<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the period ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________ to ________ .
Commission file number 1-6715
NATIONAL MEDIA CORPORATION
---------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-2658741
--------- ----------
(State or Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
15821 VENTURA BOULEVARD, 5th FLOOR
LOS ANGELES, CALIFORNIA 91436
----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (818) 461-6400
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /x/ No / /
There were 30,547,053 issued and outstanding shares of the registrant's common
stock, par value $.01 per share, at January 31, 1999, net of 874,044 shares of
common stock held in treasury as of such date.
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Facing Sheet .....................................................................................................1
Index.............................................................................................................2
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at December 31, 1998 and March 31, 1998...................3
Condensed Consolidated Statements of Operations for the
three months ended December 31, 1998 and 1997.................................................4
Condensed Consolidated Statements of Operations for the
nine months ended December 31, 1998 and 1997 ................................................ 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended December 31, 1998 and 1997................................................. 6
Notes to Condensed Consolidated Financial Statements............................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................14
Part II. Other Information
Item 1. Legal Proceedings .............................................................................31
Item 4. Submission of Matters to a Vote of Security Holders ...........................................31
Item 6. Exhibits and Reports on Form 8-K...............................................................32
Signatures.......................................................................................................34
</TABLE>
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<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------- ----------------
(Unaudited) (See Note Below)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents ................................................... $ 6,467 $ 17,915
Restricted cash ............................................................. 359 400
Securities available for sale ............................................... 5,700 --
Accounts receivable, net .................................................... 36,863 37,285
Income tax receivable ....................................................... -- 341
Inventories, net ............................................................ 15,087 21,228
Deferred costs .............................................................. 6,191 4,191
Prepaid expenses and other current assets ................................... 3,689 8,731
Deferred income taxes ....................................................... 2,835 2,835
--------- ---------
Total current assets ...................................................... 77,191 92,926
Property and equipment, net .................................................... 9,252 12,338
Excess of cost over net assets of acquired businesses and
other intangible assets, net ................................................... 33,562 35,877
Other assets ................................................................... 1,247 1,950
--------- ---------
Total assets ................................................................ $ 121,252 $ 143,091
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable ............................................................ $ 22,110 $ 21,167
Accrued expenses ............................................................ 37,591 29,713
Income taxes payable ........................................................ 209 --
Deferred income taxes ....................................................... 1,792 1,792
Current portion of long-term debt and capital lease obligations ............. 1,712 30,812
--------- ---------
Total current liabilities ................................................. 63,414 83,484
Long-term debt and capital lease obligations ................................... 159 469
Deferred income taxes .......................................................... 1,043 1,043
Other liabilities .............................................................. 5,623 3,768
Stockholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; issued 5,000
and 81,250 shares Series B convertible preferred stock; and 19,576 and 20,000
shares Series D convertible preferred stock and 20,000 and 0 shares Series E
convertible preferred stock at December 31, 1998 and March 31, 1998,
respectively ................................................................ 1 1
Common stock, $.01 par value; authorized 150,000,000 shares;
issued 30,653,575 and 26,262,716 shares, respectively ..................... 307 263
Additional paid-in capital .................................................. 182,110 156,975
Retained earnings (deficit).................................................. (119,965) (85,891)
--------- ---------
62,453 71,348
Treasury stock, 874,044 and 887,229 shares respectively, at cost ............ (6,701) (6,802)
Notes receivable, officers .................................................. (545) (139)
Net unrealized gain on securities available for sale ........................ 5,212 --
Foreign currency translation adjustment ..................................... (9,406) (10,080)
--------- ---------
Total stockholders' equity ................................................ 51,013 54,327
--------- ---------
Total liabilities and stockholders' equity ................................ $ 121,252 $ 143,091
--------- ---------
--------- ---------
</TABLE>
Note: The balance sheet at March 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required under generally accepted accounting principles for
complete financial statements.
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1998 1997
---------- -----------
<S> <C> <C>
Revenue:
Product sales .................................................. $ 81,922 $ 63,182
Sales commissions and other .................................... 1,237 1,735
--------- ---------
Net revenue ........................................... 83,159 64,917
Operating costs and expenses:
Media purchases ................................................ 28,807 20,532
Direct costs ................................................... 47,926 38,157
Selling, general and administrative ............................ 9,470 10,885
Depreciation and amortization .................................. 1,394 1,840
Unusual charges ................................................ 21,680 750
Interest expense ............................................... 528 910
--------- ---------
Total operating costs and expenses .................... 109,805 73,074
--------- ---------
Loss before income taxes ......................................... (26,646) (8,157)
Income taxes (benefit) ........................................... 105 (11)
--------- ---------
Loss before extraordinary item ................................... (26,751) (8,146)
Extraordinary item - gain on extinguishment of debt, net of income
taxes............................................................. 4,876 --
--------- ---------
Net loss ......................................................... $ (21,875) $ (8,146)
--------- ---------
--------- ---------
Net loss per common share - basic and diluted:
Loss before extraordinary item ............................... $ (1.04) $ (0.34)
Extraordinary item - gain on extinguishment of debt .......... 0.18 --
--------- ---------
Net loss per common share ........................................ $ (0.86) $ (0.34)
--------- ---------
--------- ---------
Weighted average number of common shares outstanding -
basic and diluted ................................................ 26,803 25,324
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue:
Product sales .................................................. $ 248,826 $ 182,959
Sales commissions and other .................................... 4,152 3,676
--------- ---------
Net revenue ........................................... 252,978 186,635
Operating costs and expenses:
Media purchases ................................................ 87,942 61,332
Direct costs ................................................... 146,184 116,272
Selling, general and administrative ............................ 29,735 35,820
Depreciation and amortization .................................. 4,221 5,355
Unusual charges ................................................ 20,481 750
Interest expense ............................................... 3,030 2,299
--------- ---------
Total operating costs and expenses ..................... 291,593 221,828
--------- ---------
Loss before income taxes ......................................... (38,615) (35,193)
Income taxes ..................................................... 335 300
--------- ---------
Loss before extraordinary item ................................... (39,950) (35,493)
Extraordinary item - gain on extinguishment of debt, net of income
taxes............................................................. 4,876 --
--------- ---------
Net loss ......................................................... $ (34,074) $ (35,493)
--------- ---------
--------- ---------
Net loss per common share - basic and diluted:
Loss before extraordinary item .............................. $ (1.55) $ (1.45)
Extraordinary item - gain on extinguishment of debt ......... 0.19 --
--------- ---------
Net loss per common share ........................................ $ (1.36) $ (1.45)
--------- ---------
--------- ---------
Weighted average number of common shares outstanding -
basic and diluted ................................................ 25,898 24,736
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $(34,074) $(35,493)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ......................................... 4,221 5,355
Amortization of loan discount ......................................... 581 286
Gain on extinguishment of debt ........................................ (4,876) --
Non-cash executive compensation ....................................... (937) 750
Non-cash portion of unusual charges ................................... 7,452 --
Changes in operating assets and liabilities, net ...................... 13,787 4,298
Other ................................................................. 3,027 5,304
-------- --------
Net cash used in operating activities ..................................... (10,819) (19,500)
Cash flows from investing activities:
Investment in securities available for sale ............................. (488) --
Additions to property and equipment ..................................... (871) (1,805)
Proceeds from sale of common stock investment ........................... -- 1,025
-------- --------
Net cash used in investing activities ..................................... (1,359) (780)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock ........................... 17,943 19,708
Proceeds from long-term debt ............................................ 2,136 8,759
Payments on long-term debt, notes payable and capital lease obligations . (27,749) (1,857)
Exercise of stock options and warrants .................................. 8,252 1,602
Loan to officer ......................................................... (406) --
-------- --------
Net cash provided by financing activities ................................. 176 28,212
Effect of exchange rate changes on cash and cash equivalents .............. 554 (156)
-------- --------
Net (decrease) increase in cash and cash equivalents ................ (11,448) 7,776
Cash and cash equivalents at beginning of period .......................... 17,915 4,058
-------- --------
Cash and cash equivalents at end of period ................................ $ 6,467 $ 11,834
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
December 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
National Media Corporation and Subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, the financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of normal, recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 1998.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
Of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
disclosure of certain information pertaining to a company's operating segments,
products and services, geographic areas of operations and major customers. The
Company is required to adopt this statement as of the end of the fiscal year
ending March 31, 1999. The Company is evaluating the effects of SFAS No. 131 on
its financial statement disclosures. SFAS No. 131 will have no effect on the
Company's results of operations, financial condition, capital resources or
liquidity.
SECURITIES AVAILABLE-FOR-SALE
The Company's marketable securities are categorized as available-for-sale
securities as defined by the Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Unrealized holding gains and losses are reflected as a net amount under a
separate component of stockholders' equity until realized.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. PER SHARE AMOUNTS
In 1997, the FASB issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"), which replaced primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic earnings per
share are computed based upon the weighted average number of shares of common
stock outstanding during the period. Diluted earnings per share are computed
based upon the weighted average number of shares of common stock outstanding
during the period plus the dilutive effect of stock options, warrants to
purchase common stock, and convertible preferred stock. Earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform with SFAS No. 128. In computing per share net loss amounts, deemed
dividends on preferred stock and certain warrants have been deducted from net
income to arrive at net income applicable to common stockholders.
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<PAGE>
The following table sets forth the computation of basic and diluted net loss per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss ................................................. $(21,875) $ (8,146) $(34,074) $(35,493)
Deemed dividend on convertible preferred stock
and warrants ............................................. (1,200) (358) (1,187)(1) (401)
-------- -------- -------- --------
Adjusted net loss for basic and diluted earnings
per share............................................... $(23,075) $ (8,504) $(35,261) $(35,894)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding - basic and diluted .. 26,803 25,324 25,898 24,736
-------- -------- -------- --------
-------- -------- -------- --------
Loss per share - basic and diluted ....................... $ (0.86) $ (0.34) $ (1.36) $ (1.45)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(1) Represents reversal of previously recorded accrued premium on Series C
Preferred Stock of $690, net of the current premium earned on Series D and
E Preferred Stock and Series B Warrants of $1,877.
Convertible preferred stock to purchase 31,649,302 and 4,162,830 shares of
common stock, and stock options and warrants to purchase 17,016,024 and
10,986,275 shares of common stock for the three and nine month periods ended
December 31, 1998 and 1997, respectively, were not included in the computation
of diluted earnings per share due to net losses incurred by the Company during
each of the respective periods, the effect of which is antidilutive. The above
amounts do not include shares of common stock issuable upon conversion of
accrued premium on convertible preferred stock.
3. LONG-TERM DEBT
In December 1998 the Company entered into a new, three-year credit agreement
with a senior lender (the "Credit Agreement"). The Credit Agreement provides for
a revolving credit facility with a maximum commitment of $20.0 million, of which
up to $7.5 million may be in the form of outstanding letters of credit.
Borrowings under the Credit Agreement are limited to a borrowing base consisting
of certain eligible domestic accounts receivable and inventory. Outstanding
borrowings under the Credit Agreement bear interest, at the option of the
Company, at the Prime rate plus one-quarter percent or the London Interbank
Offered Rate (LIBOR) plus three percent, however, in no event shall the interest
rate charged be less than seven percent per annum. A commitment fee of
one-quarter percent per annum is paid on the unused portion of the Credit
Agreement.
The Credit Agreement is collateralized by a lien on substantially all of the
assets of the Company's domestic subsidiaries, and a pledge of the stock of the
Company's foreign subsidiaries. The Credit Agreement contains certain financial
covenants, with respect to, among other matters, payment of dividends,
maintenance of tangible net worth, and restrictions on borrowings and purchases
of fixed assets.
At December 31, 1998, the Company had approximately $636,000 outstanding and
approximately $13.6 million of remaining availability under the Credit Facility.
4. SECURITIES AVAILABLE-FOR-SALE
Securities available for sale consist of common stock of Earthlink Network Inc.
("Earthlink") acquired through the exercise of warrants to purchase the common
stock during December 1998. Prior to the three-month period ended December 31,
1998, the common stock underlying the warrants were restricted and, therefore,
had been included in the Company's balance sheet in other assets. As a result of
the inclusion of these shares in Earthlink's registration statement that was
filed with the Securities and Exchange Commission, the Company has classified
the common stock as "available for sale" as of December 31, 1998.
At December 31, 1998, the common stock had a cost of approximately $488,000 and
a market value of $5.7 million, resulting in an unrealized gain on securities
available for sale of $5.2 million that has been recorded as a separate
component of stockholders' equity.
-8-
<PAGE>
Subsequent to December 31, 1998, the Company sold the common stock for net
proceeds of $7.0 million, resulting in a gain of approximately $6.5 million that
will be included in the statement of operations for the fiscal year ended March
31, 1999.
5. SERIES E CONVERTIBLE PREFERRED STOCK
The Company consummated a transaction pursuant to which, among other things,
operational control of the Company was acquired by an investor group led by
Stephen C. Lehman and the Company sold to the investor group $20.0 million of
newly issued shares of Series E Convertible Preferred Stock ("Series E
Preferred Stock") (the "Transaction"). The Series E Preferred Stock provides
for a 4.0% coupon for one year and is convertible into shares of the
Company's common stock at a fixed conversion price of $1.50 per share
(subject to standard anti-dilution adjustments). Based upon the $1.50 per
share fixed conversion price, the Series E Preferred Stock was convertible
into 13,333,333 shares of the Company's common stock at issuance. As part of
the Transaction, holders of the Company's Series D Preferred Stock sold to
the investor group $10.0 million of Series D Preferred shares and 992,942
warrants issued in connection with such shares, and agreed to certain
limitations regarding the sale of the Series D Preferred Stock and the
Company's common stock issuable upon conversion and/or exercise of the
Series D Preferred Stock and underlying warrants ("Series D Securities").
In connection with the Transaction, a management company of which Mr. Lehman and
two of his associates are managing members was granted a five-year option to
purchase up to 212,500 shares of the Company's common stock, subject to certain
vesting requirements, at an exercise price of $1.32 per share and warrants to
purchase up to 3,762,500 shares of the Company's common stock at exercise prices
ranging from $1.32 to $3.00 per share. 1,000,000 of the warrants may not be
transferred to Mr. Lehman, his associates or any employee of the management
company.
Approximately $16.1 million of the proceeds from the sale of the Series E
Preferred Stock was used to retire approximately $21.5 million in outstanding
senior indebtedness to the Company's principal lender under a revolving
credit and term loan facility at an approximate twenty-five percent discount.
The resulting extraordinary gain of $4.9 million has been recognized by the
Company in its statement of operations for the three and nine month periods
ended December 31, 1998. The remaining proceeds have been used for certain
expenses related to the Transaction and for working capital purposes.
The Company is currently in dispute with its former investment advisor regarding
a fee of approximately $1.9 million related to the Transaction. The payment of
this fee, if any, will be recorded as a reduction of stockholders' equity as a
cost of the Transaction.
In connection with the Transaction, three former executive officers of the
Company waived the change of control provisions in their employment agreements
in exchange for the repricing and one year extension on the exercise of certain
stock options they held. In addition, one officer received a consulting
agreement and payment of a one-time bonus. The Company recorded a charge of
approximately $1.8 million for these items which is included in unusual charges
in the statement of operations for the three and nine month periods ended
December 31, 1998.
6. SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANTS
As a result of the Transaction and other matters, certain anti-dilution
provisions of the Company's outstanding Series B Convertible Preferred Stock
("Series B Stock") and the Series B Convertible Preferred Stock Warrants
("Series B Warrants") were triggered resulting in an increase in the total
shares of common stock underlying the outstanding Series B Stock from 812,500
shares to approximately 1.2 million shares, and an increase in the Series B
Warrants from approximately 4.7 million to approximately 9.5 million and a
decrease in the exercise price from approximately $4.80 per share to
approximately $2.37 per share.
7. AUTHORIZED COMMON STOCK
On October 23, 1998 the Company's stockholders approved an amendment of the
Company's Certificate of Incorporation increasing the authorized number of
shares of common stock of the Company to 150,000,000 shares.
-9-
<PAGE>
8. UNUSUAL CHARGES
In connection with the Transaction, the Company adopted a revised business plan
that reflects a significant change in the Company's business model under the
direction of its new management team and board of directors. As a result, the
Company has undertaken specific actions to dramatically reduce its overall cost
structure and transition its business model from a television direct marketing
company to an electronic commerce company. Certain of these actions had resulted
in pre-tax unusual charges during the three months and nine months ended
December 31, 1998 of $21.7 million and $20.5 million, respectively.
The unusual charges for the three months ended December 31, 1998 are
attributable to a restructuring charge of $13.8 million; a loss of $4.7
million related to the lease of a 24-hour transponder on a European
Satellite; $1.2 million of start-up costs associated with the Company's
"Everything4Less" membership shopping club; and $1.8 million in costs
associated with the waiver of change of control provisions contained in the
employment agreements of three former executive officers. The restructuring
charge consists of costs associated with the closure of the Company's former
corporate headquarters in Philadelphia, Pennsylvania and relocation to the
Company's offices in Los Angeles, California; the consolidation of the
Company's New Zealand and Far East business offices and closure of retail
stores; the closure of certain unprofitable Asian and Eastern European
markets and/or transfer to licensee arrangements; the outsourcing of various
aspects of the Company's North American operations; $210,000 of non-cash
charges attributable to stock options granted under a consulting agreement in
connection with the Transaction; and the write-down of production costs
related to the change in the Company's fundamental strategy involving the use
of its infomercials.
In addition, unusual charges for the nine months ended December 31, 1998
include the write-off of $0.7 million in June 1998 of previously capitalized
costs attributable to a proposed merger, and a reduction of compensation
expense of $1.9 million in June 1998 attributable to stock options granted to
three former executive officers of the Company.
Included in unusual charges for the three and nine months ended December 31,
1998 is $8.4 million and $6.5 million, respectively, of non-cash charges.
Included in accrued expenses and other liabilities at December 31, 1998 are
reserves for restructuring and other unusual charges of approximately $12.5
million. Management believes these reserves are sufficient to cover all
material remaining cash payments associated with the aforementioned unusual
charges.
The Company expects the plans associated with the restructing charges to be
substantially completed during the first fiscal quarter of 2000. Included in
this charge is severance of $2.9 million related to 96 employees. During the
period ended December 31, 1998, the Company paid approximately $540,000 of
severence to approximately 55 terminated employees related to the
restructuring actions. Assets that are no longer in use have been sold or
abandoned at December 31, 1998, and/or were written down to their estimated
fair market values.
For further information, refer to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in Item 2 of this
Form 10-Q.
-10-
<PAGE>
9. INCOME TAXES
The Company recorded income tax expense of approximately $105,000 and
$335,000 for the three and nine months ended December 31, 1998, respectively,
due to tax liabilities associated with its Asian operations. Income tax
benefits on domestic and European losses and loss carryovers have been fully
reserved until realized.
-11-
<PAGE>
10. COMPREHENSIVE INCOME
In April 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). Comprehensive income
is defined as the change in equity from transactions and other events and
circumstances excluding transactions resulting from investments by owners and
distributions to owners. For the Company, the difference between net income and
comprehensive income results from foreign currency translation adjustments and
net unrealized gain on securities available for sale.
Comprehensive income for the three and nine months ended December 31, 1998 and
1997 is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss ......................................................... $(21,875) $ (8,146) $(34,074) $(35,493)
Other comprehensive income:
Foreign currency translation adjustments ..................... 2,616 (2,417) 674 (3,458)
Net unrealized gain on securities available for sale ......... 5,212 -- 5,212 --
-------- -------- -------- --------
Total comprehensive income ....................................... $(14,047) $(10,563) $(28,188) $(38,951)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
WWOR LITIGATION
In March 1997, WWOR Television filed a complaint for breach of contract in the
United States District Court for New Jersey against one of the Company's
subsidiaries alleging, among other things, that the subsidiary wrongfully
terminated a contract for the purchase of television broadcast time, seeking in
excess of $1.0 million in compensatory damages. The Company is contesting the
action. At this time, the Company cannot predict the outcome of this matter;
however, even if plaintiffs were to succeed on all of its claims, the Company
does not believe that such results would have a material adverse impact on the
Company's results of operations or financial condition.
REGULATORY MATTERS
In June 1996, the Company received a request from the FTC for additional
information regarding one of the Company's infomercials in order to determine
whether the Company was operating in compliance with its consent orders. The
FTC later advised the Company that it believed the Company had violated one
of the consent orders by allegedly failing to substantiate certain claims
made in one of its infomercials which it no longer broadcasts in the United
States. The Company has entered into a settlement agreement with the FTC
staff completely resolving all of the FTC staff's concerns. The settlement is
presently pending final approval by the commission. The Company does not
believe that the final resolution of this matter will have a material
adverse effect on the Company's results of operations or financial condition.
In addition, during 1997, in accordance with applicable regulations, the Company
notified the Consumer Products Safety Commission ("CPSC") of breakages that were
occurring in its Fitness Strider product. The Company also notified the CPSC of
its replacement of certain parts of the product with upgraded components. The
CPSC reviewed
-12-
<PAGE>
the Company's test results in order to assess the adequacy of the upgraded
components. The CPSC also undertook its own testing of the product and, in
November 1997, informed the Company that the CPSC compliance staff had made a
preliminary determination that the Fitness Strider product and upgraded
components present a substantial product hazard, as defined under applicable
law. The Company and the CPSC staff have discussed voluntary action to address
the CPSC's concerns, including replacement of the affected components. At
present, management of the Company does not anticipate that any action agreed
upon, or action required by the CPSC, will have any material adverse impact on
the Company's results of operations or financial condition. The Company has also
been contacted by Australian consumer protection regulatory authorities
regarding the safety and fitness of the Fitness Strider product and an exercise
product marketed by the Company only in Australia and New Zealand. At the
present time, the Company cannot predict whether the outcome of these matters
regarding the Fitness Strider will have a material adverse impact upon the
Company's results of operations or financial condition.
In August 1998, the Company received a notice from the New York Stock Exchange
("NYSE") that the Company did not meet the NYSE's standards for continued
listing criteria. The NYSE also requested that the Company provide information
regarding any actions taken or proposed by the Company to restore the Company to
compliance with the NYSE standards. The Company has responded to the NYSE
notification, and in November 1998, the Company received written notice from the
NYSE that while the NYSE intends to monitor the Company's compliance with the
NYSE listing standards, no action will be taken with respect to this matter at
this time.
OTHER MATTERS
The Company, in the normal course of business, is a party to litigation relating
to trademark, patent and copyright infringement, product liability,
contract-related disputes, and other actions. It is the Company's policy to
vigorously defend all such claims and enforce its rights in these matters. The
Company does not believe any of these actions, either individually or in the
aggregate, will have a material adverse effect on the Company's results of
operations or financial condition.
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<PAGE>
CERTAIN FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS "FORWARD-LOOKING" STATEMENTS REGARDING POTENTIAL FUTURE
EVENTS AND DEVELOPMENTS AFFECTING THE BUSINESS OF THE COMPANY. SUCH STATEMENTS
RELATE TO, AMONG OTHER THINGS, (I) FUTURE OPERATIONS OF THE COMPANY, INCLUDING
THE IMPACT OF ANY YEAR 2000 ISSUES ENCOUNTERED BY THE COMPANY; (II) THE
DEVELOPMENT OF NEW PRODUCTS, PRODUCT SALES AND MEDIA, INCLUDING ELECTRONIC
COMMERCE; (III) COMPETITION FOR CUSTOMERS FOR THE COMPANY'S PRODUCTS; (IV) THE
UNCERTAINTY OF DEVELOPING OR OBTAINING RIGHTS TO NEW PRODUCTS THAT WILL BE
ACCEPTED BY THE MARKET,(V.) THE TIMING OF THE INTRODUCTION OF NEW PRODUCTS INTO
THE MARKET; (VI.) THE LIMITED MARKET LIFE OF THE COMPANY'S PRODUCTS; AND (VII)
OTHER STATEMENTS ABOUT THE COMPANY OR THE DIRECT RESPONSE TELEVISION OR
ELECTRONIC COMMERCE INDUSTRIES.
FORWARD-LOOKING STATEMENTS MAY BE INDICATED BY THE WORDS "EXPECTS," "ESTIMATES,"
"ANTICIPATES," "INTENDS," "PREDICTS," "BELIEVES" OR OTHER SIMILAR EXPRESSIONS.
FORWARD-LOOKING STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS REPORT AND
INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
COMPANY AND ITS BOARD OF DIRECTORS AND OFFICERS WITH RESPECT TO NUMEROUS ASPECTS
OF THE COMPANY AND ITS BUSINESS. THE COMPANY'S ABILITY TO PREDICT RESULTS OR THE
EFFECT OF ANY PENDING EVENTS ON THE COMPANY'S OPERATING RESULTS IS INHERENTLY
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THE RISKS ATTENDANT TO
COMPETITION FOR PRODUCTS, CUSTOMERS AND MEDIA ACCESS; THE RISKS OF DOING
BUSINESS ABROAD; THE UNCERTAINTY OF DEVELOPING OR OBTAINING RIGHTS TO NEW
PRODUCTS THAT WILL BE ACCEPTED BY THE MARKET; THE LIMITED MARKET LIFE OF THE
COMPANY'S PRODUCTS; AND THE EFFECTS OF GOVERNMENT REGULATIONS. SEE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company has historically been engaged in the direct marketing of consumer
products, primarily through infomercials and more recently through electronic
commerce worldwide. Domestically, the Company has been dependent on a limited
number of successful products to generate a significant portion of its net
revenue. The Company's new strategies for future periods are designed to reduce
the risk associated with relying on a limited number of successful products for
a disproportionate amount of its revenue, expand the Company's leverage of its
media expenditures and tailor the Company's domestic operations to more
efficiently deal with the cyclical nature of the Company's business.
On July 16, 1998, the Company announced the execution of a July 10, 1998
letter of intent related to a Transaction pursuant to which
an investor group led by Mr. Lehman agreed to acquire a substantial equity
interest in, and operational control of, the Company through an investment of
$30.0 million. In connection with the Transaction, the investor group
consummated the acquisition of $10.0 million of Series D convertible
preferred stock along with 992,942 warrants to purchase common stock from a
third party. On October 23, 1998, the Company announced consummation of the
Transaction resulting in the purchase by the investor group of $20.0 million
of newly issued Series E Preferred Stock directly from the Company.
In connection with the Transaction, the Company has substantially revised its
business model. The key strategy for the Company's future is the branding of its
"Everything-4-Less" membership shopping club. The Company will do this by
leveraging its substantial media expenditures, first in North America and then
internationally (i.e., using its media more as an advertising vehicle to build a
higher awareness of its "Everything-4-Less" membership shopping club). This
strategy encompasses the more effective utilization and leveraging of its global
presence and media access, the continued development and marketing of innovative
products to enhance its existing infomercial programs, the increased emphasis on
developing other means of revenue generation such as the shopping club, as well
as retail, expanded upsell programs, continuity programs and list rental. The
infomercial is now viewed as a vehicle to generate a customer base which will be
utilized in various revenue generating initiatives versus the infomercial sale
being the end result or merely a one-time sale. International expansion over the
last five years has resulted in approximately one-half of the Company's revenues
being generated outside of North America. The Company takes advantage of product
awareness created by its infomercials and also extends the sales life of its
products through non-infomercial distribution channels. These channels include
retail arrangements, as well as continuity sales programs, and internet
marketing, among others.
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The Company's revenue varies throughout the year. The Company's revenue has
historically been highest in its third and fourth fiscal quarters and lower in
its first and second fiscal quarters due to fluctuations in the number of
television viewers. These seasonal trends have been and may continue to be
affected by the timing and success of new product offerings and the potential
growth in the Company's electronic commerce businesses.
In the discussion and analysis set forth below, the Company discusses its
"EBITDA" and "EBITDA Margin." EBITDA consists of net income before interest,
provision for income taxes, depreciation and amortization and non-recurring
items. EBITDA Margin is EBITDA as a percentage of net revenue. EBITDA does not
represent cash flows as defined by generally accepted accounting principles and
does not necessarily indicate that cash flows are sufficient to fund all of the
Company's liquidity requirements. EBITDA should not be considered in isolation
or as a substitute for net income, cash from operating activities or other
measures of liquidity determined in accordance with generally accepted
accounting principles. The Company believes that EBITDA is a measure of
financial performance widely used in the media and internet/electronic commerce
industries, and is useful to investors as a measure of the Company's financial
performance.
RESULTS OF OPERATIONS
The following table sets forth operating data of the Company as a percentage of
net revenues for the periods indicated below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net revenue 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Media purchases 34.6 31.6 34.8 32.9
Direct costs 57.6 58.8 57.8 62.3
Selling, general and administrative 11.4 16.8 11.8 19.2
Depreciation and amortization 1.7 2.8 1.7 2.9
Unusual charges 26.1 1.2 8.1 0.4
Interest expense 0.6 1.4 1.2 1.2
------------- ------------- ------------- -------------
Total operating costs and expenses 132.0 112.6 115.3 118.9
------------- ------------- ------------- -------------
Loss before income taxes (32.0) (12.6) (15.3) (18.9)
------------- ------------- ------------- -------------
Extraordinary item 5.9 - 1.9 -
------------- ------------- ------------- -------------
Net loss (26.3)% (12.5)% (13.5)% (19.0)%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO DECEMBER 31, 1997
NET REVENUE
Net revenue was $83.2 million for the three months ended December 31, 1998, as
compared to $64.9 million for the three months ended December 31, 1997, an
increase of $18.3 million or 28.1%.
Domestic net revenue for the three months ended December 31, 1998 was $50.8
million as compared to $27.8 million for the three months ended December 31,
1997, an increase of $23.0 million or 82.4%. This increase was primarily
attributable to a greater number of successful shows and products being
distributed during the current period. The current three month period included
four shows with net revenues of $5.0 million or greater, including three shows
each of which comprised over 15% of the total domestic net revenue. The
comparable three month period included only two shows with net revenues of $5.0
million or greater and which comprised over 15% of total domestic net revenue.
During the period of 1997, the PVA 10X Mop product generated approximately 41.7%
of total domestic net revenue. During the three months ended December 31, 1998,
the Larry North II show generated
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<PAGE>
approximately 21.0% of total domestic net revenue.
