any conditional
sale or other title retention agreement) and any Financing Lease having
substantially the same economic effect as any of the foregoing.
"Loan Documents": the collective reference to this Agreement, the
Notes, the Guarantees, the Security Documents, the Borrowing Base
Certificates, the Letters of Credit, the Applications and any other
instrument or agreement executed and delivered in connection herewith or
therewith (including without limitation, any amendments or waivers of any
thereof), as each of the foregoing may be amended, supplemented or
otherwise modified from time to time.
"Loan Parties": the collective reference to the Borrower and the
Guarantors.
"Loans": as defined in subsection 2.1(a).
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property or condition (financial or otherwise) of the
Loan Parties taken as a whole or (b) the validity or enforceability of any
of the material terms of this Agreement or any of the other Loan Documents
or the material rights or remedies, taken as a whole, of the Agent or the
Lenders hereunder or thereunder.
"Maturity Date": January 27, 2002.
"Mortgaged Property": the real property listed on Schedule 1.1(a) and
any other real property encumbered by a Mortgage.
"Mortgages": the collective reference to the Camelot Distribution
Mortgage and any other mortgage which may from time to time be executed and
delivered by a Loan Party pursuant to subsection 6.7.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Proceeds": the aggregate cash proceeds received by any Loan Party
in respect of:
(a) any issuance or borrowing of any debt securities or loans
other than Indebtedness permitted under subsection 7.1;
(b) any Asset Sale; and
(c) any cash payments (other than in respect of interest)
received in respect of promissory notes delivered to any such Loan
Party in respect of an Asset Sale;
in each case net of (without duplication): (i) the amount required to repay
any Indebtedness (other than the Loans) secured by a Lien on any assets of
any Loan Party that are collateral for any such debt securities or loans
that are sold or otherwise disposed of in connection with such Asset Sale,
(ii) the reasonable expenses (including legal fees and brokers' and
underwriters' commissions, lenders fees or credit enhancement fees, in any
case, paid to third parties or, to the extent permitted hereby, Affiliates)
incurred in effecting such issuance or sale and (iii) any taxes reasonably
attributable to such sale and reasonably estimated by any such Loan Party
to be actually payable.
"Non-Excluded Taxes": as defined in subsection 2.16.
"Non-Peak Period": any time during the Commitment Period other than
the Peak Period.
"Non-Peak Period Commitment": as to any Lender, its obligation to make
Loans to the Borrower pursuant to subsection 2.1 and to purchase its L/C
Participating Interest in any Letter of Credit, in an aggregate amount not
to exceed the amount set forth under such Lender's name opposite the
caption "Non-Peak Period Commitment" on Schedule I hereto or on Schedule 1
to the Assignment and Acceptance by which such Lender acquired its
Commitment, as the same may be reduced from time to time pursuant to
subsections 2.7 or 2.8 or adjusted pursuant to subsection 10.6(c).
"Note": as defined in subsection 2.2.
"Participant": as defined in subsection 10.6(b).
"Participating Lender": any Lender (other than the Issuing Bank) with
respect to its L/C Participating Interest in each Letter of Credit.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Peak Period": the period from and including October 1 through and
including December 31 of each calendar year during the Commitment Period.
"Peak Period Commitment": as to any Lender, its obligation to make
Loans to the Borrower pursuant to subsection 2.1 and to purchase its L/C
Participating Interest in any Letter of Credit, in an aggregate amount
(inclusive of such Lender's Non-Peak Period Commitment) not to exceed the
amount set forth under such Lender's name opposite the caption "Peak Period
Commitment" on Schedule I hereto or on Schedule 1 to the Assignment and
Acceptance by which such Lender acquired its Commitment, as the same may be
reduced from time to time pursuant to subsections 2.7 or 2.8 or adjusted
pursuant to subsection 10.6(c).
"Permitted Holder": (a) a holder on the Effective Date of a Class 1-A
Claim under and as defined in the Reorganization Plan, (b) members of the
Borrower's senior management team on the Effective Date and (c) any
Affiliate of any Person described in the preceding clauses (a) and (b).
"Permitted Liens": Liens permitted to exist under subsection 7.2.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority, limited liability company or other entity of
whatever nature.
"Plan": at any particular time, any employee benefit plan as defined
in Section 3(3) of ERISA and not excluded by Section 4(b) of ERISA and
subject to Title IV of ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledge Agreements: the collective reference to the Holdings Pledge
Agreement, the Borrower Pledge Agreement, and any other pledge agreement
which may from time to time be executed and delivered by a Loan Party
pursuant to subsection 6.7.
"Prime Rate": as defined in the definition of ABR.
"Properties": as defined in subsection 4.17(a).
"Reference Lenders": Chase and Societe Generale.
"Regulation U": Regulation U of the Board, as from time to time in
effect.
"Reorganization": with respect to a Multiemployer Plan, the condition
that such Plan is in reorganization as such term is used in Section 4241 of
ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
ERISA other than those events as to which the thirty day notice period is
waived under PBGC Reg. ss. 4043.
"Required Lenders": Lenders holding in the aggregate at least 51% of
the total Commitments at such time (or, if the Commitments have then
terminated or are no longer in effect, the Aggregate Outstanding Extensions
of Credit at such time).
"Requirement of Law": as to any Person, the Articles or Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation, order, or
determination of an arbitrator or a court or other Governmental Authority,
in each case applicable to or binding upon such Person or any of its
property, or to which such Person or any of its property is subject.
"Reserve for Slow-moving Items": means, as at any date of
determination, the amount reflected as "reserve for slow-moving items" on
the books and records of the Loan Parties determined in a manner consistent
with the Borrower's historic practices; provided, however, the Agent shall
have the right to review and adjust, in its reasonable judgment, this
reserve for purposes of calculating the Borrowing Base to the extent the
Agent determines such reserve to be unreasonable.
"Responsible Officer": with respect to any Person, the president,
chief executive officer, the chief operating officer, the chief financial
officer, vice president-finance or treasurer of such Person, but, in any
event, with respect to financial matters, the chief financial officer of
such Person.
"Security Agreements: the collective reference to the Borrower
Security Agreement, the Subsidiaries Security Agreement and any other
security agreement which may from time to time be executed and delivered by
a Loan Party pursuant to subsection 6.7.
"Security Documents": the collective reference to the Security
Agreements, the Pledge Agreements and the Mortgages.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA
and which is not a Multiemployer Plan.
"Standby L/C": an irrevocable Letter of Credit under which the Issuing
Bank agrees to make payments in Dollars for the account of the Borrower in
respect of obligations of a Loan Party incurred pursuant to (a) contracts
made or performances undertaken or to be undertaken or like matters
relating to contracts to which such Loan Party is or proposes to become a
party in the ordinary course of such Loan Party's business, including,
without limiting the foregoing, for insurance purposes or in respect of
advance payments or as bid or performance bonds or for any other purpose
for which a standby letter of credit might customarily be issued or (b) the
Wall Acquisition Agreement.
"Subsidiaries Guarantee": the Guarantee, substantially in the form of
Exhibit H, to be made by each Subsidiary in favor of the Agent, for the
benefit of the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
"Subsidiaries Security Agreement": the Security Agreement,
substantially in the form of Exhibit I, to be made by each Subsidiary in
favor of the Agent, for the benefit of the Lenders, as the same may be
amended, supplemented or otherwise modified from time to time.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, directly or
indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
"Termination Date": the earlier to occur of (a) the Maturity Date and
(b) any date on which the Commitments shall otherwise terminate hereunder.
"The Wall": The Wall Music, Inc., a Pennsylvania corporation.
"Transferee": as defined in subsection 10.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, and any amendments thereof.
"Wall Acquisition Agreement": the Asset Purchase Agreement dated as of
December 10, 1997, by and among the Borrower, WH Smith Group Holdings
(USA), Inc. and The Wall, as the same may be amended, supplemented or
otherwise modified from time to time.
"Wall Closing Date": the "Closing Date" as defined in the Wall
Acquisition Agreement.
"Wall Transaction": the acquisition by the Borrower or Camelot
Northeast Region, Inc. of substantially all of the assets of The Wall
pursuant to the Wall Acquisition Agreement.
"Wall Transaction Documents": the collective reference to the Wall
Acquisition Agreement and any other instrument or agreement executed and
delivered in connection with the Wall Acquisition Agreement, as each of the
foregoing may be amended, supplemented or otherwise modified from time to
time.
"Withdrawal Liability": as defined under Part I of Subtitle E of Title
IV of ERISA.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, any other Loan Document or any certificate or other
document made or delivered pursuant hereto.
(b) As used herein and in the Notes, any other Loan Document and any
certificate or other document made or delivered pursuant hereto, accounting
terms relating to the Loan Parties not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1 to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms.
SECTION 2 AMOUNT AND TERMS OF COMMITMENT
2.1 Commitments. (a) Subject to the terms and conditions hereof, each
Lender agrees to make revolving credit loans (individually, a "Loan", and
collectively, the "Loans") to the Borrower from time to time during the
Commitment Period in an aggregate principal amount at any one time outstanding
which, when added to such Lender's Commitment Percentage of the then outstanding
L/C Obligations, does not exceed the amount of such Lender's Commitment at such
time. During the Commitment Period, the Borrower may use the Commitments by
borrowing, prepaying the Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof, and/or by having the Issuing
Bank issue Letters of Credit, having such Letters of Credit expire undrawn upon
or if drawn upon, reimbursing the Issuing Bank for such drawing, and having the
Issuing Bank issue new Letters of Credit.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Aggregate Outstanding Extensions of Credit for all Lenders shall
not at any time exceed the Borrowing Base at such time and no Loan shall be made
or Letter of Credit issued in violation of the foregoing.
(c) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR
Loans or (iii) a combination thereof, as determined by the Borrower and upon
notice to the Agent in accordance with subsections 2.5 and 2.6; provided that no
Loan shall be made as a Eurodollar Loan after the day that is one month prior to
the Maturity Date.
2.2 Notes. The Loans made by each Lender to the Borrower shall be
evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit J (each, a "Note"), with appropriate insertions, payable to the order of
such Lender and representing the obligation of the Borrower to pay the lesser of
(a) the amount of the Peak Period Commitment of such Lender and (b) the
aggregate unpaid principal amount of all Loans made by such Lender to the
Borrower, with interest thereon as prescribed in subsection 2.9. Each Lender is
hereby authorized to record the Borrowing Date, the Type and the amount of each
Loan made by such Lender, each continuation thereof, each conversion of all or a
portion thereof to another Type, the date and amount of each payment or
prepayment of principal thereof and, in the case of Eurodollar Loans, the length
of the Interest Period with respect thereto on the schedule annexed to and
constituting a part of its Note and, in the absence of manifest error, any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded, provided that the failure of any Lender to make such
recordation (or any error in such recordation) shall not affect the obligations
of the Borrower hereunder or under such Note. Each Note shall (i) be dated the
Closing Date, (ii) be stated to mature on the Maturity Date and (iii) provide
for the payment of interest in accordance with subsection 2.9. Interest on each
Note shall be payable on the dates specified in subsection 2.9(e).
2.3 Commitment Fee. The Borrower agrees to pay to the Agent, for the
account of each Lender, a non-refundable commitment fee from and including the
Closing Date to and including the Termination Date, computed at the rate of 3/8
of 1% per annum on the average daily amount of the Available Commitment of such
Lender during the period for which payment is made (whether or not the Borrower
shall have satisfied the applicable conditions to borrowing or issuance of a
Letter of Credit set forth in Section 5). Such commitment fee shall be payable
in arrears on each Interest Payment Date applicable to ABR Loans, commencing on
the first such date to occur following the Closing Date.
2.4 Arrangement Fee. The Borrower agrees to pay a non-refundable
arrangement fee, payable to the Agent in advance on the Closing Date, for the
account of each Lender, equal to 1% of such Lender's Peak Period Commitment.
2.5 Procedure for Borrowing. The Borrower may borrow under the
Commitments on any Business Day, provided that, with respect to any borrowings,
the Borrower shall give the Agent irrevocable notice (a "Borrowing Notice"),
which notice must be received by the Agent (a) prior to 12:00 noon, New York
City time, three Business Days prior to the requested Borrowing Date (or if the
Closing Date occurs on the date this Agreement is executed and delivered, for
Loans made on the Closing Date, on the requested Borrowing Date) if all or any
part of the Loans are to be Eurodollar Loans and (b) prior to 10:00 a.m., New
York City time, on the requested Borrowing Date if the borrowing is solely of
ABR Loans, and specifying (i) the amount of the borrowing, (ii) whether such
Loans are initially to be Eurodollar Loans or ABR Loans or a combination thereof
and (iii) if the borrowing is to be entirely or partly Eurodollar Loans, the
length of the Interest Period for such Eurodollar Loans. Each borrowing under
the Commitments shall be in an amount equal to the lesser of (A) $500,000 or a
whole multiple of $50,000 in excess thereof and (B) the Available Commitments.
Not later than 1:00 p.m., New York City time, on the Borrowing Date specified in
such notice, each Lender shall make available to the Agent at the office of the
Agent specified in subsection 10.2 (or at such other location as the Agent may
direct) an amount in immediately available funds equal to the amount of the Loan
to be made by such Lender. Loan proceeds received by the Agent hereunder shall
promptly be made available to the Borrower by the Agent crediting the account of
the Borrower on the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by the
Agent.
2.6 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Loans that are Eurodollar Loans into ABR Loans by
giving the Agent irrevocable notice of such election, to be received by the
Agent prior to 12:00 noon, New York City time, at least three Business Days
prior to the proposed conversion date, provided that any such conversion of
Eurodollar Loans shall only be made on the last day of an Interest Period with
respect thereto. The Borrower may elect from time to time to convert all or a
portion of Loans that are ABR Loans to Eurodollar Loans by giving the Agent
irrevocable notice of such election, to be received by the Agent prior to 12:00
noon, New York City time, at least three Business Days prior to the proposed
conversion date, specifying the Interest Period selected therefor, and, subject
to the last sentence of this subsection, such conversion shall be made on the
requested conversion date or, if such requested conversion date is not a
Business Day, on the next succeeding Business Day. Upon receipt of any notice
pursuant to this subsection, the Agent shall promptly notify each Lender
thereof. All or any part of the outstanding Loans may be converted as provided
herein; provided that (i) partial conversions of ABR Loans shall be in the
aggregate principal amount of $500,000 or a whole multiple of $50,000 in excess
thereof and the aggregate principal amount of the resulting Eurodollar Loans
outstanding in respect of any one Interest Period shall be at least $500,000 or
a whole multiple of $50,000 in excess thereof and (ii) no Loan that is an ABR
Loan shall be converted into a Eurodollar Loan (A) when any Event of Default has
occurred and is continuing or (B) after the date that is one month prior to the
Maturity Date.
(b) Any Loan that is a Eurodollar Loan may be continued as such upon
the expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Agent, in accordance with the applicable
provisions of the definition of the term "Interest Period" set forth in
subsection 1.1, of the length of the next Interest Period to be applicable to
such Loans; provided that no Loan that is a Eurodollar Loan shall be continued
as such (i) when any Event of Default has occurred and is continuing, (ii) after
the date that is one month prior to the Maturity Date or (iii) if the Borrower
fails to give such notice in accordance with the applicable provisions of the
definition of the term "Interest Period".
2.7 Termination or Reduction of Commitments. (a) The Borrower shall
have the right, upon not less than three Business Days' notice to the Agent and
subject to the provisions of this subsection, to terminate or, from time to
time, permanently reduce the Peak Period Commitments or the Non-Peak Period
Commitments. Any termination of the Commitments shall be accompanied by (i)
prepayment in full of the Loans and L/C Obligations constituting drawings under
any Letter of Credit which has not then been reimbursed and (ii)(A) replacement
of any then unexpired Letter of Credit and return thereof to the Issuing Bank
undrawn and marked "canceled" or (B) to the extent that the Borrower is unable
to replace any such Letter of Credit, the deposit of funds into the L/C Cash
Collateral Account until such Letter of Credit has been cash collateralized in
an amount equal to 105% of the face amount of such Letter of Credit. Upon (but
only upon) termination of the Commitments, any Letter of Credit then outstanding
which has been so cash collateralized shall no longer be considered a "Letter of
Credit" as defined in subsection 1.1 and any L/C Participating Interests granted
by the Issuing Bank to the Lenders in such Letter of Credit pursuant to
subsection 3.4(a) shall be deemed terminated (subject to automatic reinstatement
in the event that such cash collateral is returned and the Issuing Bank is not
fully reimbursed for any such L/C Obligations) but the Letter of Credit fees
payable under subsection 3.3 shall continue to accrue to the Issuing Bank (or,
the Issuing Bank and the Lenders in the event of any such automatic
reinstatement, as provided in subsection 3.3) with respect to such Letter of
Credit until the expiry thereof.
(b) In the case of termination of the Commitments, payment of interest
accrued on the amount of any prepayment relating thereto and any unpaid
commitment fee and any other obligation accrued hereunder shall be made on the
date of such termination. Any partial reduction of the Commitments shall be in
the amount of $500,000, or a whole multiple of $100,000 in excess thereof, and
shall, in each case, reduce permanently the amount of the Commitments then in
effect.
2.8 Optional and Mandatory Prepayments; Repayments of Loans. (a) The
Borrower may, at any time and from time to time, prepay the Loans, in whole or
in part, without premium or penalty (except, with respect to Eurodollar Loans
that are prepaid on a date other than the last day of the Interest Period with
respect thereto, as provided under subsection 2.17), upon (i) in the case of
prepayments of Eurodollar Loans, at least three Business Days' irrevocable
notice (which notice may be given by telephone (to be promptly confirmed in
writing, including by facsimile)) to the Agent and (ii) in the case of
prepayments of ABR Loans, irrevocable notice (which notice may be given by
telephone (to be promptly confirmed in writing, including by facsimile)) to the
Agent prior to 11:30 A.M., New York City time, on the date of such prepayment,
in each case specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, if
of a combination thereof, the amount allocable to each. Upon receipt of any such
notice the Agent shall promptly notify each Lender thereof. If any such notice
is given, the amount specified in such notice shall be due and payable on the
date specified therein, together with any amounts payable pursuant to subsection
2.17 in connection therewith. Partial prepayments of Loans under this paragraph
shall be in an aggregate principal amount of $250,000 or a whole multiple of
$50,000 in excess thereof.
(b) To the extent that the sum of the outstanding Loans and L/C
Obligations on any Business Day exceeds (i) the Commitments, including without
limitation, on the first Business Day of any Non-Peak Period during the
Commitment Period or as a result of a permanent reduction of the Commitments
pursuant to subsections 2.7(a) or 2.8(c), or (ii) the Borrowing Base, the
Borrower shall in each such case on the next Business Day pay in full an amount
equal to such excess first, to payment in full of all outstanding Loans, second,
to payment in full of any L/C Obligations constituting drawings under one or
more Letters of Credit which have not then been reimbursed, and third, to cash
collateralize any L/C Obligations constituting outstanding and undrawn Letters
of Credit by depositing an amount equal to 105% of the face amount of each
outstanding Letter of Credit in the L/C Cash Collateral Account.
(c) If any Loan Party shall receive in excess of $750,000 of Net
Proceeds from Asset Sales during any fiscal year then, unless the Required
Lenders shall otherwise agree, the amount of such Net Proceeds in excess of
$750,000 shall be applied to reduce permanently the Commitments within five
Business Days of the receipt by such Loan Party of such excess Net Proceeds.
(d) Notwithstanding the foregoing provisions of this Section 2, for a
period of not less than 45 consecutive days during the fiscal year beginning on
March 1, 1998 and each fiscal year thereafter, the aggregate outstanding
principal amount of all Loans shall be reduced to zero.
2.9 Interest Rates and Payment Dates. (a) Each ABR Loan shall bear
interest on the unpaid principal amount thereof at a rate per annum equal to the
ABR.
(b) Each Eurodollar Loan shall bear interest on the unpaid principal
amount thereof for each day during each Interest Period with respect thereto at
a rate per annum equal to the Eurodollar Rate determined for such Interest
Period, plus 1.75%.
(c) Interest on each Eurodollar Loan shall accrue from and including
the first day of the Interest Period applicable thereto to, but excluding, the
last day of such Interest Period.
(d) If all or a portion of (i) the principal amount of any Loan or
(ii) any interest payable thereon shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise) such Loan, and any such overdue
amount shall, without limiting the rights of the Agent and the applicable
Lenders under Section 8, bear interest at a rate per annum that would be
otherwise applicable thereto pursuant to the foregoing provisions of this
subsection, plus 2%, from the date of nonpayment until such amount is paid in
full (after as well as before judgment).
(e) Interest on the Loans shall be payable in arrears on each
applicable Interest Payment Date, provided that interest accruing pursuant to
paragraph (d) of this subsection shall be payable on demand.
2.10 Computation of Interest and Fees. (a) Commitment and all other
fees and, whenever it is calculated on the basis of the Prime Rate, interest
shall be calculated on the basis of a 365- (or 366- as the case may be) day year
for the actual days elapsed; and, otherwise, interest shall be calculated on the
basis of a 360-day year for the actual days elapsed. The Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error. The Agent shall, at the
request of the Borrower, deliver to the Borrower a statement showing the
quotations used by the Agent in determining the Eurodollar Rate.
(c) If at any time any Reference Lender's Commitment shall terminate
(other than on termination of all the Commitments), such Reference Lender shall
thereupon cease to be a Reference Lender and, if as a result of the foregoing,
there shall only be one Reference Lender remaining, then the Agent, after
consultation with the Borrower and the Lenders, shall, by notice to the Borrower
and the Lenders, designate another Lender as a Reference Lender so that there
shall at all times be at least two Reference Lenders.
(d) Each Reference Lender shall use its reasonable best efforts to
furnish quotations of rates to the Agent as contemplated hereby. If any
Reference Lender shall be unable or otherwise fails to supply such rates to the
Agent upon its request, the rate of interest shall be determined on the basis of
the quotations of the remaining Reference Lenders or Reference Lender.
2.11 Agent Fees. The Borrower agrees to pay to the Agent, for its own
account, a non-refundable agent's fee, in an amount per annum equal to $50,000,
payable in advance on the Closing Date and annually thereafter on each one-year
anniversary of the Closing Date prior to be termination of the Commitments and
payment in full of the Loans, the L/C Obligations and any other amounts payable
pursuant to any Loan Document to the Agent, the Lenders or the Issuing Bank.
2.12 Inability to Determine Interest Rate. If prior to the first day
of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the Required Lenders
that the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (y) any Loans that were to have been converted or
continued on the first day of such Interest Period to Eurodollar Loans shall be
converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans
shall be converted, on the first day of such Interest Period, to ABR Loans.
Until such notice has been withdrawn by the Agent (and the Agent agrees to do so
promptly when the relevant circumstance no longer exists), no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower have the right
to convert Loans to Eurodollar Loans.
2.13 Pro Rata Treatment and Payments. (a) Each borrowing of Loans by
the Borrower from the Lenders and any reduction of the Commitments of the
Lenders hereunder shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Each payment (including each prepayment) made on
account of principal of and interest on the Loans shall be made pro rata
according to the respective amounts of the Loans then held by the Lenders. All
payments (including prepayments) to be made on account of principal, interest
and fees shall be made without set off or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the Agent, for the
account of the Lenders, at the Agent's office specified in subsection 10.2 in
Dollars and in immediately available funds. The Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder would become due and payable on a day other than a Business
Day, such payment shall become due and payable on the next succeeding Business
Day and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make the amount which would
constitute its Commitment Percentage of such borrowing available to the Agent,
the Agent may assume that such Lender is making such amount available to the
Agent and the Agent may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. If such amount is not made available to the
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Agent, on demand, such amount with interest thereon at a rate equal to
the daily average Federal Funds Effective Rate for the period until such Lender
makes such amount immediately available to the Agent. A certificate of the Agent
submitted to any Lender with respect to any amounts owing under this subsection
shall be conclusive, absent manifest error. If such Lender's Commitment
Percentage of such borrowing is not in fact made available to the Agent by such
Lender within three Business Days of such Borrowing Date, the Agent shall also
be entitled to recover such amount with interest thereon at the rate per annum
applicable to the ABR Loans hereunder, on demand, from the Borrower, without
prejudice to any rights which the Borrower or the Agent may have against such
Lender hereunder. Nothing contained in this subsection shall relieve any Lender
which has failed to make available its ratable portion of any borrowing
hereunder from its obligation to do so in accordance with the terms hereof.
(c) The failure of any Lender to make the Loan to be made by it on any
Borrowing Date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on such Borrowing Date.
2.14 Illegality. Notwithstanding any other provision of this
Agreement, if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall
forthwith be cancelled until such time as such restriction no longer applies,
(b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to ABR Loans on the respective last days of the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law and (c) all Loans thereafter made by such Lender shall
be ABR Loans until such time as such restriction no longer applies. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to subsection
2.17.
2.15 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law from any central bank or other Governmental Authority or in
the interpretation or application thereof or compliance by any Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority, in any such case, made subsequent to the
date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note, any Letter of Credit, any Application
or any Eurodollar Loan made by it, or change the basis of taxation of
payments to such Lender in respect thereof (except for Non-Excluded Taxes
covered by subsection 2.16 and changes in the rate of tax on the overall
net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender
such additional amount or amounts as will compensate such Lender for such
increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law after the date hereof regarding capital
adequacy or in the interpretation or application thereof or compliance by such
Lender or any corporation controlling such Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
Governmental Authority made subsequent to the date hereof shall have the effect
of reducing the rate of return on such Lender's or such controlling
corporation's capital as a consequence of its obligations hereunder to a level
below that which such Lender or such controlling corporation could have achieved
but for such adoption, change or compliance (taking into consideration such
Lender's or such controlling corporation's policies with respect to capital
adequacy and using averaging and attribution methods which are reasonable) by an
amount deemed by such Lender to be material, then from time to time, the
Borrower shall promptly pay to such Lender such additional amount or amounts as
will compensate such Lender on an after-tax basis for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower (with a copy
to the Agent) of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this subsection
submitted by such Lender in reasonable detail to the Borrower (with a copy to
the Agent) shall be conclusive in the absence of manifest error. The agreements
in this subsection shall survive the termination of this Agreement and repayment
of the Notes and all other amounts payable hereunder. Each Lender agrees that,
upon the occurrence of any event giving rise to the operation of paragraph (a)
of this subsection with respect to such Lender, it will, if requested by the
Borrower and to the extent permitted by law or by the relevant Governmental
Authority, endeavor in good faith to avoid or minimize the increase in costs or
reduction in payments resulting from such event; provided, however, that such
avoidance or minimization can be made in such a manner that such Lender, in its
sole determination, suffers no economic, legal or regulatory disadvantage.
2.16 Taxes. (a) Except as provided in the immediately succeeding
sentence, all payments made by the Borrower under this Agreement and any Notes
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
taxes on or measured by net income and franchise taxes (imposed in lieu of net
income taxes) imposed on the Agent or any Lender as a result of a present or
former connection between the Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising from the
Agent or such Lender having executed, delivered or performed its obligations or
received a payment under, or enforced, this Agreement or any Note). If any such
non-excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Agent or any Lender hereunder or under any Note, the amounts so
payable to the Agent or such Lender shall be increased to the extent necessary
to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, provided, however, that the Borrower shall
not be required to increase any such amounts payable to any Lender that is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) if such Lender fails to comply with the requirements of paragraph (b) of
this subsection. Whenever any Non-Excluded Taxes are payable by the Borrower, as
promptly as practicable thereafter the Borrower shall send to the Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence, the Borrower shall indemnify
the Agent and the Lenders for any incremental taxes, interest or penalties that
may become payable by the Agent or any Lender as a result of any such failure.
The agreements in this subsection shall survive the termination of this
Agreement and repayment of the Notes and all other amounts payable hereunder.
(b) Each Lender that is not a United States person (as such term is
defined under Section 7701(a)(30) of the Code) incorporated under the laws of
the United States or a state thereof shall, as promptly as possible deliver to
the Borrower and the Agent (i) two accurate, duly completed, properly executed
copies of United States Internal Revenue Service Form 1001 or Form 4224, or
successor applicable form, as the case may be, and (ii) if applicable for
purposes of United States back-up withholding tax, an Internal Revenue Service
Form W-8 or successor applicable form. Thereafter, each such Lender shall, as
promptly as practicable:
(x) deliver to the Borrower and the Agent two further copies of any
such form or certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by it
to the Borrower; and
(y) obtain such extensions of time for filing and completing such
forms or certifications as may reasonably be requested by the Borrower or
the Agent;
unless in any such case, after the Closing Date (or in the case of a Transferee,
after the date on which such Transferee becomes a Participant or Lender
hereunder) the adoption of any law, rule, regulation, policy, guideline or
directive or any change therein or in the interpretation or application thereof
by any Governmental Authority relating to the deducting or withholding of income
taxes has occurred which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender so advises the Borrower and the Agent. Such Lender
shall certify (A) in the case of a Form 1001 or Form 4224 or any successor
applicable form, that it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes and
(B) in the case of a Form W-8, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 10.6 shall, upon the effectiveness of the
related transfer, provide all of the forms and statements required pursuant to
this subsection, provided that in the case of a Participant such Participant
shall furnish all such required forms and statements to the Lender from which
the related participation shall have been purchased.
(c) Notwithstanding anything to the contrary contained in this
subsection, if a Lender is a conduit entity participating in a conduit financing
arrangement (as defined in Section 7701(l) of the Code and the Treasury
Regulations issued thereunder) with respect to any payments made by the Borrower
under this Agreement or under any Note, the Borrower shall not be obligated to
pay additional amounts to such Lender pursuant to this subsection to the extent
that the amount of United States taxes exceeds the amount that would have
otherwise been payable had such Lender not been a conduit entity participating
in a conduit financing arrangement.
(d) If a Lender (or the Agent on behalf of a Lender) receives a refund
of, or in respect of, any Non-Excluded Taxes for which the Borrower has paid
additional amounts pursuant to subsection 2.16(a) or, after the payment of such
amounts, such Lender receives a tax credit, deduction or other benefit by reason
of the payment or accrual of such Non-Excluded Taxes, such Lender shall as
promptly as possible pay to the Borrower an amount equal to such refund, credit,
deduction or other tax benefit. Nothing in this subsection shall require a
Lender to disclose its tax returns to the Borrower.
2.17 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense (it being understood that the
Borrower shall not be required to indemnify any Lender for lost profits) which
such Lender may sustain or incur as a consequence of (a) default by the Borrower
in making a borrowing of, conversion into or continuation of Eurodollar Loans
after the Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day which is not the last day of an Interest
Period with respect thereto. This covenant shall survive the termination of this
Agreement and repayment of the Notes and all other amounts payable hereunder.
2.18 Proceeds of Loans and Letters of Credit. The Borrower shall use
the proceeds of the Loans to provide working capital for, to finance Inventory
purchases by, and for other general corporate purposes of the Loan Parties
(including to make cash payments and/or distributions, under, and in connection
with, the implementation of the Reorganization Plan and the Wall Acquisition
Agreement), and the Letters of Credit shall be issued to support the purchase of
Inventory by the Loan Parties and for other general corporate purposes of the
Loan Parties.
SECTION 3 LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
the Issuing Bank, in reliance on the agreements of the other Lenders set forth
in subsection , agrees to issue Letters of Credit for the account of the
Borrower on any Business Day during the Commitment Period in such form as may be
approved from time to time by the Issuing Bank; provided that the Issuing Bank
shall not issue any Letter of Credit if, after giving effect to such issuance,
(i) the L/C Obligations would exceed the L/C Limit, (ii) the Available
Commitment would be less than zero or (iii) subsection 2.1(b) would be violated.
(b) Each Letter of Credit shall:
(i) be denominated in Dollars and shall be either a Standby L/C
or a Commercial L/C;
(ii) expire no later than the Maturity Date; and
(iii) if the Termination Date occurs prior to the expiration of
any such Letter of Credit, such Letter of Credit shall be replaced and
returned to the Issuing Bank undrawn and marked "canceled" on or prior
to Termination Date or to the extent that the Borrower is unable to
replace any such Letter of Credit, the Borrower shall deposit funds
into the L/C Cash Collateral Account until such Letter of Credit has
been cash collateralized in an amount equal to 105% of the face amount
of such Letter of Credit.
(c) Each Letter of Credit shall be subject to the Uniform Customs and,
to the extent not inconsistent therewith, the laws of the State of New York.
(d) The Issuing Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any Participating Lender to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The Borrower may from
time to time request that the Issuing Bank issue a Letter of Credit by
delivering to the Issuing Bank at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Bank, and
such other certificates, documents and other papers and information as the
Issuing Bank may request. Upon receipt of any Application, the Issuing Bank will
process such Application and the certificates, documents and other papers and
information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Bank be required to issue any Letter
of Credit (a) if the conditions precedent to the issuance of such Letter of
Credit contained in subsection 5.2 are not satisfied and (b) earlier than three
Business Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as
otherwise may be agreed by the Issuing Bank and the Borrower. The Issuing Bank
shall furnish a copy of such Letter of Credit to the Borrower promptly following
the issuance thereof.
3.3 Letter of Credit Fees and Other Charges. (a) In lieu of any letter
of credit commissions and fees provided for in any Application relating to
Standby L/Cs (other than standard issuance, amendment and negotiation fees), the
Borrower agrees to pay the Agent, for the account of the Issuing Bank and the
Participating Lenders, with respect to each Standby L/C issued for the account
of the Borrower, a Standby L/C fee of 2% per annum (of which the Issuing Bank
shall retain for its own account, as the issuing bank and not on account of its
L/C Participating Interest therein, 1/4 of 1% per annum) on the amount available
to be drawn under such Standby L/C, payable in arrears on the last day of each
Interest Payment Date applicable to ABR Loans.
(b) In lieu of any letter of credit commissions and fees provided for
in any Application relating to Commercial L/Cs (other than standard issuance,
amendment and negotiation fees), the Borrower agrees to pay the Agent, for the
account of the Issuing Bank and the Participating Lenders, with respect to each
Commercial L/C issued for the account of the Borrower, a Commercial L/C fee of
3/4 of 1% (of which the Issuing Bank shall retain for its own account, as the
issuing bank and not on account of its L/C Participating Interest therein, 1/8
of 1%), on the maximum face amount of such Commercial L/C, payable in arrears on
the last day of each Interest Payment Date applicable to ABR Loans.
(c) For purposes of any payment of fees required pursuant to this
subsection, the Agent agrees to provide to the Borrower a statement of any such
fees to be so paid; provided that the failure by the Agent to provide the
Borrower with any such statement shall not relieve the Borrower of its
obligation to pay such fees.
(d) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Bank for such normal and customary costs and expenses as
are incurred or charged by the Issuing Bank in issuing, effecting payment under,
amending or otherwise administering any Letter of Credit.
(e) The Agent shall, promptly following its receipt thereof,
distribute to the Issuing Bank and the Participating Lenders all fees received
by the Agent for their respective accounts pursuant to this subsection.
3.4 L/C Participations. (a) The Issuing Bank irrevocably agrees to
grant and hereby grants to each Participating Lender, and, to induce the Issuing
Bank to issue Letters of Credit hereunder, each Participating Lender irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Bank, on the terms and conditions hereinafter stated, for such Participating
Lender's own account and risk an undivided interest equal to such Participating
Lender's Commitment Percentage of the Issuing Bank's obligations and rights
under each Letter of Credit issued hereunder and the amount of each draft paid
by the Issuing Bank thereunder. Each Participating Lender unconditionally and
irrevocably agrees with the Issuing Bank that, if a draft is paid under any
Letter of Credit for which the Issuing Bank is not reimbursed in full by the
Borrower in accordance with the terms of this Agreement, such Participating
Lender shall pay to the Issuing Bank upon demand and in immediately available
funds, if notified prior to 12:00 noon New York City time on such date;
otherwise on the next succeeding Business Day at the Issuing Bank's address for
notices specified herein an amount equal to such Participating Lender's
Commitment Percentage of the amount of such draft, or any part thereof, which is
not so reimbursed.