International net revenue for the three months ended December 31, 1998 was
$32.4 million as compared to $37.1 million for the three months ended
December 31, 1997, a decrease of $4.7 million or 12.8%. The decrease was
primarily attributable to a $3.9 million or 33.8% decline in the Company's
South Pacific net revenue. Approximately 7.6% of the decrease in South
Pacific revenue was due to currency devaluation. Net revenue in the Company's
South Pacific markets was negatively impacted by a lack of successful new
shows, as well as the continued impact of the economic downturn being
experienced throughout the region, which has resulted in a significant
decline in consumer spending. In addition, Asian revenue decreased
approximately $500,000 or 5.3% for the three months ended December 31, 1998
as compared to the three months ended December 31, 1997, principally due to
the Company's decision to close down its operations in and/or convert certain
markets (e.g., Indonesia, Thailand, Malaysia, China) to third-party licensee
arrangements. The Asian revenue decrease was offset in part by a 4.6%
increase in Japanese net revenue for the three months ended December 31, 1998
as compared to the three months ended December 31, 1997, resulting from a
favorable currency impact in the current period.
OPERATING COSTS AND EXPENSES
Total operating costs and expenses were $109.8 million for the three months
ended December 31, 1998 as compared to $73.1 million for the three months
ended December 31, 1997, an increase of $36.7 million or 50.3%. The three
months ended December 31, 1998 included unusual charges of approximately
$21.7 million as compared to unusual charges of $750,000 for the three months
ended December 31, 1997. Excluding the unusual charges, operating costs and
expenses were $88.1 million for the three months ended December 31, 1998
compared to $72.3 million for the three months ended December 31, 1997, an
increase of $15.8 million or 21.8%. The increase was principally due to the
28.1% increase in net revenue. This increase was partially offset by
reductions in selling, general and administrative expenses.
MEDIA PURCHASES
Media purchases were $28.8 million for the three months ended December 31,
1998 as compared to $20.5 million for the three months ended December 31,
1997, an increase of $8.3 million or 40.3%. The Company's worldwide ratio of
media purchases to net revenue increased to 34.6% for the three months ended
December 31, 1998 as compared to 31.6% for the three months ended December
31, 1997. The increase in media purchases as a percentage of net revenue was
principally due to the increased proportion of domestic net revenue to
foreign revenue, which domestic revenue carries greater media costs. Domestic
net revenue represented 61.1% of total net revenues for the three months
ended December 31, 1998 as compared to 42.9% for the three months ended
December 31, 1997. In addition, the Company experienced a decrease in
international media purchases as a percentage of net revenue due to the
recognition of a loss on media costs involving excess capacity associated
with the Company's lease of a transponder on the Eutelstat Satellite, the
costs of which are included in unusual charges. Recent trends indicate an
increase in international media costs in total and as a percentage of net
revenue due to increased competition and a trend towards minimum guarantees
of media purchases. The Company is in the process of renegotiating two
significant international contracts which currently expire in the fourth
fiscal quarter of 1999. The failure to retain or replace these contracts with
new media time or alternative means of revenue (i.e. retail, shopping club)
would have a negative impact on future European net revenue and/or operating
results.
DIRECT COSTS
Direct costs are principally variable and consist of product costs,
fulfillment, program production, commissions and royalties, in-bound
telemarketing, credit card charges, warehousing and profit participation
payments. Direct costs were $47.9 million for the three months ended December
31, 1998 as compared to $38.2 million for the three months ended December 31,
1997, an increase of $9.7 million or 25.6%. The increase was primarily
attributable to the 28.1% increase in net revenue. As a percentage of net
revenue, direct costs were 57.6% for the three months ended December 31, 1998
and 58.8% for the three months ended December 31, 1997.
While, in the aggregate, direct costs as a percentage of net revenue improved
slightly during the three months ended December 31, 1998 as compared to the
three months ended December 31, 1997, domestic direct costs increased as a
percentage of net revenue and foreign direct costs decreased as a percentage of
net revenue. The increase in
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<PAGE>
domestic direct costs as a percentage of net revenue was primarily attributable
to increased overall domestic product return rates. The increased domestic
return rates were primarily attributable to the Company's product mix, which
included a greater portion of intellectual properties than the comparable
period in 1997, and included a 30-day deferred payment and return offer. The
decrease in foreign direct costs as a percentage of net revenue was primarily
attributable to the Company's European businesses. The decline in European
direct costs as a percentage of net revenue was a result of increased net
revenue and a product mix yielding higher average per transaction sales and a
reduction in average fulfillment and telemarketing costs per order. In
addition, the European region benefited from reduced direct costs associated
with the Company's closure of certain unprofitable Eastern European markets.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $9.5 million for the three
months ended December 31, 1998 as compared to $10.9 million for the three months
ended December 31, 1997, a decrease of $1.4 million or 13.0%. The decrease was
attributable to the Company's continued cost reduction efforts. Selling, general
and administrative expenses as a percentage of net revenue decreased from 16.8%
for the three months ended December 31, 1997 to 11.4% for the three months ended
December 31, 1998, due to the impact of the cost reductions combined with a
28.1% increase in net revenue.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization were $1.4 million for the three months ended
December 31, 1998 as compared to $1.8 million for the three months ended
December 31, 1997, a decrease of $400,000 or 24.2%. The decrease in depreciation
and amortization was primarily attributable to the write-off of goodwill and
other intellectual properties associated with the Company's PRTV subsidiary that
was recognized during the fourth quarter of fiscal 1998.
UNUSUAL CHARGES
In connection with the Transaction, the Company adopted a revised business plan
under the direction of its new management team and board of directors. As a
result, the Company has undertaken specific actions to dramatically reduce its
overall cost structure and transition its business model from a television
direct marketing company to an electronic commerce company. Certain of these
actions resulted in pre-tax restructuring and unusual charges during the
three months ended December 31, 1998 of $21.7 million.
The Company is continuing to evaluate all areas of its business, however, as
a result of the plans discussed below, the Company expects to remove in excess
of $10.0 million from its cost structure in fiscal year 2000 and beyond.
These savings are predominantly due to wage related costs; reduced carrying
costs of property, plant and equipment; reduced office rent and satellite
leasing charges; and other miscellaneous savings.
The restructuring charges are primarily attributable to the following:
CLOSURE OF PHILADELPHIA, PENNSYLVANIA HEADQUARTERS. The Company made a
decision to close its former corporate headquarters in Philadelphia,
Pennsylvania and relocate its headquarters to its offices in Los Angeles,
California. Included in restructuring charges are $4.1 million of costs
associated with the termination of employees, cancellation of lease and other
commitments, and the write-down of assets that are no longer in use. Such assets
shall be sold or abandoned during the first quarter of fiscal year 2000. A total
of 17 employees were terminated as part of the Company's plans to close its
corporate offices. Of the 17 employees affected, 11 have been paid and/or left
the Company as of December 31, 1998, and 6 shall receive their severance
packages and leave the Company during the fourth fiscal quarter of 1999 or first
fiscal quarter of 2000.
CONSOLIDATION OF NEW ZEALAND AND FAR EAST BUSINESS OFFICES AND CLOSURE
OF AUSTRALIAN RETAIL STORES. The Company made a decision to reduce the size of
its New Zealand work force, and consolidate its previously separate New Zealand
and Far East business offices within one location and shut-down unprofitable
Australian retail stores. The restructuring charges of $826,000 are primarily
comprised of costs associated with the termination of employees, cancellation of
lease and commitments, and the write-down of assets that are no longer in use.
Such assets have been sold or abandoned as of December 31, 1998. A total of 46
employees were terminated as part of the Company's plans to consolidate the two
offices and close certain retail stores. Of the 46 employees affected, 32
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have been paid and/or left the Company as of December 31, 1998, and 14 shall
receive their severance packages and leave the Company during the fourth fiscal
quarter of 1999 or first fiscal quarter of 2000.
OUTSOURCING OF CERTAIN NORTH AMERICAN OPERATIONS. The Company is in the
process of outsourcing various aspects of its North American fulfillment center,
customer service operations, and media agency business. As a result, during the
quarter ended December 31, 1998 the Company disposed of its media agency
subsidiary and is in the process of transitioning its fulfillment and customer
service functions to third parties. The costs incurred to date of $4.4 million
include costs primarily associated with the termination of employees,
cancellation of lease and other commitments, and the write-down of assets to
their fair market value.
CLOSURE OF THE COMPANY'S OPERATIONS IN CERTAIN ASIAN AND EASTERN
EUROPEAN MARKETS. Due to the economic downturn in Asia and Eastern Europe,
the forecasted sales and opportunities in these regions has decreased
significantly from the Company's original plans. Accordingly, the Company has
made a decision to exit certain Asian and Eastern European markets and/or
transfer such markets to third party licensee arrangements. The costs
included in these restructuring charges of $1.9 million are costs incurred to
date in connection with the termination of 12 employees, all of which
terminations were completed and paid as of December 31, 1998, and the
write-down of inventories and uncollectable trade accounts receivable in the
affected markets.
WRITE-DOWN OF PREPAID PRODUCTION. The Company has included in
restructuring charges $2.6 million of costs related to the write-down of
certain prepaid costs attributable to the production of its infomercials. The
Company wrote-down these costs due to the fundamental change in its strategy
involving the use of its infomercials. In connection with its revised
business model, new electronic commerce platform and other initiatives, the
Company has begun utilizing its infomercials not only for the sale of
underlying products, but has begun leveraging its infomercial programs and
television media to drive memberships in its membership shopping club,
"Everything-4-Less", to exploit a retail market and continuity programs for
its products, and to create list rental opportunities with respect to its
customer base.
Other unusual charges consist of the following:
SHOPPING CLUB START-UP COSTS. The Company has included in unusual
charges $1.2 million of start-up costs associated with the development and
production of commercials related to the Company's "Everything-4-Less"
membership shopping club.
EUTELSTAT SATELLITE CONTRACT. The Company entered into a long-term
commitment to lease a transponder on the Eutelstat/Q-24 satellite for the life
of the satellite. The satellite launched in April 1998, and the Company has an
estimated commitment of 10 to 12 years. The Company has classified the satellite
contract as unfavorable, as it has estimated that it will be unable to recover
certain costs involving excess capacity relating to its lease. Accordingly, the
Company has included in unusual charges $4.7 million relating to its inability
to recover certain costs attributable to the satellite lease.
CHANGE OF CONTROL PAYMENTS. As part of the Transaction, the Company
recorded severance charges of $1.8 million associated with the waiver of the
change of control provisions contained in the employment agreements of three
former executive officers.
CONSULTING FEES. In connection with the Transaction, the Company
recorded a non-cash charge of $210,000 in connection with a five year
option to purchase up to 212,500 shares of the Company's common stock at an
exercise price of $1.32 per share. The stock options were granted under a
consulting agreement to a management company of which Mr. Lehman and two of
his associates are managing members.
INTEREST EXPENSE
Interest expense was $528,000 for the three months ended December 31, 1998, as
compared to $910,000 for the three months ended December 31, 1997, a decrease of
$382,000. This decrease was attributable to a decrease in the Company's average
outstanding indebtedness from approximately $26.6 million during the quarter
ended December 31, 1997 to approximately $14.1 million during the quarter ended
December 31, 1998, resulting from retirement of $21.5 million in outstanding
indebtedness to its principal lender in October 1998 and repayment of $10.0
million outstanding indebtedness to ValueVision International, Inc.
("ValueVision) in December 1998.
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<PAGE>
INCOME TAXES
The Company recorded income tax expense of $105,000 for the three months
ended December 31, 1998 attributable to certain Asian operations. Income tax
benefits have not been recorded during the respective periods for domestic
and European losses and have been fully reserved for. These benefits will be
recorded when realized, reducing the effective tax rate on future domestic
and European earnings, if any.
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF LONG-TERM DEBT
The gain on extinguishment of long-term debt resulted from the Company's
retirement of its approximately $21.5 million debt outstanding under a revolving
credit and term loan facility with its then principal lender at a twenty-five
percent discount.
EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)
EBITDA deficit exclusive of unusual charges and gain on extinguishment of
debt was $3.0 million for the three months ended December 31, 1998 as
compared to an EBITDA deficit exclusive of unusual charges of $4.7 million
for the three months ended December 31, 1997, a decrease of $1.6 million or
34.6%. EBITDA margin, exclusive of the above items, was (3.7)% and (7.2)%
during the three month periods ended December 31, 1998 and 1997, respectively.
NET INCOME
The Company incurred a net loss of $21.9 million for the three months ended
December 31, 1998, as compared to a net loss of $8.1 million for the three
months ended December 31, 1997. Net loss for the December 31, 1998 quarter
includes unusual charges of $21.7 million and a gain on extinguishment of
debt of $4.9 million. Net loss for the December 31, 1997 quarter included
unusual charges of $750,000. Excluding these items, net loss was $5.1 million
for the three months ended December 31, 1998, as compared to a net loss of
$7.4 million for the three months ended December 31, 1997, a decrease of
$2.3 million or 31.4%.
NINE MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO DECEMBER 31, 1997
NET REVENUE
Net revenue was $253.0 million for the nine months ended December 31, 1998 as
compared to $186.6 million for the nine months ended December 31, 1997, an
increase of $66.4 million or 35.5%.
Domestic net revenue for the nine months ended December 31, 1998 was $155.8
million as compared to $70.0 million for the nine months ended December 31,
1997, an increase of $85.8 million or 122.4%. The increase was primarily
attributable to a greater number of successful infomercials and products during
the current period. The nine month period ended December 31, 1998 included five
shows which generated over $15.0 million in net revenue and only one show which
comprised over 15% of total domestic net revenues. The comparable nine month
period of fiscal 1998 included only one show which generated in excess of $15.0
million of net revenue and which comprised over 15% of total domestic net
revenue. During the fiscal 1998 period, the Great North American Slim Down show
generated approximately 28.7% of the domestic net revenues. During the nine
months ended December 31, 1998, the Larry North II show generated approximately
21.0% of total domestic net revenue.
International net revenue for the nine months ended December 31, 1998 was
$97.2 million as compared to $116.6 million for the three months ended
December 31, 1997, a decrease of $19.4 million or 16.7%. The decrease was
attributable to a 29.7% decline in net revenue in Japan, of which
approximately 5.7% was attributable to currency devaluation and the current
economic climate in Japan. In addition, the Company's operations in the South
Pacific continued to experience the negative impact of the economic downturn
throughout that region, which resulted in a significant decline in consumer
spending. This region also suffered from a lack of successful new shows. The
Company's South Pacific revenue for the nine months ended December 31, 1998
as compared to the nine months ended December 31, 1997 decreased
approximately $12.3 million or 35.7%. Approximately 12.6% of the decline was
the result of currency devaluation.
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OPERATING COSTS
Total operating costs and expenses were $291.6 million for the nine months
ended December 31, 1998 as compared to $221.8 million for the nine months
ended December 31, 1997, an increase of $69.8 million or 31.5%. Included in
the nine months ended December 31, 1998 and 1997 were unusual charges of
$20.5 million and $750,000 respectively. Excluding the unusual charges,
operating costs for the nine months ended December 31, 1998 increased by
$50.0 million or 22.6% over operating costs for the nine months ended
December 31, 1997. The increase was principally attributable to the increase
in net revenue of 35.5% which was partially offset by a reduction in direct
costs as a percentage of net revenues and a decrease in selling, general and
administrative expenses.
MEDIA PURCHASES
Media purchases were $87.9 million for the nine months ended December 31, 1998
as compared to $61.3 million for the nine months ended December 31, 1997, an
increase of $26.6 million or 43.4%. The Company's worldwide ratio of media
purchases to net revenue increased to 34.8% for the nine months ended December
31, 1998 as compared to 32.9% for the nine months ended December 31, 1997. The
increase in media purchases as a percentage of net revenue was attributable to
the increased proportion of domestic revenue in relation to foreign revenue,
which domestic revenue carry greater media costs. Domestic net revenue
represented 61.6% of total net revenue for the nine months ended December 31,
1998 as compared to only 37.5% for the nine months ended December 31, 1997.
DIRECT COSTS
Direct costs were $146.2 million for the nine months ended December 31, 1998 as
compared to $116.2 million for the nine months ended December 31, 1997, an
increase of $30.0 million or 25.7%. The increase was primarily attributable to
the 35.5% increase in net revenue. As a percentage of net revenue, direct costs
were 57.8% for the nine months ended December 31, 1998 as compared to 62.3% for
the nine months ended December 31, 1997. The decrease as a percentage of net
revenue was attributable to a reduction in domestic direct costs.
International direct costs as a percentage of net revenue remained consistent
with the prior year period.
The decrease in domestic direct costs as a percentage of net revenue was
primarily attributable to increased domestic net revenue and the nature of
certain fixed costs associated with the Company's North American fulfillment
center and television production facility.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $29.7 million for the nine
months ended December 31, 1998 as compared to $35.8 million for the nine months
ended December 31, 1997, a decrease of $6.1 million or 17.0%. The decrease in
selling, general and administrative costs reflects the Company's continued cost
reduction and restructuring efforts. Selling, general and administrative
expenses as a percentage of net revenue decreased from 19.2% for the nine months
ended December 31, 1997 to 11.8% for the nine months ended December 31, 1998,
principally due to the Company's cost reduction and restructuring efforts
combined with the 35.5% increase in net revenue.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization were $4.2 million for the nine months ended
December 31, 1998 as compared to $5.4 million for the nine months ended December
31, 1997, a decrease of $1.2 million, or 21.2%. The decrease in depreciation and
amortization was attributable to the write-off of goodwill and other
intellectual properties associated with the Company's PRTV subsidiary that was
recognized during the fourth quarter of fiscal 1998.
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UNUSUAL CHARGES
In connection with the Transaction, the Company adopted a revised business plan
under the direction of its new management team and board of directors. As a
result, the Company has undertaken specific actions to dramatically reduce its
overall cost structure and transition its business model from a television
direct marketing company to an electronic commerce company. Certain of these
actions had resulted in pre-tax restructuring and unusual charges during the
nine months ended December 31, 1998 of $20.5 million.
The Company is continuing to evaluate all areas of its business, however, as
a result of the plans discussed below, the Company expects to remove in
excess of $10.0 million from its cost structure in fiscal year 2000 and
beyond. These savings are predominantly due to wage related costs; reduced
carrying costs of property, plant and equipment; reduced office rent and
satellite leasing charges; and other miscellaneous savings.
The restructuring charges are primarily attributable to the following:
CLOSURE OF PHILADELPHIA, PENNSYLVANIA HEADQUARTERS. The Company made a
decision to close its former corporate headquarters in Philadelphia,
Pennsylvania and relocate its headquarters to its offices in Los Angeles,
California. Included in restructuring charges are $4.1 million of costs
associated with the termination of employees, cancellation of lease and other
commitments, and the write-down of assets that are no longer in use. Such assets
shall be sold or abandoned during the first quarter of fiscal year 2000. A total
of 17 employees were terminated as part of the Company's plans to close its
corporate offices. Of the 17 employees affected, 11 have been paid and/or left
the Company as of December 31, 1998, and 6 shall receive their severance
packages and leave the Company during the fourth fiscal quarter of 1999 or first
fiscal quarter of 2000.
CONSOLIDATION OF NEW ZEALAND AND FAR EAST BUSINESS OFFICES AND CLOSURE
OF AUSTRALIAN RETAIL STORES. The Company made a decision to reduce the size of
its New Zealand work force, and consolidate its previously separate New Zealand
and Far East business offices within one location and shut-down unprofitable
Australian retail stores. The restructuring charges of $826,000 are primarily
comprised of costs associated with the termination of employees, cancellation of
lease and commitments, and the write-down of assets that are no longer in use.
Such assets have been sold or abandoned as of December 31, 1998. A total of 46
employees were terminated as part of the Company's plans to consolidate the two
offices and close certain retail stores. Of the 46 employees affected, 32 have
been paid and/or left the Company as of December 31, 1998, and 14 shall receive
their severance packages and leave the Company during the fourth fiscal quarter
of 1999 or first fiscal quarter of 2000.
OUTSOURCING OF CERTAIN NORTH AMERICAN OPERATIONS. The Company is in the
process of outsourcing various aspects of its North American fulfillment center,
customer service operations, and media agency business. As a result, during the
quarter ended December 31, 1998 the Company disposed of its media agency
subsidiary and is in the process of transitioning its fulfillment and customer
service functions to third parties. The costs incurred to date of $4.4 million
include costs primarily associated with the termination of employees,
cancellation of lease and other commitments, and the write-down of assets to
their fair market value.
CLOSURE OF THE COMPANY'S OPERATIONS IN CERTAIN ASIAN AND EASTERN
EUROPEAN MARKETS. Due to the economic downturn in Asia and Eastern Europe,
the forecasted sales and opportunities in these regions has decreased
significantly from the Company's original plans. Accordingly, the Company has
made a decision to exit certain Asian and Eastern European markets and/or
transfer such markets to third party licensee arrangements. The costs
included in these restructuring charges of $1.9 million are costs incurred to
date in connection with the termination of 12 employees, all of which
terminations were completed and paid as of December 31, 1998, and the
write-down of inventories and uncollectable trade accounts receivable in the
affected markets.
WRITE-DOWN OF PREPAID PRODUCTION. The Company has included in
restructuring charges $2.6 million of costs related to the write-down of
certain prepaid costs attributable to the production of its infomercials. The
Company wrote-down these costs due to the fundamental change in its strategy
involving the use of its infomercials. In connection with its revised
business model, new electronic commerce platform and other initiatives, the
Company has begun utilizing its infomercials not only for the sale of
underlying products, but has begun leveraging its infomercial programs and
television media to drive memberships in its membership shopping
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club, "Everything-4-Less", to exploit a retail market and continuity programs
for its products, and to create list rental opportunities with respect to its
customer base.
Other Unusual charges consist of the following:
SHOPPING CLUB START-UP COSTS. The Company has included in unusual
charges $1.2 million of start-up costs associated with the development and
production of commercials related to the Company's "Everything-4-Less"
membership shopping club.
EUTELSTAT SATELLITE CONTRACT. The Company entered into a long-term
commitment to lease a transponder on the Eutelstat/Q-24 satellite for the life
of the satellite. The satellite launched in April 1998, and the Company has an
estimated commitment of 10 to 12 years. The Company has classified the satellite
contract as unfavorable, as it has estimated that it will be unable to recover
certain costs relating to its lease. Accordingly, the Company has included in
unusual charges $4.7 million relating to its inability to recover the costs
attributable to the Satellite lease.
CHANGE OF CONTROL PAYMENTS. As part of the Transaction the Company
recorded severance charges of $1.8 million associated with the waiver of the
change of control provisions contained in the employment agreements of three
former executive officers.
CONSULTING FEES. In connection with the Transaction, the Company
recorded a non-cash charge of $210,000 in connection with a five year
option to purchase up to 212,500 shares of the Company's common stock at an
exercise price of $1.32 per share. The stock options were granted under a
consulting agreement to a management company of which Mr. Lehman and two of
his associates are managing members.
WRITE-OFF OF MERGER COSTS. In June 1998, the Company wrote-off
capitalized costs of $0.7 million related to the termination of the Company's
intended merger with ValueVision.
NON-CASH EXECUTIVE COMPENSATION. The Company had previously recorded
compensation expense of $1.9 million in connection with 750,000 stock options
issued to three executive officers during fiscal 1998. $750,000 of this
charge was recorded during the three months ended December 31, 1997. The stock
options contained provisions that, upon the occurrence of certain triggering
events prior to June 30, 1998, the exercise price of the stock options would
be reduced. The previously recorded expense was reversed in the first fiscal
quarter of 1999 as no triggering events occurred as of the June 30, 1998
expiration date.
INTEREST EXPENSE
Interest expense was $3.0 million for the nine months ended December 31, 1998,
as compared to $2.3 million for the nine months ended December 31, 1997, an
increase of $700,000. This increase was primarily attributable to the interest
rate on the Company's loan from its principal lender being approximately three
percentage points higher during the current nine month period.
INCOME TAXES
The Company recorded income tax expense of $335,000 and $300,000 for the nine
months ended December 31, 1998 and 1997, respectively, attributable to its
Asian operations. Income tax benefits have not been recorded during the
respective periods on domestic and European losses and have been fully
reserved for. These benefits will be recorded when realized, reducing the
effective tax rate on future domestic and European earnings.
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF LONG-TERM DEBT
The gain on extinguishment of long-term debt resulted from the Company's
retirement of its approximately $21.5 million debt outstanding under a revolving
credit and term loan with its then principal lender at a twenty-five percent
discount.
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EARNINGS BEFORE INTEREST, DEPRECIATION AND AMORTIZATION (EBITDA)
EBITDA deficit, exclusive of the unusual charges and gain on extinguishment of
debt, was $10.9 million for the nine months ended December 31, 1998 as compared
to an EBITDA deficit of $26.8 million for the nine months ended December 31,
1997, an improvement of $15.9 million or 59.4%. EBITDA margin, exclusive of the
above items, was (4.3)% and (14.4)% for the nine months ended December 31, 1998
and 1997, respectively. The improvements in EBITDA and EBITDA margin were
primarily attributable to the improvement in the Company's domestic and European
results of operations.
NET INCOME
The Company incurred a net loss of $34.1 million for the nine months ended
December 31, 1998, as compared to a net loss of $35.5 million for the nine
months ended December 31, 1997. The current nine month period includes
unusual charges of $20.5 million and a gain on extinguishment of debt of $4.9
million. The nine month period ended December 31, 1997 included unusual
charges of $750,000. Excluding these items, the Company incurred a net loss of
$18.5 million for the nine months ended December 31, 1998 compared to a net
loss of $34.7 million for the nine months ended December 31, 1997. This
represents a $16.3 million or 46.8% improvement over the loss for the nine
months ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $13.8 million at December 31, 1998 as compared
to a $9.4 million at March 31, 1998, an increase of $4.4 million. The increase
was primarily attributable to the $5.7 million increase in securities available
for sale, the reduction of debt with proceeds from the sale of Series E
Preferred Stock and the exercise of stock options and warrants. The Company met
its current period cash needs primarily through the sale of inventory and cash
proceeds from the aforementioned equity transactions. Operating activities for
the nine months ended December 31, 1998 resulted in a use of cash of $10.8
million. The Company's cash flow from operations during the nine months ended
December 31, 1998 was adversely impacted by the net loss of approximately $34.1
million.
Consolidated accounts receivable decreased by $400,000, or 1.1%, primarily due
to an increase in domestic accounts receivables of $1.6 million offset by a
decrease in international accounts receivable of $2.0 million. Domestic accounts
receivable increased due to an increase in time payment receivables related to
sales of higher priced products. International accounts receivable have
decreased due to the decrease in sales volume in the Asian and South Pacific
regions. This decrease was principally attributable to a decrease in net revenue
for the month of December as compared to the month of March for these regions.
March has historically been one of the Company's stronger revenue months.
Consolidated inventories decreased $6.1 million or 28.9%. This was
attributable to a $2.5 million or 29.4% decrease in domestic inventory. This
decrease resulted from higher domestic sales volume and increased inventory
turnover. International inventories decreased $3.6 million or 28.6%
attributable to the Company's continued efforts to reduce global inventory
levels and a write-down of certain Asian, South Pacific, Eastern European and
Latin American inventories.
Accrued expenses increased from $29.7 million at March 31, 1998 to $37.6
million at December 31, 1998 primarily due to the restructuring reserve
discussed in Note 8 to the unaudited Condensed Consolidated Financial
Statements.
The Company received approximately $17.9 million in net proceeds from the
Transaction, as more fully described in Note 5 to the unaudited Condensed
Consolidated Financial Statements. The Series E Preferred Stock sold in
connection with the Transaction carries a 4.0% coupon for one year and is
convertible into 13,333,333 shares of the Company's common stock based on a
fixed conversion price of $1.50 per share (subject to adjustment). In
connection with the Transaction, the Company issued five year options and
warrants to purchase up to 212,500 and 3,762,500 shares of the Company's
common stock, respectively, at exercise prices ranging from $1.32 to $3.00
per share. Approximately $16.1 million of the proceeds of the Transaction was
used to retire the Company's outstanding indebtedness to its principal lender
at a twenty-five percent discount. The repayment of debt resulted in an
extraordinary gain on extinguishment of approximately $4.9 million which is
recorded in the Company's statement of operations for the three and nine
months ended December 31, 1998. The remaining proceeds were used for costs
related to the Transaction and for working capital purposes. The Company is
currently in dispute with a former financial advisor regarding a $1.9 million
fee related to the Transaction. Amounts that may be paid, if any, related to
this fee shall be recorded as a reduction of stockholders' equity.
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In December 1998, the Company repaid a $10.0 million loan to ValueVision with
existing working capital and proceeds of approximately $2.0 million related
to the exercise of 750,000 stock options held by ValueVision. In addition,
during December 1998 the Company also entered into a new revolving credit
facility in the amount of $20.0 million as more fully described in Note 3 to
the unaudited Condensed Consolidated Financial Statements. At December 31,
1998, the Company had $13.6 million of remaining availability under this
facility and $636,000 was outstanding.
Stockholders' equity of the Company at December 31, 1998 included an unrealized
gain of $5.2 million on securities available-for-sale. The securities were sold
subsequent to December 31, 1998 resulting in a realized gain of approximately
$6.5 million.
In June 1998, the Company announced the termination of its proposed merger
with ValueVision. As a result, the maximum conversion price of the Company's
Series D preferred stock and the exercise price of the 1,489,413 warrants
held by holders of the Series D Preferred Stock were automatically adjusted
to $1.073125 per share. As a result of the Transaction, the Series D
conversion price was subsequently fixed at $1.073125 per share. Based on such
conversion price, the $19.6 million of outstanding shares of Series D
preferred stock at December 31, 1998 are convertible into 18,241,899 shares
of the Company's common stock, not including shares of the Company's common
stock issuable upon conversion of any accrued premium. In addition, certain
anti-dilution provisions of the Series B Stock and Series B Warrants were
triggered resulting in an increase in the total shares of common stock
underlying these securities to increase from approximately 5.5 million shares
to approximately 10.7 million shares, and a decrease in the exercise price of
the warrants from approximately $4.80 per share to approximately $2.37 per
share.
The Company's foreign revenue is subject to exchange risk. To the extent the
Company incurs local currency expenses that are based on locally denominated
sales volume (order fulfillment and media costs), the exposure is reduced
significantly. The Company monitors exchange rate and/or forward contracts when
appropriate. As a result of the aforementioned capital infusion and new credit
facility the Company has an ability to hedge its currency risk. During the third
fiscal quarter of 1999 the Company entered into forward contracts to hedge its
Japanese Yen position. In the long term, the Company has the ability to change
prices to a certain extent in a timely manner in order to react to major
currency fluctuations; which may reduce a portion of the risk associated with
local currency fluctuations. However, the significant currency devaluation and
economic downturn being experienced in certain foreign regions will have a
negative impact on the Company's operating results and cash flows in fiscal
1999. Currently, the Company's three major foreign currencies are the European
Economic Union's Euro, German deutsch mark and the Japanese yen, each of which
has been subject to recent fluctuations. In addition, certain other currencies
utilized by the Company, especially the Australian and New Zealand dollar, have
experienced devaluation from the prior year.
The Company's cash position continues to be pressured by the losses incurred in
the first nine months of fiscal 1999 and the continued downturn in its Asian and
South Pacific operations, however the Company's recent $20.0 million equity
infusion, its new $20.0 million new credit facility and corresponding repayment
of its outstanding indebtedness has greatly improved the Company's liquidity
position. The Company needs to continue to implement certain plans and actions
designed to rebuild its business, including the continued introduction of
successful new shows and products, more successfully leverage its media, and to
return the Company to profitability in order to continue as a going concern. No
assurance can be given that any of these actions will be successful.
YEAR 2000 IMPLICATIONS
The Company has reviewed the implications of Year 2000 (i.e., "Y2K") compliance
and is presently undertaking the process to ensure that the Company's
information systems and software applications will manage dates beyond 1999. The
Company believes that it has allocated adequate resources for this purpose and
those planned software upgrades, which are underway and in the normal course of
business, will address the Company's internal Year 2000 needs. While the Company
expects that efforts on the part of current employees of the Company will be
required to monitor Year 2000 issues, no assurances can be given that these
efforts will be successful. The Company does not expect the cost of addressing
any Year 2000 issue to be a material event or uncertainty that would have a
material, adverse effect on future results of operations or financial condition.
The Year 2000 issue developed because most computer systems and programs were
designed to record years (e.g. "1998") as two-digit fields (e.g. "98"). When the
year 2000 begins, these systems may interpret "00" as the year 1900 and may stop
processing date-related computations or process them incorrectly. To prevent
this occurrence, the Company has begun examining its computer systems and
programs, correcting the problems and testing the results. The Company on or
before December 31, 1999 must achieve Year 2000 compliance. Also, due to the
nature of the Company's time payment offers within its infomercials, certain
systems currently refer to dates beyond December 31, 1999 and, therefore,
require earlier compliance.
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The Company, as with all direct marketing and electronic commerce companies, is
heavily dependent upon computer systems for all phases of its operations. For
this reason, it is aggressively addressing the Year 2000 issue to mitigate the
effect on software performance. During late fiscal 1998, the Company commenced a
comprehensive effort to identify and correct the Year 2000 programming issues.
By early fiscal 1999 the Company had identified all potential Year 2000 hardware
and software issues within both its mainframe processing systems and personal
computers worldwide. The Company has initiated a project to address all of the
identified Year 2000 issues within its systems, utilizing both internal and
external resources.
Also during early fiscal 1999, the Company formed a Year 2000 Compliance Task
Force to oversee the project, address all related business issues, and
facilitate communication with significant suppliers and service providers. The
project was divided into the following phases: (i) identification and
inventorying of all systems and software with potential Year 2000 problems; (ii)
evaluation of scope of Year 2000 issues and assignment of priorities to each
item based upon its importance in the Company's operations; (iii) rectification
of Year 2000 issues in accordance with assigned priorities, by correction,
upgrade, replacement, or retirement; and (iv) testing for and validation of Year
2000 compliance. Because the Company uses a variety of systems, internally
developed and third party provided software, and embedded chip equipment,
depending on the business function and location, various aspects of the
Company's Year 2000 efforts are in different phases and are proceeding parallel.
The Company's operations are also dependent on the Year 2000 readiness of third
parties that do business with the Company. In particular, the Company's systems
interact with automated clearing-houses to handle the transfer of cash relating
to the sale of the Company's receivables. The Company is also dependent on
third-party suppliers of such infrastructure elements as, but not limited to,
telephone services, electric power, and water. In addition, the Company depends
upon various vendors that manufacture its products, are responsible for in-bound
telemarketing, and fulfill customer orders.
The Company has identified and initiated formal communications with key
suppliers and merchandise vendors to determine the extent to which the
Company will be vulnerable to such parties' failures to address and resolve
their Year 2000 issues. In addition, the Company now requires its vendors to
provide representations and warranties in all new contracts that there are no
Year 2000 issues that could impact vendor performance, and the Company also
obtains indemnification for damages it may suffer due to a vendor's failure
to comply with Year 2000 requirements. Although the Company is not aware of
any known third party problem that will not be corrected, the Company has
limited information concerning the Year 2000 readiness of third parties.
The Company estimates that its systems will be Year 2000 compliant by
mid-1999. Aggregate costs for work related to Year 2000 efforts are
anticipated to range from approximately $1 to $2 million. Operating costs
related to the Year 2000 compliance project will be incurred over several
quarters and will be expensed as incurred. The Company incurred approximately
$350,000 and $750,000 in expenses during the three month and nine month period
ended December 31, 1998, respectively in connection with its Year 2000
compliance efforts.
The Company expects to implement the changes necessary to address the Year 2000
issue for systems and equipment used within the Company. The Company presently
believes that, with modifications to existing software, conversions to new
software, and appropriate replacement of equipment, the Year 2000 issue is not
likely to pose significant operational problems. However, if unforeseen
difficulties arise or such modification, conversions and replacements are not
completed in a timely manner, or if the Company's vendors' or suppliers' systems
are not modified to become Year 2000 compliant, the Year 2000 issue may have a
material impact on the results of operations and financial condition of the
Company. The Company is presently unable to assess the likelihood that it will
experience significant operational problems due to unresolved Year 2000 problems
of third parties. The Company's estimates of the costs of achieving Year 2000
compliance and the date by which Year 2000 compliance will be achieved are based
on management's best estimates. These estimates are derived using numerous
assumptions about future events including the continued availability of
resources, third party modification plans and other factors. However, there can
be no assurance that these estimates will be achieved, and actual results could
differ materially from these estimates. Specific factors that might cause such
differences include, but are not limited to, the availability and cost of
personnel trained in Year 2000 issues, the ability to locate, correct, and test
all relevant computer codes, the success achieved by the Company's suppliers in
reaching Year 2000 readiness, the timely availability of necessary replacement
equipment, and similar uncertainties.
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The Company believes the most likely worst-case scenarios that it might confront
with respect to the Year 2000 issues have to do with the possible failure in one
or more geographic regions of third party systems over which the Company has no
control, such as, but not limited to, power and telephone service, and vendors
that supply manufactured products and services. The Company is developing a Year
2000 contingency plan, which it expects to complete during the first half of
fiscal 2000.
OTHER
The Company announced that it will hold a special meeting of stockholders on
February 25, 1999 to consider and vote upon an amendment of the Company's
Certificate of Incorporation to change the name of the Company to e4L, Inc.
FACTORS THAT MAY EFFECT FUTURE PERFORMANCE
RECENT LOSSES; CASH FLOW
The Company incurred significant losses in four of its last five fiscal years.
The Company also reported a net loss of approximately $34.1 million for the
first nine months of fiscal 1999. Because of the Company's financial condition
as well as other unfavorable conditions, including cash flow problems, the
Company's independent auditors stated, on June 29, 1998, that substantial doubt
exists as to the Company's ability to continue as a going concern. In response
to these issues, the Company developed a business plan and has begun
implementing new initiatives designed to increase revenues, reduce costs and
return it to profitability; however, if the business plan does not adequately
address the circumstances and situations which resulted in the Company's poor
performance, the Company would be required to seek alternative forms of
financing, the availability of which is uncertain, or be forced to go out of
business.
NATURE OF THE DIRECT RESPONSE MARKETING AND ELECTRONIC COMMERCE INDUSTRIES.
The Company experiences extreme competition for products, customers and media
access in the direct response marketing and electronic commerce industries.
Accordingly, to be successful, the Company must:
o Accurately predict consumer needs, market conditions and
competition;
o Introduce successful products;
o Produce compelling infomercials;
o Acquire appropriate amounts of media time;
o Manage its media time effectively;
o Fulfill customer orders timely and efficiently;
o Provide courteous and informative customer service;
o Maintain adequate vendor relationship and terms;
o Enhance successful products to generate additional sales;
o Expand the methods used to sell products;
o Expand in existing geographic markets; and
o Integrate acquired companies and businesses efficiently.
The Company's recent operating results were primarily caused by delays in
product introductions, a lack of successful products, failure to adequately
leverage its global spending and deteriorating economic conditions in the Asian
and South Pacific markets. The Company actively seeks out new products, new
sources of products and alternative distribution channels, including retail and
the Internet. The Company cannot be sure that inventors and product
manufacturers will select it to market their products. Significant delays in
product introductions or a lack of
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successful products could prevent the Company from selling adequate amounts of
its products and otherwise have a negative effect on the Company's business.
DEPENDENCE AND FOREIGN SALES
The Company markets products to consumers in over 70 countries. In recent years
the Company has derived approximately half of its net revenues from sales to
customers outside the United States and Canada. The Company's largest
international markets are Germany, Asia, primarily Japan and the South Pacific.
The economic downturn in the Asian and South Pacific regions has had and, for
the foreseeable future, is expected to have, an adverse effect on the Company.
The Company's international expansion has increased its working capital
requirements due to the additional time required to deliver products abroad and
receive payment from foreign countries.
While the Company's foreign operations have the advantage of airing infomercials
that have already proven successful in the United States, as well as successful
infomercials produced by other infomercial companies with limited media access
and distribution capabilities, there can be no assurance that the Company's
foreign operations will continue to generate similar revenues or operate
profitability. Competition in the international marketplace is increasing
rapidly. In addition, the Company is subject to many risks associated with doing
business abroad including:
o Adverse fluctuations in currency exchange rates;
o Transportation delays and interruptions;
o Political and economic disruptions;
o The imposition of tariffs and import and export controls; and
o Increased customs or local regulations.
The occurrence of any of these risks could have a negative effect on the
Company's business.
ENTERING INTO NEW MARKETS
As the Company enters new markets, it is faced with the uncertainty of never
having done business in that country's particular commercial, political and
social environment. Accordingly, despite the Company's best efforts, likelihood
of success is unpredictable for reasons particular to each new market. It is
also possible that, despite the Company's apparently successful entrance into a
new market, some unforeseen circumstance could arise which would limit the
Company's ability to continue to do business, operate profitability or to expand
in that new market.
DEPENDENCE ON SUCCESSFUL PRODUCTS; UNPREDICTABLE MARKET LIFE; INVENTORY
MANAGEMENT AND PRODUCT RETURNS
The Company is dependent on its continuing ability to introduce successful new
products to supplement or replace existing products as they mature through their
product life cycles. The Company's five most successful products each year
typically account for a substantial amount of the Company's annual net revenues.
Generally, the Company's successful products change from year to year.
Accordingly, the Company's future results of operations depend on its ability to
introduce successful products consistently and to capture the full revenue
potential of each product at all stages of consumer marketing and distribution
channel's during the product's life cycle.
In addition to a supply of successful new products, the Company's revenues and
results of operations depend on a positive customer response to its
infomercials, the effective management of product inventory and other factors.
Customer response to infomercials depends on many variables, including the
appeal of the products being marketed, the effectiveness of the infomercial, the
availability of competing products and the timing and frequency of airings.
There can be no assurance that the Company's infomercials will receive market
acceptance.
The Company must have an adequate supply of inventory to meet consumer demand.
Most of the Company's products have a limited market life, so it is extremely
important that the Company generate maximum sales during this time period. If
production delays or shortages, poor inventory management or inadequate cash
flow prevent the Company from maintaining sufficient inventory, the Company
could lose potential product sales, which may never be recouped. In addition,
unanticipated obsolescence of a product may occur or problems may arise
regarding
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regulatory, intellectual property, product liability or other issues which
adversely affect future sales of a product even though the Company may still
hold a large quantity of the product in inventory. Accordingly, the Company's
ability to maintain systems and procedures to effectively manage its inventory
is of critical importance to the Company's cash flow and results of operations.
The average domestic and international market life of a product is less than two
years. Generally, products generate their most significant revenues in their
first year of sales. In addition, the Company must adapt to market conditions
and competition as well as other factors which may cut short a product's life
cycle and adversely affect the Company's results of operations.
The Company offers a limited money-back guarantee on all of its products if the
customer is not fully satisfied. Accordingly, the Company's results of
operations may be adversely affected by product returns under the Company's
guarantee, its product warranty or otherwise. Although the Company establishes
reserves against product returns which it believes are adequate based on product
mix and returns history, there can be no assurance that the Company will not
experience unexpectedly high levels of product returns which exceed the reserves
for that product. If product returns do exceed reserves, the Company's results
of operations would be adversely affected.
DEPENDENCE ON THIRD PARTY MANUFACTURERS AND SERVICE PROVIDERS
Substantially all of the Company's products are manufactured by other domestic
and foreign companies. In addition, the Company sometimes uses other companies
to fulfill orders placed for the Company's products and to provide telemarketing
services. If the Company's suppliers are unable, either temporarily or
permanently, to deliver products to the Company in time to fulfill sales orders,
it could have a material adverse effect on the Company's results of operations.
Moreover, because the time from the initial approval of a product by the
Company's product development department until the first sale of a product must
be short, the Company must be able to cause its product manufacturers to quickly
produce high-quality, reasonable priced products for the Company to sell.
However, because the Company's primary product manufacturers are foreign
companies which require longer lead times for products, any delay in production
or delivery would adversely affect sales of the product and the Company's
results of operations. In addition, utilization of foreign manufacturers further
exposes the Company to the general risks of doing business abroad.
DEPENDENCE OF MEDIA ACCESS; EFFECTIVE MANAGEMENT OF MEDIA TIME
The Company must have access to media time to televise its infomercials on cable
and broadcast networks, network affiliates and local stations. The Company
purchases a significant amount of media time to from cable television and
satellite networks, which assemble programming for transmission to cable system
operators. If demand for air time increases, cable system operators and
broadcasters may limit the amount of time available for these broadcasts. Larger
multiple cable system operators have begun selling "dark" time, (i.e., the hours
during which a network does not broadcast its own programming) to third parties
which may cause prices for such media to rise. Significant increases in the cost
of media time or significant decreases in the Company's access to domestic or
international media time could negatively affect the Company. In addition,
periodic world events may limit the Company's access to air time and reduce the
number of persons viewing the Company's infomercials in one or more markets,
which would negatively affect the Company for these periods.
Recently, international media suppliers have begun to negotiate for fixed media
rates and minimum revenue guarantees, each of which increase the Company's cost
of media and risk.
In addition to acquiring adequate amounts of media time, the Company's business
depends on its ability to manage efficiently its acquisitions of media time, by
analyzing the need for, and making purchases of, long term media and spot media.
The Company must also properly allocate its available air time among its current
library of infomercials. Whenever the Company makes advance purchases and
commitments to purchase media time, it must manage the media time effectively,
because the failure to do so could negatively affect the Company's business. If
the Company cannot use all of the media time it has acquired, it attempts to
sell its excess media time to others. However, there can be no assurance that
the Company will be able to use or sell all of its media time.
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The Company is currently in discussions with certain international media
vendors regarding contract extentions. If the Company is unable to extend its
long-term media agreements on reasonable terms as they expire, or to purchase
replacement media time at favorable prices, the Company's business could be
negatively affected.
In April 1998, the Company began leasing a twenty-four hour transponder on a
newly-launched Eutelstat satellite, the "Hotbird IV," which broadcasts across
Europe. The Company has incurred significant start-up costs in connection with
the transponder lease. If the Company is unable to use effectively or sell the
transponder media time, the Company's business could be negatively affected.
During the three months ended December 31, 1998, the Company recorded a $4.7
million loss relating to its inability to recover certain costs
attributable to this satellite lease.
LITIGATION AND REGULATORY ACTIONS
There have been many lawsuits against companies in the infomercial industry. In
recent years, the Company has been involved in significant legal proceedings and
regulatory actions by the Federal Trade Commission and Consumer Product Safety
Commission, which have resulted in significant costs and charges to the Company.
In addition, the Company, its wholly-owned subsidiary, Positive Response
Television, Inc. and its chief executive officer, Michael Levey, are subject to
FTC consent orders which require them to submit periodic compliance reports to
the FTC. Any additional FTC or CPSC violations or significant new litigation
could have a negative effect on the Company's business.
In August 1998, the Company received notice from the New York Stock Exchange
("NYSE") that it did not meet the NYSE's standards for continued listing.
Representatives from the Company met with the NYSE staff and proposed actions to
the NYSE designed to restore its compliance with the listing standards. The NYSE
reviewed the Company's compliance plan and informed the Company that, while it
would continue to monitor the Company's compliance plan and performance, no
action by the NYSE was presently contemplated. If the Company's common stock is
delisted from trading on the NYSE, it would have severe negative effects on the
Company and its stockholders.
PRODUCT LIABILITY CLAIMS
Products sold by the Company may expose it to potential liability from damages
claims by users of the products. In certain instances, the Company is able to
obtain contractual indemnification rights against these liabilities from the
manufacturers of the products. In addition, the Company generally requires its
manufacturers to carry product liability insurance. However, National Media
cannot be certain that manufacturers will maintain this insurance or that their
coverage will be adequate to cover all claims. In addition, the Company cannot
be certain that it will be able to maintain its insurance coverage or obtain
additional coverage on acceptable terms, or that its insurance will provide
adequate coverage against all claims.
COMPETITION
The Company competes directly with companies which generate sales from
infomercials and other direct marketing and electronic commerce companies. The
Company also competes with a large number of consumer product retailers, many of
which have substantially greater financial, marketing and other resources than
the Company. Some of these retailers have recently begun, or indicated that they
intend to begin, selling products through direct response marketing methods,
including sales in various e-commerce channels, such as via the Internet. The
Company also competes with companies that make imitations of the Company's
products at substantially lower prices, which may be sold in department stores,
pharmacies, general merchandise stores and through magazines, newspapers, direct
mail advertising, catalogs and the Internet.
DEPENDENCE ON KEY PERSONNEL
The Company's executive officers have substantial experience and expertise in
direct response sales and marketing, electronic commerce and media. In
particular, the Company is highly dependent on certain of its employees
responsible for product development and production of infomercials. If any of
these individuals leave the Company, the Company's business could be
negatively affected. Steven Lehman, the Company's Chairman of the Board and
Chief Executive Officer, Eric Weiss, the Company's Vice Chairman of the Board
and Chief Operating Officer and Daniel Yukelson, the Company's Executive Vice
President/Finance and Chief Financial Officer are currently compensated
pursuant to the terms of a consulting agreement. While the Company expects to
enter into
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employment agreements with each of Messrs. Lehman, Weiss and Yukelson, the loss
of any of them would negatively affect the Company's business.
YEAR 2000 ISSUES
The operation of the Company's business is dependent on its computer hardware,
software programs and operating systems. Computer technology is used in several
key areas of the Company's business, including merchandise purchasing, inventory
management, pricing, sales, shipping and financial reporting, as well as in
various administrative functions. The Company has been evaluating its computer
technology to identify potential Year 2000 compliance problems and has begun an
implementation process with respect thereto. It is anticipated that modification
or replacement of some of the Company's computer technology will be necessary to
enable the Company's computer to recognize the Year 2000. The Company does not
expect that the costs associated with achieving Year 2000 compliance will have a
significant effect on its business. In addition, the Company is also dependent
on third-party suppliers and vendors and will be vulnerable to such parties
failures to address and resolve their Year 2000 issues. While the Company is not
aware of any known third party problems that will not be corrected, the Company
has limited information concerning the Year 2000 readiness of third parties. If
management is incorrect, Year 2000 problems could have a negative effect on the
Company and its business. See "Year 2000 Implications".
SEASONALITY
The Company's revenues vary throughout the year. The Company's revenues have
historically been highest in its third and fourth fiscal quarters and lower in
its first and second fiscal quarters due to fluctuations in the number of
television viewers. These seasonal trends have been and may continue to be
affected by the timing and success of new product offerings and the potential
growth in the Company's electronic commerce businesses.
CONVERTIBLE SECURITIES; SHARES FOR FUTURE SALE
Sales of a substantial number of shares of the Company's common stock in the
public market could adversely affect the market price of the Company's common
stock outstanding. There are currently 30.6 million shares of the Company's
common stock outstanding, nearly all of which are freely tradeable. In addition,
approximately 49.0 million shares of the Company's common stock are currently
reserved for issuance upon the exercise of outstanding options and warrants and
the conversion of convertible preferred stock.
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<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information contained in Note 11, "Commitments and Contingencies," to the
unaudited Condensed Consolidated Financial Statements in Part I of this report
is incorporated herein by reference. All of the matters referred to in Note 11
have been the subject of disclosure in prior reports on Form 10-Q and/or Form
10-K.
Other Matters
The Company, in the normal course of business, is a party to litigation relating
to trademark patent and copyright infringement, product liability,
contract-related disputes, and other actions. It is the Company's policy to
vigorously defend all such claims and enforce its rights in these areas. The
Company does not believe any of these actions either individually or in the
aggregate, will have a material adverse effect on the Company's results of
operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a special meeting of stockholders on October 23, 1998 for the
following purposes:
1. To approve the transactions (the "Lehman Transaction") contemplated by the
Stock Purchase Agreement, dated as of August 11, 1998, by and between the
Company and NM Acquisition Co., LLC ("ACO"), including among other things, (i)
the issuance of 20,000 shares of the Company's Series E Convertible Preferred
Stock; (ii) the amendment of the Company's Certificate of Incorporation
increasing the authorized number of shares of Common Stock to 150,000,000
shares; (iii) an agreement with ValueVision International, Inc. ("ValueVision")
amending, among other things, certain terms of a $10,000,000 promissory note,
payable to ValueVision and certain warrants of the Company held by ValueVision;
and (iv) the grant to Temporary Media Co., LLC ("TMC"), an affiliate of ACO, of
options to purchase up to 212,500 shares of Common Stock and warrants to
purchase up to 3,762,500 shares of Common Stock, 2,612,500 of which may be
exercised by TMC.
2. To elect nine directors;
3. To amend the Company's Stock Option Plan to increase the number of shares of
Common Stock available for awards by 800,000; and
4. To ratify Ernst & Young LLP, independent certified public accountants, as
auditors for the Company for the fiscal year ending March 31, 1999.
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All proposals were approved as follows:
<TABLE>
<CAPTION>
Against or
For Withheld Abstain
--- ---------- -------
<S> <C> <C> <C> <C>
1. Approval of the Lehman Transaction 14,231,665 205,758 100,597
2. Election of Directors
Albert R. Dowden 23,339,889 207,901 0
William M. Goldstein 23,064,289 483,501 0
Frederick S. Hammer 22,136,222 1,411,568 0
John W. Kirby 23,360,462 187,328 0
Stephen C. Lehman 23,361,327 186,463 0
Andrew M. Schuon 23,359,897 187,893 0
Robert N. Verratti 22,238,462 1,309,328 0
Eric R. Weiss 23,361,747 186,043 0
Jon W. Yoskin II 23,338,539 209,251 0
3. Amendments to the Company's
1991 Stock Option Plan 22,994,381 1,232,054 121,355
4. Ratification of Ernst & Young LLP, as
independent certified public accountants,
and auditors for the Company for
the fiscal year ending March 31, 1999 24,208,363 82,728 56,699
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein or incorporated by reference
herein:
3.1 Certificate of Amendment of the Certificate of Incorporation
of the Company, dated October 23, 1998 (1).
4.1 Certificate of Designations Preferences and Rights of Series E
Preferred Stock, dated October 23, 1998 (1).
4.2 Registration Rights Agreement, dated October 23, 1998, between
the Company and NM Acquisition Co., LLC (1).
10.1 Loan and Security Agreement, by and between Quantum North
America, Inc. ("QNA") and Foothill Capital Corporation
("Foothill"), dated as of December 1, 1998 (2).
10.2 Copyright Security Agreement, by QNA in favor of Foothill,
dated as of December 1, 1998 (2).
10.3 Patent Security Agreement, by QNA in favor of Foothill, dated
as of December 1, 1998 (2).
10.4 Trademark Security Agreement, by QNA in favor of Foothill,
dated as of December 1, 1998 (2).
10.5 Stock Pledge Agreement, between QNA and Foothill, dated as of
December 1, 1998 (2).
10.6 Holdings Trademark Security Agreement, by the Company in favor
of Foothill, dated as of December 1, 1998 (2).
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10.7 Patent Security Agreement, by the Company in favor of
Foothill, dated as of December 1, 1998 (2).
10.8 Stock Pledge Agreement, among Positive Response Television,
Inc., National Media Holdings, Inc., Suzanne Paul Holdings Pty
Limited and Foothill, dated as of December 1, 1998 (2).
10.9 Copyright Security Agreement, by the Company in favor of
Foothill, dated as of December 1, 1998 (2).
10.10 Subordination Agreement, between Foothill and the subsidiaries
of the Company, dated as of December 1, 1998 (2).
10.11 Subordination Agreement, between Foothill and the Company,
dated as of December 1, 1998 (2).
10.12 Stock Pledge Agreement, between the Company and Foothill,
dated as of December 1, 1998 (2).
27.1 Financial Data Schedule (2).
(1) Incorporated by reference to the Company's Current Report on
Form 8-K dated October 23, 1998.
(2) Filed herewith.
(b) The Company filed the following Current Reports on Form 8-K during the
three month period ended December 31, 1998:
Current Report on Form 8-K, dated October 23, 1998.
The Company filed a Current Report on Form 8-K reporting, under
Item 1, the consummation of a transaction pursuant to which, among
other things, there was a change in control in which operational
control of the Company was assumed by an investor group led by
Stephen C. Lehman, Eric R. Weiss and Daniel M. Yukelson and the
investor group purchased $20.0 million of the Company's newly
issued Series E Convertible Preferred Stock.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDIA CORPORATION
Date: February 19, 1999 /s/ Stephen C. Lehman
----------------------------------------------
Stephen C. Lehman
Chairman of the Board and Chief Executive
Officer
Date: February 19, 1999 /s/ Daniel M. Yukelson
----------------------------------------------
Daniel M. Yukelson
Executive Vice President/Finance and Chief
Financial Officer, and Secretary
<PAGE>
EXHIBIT INDEX
10.1 Loan and Security Agreement, by and between Quantum North America, Inc.
("QNA") and Foothill Capital Corporation ("Foothill"), dated as of
December 1, 1998.
10.2 Copyright Security Agreement, by QNA in favor of Foothill, dated as of
December 1, 1998.
10.3 Patent Security Agreement, by QNA in favor of Foothill, dated as of
December 1, 1998.
10.4 Trademark Security Agreement, by QNA in favor of Foothill, dated as of
December 1, 1998.
10.5 Stock Pledge Agreement, between QNA and Foothill, dated as of December
1, 1998.
10.6 Holdings Trademark Security Agreement, by the Company in favor of
Foothill, dated as of December 1, 1998.
10.7 Patent Security Agreement, by the Company in favor of Foothill, dated
as of December 1, 1998.
10.8 Stock Pledge Agreement, among Positive Response Television, Inc.,
National Media Holdings, Inc., Suzanne Paul Holdings Pty Limited and
Foothill, dated as of December 1, 1998.
10.9 Copyright Security Agreement, by the Company in favor of Foothill,
dated as of December 1, 1998.
10.10 Subordination Agreement, between Foothill and the subsidiaries of the
Company, dated as of December 1, 1998.
10.11 Subordination Agreement, between Foothill and the Company, dated as of
December 1, 1998.
10.12 Stock Pledge Agreement, between the Company and Foothill, dated as of
December 1, 1998.