(b) If any amount required to be paid by any Participating Lender to
the Issuing Bank pursuant to clause (a) of this subsection in respect of any
unreimbursed portion of any payment made by the Issuing Bank under any Letter of
Credit is paid to the Issuing Bank within three Business Days after the date
such payment is due, such Participating Lender shall pay to the Issuing Bank on
demand an amount equal to the product of (i) such amount, times (ii) the daily
average Federal Funds Effective Rate, as quoted by the Issuing Bank, during the
period from and including the date such payment is required to the date on which
such payment is immediately available to the Issuing Bank, times (iii) a
fraction the numerator of which is the number of days that elapse during such
period and the denominator of which is 360. If any such amount required to be
paid by any Participating Lender pursuant to clause (a) of this subsection is
not in fact made available to the Issuing Bank by such Participating Lender
within three Business Days after the date such payment is due, the Issuing Bank
shall be entitled to recover from such Participating Lender, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans hereunder. A certificate of the Issuing Bank submitted
to any Participating Lender with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Bank has made payment
under any Letter of Credit and has received from any Participating Lender its
pro rata share of such payment in accordance with clause (a) of this subsection,
the Issuing Bank receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise, including proceeds of the L/C Cash
Collateral Account applied thereto by the Issuing Bank), or any payment of
interest on account thereof, the Issuing Bank will distribute to such
Participating Lender its pro rata share thereof; provided, however, that in the
event that any such payment received by the Issuing Bank shall be required to be
returned by the Issuing Bank, such Participating Lender shall return to the
Issuing Bank the portion thereof previously distributed by the Issuing Bank to
it.
3.5 Reimbursement Obligation of the Borrower. (a) The Borrower agrees
to reimburse the Issuing Bank in accordance with subsection 3.5(b) in respect of
any draft presented under any Letter of Credit and paid by the Issuing Bank for
the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other
costs or expenses incurred by the Issuing Bank in connection with such payment.
Each such payment shall be made to the Issuing Bank at its address for notices
specified herein in lawful money of the United States of America and in
immediately available funds.
(b) If any draft shall be presented for payment under any Letter of
Credit, the Issuing Bank shall promptly notify the Borrower of the date and
amount thereof. The Borrower shall reimburse the Issuing Bank pursuant to
subsection 3.5(a) with respect to any drawing under any Letter of Credit on (i)
the Business Day on which such drawing is paid by the Issuing Bank, if notice of
such drawing is given to the Borrower by the Issuing Bank prior to 12:00 Noon,
New York City time, on the date such drawing is paid, or (ii) the first Business
Day after notice of such drawing is given to the Borrower by the Issuing Bank,
if such notice is given after 12:00 Noon, New York City time, on the date such
drawing is paid, and, if such drawing is reimbursed after the date of such
drawing, interest shall be payable on the amount of such drawing for the period
from the date such drawing is paid by the Issuing Bank until reimbursed by the
Borrower at the rate applicable to ABR Loans. If any amount payable under this
subsection is not paid when due, interest shall be payable on such amount from
the date such amount becomes payable under this subsection until payment in full
thereof at the rate applicable to overdue ABR Loans.
3.6 Obligations Absolute. (a) Subject to subsection 3.6(b), the
Borrower's obligations under this Section 3 shall be absolute and unconditional
under any and all circumstances and irrespective of any set-off, counterclaim or
defense to payment which the Borrower may have or has had against the Issuing
Bank, any Participating Lender or any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Bank that, in the
absence of gross negligence or willful misconduct by the Issuing Bank, the
Issuing Bank shall not be responsible for, and the Borrower's reimbursement
obligations under subsection shall not be affected by, among other things, (i)
the validity or genuineness of documents or of any endorsements thereon, even
though such documents shall in fact prove to be invalid, fraudulent or forged,
or (ii) any dispute between or among the Borrower and any beneficiary of any
Letter of Credit or any other party to which such Letter of Credit may be
transferred or (iii) any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee.
(c) The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Issuing Bank's gross negligence or willful
misconduct.
(d) The Borrower agrees that any action taken or omitted by the
Issuing Bank under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Bank to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Bank shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing Bank
to the Borrower in connection with any draft presented for payment under any
Letter of Credit shall, in addition to any payment obligation expressly provided
for in such Letter of Credit, be limited to determining that the documents
(including each draft) delivered under such Letter of Credit in connection with
such presentment are in conformity with such Letter of Credit.
3.8 Application. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
SECTION 4 REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Loans, and to induce the Issuing Bank to issue, and
the Participating Lenders to participate in, the Letters of Credit, the Borrower
hereby represents and warrants to each Lender, the Issuing Bank and the Agent,
as of the Closing Date and as of the making of any extension of credit hereunder
(unless such representation is expressly made as of a specific date, in which
case such representation and warranty is made as of such specific date):
4.1 Financial Condition. (a) The consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at March 1, 1997 and the related
consolidated statements of operations and of cash flows for the fiscal year
ended on such date, reported on by Coopers & Lybrand, LLC, copies of which have
heretofore been furnished to each Lender, are complete and correct in all
material respects and present fairly in all material respects in accordance with
GAAP the consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of their operation
and their consolidated cash flows for the fiscal year then ended.
(b) The unaudited pro forma consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at the Effective Date, certified by a
Responsible Officer of the Borrower, a copy of which has been heretofore
provided to each Lender, is the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries, adjusted to give effect to (i) the
Wall Transaction and each of the transactions contemplated by the Wall
Transaction Documents and (ii) the incurrence of the Loans and the issuance of
the Letters of Credit to be incurred or issued, as the case may be, on the
Closing Date. Such pro forma balance sheet, together with the notes thereto, was
prepared based on good faith assumptions and is based on the best information
available to the Borrower as of the date of delivery thereof, and reflects on a
pro forma consolidated basis the financial position of the Borrower and its
consolidated Subsidiaries as of the Effective Date, as adjusted, as described
above.
(c) The unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at August 30, 1997 and the related consolidated
statements of operations and cash flows for the fiscal quarter ended on such
date, certified by a Responsible Officer of the Borrower, copies of which have
heretofore been provided to each Lender, present fairly in all material respects
in accordance with GAAP, the financial condition of the Borrower and its
consolidated Subsidiaries as at such date, and the results of their consolidated
operations and their consolidated cash flows for the fiscal period then ended.
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as disclosed therein). Neither the
Borrower nor any of its consolidated Subsidiaries had at the date of the most
recent balance sheet referred to above, any material Contingent Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any material
interest rate or foreign currency swap or exchange transaction, which is not
reflected in the foregoing statements or in the notes thereto or expressly
permitted to be incurred hereunder.
4.2 No Change. Since March 1, 1997, there has been no change, and no
development or event involving a prospective change, which has had or could
reasonably be expected to have a Material Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Loan Parties
(a) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (b) has full corporate power
and authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to use its corporate name
and to own, lease or otherwise hold its properties and assets and to carry on
its business as presently conducted other than such franchises, licenses,
permits, authorizations and approvals the lack of which, individually or in the
aggregate, would not have a Material Adverse Effect, (c) is duly qualified as a
foreign corporation and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership, leasing or holding of its
properties makes such qualification necessary, except such jurisdictions where
the failure so to qualify would not have a Material Adverse Effect and (d) is in
compliance with all Requirements of Law, except where noncompliance would not
have a Material Adverse Effect.
4.4 Corporate Power; Authorization. Each of the Loan Parties has the
corporate power and authority to make, deliver and perform each of the Loan
Documents to which it is a party, and the Borrower has the corporate power and
authority and legal right to borrow hereunder and to have Letters of Credit
issued for its account hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of each of
the Loan Documents to which it is or will be a party and the Borrower has taken
all necessary corporate action to authorize the borrowings hereunder and the
issuance of Letters of Credit for its account hereunder. No consent or
authorization of, or filing with, any Person (including, without limitation, any
Governmental Authority) is required in connection with the execution, delivery
or performance by any Loan Party, or for the validity or enforceability against
such Loan Party, of any Loan Document, except as may be necessary to perfect the
Liens created pursuant to the Security Documents and except those consents,
authorizations and filings which have been obtained, made or waived.
4.5 Enforceable Obligations. This Agreement, and each of the other
Loan Documents and the Wall Transaction Documents have been or will be, duly
executed and delivered on behalf of each Loan Party that is a party hereto or
thereto and each of the Wall Transaction Documents constitutes, and this
Agreement and each of the other Loan Documents will constitute upon execution
and delivery, the legal, valid and binding obligation of such Loan Party, and is
enforceable against such Loan Party in accordance with their terms, subject to
the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
4.6 No Legal Bar. The execution, delivery and performance of each Loan
Document and each Wall Transaction Document and the incurrence or issuance of
and use of the proceeds of the Loans and of drawings under the Letters of Credit
will not violate any Requirement of Law or any Contractual Obligation existing
on the Effective Date applicable to or binding upon each Loan Party or any of
its properties or assets, and will not result in the creation or imposition of
any Lien on any of its properties or assets pursuant to any Requirement of Law
applicable to such Loan Party, as the case may be, or any such Contractual
Obligation.
4.7 No Material Litigation. No litigation by, investigation known to
the Borrower by, or proceeding of, any Governmental Authority is pending against
any Loan Party with respect to the validity, binding effect or enforceability of
any Loan Document, any Wall Transaction Document, the Loans made hereunder, the
use of proceeds thereof, or of any drawings under a Letter of Credit and the
other transactions contemplated hereby and by the Wall Transaction Documents.
Except as set forth on Schedule 4.7 hereto, no lawsuits, claims, proceedings or
investigations pending or, to the best knowledge of the Borrower, threatened as
of the Closing Date against or affecting any Loan Party or any of its
properties, assets, operations or businesses, is reasonably likely, if adversely
decided, to have a Material Adverse Effect.
4.8 Investment Company Act. None of the Loan Parties is an "investment
company" or a company "controlled" by an "investment company" (as each of the
quoted terms is defined or used in the Investment Company Act of 1940, as
amended).
4.9 Federal Regulation. No part of the proceeds of any of the Loans or
any drawing under a Letter of Credit will be used for any purpose which violates
the provisions of Regulation G, T, U or X of the Board. No Loan Party is engaged
or will engage, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms under
said Regulation U.
4.10 Taxes. Each Loan Party has filed or caused to be filed all
material tax returns which, to the knowledge of the Borrower, are required to be
filed and, except to the extent set forth in the Reorganization Plan, has paid
all taxes shown to be due and payable on said returns or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority (other than
any such tax returns, taxes, fees or other charges (a) the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves (or other sufficient provisions) in conformity
with GAAP have been provided on the books of the applicable Loan Party or (b)
which, if not paid or filed, could not reasonably be expected to have a Material
Adverse Effect).
4.11 Subsidiaries. The Subsidiaries of the Loan Parties on Schedule
4.11 constitute all of the Subsidiaries of the Loan Parties as of the Closing
Date, after giving effect to the consummation of the Wall Transaction.
4.12 Ownership of Property and Assets. Each Loan Party has good and
valid title to all its material assets in each case free and clear of all Liens
of any nature whatsoever except Permitted Liens. All of the Inventory is owned
by the Loan Parties. With respect to real property or interests in real
property, the applicable Loan Party has (i) fee title to all of its real
property listed on Schedule 4.12 under the heading "Fee Properties" (each, a
"Fee Property"), and (ii) good and valid title to the leasehold estates in all
of the real property leased by it and listed on Schedule 4.12 under the heading
"Leased Properties" (each, a "Leased Property"). The Fee Properties and the
Leased Properties constitute, as of the Closing Date, all of the real property
owned in fee or leased by the Loan Parties.
4.13 ERISA. No Loan Party or any Commonly Controlled Entity would be
liable for any material amount pursuant to Sections 4062, 4063, 4064 or 4069 of
ERISA, if any Single Employer Plan were to terminate. No Loan Party or any
Commonly Controlled Entity has been involved in any transaction that would cause
such Loan Party to be subject to any material liability with respect to a Plan
to which such Loan Party or any Commonly Controlled Entity contributed or was
obligated to contribute during the six-year period ending on the date this
representation is made or deemed made under Sections 4062, 4069 or 4212(c) of
ERISA. No Loan Party or any Commonly Controlled Entity has incurred any material
liability under Title IV of ERISA which would become or remain a liability of
such Loan Party after the Closing Date and the consummation of the Wall
Transaction. No Loan Party, or any director, officer or employee thereof, or any
of the Plans (to the best knowledge of the Borrower with respect to any Plan
that is a Multiemployer Plan), or any trust created thereunder, or any fiduciary
thereof, has engaged in a transaction or taken any other action or omitted to
take any action involving any such Plan which would constitute a prohibited
transaction within the meaning of Section 406 of ERISA which is not otherwise
exempted, or would cause it to be subject to either a material liability or a
material civil penalty assessed pursuant to Sections 409 or 502 of ERISA or a
material tax imposed pursuant to Sections 4975 or 4976 of the Code. Each of the
Plans (to the best knowledge of the Borrower with respect to any Multiemployer
Plan) has been operated and administered in all material respects in accordance
with applicable laws, including, but not limited to, ERISA and the Code. There
are no material pending or, to the best knowledge of the Borrower, threatened
claims by or on behalf of any of the Plans (to the best knowledge of the
Borrower with respect to any Multiemployer Plan) or any fiduciary of such Plan,
by any employee or beneficiary covered under any such Plan or fiduciary, or
otherwise involving any such Plan or fiduciary (other than routine claims for
benefits). No condition exists and no event has occurred with respect to any
Multiemployer Plan which presents a material risk of a complete or partial
withdrawal under Subtitle E of Title IV of ERISA, nor has any Loan Party or any
Commonly Controlled Entity been notified that any such Multiemployer Plan is
Insolvent or in Reorganization, which Insolvency or Reorganization would result
in a material liability of such Plan. No Loan Party nor any Commonly Controlled
Entity has been a party to any transaction or agreement to which the provisions
of Section 4204 of ERISA were applicable pursuant to which such Loan Party or
Commonly Controlled Entity has any material liability to a Multiemployer Plan.
No Loan Party nor any Commonly Controlled Entity is obligated to contribute to a
Multiemployer Plan, on behalf of any current or former employee of the Borrower
or any Commonly Controlled Entity. None of the Plans or any trust established
thereunder has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the Plans which could
reasonably be expected to result in a material liability of such Plans. No
contribution failure has occurred with respect to any Plan sufficient to give
rise to a lien under Section 302(f) of ERISA in favor of any Plan. No Loan Party
has any defined benefit plans (as defined in Section 3(35) of ERISA) other than
as listed on Schedule 4.13.
4.14 Copyrights, Permits, Trademarks and Licenses. Schedule 4.14 sets
forth a true and complete list of all material trademarks (registered or
unregistered), trade names, service marks and copyrights and applications
therefor owned, used or filed by or licensed to any Loan Party and, with respect
to registered trademarks (if any), contains a list of all jurisdictions in which
such trademarks are registered or applied for and all registration and
application numbers. Except as disclosed on Schedule 4.14, a Loan Party owns or
has the right to use, without payment to any other party, trademarks (registered
or unregistered), trade names, service marks, copyrights and applications
therefor referred to on such Schedule. To the best knowledge of the Borrower, no
claims are pending by any Person with respect to the ownership, validity,
enforceability or any Loan Party's use of any such trademarks (registered or
unregistered), trade names, service marks, copyrights or applications therefor,
challenging or questioning the validity or effectiveness of any of the foregoing
in any jurisdiction, domestic or foreign.
4.15 No Default. None of the Loan Parties is in default in the payment
or performance of any of its Contractual Obligations in any respect which could
reasonably be expected to have a Material Adverse Effect. None of the Loan
Parties is in default under any order, award or decree of any Governmental
Authority or arbitrator binding upon or affecting it or them or by which any of
its or their properties or assets may be bound or affected in any respect which
could reasonably be expected to have a Material Adverse Effect and no such
order, award or decree could reasonably be expected to have a Material Adverse
Effect or materially adversely affect the ability of any Loan Party to perform
its obligations under any Loan Document to which it is a party.
4.16 Security Documents. Upon execution and delivery thereof, the
Security Documents will be effective to create, in favor of the Agent, for the
benefit of the Lenders, legal, valid and enforceable Liens on and security
interests in all right, title, estate and interest of the Borrower and the other
Loan Parties, as the case may be, in and to the collateral described therein
and, upon the filing and recording of all necessary and appropriate recordings
and filings in all appropriate public offices and the taking of any other
actions required by law, the Liens and security interests created by each of the
Security Documents will constitute perfected security interests in all such
right, title, estate and interest of the Borrower and the other Loan Parties
prior to all other Liens, existing or future, except for Permitted Liens,
provided that the enforceability of such Liens and security interests is subject
to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
to general equitable principles (whether considered in a proceeding in equity or
at law).
4.17 Environmental Matters. Except as could not reasonably be expected
to have a Material Adverse Effect, to the best knowledge of the Borrower:
(a) each parcel of real property owned or operated by any Loan Party
(the "Properties") does not contain, and has not previously contained, in,
on or under including, without limitation, the soil and groundwater
thereunder, any Hazardous Materials in amounts or concentrations that
constitute or constituted a material violation of, or could reasonably give
rise to material liability under, Environmental Laws;
(b) the Properties and all operations and facilities at the Properties
are in material compliance with all applicable Environmental Laws, and
there is no contamination or violation of any Environmental Law which could
materially interfere with the continued operation of, or materially impair
the fair saleable value of, the Properties;
(c) no Loan Party has received or is aware of any complaint, notice of
violation, alleged violation, or notice of investigation or of potential
liability under Environmental Laws with regard to the Properties or the
operations of the Loan Parties, nor does the Borrower have knowledge that
any such action has been threatened;
(d) Hazardous Materials have not been generated, treated, stored,
disposed of, at, on or under the Properties, nor have any Hazardous
Materials been transported from the Properties, in material violation of or
in a manner that could reasonably give rise to liability under any
Environmental Laws; and
(e) there are no governmental administrative actions or judicial
proceedings pending or, to the best knowledge of the Borrower, threatened,
under any Environmental Law to which any Loan Party is a party with respect
to the Properties, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other
administrative or judicial requirements, other than permits authorizing
operations at facilities at the Properties, outstanding under any
Environmental Law with respect to the Properties.
4.18 Accuracy and Completeness of Information. The factual statements
contained in the financial statements referred to in subsection 4.1, this
Agreement, the other Loan Documents, the Disclosure Materials, the
Reorganization Plan, the Wall Transaction Documents and any other certificates
or documents furnished or to be furnished, to the Agent or the Lenders or the
Bankruptcy Court from time to time in connection with this Agreement, the other
Loan Documents, the Disclosure Materials, the Reorganization Plan and the Wall
Transaction Documents, taken as a whole, do not and will not, to the best
knowledge of the Borrower, as of the date when made, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in light of the
circumstances in which the same were furnished or made, all except as otherwise
qualified herein or therein, such knowledge qualification being given only with
respect to factual statements made by Persons other than the Loan Parties.
4.19 Insurance. All policies of insurance of any kind or nature owned
by or issued to any Loan Party, including, without limitation, policies of life,
fire, theft, product liability, public liability, property damage, other
casualty, employee fidelity, workers' compensation, employee health and welfare,
title, property and liability insurance, are in full force and effect and are of
a nature and provide such coverage as is sufficient and as is customarily
carried by companies of the size and character of the Loan Parties, taken as a
whole.
SECTION 5 CONDITIONS PRECEDENT
5.1 Conditions to Initial Loan and Letter of Credit and Effectiveness
of Agreement. This Agreement shall become effective upon, and the obligation of
each Lender to make its initial Loan and the obligation of the Issuing Bank to
issue the initial Letter of Credit are subject to, the satisfaction or waiver by
the Required Lenders of each of the following conditions precedent, provided
that no Lender shall make its initial Loan prior to the satisfaction of the
additional conditions precedent contained in subsection 5.2(f):
(a) Loan Documents. The Agent shall have received (i) a counterpart of
this Agreement for each Lender executed and delivered by a duly authorized
officer of the Borrower, (ii) for the account of each Lender, a Note of the
Borrower conforming to the requirements hereof and executed by a duly
authorized officer of the Borrower, (iii) a counterpart of each of the
Holdings Guarantee and the Subsidiaries Guarantee for each Lender, each
executed and delivered by a duly authorized officer of each party thereto
and (iv) a counterpart of each Security Document for each Lender, each
executed and delivered by a duly authorized officer of each party thereto.
(b) Supporting Documents. The Agent shall have received for each Loan
Party:
(i) a copy of the certificate of incorporation of such Loan
Party, as amended, certified as of a recent date by the Secretary of
State of the state of its incorporation;
(ii) a certificate of such Secretary of State, dated as of a
recent date, as to the good standing of and payment of taxes by such
Loan Party set forth in clause (i) above and as to the charter
documents on file in the office of such Secretary of State; and
(iii) a certificate executed by the President or any Vice
President and the Secretary or Assistant Secretary of such Loan Party
dated the Closing Date, and certifying (A) that attached thereto is a
true and complete copy of the by-laws of such Loan Party as in effect
on the date of such certification, (B) that attached thereto is a true
and complete copy of resolutions adopted by the Board of Directors (or
in the case of Holdings, authorized pursuant to the Reorganization
Plan and the Confirmation Order) of (1) in the case of the Borrower,
the Borrower authorizing the requesting of the Loans and the issuance
of Letters of Credit hereunder, and (2) in the case of each Loan Party
(including the Borrower), such Loan Party authorizing the execution,
delivery and performance in accordance with their respective terms of
each Loan Document to be executed by it and any other documents
required or contemplated hereunder or thereunder, the granting of the
security interests contemplated hereby, and any other matters as
reasonably requested by the Agent and the Lenders, (C) that the
certificate of incorporation of such Loan Party has not been amended
since the date of the last amendment thereto indicated on the
certificate of the Secretary of State furnished pursuant to clause (i)
above and (D) as to the incumbency and specimen signature of each
officer of such Loan Party executing this Agreement, the Notes to be
executed by it and the Loan Documents or any other document delivered
by it in connection herewith or therewith (such certificate to contain
a certification by another officer of such Loan Party as to the
incumbency and signature of the officer signing the certificate
referred to in this clause (iii)).
(c) Pro Forma Balance Sheet. The Agent shall have received a pro forma
consolidated balance sheet of Holdings and its consolidated Subsidiaries as
at the Effective Date, adjusted to give effect to the consummation of the
transactions contemplated by the Reorganization Plan and the Wall
Transaction, which pro forma balance sheet shall be in form and substance
reasonably satisfactory to the Agent.
(d) Fees and Expenses. The Agent and each Lender shall have received
all facility and other fees, expenses and other consideration required to
be paid or delivered on or before the Closing Date (including, without
limitation, all fees and expenses owing as of the Closing Date required to
be paid pursuant to subsection 10.5).
(e) Legal Opinion. The Agent shall have received, with a counterpart
for each Lender, the following executed legal opinions:
(i) the executed legal opinion of White & Case, counsel to the
Borrower and the other Loan Parties, substantially in the form of
Exhibit K;
(ii) the executed legal opinion of Stark & Knoll, special real
estate counsel to Camelot Distribution, substantially in the form of
Exhibit L-1; and
(iii) the executed legal opinion of Obermayer, Rebmann, Maxwell &
Hippel LLP, special Pennsylvania counsel to the Borrower,
substantially in the form of Exhibit L-2.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent may reasonably
require.
(f) Pledged Stock; Stock Powers. The Agent shall have received the
certificates representing the shares pledged pursuant to the Holdings
Pledge Agreement and the Borrower Pledge Agreement, together with an
undated stock power for each such certificate executed in blank by a duly
authorized officer of Holdings or the Borrower, as the case may be, each
endorsed in blank by a duly authorized officer of Holdings or the Borrower,
as the case may be.
(g) Actions to Perfect Liens. The Agent shall have received evidence
in form and substance reasonably satisfactory to it that all filings,
recordings, registrations and other actions, including, without limitation,
the filing of duly executed financing statements on form UCC-1, necessary
or, in the reasonable opinion of the Agent, desirable to perfect the Liens
created by the Security Documents shall have been completed.
(h) Surveys. The Agent shall have received, and the title insurance
company issuing the policy referred to in subsection 5.1(i) (the "Title
Insurance Company") shall have received, a map or plat of the Mortgaged
Property, dated a date reasonably satisfactory to the Agent and the Title
Insurance Company by an independent professional licensed land surveyor
reasonably satisfactory to the Agent and the Title Insurance Company.
(i) Title Insurance Policy. The Agent shall have received in respect
of the Mortgaged Property a mortgagee's title policy or marked up
unconditional binder for such insurance dated the Closing Date. Such policy
shall (i) be in an amount reasonably satisfactory to the Agent; (ii) be
issued at ordinary rates; (iii) insure that the Camelot Distribution
Mortgage creates a valid Lien on the Mortgaged Property free and clear of
all defects and encumbrances, except such as may be approved by the Agent;
(iv) name the Agent for the benefit of the Lenders as an insured
thereunder; (v) be in the form of ALTA Loan Policy - 1970 (Amended
10/17/70); (vi) contain such endorsements and affirmative coverage as the
Agent may reasonably request and (vii) be issued by title companies
reasonably satisfactory to the Agent (including any such title companies
acting as co-insurers or reinsurers, at the option of the Agent). The Agent
shall have received evidence satisfactory to it that all premiums in
respect of each such policy, and all charges for mortgage recording tax, if
any, have been paid.
(j) Flood Insurance. To the extent required by applicable law, the
Agent shall have received (i) evidence of a policy of flood insurance
reasonably acceptable to the Agent which (A) covers any Mortgaged Property
located in an area identified as an area having special flood hazards by
the Secretary of Housing and Urban Development or other applicable agency,
and (B) otherwise complies with such applicable law and (ii) confirmation
that the Borrower has received the notice required pursuant to Section
208(e)(3) of Regulation H of the Board.
(k) Copies of Documents. The Agent shall have received a copy of all
recorded documents referred to, or listed as exceptions to title in, the
title policy or policies referred to in subsection 5.1(i) and a copy,
certified by such parties as the Agent may deem appropriate, of all other
documents affecting the Mortgaged Property.
(l) Insurance. The Agent shall have received (i) a schedule describing
all insurance maintained by each Loan Party pursuant to subsection 6.4 and
(ii) certificates of insurance for each policy set forth on such schedule
insuring against casualty and other usual and customary risks.
(m) Borrowing Base Certificate. The Agent shall have received a
Borrowing Base Certificate (dated no more than seven (7) days prior to the
making of the initial Loan or the issuance of the initial Letter of Credit)
showing a Borrowing Base sufficient to allow the making of such Loan or the
issuance of such Letter of Credit in accordance with subsection 2.1(b).
(n) Information. The Agent and each Lender shall have received such
information (financial or otherwise) as may be reasonably requested by the
Agent or any Lender.
(o) Environmental Compliance. Each Loan Party shall have granted the
Agent and each Lender access to and the right to inspect all reports,
audits and other internal information of such Loan Party relating to
environmental matters, and the Agent and each Lender shall be satisfied
that the Loan Parties are in compliance in all material respects with all
applicable Environmental Laws and regulations and be satisfied with the
costs of maintaining such compliance.
(p) Confirmation Order; Reorganization Plan. The Agent and each Lender
shall have received a true and correct copy of the Confirmation Order which
(i) shall be in form and substance reasonably satisfactory to the Agent and
in full force and effect, and shall not have been stayed, reversed,
modified or amended and (ii) shall approve and authorize the transactions
contemplated by this Agreement, the other Loan Documents, the Wall
Transaction Documents and the Reorganization Plan and otherwise shall not
be inconsistent with the provisions hereof and thereof, provided that if
the approval and authorization of the transactions contemplated by the Wall
Transaction Documents are contained in a separate order of the Bankruptcy
Court, such order (i) shall be in form and substance reasonably
satisfactory to the Agent and in full force and effect, and shall not have
been stayed, reversed, modified or amended and (ii) shall not be
inconsistent with the provisions of the Loan Documents, the Wall
Transaction Documents and the Reorganization Plan. The Reorganization Plan
shall not have been amended, supplemented or otherwise modified after the
deadline for voting to accept or reject the Reorganization Plan, except for
such amendments, supplements or modifications thereto which are (A) purely
technical or corrective in nature or (B) not inconsistent, in the
reasonable judgment of the Agent, with the terms of this Agreement, the
other Loan Documents and the Wall Transaction Documents. The Transfer
Agreements (as defined in the Reorganization Plan) shall have been executed
and delivered by the parties thereto and the transactions contemplated
thereby to occur on or before the Effective Date shall have been
consummated.
(q) Available Trade Credit. The Agent and each of the Lenders shall be
reasonably satisfied that trade credit will be made available to the Loan
Parties after the Closing Date in amounts and on terms consistent with the
Borrower's post- Effective Date budget/projections.
(r) Cash Payment to Pre-Petition Secured Lenders. Each holder on the
Effective Date of a Class 1-A Claim under and as defined in the
Reorganization Plan shall have received payment in cash in respect of such
holder's claim in accordance with, and subject to, the terms of the
Reorganization Plan, including, without limitation, the Exchange Option and
the Prepetition Lender Secured Claim Option (as such terms are defined in
the Reorganization Plan).
5.2 Conditions to Each Loan and Letter of Credit. The obligation of
each Lender to make any Loan and the obligation of the Issuing Bank to issue any
Letter of Credit is subject to the satisfaction of the following conditions
precedent on the relevant Borrowing Date, provided that no Lender shall make its
initial Loan prior to the satisfaction of the additional conditions precedent
contained in subsection 5.2(f):
(a) Notice. The Agent shall have received a Borrowing Notice with
respect to each Loan or an Application with respect to each Letter of
Credit, as the case may be.
(b) Representations and Warranties. Each of the representations and
warranties made in or pursuant to Section 4 or which are contained in any
other Loan Document shall be true and correct in all material respects on
and as of the date of such Loan or of the issuance of such Letter of Credit
as if made on and as of such date (unless stated to relate to a specific
earlier date, in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date),
including that there shall not have occurred any Material Adverse Effect
since the Closing Date.
(c) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing on such Borrowing Date or after
giving effect to such Loan to be made or such Letter of Credit to be issued
on such Borrowing Date, and the proposed Loan and its intended use are
consistent with the terms of this Agreement.
(d) Fees. The Borrower shall have paid to the Agent and the Lenders
the then unpaid balance of all accrued and unpaid fees and expenses then
due and payable under and pursuant to this Agreement.
(e) Borrowing Certificate. The Agent shall have received, with a copy
for each Lender, a certificate executed by a Responsible Officer of the
Borrower, substantially in the form of Exhibit M, certifying that (i) the
requested Loan or Letter of Credit and the application or use thereof are
consistent with the terms of this Agreement, (ii) no Default or Event of
Default has occurred and is continuing, (iii) all of the conditions set
forth in subsection 5.2 to such Loan or Letter of Credit have been
satisfied and (iv) after giving effect to the making of such Loan or the
issuance of such Letter of Credit, as the case may be, subsection 2.1(b)
will not be violated.
(f) Additional Conditions Precedent to Initial Loan. In the case of
such Lender's initial Loan only, in addition to the satisfaction of the
conditions precedent contained in subsection 5.2(a) through (e) above,
(i) The Agent shall have received for each Lender, a copy of the
Wall Acquisition Agreement and any of the other Wall Transaction
Documents reasonably requested by the Agent, certified by a
Responsible Officer of the Borrower.
(ii) The Wall Closing Date shall have occurred and the Wall
Transaction shall have been consummated pursuant to the Wall
Transaction Documents for an aggregate cash purchase price not to
exceed $47,000,000 (excluding the face amount of the Standby L/C to be
issued on the closing of the Wall Transaction), subject to adjustment
as provided therein, and all of the conditions precedent set forth in
the Wall Acquisition Agreement shall have been satisfied, and no
material provision of the Wall Transaction Documents shall have been
amended, supplemented, waived or otherwise modified without the prior
written consent of the Agent and the Lenders, which consent shall not
be unreasonably withheld. The Agent shall be reasonably satisfied with
the Wall Transaction Documents in all respects.
(iii) The Agent shall have received, with a copy for each Lender,
(A) a new Schedule 4.12 (Fee and Leased Properties) and a new Schedule
4.14 (Trademarks and Copyrights) to this Agreement and (B) a new
Schedule 4 (Trademarks and Trademark Licenses) and a new Schedule 6
(Inventory and Equipment) to the Subsidiaries Security Agreement, in
each case, giving effect to the Wall Transaction; upon satisfaction of
the conditions precedent contained in this subsection 5.2(f) this
Agreement and the Subsidiaries Security Agreement shall each be deemed
amended to substitute the Schedules delivered pursuant to this
paragraph (iii) for the corresponding Schedules delivered on the
Closing Date.
(iv) The Agent shall have received evidence in form and substance
reasonably satisfactory to it that any further filings, recordings,
registrations and any other actions, including without limitation, the
filing of duly executed financing statements on form UCC-1, necessary
or, in the reasonable opinion of the Agent, desirable to perfect the
Liens created by the Security Documents, after giving effect to the
Wall Transaction, shall have been completed.
Each borrowing by the Borrower hereunder and the issuance of each Letter of
Credit by the Issuing Bank hereunder shall constitute a representation and
warranty by the Borrower as of the applicable Borrowing Date that the conditions
in this subsection have been satisfied as of such Borrowing Date.
SECTION 6 AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Loan, Note or L/C Obligation (other than L/C Obligations that have
been cash collateralized in the manner set forth in subsection 2.7) remains
outstanding and unpaid, any amount remains available to be drawn under any
Letter of Credit or any other amount is owing to any Lender, the Agent or the
Issuing Bank hereunder or under any of the other Loan Documents, unless the
Required Lenders otherwise consent in writing, it shall or shall cause each
other Loan Party to:
6.1 Financial Statements, Reports, etc. Furnish to the Agent and each
Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such fiscal year and the related consolidated statements of income, cash
flows and stockholders' equity of the Borrower and its consolidated
Subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous year and, in the case of the
consolidated balance sheet referred to above, reported on, without any
"going concern" or like qualification or exception or any other material
qualifications (other than with respect to the Cases and related matters),
by independent certified public accountants of nationally recognized
standing; all such financial statements to be complete and correct in all
material respects and to be prepared in reasonable detail and in accordance
with GAAP;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, commencing with the first fiscal quarter ending after
the Closing Date, (i) the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of each such
quarter and the related unaudited consolidated statements of income, cash
flows and stockholders' equity of the Borrower and its consolidated
Subsidiaries for such quarterly period and the portion of the fiscal year
of the Borrower through such date, setting forth in each case in
comparative form the figures for the corresponding quarter and year to date
portion of the previous year, certified by the chief financial officer of
the Borrower as being fairly stated in all material respects; all such
financial statements to be complete and correct in all material respects
(subject to normal year-end audit adjustments and the absence of footnotes)
and to be prepared in reasonable detail and in accordance with GAAP and
(ii) a discussion and analysis by management of the results of the Loan
Parties' operations, including the status of Inventory, returns and trade
credit;
(c) as soon as available, but in any event not later than 30 days
after the end of each fiscal month occurring during each fiscal year of the
Borrower (other than the last fiscal month of any fiscal quarter), (i) the
unaudited consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such fiscal month and the related unaudited
consolidated statements of income, cash flows and stockholders' equity of
the Borrower and its consolidated Subsidiaries for such fiscal month and
the portion of the fiscal year through the end of such fiscal month,
setting forth in each case in comparative form the consolidated figures for
the corresponding month of the previous year, certified by the chief
financial officer of the Borrower as being fairly stated in all material
respects (subject to normal year-end audit adjustments and the absence of
footnotes); all such financial statements to be complete and correct in all
material respects (subject to normal year-end audit adjustments and the
absence of footnotes) and to be prepared in reasonable detail and in
accordance with GAAP, (ii) a report as of the last day of such fiscal month
comparing the Inventory at stores operated by the Loan Parties and at the
Loan Parties' warehouses at such date with the comparable prior year period
and (iii) a report on such fiscal month detailing the operating and
non-operating expenses of the Loan Parties and comparing such expenses to
the comparable prior year period and (iv) other information reasonably
requested by the Agent regarding the Loan Parties' operations, including
the status of Inventory, returns and trade credit;
(d) concurrently with the delivery of the consolidated financial
statements referred to in subsection 6.1(a), a letter from the independent
certified public accountants reporting on such financial statements stating
that in making the audit necessary to express their opinion on such
financial statements no knowledge was obtained of any Default or Event of
Default to the extent relating to accounting matters, including without
limitation, subsections 7.7 and 7.8;
(e) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a), (b) and (c), a certificate of the chief
financial officer of the Borrower (i) stating that, to the best of such
officer's knowledge, no Default or Event of Default has occurred and is
continuing except as specified in such certificate, (ii) showing in
reasonable detail (in the case of the financial statements referred to in
subsections 6.1(a) and (b)) as of the end of the related period the figures
and calculations supporting such statement in respect of subsections 7.7
and 7.8, (iii) if not specified in the financial statements delivered
pursuant to paragraph (a), (b) or (c) of this subsection, as the case may
be, specifying the aggregate amount of depreciation, depletion and
amortization charged on the books of the applicable Loan Party, during such
period, and indicating the number of stores closed during the preceding
month and the status of the leases with respect to such closed stores;
(f) promptly upon receipt thereof, copies of all final reports
submitted to any Loan Party by independent certified public accountants in
connection with each annual, interim or special audit of the books of any
such Loan Party made by such accountants, including, without limitation,
any final comment letter submitted by such accountants to management in
connection with their annual audit;
(g) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available to
the public generally by any Loan Party, if any, and all regular and
periodic reports and all final registration statements and final
prospectuses, if any, filed by any Loan Party with any securities exchange
or with the Securities and Exchange Commission or any Governmental
Authority succeeding to any of its functions;
(h) promptly after the same is available, copies of all pleadings,
motions, applications, judicial information, financial information and
other documents filed by or on behalf of any Loan Party with the Bankruptcy
Court or the United States Trustee in the Cases;
(i) an accurate, duly completed Borrowing Base Certificate as soon as
available but in any event on or before (i) during any period when Loans or
L/C Obligations are outstanding, Tuesday of each week, for the week ending
on the immediately preceding Saturday, together with the weekly
"Supplemental Reportings" referenced in such Borrowing Base Certificate and
(ii) 20 calendar days after each fiscal month, as of the end of the
immediately preceding fiscal month, together with the monthly "Supplemental
Reportings" referenced in such Borrowing Base Certificate; and
(j) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of each Loan Party, or
compliance with the terms of any material loan or financing agreements, as
the Agent or any Lender may reasonably request.