27.1 Financial Data Schedule.
<PAGE>
Exhibit 10.1
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
QUANTUM NORTH AMERICA, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF DECEMBER 1, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
1. DEFINITIONS AND CONSTRUCTION.......................................................................1
1.1 Definitions...............................................................................1
1.2 Accounting Terms.........................................................................20
1.3 Code.....................................................................................20
1.4 Construction.............................................................................20
1.5 Schedules and Exhibits...................................................................20
2. LOAN AND TERMS OF PAYMENT.........................................................................20
2.1 Revolving Advances.......................................................................21
2.2 Letters of Credit........................................................................22
2.3 [Intentionally Omitted.].................................................................24
2.4 [Intentionally Omitted.].................................................................24
2.5 Overadvances.............................................................................25
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations...................25
2.7 Collection of Accounts...................................................................26
2.8 Crediting Payments; Application of Collections...........................................26
2.9 Designated Account.......................................................................27
2.10 Maintenance of Loan Account; Statements of Obligations...................................27
2.11 Fees.....................................................................................28
2.12 LIBOR Rate Advances......................................................................28
3. CONDITIONS; TERM OF AGREEMENT.....................................................................31
3.1 Conditions Precedent to the Initial Advance or Letter of Credit..........................31
3.2 Conditions Precedent to all Advances and all Letters of Credit...........................35
3.3 Condition Subsequent.....................................................................36
3.4 Term; Automatic Renewal..................................................................36
3.5 Effect of Termination....................................................................36
3.6 Early Termination by Borrower............................................................36
3.7 Termination Upon Event of Default........................................................37
4. CREATION OF SECURITY INTEREST.....................................................................37
4.1 Grant of Security Interest...............................................................37
4.2 Negotiable Collateral....................................................................37
4.3 Collection of Accounts, General Intangibles, Investment Property, and Negotiable
Collateral...............................................................................37
4.4 Delivery of Additional Documentation Required............................................38
4.5 Power of Attorney........................................................................38
4.6 Right to Inspect.........................................................................38
</TABLE>
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<TABLE>
<S> <C>
5. REPRESENTATIONS AND WARRANTIES....................................................................39
5.1 No Encumbrances..........................................................................39
5.2 Eligible Accounts........................................................................39
5.3 Eligible Inventory.......................................................................39
5.4 Equipment................................................................................39
5.5 Location of Inventory and Equipment......................................................39
5.6 Inventory Records........................................................................39
5.7 Location of Chief Executive Office; FEIN.................................................39
5.8 Due Organization and Qualification; Subsidiaries.........................................40
5.9 Due Authorization; No Conflict...........................................................40
5.10 Litigation...............................................................................41
5.11 No Material Adverse Change...............................................................41
5.12 Solvency.................................................................................41
5.13 Benefit Plans............................................................................41
5.14 Environmental Condition..................................................................41
5.15 Brokerage Fees...........................................................................42
5.16 Year 2000 Compliance.....................................................................42
5.17 Consent Decrees..........................................................................42
6. AFFIRMATIVE COVENANTS.............................................................................42
6.1 Accounting System........................................................................42
6.2 Collateral Reporting.....................................................................43
6.3 Financial Statements, Reports, Certificates..............................................43
6.4 Tax Returns..............................................................................45
6.5 Guarantor Reports........................................................................45
6.6 Returns..................................................................................45
6.7 Title to Equipment.......................................................................45
6.8 Maintenance of Equipment.................................................................45
6.9 Taxes....................................................................................45
6.10 Insurance................................................................................46
6.11 No Setoffs or Counterclaims..............................................................46
6.12 Location of Inventory and Equipment......................................................46
6.13 Compliance with Laws.....................................................................47
6.14 [Intentionally Omitted.].................................................................47
6.15 Leases...................................................................................47
6.16 Brokerage Commissions....................................................................47
6.17 Royalties................................................................................47
6.18 Copyrights...............................................................................47
6.19 License Agreements.......................................................................48
7. NEGATIVE COVENANTS................................................................................48
7.1 Indebtedness.............................................................................48
7.2 Liens....................................................................................48
7.3 Restrictions on Fundamental Changes......................................................49
</TABLE>
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<TABLE>
<S> <C>
7.4 Disposal of Assets.......................................................................49
7.5 Change Name..............................................................................49
7.6 Guarantee................................................................................49
7.7 Nature of Business.......................................................................49
7.8 Prepayments and Amendments...............................................................49
7.9 Change of Control........................................................................49
7.10 Consignments.............................................................................50
7.11 Distributions............................................................................50
7.12 Accounting Methods.......................................................................50
7.13 Investments..............................................................................50
7.14 Transactions with Affiliates.............................................................50
7.15 Suspension...............................................................................51
7.16 [Intentionally omitted]..................................................................51
7.17 Use of Proceeds..........................................................................51
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees.......51
7.19 Telemarketing Services Agreements........................................................51
7.20 Financial Covenants......................................................................51
7.21 Capital Expenditures.....................................................................52
7.22 Credit Card Processing Agreements........................................................52
7.23 Licensing Agreements.....................................................................52
7.24 Purchases of Inventory...................................................................52
8. EVENTS OF DEFAULT.................................................................................52
9. FOOTHILL'S RIGHTS AND REMEDIES....................................................................55
9.1 Rights and Remedies......................................................................55
9.2 Remedies Cumulative......................................................................57
10. TAXES AND EXPENSES................................................................................57
11. WAIVERS; INDEMNIFICATION..........................................................................57
11.1 Demand; Protest; etc.....................................................................57
11.2 Foothill's Liability for Collateral......................................................57
11.3 Indemnification..........................................................................58
12. NOTICES...........................................................................................58
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................................................59
14. DESTRUCTION OF BORROWER'S DOCUMENTS...............................................................60
15. GENERAL PROVISIONS................................................................................60
15.1 Effectiveness............................................................................60
15.2 Successors and Assigns...................................................................60
</TABLE>
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<TABLE>
<S> <C>
15.3 Section Headings.........................................................................61
15.4 Interpretation...........................................................................61
15.5 Severability of Provisions...............................................................61
15.6 Amendments in Writing....................................................................61
15.7 Counterparts; Telefacsimile Execution....................................................61
15.8 Revival and Reinstatement of Obligations.................................................61
15.9 Integration..............................................................................61
</TABLE>
iv
<PAGE>
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 2.2(g) Letter of Credit Authorized Persons
Schedule 5.10 Litigation
Schedule 5.17 Consent Decrees
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Indebtedness
Exhibit C-1 Form of Compliance Certificate
Exhibit 2.12(b) Form of LIBOR Notice
v
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is
entered into as of December 1, 1998, between FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), with a place of business located at 11111
Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 and
QUANTUM NORTH AMERICA, INC., a Delaware corporation ("Borrower"), with its chief
executive office located at 15821 Ventura Boulevard, 5th Floor, Encino,
California 91436.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the
following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account, General
Intangible, Investment Property, or Negotiable Collateral.
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"ADVANCES" has the meaning set forth in SECTION 2.1(A).
"AFFILIATE" means, as applied to any Person, any other Person
who, directly or indirectly, controls, is controlled by, is under common control
with, or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 5% or more of the Stock having ordinary voting power for the election of
directors (or comparable managers) or the direct or indirect power to direct the
management and policies of a Person.
"AGREEMENT" has the meaning set forth in the preamble hereto.
"APPLICABLE EARLY TERMINATION PREMIUM" means (a) $600,000 from
and after the Closing Date to the first anniversary of the Closing Date, (b)
$400,000 from and after the first anniversary of the Closing Date to the second
anniversary of the Closing Date, and (c) $200,000 from and after the second
anniversary of the Closing Date, and including any Renewal Period; PROVIDED,
HOWEVER, that if this Agreement is terminated in connection with the
consummation of a sale of all or substantially all of the assets of, or Stock
in, Borrower, then the foregoing amounts shall be (a) $300,000 from and after
the Closing Date through the first anniversary of the Closing Date, (b) $200,000
from and after the first anniversary of the Closing Date to the second
anniversary of the Closing Date, and (c) $0 thereafter.
1
<PAGE>
"AUTHORIZED PERSON" means any officer or other employee of
Borrower or such other Person as Borrower may authorize in writing.
"AVERAGE UNUSED PORTION OF MAXIMUM AMOUNT" means, as of any
date of determination, (a) the Maximum Amount, LESS (b) the sum of (i) the
average Daily Balance of Advances that were outstanding during the immediately
preceding month, PLUS (ii) the average Daily Balance of the Letter of Credit
Usage during the immediately preceding month.
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C. Section 101 ET SEQ.), as amended, and any successor statute.
"BASE LIBOR RATE" means the rate per annum (rounded upwards,
if necessary, to the next 1/16%) at which United States dollar deposits are
offered to major banks in the London Interbank market on or about 11:00 a.m.
(California time) 2 Business Days prior to the commencement of the applicable
Interest Period, for a term and in amounts comparable to the Interest Period and
amount of the LIBOR Rate Advance requested by Borrower in accordance with this
Agreement.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"BORROWER STOCK PLEDGE AGREEMENT" means that certain Stock
Pledge Agreement, dated as of even date herewith, between Borrower and Foothill,
with respect to Borrower's pledge of its ownership interest in the Stock of each
of its Subsidiaries, in form and substance satisfactory to Foothill.
"BORROWING BASE" has the meaning set forth in SECTION 2.1(A).
"BUSINESS DAY" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close and,
with respect to provisions of the Agreement dealing with LIBOR Rate Advances,
also means a day on which banks in London, England are open for the transaction
of banking business.
"CHANGE OF CONTROL" shall be deemed to have occurred at such
time as (a) Holding's shall cease to own beneficially and of record 100% of the
issued and outstanding shares of Stock of Borrower, (b) the Lehman Group's paid
in capital in Holdings shall cease
2
<PAGE>
to be at least 70% of the Lehman Group's paid-in capital in Holdings as of the
Closing Date, or (c) a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934), other than the Permitted
Holders, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of more than 20% of
the total voting power of all classes of Stock then outstanding of Holdings
entitled to vote in the election of directors.
"CLASS C INVENTORY" means Inventory of Borrower that: (a) is
obsolete, slow moving, or a custom item; (b) is more than 9 months old; (c)
based upon Borrower's reasonable determination, cannot be sold through
Borrower's ordinary retail or direct marketing distribution channels in the
twelve-month period following the date of such determination; or (d) Borrower
intends to sell or dispose of as scrap, through a rack jobber, or by other means
outside of Borrower's regular distribution channels.
"CLOSING DATE" means the date of the first to occur of the
making of the initial Advance or the issuance of the initial Letter of Credit.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means all of Borrower's right, title, and
interest in and to each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Investment Property;
(f) the Inventory,
(g) the Negotiable Collateral,
(i) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Borrower's Books,
Equipment, General Intangibles, Inventory, Investment Property, Negotiable
Collateral, Real Property, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest therein,
and the proceeds thereof.
3
<PAGE>
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment or Inventory,
in each case, in form and substance satisfactory to Foothill.
"COLLECTIONS" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of EXHIBIT C-1 and delivered by the chief accounting officer of
Borrower to Foothill.
"COPYRIGHT INVENTORY" means Inventory of Borrower with respect
to which material copyrightable by Borrower or Holdings is the principal
component of such Inventory;
"COPYRIGHT SECURITY AGREEMENT" means that certain Copyright
Security Agreement, dated as of even date herewith, between Borrower and
Foothill.
"CREDIT CARD ACCOUNT" means an Account submitted for payment
to a Credit Card Processor and with respect to which Borrower has received from
such Credit Card Processor an authorization to charge the credit card underlying
such Account.
"CREDIT CARD PROCESSING AGREEMENTS" means those agreements
between Borrower and the Credit Card Processors for the processing of Borrower's
credit card transactions.
"CREDIT CARD PROCESSOR" means, individually and collectively,
First USA Paymenttech, Novus Network Services, American Express Travel Related
Services Company, Inc., and any other Person with whom Borrower has entered or
may hereafter enter into an agreement for the processing of Borrower's credit
card transactions.
"CREDIT CARD PROCESSOR SERVICE SUMMARY" means that certain
First USA Service Summary received by Borrower from First USA Paymenttech, and
such similar reports received from other Credit Card Processors, in each case,
detailing the amount to be wire transferred to Borrower relative to the Credit
Card Accounts.
"DAILY BALANCE" means the amount of an Obligation owed at the
end of a given day.
"DEEMS ITSELF INSECURE" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the Code.
"DEFAULT" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
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"DESIGNATED ACCOUNT" means account number 4759626930 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) that has been
designated, in writing and from time to time, by Borrower to Foothill.
"DESIGNATED ACCOUNT BANK" means Wells Fargo Bank, N.A., whose
office is located at 100 West Washington, Phoenix, Arizona 85003, and whose ABA
number is 121000248.
"DILUTION" means, as of any date of determination, in each
case based upon the experience of the 90-day period ending on the date that is
30 days prior to such date of determination, the result of dividing the Dollar
amount of (a) bad debt write-downs, discounts, cooperative advertising credits,
returns, promotions, credits, or other dilution with respect to the Accounts, by
(b) the sum of (i) Borrower's Collections (excluding extraordinary items) in
respect of the Accounts, plus (ii) the Dollar amount of clause (a).
"DILUTION RESERVE" means, as of any date of determination, the
number of percentage points by which Dilution is in excess of 10%.
"DISBURSEMENT LETTER" means an instructional letter executed
and delivered by Borrower to Foothill regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be satisfactory
to Foothill.
"DOLLARS OR $" means United States dollars.
"ELIGIBLE ACCOUNTS" means those Accounts created by Borrower
in the ordinary course of business, that arise out of Borrower's sale of goods
or rendition of services (net of unapplied cash and general ledger to aging
variances), that strictly comply with each and all of the representations and
warranties respecting Accounts made by Borrower to Foothill in the Loan
Documents. Eligible Accounts shall not include the following:
(a) Accounts, other than Installment Accounts, that the
Account Debtor has failed to pay within 90 days of invoice date or Accounts with
selling terms of more than 60 days, unless such Account is supported by an
irrevocable letter of credit satisfactory to Foothill (as to form, substance,
and issuer or domestic confirming bank) that has been delivered to Foothill and
is directly drawable by Foothill;
(b) Accounts owed by an Account Debtor or its Affiliates where
50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible or, in the absence of a letter of credit supporting such
Accounts, would be deemed ineligible under clause (a) above, unless such
Accounts are supported by an irrevocable letter of credit satisfactory to
Foothill (as to form, substance, and issuer or domestic confirming bank) that
has been delivered to Foothill and is directly drawable by Foothill;;
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(c) Installment Accounts, as of any date of determination,
with respect to which (i) the last installment of such Installment Accounts is
to be billed more than 12 months after the initial date of the sale giving rise
to such Installment Account, or (ii) the last installment of such Installment
Account is to be billed more than 10 months after such date of determination, to
the extent of the aggregate amount of installments to be billed more than 10
months after such date of determination;
(d) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(e) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(f) Accounts that are not payable in Dollars;
(g) Accounts with respect to which the Account Debtor: (i)
does not maintain its chief executive office in the United States, or (ii) is
not organized under the laws of the United States, any State thereof; or (iii)
is the government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof, unless
(x) the Account is supported by an irrevocable letter of credit satisfactory to
Foothill (as to form, substance, and issuer or domestic confirming bank) that
has been delivered to Foothill and is directly drawable by Foothill, (y) the
Account is covered by credit insurance in form and amount, and by an insurer,
satisfactory to Foothill, or (z) with respect to an Account Debtor that
maintains its chief executive office in Canada or that is organized under the
Laws of Canada, such Account Debtor shall have been approved in writing by
Foothill in its reasonable credit judgment;
(h) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(i) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account;
(j) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts, to the extent
of the obligations owing by such Account Debtor in excess of such percentage,
unless any such Account is supported by an irrevocable letter of credit
satisfactory to Foothill (as to form, substance, and issuer or domestic
confirming bank) that has been delivered to Foothill and is directly drawable by
Foothill;
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(k) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business, unless any such Account is supported by an irrevocable letter of
credit satisfactory to Foothill (as to form, substance, and issuer or domestic
confirming bank) that has been delivered to Foothill and is directly drawable by
Foothill;
(l) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(m) Accounts with respect to which the goods giving rise to
such Account have not been shipped to the purchaser of such goods, the services
giving rise to such Account have not been performed and accepted by the
purchaser of such services, or the Account otherwise does not represent a final
sale;
(n) Accounts arising from the sale of Copyright Inventory,
unless such Copyright Inventory is Eligible Inventory; and
(o) Credit Card Accounts.
"ELIGIBLE CREDIT CARD ACCOUNTS" means Accounts that do not
qualify as Eligible Accounts solely because they are (1) Credit Card Accounts.
"ELIGIBLE IN-TRANSIT INVENTORY" means those items of Inventory
that do not qualify as Eligible Landed Inventory solely because they are not in
a location set forth on SCHEDULE E-1 but: (a) such Inventory is currently
in-transit from a location not set forth on SCHEDULE E-1 to a location set forth
on SCHEDULE E-1, (b) title to such Inventory has passed to Borrower, (c)
documents of title with respect to such Inventory have been delivered to
Foothill or its agent; (d) such Inventory is insured against types of loss,
damage, hazards, and risks, and in amounts, satisfactory to Foothill in its
discretion; and (e) (i) such Inventory has been paid for or is the subject of an
Inventory Letter of Credit, or (ii) Foothill is named as consignee on the
documents of title with respect to such Inventory.
"ELIGIBLE INVENTORY" means the Eligible In-Transit Inventory
and the Eligible Landed Inventory.
"ELIGIBLE LANDED INVENTORY" means Inventory consisting of
first quality finished goods held for sale in the ordinary course of Borrower's
business, that are located at or in-transit between Borrower's premises
identified on SCHEDULE E-1, that strictly comply with each and all of the
representations and warranties respecting Inventory made by Borrower to Foothill
in the Loan Documents, and that are and at all times continue to be reasonably
acceptable to Foothill in all respects. In determining the amount to be so
included, Inventory shall be valued at the lower of cost or market on a basis
consistent with Borrower's current and historical accounting practices. An item
of Inventory shall not be included in Eligible Landed Inventory if:
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(a) it is not owned solely by Borrower or Borrower does not
have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on
SCHEDULE E-1;
(c) it is not located on property owned or leased by Borrower
or in a contract warehouse, in each case, subject to a Collateral Access
Agreement executed by the mortgagee, lessor, the warehouseman, or other third
party, as the case may be, and segregated or otherwise separately identifiable
from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first priority
security interest in favor of Foothill;
(e) it consists of goods returned or rejected by Borrower's
customers that are not returned to Borrower's stock or goods in transit;
(f) the aggregate value of all items of a particular product
exceed 40% of the aggregate value of all items of Eligible Inventory, to the
extent of the amount in excess of such percentage;
(g) it is Copyright Inventory unless the copyrightable
material that is the principal component thereof has been registered with the
United States Copyright Office and Foothill shall have a perfected first
priority security interest therein; or
(h) it is Class C Inventory, or constitutes spare parts,
packaging and shipping materials, supplies used or consumed in Borrower's
business, Inventory subject to a Lien in favor of any third Person, bill and
hold goods, defective goods, "seconds," or Inventory acquired on consignment; or
(i) Each license agreement relative to such item of Inventory
has not been reviewed by Foothill or such license agreement is not reasonably
acceptable to Foothill with respect to the rights of Borrower or Holdings, as
applicable, under such license agreement and the perfection of Foothill's Liens
in and to such item of Inventory.
"EQUIPMENT" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) any interest of Borrower in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor statutes,
and regulations or guidance promulgated thereunder.
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"ERISA AFFILIATE" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCESS AVAILABILITY" means the amount, as of the date any
determination thereof is to be made, equal to:
(a) the lesser of (i) the aggregate amount of Advances
available to Borrower as of such time (based on the applicable advance
rates set forth in SECTION 2.1 hereof and calculated as if no Advances
are outstanding), subject to the sublimits and availability reserves
established by Foothill under the terms of the Agreement, and (ii) the
Maximum Amount, MINUS
(b) the sum of (i) the amount of all then outstanding
Advances, (ii) the amount (not less than $0) by which Borrower's past
due trade payables has increased during the period from the initial
prospect audit through such date of determination, and (iii) the
aggregate amount of Borrower's book overdrafts.
"FAMILY MEMBERS" means, with respect to any individual, any
other individual having a relationship by blood (to the second degree
of consanguinity), marriage, or adoption to such individual.
"FAMILY TRUSTS" means, with respect to any individual, trusts
or other estate planning vehicles established for the benefit of the
Family Members of such individual and in respect of which such
individual serves as trustee or in a similar capacity.
"FEDERAL RESERVE BOARD" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this
Agreement.
"FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.7.
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"FOOTHILL EXPENSES" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrower under any of the
Loan Documents that are paid or incurred by Foothill; reasonable fees or charges
paid or incurred by Foothill in connection with Foothill's transactions with
Borrower, including, fees or charges for photocopying, notarization, couriers
and messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Collateral
appraisals), real estate surveys, real estate title policies and endorsements,
and environmental audits; costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or otherwise); charges paid
or incurred by Foothill resulting from the dishonor of checks; reasonable costs
and expenses paid or incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated; costs and expenses paid or incurred by Foothill
in examining Borrower's Books; reasonable costs and expenses of third party
claims or any other suit paid or incurred by Foothill in enforcing or defending
the Loan Documents or in connection with the transactions contemplated by the
Loan Documents or Foothill's relationship with Borrower or any guarantor; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or
any guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"FUNDING LOSSES" shall have the meaning set forth in SECTION
2.12(B)(II).
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, Investment Property, and Negotiable
Collateral.
"GOVERNING DOCUMENTS" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"HAZARDOUS MATERIALS" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous
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substances," "hazardous materials," "hazardous wastes," "toxic substances,"
or any other formulation intended to define, list, or classify substances by
reason of deleterious properties such as ignitability, corrosivity,
reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b)
oil, petroleum, or petroleum derived substances, natural gas, natural gas
liquids, synthetic gas, drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or
explosives or any radioactive materials, and (d) asbestos in any form or
electrical equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of applicable federal, state or
local limits.
"HOLDINGS" means National Media Corporation, a Delaware
corporation.
"HOLDINGS COPYRIGHT SECURITY AGREEMENT" means that certain
Copyright Security Agreement, dated as of even date herewith, between Holdings
and Foothill.
"HOLDINGS GUARANTY" means that certain General Continuing
Guaranty, dated as of even date herewith, between Holdings and Foothill, in form
and substance satisfactory to Foothill.
"HOLDINGS PATENT SECURITY AGREEMENT" means that certain Patent
Security Agreement, dated as of even date herewith, between Holdings and
Foothill.
"HOLDINGS SECURITY AGREEMENT" means that certain Security
Agreement, dated as of even date herewith, between Holdings and Foothill, in
form and substance satisfactory to Foothill.
"HOLDINGS STOCK PLEDGE AGREEMENT" means that certain Stock
Pledge Agreement, dated as of even date herewith, between Holdings and Foothill,
with respect to Holding's pledge of its ownership interest in the Stock of each
of its Subsidiaries, in form and substance satisfactory to Foothill.
"HOLDINGS SUBORDINATION AGREEMENT" means that certain
Subordination Agreement, dated as of even date herewith, among Holdings,
Borrower, and Foothill, in form and substance satisfactory to Foothill..
"HOLDINGS TRADEMARK SECURITY AGREEMENT" means that certain
Trademark Security Agreement, dated as of even date herewith, between Holdings
and Foothill.
"INDEBTEDNESS" means: (a) all obligations of Borrower for
borrowed money, (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of Borrower under
capital leases, (d) all obligations or liabilities of others secured by a Lien
on any property or asset of Borrower, irrespective of whether such obligation or
liability is assumed, and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether
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guaranteed, endorsed, co-made, discounted, or sold with recourse to Borrower)
any indebtedness, lease, dividend, letter of credit, or other obligation of any
other Person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"INSTALLMENT ACCOUNTS" means Accounts, that at the time of the
sale giving rise to such Account, was payable by the Account Debtor in two or
more installments. Installment Accounts shall not include amounts which, by
reason of being submitted to a Credit Card Processor for payment, have become
Credit Card Accounts.
"INTANGIBLE ASSETS" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"INTERCOMPANY SUBORDINATION AGREEMENT" means that certain
Subordination Agreement, dated as of even date herewith, among Borrower, each
other Subsidiary of Holdings, and Foothill, in form and substance satisfactory
to Foothill..
"INTEREST PERIOD" means, with respect to each LIBOR Rate
Advance, a period commencing on the date of the making of such LIBOR Rate
Advance and ending 1, 2, or 3 months thereafter; PROVIDED, HOWEVER, that (a) if
any Interest Period would end on a day that is not a Business Day, such Interest
Period shall be extended (subject to clauses (c)-(e) below) to the next
succeeding Business Day, (b) interest shall accrue from and including the first
day of each Interest Period to, but excluding, the day on which any Interest
Period expires, (c) any Interest Period that would end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period
shall on the next preceding Business Day, (d) with respect to an Interest Period
that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period), the Interest Period shall end on the last Business Day of
the calendar month that is 1, 2, or 3 months after the date on which the
Interest Period began, as applicable, and (e) Borrower may not elect an Interest
Period which will end after the Maturity Date.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"INVENTORY LETTER OF CREDIT" means a documentary Letter of
Credit issued to support the purchase by Borrower of Inventory prior to transit
to a location set forth on SCHEDULE E-1, that provides that all draws thereunder
must require presentation of customary documentation (including, if applicable,
commercial invoices, packing list, certificate of
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origin, bill of lading or airwaybill, customs clearance documents, quota
statement, inspection certificate, beneficiaries statement, and bill of
exchange, bills of lading, dock warrants, dock receipts, warehouse receipts, or
other documents of title) in form and substance satisfactory to Foothill and
reflecting the passage to Borrower of title to first quality Inventory
conforming to Borrower's contract with the seller thereof. Any such Letter of
Credit shall cease to be an "Inventory Letter of Credit" at such time, if any,
as the goods purchased thereunder become Eligible Landed Inventory.
"INVENTORY RESERVES" means reserves (determined from time to
time by Foothill in its reasonable discretion) for (a) the estimated costs
relating to unpaid freight charges, warehousing or storage charges, taxes,
duties, and other similar unpaid costs associated with the acquisition of
Eligible In-Transit Inventory by Borrower, PLUS (b) the estimated reclamation
claims of unpaid sellers of Inventory sold to Borrower.
"INVESTMENT PROPERTY" means "investment property" as that term
is defined in the Code, whether now owned or hereafter acquired..
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"LANDLORD LIEN RESERVES" means, with respect to each leased
location of Borrower that is not the subject of a Collateral Access Agreement,
reserves (determined from time to time by Foothill in its reasonable discretion)
for (a) past due rent or other past due amounts under the lease relative to such
location, PLUS (b) the amount, reasonably estimated by Foothill, of rent or
other amounts payable under the lease relative to such location necessary to be
paid by Foothill in order to exercises its remedies under the Loan Documents
with respect to the Collateral located at such location.
"L/C" has the meaning set forth in SECTION 2.2(A).
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(A).
"LEHMAN GROUP" means, individually and collectively, Stephen
C. Lehman, Bruce M. Goodman, John W. Kirby, Eric R. Weiss, Daniel M. Yukelson,
and their respective Family Members and Family Trusts.
"LETTER OF CREDIT" means an L/C or an L/C Guaranty, as the
context requires.
"LETTER OF CREDIT USAGE" means the sum of (a) the undrawn
amount of outstanding Letters of Credit PLUS (b) the amount of unreimbursed
drawings under Letters of Credit.
"LIBOR RATE" means, for each Interest Period for each LIBOR
Rate Advance, the rate per annum (rounded upwards, if necessary, to the next
1/16%) determined pursuant to the following formula:
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LIBOR Rate = Base LIBOR Rate for such Interest Period
----------------------------------------
100% minus the Reserve Percentage.
"LIBOR RATE ADVANCE" means each portion of an Advance bearing
interest at a rate determined by reference to the LIBOR Rate.
"LIEN" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"LOAN ACCOUNT" has the meaning set forth in SECTION 2.10.
"LOAN DOCUMENTS" means this Agreement, the Disbursement
Letter, the Letters of Credit, the Lockbox Agreements, the Copyright Security
Agreement, the Patent Security Agreement, the Trademark Security Agreement, the
Borrower Stock Pledge Agreement, the Holdings Guaranty, the Holdings Security
Agreement, the Holdings Stock Pledge Agreement, the Holdings Copyright Security
Agreement, the Holdings Patent Security Agreement, the Holdings Trademark
Security Agreement, the Holdings Subordination Agreement, the Intercompany
Subordination Agreement, the Provenance Agreement, the Subsidiary Stock Pledge
Agreement, any note or notes executed by Borrower and payable to Foothill, and
any other agreement entered into, now or in the future, in connection with this
Agreement.
"LOCKBOX ACCOUNT" shall mean a depositary account established
pursuant to one of the Lockbox Agreements.
"LOCKBOX AGREEMENTS" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and the Lockbox Bank.
"LOCKBOX BANK" means Wells Fargo Bank.
"LOCKBOXES" has the meaning set forth in SECTION 2.7.
"MATERIAL ADVERSE CHANGE" means (a) a material adverse change
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower, (b) the material
impairment of Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of Foothill to enforce the
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Obligations or realize upon the Collateral, (c) a material adverse effect on the
value of the Collateral or the amount that Foothill would be likely to receive
(after giving consideration to delays in payment and costs of enforcement) in
the liquidation of such Collateral, or (d) a material impairment of the priority
of Foothill's Liens with respect to the Collateral.
"MAXIMUM AMOUNT" means $20,000,000.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"NEGOTIABLE COLLATERAL" means all of a Person's present and
future letters of credit, notes, drafts, instruments, documents, personal
property leases (wherein such Person is the lessor), chattel paper, and Books
relating to any of the foregoing.
"NET ELIGIBLE CREDIT CARD PROCEEDS" means, as of any date of
determination, the aggregate Dollar amount of proceeds of Eligible Credit Card
Accounts to be received by Borrower, net of all credits, commissions, fees,
discounts, and other amounts payable by Borrower relative thereto, as evidenced
by the Credit Card Processor Service Summaries.
"NOTICES TO DEPOSITORY INSTITUTIONS" means one or more letters
notifying the depository institutions with which Borrower maintains deposit
accounts of Foothill's security interest in such deposit accounts.
"OBLIGATIONS" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including the Applicable Early
Termination Premium), liabilities (including all amounts charged to Borrower's
Loan Account pursuant hereto), obligations, fees, charges, costs, or Foothill
Expenses (including any fees or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and
duties owing by Borrower to Foothill of any kind and description (whether
pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between Foothill and Borrower, and irrespective of whether for the
payment of money), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not paid
when due and all Foothill Expenses that Borrower is required to pay or reimburse
by the Loan Documents, by law, or otherwise.
"OBSOLETE COPYRIGHT" means, as of any date of determination,
any copyright that (a) does not have a material fair market value, (b) is not
the principal component of any Copyright Inventory of Borrower that has been
sold or marketed by Borrower in 3 years preceding such date of determination,
and (c) the fair market value, in the aggregate, of a such Copyright Inventory
to which such copyright is the principal component is not material.
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"OVERADVANCE" has the meaning set forth in SECTION 2.5.
"PARTICIPANT" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PATENT SECURITY AGREEMENT" means that certain Patent Security
Agreement, dated as of even date herewith, in form and substance satisfactory to
Foothill.
"PAY-OFF LETTER" means a letter, in form and substance
reasonably satisfactory to Foothill, from ValueVision respecting the amount
necessary to repay in full all of the obligations of Borrower owing to
ValueVision and obtain a termination or release of all of the Liens existing in
favor of ValueVision in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"PERMITTED DISPOSITION" means (a) the sale of Inventory in the
ordinary course of Borrower's business (including the disposition of Class C
Inventory in accordance with Borrower's customary procedures for such
dispositions) and (b) the sale, exchange, or other disposition of Borrower's
Equipment that is substantially worn, damaged, or obsolete in the ordinary
course of Borrower's business.
"PERMITTED DISTRIBUTIONS" means dividends or distributions by
Borrower to Holdings, for the purpose of paying (a) the reasonable company
overhead, public filing costs, accounting costs, and like expenses of Holdings
reasonably allocable to Borrower and not reasonably allocable to any other
Subsidiary of Holdings, and (b) the Permitted Holdings Distributions reasonably
allocable to Borrower and not reasonably allocable to any other Subsidiary of
Holdings.
"PERMITTED HOLDERS" means (a) the Lehman Group, (b) Jacor
Communications, Inc., (c) Gruber/McBain Management, (d) Capital Ventures
International, (e) RGC International Investors, LDC, and (f) such other Person,
reasonably acceptable to Foothill, of which Borrower may notify Foothill in
writing prior to or on the Closing Date.
"PERMITTED HOLDINGS DISTRIBUTIONS" means (a) the "Premium" (as
defined in the Series D Certificate of Designation) accruing at a rate of 6% per
annum on the Series D Preferred Stock of Holdings and payable upon conversion of
such Series D Preferred Stock, to the extent such Premium is paid, or to be
paid, in Dollars pursuant to Section IV.A.(ii) of the Series D Certificate of
Designation, (b) the "Retained Premium" (as defined in the Series D Stock
Purchase Agreement) payable upon the conversion of the Series D Preferred Stock
of Holdings owned by Capital Ventures International ("CVI") or RGC International
Investors, LDC ("RGC"), and (c) the payment to CVI of $513,000.00, and to RGC of
$171,000.00, on or about August 14, 1999, pursuant to that certain letter
agreement, dated as of August 11, 1998, among CVI, RGC, Holdings, and NM
Acquisition Co., LLC, a Delaware limited liability company.
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"PERMITTED LIENS" means (a) Liens held by Foothill, (b) Liens
for unpaid taxes that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on SCHEDULE P-1, (d) (i) the
interests of lessors under operating leases, and (ii) purchase money Liens and
the interests of lessors under capital leases to the extent that the acquisition
or lease of the underlying asset is permitted under SECTION 7.21 and so long as
the Lien only attaches to the asset purchased or acquired and only secures the
purchase price of the asset, (e) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet due and payable, or (ii) are the subject of Permitted Protests, (f)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, (h) Liens arising by reason of security
for surety or appeal bonds in the ordinary course of business of Borrower, (i)
Liens of or resulting from any judgment or award that reasonably could not be
expected to result in a Material Adverse Change and as to which the time for the
appeal or petition for rehearing of which has not yet expired, or in respect of
which Borrower is in good faith prosecuting an appeal or proceeding for a review
and in respect of which a stay of execution pending such appeal or proceeding
for review has been secured, (j) with respect to any Real Property, easements,
rights of way, zoning and similar covenants and restrictions, and similar
encumbrances that customarily exist on properties of Persons engaged in similar
activities and similarly situated and that in any event do not materially
interfere with or impair the use or operation of the Collateral by Borrower or
the value of Foothill's Lien thereon or therein, or materially interfere with
the ordinary conduct of the business of Borrower.
"PERMITTED PROTEST" means the right of Borrower to protest any
Lien other than any such Lien that secures the Obligations, tax (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), royalties, commissions, or other amounts due under a licensing agreement,
or rental payment, provided that (a) a reserve with respect to such obligation
is established on the books of Borrower in an amount that is reasonably
satisfactory to Foothill, (b) any such protest is instituted and diligently
prosecuted by Borrower in good faith, and (c) Foothill is satisfied that, while
any such protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Liens of Foothill in and to the Collateral.
"PERSON" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PLAN" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with respect to which it
may incur liability.
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"PREFERRED STOCK DOCUMENTS" means (a) the Series D Stock
Purchase Agreement, (b) the Series E Stock Purchase Agreement, (c) the
Certificate of Designations, Preferences, and Rights of Series B Preferred Stock
of Holdings, (d) the Certificate of Designations, Preferences, and Rights of
Series D Preferred Stock of Holdings, and (e) the Certificate of Designations,
Preferences, and Rights of Series E Preferred Stock of Holdings.
"PROVENANCE AGREEMENT" means that certain Provenance
Agreement, dated as of the date hereof, between Holdings and Borrower for the
express benefit of Foothill.
"REAL PROPERTY" means any estates or interests in real
property now owned or hereafter acquired by Borrower.
"REFERENCE RATE" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"REFERENCE RATE LOAN" means any Advance (or any portion
thereof) made or outstanding hereunder during any period when interest on such
Advance (or portion thereof) is payable based on the Reference Rate.
"RENEWAL DATE" has the meaning set forth in SECTION 3.4.
"RENEWAL PERIOD" has the meaning set forth in SECTION 3.4.
"REPORTABLE EVENT" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"RESERVE PERCENTAGE" means, on any day, that percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor Governmental Authority) for determining the reserve requirements
(including any basic, supplemental, marginal, or emergency reserves) that is in
effect on such date with respect to deposits of Dollars in a non-United States
or an international banking office of a bank used to fund a LIBOR Rate Advance.
The LIBOR Rate shall be adjusted on and as of the effective day of any change in
the Reserve Percentage.
"RETIREE HEALTH PLAN" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"SERIES D CERTIFICATE OF DESIGNATION" means the Certificate of
Designations, Preferences, and Rights of Series D Preferred Stock of Holdings.
"SERIES D STOCK PURCHASE AGREEMENT" means that certain letter
agreement, dated as of August 10, 1998, among Holdings, Capital Ventures
International, RGC
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International Investors, LDC, and NM Acquisition Co., LLC, relative to Holdings'
Series D Preferred Stock.
"SERIES E STOCK PURCHASE AGREEMENT" means that certain Stock
Purchase Agreement, dated as of August 11, 1998, between Holdings and NM
Acquisition Co., LLC, relative to Holdings' Series E Preferred Stock.
"SOLVENT" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"STOCK" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
"SUBSIDIARY" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock having ordinary voting power to
elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
"SUBSIDIARY STOCK PLEDGE AGREEMENT" means that certain Stock
Pledge Agreement, dated as of even date herewith, among each of the Subsidiaries
of Holdings (other than Borrower) and Foothill, with respect to such
Subsidiaries' pledge of its ownership interest in the Stock of each of its
Subsidiaries, in form and substance satisfactory to Foothill.
"TANGIBLE NET WORTH" means, with respect to any Person, as of
any date of determination, the difference of (a) such Person's total
stockholder's equity, MINUS (b) the sum of: (i) all Intangible Assets of such
Person, (ii) all of such Person's prepaid expenses (other than prepaid media
time), and (iii) all amounts due to such Person from Affiliates of such Person.
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"TRADEMARK SECURITY AGREEMENT" means that certain Trademark
Security Agreement, dated as of even date herewith, in form and substance
satisfactory to Foothill.
"VALUEVISION" means ValueVision International, Inc., a
Minnesota corporation.
"VALUEVISION AGREEMENT" means that certain letter agreement,
dated as of August 11, 1998, among ValueVision, NM Acquisition Co., LLC, and
Holdings.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
"YEAR 2000 COMPLIANT" means, with regard to any Person, that
all software in goods produced, sold, or utilized by and material to the
business operations or financial condition of such Person are able to interpret
and manipulate data on and involving all calendar dates correctly and without
causing an abnormal ending scenario, including in relation to dates in and after
the Year 2000.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" or "Holdings" is used in respect of a financial
covenant, financial test, or a related definition, it shall be understood to
mean Borrower or Holdings, as applicable, on a consolidated basis unless the
context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
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2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum Amount
LESS the Letter of Credit Usage, and (ii) the Borrowing Base LESS (A) the Letter
of Credit Usage, LESS (B) the aggregate amount of the Inventory Reserves, LESS
(C) the aggregate amount of the Landlord Lien Reserves. For purposes of this
Agreement, "Borrowing Base", as of any date of determination, shall mean the
result of:
(x) THE LESSER OF
(i) the sum of
(A) (1) 75% minus the Dilution
Reserve in respect of Accounts,
TIMES (2) the aggregate amount of
Eligible Accounts, PLUS
(B) the lesser of (1) 75% of the Net
Eligible Credit Card Proceeds and
(2) $3,000,000;
and
(ii) an amount equal to Borrower's
Collections with respect to Accounts
for the immediately preceding 45 day
period,
PLUS
(y) THE LOWEST OF
(i) $6,000,000,
(ii) the sum of (A) 40% of the value of
Eligible Landed Inventory, PLUS (B)
the lesser of $5,000,000, and 40% of
the value of Eligible In Transit
Inventory,
(iii) 85% of the net realizable value of
Eligible Inventory (which shall
constitute its orderly liquidation
value less estimated expenses of
liquidation thereof in each case as
reasonably determined by Foothill),
and
(iv) 50% of the amount of credit
availability created by
CLAUSE (X) above,
MINUS
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(z) the aggregate amount of reserves, if any,
established by Foothill under SECTION 2.1(B).
(b) Anything to the contrary in this Section notwithstanding,
Foothill shall have the right to establish reserves against the Borrowing Base
in such amounts as Foothill in its reasonable judgment (from the perspective of
an asset-based lender) shall deem necessary or appropriate (after consultation
in good faith with Borrower so long as no Default or Event of Default shall have
occurred and is continuing), including reserves on account of (i) sums that
Borrower is required to pay (such as taxes, assessments, insurance premiums,
commissions, royalties or other amounts payable under a licensing agreement, or,
in the case of leased assets, rents or other amounts payable under such leases)
and has failed to pay under any Section of this Agreement or any other Loan
Document, and (ii) without duplication of the foregoing, amounts owing by
Borrower to any Person to the extent secured by a Lien on, or trust over, any of
the Collateral, which Lien or trust, in the reasonable determination of Foothill
(from the perspective of an asset-based lender), would be likely to have a
priority superior to the Liens of Foothill (such as ad valorem taxes, or sales
taxes where given priority under applicable law) in and to such item of the
Collateral.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations to exceed
the Maximum Amount.
(d) Amounts borrowed pursuant to this SECTION 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue letters of credit for the account of Borrower (each, an
"L/C") or to issue guarantees of payment (each such guaranty, an "L/C Guaranty")
with respect to letters of credit issued by an issuing bank for the account of
Borrower. Foothill shall have no obligation to issue a Letter of Credit if any
of the following would result:
(i) the Letter of Credit Usage would exceed the
Borrowing Base LESS the amount of outstanding
Advances LESS the aggregate amount of Inventory
Reserves and reserves established under SECTION
2.1(B); or
(ii) the aggregate amount of all undrawn or
unreimbursed Letters of Credit (including
Inventory Letters of Credit) would exceed the
lower of: (x) the Maximum Amount LESS the amount
of outstanding Advances LESS the aggregate amount
of Inventory Reserves and reserves established
under SECTION 2.1(B); or (y) $7,500,000; or
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(iii) the outstanding Obligations would exceed the
Maximum Amount.
Borrower and Foothill acknowledge and agree that certain of the letters of
credit that are to be the subject of L/C Guarantees may be outstanding on the
Closing Date. Each Letter of Credit shall have an expiry date no later than 60
days prior to the date on which this Agreement is scheduled to terminate under
SECTION 3.4 (without regard to any potential renewal term) and all such Letters
of Credit shall be in form and substance acceptable to Foothill in its sole
discretion. If Foothill is obligated to advance funds under a Letter of Credit,
Borrower immediately shall reimburse such amount to Foothill and, in the absence
of such reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an Advance hereunder and, thereafter, shall bear interest
at the rate then applicable to Advances under SECTION 2.6.
(b) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred by
Foothill arising out of or in connection with any Letter of Credit. Borrower
agrees to be bound by the issuing bank's regulations and interpretations of any
Letters of Credit guarantied by Foothill and opened to or for Borrower's account
or by Foothill's interpretations of any L/C issued by Foothill to or for
Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower understands and agrees that Foothill shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following Borrower's instructions or those contained in the Letter of Credit
or any modifications, amendments, or supplements thereto. Borrower understands
that the L/C Guarantees may require Foothill to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by Foothill under any L/C Guaranty as a
result of Foothill's indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with such letter of credit and the related application. Borrower may or may not
be the "applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred
by Foothill relating to the letters of credit guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Foothill in
an amount equal to 105%
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of the maximum amount of Foothill's obligations under Letters of Credit, or (ii)
cause to be delivered to Foothill releases of all of Foothill's obligations
under outstanding Letters of Credit. At Foothill's discretion, any proceeds of
Collateral received by Foothill after the occurrence and during the continuation
of an Event of Default may be held as the cash collateral required by this
SECTION 2.2(E).
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or Foothill with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is
or shall be imposed or modified in respect of any Letters of
Credit issued hereunder, or
(B) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit,
or Letter of Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
SECTION 2.6(A)(I) OR (C)(I), as applicable. The determination by the issuing
bank or Foothill, as the case may be, of any amount due pursuant to this Section
2.2(f), as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
(g) Unless otherwise agreed by Borrower and Foothill, Foothill
is authorized to issue the Letters of Credit under this Agreement based upon the
telephonic or other instruction of any Person identified on SCHEDULE 2.2(G).
2.3 [INTENTIONALLY OMITTED.]
2.4 [INTENTIONALLY OMITTED.]
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2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1 AND
2.2 is greater than either the Dollar or percentage limitations set forth in
SECTIONS 2.1 AND 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under SECTION 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate. Except as provided in clause (c) below, all
Obligations (except for undrawn Letters of Credit) shall bear interest as
follows: (i) each LIBOR Rate Advance shall bear interest at a per annum rate of
3.00 percentage points above the Base LIBOR Rate; and (ii) all other Obligations
shall bear interest at a per annum rate of 0.25 percentage points above the
Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Foothill a fee
(in addition to the charges, commissions, fees, and costs set forth in SECTION
2.2(D)) equal to 1.25% per annum times the aggregate undrawn amount of all
outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default: (i) each LIBOR Rate Advance shall bear
interest at a per annum rate of 6.00 percentage points above the Base LIBOR
Rate, (ii) the Letter of Credit fee provided in SECTION 2.6(B) shall be
increased to 4.25% per annum times the aggregate undrawn amount of all
outstanding Letters of Credit, and (iii) all other Obligations shall bear
interest at a per annum rate equal to 3.25 percentage points above the Reference
Rate, and.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7.0% per annum. To the extent that
interest accrued hereunder at the rate set forth herein would be less than the
foregoing minimum daily rate, the interest rate chargeable hereunder for such
day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Borrower hereby authorizes Foothill, at its option,
without prior notice to Borrower, to charge such interest and Letter of Credit
fees, all Foothill Expenses (as and when incurred), the charges, commissions,
fees, and costs provided for in SECTION 2.2(D) (as and when accrued or
incurred), the fees and charges provided for in SECTION 2.11 (as and when
accrued or incurred), and all installments or other payments due under any Loan
Document to Borrower's Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any interest not
paid when due shall be compounded and shall thereafter accrue interest at the
rate then applicable to Advances hereunder.
(f) Computation. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately
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shall be increased or decreased by an amount equal to such change in the
Reference Rate. All interest and fees chargeable under the Loan Documents shall
be computed on the basis of a 360 day year for the actual number of days
elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.7 COLLECTION OF ACCOUNTS. Borrower shall at all times
maintain lockboxes (the "Lockboxes") and, immediately after the Closing Date,
shall instruct all Account Debtors with respect to the Accounts, General
Intangibles, Investment Property, and Negotiable Collateral of Borrower to remit
all Collections in respect thereof to such Lockboxes; PROVIDED, HOWEVER, that
(a) Account Debtors with respect to Credit Card Accounts shall remit Collections
in respect thereof to the Credit Card Processor which shall then wire transfer
the amount of such Collections to the Lockbox Account, and (b) Borrower may
permit Account Debtors to remit DE MINIMIS Collections to Borrower, so long as
the aggregate amount of such Collections shall not exceed $100,000 in any one
year and such Collections immediately upon receipt by Borrower shall be
deposited into a Lockbox Account. Borrower, Foothill, and the Lockbox Bank shall
enter into the Lockbox Agreements, which among other things shall provide for
the opening of a Lockbox Account for the deposit of Collections at a Lockbox
Bank. Borrower agrees that all Collections and other amounts received by
Borrower from any Account Debtor or any other source immediately upon receipt
shall be deposited into a Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrower without the prior written
consent of Foothill. Upon the terms and subject to the conditions set forth in
the Lockbox Agreements, all amounts received in each Lockbox Account shall be
wired each Business Day into an account (the "Foothill Account") maintained by
Foothill at a depositary selected by Foothill.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Foothill (whether from transfers to Foothill by
the Lockbox Bank pursuant to the Lockbox Agreements or otherwise) immediately
shall be applied provisionally to reduce the Obligations outstanding under
SECTION 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and is
made to the Foothill Account or unless and until such Collection item is honored
when presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge
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Borrower for 1 Business Day of `clearance' or `float' at the rate set forth in
SECTION 2.6(A)(I) or SECTION 2.6(C)(I), as applicable, on all Collections that
are received by Foothill (regardless of whether forwarded by the Lockbox Bank to
Foothill, whether provisionally applied to reduce the Obligations under SECTION
2.1, or otherwise). This across-the-board 1 Business Day clearance or float
charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging 1
Business Day of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrower shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances under this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Person, or without
instructions if pursuant to SECTION 2.6(E). Borrower agrees to establish and
maintain the Designated Account with the Designated Account Bank for the purpose
of receiving the proceeds of the Advances requested by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
Advance requested by Borrower and made by Foothill hereunder shall be made to
the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances made by
Foothill to Borrower or for Borrower's account, including, accrued interest,
Foothill Expenses, and any other payment Obligations of Borrower. In accordance
with SECTION 2.8, the Loan Account will be credited with all payments received
by Foothill from Borrower or for Borrower's account, including all amounts
received in the Foothill Account from any Lockbox Bank. Foothill shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Foothill unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Foothill written objection thereto describing the
error or errors contained in any such statements. Foothill, upon the written
request of Borrower, shall provide to Borrower such information supporting the
amounts charged to the Loan Account as Borrower may reasonably request.
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2.11 FEES. Borrower shall pay to Foothill the following fees:
(a) Origination Fee. On the Closing Date, an origination
fee of $150,000;
(b) Unused Line Fee. On the first day of each month
during the term of this Agreement, an unused line fee in an amount equal to
0.25% per annum times the Average Unused Portion of the Maximum Amount.
(c) [intentionally omitted];
(d) Financial Examination, Documentation, and Appraisal
Fees. (i) Foothill's customary fee of $650 per day per examiner, plus
out-of-pocket expenses for each financial analysis and examination (i.e.,
audits) of Borrower performed by personnel employed by Foothill, and the actual
charges paid or incurred by Foothill if it elects to employ the services of one
or more third Persons to perform such financial analysis and examinations (i.e.
audits) of Borrower, PROVIDED, HOWEVER, that so long as no Event of Default has
occurred and is continuing, Borrower shall have no obligation to pay such fees,
out-of-pocket expenses, or charges for such financial analysis and examinations
in excess of 20 days per calendar year; and (ii) Foothill's customary appraisal
fee of $1,500 per day per appraiser, plus out-of-pocket expenses for each
appraisal of the Collateral performed by personnel employed by Foothill; and,
the actual charges paid or incurred by Foothill if it elects to employ the
services of one or more third Persons, PROVIDED, HOWEVER, that Borrower shall
have no obligation to pay such fees, out-of-pocket costs, and charges for
appraisals performed more frequently than (A) annually, so long as Excess
Availability is equal to or greater than $10,000,000, (B) semi-annually, so long
as Excess Availability is equal to or greater than $5,000,000 and less than
$10,000,000, and (C) quarterly so long as Excess Availability is less than
$5,000,000; and
(e) Servicing Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $1,500.
2.12 LIBOR RATE ADVANCES.
(a) INTEREST AND INTEREST PAYMENT DATES. Borrower shall
have the option (the "LIBOR Option") to have interest on a portion of the
Advances be charged at the LIBOR Rate. Interest on that portion of the Advances
bearing interest at the LIBOR Rate ("LIBOR Rate Advances") shall be payable on
the last day of each month and on the last day of each Interest Period
applicable thereto and may, at Foothill's option, be charged directly to the
Loan Account. Interest at the LIBOR Rate shall be calculated for each month (or
portion thereof) based on the number of days elapsed and a year of 360 days. On
the last day of each applicable Interest Period, unless Borrower has properly
exercised the LIBOR Option with respect thereto, the interest rate applicable to
such LIBOR Rate Advances automatically shall convert to the rate of interest
then applicable to non-LIBOR Rate Advances under SECTION 2.6.
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At any time that an Event of Default has occurred and is continuing, Foothill
shall have the right to convert the interest rate on all outstanding LIBOR Rate
Advances to the rate then applicable to non-LIBOR Rate Advances under SECTION
2.6.
(b) LIBOR ELECTION.
(i) Borrower may, at any time and from
time to time, so long as no Event of Default
has occurred and is continuing, elect to
exercise the LIBOR Option by notifying
Foothill prior to 11:00 a.m. (California time)
at least 3 Business Days prior to the
commencement of the proposed Interest Period
(the "LIBOR Deadline"). Notice of Borrower's
election of the LIBOR Option for a permitted
portion of the Advances and an Interest Period
pursuant to this Section shall be made by
delivery to Foothill of a LIBOR Notice in the
form of EXHIBIT 2.12(B) hereto received by
Foothill before the LIBOR Deadline, or by
telephonic notice received by Foothill before
the LIBOR Deadline (to be confirmed by
delivery to Foothill of the LIBOR Notice
received by Foothill prior to 5:00 p.m.
(California time) on the same day; PROVIDED,
HOWEVER, that Borrower's failure to deliver
such confirming LIBOR Notice shall not affect
the applicability of such rate if Borrower's
election is implemented by Foothill.
(ii) Each LIBOR Notice pursuant to this
Section shall be irrevocable and binding on
Borrower. In connection with each LIBOR Rate
Advance, Borrower shall indemnify, defend, and
hold Foothill harmless against any loss, cost, or
expense incurred by Foothill as a result of any
failure to fulfill, on or before the date
specified in the LIBOR Notice, the applicable
conditions set forth herein or the termination,
prior to the end of the applicable Interest
Period, of the applicability of interest at the
LIBOR Rate, as provided hereunder, including any
loss (including loss of anticipated profits),
cost, or expense incurred by reason of the
liquidation or reemployment of deposits or other
funds acquired or committed to be acquired by
Foothill or its participants to fund the
requested LIBOR Rate Advances which, as a result
of such failure, are not so employed on such date
(such losses, costs, and expenses, collectively,
"Funding Losses").
(iii) Borrower shall have not more than five
Interest Periods in effect at any given time.
Borrower only may exercise the LIBOR Option for
LIBOR Rate Advances of at least $1,000,000 and
integral multiples of $500,000 in excess thereof.
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(c) PREPAYMENTS. Borrower may prepay LIBOR Rate Advances at
any time; PROVIDED, HOWEVER, that in the event that LIBOR Rate Advances are
prepaid on any date that is not the last day of the Interest Period applicable
thereto, including as a result of any automatic prepayment through the required
application by Foothill of proceeds of Accounts and other Collateral received by
Foothill or for any other reason, including early termination of the term of
this Agreement or acceleration of the Obligations pursuant to the terms hereof,
Borrower shall indemnify, defend, and hold Foothill harmless against any and all
Funding Losses that arise in connection with such prepayment. Anything to the
contrary contained herein notwithstanding, if the outstanding Advances are
reduced below the balance of the outstanding LIBOR Rate Advances by virtue of
automatic prepayment from proceeds of Accounts and other Collateral, then
Foothill automatically will make an Advance to Borrower so that the outstanding
Advances will equal the outstanding LIBOR Rate Advances so long as Borrower has
sufficient borrowing availability under the formulas set forth herein and
subject to the reserves and applicable sublimits hereunder.
(d) ADJUSTMENTS TO THE LIBOR RATE. The LIBOR Rate may be
automatically adjusted by Foothill on a prospective basis to take into account
the additional or increased cost to Foothill of maintaining any necessary
reserves for Eurodollar deposits or increased costs due to change in applicable
law occurring subsequent to the commencement of the then applicable Interest
Period, including but not limited to changes in tax laws (except changes of
general applicability in corporate income tax laws) and changes in the reserve
requirements imposed by the Board of Governors of the Federal Reserve System (or
any successor), excluding the Reserve Percentage, that increase or would
increase the costs of funding loans bearing interest at the LIBOR Rate. Foothill
shall give Borrower notice of such a determination and adjustment and Borrower
may, by notice to Foothill: (i) require Foothill to furnish to Borrower a
statement setting forth the basis for adjusting such LIBOR Rate and the method
for determining the amount of such adjustment; and/or (ii) repay the LIBOR Rate
Advances, or portions thereof, with respect to which such adjustment is made, as
appropriate.
(e) TERMINATION OF LIBOR OPTION. In the event that any change
in circumstances or any law, regulation, treaty or directive, or any change
therein or in the interpretation of application thereof, shall at any time after
the date hereof, in the reasonable opinion of Foothill, make it unlawful or
impractical for Foothill to fund or maintain an LIBOR Advance or to continue
such funding or maintaining, or to determine or charge interest rates at the
LIBOR Rate, Foothill shall give notice of such circumstances to the Borrower and
(i) in the case of any LIBOR Rate Advances which are outstanding, the date
specified in Foothill's notice shall be deemed to be the last day of the
Interest Period of such LIBOR Rate Advances, and interest upon the LIBOR Rate
Advances then outstanding shall thereafter accrue at the rate then applicable to
Advances as provided in SECTION 2.6(A)(I) OR 2.6(C)(III)(1), as the case may be,
and (ii) Foothill shall not be obligated to permit Borrower to elect the LIBOR
Option as to any Advances until Foothill determines that it would no longer be
unlawful or impractical to do so.
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(f) NO REQUIREMENT OF MATCHED FUNDING. Notwithstanding
anything to the contrary contained herein, neither Foothill nor any participant
is required to actually acquire United States dollar deposits on the London
Interbank Market to fund or otherwise match fund any Advances as to which
interest accrues at the LIBOR Rate. Provisions of this SECTION 2.12 shall apply
as if Foothill and/or its participants had match funded any Advances as to which
interest is accruing at the LIBOR Rate by acquiring United States dollar
deposits in the London Interbank Market for each Interest Period in the amount
of the LIBOR Rate Advances. Funding Losses of Foothill shall include the
aggregate Funding Losses of Foothill and its participants in the LIBOR Rate
Advances.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE OR LETTER OF CREDIT.
The obligation of Foothill to make the initial Advance or to
issue the initial Letter of Credit is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) the Closing Date shall occur on or before December 11,
1998;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) the Copyright Security Agreement;
(iv) the Patent Security Agreement;
(v) the Trademark Security Agreement;
(vi) the Borrower Stock Pledge Agreement, together
with the certificates of Stock pledged pursuant thereto and
stock powers, executed in blank, in respect of such
certificates of Stock;
(vii) the Holdings Guaranty;
(viii) the Holdings Security Agreement;
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(ix) the Holdings Stock Pledge Agreement, together
with the certificates of Stock pledged pursuant thereto and
stock powers, executed in blank in respect of such
certificates of Stock;
(x) the Holdings Subordination Agreement;
(xi) the Notices to Depository Institutions;
(xii) the Pay-Off Letter;
(xiii) the Holdings Copyright Security Agreement;
(xiv) the Holdings Patent Security Agreement;
(xv) the Holdings Trademark Security Agreement;
(xvi) the Provenance Agreement;
(xvii) the Subsidiary Stock Pledge Agreement, together
with the certificates of Stock Pledged pursuant thereto and
stock powers, executed in blank in respect of such
certificates of Stock; and
(xviii) the Intercompany Subordination Agreement;
(d) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(f) Foothill shall have received a certificate of status with
respect to Borrower, dated within 10 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(g) Foothill shall have received certificates of status with
respect to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(h) Foothill shall have received a certificate from the
Secretary of Holdings attesting to the resolutions of Holdings' Board of
Directors authorizing the
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executive committee of such Board of Directors to act on behalf of the Board of
Directors relative to execution, delivery, and performance of the Loan Documents
to which Holdings is a party, and the resolutions of such executive committing
authorizing Holdings' execution, delivery, and performance of the Holdings
Guaranty and the other Loan Documents to which Holdings is a party and
authorizing specific officers of Holdings to execute the same;
(i) Foothill shall have received copies of Holding's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of Holdings;
(j) Foothill shall have received a certificate of status with
respect to Holdings, dated within 10 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Holdings, which certificate shall indicate that Holdings is in good standing in
such jurisdiction;
(k) Foothill shall have received certificates of status with
respect to Holdings, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Holdings is in good
standing in such jurisdictions;
(l) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by SECTION 6.10, the
form and substance of which shall be satisfactory to Foothill and its counsel;
(m) Foothill shall have received duly executed certificates of
title with respect to that portion of the Collateral that is subject to
certificates of title;
(n) either (i) Foothill shall have received a Collateral
Access Agreement with respect to Borrower's facility in Phoenix, Arizona, or
(ii) Foothill shall have implemented Landlord Lien Reserves with respect to such
facility;
(o) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
(p) Foothill shall have received appraisals of the Equipment,
satisfactory to Foothill;
(q) Foothill shall have received copies of all Credit Card
Processing Agreements certified by an officer of Borrower, which shall be
satisfactory to Foothill and its counsel;
(r) Foothill shall have entered into an agreement, in form and
substance satisfactory to Foothill, with each Credit Card Processor pursuant to
which such Credit Card Processor has agreed to wire transfer the proceeds of all
Credit Card Accounts received by such Credit Card Processor to the Lockbox
Account.