6.2 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations and liabilities of whatever nature, except (a) when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of any Loan Party or (b) for delinquent obligations which
do not have a Material Adverse Effect.
6.3 Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same general type as now conducted by it, and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all material rights, material privileges,
franchises, copyrights, trademarks and trade names necessary or desirable in the
normal conduct of its business except for rights, privileges, franchises,
copyrights, trademarks and trade names the loss of which would not in the
aggregate have a Material Adverse Effect and comply with all applicable
Requirements of Law except to the extent that the failure to comply therewith
would not, in the aggregate, have a Material Adverse Effect.
6.4 Maintenance of Property; Insurance. (a) Keep all material property
useful and necessary in its business in good working order and condition
(ordinary wear and tear excepted);
(b) Maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and with only such
deductibles as are usually maintained by, and against at least such risks (but
including, in any event, public liability insurance) as are usually insured
against in the same general area, by companies engaged in the same or a similar
business; and
(c) Maintain such other insurance as may be required by law.
6.5 Inspection of Property; Books and Records; Discussions; Inventory
Review. (a) Keep proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
business and activities which permit financial statements to be prepared in
conformity with GAAP and all Requirements of Law; and permit representatives of
the Agent or any Lender upon reasonable notice to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be requested upon reasonable
notice, and to discuss the business, operations, assets and financial and other
condition of the Loan Parties with officers and employees thereof and with their
independent certified public accountants;
(b) From time to time upon the reasonable request of the Agent, permit
the Agent or any professionals retained by the Agent to conduct evaluations and
appraisals of (i) the Borrower's practices in the computation of the Borrowing
Base and (ii) the Inventory; and
(c) In connection with any evaluation and appraisal relating to the
computation of the Borrowing Base, make such adjustments to the Borrowing Base
as the Agent shall reasonably request based upon the results of such evaluation
and appraisal.
6.6 Notices. Promptly give notice to the Agent and each Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any litigation, investigation or proceeding which may exist at
any time between any Loan Party and any Governmental Authority, or receipt
of any notice of any environmental claim or assessment against any Loan
Party by any Governmental Authority, which in any such case could
reasonably be expected to have a Material Adverse Effect;
(c) of any litigation or proceeding against any Loan Party (i) in
which more than $1,000,000 of the amount claimed is not covered by
insurance or (ii) in which injunctive or similar relief is sought which if
obtained could reasonably be expected to have a Material Adverse Effect;
and
(d) of a change known to any Loan Party in the business, assets,
condition (financial or otherwise) or results of operations of the Loan
Parties which could reasonably be expected to have a Material Adverse
Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and (in the cases of clauses (a) through (c)) stating what
action the Loan Parties propose to take with respect thereto.
6.7 Supplemental Collateral; Guarantees. (a) If any Loan Party shall
form or create any Subsidiary on or after the Closing Date, (i) such newly
created Subsidiary shall become a Loan Party and shall within five Business Days
thereafter execute and deliver a guarantee in favor of the Agent, for the
benefit of the Lenders, substantially in the form of the Subsidiaries Guarantee
or otherwise become a party to the Subsidiaries Guarantee pursuant to
documentation satisfactory to the Agent, (ii) each stockholder that is a Loan
Party of such newly created Subsidiary shall promptly thereafter pledge 100% of
the issued and outstanding stock of such Subsidiary owned by such stockholder
pursuant to a pledge agreement substantially in the form of the Borrower Pledge
Agreement or otherwise become a party to the Borrower Pledge Agreement pursuant
to documentation satisfactory to the Agent, (iii) such newly created Subsidiary
shall promptly thereafter execute and deliver a security agreement in favor of
the Agent, for the benefit of the Lenders, substantially in the form of the
Subsidiaries Security Agreement or otherwise become a party to the Subsidiaries
Security Agreement pursuant to documentation satisfactory to the Agent, (and if
such newly created Subsidiary shall have an interest in any real property with a
fair market value (as determined in good faith by the Borrower) greater than
$500,000, a mortgage substantially in the form of the Camelot Distribution
Mortgage), (iv) cause to be promptly and duly taken, executed, acknowledged and
delivered all such further acts, documents and assurances as may be necessary or
as the Agent may reasonably request in order to grant a Lien on substantially
all of such newly created Subsidiary's property in favor of the Agent, for the
benefit of the Lenders, and otherwise to carry out the purpose of this
subsection (including, without limitation, the execution and delivery of other
security documents, UCC financing statements and similar documents), each of
which guarantees, pledge agreements, security agreements and mortgages shall be
accompanied by such resolutions, incumbency certificates and legal opinions as
are reasonably requested by the Agent.
(b) Upon the acquisition by any Loan Party of any material property
(including, without limitation, any real property with a fair market value (as
determined in good faith by the Borrower) greater than $500,000) or any interest
therein that is not subject to a Lien created pursuant to a Security Document,
the Borrower shall, or shall cause such other Loan Party to, execute and deliver
to the Agent, for the benefit of the Lenders, appropriate mortgages, pledge
agreements and security agreements and the like covering such property or
interest in such property, all in form and substance reasonably satisfactory to
the Agent, together with such further acts, documents and assurances as may be
necessary or as the Agent may reasonably request in order to carry out the
purpose of this subsection (including, without limitation, the execution and
delivery of UCC financing statements and similar documents), each of which
mortgages, pledge agreements and security agreements shall be accompanied by
such resolutions, incumbency certificates and legal opinions as are reasonably
requested by the Agent.
6.8 Environmental Laws. (a) Comply with, and use all reasonable
efforts to insure compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws and obtain and comply with and maintain, and
require that all tenants and subtenants obtain and comply with and maintain, any
and all licenses, approvals, registrations or permits required by applicable
Environmental Laws, except to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect;
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions, required under applicable
Environmental Laws, and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities respecting Environmental
Laws, except to the extent that the same are being contested in good faith by
legal proceedings; and
(c) Defend, indemnify and hold harmless the Agent and the Lenders, and
their respective employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of or noncompliance with
any Environmental Laws applicable to the real property owned or operated by any
Loan Party, any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, reasonable attorney's and
consultant's fees, investigation and laboratory fees, court costs and litigation
expenses, except to the extent that any of the foregoing arise out of the gross
negligence or willful misconduct of the party seeking indemnification therefor.
The agreements in this subsection shall survive termination of this Agreement
and repayment of the Notes and all other amounts payable hereunder.
6.9 Employee Benefits. Furnish to the Agent:
(a) as soon as reasonably possible, and in any event within 30 days,
after any Responsible Officer of any Loan Party or any Commonly Controlled
Entity knows that any Reportable Event has occurred that alone or together with
any other Reportable Event could reasonably be expected to result in liability
of any Loan Party to the PBGC in an aggregate amount exceeding $500,000, a
statement of a Responsible Officer of the Borrower setting forth details as to
such Reportable Event and the action, if any, which such Loan Party or any
affected Commonly Controlled Entity proposes to take with respect thereto,
together with a copy of the notice, if any, of such Reportable Event given to
the PBGC;
(b) as soon as reasonably possible, and in any event within 10 days,
after receipt thereof by any Responsible Officer of any Loan Party or any
Commonly Controlled Entity, a copy of any notice that any Loan Party or any
Commonly Controlled Entity receives from the PBGC relating to the intention of
the PBGC to terminate any Plan or Plans or to appoint a trustee to administer
any such Plan;
(c) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code a notice of failure of any Loan Party or
any Commonly Controlled Entity to make a required installment or other payment
with respect to a Plan, a statement of a Responsible Officer of the Borrower
setting forth details as to such failure and the action that such Loan Party or
any Commonly Controlled Entity proposes to take with respect thereto, together
with a copy of any such notice given to the PBGC; and
(d) as soon as reasonably possible, and in any event within 30 days,
after receipt thereof by any Responsible Officer of any Loan Party or any
Commonly Controlled Entity from the sponsor of a Multiemployer Plan, a copy of
each notice received by any Loan Party or any Commonly Controlled Entity from
such sponsor or the PBGC concerning (i) the imposition of Withdrawal Liability,
(ii) a determination by such sponsor or the PBGC that a Multiemployer Plan is,
or is expected to be, terminated or in reorganization, both within the meaning
of Title IV of ERISA or (iii) an increase in the amount or rate of contributions
required to be made by a Loan Party or Commonly Controlled Entity to a
Multiemployer Plan.
6.10 Further Assurances. Upon the request of the Agent, promptly
perform or cause to be performed any and all acts and execute or cause to be
executed any and all documents (including, without limitation, financing
statements and continuation statements) for filing under the provisions of the
Uniform Commercial Code or any other Requirement of Law which the Agent deems
reasonably necessary or advisable to maintain in favor of the Agent, for the
benefit of the Lenders, Liens created by any of the Security Documents that are
duly perfected in accordance with all applicable Requirements of Law.
SECTION 7 NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Loan, Note or L/C Obligation (other than L/C Obligations that have
been cash collateralized in the manner set forth in subsection 2.7) remains
outstanding and unpaid, any amount remains available to be drawn under any
Letter of Credit or any other amount is owing to any Lender, the Agent or the
Issuing Bank hereunder or under any of the other Loan Documents, unless the
Required Lenders shall otherwise consent in writing, it shall not, and shall not
permit any other Loan Party to, directly or indirectly:
7.1 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness outstanding on the Closing Date or after giving
effect to the Wall Transaction and, in each case, reflected on Schedule
7.1, but excluding the refinancing of any such Indebtedness;
(b) Indebtedness under this Agreement, the Notes, the Letters of
Credit and the other Loan Documents;
(c) Indebtedness of the Loan Parties in respect of Financing Leases
incurred after the Closing Date in an aggregate amount not to exceed (i)
$8,000,000 incurred to acquire, install and implement a "point of sale"
system and (ii) $1,000,000 at any one time outstanding in respect of any
other Financing Leases incurred after the Closing Date;
(d) Indebtedness of any Loan Party to any other Loan Party;
(e) Indebtedness of the Loan Parties incurred to finance the
acquisition of fixed or capital assets (whether pursuant to a loan, a
Financing Lease or otherwise), other than as permitted under subsection
7.1(c)(i), in an aggregate principal amount not to exceed, when added to
Indebtedness permitted under subsection 7.1(f) and Contingent Obligations
permitted under subsection 7.3(c), $5,000,000 at any time outstanding;
(f) additional Indebtedness of the Loan Parties, provided that (i)
such Indebtedness shall not mature or otherwise require any amortization of
principal prior to the Maturity Date and (ii) the aggregate principal
amount of all such Indebtedness shall not exceed, when added to
Indebtedness permitted under subsection 7.1(e) and Contingent Obligations
permitted under subsection 7.3(c), $5,000,000 at any time outstanding; and
(g) Indebtedness of all Persons which become Loan Parties after the
Closing Date in connection with, or Indebtedness which is assumed by any
Loan Party at the time of, any acquisition or merger permitted under
subsections 7.4 and 7.6, provided, that (i) the aggregate principal amount
of all such Indebtedness shall not exceed, when added to investments
permitted under subsection 7.6(g), $10,000,000, (ii) such Indebtedness
existed at the time any such Person became, or such Indebtedness was
assumed by, a Loan Party and was not created in anticipation of the
acquisition or merger and (iii) immediately after giving effect to such
acquisition or merger, no Default or Event of Default shall have occurred
and be continuing.
7.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets, income or profits, whether now owned or
hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of any such Loan Party, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations which are not yet due or which are being
contested in good faith and by appropriate proceedings if adequate reserves
with respect thereto are maintained on the books of any such Loan Party, in
accordance with GAAP;
(c) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, tenders, trade or
government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety and appeal bonds, performance bonds, utility
obligations and other obligations of a like nature incurred in the ordinary
course of business;
(e) easements (including, without limitation, reciprocal easement
agreements), rights-of-way, building, zoning and similar restrictions,
utility agreements, covenants, reservations, encroachments, changes, and
other similar encumbrances or title defects incurred, or licenses, leases
or subleases granted to others, in the ordinary course of business, which
do not in the aggregate materially detract from the aggregate value of the
properties of the Loan Parties, taken as a whole, or in the aggregate
materially interfere with or adversely affect in any material respect the
ordinary conduct of the business of the Loan Parties on the properties
subject thereto, taken as a whole;
(f) Liens in favor of the Agent and the Lenders granted pursuant to
the Loan Documents;
(g) Liens existing on the Closing Date or after giving effect to the
Wall Transaction and, in each case, listed on Schedule 7.2;
(h) Liens on documents of title and the property covered thereby
securing Indebtedness in respect of the Commercial L/Cs;
(i) mortgages, liens, security interests, restrictions or encumbrances
that have been placed by any developer, landlord or other third party on
property over which any such Loan Party has easement rights or on any
Leased Property and subordination or similar agreements relating thereto;
(j) Liens on goods which a Loan Party (acting as consignee) has agreed
to sell on a consignment basis in the ordinary course of business;
(k) Liens on property (but solely on such property and the proceeds
thereof) acquired pursuant to a Financing Lease permitted under subsection
7.1(c) to secure the Indebtedness under such Financing Lease;
(l) Liens securing or consisting of Indebtedness of the Loan Parties
permitted under subsection 7.1(e) to be incurred to finance the acquisition
of fixed or capital assets, provided that (i) such Liens are created within
90 days after the acquisition of such fixed or capital assets, (ii) such
Liens do not at any time encumber any property other than the property
acquired with such Indebtedness and (iii) except as to Financing Leases,
the principal amount of Indebtedness secured by any such Lien shall at no
time exceed 100% of the original purchase price of such assets (in the case
of a purchase) or the fair value of such assets at the time acquired as
determined in good faith by the board of directors of the relevant Loan
Party (in all other cases);
(m) Liens on the property or assets of a Person which becomes a Loan
Party after the Closing Date in connection with, or Liens on the property
or assets which are acquired by any Loan Party at the time of, any
acquisition or merger permitted under subsections 7.4 and 7.6, which Liens
secure Indebtedness of the Loan Parties permitted by subsection 7.1(g),
provided that (i) such Liens existed at the time such Person became a Loan
Party or such asset was acquired and were not created in anticipation
thereof, (ii) any such Lien is not spread to cover any additional property
or assets of such Person after the time such Person became a Loan Party or
such asset was acquired, and (iii) the amount of Indebtedness or other
obligations secured thereby is not increased; and
(n) other Liens in an aggregate amount not to exceed $100,000,
provided that such Liens do not secure or consist of Indebtedness.
7.3 Limitation on Contingent Obligations. Create, incur, assume or
suffer to exist any Contingent Obligation except:
(a) the Guarantees;
(b) guarantees by any Loan Party of the obligations of any other Loan
Party, including, without limitation, in respect of the purchase of
Inventory in the ordinary course of business;
(c) other guarantees by the Loan Parties incurred in the ordinary
course of business in an aggregate amount not to exceed, when added to
Indebtedness permitted under subsections 7.1(e) and (f), $5,000,000 at any
one time outstanding;
(d) Contingent Obligations existing on the Closing Date and described
on Schedule 7.3(d); and
(e) guarantees of obligations to third parties in connection with
relocation of employees of any Loan Party, in an amount which, together
with all loans and advances made pursuant to subsection 7.6(f), shall not
exceed $1,000,000 at any time outstanding.
7.4 Prohibition of Fundamental Changes. Enter into any merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Loan Party may be merged or consolidated with or into any
other Loan Party, provided that in the case of any merger or consolidation
involving the Borrower, the Borrower shall be the continuing or surviving
corporation; and
(b) in connection with the Wall Transaction or an acquisition or
merger permitted under subsection 7.6(g).
7.5 Prohibition on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to, any Person other than to
the Borrower or a wholly-owned Subsidiary of the Borrower except:
(a) for the sale or other disposition of any leaseholds, any real
property (other than the Mortgaged Property) owned in fee by any Loan Party
or any tangible personal property that, in the reasonable judgment of such
Loan Party has become uneconomic, obsolete, worn out or otherwise no longer
useful in such Loan Party's business, and which in each case is disposed of
in the ordinary course of business;
(b) for sales or other dispositions of Inventory, property, plant,
equipment or other tangible personal property made in the ordinary course
of business (including without limitation, the sale of Inventory by Camelot
Distribution to the other Subsidiaries of the Borrower);
(c) for the transfer of assets pursuant to the Transfer Agreements (as
defined in the Reorganization Plan);
(d) for the sale or other disposition by any Loan Party of other
assets, provided that the aggregate net book value of all dispositions
described in this clause shall not exceed $750,000 in any fiscal year;
(e) subject to compliance with subsection 6.7, that any Subsidiary of
the Borrower may sell, lease, transfer or otherwise dispose of any or all
of its assets (upon voluntary liquidation or otherwise) to, or merge with
and into, the Borrower or a wholly-owned Subsidiary thereof and any
Subsidiary of the Borrower may sell or otherwise dispose of, or part with
control of any or all of, the stock of any Subsidiary to the Borrower or
any wholly-owned Subsidiary of the Borrower;
(f) leases of Fee Properties and other real property owned in fee in
the ordinary course of business, including without limitation, the lease by
Camelot Distribution to the Borrower of a portion of the Distribution
Center for use as the Borrower's corporate headquarters;
(g) the sale or discount of accounts receivable in connection with the
compromise or collection thereof in the ordinary course of business; and
(h) subject to the other terms and provisions of this Agreement,
leases or subleases (or assignments of leases) of any property of a Loan
Party in the ordinary course of business.
7.6 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of, or make any other investment in
(including, without limitation, any acquisition of all or any substantial
portion of the assets, and any acquisition of a business or a product line, of
other companies, other than the acquisition of Inventory, materials and
equipment in the ordinary course of business), any Person, except:
(a) any Loan Party may make loans or advances to any other Loan Party;
(b) (i) subject to compliance with subsection 6.7, any Subsidiary may
make investments in the Borrower (by way of capital contribution or
otherwise) and (ii) any Loan Party may make investments in, or create, any
wholly-owned Subsidiary (by way of capital contribution or otherwise) or
make investments permitted by subsection 7.5(e);
(c) any Loan Party may invest in, acquire and hold Cash Equivalents;
(d) any Loan Party may make payroll advances in the ordinary course of
business;
(e) any Loan Party may acquire and hold receivables owing to it, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms, provided that
nothing in this clause shall prevent any Loan Party from offering such
concessionary trade terms, or from receiving such investments in connection
with the bankruptcy or reorganization of their respective suppliers or
customers or the settlement of disputes with such customers or suppliers
arising in the ordinary course of business, as management deems reasonable
in the circumstances;
(f) any Loan Party may make travel and entertainment advances and
relocation and other loans to officers and employees of any Loan Party,
provided that the aggregate principal amount of all such loans and advances
outstanding at any one time, together with the guarantees of such loans and
advances made pursuant to subsection 7.3(e), shall not exceed $1,000,000 at
any one time outstanding; and
(g) the Loan Parties may make investments in connection with the
acquisition by or merger into a Loan Party in an aggregate principal amount
not to exceed, when added to Indebtedness permitted under subsection
7.1(g), $10,000,000.
7.7 Capital Expenditures. Make or commit to make any Capital
Expenditures (other than the Wall Transaction or acquisitions or mergers
permitted under subsections 7.4 and 7.6, to the extent treated as Capital
Expenditures), except that the Loan Parties may make or commit to make Capital
Expenditures (a) with respect to the acquisition, installation and
implementation of a "point of sale" system, in an aggregate amount not to
exceed, when added to Indebtedness permitted under subsection 7.1(c)(i),
$8,000,000 and (b) otherwise, not exceeding the amount set forth below (the
"Base Amount") for each of the fiscal years of the Borrower (or other period)
set forth below:
Fiscal Year
or Period Base Amount
------------ -----------
Closing Date through 2/28/98 $ 4,000,000
1998 17,000,000
1999 19,400,000
2000 21,400,000
2001 22,500,000
provided, however, that for any fiscal year of the Borrower, the Base Amount set
forth above for such fiscal year may be increased by a maximum of $2,000,000 by
carrying over any portion of the Base Amount not spent in the immediately
preceding fiscal year (but not in any year prior thereto).
7.8 Consolidated EBITDA. Permit Consolidated EBITDA (a) for the period
commencing on December 1, 1997 and ending on February 28, 1998 to be less than
$15,000,000 and (b) for any period of four consecutive fiscal quarters beginning
with the first fiscal quarter to occur after February 28, 1998 to be less than
$32,000,000 (inclusive of the operations of The Wall for any such fiscal quarter
prior to the closing of the Wall Transaction).
7.9 Limitation on Dividends. Declare any dividends on any shares of
any class of stock, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, retirement or
other acquisition of any shares of any class of stock, or any warrants or
options to purchase such stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of any Loan Party, except that:
(a) any Subsidiary may pay dividends to the Borrower or to any other
Subsidiary;
(b) the Borrower may pay or make dividends or distributions to any
holder of its Capital Stock in the form of additional shares of Capital
Stock of the same class and type;
(c) so long as immediately after any declaration and payment thereof,
(i) no Default or Event of Default shall have occurred and be continuing
and (ii) there shall be Available Commitments in excess of (A) $40,000,000,
during the Peak Period, and (B) $25,000,000, during the Non-Peak Period,
the Borrower may pay cash dividends during any fiscal year to the holders
of its Capital Stock in an aggregate amount not to exceed 30% of
Consolidated Net Income for the immediately preceding fiscal year as set
forth on the audited financial statements for such fiscal year delivered
pursuant to subsection 6.1(a); and
(d) Holdings or the Borrower may purchase Capital Stock of Holdings
(including, without limitation, options to acquire the same) from
directors, officers and employees of any Loan Party in connection with
stock option plans and employment and severance arrangements so long as no
Default or Event of Default shall have then occurred and be continuing or
would result therefrom and such purchases are made in the ordinary course
of business.
7.10 Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction is
(a) otherwise permitted under this Agreement, (b) between or among Loan Parties
in the ordinary course of business or (c) in the ordinary course of any Loan
Party's business and upon fair and reasonable terms no less favorable to such
Loan Party than it would obtain in a hypothetical comparable arm's-length
transaction with a Person not an Affiliate, provided, however, that nothing in
this subsection shall prohibit any Loan Party from engaging in the following
transactions: (i) the performance of any such Loan Party's obligations under any
employment contract, collective bargaining agreement, employee benefit plan,
related trust agreement or any other similar arrangement heretofore or hereafter
entered into in the ordinary course, (ii) payment of compensation to employees,
officers, directors or consultants in the ordinary course of business, (iii)
maintenance of benefit programs or arrangements for employees, officers or
directors, including, without limitation, vacation plans, health and life
insurance plans, deferred compensation plans, and retirement or savings plans
and similar plans, (iv) the assumption by the Borrower of leases covering the
Leased Property and assignment thereof to its Subsidiaries and (v) the lease by
Camelot Distribution to the Borrower of a portion of the Distribution Center for
use as the Borrower's corporate headquarters.
7.11 Limitation on Changes in Fiscal Year. Permit the fiscal year of
the Borrower to end on a day other than the Saturday on or closest to February
28.
7.12 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Loan Parties were engaged on the Closing Date or businesses related or similar
thereto.
7.13 Failure to Maintain Trade Credit. Fail to maintain trade credit
in amounts and on terms at least as favorable to the Loan Parties as set forth
in the Borrower's post-Effective Date budget/projections.
7.14 Concentration Account. From and after the two month anniversary
of the Closing Date, (a) fail to maintain a system of cash management that (i)
concentrates at least three times each week in the Concentration Account
established and maintained with the Cash Management Bank all funds received and
used in the Loan Parties' business and (ii) is otherwise consistent with the
Borrower's currently existing cash management system, except to the extent
modified with the consent of the Cash Management Bank and the Required Lenders
and (b) permit any cash received and used in the business of the Loan Parties to
be held by any Loan Party or deposited in any account other than the
Concentration Account, or permit any collections by the Loan Parties, whether on
account of payments in respect of sales of Inventory or otherwise, to be held by
any Loan Party or deposited in any account other than the Concentration Account,
provided, that (i) subject to the requirement to concentrate cash at least three
days each week in the Concentration Account, the Loan Parties may continue to
maintain bank accounts at local banks proximate to retail store locations, if
the Cash Management Bank does not maintain a branch office in such locations,
(ii) the Borrower may establish and maintain "trust fund" bank accounts in
amounts reasonably determined to be necessary to pay "trust fund" tax
obligations and (iii) the Loan Parties may continue to maintain cash at the
store locations in accordance with past practices, so long as the aggregate
amount of cash maintained at store locations does not exceed $500,000 at any one
time.
SECTION 8 EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Any Loan Party shall fail to (i) pay any principal of any Note
when due in accordance with the terms hereof or thereof or to reimburse the
Issuing Bank in accordance with subsection 3.5 or (ii) pay any interest on
any Note or any other amount payable hereunder within three days after any
such interest or other amount becomes due in accordance with the terms
hereof or thereof; or
(b) (i) Any Loan Party shall default in the observance or performance
of any agreement contained in subsections 2.8(d) or 6.7(a) or Section 7 of
this Agreement, Section 5 of any Pledge Agreement, Section 4 of any
Security Agreement, Section 10 of the Holdings Guarantee, Section 11 of the
Subsidiaries Guarantee or Sections 3 through 9 of the Camelot Distribution
Mortgage, (ii) the Borrower shall fail to deliver a Borrowing Base
Certificate pursuant to subsection 6.1(i) within seven (7) days after such
Borrowing Base Certificate was due pursuant to such subsection or (iii)
with respect to any Subsidiary which becomes a Loan Party after the Closing
Date, or if any additional Security Documents are executed by any Loan
Party after the Closing Date, such Loan Party shall default in the
observance or performance of the corresponding provisions of the pledge
agreement, guarantee, security agreement or mortgage to which it is a
party; or
(c) Any representation or warranty made or deemed made by any Loan
Party in any Loan Document or which is contained in any certificate,
document or financial or other statement furnished by it at any time under
or in connection with this Agreement shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section 8)
and such default shall continue unremedied for a period of thirty (30) days
after notice to any Loan Party by the Agent or any Lender or knowledge on
the part of any Loan Party; or
(e) Any Loan Party shall (i) default in any payment of principal of or
interest on any Indebtedness (other than the Notes, the L/C Obligations and
any inter-company debt) or in the payment of any Contingent Obligation,
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness or Contingent Obligation was created; or (ii)
default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or Contingent Obligation or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Contingent Obligation (or a trustee or agent on behalf of such holder
or holders or beneficiary or beneficiaries) to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity, any applicable grace period having expired, or such Contingent
Obligation to become payable, any applicable grace period having expired;
in each case, provided that no Default or Event of Default shall exist
under this paragraph unless the aggregate principal amount of all such
Indebtedness and/or Contingent Obligations under which any default or other
event or condition referred to in this paragraph shall have occurred shall
be equal to at least $1,000,000; or
(f) (i) Any Loan Party shall commence any case, proceeding or other
action (other than the Cases) (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it as bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, or any Loan Party shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against any Loan Party
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
any Loan Party any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) any Loan Party shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii), or (iii) above; or (v) any Loan Party shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay
its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan which is not otherwise exempted, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived,
shall exist with respect to any Plan, (iii) a Reportable Event shall occur
with respect to, or proceedings shall have been commenced by the PBGC to
have a trustee appointed, or a trustee shall be appointed, to administer or
to terminate, any Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) any Loan Party or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan; and in each case in clauses (i) through (v) above, such event or
condition, together with all other such events or conditions relating to a
Plan, if any, would be reasonably likely to subject any Loan Party to any
tax, penalty or other liabilities which in the aggregate could reasonably
be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered after the
Closing Date against any Loan Party involving in the aggregate a liability
(to the extent not paid or covered by insurance) of $1,000,000 or more and
all such judgments or decrees shall not have been vacated, stayed or bonded
pending appeal within the time required by the terms of such judgment; or
(i) Any Loan Document shall cease, for any reason, to be in full force
and effect or any Loan Party shall so assert in writing, or any Security
Document shall cease to be effective to grant a perfected Lien on the
collateral described therein with the priority purported to be created
thereby subject to such exceptions as may be permitted therein; or
(j) (i) the Borrower shall cease to own and control, of record and
beneficially, directly, 100% of each class of outstanding Capital Stock of
each of its Subsidiaries listed on Schedule 4.11, in each case free and
clear of all Liens other than Permitted Liens; (ii) Holdings shall cease to
own and control, of record and beneficially, directly, 100% of each class
of outstanding Capital Stock of the Borrower; or (iii) any Person, other
than a Permitted Holder, whether singly or in concert with one or more
Persons other than a Permitted Holder shall, directly or indirectly, have
acquired, or acquire the power to vote or direct the voting of, 35% or
more, on a fully diluted basis, of the outstanding common stock of
Holdings;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above, automatically (1) the Commitments
shall immediately terminate and the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes shall
immediately become due and payable, and (2) all obligations of the Borrower in
respect of the Letters of Credit, although contingent and unmatured, shall
become immediately due and payable and the Issuing Bank's obligations to issue
the Letters of Credit shall immediately terminate and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(1) with the consent of the Required Lenders, the Agent may, or upon the request
of the Required Lenders, the Agent shall, by notice to the Borrower, declare the
Commitments and the Issuing Bank's obligations to issue the Letters of Credit to
be terminated forthwith, whereupon the Commitments and such obligations shall
immediately terminate; and (2) with the consent of the Required Lenders, the
Agent may, or upon the request of the Required Lenders, the Agent shall, by
notice of default to the Borrower, (x) declare all or a portion of the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement, the Notes and the other Loan Documents to be due and payable
forthwith, whereupon the same shall immediately become due and payable, and (y)
require the Borrower upon demand to forthwith deposit in the L/C Cash Collateral
Account cash in an amount equal to the sum of 105% of the then outstanding L/C
Obligations and to the extent the Borrower shall fail to furnish such funds as
demanded by the Agent, the Agent shall be authorized to debit the accounts of
the Borrower maintained with the Agent or any other accounts maintained with any
Lender in connection with the cash management system or otherwise in such amount
for the deposit of such amounts in the L/C Cash Collateral Account. Except as
expressly provided above in this Section 8, presentment, demand, protest and all
other notices of any kind are hereby expressly waived.
SECTION 9 THE AGENT; THE ISSUING BANK
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints Chase as the Agent under this Agreement and irrevocably authorizes
Chase as Agent for such Lender, to take such action on its behalf under the
provisions of the Loan Documents and to exercise such powers and perform such
duties as are expressly delegated to the Agent by the terms of the Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into the Loan Documents or otherwise exist against the Agent.
9.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement and each of the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care, except as otherwise provided in subsection 9.3.
9.3 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with the Loan Documents (except for its or such Person's
own gross negligence or willful misconduct), or (ii) responsible in any manner
to any of the Lenders for any recitals, statements, representations or
warranties made by any Loan Party or any officer thereof contained in the Loan
Documents or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, the
Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Loan Documents or for any failure of any
Loan Party to perform its obligations thereunder. The Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, any Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under any Loan Document unless it shall first receive such advice or
concurrence of the Required Lenders (or, where unanimous consent of the Lenders
is expressly required hereunder, such Lenders) as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under any Loan Document in
accordance with a request of the Required Lenders (or, where unanimous consent
of the Lenders is expressly required hereunder, such Lenders), and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Notes.
9.5 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
the Agent has received written notice from a Lender or the Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall promptly give notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders; provided that unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Loan Parties, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under the Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties. Except for notices, reports
and other documents expressly required to be furnished to the Lenders by the
Agent hereunder, the Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of the
Loan Parties which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Loan Parties and without
limiting the obligation of the Loan Parties to do so), ratably according to the
amounts of their respective aggregate Commitments (or, to the extent the
Commitments have been terminated, according to their respective Aggregate
Outstanding Extensions of Credit) from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of the Loan Documents or any documents contemplated by or
referred to herein or the transactions contemplated hereby or any action taken
or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent's gross
negligence or willful misconduct. The agreements in this subsection shall
survive the termination of this Agreement and repayment of the Notes and all
other amounts payable hereunder.
9.8 The Agent in its Individual Capacity. The Agent and its Affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Loan Parties as though the Agent were not the Agent hereunder.
With respect to its Loans made or renewed by it and any Note issued to it, the
Agent shall have the same rights and powers, duties and liabilities under the
Loan Documents as any Lender and may exercise the same as though it were not the
Agent and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacities.
9.9 Successor Agent. The Agent may resign as Agent upon 30 days'
notice to the Lenders. If the Agent shall resign as Agent under the Loan
Documents, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders whereupon such successor agent shall succeed to
the rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further act
or deed on the part of such former Agent or any of the parties to this Agreement
or any holders of the Notes. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Section 9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Agent under the Loan
Documents.
9.10 Issuing Bank as Issuer of Letters of Credit. Each Lender hereby
acknowledges that the provisions of this Section 9 shall apply to the Issuing
Bank, in its capacity as issuer of the Letters of Credit, in the same manner as
such provisions are expressly stated to apply to the Agent, except that the
obligations to indemnify the Issuing Bank shall be ratable among the Lenders in
accordance with their respective Commitments (or, if the Commitments have been
terminated, their respective Aggregate Outstanding Extensions of Credit).