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(s) Foothill shall have received satisfactory evidence that
all tax returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises (including
real property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest;
(t) Foothill shall have received reference checks regarding
key management of Borrower, the results of which shall in each case satisfactory
to Foothill;
(u) Foothill shall have received copies of the Preferred Stock
Documents, certified by an officer of Holdings, which shall have been reviewed
by Foothill's counsel, the results of such review to be satisfactory to
Foothill;
(v) Foothill shall have received copies of the ValueVision
Agreement, certified by an officer of Holdings, which shall have been reviewed
by Foothill's counsel, the results of such review to be satisfactory to
Foothill;
(w) Foothill shall have received satisfactory evidence that
Borrower or Holdings, as applicable, has filed applications for the registration
of Borrower's copyrights or Holdings' copyrights, as applicable, other than
Obsolete Copyrights, that are the principal components of Borrower's Copyright
Inventory;
(x) Foothill shall have received satisfactory evidence that:
(i) Borrower shall have received an amendment to the financing statement filed
by Alexander G. Langer with the Pennsylvania Secretary of the Commonwealth,
amending the collateral covered thereby to be limited to the Flying Lure
product; (ii) Borrower shall have received termination statements relative to
the financing statements filed by T-Fal Corporation with the Pennsylvania
Secretary of the Commonwealth, and the Arizona Secretary of State; and (iii)
Borrower shall have satisfied the tax obligations for the tax period January 1,
1988 through June 30, 1990 represented by that certain Certified Copy of Lien in
the almount of $104,834.17, recorded with the Court of Common Pleas of
Philadelphia County, Pennsylvania against Media Arts International Ltd. and that
such Lien has been terminated.
(y) Foothill shall have received copies of such of Borrower's
or Holdings licensing agreements as Foothill shall request, which shall have
been reviewed by Foothill's counsel, the results of such review to be
satisfactory to Foothill;
(z) Foothill shall have received a certificate of an officer
of Holdings certifying that all actions and proceedings required by the Series E
Stock Purchase Agreement, applicable law or regulation have been taken and the
transactions required thereunder (including the receipt by Holdings of cash
proceeds of not less than $20,000,000 less expenses and costs permitted by the
Series E Stock Purchase Agreement) have been duly and validly taken and
consummated, and that no court of competent jurisdiction has issued any
injunction, restraining order, or other order which prohibits the consummation
of the transactions described in the Series E Stock Purchase Agreement;
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(aa) Foothill shall have received a certificate of an officer
of Holdings certifying that all actions and proceedings required by the Series D
Stock Purchase Agreement, applicable law or regulation have been taken and the
transactions required thereunder have been duly and validly taken and
consummated, and that no court of competent jurisdiction has issued any
injunction, restraining order, or other order which prohibits the consummation
of the transactions described in the Series D Stock Purchase Agreement;
(bb) Foothill shall have received satisfactory evidence that
the Indebtedness of Borrower and Holdings to First Union National Bank ("First
Union") has been satisfied in full and the liens in favor of First Union have
been released, together with copies of the termination statements relative to
all financing statements filed by First Union, and evidence that such
termination statements have been filed;
(cc) Borrower shall have entered into a sub-lease with
Holdings with respect to Borrower's facilities in Phoenix, Arizona;
(dd) Borrower shall have (i) entered into a sub-license
agreement, in form and substance reasonably satisfactory to Foothill, with
respect to each license agreement entered into by Holdings as licensee, and (ii)
into a license agreement, subject to SECTION 7.23, with respect to any
copyrights, trademarks, patents, or other intellectual property owned by
Holdings, in each case, relative to products currently sold or marketed by
Borrower;
(ee) Foothill shall have entered into an agreement, in form
and substance satisfactory to Foothill, with West Teleservices Corp. ("West"),
pursuant to which West has agreed to provide telemarketing services to Foothill
in connection with Foothill's exercise of its remedies hereunder;
(ff) Borrower shall have Excess Availability, as of the
Closing Date, after giving effect to the initial Advances and Letters of Credit
of not less than $6,000,000; and
(gg) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND ALL LETTERS OF
CREDIT.
The following shall be conditions precedent to all Advances
and all Letters of Credit:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
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(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to the
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill
the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by SECTION 6.10, the form and substance of
which shall be satisfactory to Foothill and its counsel.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is 3 years from the Closing Date and automatically shall be
renewed for successive 1 year periods thereafter (each such successive 1 year
period, a "Renewal Period"), unless sooner terminated pursuant to the terms
hereof. Either party may terminate this Agreement effective on the Renewal Date
or on any 1 year anniversary of the Renewal Date by giving the other party at
least 90 days prior written notice. The foregoing notwithstanding, Foothill
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated. If Borrower has sent a notice of
termination pursuant to the provisions of SECTION 3.4, but fails to pay the
Obligations in full on the date set forth in said notice, then Foothill may, but
shall not be required to, renew this Agreement for an additional term of 1 year.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION
3.4 that allow termination of this Agreement by Borrower only on the Renewal
Date and certain anniversaries thereof notwithstanding, Borrower has the option,
at any time upon 90 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash,
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the Obligations (including an amount equal to 105% of the undrawn amount of the
Letters of Credit), in full, together with the Applicable Early Termination
Premium.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the
Applicable Early Termination Premium. The Applicable Early Termination Premium
shall be presumed to be the amount of damages sustained by Foothill as the
result of the early termination and Borrower agrees that it is reasonable under
the circumstances currently existing. The Applicable Early Termination Premium
provided for in this SECTION 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Foothill's security interests
in the Collateral shall attach to all Collateral without further act on the part
of Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for the sale of Inventory to
buyers in the ordinary course of business, Borrower has no authority, express or
implied, to dispose of any item or portion of the Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the written request of Foothill, shall endorse and
deliver physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, INVESTMENT
PROPERTY, AND NEGOTIABLE COLLATERAL.
At any time an Event of Default has occurred and is
continuing, Foothill or Foothill's designee may (a) notify customers or Account
Debtors of Borrower that the Accounts, General Intangibles, Investment Property,
or Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein, and (b) collect the Accounts, General Intangibles,
Investment Property, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for Foothill, as Foothill's trustee, any Collections that it
receives and immediately will deliver said Collections to Foothill in their
original form as received by Borrower.
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4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, in form satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral, and in order to fully
consummate all of the transactions contemplated hereby and under the other the
Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in SECTION 4.4, sign the name of Borrower on any of
the documents described in SECTION 4.4, (b) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure, sign
Borrower's name on any invoice or bill of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse Borrower's name on any Collection item that may come into
Foothill's possession, (e) at any time that an Event of Default has occurred and
is continuing or Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under Borrower's policies of insurance and make all determinations and
decisions with respect to such policies of insurance, and (g) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as Borrower's attorney, and each and every one of Foothill's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid and performed and Foothill's
obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter, during
normal business hours, to inspect Borrower's Books and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral.
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5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement,
Borrower makes the following representations and warranties which shall be true,
correct, and complete in all respects as of the date hereof, and shall be true,
correct, and complete in all respects as of the Closing Date, and at and as of
the date of the making of each Advance or issuance of each Letter of Credit
thereafter, as though made on and as of the date of such Advance or Letter of
Credit (except to the extent that such representations and warranties relate
solely to an earlier date) and such representations and warranties shall survive
the execution and delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to purchasers in the ordinary course of Borrower's
business, unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation, other than such Eligible
Accounts with respect to which the Inventory giving rise to such Account is the
subject of a 30 day free trial period. The property giving rise to such Eligible
Accounts has been delivered to the purchaser, or to the purchaser's agent for
immediate shipment to and unconditional acceptance by the purchaser. Borrower
has not received notice of actual or imminent bankruptcy, insolvency, or
material impairment of the financial condition of any Account Debtor regarding
any Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good and
merchantable quality.
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on SCHEDULE 6.12 or otherwise permitted by SECTION 6.12.
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of Borrower is located at the address indicated in the preamble
to this Agreement and Borrower's FEIN is 86-0468696.
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5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified reasonably could be expected to have a
Material Adverse Change.
(b) Set forth on SCHEDULE 5.8, is a complete and accurate
list of Borrower's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each class of
common and preferred Stock authorized for each of such Subsidiaries; and (iii)
the number and the percentage of the outstanding shares of each such class owned
directly or indirectly by Borrower. All of the outstanding Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on SCHEDULE 5.8, no Stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for Stock) of any direct or indirect Subsidiary of Borrower is
subject to the issuance of any security, instrument, warrant, option, purchase
right, conversion or exchange right, call, commitment or claim of any right,
title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party do not and will
not (i) violate any provision of federal, state, or local law or regulation
(including Regulations T, U, and X of the Federal Reserve Board) applicable to
Borrower, the Governing Documents of Borrower, or any order, judgment, or decree
of any court or other Governmental Authority binding on Borrower, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation or material lease of
Borrower, (iii) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (iv) require any approval of stockholders or any approval or
consent of any Person under any material contractual obligation of Borrower.
(c) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution, delivery, and
performance by Borrower of this Agreement and the Loan Documents to which
Borrower is a party do not and will not require any registration with, consent,
or approval of, or notice to, or other action with or by, any federal, state,
foreign, or other Governmental Authority or other Person.
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(d) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to
its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and first priority Liens, subject only
to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending
by or against Borrower before any court or administrative agency and Borrower
does not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, consent
decrees, or prosecutions involving Borrower or any guarantor of the Obligations,
except for: (a) ongoing collection matters in which Borrower is the plaintiff;
(b) matters disclosed on SCHEDULE 5.10; and (c) matters arising after the date
hereof that, if decided adversely to Borrower, reasonably could not be expected
to result in a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower or any guarantor of the Obligations that have been
delivered by Borrower to Foothill have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
Borrower's (or such guarantor's, as applicable) financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or such
guarantor, as applicable) since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.12 SOLVENCY. Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.13 BENEFIT PLANS. None of Borrower, its Subsidiaries, or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan.
5.14 ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials. None of
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by Borrower. Borrower has
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not received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency concerning
any action or omission by Borrower resulting in the releasing or disposing of
Hazardous Materials into the environment.
5.15 BROKERAGE FEES. No brokerage commission or finders fees
has or shall be incurred or payable in connection with or as a result of
Borrower's obtaining financing from Foothill under this Agreement, and Borrower
has not utilized the services of any broker or finder in connection with
Borrower's obtaining financing from Foothill under this Agreement.
5.16 YEAR 2000 COMPLIANCE.
(a) On the basis of a comprehensive inventory, review and
assessment currently being undertaken by Borrower of the computer applications
utilized by Borrower or contained in products produced or sold by Borrower, and
upon inquiry made of such Obligor's material suppliers and vendors, to the best
of the knowledge of Borrower's management, Borrower, each of its products, and
all such suppliers and vendors will be Year 2000 Compliant before October 1,
1999.
(b) Borrower (i) has undertaken a detailed inventory,
review and assessment of all areas within Borrower's business and operations
that could be adversely affected by the failure of Borrower or its products to
be Year 2000 Compliant on a timely basis, (ii) is developing a detailed plan and
timeline for becoming Year 2000 Compliant on a timely basis, and (iii) to date,
is implementing that plan in accordance with that timetable in all material
respects. Borrower reasonably anticipates that Borrower will be Year 2000
Compliant on a timely basis.
5.17 CONSENT DECREES. Borrower is not selling or marketing any
products that are the subject of the consent decrees set forth on SCHEDULE 5.17.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system
of accounting that enables Borrower to produce financial statements in
accordance with GAAP, and maintain records pertaining to the Collateral that
contain information as from time to time may be requested by Foothill. Borrower
also shall keep a modern inventory reporting system that shows all additions,
sales, claims, returns, and allowances with respect to the Inventory.
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6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill:
(a) on each Business Day, a report detailing the
aggregate amount of Credit Card Accounts together with a reconciliation to the
previous such report provided to Foothill, and (ii) a copy of each Credit Card
Processor Service Summary specifying the amount to be wire transferred to
Borrower by such Credit Card Processor,
(b) on a weekly basis and, in any event, by no later than
the 3rd Business Day following the end of each week, (i) a detailed calculation
of the Borrowing Base together with a reconciliation to the detailed calculation
of the Borrowing Base previously provided to Foothill, (ii) a detailed aging, by
total, of the Installment Accounts, (iii) a detailed aging, by total, of the
Accounts (other than Installment Accounts), (iv) Inventory reports specifying
the value of Borrower's Inventory, at the lower of cost or market on a basis
consistent with Borrower's current and historical accounting practices, by
category, (v) documents of title relative to Eligible In-Transit Inventory,
together with evidence of Borrower's payment for such Eligible In-Transit
Inventory, and (vi) a report summarizing the Eligible In-Transit Inventory;
(c) on a monthly basis and, in any event, by no later
than the 30th day of each month during the term of this Agreement, (i) a summary
aging, by vendor, of Borrower's accounts payable and any book overdraft, and
(ii) a summary of royalties, commissions, and other amounts payable pursuant to
any licensing agreement together with a detailed listing of any such royalties,
commissions, and other amounts that are past due, a calculation of the Dilution
for the prior month;
(d) on a monthly basis and, in any event, by no later
than the first Business Day after each payment of rent or other amounts due
under the lease relative to Borrower's Phoenix facility, evidence, reasonably
satisfactory to Foothill, that such payment has been made;
(e) on a quarterly basis, a copy of Borrower's computer
system back-up tapes;
(f) upon request, copies of invoices in connection with
the Accounts, customer statements, credit memos, remittance advices and reports,
deposit slips, shipping and delivery documents in connection with the Accounts
and for Inventory and Equipment acquired by Borrower, purchase orders and
invoices; and
(g) such other reports as to the Collateral or the
financial condition of Borrower as Foothill may request from time to time.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after the
end of each month during each of Holdings' fiscal years, a company prepared
balance sheet and income statement (in each case, on a consolidated and
consolidating basis) covering the operations of Holdings and its
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Subsidiaries during such period; (b) as soon as available, but in any event
within 50 days of the end of each of Holdings' fiscal quarters, a company
prepared balance sheet, income statement, and statement of cash flows (in each
case, on a consolidated and, except for such statement of cash flows, a
consolidating basis) covering the operations of Holdings and its Subsidiaries
during such period; and (c) as soon as available, but in any event within 105
days after the end of each of Holdings' fiscal years, financial statements (on a
consolidated and consolidating basis) of Holdings for each such fiscal year,
audited by independent certified public accountants reasonably acceptable to
Foothill and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do not have
knowledge of the existence of any Default or Event of Default. Such audited
financial statements shall include a balance sheet, profit and loss statement,
and statement of cash flow and, if prepared, such accountants' letter to
management. If Borrower is a parent company of one or more Subsidiaries, or
Affiliates, or is a Subsidiary or Affiliate of another company, then, in
addition to the financial statements referred to above, Borrower agrees to
deliver financial statements prepared on a consolidating basis so as to present
Borrower and each such related entity separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Holdings' Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Holdings with the
Securities and Exchange Commission, if any, within 3 Business Days after the
same are filed, or any other information that is provided by Holdings to its
shareholders, and any other report reasonably requested by Foothill relating to
the financial condition of Borrower.
Each month, together with the financial statements provided
pursuant to SECTION 6.3(A), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (i) all financial
statements delivered or caused to be delivered to Foothill hereunder have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present the financial condition of Borrower, (ii) to the
best of such officer's knowledge the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), (iii) for each month that also is
the date on which a financial covenant in SECTION 7.20 is to be tested, a
Compliance Certificate demonstrating in reasonable detail compliance at the end
of such period with the applicable financial covenants contained in SECTION
7.20, and (iv) on the date of delivery of such certificate to Foothill there
does not exist any condition or event that constitutes a Default or Event of
Default (or, in the case of clauses (i), (ii), or (iii), to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and what action Borrower has taken, is taking, or proposes to take
with respect thereto).
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Borrower shall, from time to time, upon Foothill's written
request, issue written instructions to its independent certified public
accountants authorizing them to communicate with Foothill and to release to
Foothill whatever financial information concerning Borrower that Foothill may
reasonably request. Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of Borrower's financial statements, papers related
thereto, and other accounting records of any nature in their possession, and to
disclose to Foothill any information they may have regarding Borrower's business
affairs and financial conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each future
federal income tax return of Borrower or any consolidated tax group as to which
Borrower belongs, and any amendments thereto, within 30 days of the filing
thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations to deliver its annual financial statements at the time when Borrower
provides Holdings' audited financial statements to Foothill and copies of all
federal income tax returns as soon as the same are available and in any event no
later than 30 days after the same are required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If any Account Debtor returns any
Inventory to Borrower, Borrower promptly shall determine the reason for such
return (in accordance with Borrower's historical practices) and, if Borrower
accepts such return, issue a credit memorandum in the appropriate amount to such
Account Debtor. Borrower shall make all such credit memoranda available for
Foothill's reasonable inspection.
6.7 TITLE TO EQUIPMENT. Upon Foothill's written request,
Borrower immediately shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of, certificates of title, or applications for title to
any items of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Borrower or any of its property to be paid in full, before delinquency
or before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a Permitted Protest.
Borrower shall make due and timely payment or deposit of all such federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Foothill, on Foothill's written demand, appropriate
certificates
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attesting to the payment thereof or deposit with respect thereto. Borrower will
make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Foothill with proof satisfactory to Foothill
indicating that Borrower has made such payments or deposits.
6.10 INSURANCE.
(a) At its expense, maintain insurance respecting the
Collateral wherever located, covering loss or damage by fire, theft, explosion,
and all other hazards and risks as ordinarily are insured against by other
Persons engaged in the same or similar businesses. Borrower also shall maintain
business interruption, public liability, and product liability insurance, as
well as insurance against larceny, embezzlement, and criminal misappropriation
All such policies of insurance shall be in such amounts and with such insurance
companies as are reasonably satisfactory to Foothill. Borrower shall deliver the
originals of all such policies to Foothill with 438 BFU lender's loss payable
endorsements or other satisfactory lender's loss payable endorsements, naming
Foothill as sole loss payee or additional insured, as appropriate. Each policy
of insurance or endorsement shall contain a clause requiring the insurer to give
not less than 30 days prior written notice to Foothill in the event of
cancellation of the policy for any reason whatsoever. If Borrower fails to
provide and pay for such insurance, Foothill may, at its option, but shall not
be required to, procure the same and charge Borrower's Loan Account therefor.
(b) Borrower shall give Foothill prompt notice of any
material loss covered by such insurance and payable to Borrower. Borrower agrees
that Foothill shall have the exclusive right to adjust any casualty losses
payable to Borrower under any such insurance policies in excess of $50,000,
without any liability to Borrower whatsoever in respect of such adjustments. Any
monies received as payment for any loss under any insurance policy mentioned
above (other than liability insurance policies) or as payment of any award or
compensation for condemnation or taking by eminent domain, shall be paid over to
Foothill to be applied at the option of Foothill either to the prepayment of the
Obligations without premium, in such order or manner as Foothill may elect, or
shall be disbursed to Borrower under staged payment terms reasonably
satisfactory to Foothill for application to the cost of repairs, replacements,
or restorations.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory
and Equipment only at the locations identified on SCHEDULE 6.12; provided,
however, that Borrower may amend SCHEDULE 6.12 so long as such amendment occurs
by written notice to Foothill not less than 30 days prior to the date on which
the Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United
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States, and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests in such assets and also
provides to Foothill a Collateral Access Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not result in and reasonably could not
be expected to result in a Material Adverse Change.
6.14 [INTENTIONALLY OMITTED.]
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest.
6.16 BROKERAGE COMMISSIONS. Pay any and all brokerage
commission or finders fees incurred by in connection with or as a result of
Borrower's obtaining financing from Foothill under this Agreement.
6.17 ROYALTIES. Pay when due all royalties, commissions, and
other amounts payable under any licensing agreement to which Borrower is a
party, unless such payments are the subject of a Permitted Protest; PROVIDED,
HOWEVER, that Borrower, in its reasonable business judgment, may elect to not
pay such royalties, commissions, and other amounts when due, so long as (i) the
failure to pay such royalties, commissions, and other amounts when due does not
result in any licensing agreement from being terminated, and (ii) reports
submitted by Borrower to Foothill pursuant to SECTION 6.2 include such unpaid
royalties, commissions, and other amounts as past due. If Borrower so elects to
not pay such royalties, commissions, and other amounts when due, then Foothill
shall have the right to establish reserves against the Borrowing Base in
accordance with SECTION 2.1(B).
6.18 COPYRIGHTS. Record, or cause Holdings to record, with the
United States Copyright Office, copyrights relative to copyrightable material
that is the principal component of any of Borrower's Copyright Inventory, prior
to or contemporaneously with the completion of a test-market period (which
period shall not exceed 8 weeks) with respect to such Copyright Inventory;
PROVIDED, HOWEVER, that, if Borrower elects to discontinue any such Copyright
Inventory after such test market period, then Borrower shall have no obligation
to record, or cause Holdings to record, with the United States Copyright Office
the copyrightable material that is the principal component of such Copyright
Inventory. At such time as Borrower or Holdings shall record such copyrightable
material with the United States Copyright Office, Borrower shall provide to
Foothill such information relative to such copyrightable material as Foothill
shall reasonably require in order to perfect Foothill's security interests in
such copyrightable material.
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6.19 LICENSE AGREEMENTS. Borrower shall enter into a
sub-license agreement, in form and substance reasonably satisfactory to
Foothill, with respect to each license agreement heretofore or hereafter entered
into by Holdings as licensee, relative to products marketed by Borrower.
Borrower shall enter into a license agreement, subject to SECTION 7.23, with
respect to any copyrights, trademarks, patents, or other intellectual property
owned by Holdings relative to products marketed by Borrower.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's prior
written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together
with Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in SCHEDULE 7.1;
(c) Indebtedness secured by Permitted Liens;
(d) Indebtedness to Holdings, PROVIDED, that such
Indebtedness is the subject of the Holdings Subordination Agreement;
(e) Indebtedness to other Holdings' Subsidiaries,
PROVIDED, that such Indebtedness is the subject of the Intercompany
Subordination Agreement; and
(f) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this SECTION 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any Lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is
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<PAGE>
refinanced under SECTION 7.1(F) and so long as the replacement Liens only
encumber those assets or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
merger, consolidation, reorganization, or recapitalization, or reclassify its
Stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets.
7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or
otherwise dispose of any of Borrower's properties or assets other than Permitted
Dispositions.
7.5 CHANGE NAME. Without 30 days prior written notice to
Foothill, change Borrower's name, FEIN, corporate structure (within the meaning
of Section 9402(7) of the Code), or identity, or add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.7 NATURE OF BUSINESS. Make any change in the principal
nature of Borrower's business; PROVIDED, HOWEVER, that Borrower may enter into
an agreement to outsource Borrower's fulfillment, customer service, and
information systems operations currently being performed by Borrower.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
SECTION 7.1(F), prepay, redeem, retire, defease, purchase, or otherwise acquire
any Indebtedness owing to any third Person, other than the Obligations in
accordance with this Agreement, PROVIDED, HOWEVER, that Borrower may make
payments of principal and interest on Borrower's Indebtedness to Holdings or the
other Holdings' Subsidiaries, if any, so long as (i) no Event of Default shall
have occurred and be continuing or would result from such payment, and (ii)
after giving effect to such payment, Borrower shall have Excess Availability of
not less than $3,000,000; and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness
permitted under SECTIONS 7.1(B) , (C), (D), (E), OR (F).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
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7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory
on bill and hold, sale or return, sale on approval, or other conditional terms
of sale; PROVIDED, HOWEVER, that Borrower may sell Inventory subject to a 30 day
free trial period.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or other property, other than Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding ; PROVIDED, HOWEVER, that Borrower may make Permitted
Distributions so long as (a) no Event of Default has occurred and is continuing
or would result therefrom, and (b) after giving effect thereto, Borrower has
Excess Availability of not less than $3,000,000. The foregoing notwithstanding,
nothing in this section shall prohibit payments by Borrower to Holdings (y) on
account of Borrower's Indebtedness to Holdings permitted under to SECTION 7.8,
or (z) pursuant to the terms of an agreement between Holdings and Borrower
permitted under SECTION 7.14 (including, but not limited to, royalties,
commissions, or other amounts due under any licensing agreements or
sub-licensing agreements between Holdings and Borrower), in each case, to the
extent such payments are not a distribution or a dividend on any of Borrower's
Stock.
7.12 ACCOUNTING METHODS. Modify or change its method of
accounting (except such modifications or changes that are in accordance with
GAAP, in which Borrower's independent certified public accounting firm agrees,
and that are fully disclosed to Foothill) or enter into, modify, or terminate
any agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
Borrower's accounting records without said accounting firm or service bureau
agreeing to provide Foothill information regarding the Collateral or Borrower's
financial condition. Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant to or in
accordance with this Agreement, and agrees that Foothill may contact directly
any such accounting firm or service bureau in order to obtain such information.
7.13 INVESTMENTS. Directly or indirectly make, acquire, or
incur any liabilities (including contingent obligations) for or in connection
with (a) the acquisition of the securities (whether debt or equity) of, or other
interests in, a Person, (b) loans, advances, capital contributions, or transfers
of property to a Person, other than loans to employees in the ordinary course of
business, in an aggregate amount outstanding at any one time not to exceed
$25,000, or (c) the acquisition of all or substantially all of the properties or
assets of a Person.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower (including Borrower's arrangements with Direct America Corporation for
the production of infomercials) except for transactions that are in the ordinary
course of Borrower's business, upon fair and reasonable terms, that are fully
disclosed to Foothill, and that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-Affiliate.
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<PAGE>
7.15 SUSPENSION. Suspend or go out of a substantial portion of
its business; PROVIDED, HOWEVER, that Borrower may enter into an agreement to
outsource Borrower's fulfillment, customer service, and information systems
operations currently being performed by Borrower.
7.16 [INTENTIONALLY OMITTED].
7.17 USE OF PROCEEDS. Use the proceeds of the Advances made
hereunder for any purpose other than (a) on the Closing Date, (i) to pay
transactional costs and expenses incurred in connection with this Agreement, or
(ii) to repay, in part, Borrower's Indebtedness to Holdings in accordance with
SECTION 7.8, provided that in connection with such repayment, Holdings'
Indebtedness to ValueVision shall be repaid in full, and (b) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Relocate its chief executive office or Borrower's
Inventory or Equipment to a new location, in each case, without providing 30
days prior written notification thereof to Foothill and so long as, at the time
of such written notification, Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19 TELEMARKETING SERVICES AGREEMENTS. Enter into any
agreement with any Person to provide telemarketing services to Borrower unless
Foothill shall have entered into an agreement, in form and substance
satisfactory to Foothill, with such Person, pursuant to which such Person agrees
to provide telemarketing services to Foothill in connection with Foothill's
exercise of its remedies hereunder.
7.20 FINANCIAL COVENANTS. Fail to maintain:
(a) Tangible Net Worth. Tangible Net Worth of at least
the amount set forth below as of the end of the quarter corresponding thereto:
<TABLE>
<CAPTION>
--------------------------------------------- -------------------------------------------
QUARTER ENDING TANGIBLE NET WORTH
--------------------------------------------- -------------------------------------------
<S> <C>
December 31, 1998 $6,000,000
--------------------------------------------- -------------------------------------------
March 31, 1999 and as of the end of each $5,000,000
fiscal quarter thereafter
--------------------------------------------- -------------------------------------------
</TABLE>
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<PAGE>
7.21 CAPITAL EXPENDITURES. Make capital expenditures in any
fiscal year in excess of $2,000,000.
7.22 CREDIT CARD PROCESSING AGREEMENTS. Enter into any Credit
Card Processing Agreement or amend, modify, or supplement any Credit Card
Processing, except on terms that are reasonably satisfactory to Foothill.
7.23 LICENSING AGREEMENTS. Enter into any licensing agreement
unless (a) Borrower's rights under such licensing agreement are assignable (i)
to Foothill, and (ii) in connection with the sale of all or substantially all of
the assets or Stock of Borrower, (b) royalties, commissions, and other amounts
payable by Borrower under such licensing agreement are not held in trust by
Borrower, and (c) the terms and conditions of such licensing agreement relative
to the liquidation of Borrower's Inventory are reasonably satisfactory to
Foothill.