SECTION 10 MISCELLANEOUS
10.1 Amendments and Waivers. Except as otherwise expressly set forth
in this Agreement, neither this Agreement nor any other Loan Document may be
amended, supplemented, waived or modified except in accordance with the
provisions of this subsection. With the written consent of the Required Lenders,
the Agent and the respective Loan Parties may, from time to time, enter into
written amendments, supplements or modifications to any Loan Document for the
purpose of adding any provisions to any Loan Document to which they are parties
or changing in any manner the rights of the Lenders or of any such Loan Parties
thereunder or waiving, on such terms and conditions as the Agent may specify in
such instrument, any of the requirements of any such Loan Document or any
Default or Event of Default and its consequences; provided, however, that:
(a) no such waiver and no such amendment, supplement or modification
shall: (i) extend the final maturity date of any Note, or reduce the rate
or extend the time of payment of interest thereon, or reduce any fee
payable to the Lenders hereunder, or reduce the principal amount of any
Loan, or amend, modify or waive any provision of this subsection, or change
the percentage specified in the definition of Required Lenders, or consent
to the assignment or transfer by any Loan Party of any of its rights and
obligations under any Loan Document, or waive, amend or modify any
provision of this Agreement which provides for the unanimous consent or
approval of the Lenders, in each case, without the written consent of each
Lender directly affected thereby; or (ii) change the amount of any Lender's
Commitment, or amend the definition of Borrowing Base or the definition of
any defined term used therein, or release any funds on deposit in the L/C
Cash Collateral Account (other than to pay L/C Obligations), or waive the
condition precedent set forth in subsections 5.2(c) (unless the related
Default or Event of Default could be waived by the Required Lenders) or
5.2(f), in each case, without the written consent of each Lender directly
affected thereby;
(b) without the consent of all of the Lenders, no such waiver and no
such amendment, supplement or modification shall release (i) all or
substantially all of the collateral granted to the Agent, for the benefit
of the Lenders, pursuant to the Security Documents or (ii) any Guarantor
from its obligations under a Guarantee except in connection with (A) the
transfer of substantially all of such Guarantor's assets to another Loan
Party or (B) the sale of such Guarantor as permitted pursuant to the terms
of this Agreement;
(c) no such waiver and no such amendment, supplement or modification
shall amend, modify or waive any provision of Section 3 without the written
consent of the Issuing Bank; and
(d) no such waiver and no such amendment, supplement or modification
shall amend, modify or waive any provision of Section 9 without the written
consent of the then Agent and Issuing Bank.
Any such waiver and any such amendment, supplement or modification described in
this subsection shall apply equally to each of the Lenders and shall be binding
upon each Loan Party, the Lenders, the Agent and Issuing Bank and all future
holders of the Notes. Any extension of a Letter of Credit by the Issuing Bank
shall be treated hereunder as a new Letter of Credit. In the case of any waiver,
the Loan Parties, the Lenders, the Agent and Issuing Bank shall be restored to
their former position and rights hereunder and under the outstanding Notes, and
any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when sent and confirmation of receipt received, addressed as follows in
the case of each Loan Party, the Agent, the Issuing Bank and as set forth on
Schedule I in the case of any Lender, or to such other address as may be
hereafter notified by the respective parties hereto and any future holders of
the Notes:
The Borrower: Camelot Music, Inc.
8000 Freedom Avenue
North Canton, Ohio 44720
Attention: Chief Financial Officer
Telecopy: (330) 494-2282
With a copy to: White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Howard S. Beltzer, Esq.
Telecopy: (212) 354-8113
The Agent and The Chase Manhattan Bank
Issuing Bank: 270 Park Avenue
New York, New York 10017
Attention: Cathryn Greene
Telecopy: (212) 661-8396
With a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Steven Fuhrman, Esq.
Telecopy: (212) 455-2502
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to subsections 2.5, 2.6, 2.7, 2.8 or 3.2 shall not be effective until
received and provided further that the failure to provide the copies of notices
to the Borrower provided for in this subsection shall not result in any
liability to the Agent.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Notes.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Agent for all of its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation, execution and
administration of, and any amendment, supplement or modification to, the Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Agent (including, without limitation, any allocated costs of in-house
counsel) and the reasonable costs and expenses of the Agent (including the
allocated costs of the Agent's collateral examination department) in connection
with its periodic field examinations and monitoring of the Inventory and any
other evaluation and appraisal relating to the computation of the Borrowing
Base, (b) to pay or reimburse the Agent and each Lender for all of their
respective reasonable out-of-pocket costs and expenses incurred in connection
with the enforcement or preservation of any rights under any Loan Document and
any other documents prepared in connection therewith, including, without
limitation, the reasonable fees and disbursements of counsel to the Agent and
each Lender (including, without limitation, any allocated costs of in-house
counsel) incurred in connection with such enforcement or preservation, (c) to
pay or reimburse each Lender and the Agent for all their reasonable costs and
expenses incurred in connection with, and to pay, indemnify, and hold the Agent
and each Lender harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever arising out of or in
connection with, the enforcement or preservation of any rights under any Loan
Document and any such other documents, including, without limitation, reasonable
fees and disbursements of counsel to the Agent and each Lender (including,
without limitation, any allocated costs of in-house counsel) incurred in
connection with the foregoing and in connection with advising the Agent and such
Lender with respect to their rights and responsibilities under this Agreement
and the documentation relating hereto, (d) to pay, indemnify, and to hold the
Agent and each Lender harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other similar taxes (other than withholding taxes), if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, any Loan Document and any such other
documents and (e) to pay, indemnify, and hold the Agent and each Lender and
their respective officers and directors harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
(including, without limitation, reasonable fees and disbursements of counsel)
which may be incurred by or asserted against the Agent or the Lenders (i)
arising out of or in connection with any investigation, litigation or proceeding
related to this Agreement, the other Loan Documents, the proceeds of the Loans
and the transactions contemplated by or in respect of such use of proceeds, or
any of the other transactions contemplated hereby, whether or not the Agent or
any of the Lenders is a party thereto, including, without limitation, any of the
foregoing relating to the violation of, noncompliance with or liability under,
any Environmental Law applicable to the operations of the Loan Parties or any of
the facilities and properties owned, leased or operated by any Loan Party, or
(y) without limiting the generality of the foregoing, by reason of or in
connection with the execution and delivery or transfer of, or payment or failure
to make payments under, Letters of Credit (it being agreed that nothing in this
subsection is intended to limit the Borrower's obligations under subsection 3.5)
(all the foregoing, collectively, the "indemnified liabilities"), provided that
the Borrower shall have no obligation hereunder with respect to indemnified
liabilities of the Agent or any Lender or any of their respective officers and
directors arising from the gross negligence or willful misconduct of the Agent
or any such Lender or their respective directors or officers. The agreements in
this subsection shall survive termination of this Agreement and repayment of the
Notes and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agent, the Issuing Bank all future holders of the Notes, and their
respective successors and assigns, except that the Borrower may neither assign
nor transfer any of its rights or obligations under this Agreement without the
prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, at any time sell to
one or more banks, financial institutions or other entities ("Participants")
participating interests in any Loan owing to such Lender, any participating
interest in the Letters of Credit of such Lender, any Note held by such Lender,
any Commitment of such Lender or any other interest of such Lender hereunder;
provided that any such sale of a participating interest in the Commitments shall
be of a constant, and not a varying, percentage of such Lender's Peak Period and
Non-Peak Period Commitments. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Note for all purposes under this Agreement
and the Borrower and the Agent shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement. The Borrower agrees that if amounts outstanding under this Agreement
and the Notes are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement and any Note to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under this Agreement or any Note; provided, that such right of
set-off shall be subject to the obligation of such Participant to share with the
Lenders, and the Lenders agree to share with such Participant, as provided in
subsection 10.7. The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 2.15 and 2.17 with respect to its
participation in the Letters of Credit and in the Commitments and the Loans
outstanding from time to time as if it were a Lender; provided, that, in the
case of subsection 2.15, such Participant shall have complied with the
requirements of said subsection, and provided, further, that no Participant
shall be entitled to receive any greater amount pursuant to any such subsection
than the transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred by such transferor Lender to such
Participant had no such transfer occurred. Each Lender agrees that the
participation agreement pursuant to which any Participant acquires its
participating interest (or any other document) may afford voting rights to such
Participant, or any right to instruct such Lender with respect to voting
hereunder, provided that only such voting rights as pertain to items that
require unanimous Lender consent may be so transferred.
(c) Any Lender may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, (i) at any time and
from time to time assign all or any part of its rights and obligations under
this Agreement and the Notes to any Lender or any Affiliate thereof, or (ii)
with the consent of the Agent (which shall not be unreasonably withheld) at any
time and from time to time assign to one or more additional banks, financial
institutions or other entities (each, an "Assignee"), all or any part of its
rights and obligations under this Agreement and the Notes, in each case,
pursuant to an Assignment and Acceptance, executed by such Assignee, such
transferor Lender (and, in the case of an assignment pursuant to clause (ii) of
this subsection, by the Agent), and delivered to the Agent for its acceptance
and recording in the Register (as defined below); provided that (A) unless an
assignment is of all of a Lender's rights and obligations under a Note, any such
assignment pursuant to clause (ii) of this subsection shall be in a principal
amount of $2,500,000 or more, (B) in the event of an assignment of less than all
of a Lender's rights and obligations, such Lender after any such assignment
shall retain Peak Period Commitments and/or Loans and/or L/C Participating
Interests aggregating at least $2,500,000 and (C) any such assignment of a
Lender's Commitments shall be of a constant, and not a varying percentage of
such Lender's Peak Period and Non-Peak Period Commitments. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment as set
forth therein and (y) the assigning Lender thereunder shall, to the extent of
the interest transferred, as reflected in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of a transferor
Lender's rights and obligations under this Agreement, such transferor Lender
shall cease to be a party hereto).
(d) The Agent shall maintain at its address referred to in subsection
10.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
and the Peak Period and Non-Peak Period Commitments of, the principal amount of
Loans owing to, and the L/C Participating Interests of, each Lender from time to
time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as the owner of the Loan or L/C
Participating Interest recorded therein for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender 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 and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Agent), together with payment to
the Agent by the assigning Lender and/or Assignee of a registration and
processing fee of $4,000 if the Assignee is not a Lender prior to the execution
of such supplement and $1,000 if the Assignee is a Lender or an Affiliate
thereof, the Agent shall (i) promptly accept such Assignment and Acceptance and
(ii) on the effective date determined pursuant thereto record the information
contained therein in the Register and give notice of such acceptance and
recordation to the Lenders and the Borrower. On or prior to such effective date,
the Borrower at its own expense, shall execute and deliver to the Agent (in
exchange for the Note of the assigning Lender) a new Note to the order of such
Assignee in an amount equal to the Peak Period Commitment assumed by it pursuant
to such Assignment and Acceptance and, if the assigning Lender has retained a
Commitment, a Note to the order of the assigning Lender in an amount equal to
the Peak Period Commitment retained by it hereunder. Such new Notes shall be
dated the Closing Date and shall otherwise be in the form of the Note replaced
thereby.
(f) Each Lender agrees that it will use reasonable efforts to keep
confidential and protect the confidentiality of any non-public information
concerning the Loan Parties, provided to such Lender by or on behalf of any Loan
Party pursuant to this Agreement. Notwithstanding the foregoing, the Borrower
authorizes each Lender to disclose to any Participant or Assignee (each, a
"Transferee") and any prospective Transferee, in each case who has agreed to
treat such information as confidential any and all financial information in such
Lender's possession concerning the Loan Parties which has been delivered to such
Lender by or on behalf of any such Loan Party pursuant to this Agreement or
which has been delivered to such Lender by the Borrower in connection with such
Lender's credit evaluation of the Loan Parties prior to becoming a party to this
Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
do not prohibit any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender")
shall at any time receive any payment of all or part of any of its Loans or L/C
Participating Interests or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off pursuant to
events or proceedings of the nature referred to in subsection 8(f) or otherwise)
in a greater proportion than any such payment to and collateral received by, any
other Lender, if any, in respect of such other Lender's Loans or L/C
Participating Interests, as the case may be, or interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders such portion of
each such other Lender's Loans or L/C Participating Interests, as the case may
be, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the other Lenders; provided, however, that if all
or any portion of such excess payment or benefits is thereafter recovered from
such benefitted Lender, such purchase shall be rescinded, and the purchase price
and benefits returned, to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of another Lender's
Loans and/or L/C Participating Interests may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion. The Agent
shall promptly give the Borrower notice of any set-off, provided that the
failure to give such notice shall not affect the validity of such set-off.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon the occurrence and during the continuance of any Event of
Default in respect of any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify the
Borrower and the Agent after any such set-off and application made by such
Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
10.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
10.9 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the other Loan Parties party to any
thereof, the Agent and the Lenders with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations or warranties
by the Agent or any Lender relative to subject matter hereof or thereof not
expressly set forth or referred to herein or in any other Loan Document.
10.10 Governing Law; No Third Party Rights. THIS AGREEMENT AND THE
NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK. This Agreement is solely for the benefit of
the parties hereto and their respective successors and assigns, and, except as
set forth in subsection 10.6, no other Persons shall have any right, benefit,
priority or interest under, or because of the existence of, this Agreement.
10.11 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement, the Notes and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to any Loan Party arising out of or in connection with this
Agreement or any of the other Loan Documents, and the relationship between
Agent and the Lenders, on the one hand, and the Loan Parties, on the other
hand, in connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by this Agreement or the
other Loan Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders and the Agent or among the Loan
Parties, the Agent and the Lenders.
10.12 Submission to Jurisdiction; Waivers. (a) Each party to this
Agreement hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any of the other Loan Documents,
or for recognition and enforcement of any judgment in respect thereof, to
the non-exclusive general jurisdiction of the courts of the State of New
York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought in
such courts, and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(iii) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such party
at its address set forth in subsection 10.2 or at such other address of
which the Agent shall have been notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
(b) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A)
ABOVE AND ANY COUNTERCLAIM THEREIN.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CAMELOT MUSIC, INC.
By: /s/ Jack K. Rogers
------------------------------
Name: Jack K. Rogers
Title: Excecutive Vice President
THE CHASE MANHATTAN BANK, as Agent,
Issuing Bank and a Lender
By: /s/ Cathryn A. Greene
------------------------------
Name: Cathryn A. Greene
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Barbara A. Harrel
------------------------------
Name: Barbara A. Harrel
Title: Senior Vice President
FIRST UNION NATIONAL BANK
By: /s/ Caryn M. Chittenden
------------------------------
Name: Caryn M. Chittenden
Title: Assistant Vice President
SOCIETE GENERALE
By: /s/ Nina M. Ross
------------------------------
Name: Nina M. Ross
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President and Director
<PAGE>
SCHEDULE I
LIST OF ADDRESSES FOR NOTICES TO LENDERS;
COMMITMENT AMOUNTS
THE CHASE MANHATTAN BANK
Address for Notice:
270 Park Avenue
New York, New York 10017
Attn: Cathryn Greene
Telecopy: 212-661-8396
NON-PEAK PERIOD COMMITMENT AMOUNT: 10,500,000.00
PEAK PERIOD COMMITMENT AMOUNT: 15,000,000.00
COMMITMENT PERCENTAGE: 30.00%
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
Address for Notice:
Bank of America
231 South LaSalle Street
Suite 621
Chicago, IL 60604
Attn: Thomas Denison
Telecopy: 312-828-1974
NON-PEAK PERIOD COMMITMENT AMOUNT: $7,000,000.00
PEAK PERIOD COMMITMENT AMOUNT: 10,000,000.00
COMMITMENT PERCENTAGE: 20.00%
FIRST UNION NATIONAL BANK
Address for Notice:
First Union National Bank
301 S. College Street DC-5
Charlotte, NC 28288-0737
Attn: Caryn Chittenden
Telecopy: (704) 374-3300
NON-PEAK PERIOD COMMITMENT AMOUNT: $7,000,000.00
PEAK PERIOD COMMITMENT AMOUNT: 10,000,000.00
COMMITMENT PERCENTAGE: 20.00%
<PAGE>
SOCIETE GENERALE
Address for Notice:
1221 Avenue of the Americas
New York, New York 10020
Attn: Kathleen Sweeney
Telecopy: (212) 278-6460
NON-PEAK PERIOD COMMITMENT AMOUNT: $7,000,000.00
PEAK PERIOD COMMITMENT AMOUNT: 10,000,000.00
COMMITMENT PERCENTAGE: 20.00%
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
Address for Notice:
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attn: Jeffrey Maillet
Telecopy: (630) 684-6740
NON-PEAK PERIOD COMMITMENT AMOUNT: $3,500,000.00
PEAK PERIOD COMMITMENT AMOUNT: $5,000,000.00
COMMITMENT PERCENTAGE: 10.00%
EXHIBIT 10.2
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of January 27, 1998
by and among
CAMELOT MUSIC HOLDINGS, INC.
and
EACH SECURITIES HOLDER REFERRED TO HEREIN
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Table of Contents
Page
SECTION 1. DEFINITIONS......................................................1
1.1. Defined Terms................................................... 1
SECTION 2. DEMAND REGISTRATION RIGHTS OF
SECURITIES HOLDERS ........................................... 7
2.1. Demand Registration Rights...................................... 7
2.2. Determination................................................... 7
2.3. Notices; Minimum Registerable Amounts........................... 8
2.4. Discretion of Securities Holder................................. 9
2.5. Allocation Among Initiating Securities Holders..................10
2.6. Piggyback Rights of Securities Holders and the
Company.......................................................10
SECTION 3. COMPANY SALE EVENTS.............................................11
3.1. Determination...................................................11
3.2. Notice ........................................................12
3.3. Piggyback Rights of Securities Holders..........................12
3.4. Discretion of the Company.......................................13
SECTION 4. BLACK-OUT PERIODS...............................................13
4.1. Black-Out Periods for Securities Holders........................13
SECTION 5. AGREEMENTS CONCERNING OFFERINGS.................................14
5.1. Obligations of Securities Holders...............................14
5.2. Obligations of the Company......................................14
5.3. Agreements Related to Offerings.................................16
5.4. Certain Expenses................................................18
5.5. Reports Under the Exchange Act; Rule 144........................19
5.6. Limitations on Subsequent Registration Rights. .................19
5.7. Indemnification and Contribution................................20
5.8. Underwritten Offerings..........................................28
5.9. Transfer of Rights Under this Agreement; Transfers
of Registerable Common........................................28
5.10. Termination of Rights...........................................29
SECTION 6. SEQUENCING OF PUBLIC SALE EVENTS................................29
6.1. Effective Notice Period.........................................29
6.2. Restrictive Legend on Certificates..............................30
SECTION 7. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY................................................31
SECTION 8. REPRESENTATIONS AND WARRANTIES
OF THE SECURITIES HOLDERS.....................................35
SECTION 9. DELIVERY OF COMFORT LETTER
AND LEGAL OPINION.............................................37
SECTION 10. MISCELLANEOUS...................................................37
10.1. Notices.........................................................37
10.2. Amendments and Waivers..........................................38
10.3. Termination.....................................................38
10.4. Survival of Representations and Warranties......................38
10.5. Headings........................................................39
10.6. Counterparts....................................................39
10.7. GOVERNING LAW...................................................39
10.8. Adjustment of Shares............................................39
10.9. No Inconsistent Agreements......................................39
10.10. Severability...................................................39
10.11. ENTIRE AGREEMENT...............................................39
10.12. Listing of New Common Stock....................................39
SCHEDULES
Schedule 1 - Registerable Common As of the Effective Date
EXHIBITS
Exhibit A - Securities Holders Questionnaire
Exhibit B - Supplemental Addendum
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 27, 1998, by and
among CAMELOT MUSIC HOLDINGS, INC. (formerly known as CM Holdings, Inc.), a
Delaware corporation (the "Company") and each SECURITIES HOLDER (as defined in
subsection 1.1).
W I T N E S S E T H :
WHEREAS, on August 9, 1996 the Company filed a voluntary petition for
relief under Chapter 11 of title 11 of the United States Code (as amended, the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). On December 12, 1997, the Bankruptcy Court
entered an Order confirming the Second Amended Joint Chapter 11 Plan of CM
Holdings, Inc., Camelot Music, Inc., G.M.G. Advertising, Inc. and Grapevine
Records and Tapes, Inc. (the "Plan"); and
WHEREAS, the Plan provides that the Company shall enter into a
registration rights agreement with certain of its shareholders.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
1.1. Defined Terms. (a) As used in this Agreement, the terms defined
in the caption and the recitals shall have the meanings set forth therein, and
the following terms shall have the following meanings:
"affiliate" shall have the meaning ascribed thereto in Rule 12b-2
under the Exchange Act as in effect on the date hereof.
"Agreement" shall mean this Registration Rights Agreement, as amended,
supplemented or otherwise modified from time to time.
"Camelot Group" shall mean the Company, Camelot Music, Inc., Camelot
Midwest Region, Inc., Camelot Northeast Region, Inc., Camelot Southeast
Region, Inc., Camelot Western Region, Inc., Camelot Distribution Co., Inc.,
Grapevine Records and Tapes, Inc. and the affiliates of each such entity.
"Commission" shall mean the United States Securities and Exchange
Commission or any successor thereto.
"Company Private Sale Event" shall mean any sale of New Common Stock
by the Company which sale is not effected pursuant to a Registration
Statement; excluding, however, any sale or related series of sales of New
Common Stock by the Company (a) in connection with the acquisition by the
Company or any other member of the Camelot Group of another company or
business or (b) pursuant to any employee compensation plan, agreement or
arrangement adopted by the Company or any other member of the Camelot
Group.
"Company Public Sale Event" shall mean any sale by the Company of New
Common Stock pursuant to a Registration Statement filed by the Company
(other than a Registration Statement filed by the Company on either Form
S-4 or Form S-8) pursuant to subsection 3.1.
"Company Sale Notice" shall mean a Notice of Offering from the Company
to each Security Holder stating that the Company proposes to effect a
Company Public Sale Event or a Company Private Sale Event, as the case may
be.
"Demand Registration" shall mean any Registration of Registerable
Common pursuant to a Registration Statement filed by the Company in
accordance with the provisions of subsection 2.2.
"Effective Date" shall mean January 27, 1998, being the date on which
the Plan became effective, as provided therein.
"Effective Notice Period" shall have the meaning assigned to such term
in subsection 6.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor legislation thereto.
"First Phase" shall mean the period of time commencing on the
Effective Date and ending on the date that is the earlier of (a) the date
on which the Company is eligible to use Form S-3 to effect a Registration
of shares of New Common Stock and (b) the fifteen (15) month anniversary of
the Effective Date.
"Form S-1" shall mean such form of registration statement under the
Securities Act as in effect on the date hereof or any successor form
thereto.
"Form S-3" shall mean such form of registration statement under the
Securities Act as in effect on the date hereof or any successor form
thereto.
"Form S-4" shall mean such form of registration statement under the
Securities Act as in effect on the date hereof or any successor form
thereto.
"Form S-8" shall mean such form of registration statement under the
Securities Act as in effect on the date hereof or any successor form
thereto.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Initiating Securities Holders" shall have the meaning assigned to
such term in subsection 2.3(b).
"Material Adverse Change" shall mean, for purposes of subsections
2.4(b) and (c), any material adverse change in, or the occurrence of any
event which would reasonably be expected to have a material adverse effect
on, the business, condition (financial or otherwise) or prospects of the
Camelot Group taken as a whole (it being understood that a change in
general political, financial, banking or capital market conditions shall
not be a "Material Adverse Change" unless such change has, or would
reasonably be expected to have, a material adverse effect on the Camelot
Group as described above).
"Minimum Registerable Amount" shall mean, on any date of determination
thereof during (a) the First Phase, the number of shares of Registerable
Common representing at least (i) in the case of a Demand Registration other
than a Shelf Registration, 10% of the issued and then outstanding shares of
New Common Stock or (ii) in the case of a Shelf Registration, 15% of the
issued and then outstanding shares of New Common Stock and (b) the Second
Phase, (i) in the case of a Demand Registration other than a Shelf
Registration, 7.5% of the issued and then outstanding shares of New Common
Stock or (ii) in the case of a Shelf Registration, 11.25% of the issued and
then outstanding shares of New Common Stock.
"NASD" shall mean the National Association of Securities Dealers, Inc.
or any successor thereto.
"New Common Stock" shall mean the common stock, par value $.01 per
share, of the Company authorized pursuant to the Plan to be issued from and
after the Effective Date, and any reclassification thereof.
"Notice of Offering" shall mean a written notice with respect to (a) a
proposed Sale Event pursuant to a Demand Registration, (b) a Company Public
Sale Event or (c) a Company Private Sale Event, in each case setting forth
(i) the expected maximum and minimum number of shares of Registerable
Common or New Common Stock, as the case may be, proposed to be offered and
sold, (ii) the lead managing underwriter, if applicable and known and (iii)
the proposed method of distribution and the expected timing of the
offering.
"Person" shall mean any individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority, limited liability company or other entity
of whatever nature.
"Piggybacking Notice" shall have the meaning assigned to such term in
subsection 2.6(a).
"Piggybacking Securities Holder" shall have the meaning assigned to
such term in subsection 2.6(a).
"Preliminary Prospectus" shall mean each preliminary prospectus
included in a Registration Statement or in any amendment thereto prior to
the date on which such Registration Statement is declared effective under
the Securities Act, including any prospectus filed with the Commission
pursuant to Rule 424(a) under the Securities Act.
"Prospectus" shall mean each prospectus included in a Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective Registration Statement in accordance with Rule 430A), together
with any supplement thereto, as filed with, or transmitted for filing to,
the Commission pursuant to Rule 424(b) under the Securities Act.
"Public Sale Event" shall mean a Securities Holder Public Sale Event
or a Company Public Sale Event, as the case may be.
"Purchase Agreement" shall mean, in connection with any Sale Event,
any written agreement entered into by any Securities Holder providing for
the sale of Registerable Common and/or the Company providing for the sale
of New Common Stock.
"Registerable Common" shall mean with respect to each Securities
Holder (a) the shares of New Common Stock issued to such Securities Holder
pursuant to the Plan (in the number, as of the Effective Date, as set forth
on Schedule 1 hereto), and (b) any other securities issued as (or issuable
upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, such shares of Registerable Common;
excluding in all cases, however, any shares of Registerable Common from and
after the transfer thereof pursuant to a Registration Statement or Rule
144.
"Registration" shall mean a registration of securities pursuant to the
Securities Act.
"Registration Statement" shall mean any registration statement
(including the Preliminary Prospectus, the Prospectus, any amendments
(including any post-effective amendments) thereof, any supplements and all
exhibits thereto and any documents incorporated therein by reference
pursuant to the rules and regulations of the Commission), filed by the
Company with the Commission which complies with the requirements of the
Securities Act and the rules and regulations of the Commission thereunder
in connection with any Public Sale Event.
"Responsible Officer" shall mean with respect to any Person, the
president, chief executive officer, chief operating officer, chief
financial officer, vice president--finance or treasurer of such Person.
"Rule 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act, or any successor to such Rule.
"Rule 415" shall mean Rule 415 promulgated by the Commission under the
Securities Act, or any successor to such Rule.
"Rule 424" shall mean Rule 424 promulgated by the Commission under the
Securities Act, or any successor to such Rule.
"Rule 430A" shall mean Rule 430A promulgated by the Commission under
the Securities Act, or any successor to such Rule.
"Sale Event" shall mean any sale by the Company of New Common Stock
pursuant to a Company Private Sale Event or a Company Public Sale Event or
any sale by any Securities Holder of Registerable Common pursuant to any
Registration Statement.
"Second Phase" shall mean the period following the end of the First
Phase and prior to the Termination Date.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor legislation thereto.
"Securities Holder" shall mean each entity set forth on the signature
pages of this Agreement under the heading "SECURITIES HOLDERS".
"Securities Holder Public Sale Event" shall mean any sale of
Registerable Common by a Securities Holder pursuant to a Demand
Registration.
"Securities Holder Sale Notice" shall mean a Notice of Offering to the
Company from a Securities Holder requesting the Company to effect a Demand
Registration of Registerable Common (to which such Securities Holder is at
the time entitled pursuant to subsection 2.1) and stating whether such
Securities Holder is requesting that such Demand Registration be a Shelf
Registration; provided that if more than one Notice of Offering is required
to aggregate the Minimum Registerable Amount, the term "Securities Holder
Sale Notice" shall refer collectively to all such Notices of Offering
delivered by Securities Holders to the Company in accordance with
subsection 2.3(b).
"Securities Holder's Questionnaire" shall mean the questionnaire to be
provided by each Securities Holder to the Company in connection with a
Public Sale Event or Company Private Sale Event, substantially in the form
of Exhibit A, as the same from time to time may be amended, supplemented or
otherwise modified.
"Shelf Registration" shall mean any Registration of Registerable
Common pursuant to a Registration Statement filed by the Company in
accordance with the provisions of subsection 2.2 and which provides for the
offering of Registerable Common to be made on a continuous basis pursuant
to Rule 415.
"Subsidiary" shall mean, as to any Person, a corporation, partnership
or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect the majority of the board of directors or other
managers of such corporation, partnership or other entity are at that time
owned directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.
"Supplemental Addendum" shall mean a Supplemental Addendum,
substantially in the form of Exhibit B to this Agreement.
"Termination Date" shall mean, as to each Securities Holder, the date
on which counsel to the Company delivers an opinion in accordance with
subsection 5.10 to such Securities Holder.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement.
SECTION 2. DEMAND REGISTRATION RIGHTS OF SECURITIES HOLDERS
2.1. Demand Registration Rights. At any time prior to the Termination
Date, each Securities Holder shall have the right, subject to subsections 2.3,
2.4(b) and (c) and 6.1, to request one (1) Demand Registration, and the Company
shall be obligated to provide a Demand Registration in response to each such
request; provided that the Company shall be obligated to provide no more than
two (2) such Demand Registrations during the First Phase; provided, further,
that, during the First Phase, if the initial Demand Registration is a Shelf
Registration, the Company shall be obligated to provide only such Shelf
Registration.
2.2. Determination. Subject to the terms and conditions hereof, if the
Company shall at any time receive a Securities Holder Sale Notice in accordance
with subsection 2.3 representing at least the Minimum Registerable Amount, then
the Company shall (a) (i) in the case of a Registration Statement on Form S-1,
use its reasonable best efforts to file such Registration Statement within 45
days, and in any event, but subject to subsection 5.3(b), make such filing
within 75 days, of the receipt of such Securities Holder Sale Notice or (ii) in
the case of a Registration Statement on Form S-3, use its reasonable best
efforts to file such Registration Statement within 30 days, and in any event,
but subject to subsection 5.3(b), make such filing within 60 days (provided that
such time periods shall begin on the date of the Company's receipt of the
Securities Holder Sale Notice which, together with any earlier delivered
Securities Holder Sale Notice, represents the applicable Minimum Registerable
Amount), which Registration Statement shall cover the maximum number of shares
of Registerable Common set forth in such Securities Holder Sale Notice, and, if
applicable, such additional shares of New Common Stock as permitted under
subsection 2.6 and (b) use its best efforts to facilitate such Demand
Registration as provided herein. Notwithstanding the foregoing, the Company may
delay the filing of (but not its obligation to expeditiously prepare) any
Registration Statement relating to a Demand Registration for a reasonable period
of time (not in excess of 90 days) if the Board of Directors of the Company
reasonably determines to delay such filing and, within ten (10) days of such
determination, the Company provides each Securities Holder that delivered a
Securities Holder Sale Notice with a certificate signed by the Chairman of the
Board of Directors of the Company or the Chief Executive Officer of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company, the filing of such Registration Statement would adversely affect any
material business situation, transaction or negotiation then contemplated by the
Company or materially and adversely affect the Company. The Company shall
promptly give notice to each such Securities Holder of the end of any delay
period under this subsection. Subject to any extension under subsection 4.1(b),
the Company shall keep any Demand Registration Statement effective for a period
of (i) in the case of a Demand Registration other than a Shelf Registration,
until the earlier of (x) the four (4) month anniversary of the date that the
Registration Statement with respect thereto is declared effective by the
Commission and (y) the date on which all of the Registerable Common covered by
such Registration Statement has been sold and (ii) in the case of a Shelf
Registration, until the earlier of (x) two (2) years following the date the
Registration Statement with respect thereto is declared effective by the
Commission and (y) the date on which all of the Registerable Common covered by
such Registration Statement has been sold or, in each case, such shorter period
if any such Registration is terminated in accordance with the terms hereof prior
to the end of the applicable period.
2.3. Notices; Minimum Registerable Amounts. (a) Subject to subsection
2.1, any Securities Holder may send a Securities Holder Sale Notice to the
Company in respect of a Demand Registration. Simultaneously with the delivery to
the Company of a Securities Holder Sale Notice, the Securities Holder so
requesting a Demand Registration shall deliver to each other Securities Holder a
copy of such Securities Holder Sale Notice and such other information as such
Securities Holder may deem appropriate.
(b) Notwithstanding subsection 2.3(a), no Securities Holder Sale
Notice delivered by a Securities Holder shall be effective to require the
Company to provide a Demand Registration, unless (i) the aggregate number of
shares of New Common Stock represented by such Securities Holder Sale Notice
equals or exceeds the Minimum Registerable Amount or (ii) within twenty (20)
days of the delivery of the first Securities Holder Sale Notice in respect of an
aggregate number of shares of New Common Stock that does not equal or exceed the
Minimum Registerable Amount one or more additional Securities Holder Sale
Notices are delivered by Securities Holders then entitled to request a Demand
Registration pursuant to subsection 2.1(a) such that the aggregate number of
shares of New Common Stock represented by all such Securities Holder Sale
Notices (including the Securities Holder Sale Notice which commenced such twenty
(20) day period) is at least equal to the Minimum Registerable Amount. All
Securities Holders delivering Securities Holder Sale Notices in accordance with
the immediately preceding sentence are hereinafter referred to as the
"Initiating Securities Holders". Subject to subsection 2.4, the delivery of any
Securities Holder Sale Notice pursuant to this subsection 2.3(b), shall be
deemed a request by each Initiating Securities Holder under subsection 2.1 for a
Demand Registration, provided that if all Securities Holder Sale Notices so
delivered do not represent at least the Minimum Registerable Amount, then all
such Securities Holder Sale Notices shall be deemed null and void and shall not
constitute a request for Demand Registration under subsection 2.1 by any
Initiating Securities Holder.
(c) Any Securities Holder Sale Notice may be revised from time to time
prior to the earlier of (i) the execution of the Purchase Agreement, if any, for
such offering and (ii) the effectiveness of the Registration Statement for such
offering.
(d) The Company shall promptly provide a Securities Holder
Questionnaire (i) in the case of a Demand Registration, to each Securities
Holder that delivers a Securities Holder Sale Notice in accordance with this
subsection 2.3 and each Piggybacking Securities Holder and (ii) in the case of a
Company Public Sale Event or Company Private Sale Event, to each Securities
Holder that has indicated its desire pursuant to subsection 3.3 to participate
in such Sale Event.
2.4. Discretion of Securities Holder. (a) In connection with any
Securities Holder Public Sale Event, subject to the provisions of this
Agreement, the Securities Holder requesting a Demand Registration (if such
Public Sale Event was initiated by an individual Securities Holder) or the
Initiating Securities Holders owning a majority of the aggregate number of
shares of Registerable Common that all such Initiating Securities Holders are
seeking to include in such Public Sale Event (if such Public Sale Event was
initiated by Initiating Securities Holders), in its or their sole discretion, as
the case may be, shall determine whether (i) to proceed with, withdraw from or
terminate such proposed Securities Holder Public Sale Event, (ii) to enter into
one or more Purchase Agreements for such Securities Holder Public Sale Event and
(iii) to take such actions as may be necessary to close the sale of Registerable
Common contemplated by such offering, including, without limitation, waiving any
conditions to closing such sale which have not been fulfilled.
(b) Subject to subsection 2.4(c), in the event that the Securities
Holder or the Initiating Securities Holders, as the case may be, determine(s)
pursuant to subsection 2.4(a) not to proceed with a Demand Registration of
Registerable Common (i) at any time before the Registration Statement with
respect to such Demand Registration has been declared effective by the
Commission or (ii) as a result of a Material Adverse Change, at any time after
the Registration Statement with respect to such Demand Registration has been
declared effective by the Commission, and, in either such case, such Securities
Holder or Initiating Securities Holders, as the case may be, reimburse(s) the
Company for all reasonable fees, costs and expenses in connection therewith,
then all Securities Holder Sale Notices delivered in respect of such Demand
Registration shall be deemed null and void and shall not constitute a request
for Demand Registration under subsection 2.1 by any Securities Holder or
Initiating Securities Holders.