7.24 PURCHASES OF INVENTORY. Enter into purchase orders or
other agreements for the purchase of Inventory to be sold by Borrower in the
name of Holdings or any other Person other than Borrower except such master
purchase agreements entered into by Holdings for the benefit of Holdings'
Subsidiaries, provided, that the purchase orders placed pursuant to such master
purchase agreements shall be placed in the name of Borrower.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails or neglects to perform, keep, or observe
(a) any term, provision, condition, covenant, or agreement: (i) contained in
SECTIONS 6.2 (Collateral Reporting), 6.3 (Financial Statements, Reports,
Certificates), 6.4 (Tax Returns), 6.7 (Title to Equipment), 6.13 (Compliance
with Laws), 6.15 (Leases), 6.17 (Royalties), or 6.18 (Copyrights) of this
Agreement and such failure continues for a period of 5 Business Days; (ii)
contained in SECTIONS 6.1 (Accounting System), 6.6 (Returns), 6.8 (Maintenance
of Equipment), or 6.12 (Location of Inventory and Equipment) of this Agreement
and such failure continues for a period of 15 Business Days; or (b) any other
term, provision, condition, covenant, or agreement contained in this Agreement
or in any of the other Loan Documents (giving effect to any grace periods, cure
periods, or required notices, if any, expressly provided for in such other Loan
Documents; in each case, other than any term, provision, condition, covenant, or
agreement that is the subject of another provisions of this SECTION 8, in which
event such other provision of this SECTION 8 shall govern); PROVIDED, that,
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<PAGE>
during any period of time that any such failure or neglect of such Obligor
referred to in this SECTION 8.2 exists, even if such failure or neglect is not
yet an Event of Default by virtue of the existence of a grace or cure period or
the pre-condition of the giving of a notice, Foothill shall not be required to
make Advances;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets
comes into the possession of any third Person (other than as expressly permitted
by this Loan Agreement or the other Loan Documents), is attached, seized,
subjected to a writ or distress warrant, or is levied upon;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within 45 calendar days of the date
of the filing thereof; PROVIDED, HOWEVER, that, during the pendency of such
period, Foothill shall be relieved of its obligation to extend credit hereunder;
(d) an interim trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief shall have been
issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 (a) If a notice of Lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the United
States, or if any taxes or debts owing at any time hereafter to the United
States becomes a Lien, whether choate or otherwise, upon any of Borrower's
properties or assets; or
(b)If one or more notices of Lien, levy, or assessment
with respect to taxes or debts owing is filed of record with respect to any of
Borrower's properties or assets by any state, county, municipal, or other
non-federal governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a Lien, whether choate or
otherwise, upon any of Borrower's properties or assets and the Lien, levy, or
assessment is not (i) released, discharged, or bonded against before the earlier
of 30 days of the date it first arises or 5 days of the date when such property
or asset is subject to being forfeited, or (ii) the subject of a Permitted
Protest;
8.9 If a judgment or other claim becomes a Lien or encumbrance
upon any material portion of Borrower's properties or assets;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons and such default (a) occurs
at the final maturity of the
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<PAGE>
obligations thereunder, or (b) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of Borrower's
obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn;
8.13 If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by operation
of law or by the guarantor or other third Person thereunder, or any such
guarantor or other third Person becomes the subject of an Insolvency Proceeding;
or
8.14 If Holdings shall have Tangible Net Worth of less than
the amount set forth below as of the end of the quarter corresponding thereto:
<TABLE>
<CAPTION>
--------------------------------------------- -------------------------------------------
QUARTER ENDING TANGIBLE NET WORTH
--------------------------------------------- -------------------------------------------
<S> <C>
December 31, 1998 ($1,900,000)
--------------------------------------------- -------------------------------------------
March 31, 1999 ($1,100,000)
--------------------------------------------- -------------------------------------------
June 30, 1999 ($2,400,000)
--------------------------------------------- -------------------------------------------
September 30, 1999 ($6,400,000)
--------------------------------------------- -------------------------------------------
December 31, 1999 ($5,200,000)
--------------------------------------------- -------------------------------------------
March 31, 2000 ($400,000)
--------------------------------------------- -------------------------------------------
June 30, 2000 ($500,000)
--------------------------------------------- -------------------------------------------
September 30, 2000 ($2,500,000)
--------------------------------------------- -------------------------------------------
December 31, 2000 $1,600,000
--------------------------------------------- -------------------------------------------
March 31, 2001 $6,800,000
--------------------------------------------- -------------------------------------------
June 30, 2001 $7,700,000
--------------------------------------------- -------------------------------------------
September 30, 2001 $7,600,000
--------------------------------------------- -------------------------------------------
</TABLE>
54
<PAGE>
<TABLE>
--------------------------------------------- -------------------------------------------
<S> <C>
December 31, 2001 $12,600,000
--------------------------------------------- -------------------------------------------
</TABLE>
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's Loan Account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Borrower authorizes
Foothill to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or Lien that in Foothill's
determination appears to conflict with its security interests and to pay all
expenses incurred in connection therewith. With respect to any of Borrower's
owned or leased premises, Borrower hereby grants Foothill a license to enter
into possession of such premises and to occupy the same, without charge, for up
to 120 days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;
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<PAGE>
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each
holder of a security interest in the Collateral who has filed
with Foothill a written request for notice, a notice in
writing of the time and place of public sale, or, if the sale
is a private sale or some other disposition other than a
public sale is to be made of the Collateral, then the time on
or after which the private sale or other disposition is to be
made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in SECTION
12, at least 5 days before the date fixed for the sale, or at
least 5 days before the date on or after which the private
sale or other disposition is to be made; no notice needs to be
given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily
in value or that is of a type customarily sold on a recognized
market. Notice to Persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as
they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by
publishing a notice one time at least 5 days
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<PAGE>
before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fails
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Foothill may do
any or all of the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrower's Loan Account as Foothill deems necessary
to protect Foothill from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in SECTION 6.10, and take any
action with respect to such policies as Foothill deems prudent. Any such amounts
paid by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or
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<PAGE>
damage thereto occurring or arising in any manner or fashion from any cause; (c)
any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person. All risk of loss,
damage, or destruction of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend,
and hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this SECTION 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
If to Borrower: QUANTUM NORTH AMERICA, INC.
c/o National Media Corporation
15821 Ventura Boulevard, 5th Floor
Encino, California 91436
Attn: Mr. Daniel M. Yukelson
Fax No. 818.461.6530
58
<PAGE>
With copies to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa Street, Suite 2400
Los Angeles, California 90017
Attn: William Jarblum, Esq.
Fax No. 213.896.0400
If to Borrower: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
With copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this SECTION 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE
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PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill in
accordance with Foothill's standard document retention procedures, unless
Borrower requests, in writing, the return of said documents, schedules, or other
papers and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or any
rights or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Foothill shall release Borrower from its Obligations. Foothill may assign this
Agreement and its rights and duties hereunder and no consent or approval by
Borrower is required in connection with any such assignment. Foothill reserves
the right to sell, assign, transfer, negotiate, or grant participations in all
or any part of, or any interest in Foothill's rights and benefits hereunder. In
connection with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating to
Borrower or Borrower's business. To the extent that Foothill assigns its rights
and obligations hereunder to a third Person, Foothill thereafter shall be
released from such assigned obligations to Borrower and such assignment shall
effect a novation between Borrower and such third Person.
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15.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Foothill of any
property of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
Foothill is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that Foothill is required
or elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
QUANTUM NORTH AMERICA, INC.
a Delaware corporation
By
-------------------------------------------------
FOOTHILL CAPITAL CORPORATION, a California corporation
By
-------------------------------------------------
S-1
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EXHIBIT 10.2
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of December
, 1998 is made by QUANTUM NORTH AMERICA, INC., a Delaware corporation
("Borrower"), in favor of FOOTHILL CAPITAL CORPORATION, a California corporation
("Secured Party").
RECITALS
A. Borrower and Secured Party have entered into that certain Loan and
Security Agreement, dated as of even date herewith (as amended and as otherwise
amended, restated, modified, supplemented, refinanced, renewed, or extended from
time to time, the "Loan Agreement"), pursuant to which Secured Party has agreed
to make certain financial accommodations to Borrower, and pursuant to which
Borrower has granted to Secured Party a security interest in (among other
things) all general intangibles of Borrower.
B. Pursuant to the Loan Agreement and as one of the conditions to the
obligations of Secured Party under the Loan Agreement, Borrower has agreed to
execute and deliver this Agreement to Secured Party for filing with the United
States Copyright Office and with any other relevant recording systems in any
domestic jurisdiction, and as further evidence of and to effectuate Secured
Party's existing security interests in the copyrights and other general
intangibles described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Borrower hereby agrees in favor of Secured Party
as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"COPYRIGHT COLLATERAL" has the meaning set forth in SECTION 2.
"COPYRIGHTS" has the meaning set forth in SECTION 2.
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in the Loan
Agreement.
"LIEN" means any pledge, security interest, assignment, charge or
encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
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"OBLIGATIONS" shall have the meaning ascribed thereto in the Loan
Agreement.
"BORROWER" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of California.
"UNITED STATES" and "U.S." each mean the United States of America,
including all territories thereof and all protectorates thereof.
(b) TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings ascribed to
them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the extent the
context otherwise requires:
(i) Any reference to a Section or a Schedule is a reference to a
section hereof, or a schedule hereto, respectively, and to a subsection or
a clause is, unless otherwise stated, a reference to a subsection or a
clause of the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and the
like mean and refer to this Agreement as a whole and not merely to the
specific Section, subsection, paragraph or clause in which the respective
word appears.
(iii) The meaning of defined terms shall be equally applicable to
both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual instruments
shall be deemed to include all subsequent amendments, restatements,
supplements, refinancings, renewals, extensions, and other modifications
thereto and thereof.
(vi) References to statutes or regulations are to be construed as
including all statutory and regulatory provisions consolidating, amending
or replacing the statute or regulation referred to.
(vii) Any captions and headings are for convenience of reference
only and shall not affect the construction of this Agreement.
(viii) Capitalized words not otherwise defined herein shall have
the respective meanings ascribed to them in the Loan Agreement.
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(ix) In the event of a direct conflict between the terms and
provisions of this Agreement and the Loan Agreement, it is the intention of
the parties hereto that both such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each
other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan Agreement shall
control and govern; PROVIDED, HOWEVER, that the inclusion herein of
additional -------- ------- obligations on the part of Borrower and
supplemental rights and remedies in favor of Secured Party (whether under
California law or applicable federal law), in each case in respect of the
Copyright Collateral, shall not be deemed a conflict with the Loan
Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY. Borrower, as security for the
payment and performance of the Obligations, hereby grants, assigns, transfers
and conveys to Secured Party a continuing security interest in all of Borrower's
right, title and interest in, to and under the following property, whether now
existing or hereafter acquired or arising or in which Borrower now has or
hereafter acquires or develops an interest and wherever the same may be located
(the "Copyright Collateral"):
(i) all copyrights, rights, titles and interests in and to
published and unpublished works of authorship that Borrower owns or uses in
its business or will in the future adopt and so use, and all copyrights in
any original or derivative works of authorship and all works protectable by
copyright that are presently, or in the future may be, owned, created,
authored (excluding all works for hire created by Borrower for any other
Person), acquired or used (whether pursuant to a license or otherwise) by
Borrower, in whole or in part (collectively, the "Copyrights"), all
copyright registrations and applications for copyright registration that
have heretofore been or may hereafter be issued thereon or applied for in
the United States, including registrations, recordings, supplemental
registrations and pending applications for registration in the United
States Copyright Office (the "Registrations"), all common law and other
rights in and to the Copyrights throughout the world, including all
copyright licenses (collectively, the "Copyright Rights"), and all renewals
and extensions thereof, throughout the world, including all proceeds
thereof (such as, by way of example and not by limitation, license
royalties and proceeds of infringement suits), the right (but not the
obligation) to renew and extend such Copyrights, Registrations and
Copyright Rights and to register works protectable by copyright and the
right (but not the obligation) to sue or bring proceedings in the name of
Borrower or in the name of Secured Party for past, present and future
infringements or violations of the Copyrights, Registrations and Copyright
Rights, and recover damages for past, present and future infringements or
violations thereof, and all rights corresponding thereto throughout the
world, including:
(A) all of Borrower's right, title and interest in and to all
copyrights or rights or interests in copyrights registered or recorded
in the
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United States Copyright Office, including the Registrations listed on
SCHEDULE A attached hereto, as the same may be amended or supplemented
pursuant hereto from time to time;
(B) all of Borrower's right, title and interest in and to all
renewals and extensions of any such copyrights, including renewals or
extensions of the Registrations listed on SCHEDULE A attached hereto,
that may be secured under the law now or hereafter in force and
effect;
(C) all of Borrower's right, title and interest to make and
exploit all derivative works based on or adopted from all works
covered by any of the Copyright Collateral; and
(D) all of Borrower's right, title and interest pursuant to or
under licensing or other contracts in favor of Borrower pertaining to
copyrights and works protectable by copyright presently or in the
future owned or used by third parties;
(ii) all inventions, designs, registrations, trade secrets,
proprietary rights, corporate or other business records, computer programs,
source codes, object codes, data bases and all other intangible personal
property at any time used in connection with the businesses of Borrower
(referred to herein as "Proprietary Rights");
(iii) all general intangibles (as defined in the UCC) and all
intangible intellectual or other similar property of Borrower of any kind
or nature, whether now owned or hereafter acquired or developed, associated
with or arising out of any of the Copyrights, Registrations, Copyright
Rights or Proprietary Rights and not otherwise described above; and
(iv) all proceeds of any and all of the foregoing Copyright
Collateral (including license royalties, rights to payment, accounts
receivable and proceeds of infringement suits) and, to the extent not
otherwise included, all payments under insurance (whether or not Secured
Party is the loss payee thereof) or any indemnity, warranty or guaranty
payable by reason of loss or damage to or otherwise with respect to the
foregoing Copyright Collateral. For purposes of this Agreement, the term
"proceeds" includes whatever is receivable or received when Copyright
Collateral or proceeds are sold, licensed, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, all rights to payment,
including returned premiums, with respect to any insurance relating
thereto.
(b) CONTINUING SECURITY INTEREST. Borrower agrees that this Agreement
shall create a continuing security interest in the Copyright Collateral which
shall remain in effect until terminated in accordance with SECTION 17.
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(c) INCORPORATION INTO LOAN AGREEMENT. This Agreement shall be fully
incorporated into the Loan Agreement and all understandings, agreements and
provisions contained in the Loan Agreement shall be fully incorporated into this
Agreement. Without limiting the foregoing, the Copyright Collateral described in
this Agreement shall constitute part of the Collateral in the Loan Agreement.
(d) PERMITTED LICENSING. Anything in the Loan Agreement or this
Agreement to the contrary notwithstanding, Borrower may license to any other
Person the Copyright Collateral on a non-exclusive basis, free and clear of
Secured Party's security interest (other than its security interest in the
proceeds of such license).
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Secured Party and for the benefit of Secured Party, in each case to the best of
its knowledge, information, and belief, the following:
(a) TRUE AND COMPLETE LIST. Set forth in SCHEDULE A is a true and
complete list of all Copyrights, Registrations, and Copyright Rights owned,
held, or used (whether pursuant to a license or otherwise) by Borrower, in whole
or in part;
(b) POWERS. Borrower has full power, authority and legal right to
pledge and to grant to Secured Party a security interest in all right, title,
and interest of Borrower in and to the Copyright Collateral pursuant to this
Agreement, and to execute, deliver and perform its obligations in accordance
with the terms of this Agreement, without the consent or approval of any other
Person except as already obtained;
(c) VALIDITY. Each of the Registrations of Borrower referred to in
SCHEDULE A is valid, subsisting and enforceable, and Borrower has properly
complied in all material respects with all applicable statutory and regulatory
requirements, including all notice requirements, in connection with each of such
Registrations, and, no claim has been made that the use of any of such
Copyrights does or may infringe or otherwise violate the rights of any third
Person, except as set forth in Schedule 5.10 of the Loan Agreement;
(d) TITLE. Borrower has rights in and good title to the Copyright
Collateral shown on the schedules hereto as being owned by it, is the sole and
exclusive owner of the entire and unencumbered right, title and interest in and
to such Copyright Collateral, free and clear of any Liens (other than Liens in
favor of Secured Party); for any Copyright Collateral for which Borrower is
either a licensor or a licensee pursuant to a license or licensing agreement
regarding such Copyright Collateral, each such license or licensing agreement is
in full force and effect, Borrower is not in material default of any of its
obligations thereunder and, other than (i) the parties to such licenses or
licensing agreements, or (ii) in the case of any non-exclusive license or
license agreement entered into by Borrower or any such licensor regarding such
Copyright Collateral, the parties to any other such non-exclusive licenses or
license agreements entered into by Borrower or any such licensor with any other
Person, no other Person has any rights in or to any of such Copyright
Collateral;
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(e) NO VIOLATION. The execution, delivery and performance by Borrower
of this Agreement do not violate any provision of law or the articles of
incorporation or by-laws of Borrower or result in a breach of or constitute a
default under any contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower may be bound;
(f) AUTHORIZATION. This Agreement has been duly authorized, executed
and delivered, and constitutes a legal, valid and binding agreement of Borrower
enforceable in accordance with its terms; and
(g) SECRECY. Borrower has taken and will continue to take all
reasonable steps to protect the secrecy of all trade secrets relating to any of
its unpublished Copyright Collateral and its Proprietary Rights.
4. COVENANTS. Borrower covenants that so long as this Agreement shall be in
effect, Borrower shall:
(a) FURTHER ACTS. On a continuing basis, make, execute, acknowledge
and deliver, and file and record in the proper filing and recording places, all
such instruments and documents, including appropriate financing and continuation
statements and security agreements, and take all such action as may be necessary
or advisable or may be requested by Secured Party to carry out the intent and
purposes of this Agreement, or for assuring, confirming or protecting the grant
or perfection of the security interest granted or purported to be granted
hereby, to ensure Borrower's compliance with this Agreement or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
the Copyright Collateral. Without limiting the generality of the foregoing
sentence, Borrower:
(i) hereby authorizes Secured Party in its sole discretion if
Borrower refuses to execute and deliver, or fails timely to execute and
deliver, any of the documents it is requested to execute and deliver by
Secured Party, to modify this Agreement without first obtaining Borrower's
approval of or signature to such modification by amending SCHEDULE A hereof
to include a reference to any right, title or interest ---------- in any
existing Copyright, Registration or Copyright Right or any Copyright,
Registration or Copyright Right acquired or developed by Borrower after the
execution hereof, or to delete any reference to any right, title or
interest in any Copyright, Registration or Copyright Right in which
Borrower no longer has or claims any right, title or interest; and
(ii) hereby authorizes Secured Party, in its sole discretion, to
file one or more financing or continuation statements, if Borrower refuses
to execute and deliver, or fails timely to execute and deliver, any such
amendment thereto it is requested to execute and deliver by Secured Party,
any amendments thereto, relative to all or any portion of the Copyright
Collateral, without the signature of Borrower where permitted by law;
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(b) COMPLIANCE WITH LAW. Comply, in all material respects, with all
applicable statutory and regulatory requirements in connection with any and all
of the Copyright Collateral that is the subject of the Registrations and give
such notice of copyright, prosecute such material claims, and do all other acts
and take all other measures which, in Borrower's reasonable business judgment,
may be necessary or desirable to preserve, protect and maintain such Copyright
Collateral and all of Borrower's rights therein, including diligently prosecute
any material copyright application pending as of the date of this Agreement or
thereafter;
(c) COMPLIANCE WITH AGREEMENT. Comply with each of the terms and
provisions of this Agreement, and not enter into any agreement (for example, a
license agreement) which is inconsistent with the obligations of Borrower under
this Agreement without Secured Party's prior written consent; and
(d) LIEN PROTECTION. Not permit the inclusion in any contract to which
Borrower becomes a party of any provision that could or might impair or prevent
the creation of a security interest in favor of Secured Party in Borrower's
rights and interest in any property included within the definitions of the
Copyrights, Registrations and Copyright Rights acquired under such contracts.
5. NEW COPYRIGHTS, REGISTRATIONS AND COPYRIGHT RIGHTS. If Borrower shall
obtain rights to or develop any new works protectable by copyright, or become
entitled to the benefit of any Copyright Rights, Registration or application for
Registration not described on the schedules hereto, or any renewals or extension
of any Copyright, Copyright Rights or Registration, the provisions of this
Agreement shall automatically apply thereto. Borrower shall give Secured Party
written notice (a) of any such work or such rights of material value to Borrower
or the operation of its businesses and (b) any such Registration, applications
for Registration or renewal or extension of any Copyright. Concurrently with its
filing of an application for any Registration for any Copyright, Borrower shall
execute and deliver a supplement to this Agreement in form and substance
satisfactory to the Secured Party (or, at the election of Secured Party, a new
Copyright Security Agreement substantially in the form of this Agreement and
otherwise in form and substance satisfactory to the Secured Party), pursuant to
which Borrower shall grant and reaffirm its grant of a security interest to the
extent of its interest in such Registration as provided herein to Secured Party,
and Borrower shall cause such agreement to be recorded in the offices and
jurisdictions indicated by Secured Party.
6. COPYRIGHT REGISTRATION, RENEWAL AND LITIGATION.
(a) REGISTRATION. Except to the extent otherwise permitted under the
Loan Agreement, Borrower shall have the duty diligently to make any application
for Registration on any existing or future unregistered but copyrightable works
that are material to Borrower's business or operations and to do any and all
acts which are reasonably necessary or desirable to preserve, renew and maintain
all rights in all Copyrights, Registrations and Copyright Rights; PROVIDED,
HOWEVER, that Borrower shall not be obligated
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to renew any Obsolete Copyrights. Any expenses incurred in connection therewith
shall be borne solely by Borrower. Except as otherwise permitted in the Loan
Agreement or this SECTION 6(A), Borrower shall not do any act or omit to do any
act whereby any of the Copyright Collateral may become abandoned or fall into
the public domain or fail to renew any Copyright, Registration or Copyright
Right owned by Borrower without the prior written consent of Secured Party.
(b) PROTECTION. Except as provided in SECTION 8 and notwithstanding
SECTION 1, Borrower shall have the right and obligation to commence and
diligently prosecute in its own name, as real party in interest, for its own
benefit and at its own expense, such suits, proceedings or other actions for
infringement or other damage as are in its reasonable business judgment
necessary to protect the Copyright Collateral or any of Borrower's rights
therein. Borrower shall provide to Secured Party any information with respect
thereto requested by Secured Party. Secured Party shall provide at Borrower's
expense all necessary cooperation in connection with any such suit, proceeding
or action including joining as a nominal party if Secured Party shall have been
satisfied that it is not incurring any risk of liability because of such
joinder. Borrower shall provide at its expense representation acceptable to
Secured Party for the common interest of Borrower and Secured Party with respect
to such proceedings.
(c) NOTICE. Borrower shall, promptly upon its becoming aware thereof,
notify Secured Party in writing of the institution of, or any adverse
determination in, any proceeding, application, suit or action of any kind
described in SECTION 6(A) OR 6(B), or regarding Borrower's claim of ownership in
any of the Copyrights, Registrations or Copyright Rights, its right to register
the same, or its right to keep and maintain such registration, whether before
the United States Copyright Office or any United States court or governmental
agency. Borrower shall provide promptly to Secured Party any information with
respect thereto requested from time to time by Secured Party.
7. REMEDIES. Following the occurrence and during the continuation of an
Event of Default, Secured Party shall have all rights and remedies available to
it under the Loan Agreement and the other Loan Documents and applicable law
(which rights and remedies are cumulative) with respect to its security
interests in any of the Copyright Collateral or any other Collateral. Borrower
agrees that such rights and remedies include the right of Secured Party as a
secured party to sell or otherwise dispose of its Collateral after default,
pursuant to UCC Section 9504. Borrower agrees that Secured Party shall at all
times have such royalty free licenses, to the extent permitted by law, for any
Copyright, Copyright Rights, Proprietary Right and any other Copyright
Collateral that is reasonably necessary to permit the exercise of any of Secured
Party's rights or remedies upon the occurrence and during the continuation of an
Event of Default with respect to (among other things) any asset of Borrower in
which Secured Party has a security interest, including Secured Party's rights to
sell or license general intangibles, inventory, tooling or packaging which is
acquired by Borrower (or its successors, permitted assignees, or trustee in
bankruptcy). In addition to and without limiting any of the foregoing, upon the
occurrence and during the continuance of an Event of Default, Secured Party
shall have the right but shall in no way be obligated to
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bring suit, or to take such other action as Secured Party deems necessary or
advisable, in the name of Borrower or Secured Party, to enforce or protect any
Copyright, Registration, Copyright Right or Proprietary Right, and any license
thereunder, in which event Borrower shall, at the request of Secured Party, do
any and all lawful acts and execute any and all documents required by Secured
Party in aid of such enforcement. To the extent that Secured Party shall elect
not to bring suit to enforce any Copyright, Registration, Copyright Rights,
Proprietary Right, or any license thereunder, Borrower, in the exercise of its
reasonable business judgment, agrees to use all reasonable measures and its
diligent efforts, whether by action, suit, proceeding or otherwise, to prevent
the infringement, misappropriation or violation thereof by others and for that
purpose agrees diligently to maintain any action, suit or proceeding against any
Person necessary to prevent such infringement, misappropriation or violation.
8. AUTHORIZATION. If Borrower fails to comply with any of its obligations
hereunder, Secured Party may do so in Borrower's name or in Secured Party's
name, but at Borrower's expense, and Borrower hereby agrees to reimburse Secured
Party in full upon demand for all reasonable expenses, including reasonable
attorneys fees, incurred by Secured Party in protecting, defending and
maintaining any of the Copyright Collateral or any right, title or interest of
Borrower or Secured Party therein. Borrower hereby appoints Secured Party, and
authorizes, directs and empowers Secured Party to make, constitute and appoint
any officer or agent of Secured Party as Secured Party may select, in its
exclusive discretion, as the true and lawful attorney-in-fact of Borrower, with
the power, (a) if Borrower refuses or fails to do so timely, to execute in the
name of Borrower any financing statement or other instrument and any
modification, supplement or amendment to this Agreement or any supplemental
Copyright Security Agreement described in SECTIONS 4(A) OR 5 hereof, and do such
other acts on Borrower's behalf, that Secured Party may deem necessary or
advisable to accomplish the purposes hereof, and (b) upon the occurrence and
during continuation of any Event of Default, (i) to endorse Borrower's name on
all applications, documents, papers and instruments necessary for Secured Party
to use any of the Copyright Collateral, (ii) to assert or retain any rights
under any license agreement for any of the Copyright Collateral, including any
rights of Borrower arising under Section 365(n) of the Bankruptcy Code, and
(iii) to grant or issue any exclusive or nonexclusive license under any of the
Copyright Collateral to anyone else, or as may be necessary for Secured Party to
assign, pledge, convey or otherwise transfer title in or dispose of any of the
Copyright Collateral or any other collateral to anyone else. Borrower hereby
ratifies all that such attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is coupled with an interest and is irrevocable
until termination of this Agreement.
9. NOTICES. All notices and other communications hereunder to or from
Secured Party and Borrower shall be in writing and shall be mailed, sent or
delivered in accordance with the Loan Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, except to the
extent that the validity or perfection of the security interests hereunder in
respect of any Copyright
9
<PAGE>
Collateral are governed by federal law, in which case such choice of California
law shall not be deemed to deprive Secured Party of such rights and remedies as
may be available under federal law.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Loan Agreement,
together with the Schedules and Exhibits hereto and thereto, which are
incorporated herein by this reference, contains the entire agreement of the
parties with respect to the subject matter hereof and supersede all prior drafts
and communications relating to such subject matter. Neither this Agreement nor
any provision hereof may be modified, amended or waived except by the written
agreement of the parties, as provided in the Loan Agreement. Notwithstanding the
foregoing, Secured Party may re-execute this Agreement, modify, amend or
supplement the Schedules hereto or execute a supplemental Copyright Security
Agreement, as provided herein, and the terms of any such modification,
amendment, supplement or supplemental Copyright Security Agreement shall be
deemed to be incorporated herein by this reference.
12. SEVERABILITY. If one or more provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect in any jurisdiction or
with respect to any party, such invalidity, illegality or unenforceability in
such jurisdiction or with respect to such party shall, to the fullest extent
permitted by applicable law, not invalidate or render illegal or unenforceable
any such provision in any other jurisdiction or with respect to any other party,
or any other provisions of this Agreement.
13. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement
14. LOAN AGREEMENT. Borrower acknowledges that the rights and remedies of
Secured Party with respect to the security interest in the Copyright Collateral
granted hereby are more fully set forth in the Loan Agreement and the other Loan
Documents and all such rights and remedies are cumulative.
15. NO INCONSISTENT REQUIREMENTS. Borrower acknowledges that this Agreement
and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and Borrower
agrees that all such covenants, terms and provisions are cumulative and all
shall be performed and satisfied in accordance with their respective terms.
10
<PAGE>
16. TERMINATION. Upon the final payment in full in cash of the Obligations
and the full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement, this Agreement shall terminate, and
Secured Party shall execute and deliver such documents and instruments and take
such further action reasonably requested by Borrower, at Borrower's expense, as
shall be necessary to evidence termination of the security interests granted by
Borrower to Secured Party hereunder.
[Remainder of page intentionally left blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
QUANTUM NORTH AMERICA, INC.,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
------------------------------------
Name
----------------------------------
Title:
---------------------------------
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, ______________________________, Notary Public,
personally appeared , personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, ______________________________, Notary Public,
personally appeared , personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
S-2
<PAGE>
SCHEDULE A
COPYRIGHT REGISTRATIONS
<TABLE>
<CAPTION>
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
Borrower Country of Registered Registration Registration
Registration Copyright Date Number
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
</TABLE>
COPYRIGHT APPLICATIONS
<TABLE>
<CAPTION>
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
Borrower Country of Application for Application Application
Application Copyright Date Number
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
- ---------------------- -------------------- -------------------- -------------------- ----------------------
</TABLE>
*Note: Reference Attached Form TX Applications, application number to be
provided upon receipt from Copyright Office.
A-1
<PAGE>
Exhibit 10.3
PATENT SECURITY AGREEMENT
THIS PATENT SECURITY AGREEMENT (this "Agreement"), dated as
of December , 1998 is made by QUANTUM NORTH AMERICA, INC., a Delaware
corporation ("Borrower"), in favor of FOOTHILL CAPITAL CORPORATION, a
California corporation ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Loan and
Security Agreement, dated as of the date hereof (as amended, modified, renewed
or extended from time to time, the "Loan Agreement"), pursuant to which Lender
has agreed to make certain financial accommodations to Borrower, and pursuant to
which Borrower has granted to Lender a security interest in (among other things)
certain of the general intangibles of Borrower.
B. Pursuant to the Loan Agreement and as one of the conditions
precedent to the obligations of Lender under the Loan Agreement, Borrower has
agreed to execute and deliver this Agreement to Lender for filing with the PTO
and with any other relevant recording systems in any domestic or foreign
jurisdiction, and as further evidence of and to effectuate Lender's existing
security interests in the patents and other general intangibles described
herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Borrower hereby agrees in favor of
Lender as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C.ss.101 Et SEQ.), as amended, and any successor statute.
"EVENT OF DEFAULT" shall have the meaning ascribed to such
thereto in the Loan Agreement.
"LIEN" means any pledge, security interest, assignment, charge
or encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
1
<PAGE>
"PATENT COLLATERAL" has the meaning set forth in SECTION 2.
"PATENTS" has the meaning set forth in SECTION 2.
"PROCEEDS" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Patent Collateral, including "proceeds"
as defined at UCC Section 9306, and all proceeds of proceeds. Proceeds shall
include (i) any and all accounts, chattel paper, instruments, general
intangibles, cash and other proceeds, payable to or for the account of Borrower,
from time to time in respect of any of the Patent Collateral, (ii) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to or for the
account of Borrower from time to time with respect to any of the Patent
Collateral, (iii) any and all claims and payments (in any form whatsoever) made
or due and payable to Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Patent Collateral by any Person acting under color of governmental
authority, and (iv) any and all other amounts from time to time paid or payable
under or in connection with any of the Patent Collateral or for or on account of
any damage or injury to or conversion of any Patent Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and
any successor thereto.
"SECURED OBLIGATIONS" means all Obligations owing by Borrower
to Lender of any kind or description arising out of or outstanding under,
advanced or issued pursuant to, this Agreement or the other Loan Documents,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest that accrues after the filing of a case under the Bankruptcy Code) and
any and all costs, fees (including attorneys fees), and expenses which Borrower
is required to pay pursuant to any of the foregoing, by law, or otherwise.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of California.