(c) If the Securities Holder or the Initiating Securities Holders, as
the case may be, determine(s) pursuant to subsection 2.4(a) not to proceed with
a Demand Registration (i) at any time at the request of the Company or (ii) as a
result of a Material Adverse Change before the Registration Statement with
respect to such Demand Registration has been declared effective by the
Commission, then, in either such case, such Securities Holder or Initiating
Securities Holders, as the case may be, will not be required to reimburse the
Company for the fees, costs and expenses in connection with such Demand
Registration and all Securities Holder Sale Notices delivered in respect of such
Demand Registration shall be deemed null and void and shall not constitute a
request for Demand Registration under subsection 2.1 by any Securities Holder or
Initiating Securities Holders.
2.5. Allocation Among Initiating Securities Holders. In connection
with any Demand Registration requested by Initiating Securities Holders in
accordance with subsection 2.3, if the lead managing underwriter selected by
such Initiating Securities Holders in accordance with subsection 5.8 with
respect to such offering (or, if the offering is not underwritten, if a
financial advisor to such Initiating Securities Holders) determines that
marketing factors require a limitation on the number of shares of Registerable
Common to be offered and sold in such offering, there shall be included in the
offering only that number of shares of Registerable Common that such lead
managing underwriter or financial advisor, as the case may be, reasonably and in
good faith believes will not jeopardize the success of the offering, which
shares of Registerable Common shall be allocated among the Initiating Securities
Holders on a pro rata basis based on the number of shares of Registerable Common
each such Initiating Securities Holder seeks to include in such offering.
2.6. Piggyback Rights of Securities Holders and the Company. (a) In
connection with any Demand Registration that has been requested by a Securities
Holder or Initiating Securities Holders, as the case may be, in accordance with
subsections 2.1 and 2.3, any other Securities Holder then holding Registerable
Common (a "Piggybacking Securities Holder") and the Company shall be entitled,
subject to subsection 2.6(b), to participate on the same terms and conditions as
such Securities Holder in the Securities Holder Public Sale Event relating
thereto and offer and sell shares of Registerable Common or shares of New Common
Stock, respectively, therein as provided in this subsection 2.6. Any party
desiring to so participate shall give written notice (a "Piggybacking Notice")
to the Securities Holder requesting such Demand Registration and, if such party
is not the Company, to the Company no later than fifteen (15) days following
receipt of a Securities Holder Sale Notice, of the aggregate number of shares of
Registerable Common that such Piggybacking Securities Holder or shares of New
Common Stock that the Company, as the case may be, then desires to offer and
sell in such Securities Holder Public Sale Event.
(b) The extent to which a Piggybacking Securities Holder or the
Company may participate in any Securities Holder Public Sale Event in accordance
with paragraph (a) of this subsection 2.6 shall be limited to that number of
shares of Registerable Common or shares of New Common Stock that will not
require a reduction in the number of shares of Registerable Common of the
Initiating Securities Holders or the Securities Holder requesting such Demand
Registration to be included therein or change in a manner materially adverse to
such Initiating Securities Holders or Securities Holder, as the case may be, the
proposed method of the offering, including, without limitation, the economic
benefits to such Initiating Securities Holders or Securities Holder. If the lead
managing underwriter selected by the Initiating Securities Holders or the
Securities Holder initiating such Securities Holder Public Sale Event (or, if
the offering is not underwritten, a financial advisor to such Initiating
Securities Holders or Securities Holder) determines that marketing factors
require a limitation on the number of shares of Registerable Common or shares of
New Common Stock to be offered and sold in such offering, there shall be
included in the Registration Statement with respect to such offering only that
number of shares of Registerable Common held by such Securities Holders or
shares of New Common Stock to be sold by the Company, if any, that such lead
managing underwriter or financial advisor, as the case may be, reasonably and in
good faith believes will not jeopardize the success of the offering, which
shares shall be allocated first among the Piggybacking Securities Holders on a
pro rata basis based on the number of shares of Registerable Common each such
Securities Holder is seeking to include in such offering and second to the
Company.
SECTION 3. COMPANY SALE EVENTS.
3.1. Determination. (a) Subject to subsection 6.1, the Company may at
any time effect a Company Public Sale Event pursuant to a Registration Statement
filed by the Company, provided that the Company gives each Securities Holder a
Company Sale Notice, no less than 21 days prior to the filing of the related
Registration Statement.
(b) The Company may at any time effect a Company Private Sale Event,
provided that the Company gives each Securities Holder a Company Sale Notice, so
as to be received no less than five (5) days prior to the closing date of such
Company Private Sale Event.
3.2. Notice. The Company Sale Notice shall contain a statement that
the Securities Holders are entitled to participate in such offering and the
number of shares of Registerable Common which represents the best estimate of
the lead managing underwriter (or, if not known or applicable, the Company) that
will be available for sale by the Securities Holders in the proposed offering.
3.3. Piggyback Rights of Securities Holders. (a) If the Company shall
have delivered a Company Sale Notice, Securities Holders shall be entitled to
participate on the same terms and conditions as the Company in the Company
Public Sale Event or the Company Private Sale Event, as the case may be, to
which such Company Sale Notice relates and to offer and sell shares of
Registerable Common therein only to the extent provided in this subsection 3.3.
Each Securities Holder desiring to participate in such offering shall notify the
Company in writing, by delivering a Piggybacking Notice no later than ten (10)
days following receipt of a Company Sale Notice in respect of a Company Public
Sale Event or four (4) days following receipt of a Company Sale Notice in
respect of a Company Private Sale Event, of the aggregate number of shares of
Registerable Common that such Securities Holder then desires to sell in the
offering.
(b) Each Securities Holder desiring to participate in a Company Public
Sale Event or a Company Private Sale Event may include shares of Registerable
Common in (i) any Registration Statement relating to a Company Public Sale Event
or (ii) in a Company Private Sale Event, in each case to the extent that the
inclusion of such shares shall not reduce the number of shares of New Common
Stock to be offered and sold by the Company to be included therein or change in
a manner materially adverse to the Company the proposed method of the offering,
including, without limitation, the economic benefits to the Company. If the lead
managing underwriter selected by the Company for such offering (or, if the
offering is not underwritten, a financial advisor to the Company) determines
that marketing factors require a limitation on the number of shares of
Registerable Common to be offered and sold in such Company Public Sale Event or
Company Private Sale Event, as the case may be, there shall be included in the
offering only that number of shares of Registerable Common, if any, that such
lead managing underwriter or financial advisor, as the case may be, reasonably
and in good faith believes will not jeopardize the success of the offering,
which shares of Registerable Common shall be allocated among such Securities
Holders on a pro rata basis based on the number of shares of Registerable Common
each such Securities Holder is seeking to include in such Sale Event.
3.4. Discretion of the Company. In connection with any Company Public
Sale Event or Company Private Sale Event, subject to the provisions of this
Agreement, the Company, in its sole discretion, shall determine whether (a) to
proceed with, withdraw from or terminate such Company Public Sale Event or
Company Private Sale Event, as the case may be, (b) to enter into the Purchase
Agreement for such Company Public Sale Event or Company Private Sale Event, as
the case may be, and (c) to take such actions as may be necessary to close the
sale of New Common Stock contemplated by such offering, including, without
limitation, waiving any conditions to closing such sale which have not been
fulfilled.
SECTION 4. BLACK-OUT PERIODS.
4.1. Black-Out Periods for Securities Holders. (a) No Securities
Holder shall offer to sell or sell any shares of Registerable Common pursuant to
a Demand Registration, and the Company shall not be required to supplement or
amend any Registration Statement or otherwise facilitate the sale of
Registerable Common pursuant thereto, during the 90-day period (or such lesser
number of days until the Company makes its next required filing under the
Exchange Act) immediately following the receipt by each Securities Holder of a
certificate of an authorized officer of the Company to the effect that the Board
of Directors of the Company has in good faith and for valid business reasons
requested that the Securities Holders refrain from selling shares of
Registerable Common; provided, however, that -------- ------- the identity of a
potential purchaser or purchasers of Registerable Common from a Securities
Holder shall not constitute a valid business reason. Any period described in
this subsection 4.1(a) during which Securities Holders are not able to sell
shares of Registerable Common pursuant to a Demand Registration is herein
referred to as a "black-out" period. The Company shall notify each Securities
Holder of the expiration or earlier termination of any "black-out" period (the
nature and pendency of which need not be disclosed during such "black-out"
period).
(b) The period during which the Company is required pursuant to
subsection 2.2 to keep any Demand Registration effective shall be extended by a
number of days equal to the number of days, if any, of any "black-out" period
applicable to Securities Holders pursuant to this subsection 4.1 occurring
during such period, plus a number of days equal to the number of days during
such period, if any, of any period during which the Securities Holders are
unable to sell any shares of Registerable Common pursuant to a Demand
Registration as a result of the happening of any event of the nature described
in subsection 5.3(c)(ii), 5.3(c)(iii) or 5.3(c)(v).
SECTION 5. AGREEMENTS CONCERNING OFFERINGS.
5.1. Obligations of Securities Holders. (a) Each Securities Holder
shall, upon the reasonable request of the Company, advise the Company of the
number of shares of Registerable Common then held or beneficially owned by it.
(b) It shall be a condition precedent to the obligations of the
Company to effect a Registration of any shares of Registerable Common or to
include shares of Registerable Common in a Company Private Sale Event that the
Securities Holders desiring to participate in a Public Sale Event or a Company
Private Sale Event, as the case may be, shall have furnished to the Company a
completed Securities Holder's Questionnaire and such additional information
regarding themselves, the Registerable Common held by them and the intended
method of disposition of such securities as shall be required by law or the
Commission to effect the Registration or private sale of their Registerable
Common and any other information relating to such Registration or private sale
reasonably requested by the Company.
5.2. Obligations of the Company. Whenever required under this
Agreement to proceed with a Registration of any Registerable Common, the Company
shall, subject to the terms and conditions of this Agreement, as expeditiously
as reasonably possible:
(a) In accordance with subsection 2.2, prepare and file with the
Commission a Registration Statement with respect to such Registerable
Common and use its best efforts to cause such Registration Statement to
become effective.
(b) Prepare and file with the Commission such amendments (including
post-effective amendments) to such Registration Statement and supplements
to the related Prospectus used in connection with such Registration
Statement, and otherwise use its best efforts, to the end that such
Registration Statement reflects the plan of distribution of the securities
registered thereunder that is included in the relevant Notice of Offering,
if any, in respect of a Demand Registration and, subject to subsection 2.2,
is effective until the completion of the distribution contemplated by such
Registration Statement or so long thereafter as a dealer is required by law
to deliver a Prospectus in connection with the offer and sale of the shares
of Registerable Common covered by such Registration Statement.
(c) Notify the Securities Holders selling Registerable Common, at any
time when a Prospectus relating thereto is required to be delivered under
the Securities Act, when the Company becomes aware of the occurrence of any
event, as a result of which the Prospectus included in such Registration
Statement (as then in effect) contains an untrue statement of material fact
or omits to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
and use its best efforts to prepare and file promptly, and in any event
within 20 days, with the Commission a supplement or amendment to such
Prospectus so that, as thereafter delivered to purchasers of such
Registerable Common, such Prospectus will not contain an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Provide to any Securities Holder requesting to include
Registerable Common in such Registration Statement and any managing
underwriter participating in any distribution thereof, and to any attorney,
accountant or other agent retained by such Securities Holder or managing
underwriter, reasonable access to appropriate officers and directors of the
Company to ask questions and to obtain information reasonably requested by
any such Person in connection with such Registration Statement or any
amendment thereto, provided, however, that (i) in connection with any such
access or request, any such requesting Persons shall cooperate to the
extent reasonably practicable to minimize any disruption to the operation
by the Company of its business and (ii) any records, information or
documents shall be kept confidential by such requesting Persons, unless (x)
such records, information or documents are in the public domain or
otherwise publicly available other than through disclosure by such
requesting party or (y) disclosure of such records, information or
documents is required by court or administrative order or by applicable law
(including, without limitation, the Securities Act).
(e) Furnish to the participating Securities Holders, such number of
copies of a Prospectus, including a Preliminary Prospectus, in conformity
with the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of
Registerable Common owned by them.
(f) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or "Blue
Sky" laws of such jurisdictions in the United States as shall be reasonably
requested by the Securities Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions or to make any filing or take any other action
which could subject it to taxation as a result of such filing.
(g) Enter into and perform its obligations under a Purchase Agreement,
if the offering is an underwritten offering, in usual and customary form,
with the managing underwriter of such underwritten offering; provided,
however, that each Securities Holder participating in such Public Sale
Event shall also enter into and perform its obligations under such Purchase
Agreement so long as such obligations are usual and customary obligations
of selling stockholders in a registered public offering.
5.3. Agreements Related to Offerings. Subject to the terms and
conditions hereof, in connection with any Demand Registration:
(a) The Company will cooperate with any underwriters for, and the
Securities Holders of, the shares of Registerable Common proposed to be
sold pursuant to a Registration Statement, and will, unless the parties to
the Purchase Agreement otherwise agree, enter into a Purchase Agreement not
inconsistent with the terms and conditions of this Agreement and containing
such other terms and conditions of a type and form reasonable and customary
for companies of similar size and credit rating (including, but not limited
to, such provisions for delivery of a "comfort letter" and legal opinion as
are customary), and take all such other reasonable actions as are necessary
or advisable to permit, expedite and facilitate the disposition of such
shares of Registerable Common in the manner contemplated by such
Registration Statement in each case to the same extent as if all the shares
of Registerable Common then being offered were for the account of the
Company.
(b) Neither a Registration Statement nor any amendment or supplement
thereto will be filed by the Company until counsel for the Initiating
Securities Holder or the Securities Holder delivering the relevant
effective Securities Holder Sale Notice shall have had a reasonable
opportunity to review the same and each Securities Holder participating in
such Sale Event shall have had a reasonable opportunity to exercise its
rights under subsection 5.2(d) with respect thereto. No amendment to such
Registration Statement naming any Securities Holder as a selling security
holder shall be filed with the Commission until such Securities Holder
shall have had a reasonable opportunity to review such Registration
Statement as originally filed. Neither such Registration Statement nor any
related Prospectus or any amendment or supplement thereto shall be filed by
the Company with the Commission which shall be disapproved (for reasonable
cause) by the managing underwriters named therein or any participating
Securities Holders within a reasonable period after notice thereof.
(c) The Company will use its reasonable efforts to keep the Securities
Holders informed of the Company's best estimate of the earliest date on
which such Registration Statement or any post-effective amendment thereto
will become effective and will notify each Securities Holder and the
managing underwriters participating in the distribution pursuant to such
Registration Statement promptly (i) when such Registration Statement or any
post-effective amendment to such Registration Statement becomes effective,
(ii) of any request by the Commission for an amendment or any supplement to
such Registration Statement or any related Prospectus, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness
of such Registration Statement or of any order preventing or suspending the
use of any related Prospectus or the initiation or threat of any proceeding
for that purpose, (iv) of the suspension of the qualification of any shares
of New Common Stock included in such Registration Statement for sale in any
jurisdiction or the initiation or threat of a proceeding for that purpose,
(v) of any determination by the Company that an event has occurred (the
nature and pendency of which need not be disclosed during a "black-out
period" pursuant to subsection 4.1) which makes untrue any statement of a
material fact made in such Registration Statement or any related Prospectus
or which requires the making of a change in such Registration Statement or
any related Prospectus in order that the same will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (vi) of the completion of the distribution contemplated by
such Registration Statement if it relates to a Company Sale Event.
(d) In the event of the issuance of any stop order suspending the
effectiveness of such Registration Statement or of any order suspending or
preventing the use of any related Prospectus or suspending the
qualification of any shares of Common Stock included in such Registration
Statement for sale in any jurisdiction, the Company will use its reasonable
best efforts promptly to obtain its withdrawal.
(e) The Company agrees to otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, but
not later than fifteen months after the effective date of such Registration
Statement, an earnings statement covering the period of at least twelve
months beginning with the first full fiscal quarter after the effective
date of such Registration Statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158
promulgated thereunder.
(f) The Company shall, subject to permitted "blackout" periods, upon
the happening of any event of the nature described in subsection
5.3(c)(ii), 5.3(c)(iii) or 5.3(c)(v), as expeditiously as reasonably
possible, prepare a supplement or post-effective amendment to the
applicable Registration Statement or a supplement to the related Prospectus
or any document incorporated therein by reference or file any other
required documents and deliver a copy thereof to each Securities Holder so
that, as thereafter delivered to the purchasers of the Registerable Common
being sold thereunder, such Prospectus will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) Upon receipt of any notice from the Company of the happening of
any event of the kind described in subsection 5.2(c), each Securities
Holder will immediately discontinue disposition of the Registerable Common
pursuant to the Registration Statement relating to such Registerable Common
until such Securities Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by subsection 5.2(c), or until such
Securities Holder has been advised in writing by the Company that the use
of the Prospectus may be resumed and has received copies of any additional
or supplemental filings which are incorporated by reference therein. If
reasonably requested by the Company, the Securities Holders will, or will
request the managing underwriter or underwriters, if any, to, deliver to
the Company all copies, other than permanent file copies, of the Prospectus
covering the Registerable Common current at the time of receipt of such
notice.
5.4. Certain Expenses. Subject to subsection 2.4(b), the Company shall
pay all fees, disbursements and expenses in connection with the performance of
its obligations hereunder, including, without limitation, all registration and
filing fees, printing expenses, auditors' fees, listing fees, registrar and
transfer agents' fees, reasonable fees and disbursements of counsel to each
Securities Holder and counsel for the Company, expenses (including reasonable
fees and disbursements of counsel) of complying with applicable securities or
"Blue Sky" laws and the fees of the NASD or other governing body of any
securities exchange on which the New Common Stock is listed in connection with
its review of any offering contemplated in such Registration Statement, but not
including underwriting fees, discounts and commissions; provided that, in
connection with a Company Public Sale Event, the Company's obligation to pay the
reasonable fees and disbursements of counsel to each Piggybacking Securities
Holder shall be limited to the reasonable fees and disbursements of a single law
firm for all such Piggybacking Securities Holders participating in such Sale
Event pursuant to subsection 3.3.
5.5. Reports Under the Exchange Act; Rule 144. (a) The Company agrees
to:
(i) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act or the Exchange
Act; and
(ii) furnish to any Securities Holder forthwith upon request (A) a
written statement by the Company that it has complied with the current
public information and reporting requirements of Rule 144 or any similar
rule or regulation hereafter adopted by the Commission and the Exchange
Act, (B) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and
(C) such other information as is available to the Company without
unreasonable cost or expense and may be reasonably requested in connection
with availing any Securities Holder of any rule or regulation of the
Commission which permits the selling of any such securities without
Registration or pursuant to such rule or regulation.
(b) During any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, the Company shall, upon the request of any
Securities Holder, make available to such Securities Holder and any prospective
purchaser of Registerable Common designated by such Securities Holder the
information required by Rule 144(c) in order to permit resales of the
Registerable Common held by such Securities Holder pursuant to Rule 144.
(c) Any Securities Holder selling shares of Registerable Common
pursuant to Rule 144 shall promptly deliver to the Company a copy of the
completed Form 144 filed by such Securities Holder with the Commission.
5.6. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of Securities Holders owning a majority of the Registerable Common held by
Securities Holders at such time, enter into any agreement (other than this
Agreement) which would allow any holder or prospective holder of New Common
Stock (a) on demand of such holder to cause the Company to effect a Registration
of such securities prior to the thirty (30) month anniversary of the Effective
Date, (b) to include such securities in any Registration Statement filed under
subsection 2.2 hereof to the exclusion of shares of Registerable Common that any
Securities Holder desires to include in any such offering or (c) to include such
securities in any Company Public Sale Event or Company Private Sale Event to the
exclusion of shares of Registerable Common that any Securities Holder desires to
include in any such offering.
5.7. Indemnification and Contribution. (a) In connection with a Demand
Registration, provisions substantially in conformity with the following
provisions shall be contained in the related Purchase Agreement unless the
parties to such Purchase Agreement agree otherwise:
(i) The Company shall agree to indemnify and hold harmless each
Securities Holder and each Person, if any, who controls such Securities
Holder within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act against any losses, claims, damages or liabilities,
joint or several, or actions in respect thereof to which such Securities
Holder or controlling Person may become subject under the Securities Act,
or otherwise (collectively, "Losses"), insofar as such Losses arise out of,
or are based upon, any untrue statement or alleged untrue statement of any
material fact contained in such Registration Statement, any related
Preliminary Prospectus or any related Prospectus, or any amendment or
supplement thereto, or arise out of, or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse such Securities Holder or controlling Person for any legal
or other expenses reasonably incurred by them in connection with
investigating or defending any such Loss; provided, however, that the
Company shall not be so liable to the extent that any such Loss arises out
of, or is based upon, an untrue statement or alleged untrue statement of a
material fact or an omission or alleged omission to state a material fact
in said Registration Statement, said Preliminary Prospectus, said
Prospectus or any said amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of a Securities Holder specifically for use therein. Notwithstanding
the foregoing, the Company shall not be liable in any such case to the
extent that any such Loss arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission made
in any Preliminary Prospectus if (A) such Securities Holder failed to send
or deliver a copy of the Prospectus with or prior to the delivery of
written confirmation of the sale of Registerable Common to the Person
asserting such Loss or who purchased such Registerable Common which is the
subject thereof if, in either case, such delivery is required by the
Securities Act and (B) the Prospectus would have corrected such untrue
statement or omission or alleged untrue statement or alleged omission; and
the Company shall not be liable in any such case to the extent that any
such Loss arises out of, or is based upon, an untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as
so amended or supplemented, such Securities Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or
concurrently with the sale of Registerable Common to the Person asserting
such Loss or who purchased such Registerable Common which is the subject
thereof if, in either case, such delivery is required by the Securities
Act. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(ii) Each Securities Holder severally shall agree to indemnify and
hold harmless the Company, each of its officers and directors who sign the
Registration Statement, each other Securities Holder and each Person, if
any, who controls the Company or such other Securities Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any Losses to which the Company, such officers or directors,
such other Securities Holder or such controlling Person may become subject
under the Securities Act, or otherwise, insofar as such Losses arise out
of, or are based upon, any untrue statement or alleged untrue statement of
any material fact contained in such Registration Statement, any related
Preliminary Prospectus or any related Prospectus, or any amendment or
supplement thereto, or arise out of, or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such officers or directors, such other
Securities Holder or such controlling Person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Loss, in each case to the extent, but only to the
extent, that any such Loss arises out of, or is based upon, an untrue
statement or alleged untrue statement of a material fact or an omission or
alleged omission to state a material fact in said Registration Statement,
said Preliminary Prospectus or said Prospectus, or any said amendment or
supplement in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of such Securities Holder
specifically for use therein; provided, however, that the liability of each
Securities Holder on account of the foregoing shall be limited to an amount
equal to the net proceeds of the sale of shares of Registerable Common by
such Securities Holder in the offering which gave rise to the liability.
(iii) The Company shall agree to indemnify and hold harmless each
underwriter and each Person, if any, who controls any such underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any Losses to which such underwriter or controlling
Person may become subject under the Securities Act, or otherwise, insofar
as such Losses arise out of, or are based upon, any untrue statement or
alleged untrue statement of any material fact contained in such
Registration Statement, any related Preliminary Prospectus or any related
Prospectus, or any amendment or supplement thereto, or arise out of, or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse such underwriter or controlling
Person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Loss; provided,
however, that the Company shall not be so liable to the extent that any
such Loss arises out of, or is based upon, an untrue statement or alleged
untrue statement of a material fact or an omission or alleged omission to
state a material fact in said Registration Statement, said Preliminary
Prospectus or said Prospectus or any said amendment or supplement in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of such underwriter specifically for use therein.
Notwithstanding the foregoing, the Company shall not be liable in any such
case to the extent that any such Loss arises out of, or is based upon, an
untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus if (A) such underwriter failed
to send or deliver a copy of the Prospectus with or prior to the delivery
of written confirmation of the sale of Registerable Common to the Person
asserting such Loss or who purchased such Registerable Common which is the
subject thereof if, in either case, such delivery is required by the
Securities Act and (B) the Prospectus would have corrected such untrue
statement or omission or alleged untrue statement or alleged omission; and
the Company shall not be liable in any such case to the extent that any
such Loss arises out of, or is based upon, an untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as
so amended or supplemented, such underwriter thereafter fails to deliver
such Prospectus as so amended or supplemented, prior to or concurrently
with the sale of Registerable Common to the Person asserting such Loss or
who purchased such Registerable Common which is the subject thereof if, in
either case, such delivery is required by the Securities Act. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have, provided that the Company shall only be required to
provide the indemnification described in this subsection 5.7(a)(iii) to an
underwriter and each Person, if any, who controls such underwriter if such
underwriter agrees to indemnification provisions substantially in the form
set forth in subsection 5.7(b).
(iv) Each Securities Holder severally shall agree to indemnify and
hold harmless each underwriter and each Person, if any, who controls such
underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any Losses, joint or several, or
actions in respect thereof to which such underwriter or such controlling
Person may become subject under the Securities Act, or otherwise, insofar
as such Losses arise out of, or are based upon, any untrue statement or
alleged untrue statement of any material fact contained in such
Registration Statement, any related Preliminary Prospectus or any related
Prospectus, or any amendment or supplement thereto, or arise out of, or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse such underwriter or such
controlling Person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Loss, in each
case to the extent, but only to the extent, that any such Loss arises out
of, or is based upon, an untrue statement or alleged untrue statement of a
material fact or an omission or alleged omission to state a material fact
in said Registration Statement, said Preliminary Prospectus or said
Prospectus, or any said amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of such Securities Holder specifically for use therein; provided
that the liability of such Securities Holder on account of the foregoing
shall be limited to an amount equal to the net proceeds of the sale of
shares of Registerable Common by such Securities Holder in the offering
which gave rise to the liability. Notwithstanding the foregoing, such
Securities Holder shall not be liable in any such case to the extent that
any such Loss arises out of, or is based upon, an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus if (A) such underwriter failed to send or deliver a
copy of the Prospectus with or prior to the delivery of written
confirmation of the sale of Registerable Common to the Person asserting
such Loss or who purchased such Registerable Common which is the subject
thereof if, in either case, such delivery is required by the Securities Act
and (B) the Prospectus would have corrected such untrue statement or
omission or alleged untrue statement or alleged omission; and such
Securities Holder shall not be liable in any such case to the extent that
any such Loss arises out of, or is based upon, an untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and if, having previously been
furnished with copies of the Prospectus as so amended or supplemented, such
underwriter thereafter fails to deliver such Prospectus as so amended or
supplemented, prior to or concurrently with the sale of Registerable Common
to the Person asserting such Loss or who purchased such Registerable Common
which is the subject thereof if, in either case, such delivery is required
by the Securities Act. No Securities Holder shall be required to provide
the indemnification described in this subsection 5.7(a)(iv) to an
underwriter or any Person who controls such underwriter if such underwriter
has not agreed to indemnification provisions substantially in the form set
forth in subsection 5.7(b).
(v) Promptly after receipt by an indemnified party pursuant to the
indemnification provisions of such Purchase Agreement of notice of any
claim or the commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
pursuant to such indemnification provisions, notify the indemnifying party
in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have to the indemnified party
otherwise than pursuant to the indemnification provisions of such Purchase
Agreement unless the indemnifying party is materially prejudiced by such
lack of notice. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate in defense of such
claim, and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, (x) the indemnifying party shall not be
liable to the indemnified party pursuant to the indemnification provisions
hereof or of such Purchase Agreement for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation, (y) the
indemnifying party shall not be liable for the costs and expenses of or
Losses arising out of any settlement of such claim or action unless such
settlement was effected with the consent of the indemnifying party and (z)
the indemnified party shall be obligated to cooperate with the indemnifying
party in the investigation of such claim or action; provided, however, that
the Securities Holders (together with their respective controlling Persons)
and the underwriters (together with their respective controlling Persons)
shall each as a separate group have the right to employ one separate
counsel to represent such Securities Holders and such underwriters (and
their respective controlling Persons) who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by
such Securities Holders and underwriters against the Company pursuant to
the indemnification provisions of such Purchase Agreement if, in the
reasonable judgment of either Securities Holders' counsel or counsel for
the underwriters, there exists an actual or potential conflict of interest
between such Securities Holders (and its controlling persons) on the one
hand and such underwriters (and their controlling persons) on the other,
and in that event the reasonable fees and expenses of both such separate
counsel shall also be paid by the Company.
(b) As a condition to agreeing in any Purchase Agreement to the
indemnification provisions described in subsection 5.7(a)(iii) and 5.7(a)(iv) in
favor of an underwriter participating in the offering covered by the related
Registration Statement and its controlling Persons, the Company and the
Securities Holders participating in an offering pursuant to such Registration
Statement may require that such underwriter agree in the Purchase Agreement to
provisions substantially in the form set forth in subsection 5.7(a)(v) and to
severally indemnify and hold harmless the Company, each of its officers and
directors who sign such Registration Statement, each Securities Holder
participating in such offering and each Person, if any, who controls the Company
or such Securities Holder within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act against any Losses to which the Company, such
officers and directors, such Securities Holder or such controlling Person may
become subject under the Securities Act, or otherwise, insofar as such Losses
arise out of, or are based upon, any untrue statement or alleged untrue
statement of any material fact contained in such Registration Statement in which
such underwriter is named as an underwriter, any related Preliminary Prospectus
or any related Prospectus, or any amendment or supplement thereto, or arise out
of, or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and to reimburse the Company, such officers and
directors, such Securities Holder or such controlling Person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such Loss in each case to the extent, but only to the extent, that
any such Loss arises out of, or is based upon, an untrue statement or alleged
untrue statement of a material fact or an omission or alleged omission to state
a material fact in said Registration Statement, said Preliminary Prospectus or
said Prospectus or any said amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
such underwriter specifically for use therein.
(c) In order to provide for just and equitable contribution between
the Company and such Securities Holders in circumstances in which the
indemnification provisions described in this subsection 5.7 and contained in any
Purchase Agreement are for any reason insufficient or inadequate to hold the
indemnified party harmless (other than as a result of their non- applicability
in accordance with their terms), the Company and such Securities Holders shall
contribute to the aggregate Losses (including any investigation, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution actually received from Persons other than the Company
and such Securities Holders) incurred by the Company and one or more of its
directors or its officers who sign such Registration Statement or such
Securities Holders or any controlling Person of any of them, in such proportion
as is appropriate to reflect their relative degrees of fault in connection with
the actions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative fault of the Company and of such
Securities Holder shall be determined by reference to, among other things,
whether the untrue or allegedly untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Securities Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that the liability of each such
Securities Holder to make such contribution shall be limited to an amount equal
to the net proceeds of the sale of shares of Registerable Common by such
Securities Holder in the offering which gave rise to the liability. As among
themselves, such Securities Holders agree to contribute to amounts payable by
other such Securities Holders in such manner as shall, to the extent permitted
by law, give effect to the provisions in such Purchase Agreement comparable to
subsection 5.7(a)(ii). The Company and such Securities Holders agree that it
would not be just and equitable if their respective obligations to contribute
pursuant to this subsection 5.7(c) were to be determined by pro rata allocation
(other than as set forth above) of the aggregate Losses by reference to the
proceeds realized by such Securities Holders in a sale pursuant to said
Registration Statement or said Prospectus or by any other method of allocation
which does not take account of the considerations set forth in this subsection
5.7(c). No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution under
this subsection from any Person who was not guilty of such fraudulent
misrepresentation.
(d) The Company and the Securities Holders participating in an
offering pursuant to a Registration Statement agree that, if the underwriters
participating in a Public Sale Event are agreeable, the Purchase Agreement, if
any, relating to such Registration Statement shall contain provisions to the
effect that in order to provide for just and equitable contribution between such
underwriters on the one hand and the Company and such Securities Holders on the
other hand in circumstances in which the indemnification provisions of such
Purchase Agreement are for any reason insufficient or inadequate to hold the
indemnified party harmless (other than as a result of their non-applicability in
accordance with their terms), the Company and such Securities Holders on the one
hand and such underwriters on the other hand will contribute on the basis herein
set forth to the aggregate Losses (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or claims asserted, but after deducting any
contribution actually received from Persons other than the Company and such
Securities Holders and such underwriters), incurred by the Company and one or
more of its directors or its officers who sign such Registration Statement or
such Securities Holders or such underwriters or any controlling Person of any of
them, in such proportion as is appropriate to reflect their relative degrees of
fault in connection with the actions which resulted in such Losses, as well as
any other relevant equitable considerations. The relative fault of the Company,
of such Securities Holders and of such underwriter shall be determined by
reference to, among other things, whether the untrue or allegedly untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, by such Securities
Holders or by such underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. Notwithstanding the provisions set forth above, (x) no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the shares of New Common Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and (y)
the liability of each such Securities Holder to make such contribution shall be
limited to an amount equal to the net proceeds of the sale of shares of
Registerable Common by such Securities Holder in the offering which gave rise to
the liability. As among themselves, such Securities Holders agree to contribute
to amounts payable by other such Securities Holders in such manner as shall, to
the extent permitted by law, give effect to the provisions in such Purchase
Agreement comparable to subsection 5.7(a)(ii). As between the Company and such
Securities Holders, such parties agree that it would not be just and equitable
if their respective obligations to contribute pursuant to this subsection 5.7(d)
were to be determined by pro rata allocation (other than as set forth above) of
the aggregate Losses by reference to the proceeds realized by such Securities
Holders in a sale pursuant to said Registration Statement or said Prospectus or
by any other method of allocation which does not take account of the
considerations set forth in this subsection 5.7(d). No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution under the provisions set forth
above from any Person who was not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and the Securities Holders
participating in any distribution of shares of Registerable Common under the
provisions of this subsection 5.7 and provisions in any Purchase Agreement
substantially similar to subsections 5.7(a), 5.7(b), 5.7(c) or 5.7(d) shall
survive the termination of any or all of the other provisions of this Agreement
or such Purchase Agreement.
5.8. Underwritten Offerings. If at any time any of the Securities
Holders participating in a Demand Registration desire to sell Registerable
Common in an underwritten offering, the investment banker or investment bankers
that will manage the offering will be selected by (a) if such Demand
Registration was initiated by Initiating Securities Holders, the Initiating
Securities Holders owning a majority of the aggregate number of shares of
Registerable Common that all such Initiating Securities Holders are seeking to
include in the related Sale Event and (b) if such Demand Registration was
initiated by an individual Securities Holder, the Securities Holder requesting
such Securities Holder Public Sale Event, provided that such investment banker
or bankers must be reasonably satisfactory to the Company.
5.9. Transfer of Rights Under this Agreement; Transfers of
Registerable Common. (a) At any time, the rights and obligations of a Securities
Holder under this Agreement may be transferred by a Securities Holder to a
transferee of Registerable Common, provided that, within a reasonable period of
time (but in no event later than 10 days) after such transfer, (i) the
transferring Securities Holder shall have furnished the Company and the other
Securities Holders written notice of the name and address of such transferee and
the Registerable Common with respect to which such rights are being transferred
and (ii) such transferee shall furnish the Company and the Securities Holders
(other than the transferring Securities Holder) a copy of a duly executed
Supplemental Addendum by which such transferee (A) assumes all of the
obligations and liabilities of its transferor hereunder, (B) enjoys all of the
rights of its transferor hereunder and (C) agrees to be bound hereby.
Notwithstanding the foregoing, a Securities Holder's transfer of less than all
of its rights and obligations under this Agreement in accordance with the
preceding sentence shall not be effective to transfer the right to request a
Demand Registration pursuant to subsection 2.1 hereof unless (x) at the time of
such transfer the transferor Securities Holder has not exhausted its right to
request such a Demand Registration and (y) the transfer is of at least 10% of
the issued and then outstanding shares of New Common Stock, provided, that,
subject to the Company's rights under subsection 5.10 of this Agreement, such a
transfer of the right to request a Demand Registration shall not divest the
transferor Securities Holder of its right to request a Demand Registration
pursuant to subsection 2.1 hereof.
(b) Except with respect to transfers pursuant to paragraph (a) above,
a transferee of Registerable Common shall neither assume any liabilities or
obligations nor enjoy any rights hereunder and shall not be bound by any of the
terms hereof.
5.10. Termination of Rights. The rights granted under this Agreement
shall terminate as to each Securities Holder at such time as such Securities
Holder shall receive, either before or after the Company's receipt of a
Securities Holder Sale Notice or a Piggybacking Notice, an opinion of counsel to
the Company in form reasonably satisfactory to counsel to such Securities Holder
that all of the Registerable Common then held by such Securities Holder can be
sold within a given three (3) month period commencing on the date of such
opinion in a transaction or transactions exempt from the Registration
requirements of the Securities Act.
SECTION 6. SEQUENCING OF PUBLIC SALE EVENTS.
6.1. Effective Notice Period. Subject to the last sentence of this
subsection 6.1, during the term of this Agreement, no priority of right shall
exist between or among Securities Holders or between any Securities Holder, on
the one hand, and the Company, on the other, with respect to providing a Notice
of Offering with respect to, and effecting, a Public Sale Event. Once properly
given, a Securities Holder Sale Notice or a Company Sale Notice regarding a
Company Public Sale Event, as the case may be, shall be effective (and shall
preclude any such Notice of Offering by another party) during the period (the
"Effective Notice Period") commencing on the date of such Notice of Offering and
ending on the earliest of (a) withdrawal of such Notice of Offering (notice of
which shall be promptly effected in the same manner as such Notice of Offering),
(b) the abandonment of the Public Sale Event to which such Notice of Offering
relates (notice of which shall be promptly effected in the same manner as such
Notice of Offering) and (c) the later of (i) 150 days after such a Notice of
Offering has been given, provided that the Registration Statement relating to
such Notice of Offering has been declared effective within 90 days of such
Notice of Offering, and (ii) 90 days after the closing date of the Public Sale
Event to which such Notice of Offering relates; provided that nothing in this
subsection 6.1 shall limit the Company's right to give a Notice of Offering with
respect to, and effect, a Company Private Sale Event. Upon the termination of an
Effective Notice Period, any Securities Holder so entitled pursuant to
subsection 2.1 or the Company can provide a Notice of Offering, provided that if
such Notice of Offering is given within 12 months after the end of an Effective
Notice Period by the party that gave the immediately preceding Notice of
Offering, any other party shall, for the 45-day period following its receipt of
such Notice of Offering, have the right to preempt such Notice of Offering by
itself delivering a Notice of Offering.
6.2. Restrictive Legend on Certificates. (a) Each Certificate
evidencing shares of New Common Stock distributed pursuant to the Plan to the
Securities Holders shall, subject to paragraph (b) below, be stamped or
otherwise imprinted with a conspicuous legend in the following form:
"The securities evidenced by this certificate were issued pursuant to
an exemption from registration under the Securities Act of 1933, as
amended (the "Act"), provided by Section 1145 of the Bankruptcy Code
and may be sold only pursuant to a Registration Statement effective
under the Act or an exemption from the provisions of Section 5 of the
Act."
(b) A holder of a certificate evidencing shares of New Common Stock
bearing the legend specified in paragraph (a) shall be entitled to receive from
the Company, whether or not in connection with a sale or proposed sale, a new
certificate or certificates evidencing an identical number of shares (the
transfer expenses for which shall be paid by the Company) but without such
legend at such time as (i) such shares are sold pursuant to a Registration
Statement effective under the Securities Act, (ii) such holder furnishes the
Company with a certificate to the effect that such holder is not an affiliate or
an "underwriter" within the meaning of Section 1145(b) of the Bankruptcy Code
and, upon the request of the Company, an opinion of counsel reasonably
satisfactory to the Company to such effect and to the effect that such shares
may be sold without registration under the Securities Act or (iii) the
registration rights granted in this Agreement otherwise terminate in accordance
with subsection 5.10. The shares of the New Common Stock represented by any such
replacement certificate issued without the legend specified in paragraph (a)
pursuant to the immediately preceding sentence shall cease to be Registerable
Common for all purposes of this Agreement.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In connection with the Registration Statement in respect of any Demand
Registration, the Company shall, on the date of effectiveness of such
Registration Statement with the Commission (the "effective date"), certify to
each Securities Holder in a certificate of a Responsible Officer of the Company
to the effect that the representations and warranties set forth below are true
and correct at and as of the effective date. In connection with any other Sale
Event in which Securities Holders participate, except as otherwise may be agreed
upon by such participating Securities Holders and the Company, the Company shall
represent and warrant in the Purchase Agreement relating to such Sale Event to
the Securities Holders and any underwriters participating in such Sale Event as
follows (except as otherwise indicated, each reference in this Section to "the
Registration Statement" shall refer to a Registration Statement in respect of
any Demand Registration or other such Sale Event in which Securities Holders
participate, including all information deemed to be a part thereof, as amended,
and each reference to "the Prospectus" shall refer to the related Prospectus):
(a) (i) When the Registration Statement became (in the case of a
Demand Registration to be filed pursuant to a Shelf Registration) or shall
become effective, the Registration Statement did or will comply as of its
effective date in all material respects with the applicable requirements of
the Securities Act and the rules and regulations thereunder; (ii) when the
Prospectus is filed in accordance with Rule 424(b), the Prospectus (and any
supplements thereto) will comply in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder; (iii) the Registration Statement did not or will not as of its
effective date contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading; and (iv) the Prospectus, if
not filed pursuant to Rule 424(b), did not or will not as of the date
thereof, and on the date of any filing pursuant to Rule 424(b), the
Prospectus (together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement, or the
Prospectus (or any supplement thereto) in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Securities Holder specifically for use in connection with the preparation
of the Registration Statement or the Prospectus (or any supplement thereto)
or any information furnished in writing to the Company by or on behalf of
any underwriter specifically for use in connection with the preparation of
the Registration Statement or the Prospectus (or any supplement thereto),
other than that the Company has no knowledge of any such untrue statement
or omission in respect of such information.
(b) The public accountants who certified the Company's financial
statements in the Registration Statement are independent certified public
accountants within the meaning of the Securities Act and the applicable
published rules and regulations thereunder; the historical consolidated
financial statements, together with the related schedules and notes,
forming part of the Registration Statement and the Prospectus comply in all
material respects with the requirements of the Securities Act and the rules
and regulations thereunder and have been prepared, and present fairly in
all material respects the consolidated financial condition, results of
operations and changes in financial condition of the Company and its
consolidated Subsidiaries at the respective dates and for the respective
periods indicated, in accordance with generally accepted accounting
principles applied consistently throughout such periods (except as
specified therein); and the historical consolidated financial data set
forth in the Prospectus are derived from the accounting records of the
Company and its consolidated Subsidiaries, and are a fair presentation of
the data purported to be shown; and the pro forma consolidated financial
statements (if any), together with the related notes, forming part of the
Registration Statement and the Prospectus, comply in all material respects
with the requirements of Regulation S-X under the Securities Act.
(c) Except as may be set forth in the Prospectus, each member of the
Camelot Group has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction in which it
is chartered or organized, with the corporate power and authority to own
its properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification where the failure to be so qualified would materially
adversely affect the business, operations, property or financial condition
of the Camelot Group taken as a whole.
(d) Except as may be set forth in the Prospectus, all the outstanding
shares of capital stock of each Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable by the issuer, and all
outstanding shares of capital stock of the Subsidiaries are owned by the
Company either directly or through Subsidiaries free and clear of any
security interests, claims, liens or encumbrances (other than those granted
to secure the obligations of the Camelot Group in respect of the Company's
working capital facility), in each case where the failure to so own the
capital stock of a Subsidiary would materially adversely affect the
business, operations, property or financial condition of the Camelot Group
taken as a whole.
(e) Except as may be set forth in the Prospectus, no member of the
Camelot Group is in violation of any term or provision of any charter,
by-law, franchise, license, permit, judgment, decree or order or any
applicable statute, rule or regulation, which violation is material to the
business, operations, property or financial condition of the Camelot Group
taken as a whole.
(f) Except as may be set forth in the Prospectus, no default exists
and no event has occurred which with notice, lapse of time, or both, would
constitute a default, in the due performance and observance of any term,
covenant or condition of any agreement to which the Company or any of the
Subsidiaries is a party or by which it or any of them is bound, which
default would materially adversely affect the business, operations,
property or financial condition of the Camelot Group taken as a whole.
(g) Except as may be set forth in the Prospectus, each member of the
Camelot Group has all requisite corporate power and authority and has
received and is operating in compliance in all material respects with all
governmental or regulatory or other franchises, grants, authorizations,
approvals, licenses, permits, easements, consents, certificates and orders,
necessary to own its properties and conduct businesses as currently owned
and conducted and as proposed to be conducted, except where the failure to
do so would not materially adversely affect the business, operations,
property or financial condition of the Camelot Group, taken as a whole.
(h) Except as may be described in the Prospectus, since the date of
the most recent financial statements included in the Prospectus, there has
been no material adverse change in the business, operations, property or
financial condition of the Camelot Group taken as a whole, whether or not
arising from transactions in the ordinary course of business.
(i) Except as may be described in the Prospectus, no litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the best knowledge of the Company, threatened
against any member of the Camelot Group or against any of their respective
properties or revenues, existing or future which, if adversely determined,
could reasonably be expected to have a material adverse effect on the
business, property or financial condition of the Camelot Group taken as a
whole, or which otherwise is of a character required to be disclosed in the
Prospectus; there is no franchise, contract or other document of a
character required to be described in the Registration Statement or the
Prospectus, or to be filed as an exhibit, which is not adequately described
or filed as required; and such franchises, contracts and other documents
that are described in the Prospectus conform in all material respects to
the descriptions thereof contained in the Prospectus.
(j) Except as may be described in the Prospectus, there is no pending
or, to the best knowledge of the Company, threatened action, suit, or
judicial, arbitral, rule-making or other administrative or other proceeding
against the Company which challenges the validity of (i) this Agreement or
(ii) any Purchase Agreement entered into in connection with the offering or
any action taken or to be taken pursuant to or in connection with such
agreements.
(k) The Company's authorized equity capitalization is as set forth in
the Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; all of the
issued and outstanding shares of capital stock of the Company have been
duly authorized and validly issued and, except as set forth in the
Prospectus, are fully paid and nonassessable.
(l) The Company has all requisite corporate power and authority, has
taken all requisite corporate action, and has received and is in compliance
with all governmental, judicial and other authorizations, approvals and
orders, necessary in connection with the offering, and to carry out the
provisions and conditions of this Agreement and the Purchase Agreement, if
any, related thereto, except for such approvals and conditions that need to
be obtained or satisfied as are set forth in the Prospectus and such
approvals or authorizations as may be required under the Securities Act,
the securities or "Blue Sky" laws of any jurisdiction or the rules of any
securities exchange on which the New Common Stock is listed in connection
with the purchase and distribution of shares of New Common Stock in the
offering. The Purchase Agreement, if any, entered into in connection with
the offering has been duly authorized, executed and delivered by the
Company and is a valid and binding and enforceable obligation of the
Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles; provided, that no representation is made as to the validity,
binding effect or enforceability of any provision that purports to provide
indemnification of any Person for any Losses resulting from violation by
such person of any applicable securities or "Blue Sky" laws.
(m) To the best knowledge of the Company, neither the sale of the New
Common Stock to be sold pursuant to the Registration Statement, nor the
execution, delivery or performance by the Company of the Purchase
Agreement, if any, entered into in connection with the offering or the
consummation of any other of the transactions contemplated in such Purchase
Agreement, if any, will conflict with, result in a breach of, or constitute
a default under, the charter or by-laws of the Company or any of the
Subsidiaries or the terms of any material indenture or other material
agreement or instrument to which the Company or any of the Subsidiaries is
a party or by which it or any of them is bound, or any material statute
applicable to the Company or any of the Subsidiaries or any material order,
decree, rule or regulation applicable to the Company or any of the
Subsidiaries of any Governmental Authority.
(n) Except (i) as set forth in the Prospectus, (ii) for rights to
registration pursuant to a Registration Statement on Form S-8 and (iii) to
the extent permitted under subsection 5.6, no holders of securities of the
Company have rights to the registration of such securities under any
Registration Statement except the Securities Holders.
For purposes of the foregoing representations and warranties, the Company may
assume that any agreement is the valid and binding obligation of any other
parties to such agreement.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE SECURITIES HOLDERS.
Each participating Securities Holder shall, in connection with a Sale
Event, if required by the terms of a Purchase Agreement relating to such Sale
Event, for itself severally and not jointly represent and warrant to (i) in the
case of an underwritten Public Sale Event, the Company, the underwriter or
underwriters and each other Securities Holder participating in such underwritten
Public Sale Event or (ii) in the case of a non-underwritten Sale Event, the
Company and the purchaser or purchasers and each other Securities Holder
participating in such non-underwritten Sale Event, as follows:
(a) Such Securities Holder has all requisite power and authority to
enter into and carry out the terms of this Agreement and such Purchase
Agreement and the other agreements and instruments related to such
agreements to which it is a party.
(b) Each of this Agreement and such Purchase Agreement has been duly
authorized, executed and delivered by or on behalf of such Securities
Holder, and constitutes the valid, binding and enforceable obligation of
such Securities Holder, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and by
general equitable principles; provided, that no representation is made as
to the validity, binding effect or enforceability of any provision
purporting to provide indemnification of any person for any Losses
resulting from violation by such person of any applicable securities or
"Blue Sky" laws.
(c) Such Securities Holder, immediately prior to any sale of shares of
Registerable Common pursuant to such Purchase Agreement, will have good
title to such shares of Registerable Common, free and clear of all liens,
encumbrances, equities or claims (other than those created by this
Agreement); and, upon payment therefor, good and valid title to such shares
of Registerable Common will pass to the purchaser thereof, free and clear
of any lien, charge or encumbrance created or caused by such Securities
Holder.
(d) Such Securities Holder has not taken and will not take, directly
or indirectly, any action designed to constitute or which has constituted
or which might reasonably be expected to cause or result in, under the
Exchange Act or the rules or regulations promulgated thereunder or other
applicable law, stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of shares of Registerable
Common.
(e) Written information furnished by or on behalf of such Securities
Holder to the Company expressly for use in the Registration Statement, any
related Preliminary Prospectus, or any related Prospectus or any amendment
or supplement thereto will not contain, in each case as of the date such
information was furnished, any untrue statement of a material fact or omit
to state any material fact required to be stated or necessary to make the
statements in such information not misleading.
(f) To the best knowledge of such Securities Holder, neither the sale
of the Registerable Common to be sold pursuant to the Registration
Statement, nor the execution, delivery or performance by such Securities
Holder of the Purchase Agreement, if any, entered into in connection with
the offering or the consummation of any other of the transactions
contemplated in such Purchase Agreement, if any, will conflict with, result
in a breach of, or constitute a default under, the charter or by-laws of
such Securities Holder or the terms of any material indenture or other
material agreement or instrument to which such Securities Holder is a party
or by which it is bound, or any material statute applicable to such
Securities Holder or any material order, decree, rule or regulation
applicable to such Securities Holder of any Governmental Authority.
SECTION 9. DELIVERY OF COMFORT LETTER AND LEGAL OPINION.
On the date that a Registration Statement relating to a Sale Event in
which Securities Holders participate is declared effective by the Commission,
the Company shall comply with the following:
(a) The Company shall have received, and delivered to each Securities
Holder participating in such Sale Event, a copy of the "comfort" letter or
letters, or updates thereof according to customary practice, of the
independent certified public accountants who have certified the Company's
financial statements included in the Registration Statement covering
substantially the same matters with respect to the Registration Statement
(including the Prospectus) and with respect to events subsequent to the
date of the Company's financial statements as are customarily covered in
accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company will use its reasonable best efforts
to cause such "comfort" letters to be addressed to such Securities Holders.
(b) Each Securities Holder and any underwriters participating in such
offering shall have received an opinion and any updates thereof of outside
counsel to the Company reasonably satisfactory to such Securities Holders
and underwriters covering substantially the same matters as are customarily
covered in opinions of issuer's counsel delivered to underwriters in
underwritten public offerings of securities, addressed to each of such
Securities Holders and underwriters participating in such offering and
dated the closing date thereof.
SECTION 10. MISCELLANEOUS.
10.1. Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when actually delivered or, in the
case of notice by facsimile transmission, when sent and confirmation of receipt
is received. Notices to the Securities Holders shall be deemed to have been
given or made when sent. All notices shall be addressed as follows or to such
other address as may be hereafter designated in writing by the respective
parties hereto:
The Company: Camelot Music Holdings, Inc.
c/o Camelot Music, Inc.
Attention: Chief Financial Officer
8000 Freedom Avenue, N.W.
North Canton, Ohio 44270
Telecopy: (330) 494-2282
The Securities
Holders: The address of each Securities Holder as
set forth on the signature pages hereof.
10.2. Amendments and Waivers. The Securities Holders of not less than
66-2/3% of the Registerable Common held or beneficially owned by Securities
Holders at any point in time and the Company may from time to time enter into
written amendments, supplements or modifications to this Agreement for the
purpose of adding any provisions hereto or thereto or changing in any manner the
rights of the Securities Holders or the Company hereunder or thereunder, and the
Securities Holders of not less than 66-2/3% of the Registerable Common held or
beneficially owned by Securities Holders at any point in time may execute a
written instrument waiving, on such terms and conditions as may be specified
therein, any of the requirements of this Agreement which are solely for the
benefit of the Securities Holders and where such waiver does not adversely
affect the interests of the Company; provided, however, that no such waiver and
no such amendment, supplement or modification shall (i) adversely affect the
rights of a Securities Holder under Section 2 hereof or (ii) amend, modify or
waive any provision of Section 5 or this subsection 10.2, in each case without
the written consent of each Securities Holder. Any such waiver and any such
amendment, modification or supplement shall apply equally to each of the
Securities Holders and the Company.
10.3. Termination. This Agreement and the respective obligations and
agreements of the parties hereto, except as otherwise expressly provided herein,
shall terminate on the Termination Date.
10.4. Survival of Representations and Warranties. Except as they may
by their terms relate to an earlier date, all representations and warranties
made hereunder and in any document, certificate or statement delivered pursuant
hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the termination of any or all of the provisions of this
Agreement.
10.5. Headings. The descriptive headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
10.6. 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 and delivered shall be an original, but all of such
counterparts shall together constitute one and the same agreement.
10.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
10.8. Adjustment of Shares. Each reference to a number of shares of
Common Stock in this Agreement shall be adjusted proportionately to reflect any
stock dividend, split or reverse split or the like affected with respect to all
outstanding shares of New Common Stock.
10.9. No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Securities Holders in this
Agreement or otherwise conflicts with the provisions hereof.
10.10. Severability. Any provision of this Agreement prohibited or
rendered unenforceable by any applicable law of any jurisdiction shall as to
such jurisdiction be ineffective to the extent of such prohibition or
unenforceability, without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
10.11. ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
10.12. Listing of New Common Stock. Pursuant to the Plan, the Company
shall use its reasonable best efforts to cause the New Common Stock to be listed
or admitted to trading on the NASDAQ or another nationally recognized securities
exchange.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
CAMELOT MUSIC HOLDINGS, INC.
By: /s/ Jack K. Rogers
--------------------------------
Name: Jack K. Rogers
Title: Executive Vice President
and Chief Operating Officer
SECURITIES HOLDERS:
FERNWOOD ASSOCIATES, L.P.
By: /s/ Thomas P. Berger
--------------------------------
Name: Thomas P. Berger
Title: General Partner
667 Madison Avenue, 20th Floor
New York, New York 10021
Attn: John Beiter
Thomas Berger
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ Victor Khosla
--------------------------------
Name: Victor Khosla
Title: Managing Director
Debt and Equity Markets Group
World Financial Center
North Tower
New York, New York 10281-1307
Attn: John W. Humphrey
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
--------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President
and Director
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attn: Jeffrey Maillet
OAKTREE CAPITAL MANAGEMENT, LLC,
as a "Securities Holder" hereunder
(in its capacity as general partner
and investment manager of OCM
Opportunities Fund, L.P. and Columbia/
HCA Master Retirement Trust
(separate account I))
By: /s/ Richard Masson
--------------------------------
Name: Richard Masson
Title: Principal
By: /s/ Kenneth Liang
--------------------------------
Name: Kenneth Liang
Title: Managing Director and
General Counsel
550 South Hope Street, 22nd Floor
Los Angeles, CA 90071
Attn: Kenneth Liang
Matt Barrett
<PAGE>
SCHEDULE 1
REGISTERABLE COMMON
AS OF THE EFFECTIVE DATE
==============================================================================
Shares of
Securities Holder Registerable Percentage
Common
- ------------------------------------------------------------------------------
Fernwood Associates, L.P. 1,549,595 25.996%
- ------------------------------------------------------------------------------
Merrill Lynch, Pierce, 1,466,362 24.552%
Fenner & Smith Incorporated
- ------------------------------------------------------------------------------
Oaktree Capital Management, LLC 961,740 16.103%
- ------------------------------------------------------------------------------
Van Kampen American Capital 1,994,718 33.399%
Prime Rate Income Trust
- ------------------------------------------------------------------------------
TOTAL 5,972,415 100%
==============================================================================
<PAGE>
EXHIBIT A
SECURITIES HOLDER'S QUESTIONNAIRE
Please complete and return immediately to Camelot Music Holdings, Inc.
at the following address:
Camelot Music Holdings, Inc.
c/o Camelot Music, Inc.
8000 Freedom Avenue, N.W.
North Canton, Ohio 44270
Attention: Chief Financial Officer
The information requested below is required for purposes of any Public
Sale Event pursuant to the Registration Rights Agreement dated as of January 27,
1998 (the "Agreement") that may be initiated from time to time. If you do not
furnish the Company with the requested information, you will not be entitled to
participate in any such registration. Unless otherwise defined herein,
capitalized terms shall have the meanings ascribed thereto in the Agreement.
Please do not leave any request for information unanswered. If your
response to a request is "no" or "not applicable," please so state. If
additional space is required, please attach additional sheets to the end of this
Questionnaire, clearly identifying the portion hereof to which they relate.
If you have any questions regarding this Questionnaire, please contact
_________________________.
I. Information required for notices.
Institution Name: _________________________________________
Street Address: _________________________________________
Post Office Box: _________________________________________
City/State/Zip: _________________________________________
Fed. Tax ID. No.
(if any): _________________________________________
Telecopier Number: _________________________________________
Contacts (Please include alternative contacts).
1. Name: _________________________________________
Title: _________________________________________
Function: _________________________________________
Business Telephone: _________________________________________
2. Name: _________________________________________
Title: _________________________________________
Function: _________________________________________
Business Telephone: _________________________________________
II. Information required by the Securities Act of 1933, as amended, and related
regulations.
A. Federal Securities Laws
1. Name and Address. Give your name and address exactly as they should
appear in any Prospectus.
_________________________________________
_________________________________________
_________________________________________
_________________________________________
2. Ownership of Registerable Common. State the number of shares of
Registerable Common if any, owned by you or your affiliates as of the date
hereof.
Shares of Registerable Common: _______________________
3. Beneficial Ownership of New Common Stock. Please furnish the
following information, in the tabular form indicated, as to the shares of New
Common Stock beneficially owned (see definition at end of Questionnaire) by you
(including amounts held in your Trust Department in discretionary accounts):
If such ownership is
shared with others,
indicate nature and
Number of Nature of extent of such shared
Shares* Beneficial Ownership** ownership
- --------- -------------------- ---------------------
* Include shares which you have the right to acquire through the exercise of
options, warrants or other securities on or before 60 days after the
estimated date of the Prospectus.
** Please indicate the extent to which you have sole voting power, shared
voting power, sole investment power and shared investment power with
respect to shares of New Common Stock you beneficially own.
4. Disclaimer of Beneficial Ownership. Please indicate below the
number and description of any shares of New Common Stock with respect to which
you disclaim beneficial ownership and whether such shares are included in the
figure(s) reported above.
5. Five Percent Beneficial Owners. Please give the name and address of
any Person, corporation or other entity, other than the parties to the
Agreement, known to you to own beneficially 5% or more of the outstanding New
Common Stock (i.e., _________ shares or more).
NOTES: For purposes of your response to this question, the term "Person"
includes two or more Persons acting as a partnership, limited
partnership, syndicate, or other group for the purpose of acquiring,
holding or disposing of the Company's securities.
6. Underwriters. Please describe briefly and state the nature of any
relationship or interest that you have or any associate of yours (see definition
at end of Questionnaire) has, in any underwriter of the securities to be
offered. If you are a member or controlling Person of a firm that may be an
underwriter of the securities to be offered, briefly describe your relationship
to, and interest in, such underwriter.
NOTE: The underwriters will be listed in the final amendment to the
Registration Statement, a copy of which will be sent to you at a later
date.
7. Material Relationships. Please list all material relationships that
you now have, or have had since _____________, with the Company or any of its
affiliates, other than your ownership of the New Common Stock or your
participation in the Company's bankruptcy case.
B. NASD Regulations.
7. NASD Membership. State whether you are a "member" of the National
Association of Securities Dealers, Inc. (the "NASD"), a "Person associated with
a member" or an "underwriter or a related Person" with respect to the proposed
offering.
NOTES: (1) The NASD By-Laws define "member" to mean either any broker or
dealer admitted to membership in the NASD.
(2) The NASD By-Laws define "Person associated with a member" to
mean every sole proprietor, partner, officer, director or branch
manager of any member, or any natural Person occupying a similar
status or performing similar functions, or any natural Person engaged
in the investment banking or securities business who is directly or
indirectly controlling or controlled by such member, whether or not
any such Person is registered or exempt from Registration with the
NASD.
(3) The NASD has interpreted "underwriter or a related Person"
with respect to a proposed offering to include an underwriter,
underwriters' counsel, financial consultants and advisers, finders,
members of the selling or distribution group, and any and all other
Persons "associated with" or "related to" any of such Persons.
8. Purchase by NASD Affiliates. If your answer to the preceding
question was "yes," please furnish the following information, in the tabular
form indicated, as to all purchases and acquisitions (including contracts to
purchase or to acquire) by you, of warrants, options or any other securities of
the Company or any subsidiary thereof, during the preceding 12 months, as well
as all proposed purchases or acquisitions by you which are to be consummated in
whole or in part prior to, at the time of or within six months after the
effectiveness of the Registration Statement.
Purchaser or Seller or Amount and Price or
Prospective Prospective Name of Other
Date Purchaser Seller Securities Consideration
- ---- ------------ ----------- ---------- -------------
____ ____________ ___________ __________ _____________
____ ____________ ___________ __________ _____________
____ ____________ ___________ __________ _____________
9. Dealings with Company. Please describe any other dealings within
the preceding 12 months not already described in response to the foregoing
questions between the Company or any subsidiary or controlling shareholder
thereof and any underwriter, related Person of such underwriter, NASD member or
Person associated with such member affiliated with you, as such terms are
defined in the Notes to Question 10.
The undersigned hereby represents and warrants to any Person who may
be liable in respect of a Registration or other offering pursuant to the
Agreement that the answers given in this Questionnaire are correctly stated to
the knowledge, information and belief of the undersigned. The undersigned hereby
agrees to promptly notify the Company of any change in such answers which may
occur during the period beginning with the date below and ending on the date 90
days after the effective date of any Registration Statement relating to a
Registration or other offering pursuant to the Agreement. The undersigned hereby
agrees, following notice of any proposed Registration to update and amend this
Questionnaire if there is any material change in the above information and to
provide any additional information requested by the Company pursuant to the
Agreement.
Dated: _____________, 19__.
Holder:________________________
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
DEFINITIONS
As used in this Questionnaire:
"affiliate" means a Person or organization that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company.
An "associated person" means (1) any corporation or organization
(other than the Company or a majority owned subsidiary) of which you are an
executive officer or partner or are, directly or indirectly, the beneficial
owner of 10% or more of any class or equity securities and (2) any trust or
other estate in which you have substantial beneficial interest or to which you
serve as trustee or in a similar fiduciary capacity.
Securities "owned beneficially" by you are securities (whether or not
registered in your name) in which you have or share (directly or indirectly
through any contract, arrangement, understanding, relationship or otherwise) (i)
voting power, which includes the power to vote or direct the voting of the
securities, or (ii) investment power, which includes the power to dispose, or
direct the disposition, of the securities. You are also deemed to be the
beneficial owner of any securities which you have the right to acquire
immediately or within 60 days (a) through the exercise of any option, warrant or
right, (b) through the conversion of a security or (c) pursuant to the power to
revoke, or the automatic termination of, a trust, discretionary account or
similar arrangement.
Thus, securities held in the name of other individuals, in the name of
an estate or trust or pursuant to a pledge agreement where you have either the
power to direct the voting of the securities or the disposition of such
securities should be listed as "owned beneficially" by you. The Commission has
also taken the position that securities held by your spouse, minor children, or
other relatives sharing your home should be shown as "owned beneficially" by you
on the theory that, absent special circumstances you are able to exercise a
controlling influence over the purchase, sale or voting of such securities.
<PAGE>
EXHIBIT B
SUPPLEMENTAL ADDENDUM
The undersigned is a holder of New Common Stock of Camelot Music
Holdings, Inc. The undersigned hereby agrees as follows:
The undersigned hereby accepts the terms of and becomes a party to (as
a Securities Holder) the Registration Rights Agreement dated as of January 27,
1998 by and among Camelot Music Holdings, Inc. (the "Company") and each
Securities Holder named therein. In connection therewith, the undersigned agrees
to (A) assume all obligations and liabilities thereunder, (B) enjoy all of the
rights thereunder, (C) be bound thereby and (D) perform and comply with the
agreements and commitments on the part of the undersigned, as assignee, set
forth in the Registration Rights Agreement.
As used in this Supplemental Addendum, capitalized terms defined in
the Registration Rights Agreement shall have their respective defined meanings.
Name of
Address: Institution:________________________
By__________________________________
Title:
Date: ______________, ____
EXHIBIT 10.3
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is
made and entered into as of January 1, 1998 (the "Contract Date") by and between
Camelot Music, Inc., a Pennsylvania corporation and a debtor and a debtor in
possession ("Employer"), and James E. Bonk ("Employee"), and shall become
effective upon the Effective Date of that certain Second Amended Joint Chapter
11 Plan of Reorganization of Employer and various affiliated entities, dated
November 7, 1997 (the "Plan of Reorganization") by the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). Capitalized terms
not herein defined shall have the meanings ascribed to such terms in the Plan of
Reorganization.
RECITALS:
WHEREAS, Employee has been in the employ of Employer for a substantial
period of time, and is now, and since November 1993 has been, President and
Chief Executive Officer of Employer; and
WHEREAS, Employee and Employer are parties to that certain Employment
Agreement, dated as of January 28, 1994, as amended as of February 20, 1996 and
as amended and restated as of October 8, 1996 (the "Existing Agreement"); and
WHEREAS, on August 9, 1996, Employer (together with various affiliated
entities) filed a petition for relief under Chapter 11 of the United States Code
(the "Bankruptcy Code"), and has continued to operate its business and manage
its affairs in such Chapter 11 proceedings (the "Bankruptcy Case") as a debtor
in possession; and
WHEREAS, by order of the Bankruptcy Court dated October 6, 1996, the
Existing Agreement was assumed by Employer pursuant to Section 365(a) of the
Bankruptcy Code; and
WHEREAS, Employer believes that Employee's continued services are critical
to the Employer's success, and desires to amend and restate the Existing
Agreement in connection with Confirmation of the Plan of Reorganization.
NOW, THEREFORE, in consideration of the services performed and to be
performed by Employee as well as the mutual promises and covenants herein
contained, Employer and Employee hereby agree to amend and restate the Existing
Agreement in its entirety as follows:
1. Employment; Period of Employment. Employer hereby agrees to continue to
employ Employee, and Employee hereby accepts such employment, on the terms and
conditions hereinafter set forth. The period of Employee's employment under this
Agreement (the "Period of Employment") shall commence on the Effective Date of
the Plan of Reorganization and shall expire on the third anniversary of the
Contract Date (the "Expiration Date"), subject to any extension as may be agreed
or any earlier termination of Employee's employment as provided in Section 6
hereof. If Employee's employment is terminated pursuant to Section 6 hereof, the
Period of Employment shall expire as of the Date of Termination (as hereinafter
defined).
2. Duties. Employee agrees to serve as President and Chief Executive
Officer of Employer. During the Period of Employment, Employee will devote his
full working time and use his best efforts to advance the business and welfare
of Employer in furtherance of the policies established by the Board of Directors
of Employer (the "Board"). During the Period of Employment, Employee shall not
engage in any other employment activities for any direct or indirect
remuneration without the concurrence of the Board, except that Employee may
continue to devote reasonable time to the management of investments and to
participation in community and charitable affairs, so long as such activities do
not interfere with his duties under this Agreement. Employee shall be elected to
and remain Chairman of the Board of Directors of Employer and Reorganized CMH
during the Period of Employment. 3. Compensation. From the Contract Date through
the earlier of the Expiration Date or the Date of Termination, Employer shall
pay Employee a salary at the rate of not less than $400,000 per annum, payable
at least as frequently as monthly and subject to payroll deductions as may be
necessary or customary in respect of Employer's salaried employees in general
(the "Base Salary"). Employee's Base Salary shall be reviewed not less than
annually by the Compensation Committee of the Board. In addition to Employee's
Base Salary, Employee shall also be entitled to participate in, and receive the
benefits provided under, Employer's (i) Retention Bonus Plan, (ii) Corporate
Management Bonus Plan, and (iii) Qualified Option Plan (collectively, the
"Additional Compensation Plans"). The Additional Compensation Plans shall not be
modified or amended by Employer in any manner unreasonably adverse to Employee's
interests thereunder without Employee's written consent, such consent not to be
unreasonably withheld (Employee's Base Salary as well as the benefits provided
under the Additional Compensation Plans collectively, the "Compensation"). 4.
Benefits. During the Period of Employment (and continuing thereafter to the
extent provided in Section 7 hereof), Employee shall be entitled to continue to
participate in all fringe benefit programs provided to Employee as of the date
of this Agreement, including without limitation, the use of a leased automobile,
the reimbursement of up to $4,500 each year of membership dues to one country
club, and the Second Amended and Restated Supplemental Executive Retirement
Agreement (unless the benefits payable to Employee thereunder are paid on or
about the Effective Date in connection with Confirmation of the Plan of
Reorganization), as well as all other fringe benefit programs maintained by
Employer that are available to its executive officers generally. Except as
provided hereunder, any payments or benefits payable to Employee hereunder in
respect of any calendar year during which Employee is employed by Employer for
less than the entire year shall, unless otherwise provided in the applicable
plan or arrangement, be prorated in accordance with the number of days in such
calendar year during which he is so employed. Except as provided hereunder,
Employee acknowledges that he shall have no vested rights under or to
participate in any such program except as expressly provided under the terms
thereof. 5. Expenses. Employer will pay or reimburse Employee for such
reasonable travel, entertainment, or other expenses as he may incur on behalf of
Employer during the Period of Employment in connection with the performance of
his duties hereunder but only to the extent that such expenses were either
specifically authorized by Employer or incurred in accordance with policies
established by the Board and provided that Employee shall furnish Employer with
such evidence relating to such expenses as Employer may reasonably require to
substantiate such expenses for tax purposes.
6. Termination of Employment.
6.1 By Employer. Notwithstanding the terms set forth in Section 1 hereof,
Employer may terminate Employee's employment under any of the following
circumstances:
(a) Death. In the event of Employee's death.
(b) Permanent Disability. If during the Period of Employment Employee
becomes physically or mentally incapacitated or disabled so that (i) he is
unable to perform for Employer substantially the same services as he performed
prior to incurring such incapacity or disability or to devote his full working
time or use his best efforts to advance the business and welfare of Employer or
otherwise to perform his duties under this Agreement and (ii) such condition
exists for an aggregate of sixty (60) days in any six (6) consecutive calendar
month period (Employer, at its option and expense, being entitled to retain a
physician reasonably acceptable to Employee to confirm the existence of such
incapacity or disability, and the determination of such physician being binding
upon Employer and Employee). (c) Termination for Cause. "Termination for Cause"
shall mean termination of Employee arising from gross incompetence,
insubordination, dishonesty in performance of company duties, conviction of
fraud, theft, embezzlement or any felony, or violation of Section 8.1, Section
8.2 or Section 8.3 of this Agreement. (d) Termination without Cause. At the
option of Employer at any time for any reason other than those referred to above
or for no reason at all. 6.2 By Employee. (a) Constructive Discharge. Employee
may terminate his employment hereunder as a result of a Constructive Discharge.
For purposes of this Agreement, "Constructive Discharge" shall mean (i) a
reduction in Employee's Base Salary of 5% or more in any calendar year or an
aggregate reduction in Employee's Base Salary of 10% or more in any four
calendar years, (ii) a material modification to the Additional Compensation
Plans described in Section 3 hereof or any fringe benefit programs referred to
in Section 4 hereof, (iii) a material reduction in Employee's position,
function, duties or responsibilities, including, without limitation, the failure
of Employee to remain Chairman of the Board of Directors of Employer and
Reorganized CMH during the Period of Employment other than as a result of a
voluntary resignation from such position, (iv) a material change in Employee's
reporting relationships, (v) a required relocation of more than fifty (50) miles
from existing headquarters, (vi) a material breach of this Agreement by Employer
that is not cured upon ten (10) days notice to Employer, (vii) a Change in
Control, (viii) a failure to reimburse Employee for any reimbursable expenses
described in Sections 4 and 5 hereof that is not cured upon ten (10) days notice
to Employer, or (ix) the failure of Employer to offer to renew this Agreement
for an additional three (3) year term by the Expiration Date, provided, however,
if Employee elects, in writing, to continue to be employed after a specific
event of Constructive Discharge, Employee will not be able to subsequently claim
Constructive Discharge as a result of such event. For purposes of this
Agreement, "Change in Control" means the occurrence of any of the following:
(1) (A) any Person who is not a shareholder of Reorganized CMH on the
Effective Date, together with any Affiliate of such Person, in the
aggregate become beneficial owners, directly or indirectly, of 35% or
more of the New Common Stock then outstanding or (B) any Person who is
a shareholder of Reorganized CMH on the Effective Date, together with
any Affiliate of such Person, in the aggregate become beneficial
owners, directly or indirectly, of 50% or more of the New Common Stock
then outstanding; or
(2) individuals who on the Effective Date constituted the board of
directors of Reorganized CMH (together with any new directors whose
election by the board of directors of Reorganized CMH, or whose
nomination for election by the shareholders of Reorganized CMH, was
approved by a vote of a majority of the directors of Reorganized CMH
then still in office who were either directors on the Effective Date
or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board
of Directors of Reorganized CMH then in office; or
(3) the shareholders of Reorganized CMH approve any transaction or series
of transactions under which any of the Reorganized Debtors, the New
Regional Subsidiaries or Camelot Distribution Co., Inc. are merged or
consolidated with any other company, other than (A) a merger or
consolidation which would result in the voting securities of
Reorganized CMH or the direct or indirect subsidiary thereof party to
such merger or consolidation outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
50% of the combined voting power of the voting securities of the
merged entity immediately after such merger or consolidation or (B)
any transaction or series of transactions implemented pursuant to the
Plan; or
(4) the shareholders of Reorganized CMH approve a plan of liquidation of
any of the Reorganized Debtors, the New Regional Subsidiaries or
Camelot Distribution Co., Inc., or an agreement for the sale or
disposition of all or substantially all of the assets of any of the
Reorganized Debtors, the New Regional Subsidiaries or Camelot
Distribution Co., Inc., other than a sale or disposition of all or
substantially all of the assets of any of the Reorganized Debtors, the
New Regional Subsidiaries or Camelot Distribution Co., Inc. to an
Affiliate of such respective Person or Persons.
(b) Voluntary Termination without Constructive Discharge. If Employee
voluntarily terminates his employment hereunder for any reason other than as a
result of a Constructive Discharge, it shall be deemed a Voluntary Termination
without Constructive Discharge.
6.3 Notice of Termination. Any termination of Employee's employment by
Employer or by Employee (other than termination pursuant to Section 6.1(a)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 9.2. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances that provide a basis for
termination of Employee's employment under the provision so indicated. For
purposes of this Agreement, the "Date of Termination" shall be the date on which
the Notice of Termination is delivered except that with respect to Section
6.1(a) the "Date of Termination" shall be the date of Employee's death.
7. Payments Upon Termination of Employment.
7.1 Payments. In the event that Employee's employment is terminated under
Section 6 hereof, the Period of Employment shall expire as of the Date of
Termination and (a) upon a Termination for Cause or a Voluntary Termination
without Constructive Discharge, Employer's obligation to compensate Employee
shall in all respects cease as of the Date of Termination, except that Employer
shall pay Employee the Base Salary accrued under Section 3 and the reimbursable
expenses incurred under Section 5 of this Agreement up to such Date of
Termination, (b) if Employee's employment is terminated pursuant to Section
6.1(a) or (b) or Section 6.2 (a)(ix), Employer's obligation to compensate
Employee shall in all respects cease as of the Date of Termination, except that
within thirty (30) days after the Date of Termination Employer shall pay
Employee or his estate or legal representative the Compensation accrued under
Section 3 and the reimbursable expenses incurred under Section 5 of this
Agreement up to such Date of Termination (the "Accrued Obligations") and a lump
sum payment equal to one year of Employee's Base Salary payable under Section 3
hereof at the rate in effect immediately prior to such termination (Employer
shall obtain sufficient insurance to make such lump sum payment); and (c) if
Employee's employment is terminated by Employer pursuant to Section 6.1(d) or by
Employee pursuant to Section 6.2(a) (i) through (viii), Employer's obligation to
compensate Employee shall in all respects cease as of the Date of Termination,
except that within thirty (30) days after the Date of Termination Employer shall
pay to Employee the Accrued Obligations and for each month during the greater of
(a) two (2) years or (b) the period from the Date of Termination through and
including the Expiration Date (the "Severance Period"), Employer shall (i) pay
to Employee on a monthly basis the sum of one-twelfth (1/12th) of the annual
Base Salary of Employee in effect at the Date of Termination (the "Continuation
Payments") and (ii) continue to maintain for the benefit of Employee and his
dependents, all fringe benefits provided to Employee and his dependents as of
the Date of Termination (including, without limitation, the use of a leased
automobile, basic health benefits, disability and hospitalization coverage) (the
"Continuation Benefits") on terms no less favorable to Employee than Employer
provides to its executive officers generally, or to the extent that any such
benefits are not provided to Employer's executive officers generally, upon no
less favorable terms than those provided to Employee as of (a) the Date of
Termination and (b) the date of this Agreement. During the Severance Period,
Employee shall be required to make any contributions required to maintain such
Continuation Benefits; provided that such contributions are also required to be
made by Employer's executive officers generally. If at any time during the
Severance Period Employee shall obtain employment with a third party (the
"Substitute Employer") in which Employee is entitled to receive benefits in
connection with such employment on terms provided by the Substitute Employer to
its similarly situated employees generally, Employer shall no longer be required
to provide those Continuation Benefits to Employee of the type provided by the
Substitute Employer, regardless of whether such benefits differ in any respect
from the Continuation Benefits. 7.2 Release and Satisfaction. With respect to
Employee, his heirs, successors and assigns, and other than as expressly set
forth herein or in connection with any other agreement, payment by Employer of
the amounts provided under this Section 7 shall release, relinquish and forever
discharge Employer and any director, officer, employee, shareholder or agent of
Employer from any and all claims, damages, losses, costs, expenses, liabilities
or obligations, whether known or unknown (other than any such claims, damages,
losses, costs, expenses, liabilities or obligations (a) covered by any
indemnification arrangement of Employer with respect to Employee or (b) arising
under any written employee benefit plan or arrangement (whether or not tax
qualified) covering Employee), which Employee has incurred or suffered or may
incur or suffer as a result of Employee's employment by Employer or the
termination of such employment.
7.3 Effect on This Agreement. Any termination of Employee's employment and
any expiration of the Period of Employment under this Agreement shall not affect
the continuing operation and effect of Sections 7.1, 7.2, 8.1, 8.2, 8.3, 8.4 and
9.2 hereof, which shall continue in full force and effect with respect to
Employer and Employee, and its and his heirs, successors and assigns. Nothing in
Section 7.1 hereof shall be deemed to operate or shall operate as a release,
settlement or discharge of any liability of Employee to Employer or others from
any action or omission by Employee enumerated in Section 6.1(c) hereof as a
possible basis for a Termination for Cause by Employer.
7.4 Mitigation. Subject to the provisions of Sections 8.1, 8.2, 8.3 and 8.4
hereof, Employee shall be free to accept such employment and engage in such
business as Employee may desire following the termination of his employment
hereunder, and no compensation received by Employee therefrom shall reduce or
affect the first eighteen (18) months of Continuation Payments required to be
made by Employer under Section 7.1(c) hereof.
8. Non-disclosure of Proprietary Information, Surrender of Records;
Inventions and Patents; Non-Compete.
8.1 Proprietary Information. Employee shall not during the Period of
Employment or at any time thereafter (irrespective of the circumstances under
which Employee's employment by Employer terminates), other than as required by
law, directly or indirectly use for his own purpose or for the benefit of any
person or entity other than Employer, nor otherwise disclose, any proprietary
information, as defined below, to any individual or entity, unless such
disclosure has been authorized in writing by the Board or is otherwise required
by law. For purposes of this Agreement, the term "proprietary information" shall
include, but is not limited to: (a) the name or address of any customer, vendor
or affiliate of Employer or any information concerning the transactions or
relations of any customer, vendor or affiliate of Employer with Employer or any
of its shareholders; (b) any information concerning any product, technology or
procedure employed by Employer but not generally known to its customers, vendors
or competitors, or under development by or being tested by Employer but not at
the time offered generally to customers or vendors; (c) any information relating
to Employer's computer software, computer systems, pricing or marketing methods,
sales margins, cost of goods, cost of material, capital structure, operating
results, borrowing arrangements or business plans; (d) any information which is
generally regarded as confidential or proprietary in any line of business
engaged in by Employer; (e) any information contained in any of Employer's
written or oral policies and procedures or employee manuals; (f) any information
belonging to customers, vendors or affiliates of Employer which Employee has
agreed to hold in confidence; (g) any inventions, innovations or improvements
covered by Section 8.3 below; (h) any other information which the Board has
reasonably determined by resolution and communicated to Employee to be
confidential or proprietary; and (i) all written, graphic and other material
relating to any of the foregoing. Information that is not novel or copyrighted
or patented may nonetheless be proprietary information. However, proprietary
information shall not include (i) any information that is or becomes generally
known to the industries in which Employer competes through sources independent
of Employer or through authorized publication to persons other than Employer's
employees by Employer or (ii) other non-sensitive information that may be
disclosed by Employee in the ordinary course of business, the disclosure of
which is not reasonably likely to adversely affect Employer's business
operations, its relationships with customers, suppliers or employees or its
results of operations.
8.2 Confidentiality and Surrender of Records. Employee shall not during the
Period of Employment or at any time thereafter (irrespective of the
circumstances under which Employee's employment by Employer terminates), except
as required by law, directly or indirectly give any "confidential records" (as
hereinafter defined) to, or permit any inspection or copying of confidential
records by, any individual or entity other than in the course of such
individual's or entity's employment or retention by Employer, nor shall he
retain, and will deliver promptly to Employer, any of the same following
termination of his employment. For purposes hereof, "confidential records" means
all correspondence, memoranda, files, manuals, books, lists, financial,
operating or marketing records, magnetic tape, or electronic or other media or
equipment of any kind which may be in Employee's possession or under his control
or accessible to him which contain any proprietary information as defined in
Section 8.1 above. All confidential records shall be and remain the sole
property of Employer during the Period of Employment and thereafter.
8.3 Inventions and Patents. All inventions, innovations or improvements in
Employer's method of conducting its business (including policies, procedures,
products, improvements, software, ideas and discoveries, whether patentable or
copyrightable or not) conceived or made by Employee, either alone or jointly
with others, during the Period of Employment belong to Employer. Employee will
promptly disclose in writing such inventions, innovations or improvements to the
Board and perform all actions reasonably requested by the Board to establish and
confirm such ownership by Employer, including, but not limited to, cooperating
with and assisting Employer in obtaining patents for Employer in the United
States and in foreign countries. Any patent application filed by Employee within
a year after termination of his employment hereunder shall be presumed to relate
to an invention which was made during the Period of Employment unless Employee
can provide evidence to the contrary.
8.4 Covenant Not to Compete; No Solicitation.
(a) Employee acknowledges and recognizes the highly competitive nature of
Employer's business and, in consideration of the payment by Employer to Employee
of amounts that may hereafter be paid to Employee pursuant to Sections 7.1 and
8.4(d) hereof, Employee agrees that for a period equal to the lesser of (i) two
years after the Date of Termination of Employee's employment under this
Agreement, and (ii) the Period of Employment remaining under Section 1 hereof
immediately prior to the Date of Termination of Employee's employment under this
Agreement (the "Covered Time"), which may be extended in certain circumstances
pursuant to Section 8.4(d) below, Employee will not compete with the business of
Employer, which means that Employee will not engage, directly or indirectly, in
the "Covered Business" (as hereinafter defined) in the United States of America,
Canada, Mexico or any territories, possessions or dependencies of such countries
(these areas are hereinafter collectively referred to as the "Covered Area").
For purposes of this Agreement, (a) "Covered Business" shall mean the sale,
whether at retail, wholesale or so-called "discount," of any records, compact
discs, digital audio tapes, cassette tapes, videotapes, laser discs or other
formats available for the reproduction of audio or video programming; and (b)
the phrase "engage, directly or indirectly" shall mean engaging directly or
having an interest, directly or indirectly, as owner, partner, shareholder,
independent contractor, capital investor, lender, renderer of consultation
services or advice or otherwise (other than as the holder of less than 2% of the
outstanding stock of a publicly-traded corporation), either alone or in
association with others, in the operation of any aspect of any type of business
or enterprise engaged in any aspect of the Covered Business. Employee shall be
deemed engaged in business in the Covered Area if his place of business is
located in the Covered Area or if he or his business solicits customers located
anywhere in, or delivers products anywhere in, the Covered Area. If Employee's
employment is terminated either pursuant to Section 6.1(c) or 6.2(b) hereof,
Employee acknowledges that he shall not be entitled to receive any Continuation
Payments or Continuation Benefits pursuant to Section 7.1(c) hereof during the
Covered Time. In recognition of this fact, Employer hereby agrees that the
definition of "Covered Business" for purposes of construing the covenant set
forth in this Section 8.4 solely in the event of a termination pursuant to
Section 6.1(c) or 6.2(b) hereof shall be modified to include only the sale at
retail of any records, compact discs, digital audio tapes, cassette tapes,
videotapes, laser discs or other formats available for the reproduction of audio
or video programming.
(b) Employee agrees that during the Covered Time he shall not (i) directly
or indirectly solicit or attempt to solicit any of the employees, agents or
representatives of Employer or affiliates of Employer to leave any of such
entities; (ii) directly or indirectly solicit or attempt to solicit any of the
employees, agents or representatives of Employer or affiliates of Employer to
become employees or consultants of any other person or entity; or (iii) directly
or indirectly solicit or attempt to solicit any customer, vendor or distributor
of Employer or affiliates of Employer with respect to any product or service
being furnished, made or sold by Employer.
(c) Employee understands that the provisions of Section 8.4(a) may limit
his ability to earn a livelihood in a business similar to the business of
Employer but nevertheless agrees and hereby acknowledges that the consideration
provided under this Agreement, including any amounts or benefits provided under
Section 7 hereof, is sufficient to justify the restrictions contained in such
provisions and in consideration thereof and in light of Employee's education,
skills and abilities, Employee agrees that he will not assert that, and it
should not be considered that, such provisions prevent him from earning a living
or otherwise are void or unenforceable or should be voided or held
unenforceable. Employee acknowledges and agrees that his duties with Employer
are of an executive nature and that he is a member of Employer's management
group.
(d) If Employee's employment is terminated pursuant to Section 6.1(b)
hereof and the Date of Termination is less than twelve (12) months subsequent to
the Contract Date, Employer may extend the Covered Time to extend to and through
the Expiration Date by Employer delivering written notice to Employee, within
ten (10) days of such Date of Termination, that Employer has elected to continue
to pay to Employee the Continuation Payments, without mitigation, and provide
the Continuation Benefits for each month of such extended Covered Time; provided
that Employer shall not be required to continue to provide basic health benefits
if Employee obtains employment with a Substitute Employer in which Employee is
entitled to receive basic health benefits in connection with such employment on
terms provided by the Substitute Employer to its similarly situated employees
generally.
8.5 Definition of Employer.
For purposes of this Section 8, the term Employer shall include Employer
and any and all of its subsidiaries, ventures or affiliates, whether currently
existing or hereafter formed, which are engaged in the Covered Business or a
portion thereof, as well as any person to whom this Agreement is assigned as
permitted by Section 9.9 hereof.
8.6 Enforcement.
(a) The parties hereto agree and acknowledge that the covenants and
agreements contained herein are reasonably necessary in duration and to protect
the reasonable competitive business interests of Employer, including, without
limitation, the value of the Confidential Information and goodwill of Employer.
(b) Employee agrees that the covenants and undertakings contained in
Section 8 of this Agreement relate to matters which are of a special, unique and
extraordinary character and that Employer cannot be reasonably or adequately
compensated in damages in an action at law in the event Employee breaches any of
these covenants or undertakings. Therefore, Employee agrees that Employer shall
be entitled, as a matter of course, without the need to prove irreparable
injury, to an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any violation or threatened
violation of any of such terms by Employee and such other persons as the court
shall order. Employee agrees to pay costs and legal fees incurred by Employer in
obtaining such injunction.
(c) Rights and remedies provided for in this Section are cumulative and
shall be in addition to rights and remedies otherwise available to the parties
under any other agreement or applicable law.
(d) In the event that any provision of this Agreement shall to any extent
be held invalid, unreasonable or unenforceable in any circumstances, the parties
hereto agree that the remainder of this Agreement and the application of such
provision of this Agreement to other circumstances shall be valid and
enforceable to the fullest extent permitted by law. If any provision of this
Agreement, or any part thereof, is held to be unenforceable because of the scope
or duration of or the area covered by such provision, the parties hereto agree
that the court or arbitrator making such determination shall reduce the scope,
duration and/or area of such provision (and shall substitute appropriate
provisions for any such unenforceable provisions) in order to make such
provision enforceable to the fullest extent permitted by law, and/or shall
delete specific words and phrases, and such modified provision shall then be
enforceable and shall be enforced. The parties hereto recognize that if, in any
judicial proceeding, a court shall refuse to enforce any of the separate
covenants contained in this Agreement, then that unenforceable covenant
contained in this Agreement shall be deemed eliminated from these provisions to
the extent necessary to permit the remaining separate covenants to be enforced.
In the event that any court or arbitrator determines that the time period or the
area, or both, are unreasonable and that any of the covenants is to that extent
unenforceable, the parties hereto agree that such covenants will remain in full
force and effect, first, for the greatest time period, and second, in the
greatest geographical area that would not render them unenforceable.
9. Miscellaneous.
9.1 Key Man Insurance. Employee recognizes and acknowledges that Employer
or its affiliates may seek and purchase one or more policies providing key man
life insurance with respect to Employee, the proceeds of which would be payable
to Employer or such affiliate. Employee hereby consents to Employer or its
affiliates seeking and purchasing such insurance and will provide such
information, undergo such medical examinations (at Employer's expense), execute
such documents, and otherwise take any and all actions necessary or desirable in
order for Employer or its affiliates to seek, purchase and maintain in full
force and effect such policy or policies.
9.2 Legal Fees. Employer shall pay or reimburse Employee, his heirs,
beneficiaries or his estate, all costs and expenses (including court costs and
legal fees and expenses) that they may incur in connection with the enforcement
of Employee's rights under this Agreement.
9.3 Notice. Any notice required or permitted to be given hereunder shall be
deemed sufficiently given if sent by registered or certified mail, postage
prepaid, addressed to the addressee at his or its address last provided the
sender in writing by the addressee for purposes of receiving notices hereunder
or, unless or until such address shall be so furnished, to the address indicated
opposite his or its signature to this Agreement.
9.4 Modification and No Waiver of Breach. No waiver or modification of this
Agreement shall be binding unless it is in writing signed by the parties hereto.
No waiver by a party of a breach hereof by the other party shall be deemed to
constitute a waiver of a future breach, whether of a similar or dissimilar
nature, except to the extent specifically provided in any written waiver under
this Section 9.4.
9.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, AND ALL QUESTIONS
RELATING TO THE VALIDITY AND PERFORMANCE HEREOF AND REMEDIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAW.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
9.7 Captions. The captions used herein are for ease of reference only and
shall not define or limit the provisions hereof.
9.8 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto relating to the matters encompassed hereby and
supersedes any prior oral or written agreements.
9.9 Assignment. The rights and obligations of Employer under this Agreement
may, without the consent of Employee, be assigned by Employer to any person,
firm, corporation, or other business entity which at any time, whether by
purchase, merger, or otherwise, directly or indirectly, acquires all or material
portions of the stock, assets or any line of business of Employer, without
prejudice to any other rights of Employee against Employer in the event of any
such transaction.
9.10 Non-Transferability of Interest. None of the rights of Employee to
receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Employee. Any attempted
assignment, transfer, conveyance, or other disposition (other than as aforesaid)
of any interest in the rights of Employee to receive any form of compensation to
be made by Employer pursuant to this Agreement shall be void.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.
Address for notices:
CAMELOT MUSIC, INC.
8000 Freedom Avenue, N.W.
N. Canton, Ohio 44720
Attn: Chief Financial Officer
By: /s/ Jack K. Rogers
-------------------------
EMPLOYEE
8315 Laura N. W.
Massillon, OH 44646
/s/ James E. Bonk
----------------------------
James E. Bonk
EXHIBIT 10.4
CAMELOT MUSIC HOLDINGS, INC.
1998 STOCK OPTION PLAN
1. Purposes. The purposes of the Camelot Music Holdings, Inc. 1998 Stock
Option Plan are:
(a) To further the growth, development and success of the Company and the
Subsidiaries by enabling the executive and other key salaried employees and
directors of Camelot and the Subsidiaries to acquire a continuing equity
interest in the Company, thereby increasing their personal interests in such
growth, development and success and motivating such employees and directors to
exert their best efforts on behalf of the Company and the Subsidiaries; and
(b) To maintain the ability of the Company and the Subsidiaries to attract
and retain employees and directors of outstanding ability by offering them an
opportunity to acquire a continuing equity interest in the Company and the
Subsidiaries which will reflect the growth, development and success of the
Company and the Subsidiaries.
Toward these objectives, the Committee may grant Options to such employees and
directors, all pursuant to the terms and conditions of the Plan.
2. Definitions. As used in the Plan, the following capitalized terms shall
have the meanings set forth below:
(a) "AFFILIATE" - with respect to any Person, any other Person controlling,
controlled by or under common control with such Person. A Person shall be deemed
to control another Person if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
other Person, whether through ownership of voting securities, by contract or
otherwise.
(b) "AGREEMENT" - an option agreement evidencing an Option.
(c) "ALLOWED" - the meaning given such term in the Reorganization Plan.
(d) "BOARD" - the Board of Directors of the Company.
(e) "CAMELOT" - Camelot Music, Inc., a Pennsylvania corporation, or any
successor entity.
(f) "CHANGE IN CONTROL" - the occurrence of any of the following:
(i) (A) any Person who is not a shareholder of the Company on the
Effective Date, together with any Affiliate of such Person, in
the aggregate become beneficial owners, directly or indirectly,
of 35% or more of the Stock then outstanding or (B) any Person
who is a shareholder of the Company on the Effective Date,
together with any Affiliate of such Person, in the aggregate
become beneficial owners, directly or indirectly, of 50% or more
of the Stock then outstanding; or
(ii) individuals who on the Effective Date constituted the board of
directors of the Company (together with any new directors whose
election by the board of directors of the Company, or whose
nomination for election by the shareholders of the Company, was
approved by a vote of a majority of the directors of the Company
then still in office who were either directors on the Effective
Date or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the
Board of the Company then in office; or
(iii)the shareholders of the Company approve any transaction or
series of transactions under which the Company or any Subsidiary
is merged or consolidated with any other company, other than (A)
a merger or consolidation which would result in the voting
securities of the Company or any Subsidiary party to such merger
or consolidation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more
than 50% of the combined voting power of the voting securities of
the merged entity immediately after such merger or consolidation
or (B) any transaction or series of transactions implemented
pursuant to the Reorganization Plan; or
(iv) the shareholders of the Company approve a plan of liquidation of
the Company or any Subsidiary, or an agreement for the sale or
disposition of all or substantially all of the assets of the
Company or any Subsidiary, other than a sale or disposition of
all or substantially all of the assets of the Company or any
Subsidiary to an Affiliate of such respective Person or Persons.
(g) "CLAIMS" - the meaning given such term in the Reorganization Plan.
(h) "CODE" - the Internal Revenue Code of 1986, as it may be amended from
time to time, including regulations and rules thereunder and successor
provisions and regulations and rules thereto.
(i) "COMMITTEE" - the Compensation Committee of the Board, or such other
Board committee as may be designated by the Board to administer the Plan, in
accordance with Section 3.
(j) "COMPANY" - Camelot Music Holdings, Inc., a Delaware corporation, or
any successor entity.
(k) "EFFECTIVE DATE" - the meaning given such term in the Reorganization
Plan.
(l) "EXCHANGE ACT" - the Securities Exchange Act of 1934, as it may be
amended from time to time, including regulations and rules thereunder and
successor provisions and regulations and rules thereto.
(m) "FAIR MARKET VALUE" of a share of Stock as of a given date shall be (i)
the average of the closing representative bid and asked prices for the Stock on
such date (or, if no such prices are reported for such date, the most recent day
for which such prices are available shall be used) as reported by NASDAQ or any
stock exchange on which the Stock is then listed, or, if not then reported by
NASDAQ or any such stock exchange, by any other nationally recognized stock
quotation system, or (ii) if the Stock is not then publicly traded, the fair
market value determined by such other reasonable valuation method as the
Committee shall, in its discretion, select and apply in good faith as of the
given date; provided, however, that for purposes of paragraphs (a) and (g) of
Section 6, such fair market value shall be determined subject to Section
422(c)(7) of the Code.
(n) "ISO" or "INCENTIVE STOCK OPTION" - an option to purchase Stock granted
to a Participant under the Plan in accordance with the terms and conditions set
forth in Section 6 and which conforms to the applicable provisions of Section
422 of the Code.
(o) "NASDAQ" - the National Association of Securities Dealers Automated
Quotation System (or its successor quotation system).
(p) "NOTICE" - written notice actually received by Camelot at its offices
on the day of such receipt, if received on or before 1:30 p.m., on a day when
Camelot's offices are open for business, or, if received after such time, such
notice shall be deemed received on the next such day, which notice may be
delivered in person to Camelot's Chief Financial Officer or sent by facsimile to
Camelot, or sent by certified or registered mail or overnight courier, prepaid,
addressed to Camelot at 8000 Freedom Avenue N.W., North Canton, Ohio 44720,
Attention: Chief Financial Officer.
(q) "OPTION" - an option to purchase Stock granted to a Participant under
the Plan in accordance with the terms and conditions set forth in Section 6.
Options may be either ISOs or stock options other than ISOs.
(r) "OPTIONEE" - a Participant who has been granted an Option under the
Plan in accordance with the terms and conditions set forth in Section 6.
(s) "PARTICIPANT" - an individual eligible, pursuant to Section 5, to
participate in the Plan who is selected to participate in the Plan pursuant to
Section 3.
(t) "PERSON" - any individual, partnership, joint venture, company,
corporation, trust, unincorporated organization or other enterprise, or any
governmental or political subdivision or any agency, department or
instrumentality thereof.
(u) "PLAN" - this Camelot Music Holdings, Inc. 1998 Stock Option Plan.
(v) "REORGANIZATION PLAN" - that certain Second Amended Joint Chapter 11
Plan of Reorganization of the Company, Camelot, and various affiliated entities,
dated November 7, 1997, as amended.
(w) "SECURITIES ACT" - the Securities Act of 1933, as it may be amended
from time to time, including regulations and rules thereunder and successor
provisions and regulations and rules thereto.
(x) "STOCK" - the $0.01 par value common stock of the Company, without
preemptive rights or cumulative voting rights.
(y) "SUBSIDIARY" shall mean (i) any present or future corporation which is
or would be a "subsidiary corporation" of the Company as the term is defined in
Section 424(f) of the Code and (ii) for purposes of Options which are not ISOs,
any unincorporated entity in which the Company and/or one or more of its
"subsidiary corporations" (as defined in Section 424(f) of the Code) presently
or in the future own an aggregate profits interest of fifty percent (50%) or
more, which the Committee in its discretion determines will be a "Subsidiary"
for purposes of the Plan.
3. Administration of the Plan. (a) The Committee shall have exclusive
authority to operate, manage and administer the Plan in accordance with its
terms and conditions. Notwithstanding the foregoing, in its absolute discretion,
the Board may at any time and from time to time exercise any and all rights,
duties and responsibilities of the Committee under the Plan, including, but not
limited to, establishing procedures to be followed by the Committee.
(b) The Committee shall be appointed from time to time by the Board.
(c) The Committee shall have all authority that may be necessary or helpful
to enable it to discharge its responsibilities with respect to the Plan. Without
limiting the generality of the foregoing sentence or paragraph (a) of this
Section 3, the Committee shall have the exclusive right and discretionary
authority, in accordance with the other terms and conditions of the Plan, to:
(i) interpret the Plan and the Agreements; (ii) construe any ambiguous provision
of the Plan and/or the Agreements; (iii) subject to Section 5(b), determine
eligibility for participation in the Plan, decide all questions concerning
eligibility for and the amount of Options granted under the Plan, and select,
from time to time, from among those eligible, the employees and directors to
whom Options shall be granted under the Plan, which selection may be based upon
information furnished to the Committee by the Company's management; (iv) subject
to Section 5(b), determine whether an Option shall take the form of an ISO or
Option other than an ISO; (v) subject to Section 5(b), determine the number of
shares of Stock to be included in any Option or to which any Option shall
otherwise relate and the periods for which Options will be outstanding; (vi)
establish, amend, waive and/or rescind rules and regulations and administrative
guidelines for carrying out the Plan; (vii) to the extent permitted under the
Plan and the applicable Agreement, grant waivers of Plan terms, conditions,
restrictions and limitations; (viii) to the extent permitted under the Plan and
the applicable Agreement, permit the transfer of an Option or the exercise of an
Option by one other than the Participant who received the grant of such Option;
(ix) correct any errors, supply any omissions or reconcile any inconsistencies
in the Plan and/or any Agreement or any other instrument relating to any Option;
(x) to the extent permitted by the Plan, amend or adjust the terms and
conditions of any outstanding Option and/or adjust the number and/or class of
shares of Stock subject to any outstanding Option; (xi) in accordance with the
Plan, establish and administer any performance goals in connection with any
Options; (xii) at any time and from time to time after the granting of an
Option, specify such additional terms, conditions and restrictions with respect
to any such Option as may be deemed necessary or appropriate to ensure
compliance with any and all applicable laws, including, but not limited to, (A)
terms, restrictions and conditions for compliance with federal and state
securities laws, (B) methods of withholding or providing for the payment of
required taxes and (C) restrictions regarding a Participant's ability to
exercise Options under a "cashless exercise" program established by the
Committee; and (xiii) take any and all such other action it deems necessary or
advisable for the proper operation and/or administration of the Plan. The
Committee shall have full discretionary authority in all matters related to the
discharge of its responsibilities and the exercise of its authority under the
Plan. Options need not be uniform as to all grants and recipients thereof.
(d) Each Option shall be evidenced by an Agreement, which shall be executed
by the Company and the Participant to whom such Option has been granted, unless
the Agreement provides otherwise; however, two or more Options to a single
Participant may be combined in a single Agreement. An Agreement shall not be a
precondition to the granting of an Option; however, no person shall have any
rights under any Option unless and until the Participant to whom the Option
shall have been granted (i) shall have executed and delivered to the Company an
Agreement or other instrument evidencing the Option, unless such Agreement
provides otherwise, and (ii) has otherwise complied with the applicable terms
and conditions of the Option. Except as provided in Section 5(b), the Committee
shall prescribe the form of all Agreements, and, subject to the terms and
conditions of the Plan, shall determine the content of all Agreements. Any
Agreement may be supplemented or amended in writing from time to time as
approved by the Committee; provided that the terms and conditions of any such
Agreement as supplemented or amended are not inconsistent with the provisions of
the Plan.
(e) The Committee may consult with counsel who may be counsel to the
Company. The Committee may, with the approval of the Board, employ such other
attorneys or consultants, accountants, appraisers, brokers or other persons as
it deems necessary or appropriate. In accordance with Section 12, the Committee
shall not incur any liability for any action taken in good faith in reliance
upon the advice of such counsel or such other persons.
(f) The Committee may, in its discretion, delegate to appropriate officers
of Camelot the "administration" of the Plan under this Section 3; provided,
however, that no such delegation by the Committee shall be made (i) if such
delegation would not be permitted under applicable law or (ii) with respect to
the administration of the Plan as it affects executive officers and directors of
Camelot, and, provided further, however, the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the Plan. All
authority delegated by the Committee under this paragraph (h) of Section 3 shall
be exercised in accordance with the terms and conditions of the Plan and any
rules, regulations or administrative guidelines that may from time to time be
established by the Committee.
4. Shares of Stock Subject to the Plan. (a) The shares of stock subject to
Options granted under the Plan shall be shares of Stock. Such shares of Stock
subject to the Plan may be either authorized and unissued shares or previously
issued shares acquired by the Company or any Subsidiary. The total number of
shares of Stock that may be delivered pursuant to Options granted under the Plan
is seven and one-half percent (7.5%) of the total number of shares of Stock
authorized in connection with the Reorganization Plan as of the Effective Date.
(b) Notwithstanding any of the foregoing limitations set forth in this
Section 4, the numbers of shares of Stock specified in this Section 4 shall be
adjusted as provided in Section 10.
(c) Any shares of Stock subject to an Option which for any reason expires
or is terminated without having been fully exercised may again be granted
pursuant to an Option under the Plan, subject to the limitations of this Section
4.
5. Eligibility. (a) Executive and other key salaried employees, including
officers of Camelot and the Subsidiaries and directors (whether or not also
employees) of the Company and its Subsidiaries shall be eligible to become
Participants and receive Options in accordance with the terms and conditions of
the Plan.
(b) As of the Effective Date, ISOs, evidenced by Agreements in the form of
Appendix A hereto, shall be granted to the Category 1 employees of Camelot, as
listed on Schedule I hereto, to purchase shares of Stock equal to the percentage
of the total shares of Stock subject to the Plan that are allocated on Schedule
I to the Category 1 employees, at the option exercise price of $20.75 per share
of Stock, subject to proportionate adjustment (i) to the extent that the per
share Fair Market Value of the Stock has changed since the Effective Date due to
the issuance of additional shares of Stock in respect of Claims that first
become Allowed Claims after the Effective Date, and (ii) as otherwise provided
in Section 10 and the other terms and conditions of the Plan and such
Agreements. Furthermore, Options shall be granted to the Category 2 and Category
3 prospective employees of Camelot, as listed on Schedule I hereto, to purchase
shares of Stock equal to the percentage of the total shares of Stock subject to
the Plan that are allocated on Schedule I to the Category 2 and Category 3
prospective employees, respectively, upon the satisfaction of the conditions to
the granting of such Options as set forth on Schedule I hereto. Such Options
shall be granted at the option exercise price of $20.75 per share of Stock,
subject to proportionate adjustment in the same manner as the Options granted to
the Category 1 employees as of the Effective Date.
6. Terms and Conditions of Stock Options. All Options to purchase Stock
granted under the Plan shall be either ISOs or Options other than ISOs. Each
Option shall be subject to all the applicable provisions of the Plan, including
the following terms and conditions, and to such other terms and conditions not
inconsistent therewith as the Committee shall determine and which are set forth
in the applicable Agreement.
(a) Except as provided in Section 5(b), the option exercise price per
share of shares of Stock subject to each Option shall be determined by the
Committee and stated in the Agreement; provided, however, that, with
respect to ISOs, subject to paragraph (g)(C) of this Section 6, such price
shall not be less than 100% of the Fair Market Value of a share of Stock at
the time that the Option is granted. Notwithstanding any intent to grant
ISOs, the Options granted pursuant to Section 5(b) shall not be considered
ISOs to the extent that the exercise price is deemed to be less than 100%
of the Fair Market Value of a share of Stock on the Effective Date.
(b) Each Option shall be exercisable in whole or in such installments,
at such times and under such conditions as may be determined by the
Committee in its discretion and stated in the Agreement, and, in any event,
over a period of time ending not later than ten (10) years from the date
such Option was granted, subject to paragraph (g)(C) of this Section 6.
(c) An Option shall not be exercisable with respect to a fractional
share of Stock or the lesser of fifty (50) shares or the full number of
shares of Stock then subject to the Option. No fractional shares of Stock
shall be issued upon the exercise of an Option.
(d) Each Option may be exercised by giving Notice to the Company
specifying the number of shares of Stock to be purchased, which shall be
accompanied by payment in full including applicable taxes, if any, in
accordance with Section 9. Payment shall be in any manner permitted by
applicable law and prescribed by the Committee, in its discretion, and set
forth in the Agreement, including, in the Committee's discretion, payment
by delivery of a notice that the Optionee has placed a sell order with a
broker with respect to shares of Stock then issuable upon exercise of the
Option, and that the broker has been directed to pay a sufficient portion
of the net proceeds of the sale of Stock to the Company in satisfaction of
the Option exercise price.
(e) No Optionee or other person shall become the beneficial owner of
any shares of Stock subject to an Option, nor have any rights to dividends
or other rights of a shareholder with respect to any such shares, until he
or she has exercised his or her Option in accordance with the provisions of
the Plan and the applicable Agreement.
(f) An Option may be exercised only if at all times during the period
beginning on the date of the granting of the Option and ending on the date
of such exercise, the Optionee was an employee or director of either the
Company or of a Subsidiary or of another corporation referred to in Section
422(a)(2) of the Code. Notwithstanding the preceding sentence, the
Committee may determine in its discretion that an Option may be exercised
following termination of such continuous employment or directorship,
whether or not exercisable at such time, to the extent provided in the
applicable Agreement.
(g)(A) Each Agreement relating to an Option shall state whether such
Option will or will not be treated as an ISO. No ISO shall be granted
unless such Option, when granted, qualifies as an "incentive stock option"
under Section 422 of the Code. No ISO shall be granted to any Participant
who is not an employee of the Company or any of its Subsidiaries on the
date of granting of such Option. Any ISO granted under the Plan shall
contain such terms and conditions, consistent with the Plan, as the
Committee may determine to be necessary to qualify such Option as an
"incentive stock option" under Section 422 of the Code; provided, however,
that the Committee may not modify the terms and conditions of Options
granted on the Effective Date pursuant to Section 5(b), or the Agreements
in the form of Appendix A hereto, absent the express written consent of the
affected Optionee.
(B) Notwithstanding any intent to grant ISOs, an Option granted under
the Plan will not be considered an ISO to the extent that it, together with
any other "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to subsection (d) of such Section) under the
Plan or any other "incentive stock option" plans of the Company and any
Subsidiary, are exercisable for the first time by any Optionee during any
calendar year with respect to Stock having an aggregate Fair Market Value
in excess of $100,000 (or such other limit as may be required by the Code)
as of the time the Option with respect to such Stock is granted. The rule
set forth in the preceding sentence shall be applied by taking Options into
account in the order in which they were granted.
(C) No ISO shall be granted to a Participant who owns (within the
meaning of Section 424(d) of the Code), at the time the Option is granted,
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or a Subsidiary. This restriction does not
apply if at the time such ISO is granted the Option exercise price per
share of Stock subject to the Option is at least 110% of the Fair Market
Value of a share of Stock on the date such ISO is granted, and the ISO by
its terms is not exercisable after the expiration of five (5) years from
such date of grant.
(h) An Option and any shares of Stock received upon the exercise of an
Option shall be subject to such transfer and/or ownership restrictions
and/or legending requirements as the Committee may determine are necessary
to comply with any applicable law, regulation or rule, and may be referred
to on the certificates evidencing such shares of Stock.
(i) Notwithstanding any other provision contained in the Plan to the
contrary, the maximum number of shares of Stock which may be subject to
Options granted to any single Participant in any twelve (12)-month period
shall not exceed 250,000 shares of Stock (as adjusted in accordance with
Section 10(a)).
7. Transfer, Leave of Absence. For purposes of the Plan, a transfer of an
employee from the Company to a Subsidiary or an Affiliate of the Company,
whether or not incorporated, or vice versa, or from one Subsidiary or Affiliate
of the Company to another, and a leave of absence, duly authorized in writing by
the Company or a Subsidiary or Affiliate of the Company, shall not be deemed a
termination of employment of the employee.
8. Rights of Employees and Other Persons. (a) No person shall have any
rights or claims under the Plan except in accordance with the provisions of the
Plan, the applicable Agreement and the Reorganization Plan.
(b) Nothing contained in the Plan or in any Agreement shall be deemed to
give any employee or director the right to be retained in the service of the
Company or its Subsidiaries nor, subject to the terms and conditions of any
applicable employment or other agreement, restrict the right of the Company or
any Subsidiary to terminate any employee's employment or any director's
directorship at any time with or without cause.
(c) Except as provided in Section 5(b), the adoption of the Plan shall not
be deemed to give any employee of the Company or any Subsidiary or any other
person any right to be selected as a Participant or to be granted an Option.
9. Tax Withholding Obligations. (a) The Company and/or any Subsidiary are
authorized to take whatever actions are necessary and proper to satisfy all
obligations of Participants for the payment of all federal, state, local and
foreign taxes in connection with any Options (including, but not limited to,
actions pursuant to the following paragraph (b) of this Section 9).
(b) Each Participant shall (and in no event shall Stock be delivered to
such Participant with respect to an Option until), no later than the date as of
which the value of the Option first becomes includible in the gross income of
the Participant for income tax purposes, pay to the Company in cash, or make
arrangements satisfactory to the Company, as determined in the Committee's
discretion, regarding payment to the Company of, any taxes of any kind required
by law to be withheld with respect to the Stock subject to such Option, and the
Company and any Subsidiary shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to such
Participant. Notwithstanding the above, the Committee may, in its discretion and
pursuant to procedures approved by the Committee, permit the Participant to (i)
elect withholding by the Company of Stock otherwise deliverable to such
Participant pursuant to such Option (provided, however, that the amount of any
Stock so withheld shall not exceed the minimum required withholding obligation
taking into account the Participant's effective tax rate and all applicable
federal, state, local and foreign taxes) and/or (ii) tender to the Company Stock
owned by such Participant (or by such Participant and his or her spouse jointly)
and acquired more than six (6) months prior to such tender, in full or partial
satisfaction of such tax obligations.
10. Changes in Capital. (a) Upon changes in the outstanding Stock by reason
of a stock dividend, stock split, reverse split, issuance of additional shares
in respect of Allowed Claims, issuance of warrants or other rights to purchase
Stock or other securities of the Company (other than under the Plan),
recapitalization, merger, consolidation (whether or not the Company is a
surviving corporation), combination or exchange of shares of Stock, separation,
or reorganization, or in the event of an extraordinary dividend, "spin-off,"
liquidation or other substantial distribution of assets of the Company, or other
similar corporate transaction or event, the aggregate number and kind of shares
of stock available under the Plan as to which Options may be granted and the
number, kind of shares of stock and the option price per share under each
outstanding Option shall, in each case, be appropriately adjusted by the
Committee to preserve the benefits or potential benefits intended to be made
available under the Plan or with respect to any Options, and, without limiting
the generality of the foregoing, after the Effective Date, as further shares of
Stock are issued in respect of Allowed Claims, (1) the aggregate number of
shares of Stock that may be delivered pursuant to Options granted under the Plan
shall be adjusted so that at all times such number of shares shall equal seven
and one-half percent (7.5%) of the sum of (A) the total number of shares of
Stock issued under the Reorganization Plan and (B) the total number of shares of
Stock that may be delivered pursuant to Options granted under the Plan, and (2)
each outstanding Option shall be appropriately adjusted by the Committee such
that the potential proportionate interest in the total issued shares of capital
stock of the Company attributable to the shares of Stock receivable by the
Optionee upon an exercise of his or her Option in full at any time would not be
diminished from his or her potential proportionate interest in the total issued
shares of capital stock of the Company attributable to the shares of Stock
receivable by the Optionee upon an exercise of his or her Option in full on the
Effective Date.
(b) Upon the occurrence of a Change in Control:
(1) Each outstanding Option shall automatically become fully vested
and exercisable as to all shares of Stock covered thereby for which the
Option was not previously exercised, notwithstanding anything to the
contrary in the Plan or the Agreement.
(2) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, either by the terms of the
applicable Agreement or by a resolution adopted prior to the occurrence of
such event, that any outstanding Option shall be adjusted by substituting
for Stock subject to such Option stock or other securities of any successor
corporation to the Company, or a parent or subsidiary thereof, or that may
be issuable by another corporation that is a party to the transaction
whether or not such stock or other securities are publicly traded, in which
event the aggregate exercise price (as applicable) shall remain the same
and the amount of shares or other securities subject to option or other
rights under an Option shall be the amount of shares or other securities
which could have been purchased on the closing date or expiration date of
such transaction with the proceeds which would have been received by the
Participant if the Option had been exercised in full prior to such
transaction or expiration date and the Participant exchanged all of such
shares in the transaction.
(3) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, either by the terms of the
applicable Agreement or by a resolution adopted prior to the occurrence of
such event, that any outstanding Option shall be converted into a right to
receive in cash and/or such other consideration received by shareholders of
the Company generally in connection with such transaction, as soon as
practicable following the closing date or expiration date of the
transaction, an amount equal to the value of the consideration (or the
actual consideration) to be received in connection with such transaction
for one share of Stock, less the per share exercise price of such Option,
multiplied by the number of shares of Stock subject to such Option.
No Participant shall have any right to prevent the consummation of any of the
foregoing acts affecting the number of shares of Stock available to such
Participant. Any actions or determinations of the Committee under this
Subsection 10(b) need not be uniform as to all outstanding Options, nor treat
all Participants identically. Notwithstanding the foregoing adjustments, in no
event may any Option be exercised after ten (10) years from the date it was
originally granted, and any changes to ISOs pursuant to this Section 10 shall,
unless the Committee determines otherwise, only be effective to the extent such
adjustments or changes do not cause a "modification" (within the meaning of
Section 424(h)(3) of the Code) of such ISOs or adversely affect the tax status
of such ISOs.
11. Miscellaneous Provisions. (a) The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the issuance of shares of Stock upon
exercise or payment of any Option. Proceeds from the sale of shares of Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Company. The expenses of the Plan shall be borne by the Company.
(b) Except as otherwise provided in this paragraph (b) of Section 11, an
Option by its terms shall be personal and may not be sold, transferred, pledged,
assigned, encumbered or otherwise alienated or hypothecated otherwise than by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of a Participant only by him or her. At the Committee's discretion,
an Agreement may permit the receipt or exercise of a Participant's Option (or
any portion thereof) after his or her death by the beneficiary most recently
named by such Participant in a written designation thereof filed with the
Company, or, in lieu of any such surviving beneficiary, by the legatee of the
Participant under the Participant's last will or by the legal representative of
such Participant's estate. The Committee may, in its discretion, authorize any
Option which is not an ISO granted to a Participant to be on terms which permit
transfer of all or a portion of such Option to members of such Participant's
immediate family or a trust or partnership, or similar vehicle, established
solely for the benefit of, or the partners or members of which are solely, any
such immediate family member or members, provided that the Option expressly
permits such transferability and any transfer of such Option shall be in
accordance with any other terms, conditions, rules and limitations prescribed by
the Committee and/or set forth in the applicable Agreement. Following the valid
transfer of any such Option, the transferred Option shall continue to be subject
to the same terms and conditions as were applicable to such Option immediately
prior to such transfer, provided that the transferee of such Option shall be
treated under the Plan and the applicable Agreement as the Participant who
transferred the Option, except that the terms of Section 6(f) (and any similar
provisions of the applicable Agreement, dealing with exercisability of an Option
and termination of a Participant's relationship with the Company or a
Subsidiary, or his or her death), shall continue to be applied with respect to
the original Participant, so that following a Participant's termination of
employment or relationship as a director, with the Company or a Subsidiary or
the death of a Participant, any transferee of such original Participant's Option
may only exercise such Option to the extent provided, and for the period
specified, in such Section 6(f) (and any similar provisions of the applicable
Agreement). In the event any Option is exercised by the transferee of an Option,
or the executors, administrators, heirs or distributees of the estate of a
deceased Participant, or such Participant's beneficiary, in any such case
pursuant to the terms and conditions of the Plan and the applicable Agreement,
the Company shall be under no obligation to issue Stock thereunder unless and
until the Committee is satisfied that the person or persons exercising such
Option is the valid transferee of the Option, the duly appointed legal
representative of the deceased Participant's estate or the proper legatees or
distributees thereof or the named beneficiary of such Participant.
(c) If at any time the Committee shall determine, in its discretion, that
the listing, registration and/or qualification of shares of Stock upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the sale or purchase of shares of Stock
hereunder, no Option may be exercised in whole or in part unless and until such
listing, registration, qualification, consent and/or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Committee.
(d) The Committee may require each person receiving Stock in connection
with any Option under the Plan to represent and agree with the Company in
writing that such person is acquiring the shares of Stock for investment without
a view to the distribution thereof. The Committee, in its absolute discretion,
may impose such restrictions on the ownership and transferability of the shares
of Stock purchasable or otherwise receivable by any person under any Option as
it deems appropriate. Any such restrictions shall be set forth in the applicable
Agreement, and the certificates evidencing such shares may include any legend
that the Committee deems appropriate to reflect any such restrictions.
(e) The Committee may, in its discretion, extend one or more loans to
Participants who are key employees of the Company or a Subsidiary in connection
with the exercise or receipt of an Option granted to any such employees. The
terms and conditions of any such loan shall be set by the Committee.
(f) By accepting any benefit under the Plan, each Participant and each
person claiming under or through such Participant shall be conclusively deemed
to have indicated their acceptance and ratification of, and consent to, all of
the terms and conditions of the Plan and any action taken under the Plan by the
Committee, the Company or the Board.
(g) Neither the adoption of the Plan nor anything contained herein shall
affect any other compensation or incentive plans or arrangements of the Company
or any Subsidiary, or prevent or limit the right of the Company or any
Subsidiary to establish any additional forms of incentives or compensation for
their employees or directors, or grant or assume options or other rights
otherwise than under the Plan.
(h) The Plan shall be governed by and construed in accordance with the laws
of the State of Delaware, except as superseded by applicable federal law.
(i) The word "Section" used herein shall refer to provisions of the Plan,
unless stated otherwise.
12. Limits of Liability. (a) Any liability of the Company or a Subsidiary
to any Participant with respect to any Option shall be based solely upon
contractual obligations created by the Plan and the Agreement.
(b) Neither the Company nor a Subsidiary nor any member of the Committee or
the Board, nor any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or application
of the Plan, shall have any liability, in the absence of bad faith, to any party
for any action taken or not taken in connection with the Plan, except as may
expressly be provided by statute.
13. Amendments and Termination. The Committee may, at any time and with or
without prior notice, amend, alter, suspend, or terminate the Plan; provided,
however, no amendment, alteration, suspension, or termination shall be made
which would impair the previously accrued rights of any holder of an Option
theretofore granted without his or her written consent or which, without first
obtaining approval of the stockholders of the Company (where such approval is
necessary to satisfy (i) any requirements under the Code relating to ISOs or
(ii) applicable state law), would:
(a) except as is provided in Section 10, increase the maximum number
of shares of Stock which may be sold or awarded under the Plan;
(b) except as is provided in Sections 5(b) and 10, decrease the
minimum option exercise price requirements of Section 6(a) (provided,
however, that except for decreases provided in Sections 5(b) and 10, no
such decrease may be made by the Board without first obtaining approval of
the stockholders of the Company other than in the event of a sustained
decrease in the value of the Stock);
(c) change the class of persons eligible to receive Options under the
Plan; or
(d) extend the duration of the Plan or the period during which Options
may be exercised under Section 6(b).
The Committee may amend the terms of any Option theretofore granted,
including any Agreement, retroactively or prospectively, but no such amendment
shall impair the previously accrued rights of any Participant without his or her
written consent.
Notwithstanding any other provision of the Plan to the contrary, (x) no
amendment, alteration, suspension or termination of the Plan or any Option,
including any Agreement, shall be made which would be inconsistent with the
terms and conditions of the Reorganization Plan, without the written consent of
each affected Participant, and (y) the Board may amend the Plan and the
Committee may amend any Option granted under the Plan, including any Agreement,
either retroactively or prospectively, and without the consent of the applicable
Participant, so as to preserve or come within any exemptions from liability
under Section 16(b) of the Exchange Act, pursuant to the rules and releases
promulgated by the Securities and Exchange Commission (including Rule 16b-3
under the Exchange Act).
14. Effective Date. The Plan shall become effective as of the Effective
Date (in the event that the Reorganization Plan, which shall include the
adoption of the Plan, is approved by a majority of the amount of Allowed Claims
of the Persons entitled to vote thereon) or, in the event that the
Reorganization Plan is not approved by a majority of the amount of Allowed
Claims of the Persons entitled to vote thereon, the date on which the Plan is
approved by the shareholders of the Company. The Plan shall be of unlimited
duration; provided, however, that, to the extent required by the Code, no ISOs
may be granted under the Plan on a date that is more than ten (10) years from
the earlier of the dates referred to in the first sentence of this Section 14
above. No termination of the Plan shall affect the previously accrued rights of
any Participant hereunder and all Options previously granted hereunder shall
continue in force and in operation after the termination of the Plan, except as
they may be otherwise terminated in accordance with the terms of the applicable
Agreement.
<PAGE>
Schedule I
Employees Designated to Receive Initial Option Grants Under the
Camelot Music Holdings, Inc. 1998 Stock Option Plan
SHARES COVERED BY
EMPLOYEE'S OPTION AS
A PERCENTAGE OF TOTAL
Employee(1) SHARES SUBJECT TO PLAN
Category 1 Employees
62 current Camelot employees 75.6033%
Category 2 Employees
15 prospective employees to be 4.8100%
hired upon consummation of
The Wall transaction
Category 3 Employees
4 prospective employees to be 3.7000%
hired regardless of consummation
of The Wall transaction
Shares not subject to Options granted
pursuant to Section 5(b)
("Unallocated Options") 15.8867%
100.0000%
(1) The aggregate number of shares allocated for Options to be granted on the
Effective Date to the Category 1 Employees may not be reduced under any
circumstances at any time.
Each grant of Options to Category 2 Employees is contingent upon
consummation of the Company's acquisition of the assets of The Wall Music, Inc.
and commencement of the applicable Category 2 Employee's employment with
Camelot. In the event that either such condition (or both such conditions) shall
fail to occur, such Options shall be reallocated (i) among any other Category 2
Employees or any Category 1 Employees or Category 3 Employees, or (ii) to the
pool of Unallocated Options.
Each grant of Options to Category 3 Employees is contingent upon
commencement of the applicable Category 3 Employee's employment with Camelot. In
the event that such condition shall fail to occur, such Options shall be
reallocated (i) among any other Category 3 Employees or any Category 1 Employees
or Category 2 Employees, or (ii) to the pool of Unallocated Options.
Notwithstanding the satisfaction of the conditions to the granting of
Options to any Category 2 Employee or Category 3 Employee, such Options may be
reallocated prior to the effective date of grant of such Options, among the
Category 1 Employees, Category 2 Employees and/or Category 3 Employees. However,
to the extent that the conditions to the granting of Options to any Category 2
Employee or Category 3 Employee are satisfied, the shares allocated for such
Options may not be reallocated to the pool of unallocated Options.
<PAGE>
Appendix A
[Form of Incentive Stock Option Award Agreement]
CAMELOT MUSIC HOLDINGS, INC.
INCENTIVE STOCK OPTION AWARD AGREEMENT
This Agreement (this "Agreement"), dated January, 27 1998, is made
between Camelot Music Holdings, Inc. (the "Company") and _______________ (the
"Optionee"). All capitalized terms that are not defined herein shall have the
meaning as defined in the Camelot Music Holdings, Inc. 1998 Stock Option Plan
(the "Plan"). References to "he," "him," and "his" shall mean the feminine form
of such terms, when applicable.
W I T N E S E T H :
1. Grant of Option. The Company hereby grants to the Optionee, subject
to the terms and conditions of the Plan and the terms and conditions herein set
forth, the right and option to purchase from the Company all or any part of an
aggregate of ____________ shares of the $0.01 par value common stock of the
Company (the "Stock") at a per share purchase price equal to $20.75, subject to
proportionate adjustment as provided in Section 5(b) of the Plan (the "Option"),
such Option to be exercisable as hereinafter provided. The Option shall be
treated as an "incentive stock option" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended.
2. Terms and Conditions. It is understood and agreed that the Option
evidenced hereby is subject to the following terms and conditions:
(a) Expiration Date. The Option shall expire ten (10) years after the
date indicated above.
(b) Exercise of Option.
(i) Subject to the other terms of this Agreement and the Plan, the
Option may be exercised at any time on or after the date which is four (4) years
from the date hereof as to the total number of shares of Stock subject to the
Option, or any portion thereof, for which the Option was not previously
exercised; provided, however, the Option shall become exercisable prior to such
date as to that portion of the total number of shares of Stock covered by the
Option set forth on Schedule II attached hereto, subject to satisfaction of the
Fair Market Value of Stock targets set forth on such Schedule II; provided
further, however, that, irrespective of satisfaction of such targets, upon the
occurrence of a Change in Control, the Option shall automatically become fully
vested and exercisable for all of the shares of Stock subject to the Option with
respect to which the Option was not previously exercised.
(ii) Any exercise of all or any part of the Option shall be
accompanied by a written notice to the Company specifying the number of shares
of Stock as to which the Option is being exercised. Upon the valid exercise of
all or any part of the Option, a certificate (or certificates) for the number of
shares of Stock with respect to which the Option is exercised shall be issued in
the name of the Optionee, subject to the other terms and conditions of this
Agreement and the Plan. Notation of any partial exercise shall be made by the
Company on Schedule I attached hereto.
(iii) At the time of any exercise of the Option, the purchase price of
the shares of Stock as to which the Option shall be exercised shall be paid to
the Company (A) in United States dollars by personal check, bank draft or money
order; (B) with the consent of the Committee, through delivery of a full
recourse promissory note upon such payment and other terms and conditions,
including interest (at no less than such rate as shall then preclude the
imputation of interest under the Code), as may be prescribed by the Committee;
or (C) by delivery of a notice that the Optionee has placed a sell order with a
broker with respect to shares of Stock then issuable upon exercise of the
Option, and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale of Stock to the Company in satisfaction of the Option
exercise price.
(iv) The Option shall terminate upon the termination, for any reason,
of the Optionee's employment with the Company or a Subsidiary, and no shares of
Stock may thereafter be purchased under the Option, except as follows:
(A) In the event of the death of the Optionee while an employee of the
Company or a Subsidiary, the Option, to the extent exercisable in
accordance with Section 2(b)(i) hereof as of the date of his death, may be
exercised after the Optionee's death by his heir, the legal representative
of the Optionee's estate or by the legatee of the Optionee under his last
will for a period of two (2) years from the date of his death or until the
expiration of the stated period of the Option, whichever period is the
shorter.
(B) If the Optionee's employment with the Company or a Subsidiary
shall terminate by reason of "Permanent Disability" (as defined in the last
sentence of this Section 2(b)(iv)(B)), the Option, to the extent
exercisable in accordance with Section 2(b)(i) hereof as of the date of
such termination of employment, may be exercised after such termination by
the Optionee or his legal representative, but may not be exercised after
the expiration of the period of one (1) year from the date of such
termination or of the stated period of the Option, whichever period is the
shorter. For purposes of this Agreement, "Permanent Disability" shall mean
"permanent and total disability," as defined in Section 22(e)(3) of the
Code, and a condition which would constitute a "permanent disability" under
the Camelot Music Group Long-Term Disability Insurance Plan.
(C) If the Optionee's employment with the Company or a Subsidiary is
terminated due to voluntary resignation of the Optionee prior to attaining
four (4) years of service as an employee of the Company and/or any of its
Subsidiaries (including, without limitation, any such service rendered as
an employee of the Company and/or any of its Subsidiaries prior or
subsequent to the Chapter 11 bankruptcy filings of the Company and its then
Subsidiaries), the Option shall terminate on the date of such termination
of employment and shall cease to thereafter be exercisable with respect to
any shares of Stock.
(D) Upon termination of the Optionee's employment with the Company or
a Subsidiary under any circumstances other than any of those described in
paragraph (A), (B) or (C) above of this Section 2(b)(iv), the Option, to
the extent the Option is exercisable in accordance with Section 2(b)(i)
hereof as of the date of such termination or thereafter becomes exercisable
by reason of a Change in Control in accordance with Section 2(b)(i) hereof,
may thereafter be exercised, but may not be exercised after the expiration
of the period of three (3) months from the date of such termination, or of
the stated period of the Option, whichever period is the shorter.
(E) If the Optionee dies after termination of his employment with the
Company and/or a Subsidiary under paragraphs (B) or (D) of this Section
2(b)(iv) above during the one-year or three-month period specified,
respectively, in such paragraphs, any unexercised Option, to the extent the
Option would have been exercisable in accordance with such applicable
paragraph (B) or (D) hereof, may be exercised after the Optionee's death by
the Optionee's heir, the legal representative of his estate or by the
legatee of the Optionee under his last will until the expiration of the
period of two (2) years from the date of his death or the stated period of
the Option, whichever period is the shorter.
(c) Transfer. The Option shall not be transferable otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
lifetime of the Optionee, only by him; provided, however, that the Option (or
any portion thereof) may be exercised after the Optionee's death by the
beneficiary most recently named by the Optionee in a written designation thereof
filed with the Company, or, in lieu of any such surviving beneficiary, by the
Optionee's heir, the legatee of the Optionee under the Optionee's last will or
the legal representative of the Optionee's estate.
(d) Withholding Taxes. At the time of receipt of Stock upon the
exercise of all or any part of the Option, the Optionee shall be required to pay
to the Company in cash any taxes of any kind required by law to be withheld with
respect to such Stock. In no event shall Stock be delivered to any person
exercising the Option until such person has paid to the Company in cash, or made
arrangements satisfactory to the Company regarding the payment of, the amount of
any taxes of any kind required by law to be withheld with respect to the Stock
subject to the Option, and the Company shall have the right to deduct any such
taxes from any payment of any kind otherwise due to the Optionee.
(e) No Rights as Stockholder. Neither the Optionee nor any other
person shall become the beneficial owner of the shares of Stock subject to the
Option, nor have any rights to dividends or other rights of a shareholder with
respect to any such shares, until the Optionee or his legal representative or
legatee has exercised the Option in accordance with the provisions hereof and of
the Plan.
(f) No Right to Continued Employment. The Option shall not confer upon
the Optionee any right to be retained in the service of the Company or a
Subsidiary, nor, subject to the terms and conditions of any applicable
employment or other agreement, restrict the right of the Company or any
Subsidiary to terminate his employment at any time with or without cause.
(g) Inconsistency with Plan. Notwithstanding any provision herein to
the contrary, the Option provides the Optionee with no greater rights or claims
than are specifically provided for under, or contemplated by, the Plan. If and
to the extent that any provision contained herein is inconsistent with the Plan,
the Plan shall govern.
(h) Compliance with Laws, Regulations, Etc. The Option and the
obligation of the Company to sell and deliver shares of Stock hereunder shall be
subject in all respects to (i) all applicable federal and state laws, rules and
regulations and (ii) any registration, qualification, approvals or other
requirements imposed by any government or regulatory agency or body which the
Committee shall, in its sole discretion, determine to be necessary or
applicable. Moreover, the Option may not be exercised if its exercise, or the
receipt of shares of Stock pursuant thereto, would be contrary to applicable
law.
3. Investment Representation. If at the time of exercise of all or
part of the Option the Stock is not registered under the Securities Act, and/or
there is no current prospectus in effect under the Securities Act with respect
to the Stock, the Optionee shall execute, prior to the issuance of any shares of
Stock to the Optionee by the Company, an agreement (in such form as the
Committee may specify) in which the Optionee represents and warrants that the
Optionee is purchasing or acquiring the shares acquired under this Agreement for
the Optionee's own account, for investment only and not with a view to the
resale or distribution thereof, and represents and agrees that any subsequent
offer for sale or distribution of any of such shares shall be made only pursuant
to either (i)a registration statement on an appropriate form under the
Securities Act, which registration statement has become effective and is current
with regard to the shares being offered or sold, or (ii)a specific exemption
from the registration requirements of the Securities Act, but in claiming such
exemption the Optionee shall, prior to any offer for sale or sale of such
shares, obtain a prior favorable written opinion, in form and substance
satisfactory to the Committee, from counsel for or approved by the Committee, as
to the applicability of such exemption thereto.
4. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of
a copy of the Plan and agrees to be bound by all of the terms and provisions
thereof, including the terms and provisions adopted after the granting of the
Option but prior to the complete exercise hereof, subject to the last paragraph
of Section 13 of the Plan as in effect on the date hereof.
5. Notices. Any notice hereunder to the Company shall be addressed to
it, c/o Camelot Music, Inc., at 8000 Freedom Avenue N.W., North Canton, Ohio
44720, Attention: Chief Financial Officer, and any notice hereunder to the
Optionee shall be addressed to him at _______________________________________
subject to the right of either party to designate at any time hereafter in
writing some other address.
6. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware applicable to contracts executed and to be performed entirely within
said state.
7. Severability. If any of the provisions of this Agreement should be
deemed unenforceable, the remaining provisions shall remain in full force and
effect.
8. Modification. This Agreement may not be modified or amended, nor
may any provision hereof be waived, in any way except in writing signed by the
parties hereto.
9. Counterparts. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Camelot Music Holdings, Inc., has caused this
Agreement to be executed by an appropriate officer and the Optionee has executed
this Agreement, both on the day and year first above written.
CAMELOT MUSIC HOLDINGS, INC.
By:__________________________
Title:_______________________
OPTIONEE
________________________(L.S.)
<PAGE>
SCHEDULE I
NOTATIONS AS TO PARTIAL EXERCISE
==============================================================================
Number of Balance of
Date of Shares of Stock Shares of Stock Authorized Notation
Exercise Purchased on Option Signature Date
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
==============================================================================
<PAGE>
SCHEDULE II
Exercisability of Option
Subject to paragraph (b) of Section 2 of this Agreement, prior to the fourth
anniversary of the Effective Date, the Option shall be exercisable for the
fraction set forth below of the total number of shares of Stock stated in
Section 1 of this Agreement on the date or dates on which the corresponding Fair
Market Value of Stock objectives are first achieved:
First date on which the average of the
Fair Market Value of the Stock for a period
of ten (10) consecutive business days has
exceeded the price stated in Section 1 of
this Agreement (using such price stated in Fraction of Total
Section 1 as the base) by: Shares Subject to Option
- ------------------------------------------- ------------------------
15% one-third
30% two-thirds
45% all shares
The foregoing to the contrary notwithstanding, but subject to paragraph (b) of
Section 2 of this Agreement, prior to the second anniversary of the Effective
Date the Option shall not be exercisable for more than one-half of the total
number of shares of Stock subject to the Option; from and after the second
anniversary of the Effective Date, the Option may become exercisable, in
accordance with the foregoing schedule, for the total number of shares subject
to the Option.
As an example, if on a date which is 11 months after the Effective Date, the
average of the Fair Market Value of the Stock for a period of ten (10)
consecutive business days exceeds the price stated in Section 1 of this
Agreement by 15%, the Option shall become exercisable (in accordance with
Section 2(b)) for one-third of the shares of Stock stated in Section 1 of this
Agreement at the time such average price is first attained. As an alternative
example, if on a date 11 months after the Effective Date, the average of the
Fair Market Value of the Stock for a period of ten (10) consecutive business
days exceeds the price stated in Section 1 of this Agreement by 45%, the Option
shall become exercisable (in accordance with Section 2(b)) for 50% of the shares
of Stock stated in Section 1 of this Agreement at the time such average price is
first attained and shall become exercisable (subject to Section 2(b)) for the
remaining 50% of such total number of shares on the second anniversary of the
Effective Date.
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Direct Owner % Ownership Incorporation
---------- ------------ ----------- -------------
<S> <C> <C> <C>
Camelot Music, Inc. Camelot Music Holdings, Inc. 100 Pennsylvania*
Camelot Distribution Co., Inc. Camelot Music, Inc. 100 Delaware
Camelot Midwest Region, Inc. Camelot Music, Inc. 100 Delaware*
Camelot Northeast Region, Inc. Camelot Music, Inc. 100 Delaware*
Camelot Southeast Region, Inc. Camelot Music, Inc. 100 Delaware*
Camelot Western Region, Inc. Camelot Music, Inc. 100 Delaware*
Grapevine Records and Tapes, Inc. Camelot Music, Inc. 100 Ohio
</TABLE>
* Does business under the name "Camelot" and "Camelot Music."
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of and for the 39 weeks ended November 29, 1997 and as
of and for the 52 weeks ended March 1, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> OTHER OTHER
<FISCAL-YEAR-END> FEB-28-1998 MAR-01-1997
<PERIOD-END> NOV-29-1997 NOV-30-1996
<CASH> 45689 0
<SECURITIES> 0 0
<RECEIVABLES> 3099 0
<ALLOWANCES> 0 0
<INVENTORY> 141106 0
<CURRENT-ASSETS> 191921 0
<PP&E> 104573 0
<DEPRECIATION> (57902) 0
<TOTAL-ASSETS> 279161 0
<CURRENT-LIABILITIES> 64920 0
<BONDS> 0 0
0 0
0 0
<COMMON> 10 0
<OTHER-SE> (278985) 0
<TOTAL-LIABILITY-AND-EQUITY> 279161 0
<SALES> 260340 264436
<TOTAL-REVENUES> 260340 264436
<CGS> 169816 174593
<TOTAL-COSTS> 169816 174593
<OTHER-EXPENSES> 97415 111091
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 530 19038
<INCOME-PRETAX> (3449) (39361)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10671) (65913)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10671) (65913)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> OTHER OTHER OTHER
<FISCAL-YEAR-END> MAR-01-1997 MAR-02-1996 FEB-25-1995
<PERIOD-END> MAR-01-1997 MAR-02-1996 FEB-25-1995
<CASH> 41260 29619 0
<SECURITIES> 0 0 0
<RECEIVABLES> 979 1349 0
<ALLOWANCES> 0 0 0
<INVENTORY> 112537 131741 0
<CURRENT-ASSETS> 160063 166363 0
<PP&E> 101720 110384 0
<DEPRECIATION> (44982) (30260) 0
<TOTAL-ASSETS> 258648 308670 0
<CURRENT-LIABILITIES> 34734 333492 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 10 10 0
<OTHER-SE> (268314) (203950) 0
<TOTAL-LIABILITY-AND-EQUITY> 258648 (203940) 0
<SALES> 396502 455652 459077
<TOTAL-REVENUES> 396502 455652 459077
<CGS> 263072 302481 289887
<TOTAL-COSTS> 263072 302481 289887
<OTHER-EXPENSES> 147371 373531 149304
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 19274 41794 34199
<INCOME-PRETAX> (32519) (263657) (15795)
<INCOME-TAX> 0 474 3070
<INCOME-CONTINUING> (64364) (264131) (18865)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (64364) (264131) (18865)
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