"UNITED STATES" and "U.S." each mean the United States of
America.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
ascribed to them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the
extent the context otherwise requires:
2
<PAGE>
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto,
respectively, and to a subsection or a clause is, unless
otherwise stated, a reference to a subsection or a clause of
the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a
whole and not merely to the specific Section, subsection,
paragraph or clause in which the respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms
defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without
limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent
amendments and other modifications thereto.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation
referred to.
(vii) Any captions and headings are for convenience
of reference only and shall not affect the construction of
this Agreement.
(viii) Capitalized words not otherwise defined
herein shall have the respective meanings ascribed to them in
the Loan Agreement.
(ix) In the event of a direct conflict between the
terms and provisions of this Agreement and the Loan Agreement,
it is the intention of the parties hereto that both such
documents shall be read together and construed, to the fullest
extent possible, to be in concert with each other. In the
event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan
Agreement shall control and govern; PROVIDED, HOWEVER, that
the inclusion herein of additional obligations on the part of
the Borrower and supplemental rights and remedies in favor of
Lender (whether under California law or applicable federal
law), in each case in respect of the Patent Collateral, shall
not be deemed a conflict with the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY INTEREST. As
security for the payment and performance of the Secured Obligations, Borrower
hereby grants, assigns,
3
<PAGE>
transfers, and conveys to Lender a continuing security interest in all of
Borrower's right, title and interest in, to and under the following property,
whether now existing or hereafter acquired or arising (collectively, the "Patent
Collateral"):
(i) all letters patent of the U.S. or any other
country, all registrations and recordings thereof, and all
applications for letters patent of the U.S. or any other
country, owned, held, or used by Borrower in whole or in part,
including all existing U.S. patents and patent applications of
Borrower which are described in SCHEDULE A hereto, as the same
may be amended or supplemented pursuant hereto from time to
time, and together with and including all patent licenses held
by Borrower, including such patent licenses which are
described in SCHEDULE A hereto, together with all reissues,
divisions, continuations, renewals, extensions and
continuations-in-part thereof and the inventions disclosed
therein, and all rights corresponding thereto throughout the
world, including the right to make, use, lease, sell and
otherwise transfer the inventions disclosed therein, and all
proceeds thereof, including all license royalties and proceeds
of infringement suits (collectively, the "Patents");
(ii) all claims, causes of action and rights to sue
for past, present and future infringement or unconsented use
of any of the Patents and all rights arising therefrom and
pertaining thereto;
(iii) all general intangibles (as defined in the
UCC) and all intangible intellectual or other similar property
of Borrower of any kind or nature, whether now owned or
hereafter acquired or developed, associated with or arising
out of any of the Patents and not otherwise described above;
and
(iv) all products and Proceeds of any and all of the
foregoing.
(b) CONTINUING SECURITY INTEREST. Borrower agrees that
this Agreement shall create a continuing security interest in the Patent
Collateral which shall remain in effect until terminated in accordance with
SECTION 16.
(c) INCORPORATION INTO LOAN AGREEMENT. This Agreement
shall be fully incorporated into the Loan Agreement and all understandings,
agreements and provisions contained in the Loan Agreement shall be fully
incorporated into this Agreement. Without limiting the foregoing, the Patent
Collateral described in this Agreement shall constitute part of the Collateral
in the Loan Agreement.
(d) LICENSES. Anything in the Loan Agreement or this
Agreement to the contrary notwithstanding, Borrower may grant non-exclusive
licenses of the Patent Collateral (subject to the security interest (if any) of
Lender therein) in the ordinary course of business and consistent with past
practice.
4
<PAGE>
3. FURTHER ASSURANCES; APPOINTMENT OF LENDER AS
ATTORNEY-IN-FACT. Borrower at its expense shall execute and deliver, or cause to
be executed and delivered, to Lender any and all documents and instruments, in
form and substance satisfactory to Lender, and take any and all action, which
Lender may reasonably request from time to time, to perfect and continue
perfected, maintain the priority of or provide notice of Lender's security
interest in the Patent Collateral and to accomplish the purposes of this
Agreement. If Borrower refuses to execute and deliver, or fails timely to
execute and deliver, any of the documents it is requested to execute and deliver
by Lender in accordance with the foregoing, Lender shall have the right to, in
the name of Borrower, or in the name of Lender or otherwise, without notice to
or assent by Borrower, and Borrower hereby irrevocably constitutes and appoints
Lender (and any of Lender's officers or employees or agents designated by
Lender) as Borrower's true and lawful attorney-in-fact with full power and
authority, (i) to sign the name of Borrower on all or any of such documents or
instruments, and perform all other acts, that Lender deems necessary or
advisable in order to perfect or continue perfected, maintain the priority or
enforceability of or provide notice of Lender's security interest in, the Patent
Collateral, and (ii) to execute any and all other documents and instruments, and
to perform any and all acts and things for and on behalf of Borrower, which
Lender may deem necessary or advisable to maintain, preserve and protect the
Patent Collateral and to accomplish the purposes of this Agreement, including
(A) upon the occurrence and during the continuance of any Event of Default, to
defend, settle, adjust or institute any action, suit or proceeding with respect
to the Patent Collateral, (B) upon the occurrence and during the continuance of
any Event of Default, to assert or retain any rights under any license agreement
for any of the Patent Collateral, including any rights of Borrower arising under
Section 365(n) of the Bankruptcy Code, and (C) upon the occurrence and during
the continuance of any Event of Default, to execute any and all applications,
documents, papers and instruments for Lender to use the Patent Collateral, to
grant or issue any exclusive or non-exclusive license with respect to any Patent
Collateral (it being understood that so long as no Event of Default has occurred
and is continuing, Borrower may grant or issue non-exclusive licenses in the
ordinary course of business and consistent with past practice with respect to
the Patent Collateral and subject to the security interest (if any) of Lender
therein), and to assign, convey or otherwise transfer title in or dispose of the
Patent Collateral. The power of attorney set forth in this SECTION 3, being
coupled with an interest, is irrevocable so long as this Agreement shall not
have terminated in accordance with SECTION 16.
Nothing in this Agreement shall obligate Borrower to commence
any suit, proceeding or other action for infringement of any of the Patents that
are immaterial to Borrower's business.
4. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender, in each case to the best of its knowledge, information, and
belief, as follows:
5
<PAGE>
(a) NO OTHER PATENTS. A true and correct list of all of
the existing Patents owned, held (whether pursuant to a license or otherwise) or
used by Borrower, in whole or in part, is set forth in SCHEDULE A.
(b) VALIDITY. Each of the Patents listed on SCHEDULE A is
subsisting and has not been adjudged invalid or unenforceable, in whole or in
part, all maintenance fees required to be paid on account of any Patents have
been timely paid for maintaining such Patents in force, and, to the best of
Borrower's knowledge, each of the Patents is valid and enforceable.
(c) OWNERSHIP OF PATENT COLLATERAL; NO VIOLATION. (i)
Borrower has rights in and good title to the existing Patent Collateral, (ii)
with respect to the Patent Collateral shown on SCHEDULE A hereto as owned by it,
Borrower is the sole and exclusive owner thereof, free and clear of any Liens
and rights of others (other than the security interest created hereunder),
including licenses, shop rights and covenants by Borrower not to sue third
persons and (iii) with respect to any Patent for which Borrower is either a
licensor or a licensee pursuant to a license or licensee agreement regarding
such Patent, each such license or licensing agreement is in full force and
effect, Borrower is not in default of any of its obligations thereunder and,
other than the parties to such licenses or licensing agreements, no other Person
is known by Borrower to have any rights in or to any of the Patent Collateral.
To the best of Borrower's knowledge, the past, present and contemplated future
use of the Patent Collateral by Borrower has not, does not and will not infringe
upon or violate any right, privilege or license agreement of or with any other
Person.
(d) NO INFRINGEMENT. To the best of Borrower's knowledge,
no material infringement or unauthorized use presently is being made of any of
the Patent Collateral by any Person.
(e) POWERS. Borrower has the unqualified right, power and
authority to pledge and to grant to Lender a security interest in all of the
Patent Collateral pursuant to this Agreement, and to execute, deliver and
perform its obligations in accordance with the terms of this Agreement, without
the consent or approval of any other Person except as already obtained.
5. COVENANTS. So long as any of the Secured Obligations remain
unsatisfied, Borrower shall comply with all of the covenants, terms and
provisions of this Agreement, the Loan Agreement and the other Loan Documents,
and Borrower will promptly give Lender written notice of the occurrence of any
event that could have a material adverse effect on any of the Patents or the
Patent Collateral, including any petition under the Bankruptcy Code filed by or
against any licensor of any of the Patents for which Borrower is a licensee.
6. FUTURE RIGHTS. Except as otherwise expressly agreed to in
writing by Lender, for so long as any of the Secured Obligations shall remain
outstanding, or, if earlier,
6
<PAGE>
until Lender shall have released or terminated, in whole but not in part, its
interest in the Patent Collateral, if and when Borrower shall obtain rights to
any new patentable inventions, or become entitled to the benefit of any Patent,
or any reissue, division, continuation, renewal, extension or
continuation-in-part of any Patent or Patent Collateral or any improvement
thereof (whether pursuant to any license or otherwise), the provisions of
SECTION 2 shall automatically apply thereto and Borrower shall give to Lender
prompt notice thereof. Borrower shall do all things deemed necessary or
advisable by Lender to ensure the validity, perfection, priority and
enforceability of the security interests of Lender in such future acquired
Patent Collateral. Borrower hereby authorizes Lender to modify, amend or
supplement the Schedules hereto and to re-execute this Agreement from time to
time on Borrower's behalf and as its attorney-in-fact to include any future
patents which are or become Patent Collateral and to cause such re-executed
Agreement or such modified, amended or supplemented Schedules to be filed with
the PTO.
7. REMEDIES. Upon the occurrence and during the continuance of
an Event of Default, Lender shall have all rights and remedies available to it
under the Loan Agreement and applicable law (which rights and remedies are
cumulative) with respect to the security interests in any of the Patent
Collateral or any other Collateral. Borrower agrees that such rights and
remedies include the right of Lender as a Lender to sell or otherwise dispose of
its Collateral after default, pursuant to UCC Section 9504. Borrower agrees that
Lender shall at all times have such royalty free licenses, to the extent
permitted by law, for any Patent Collateral that is reasonably necessary to
permit the exercise of any of Lender's rights or remedies upon the occurrence
and during the continuation of an Event of Default with respect to (among other
things) any tangible asset of Borrower in which Lender has a security interest,
including Lender's rights to sell inventory, tooling or packaging which is
acquired by Borrower (or its successor, assignee or trustee in bankruptcy). In
addition to and without limiting any of the foregoing, upon the occurrence and
during the continuance of an Event of Default, Lender shall have the right but
shall in no way be obligated to bring suit, or to take such other action as
Lender deems necessary or advisable, in the name of Borrower or Lender, to
enforce or protect any of the Patent Collateral, in which event Borrower shall,
at the request of Lender, do any and all lawful acts and execute any and all
documents required by Lender in aid of such enforcement. To the extent that
Lender shall elect not to bring suit to enforce such Patent Collateral, upon the
occurrence and during the continuation of an Event of Default, Borrower, in the
exercise of its reasonable business judgment, agrees to use all reasonable
measures and its diligent efforts, whether by action, suit, proceeding or
otherwise, to prevent the infringement, misappropriation or violations thereof
by others and for that purpose agrees diligently to maintain any action, suit or
proceeding against any Person necessary to prevent such infringement,
misappropriation or violation.
8. BINDING EFFECT. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by Borrower and Lender and their respective
successors and assigns.
7
<PAGE>
9. NOTICES. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the security interests
hereunder in respect of the Patent Collateral are governed by federal law, in
which case such choice of California law shall not be deemed to deprive Lender
of such rights and remedies as may be available under federal law.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Loan
Agreement, together with the Schedules hereto and thereto, contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior drafts and communications relating to such subject matter.
Neither this Agreement nor any provision hereof may be modified, amended or
waived except by the written agreement of the parties, as provided in the Loan
Agreement. Notwithstanding the foregoing, Lender may re-execute this Agreement
or modify, amend or supplement the Schedules hereto as provided in SECTION 6
hereof.
12. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
13. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement
14. LOAN AGREEMENT. Borrower acknowledges that the rights and
remedies of Lender with respect to the security interest in the Patent
Collateral granted hereby are more fully set forth in the Loan Agreement and all
such rights and remedies are cumulative.
15. NO INCONSISTENT REQUIREMENTS. Borrower acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
Borrower agrees that
8
<PAGE>
all such covenants, terms and provisions are cumulative and all shall be
performed and satisfied in accordance with their respective terms.
16. TERMINATION. Upon the indefeasible payment in full of the
Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, this Agreement shall
terminate and Lender shall execute and deliver such documents and instruments
and take such further action reasonably requested by Borrower and at Borrower's
expense as shall be necessary to evidence termination of the security interest
granted by Borrower to Lender hereunder.
[Remainder of page intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
QUANTUM NORTH AMERICA, INC.,
a Delaware corporation
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, ______________________________,
Notary Public, personally appeared , personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to
me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, ______________________________,
Notary Public, personally appeared , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
S-2
<PAGE>
SCHEDULE A
to the Patent Security Agreement
UNITED STATES PATENTS
AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
- ----------------- ---------------- ------------ ------------- --------------------------------------------------------
FILING PATENT FILING FILING
COUNTRY NUMBER DATE STATUS TITLE
- ----------------- ---------------- ------------ ------------- --------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
A-1
<PAGE>
Exhibit 10.4
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as
of December ___, 1998 is made by QUANTUM NORTH AMERICA, INC., a Delaware
corporation ("Borrower"), in favor of FOOTHILL CAPITAL CORPORATION, a California
corporation, ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Loan and
Security Agreement, of even date herewith (as amended, restated, modified,
renewed or extended from time to time, the "Loan Agreement"), pursuant to which
Lender has agreed to make certain financial accommodations to Borrower, and
pursuant to which Borrower has granted to Lender a security interest in (among
other things) all of the general intangibles of Borrower.
B. Pursuant to the Loan Agreement and as one of the conditions
precedent to the obligations of Lender under the Loan Agreement, Borrower has
agreed to execute and deliver this Agreement to Lender for filing with the PTO
and with any other relevant recording systems in any domestic jurisdiction, and
as further evidence of and to effectuate Lender's existing security interests in
the trademarks and other general intangibles described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Borrower hereby agrees in favor of
Lender as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in
the Loan Agreement.
"LIEN" means any pledge, security interest, assignment, charge
or encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"OBLIGATIONS" shall have the meaning ascribed thereto in the
Loan Agreement.
"BORROWER" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
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"PROCEEDS" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined at UCC Section 9306, all insurance proceeds and all
proceeds of proceeds. Proceeds shall include (i) any and all accounts, chattel
paper, instruments, general intangibles, cash and other proceeds, payable to or
for the account of Borrower, from time to time in respect of any of the
Trademark Collateral, (ii) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to or for the account of Borrower from time to time
with respect to any of the Trademark Collateral, (iii) any and all claims and
payments (in any form whatsoever) made or due and payable to Borrower from time
to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Trademark Collateral by any Person
acting under color of governmental authority, and (iv) any and all other amounts
from time to time paid or payable under or in connection with any of the
Trademark Collateral or for or on account of any damage or injury to or
conversion of any Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and
any successor thereto.
"TRADEMARK COLLATERAL" has the meaning set forth in SECTION 2.
"TRADEMARKS" has the meaning set forth in SECTION 2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of California.
"UNITED STATES" and "U.S." each mean the United States of
America.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the
extent the context otherwise requires:
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto,
respectively, and to a subsection or a clause is, unless
otherwise stated, a reference to a subsection or a clause of
the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a
whole and not merely to the specific Section, subsection,
paragraph or clause in which the respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms
defined.
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(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without
limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent
amendments and other modifications thereto.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation
referred to.
(vii) Any captions and headings are for convenience
of reference only and shall not affect the construction of
this Agreement.
(viii) Capitalized words not otherwise defined
herein shall have the respective meanings ascribed to them in
the Loan Agreement.
(ix) In the event of a direct conflict between the
terms and provisions of this Agreement and the Loan Agreement,
it is the intention of the parties hereto that both such
documents shall be read together and construed, to the fullest
extent possible, to be in concert with each other. In the
event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan
Agreement shall control and govern; PROVIDED, HOWEVER, that
the inclusion herein of additional obligations on the part of
Borrower and supplemental rights and remedies in favor of
Lender (whether under federal law or applicable California
law), in each case in respect of the Trademark Collateral,
shall not be deemed a conflict in the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY INTEREST. To secure
the Obligations, Borrower hereby grants, assigns, transfers and conveys to
Lender a continuing security interest in all of Borrower's right, title and
interest in and to the following property, whether now existing or hereafter
acquired or arising and whether registered or unregistered (collectively, the
"Trademark Collateral"):
(i) all state (including common law) and federal
trademarks, service marks and trade names, corporate names,
company names, business names, fictitious business names,
trade styles, trade dress, logos, other source or business
identifiers, designs and general intangibles of like nature,
now existing or hereafter adopted or acquired, together with
and including all licenses therefor held by Borrower, and all
registrations and recordings thereof, and all applications
filed or to be filed in connection therewith, including
registrations and applications in the PTO, any State of the
United States (but excluding each application to register any
trademark, service mark or other mark prior to the filing
under applicable law of a verified statement of use (or the
equivalent) for such trademark or service mark) and
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all extensions or renewals thereof, including without
limitation any of the foregoing identified on SCHEDULE A
hereto (as the same may be amended, modified or supplemented
from time to time), and the right (but - not the obligation)
to register claims under any state or federal trademark law or
regulation and to apply for, renew and extend any of the same,
to sue or bring opposition or cancellation proceedings in the
name of Borrower or in the name of Lender for past, present or
future infringement or unconsented use thereof, and all rights
arising therefrom throughout the world (collectively, the
"Trademarks");
(ii) all claims, causes of action and rights to sue
for past, present or future infringement or unconsented use of
any Trademarks and all rights arising therefrom and pertaining
thereto;
(iii) all general intangibles related to or arising
out of any of the Trademarks and all the goodwill of
Borrower's business symbolized by the Trademarks or associated
therewith; and
(iv) all proceeds of any and all of the foregoing
Trademark Collateral (including license royalties, rights to
payment, accounts receivable and proceeds of infringement
suits) and, to the extent not otherwise included, all payments
under insurance (whether or not Secured Party is the loss
payee thereof) or any indemnity, warranty or guaranty payable
by reason of loss or damage to or otherwise with respect to
the foregoing Trademark Collateral. For purposes of this
Agreement, the term "proceeds" includes whatever is receivable
or received when Trademark Collateral or proceeds are sold,
licensed, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including
returned premiums, with respect to any insurance relating
thereto.
(b) CONTINUING SECURITY INTEREST. Debtor agrees that this
Agreement shall create a continuing security interest in the Trademark
Collateral which shall remain in effect until terminated in accordance with
SECTION 17.
(c) INCORPORATION INTO LOAN AGREEMENT. This Agreement
shall be fully incorporated into the Loan Agreement and all understandings,
agreements and provisions contained in the Loan Agreement shall be fully
incorporated into this Agreement. Without limiting the foregoing, the Trademark
Collateral described in this Agreement shall constitute part of the Collateral
in the Loan Agreement.
(d) PERMITTED LICENSES. Anything in the Loan Agreement or
this Agreement to the contrary notwithstanding, Borrower may grant non-exclusive
licenses of the Trademark Collateral (subject to the security interest (if any)
of Secured Party therein) in the ordinary course of business consistent with
past practice.
3. FURTHER ASSURANCES; APPOINTMENT OF LENDER AS
ATTORNEY-IN-FACT. Borrower at its expense shall execute and deliver, or cause to
be executed and delivered, to
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Lender any and all documents and instruments, in form and substance reasonably
satisfactory to Lender, and take any and all action, which Lender may reasonably
request from time to time, to perfect and continue perfected, maintain the
priority of or provide notice of Lender's security interest in the Trademark
Collateral and to accomplish the purposes of this Agreement. If Borrower refuses
to execute and deliver, or fails timely to execute and deliver, any of the
documents it is requested to execute and deliver by Lender in accordance with
the foregoing, Lender shall have the right, in the name of Borrower, or in the
name of Lender or otherwise, without notice to or assent by Borrower, and
Borrower hereby irrevocably constitutes and appoints Lender (and any of Lender's
officers or employees or agents designated by Lender) as Borrower's true and
lawful attorney-in-fact with full power and authority, (i) to sign the name of
Borrower on all or any of such documents or instruments and perform all other
acts that Lender reasonably deems necessary or advisable in order to perfect or
continue perfected, maintain the priority or enforceability of or provide notice
of Lender's security interest in, the Trademark Collateral, and (ii) to execute
any and all other documents and instruments, and to perform any and all acts and
things for and on behalf of Borrower, which Lender reasonably may deem necessary
or advisable to maintain, preserve and protect the Trademark Collateral and to
accomplish the purposes of this Agreement, including (A) after the occurrence
and during the continuance of any Event of Default, to defend, settle, adjust or
institute any action, suit or proceeding with respect to the Trademark
Collateral, (B) after the occurrence and during the continuance of any Event of
Default, to assert or retain any rights under any license agreement for any of
the Trademark Collateral, and (C) after the occurrence and during the
continuance of any Event of Default, to execute any and all applications,
documents, papers and instruments for Lender to use the Trademark Collateral, to
grant or issue any exclusive or non-exclusive license with respect to any
Trademark Collateral, and to assign, convey or otherwise transfer title in or
dispose of the Trademark Collateral. The power of attorney set forth in this
SECTION 3, being coupled with an interest, is irrevocable so long as this
Agreement shall not have terminated in accordance with SECTION 17.
4. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender, in each case to the best of its knowledge, information, and
belief, as follows:
(a) NO OTHER TRADEMARKS. SCHEDULE A sets forth, as of the
Closing Date, a true and correct list of all of the existing Trademarks (whether
registered or otherwise), or for which any application for registration has been
filed with the PTO or any corresponding or similar trademark office of any other
U.S. jurisdiction, and that are owned or held (whether pursuant to a license or
otherwise) and used by Borrower.
(b) TRADEMARKS SUBSISTING. Each of the Trademarks listed
in SCHEDULE A is subsisting and has not been adjudged invalid or unenforceable,
in whole or in part, and, to the best of Borrower's knowledge, each of the
Trademarks is valid and enforceable.
(c) OWNERSHIP OF TRADEMARK COLLATERAL; NO VIOLATION. (i)
Borrower has rights in and good and defensible title to the existing Trademark
Collateral, (ii) with respect to the Trademark Collateral shown on SCHEDULE A
hereto as owned by it, Borrower is
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the sole and exclusive owner thereof, free and clear of any Liens and rights of
others (other than the security interest created hereunder and other than
Permitted Liens), including licenses, registered user agreements and covenants
by Borrower not to sue third persons, and (iii) with respect to any Trademarks
for which Borrower is either a licensor or a licensee pursuant to a license or
licensee agreement regarding such Trademark, each such license or licensing
agreement is in full force and effect, Borrower is not in material default of
any of its obligations thereunder and, (i) other than the parties to such
licenses or licensing agreements, or (ii) in the case of any non-exclusive
license or license agreement entered into by Borrower or any such licensor
regarding such Trademark, the parties to any other such non-exclusive licenses
or license agreements entered into by Borrower or any such licensor with any
other Person, no other Person has any rights in or to any of the Trademark
Collateral. To the best of Borrower's knowledge, the past, present and
contemplated future use of the Trademark Collateral by Borrower has not, does
not and will not infringe upon or violate any right, privilege or license
agreement of or with any other Person.
(d) NO INFRINGEMENT. To the best of Borrower's knowledge,
no material infringement or unauthorized use presently is being made of any of
the Trademark Collateral by any Person.
(e) POWERS. Borrower has the unqualified right, power and
authority to pledge and to grant to Lender a security interest in all of the
Trademark Collateral pursuant to this Agreement, and to execute, deliver and
perform its obligations in accordance with the terms of this Agreement, without
the consent or approval of any other Person except as already obtained.
5. COVENANTS. Until such time as this agreement is terminated
pursuant to SECTION 17, Borrower agrees that it will comply with all of the
covenants, terms and provisions of this Agreement, the Loan Agreement and the
other Loan Documents, and Borrower will promptly give Lender written notice of
the occurrence of any event that could have a material adverse effect on any of
the Trademarks or the Trademark Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Trademarks for
which Borrower is a licensee.
6. FUTURE RIGHTS. For so long as any of the Obligations shall
remain outstanding, or, if earlier, until Lender shall have released or
terminated, in whole but not in part, its interest in the Trademark Collateral,
if and when Borrower shall obtain rights to any new Trademarks, or any reissue,
renewal or extension of any Trademarks, the provisions of SECTION 2 shall
automatically apply thereto and Borrower shall give to Lender prompt notice
thereof. Borrower shall do all things reasonably deemed necessary or advisable
by Lender to ensure the validity, perfection, priority and enforceability of the
security interests of Lender in such future acquired Trademark Collateral. If
Borrower refuses to execute and deliver, or fails timely to execute and deliver,
any of the documents it is requested to execute and deliver by Lender in
connection herewith, Borrower hereby authorizes Lender to modify, amend or
supplement the Schedules hereto and to re-execute this Agreement from time to
time on Borrower's behalf and as its attorney-in-fact to include any future
Trademarks which
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are or become Trademark Collateral and to cause such re-executed Agreement or
such modified, amended or supplemented Schedules to be filed with the PTO.
7. LENDER'S DUTIES. Notwithstanding any provision contained in
this Agreement, Lender shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to Borrower or
any other Person for any failure to do so or delay in doing so. Except for the
accounting for moneys actually received by Lender hereunder or in connection
herewith, Lender shall have no duty or liability to exercise or preserve any
rights, privileges or powers pertaining to the Trademark Collateral.
8. REMEDIES. Upon the occurrence and during the continuation
of an Event of Default, Lender shall have all rights and remedies available to
it under the Loan Agreement and applicable law (which rights and remedies are
cumulative) with respect to the security interests in any of the Trademark
Collateral or any other Collateral. Borrower agrees that such rights and
remedies include the right of Lender as a secured party to sell or otherwise
dispose of its Collateral after default, pursuant to UCC Section 9504. Borrower
agrees that Lender shall at all times have such royalty-free licenses, to the
extent permitted by law, for any Trademark Collateral that is reasonably
necessary to permit the exercise of any of Lender's rights or remedies upon or
after the occurrence of (and during the continuance of) an Event of Default with
respect to (among other things) any tangible asset of Borrower in which Lender
has a security interest, including Lender's rights to sell inventory, tooling or
packaging which is acquired by Borrower (or its successor, assignee or trustee
in bankruptcy). In addition to and without limiting any of the foregoing, upon
the occurrence and during the continuance of an Event of Default, Lender shall
have the right but shall in no way be obligated to bring suit, or to take such
other action as Lender deems necessary or advisable, in the name of Borrower or
Lender, to enforce or protect any of the Trademark Collateral, in which event
Borrower shall, at the request of Lender, do any and all lawful acts and execute
any and all documents required by Lender in aid of such enforcement. To the
extent that Lender shall elect not to bring suit to enforce such Trademark
Collateral, Borrower, in the exercise of its reasonable business judgment,
agrees to use all reasonable measures and its diligent efforts, whether by
action, suit, proceeding or otherwise, to prevent the infringement,
misappropriation or violation thereof by others and for that purpose agrees
diligently to maintain any action, suit or proceeding against any Person
necessary to prevent such infringement, misappropriation or violation.
9. BINDING EFFECT. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by Borrower and Lender and their respective
successors and assigns.
10. NOTICES. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
11. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the security interests
hereunder in respect of any Trademark Collateral are governed by federal law, in
which case such choice of California law shall not
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be deemed to deprive Lender of such rights and remedies as may be available
under federal law.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Loan
Agreement, together with the Schedules hereto and thereto, contains the entire
agreement of the parties with respect to the subject matter hereof and supersede
all prior drafts and communications relating to such subject matter. Neither
this Agreement nor any provision hereof may be modified, amended or waived
except by the written agreement of the parties as provided in the Loan
Agreement. Notwithstanding the foregoing, Lender may re-execute this Agreement
or modify, amend or supplement the Schedules hereto as provided in SECTION 6
hereof.
13. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
14. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement
15. LOAN AGREEMENT. Borrower acknowledges that the rights and
remedies of Lender with respect to the security interest in the Trademark
Collateral granted hereby are more fully set forth in the Loan Agreement and all
such rights and remedies are cumulative.
16. NO INCONSISTENT REQUIREMENTS. Borrower acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
Borrower agrees that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
17. TERMINATION. Upon the payment in full of the Obligations,
including the cash collateralization, expiration, or cancellation of all
Obligations, if any, consisting of letters of credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Loan Agreement, this Agreement shall terminate, and Lender shall execute and
deliver such documents and instruments and take such further action reasonably
requested by Borrower, at Borrower's expense, as shall be necessary to evidence
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termination of the security interest granted by Borrower to Lender hereunder,
including cancellation of this Agreement by written notice from Lender to the
PTO.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
QUANTUM NORTH AMERICA, INC.,
a Delaware corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
S-1
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STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, _________________________,
Notary Public, personally appeared , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, ___________________________,
Notary Public, personally appeared , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
S-2
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SCHEDULE A
to the Trademark Security Agreement
TRADEMARKS OF BORROWER
<TABLE>
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</TABLE>
A-1
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Exhibit 10.5
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
December , 1998, is entered into between QUANTUM NORTH AMERICA, INC., a Delaware
corporation ("Pledgor"), and FOOTHILL CAPITAL CORPORATION, a California
corporation ("Secured Party"), with reference to the following:
WHEREAS, Pledgor beneficially owns the specified number of
shares identified as Pledged Shares in the Persons identified as Issuers on
SCHEDULE A attached hereto (or any addendum thereto);
WHEREAS, Pledgor and Secured Party are parties to that certain
Loan and Security Agreement (the "Loan Agreement"), of even date herewith,
pursuant to which Secured Party has agreed to make certain financial
accommodations to Pledgor;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Pledgor pursuant to the Loan Agreement, Pledgor
desires to pledge, grant, transfer, and assign to Secured Party a security
interest in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) DEFINITIONS. All initially capitalized
terms used herein and not otherwise defined herein shall have the meaning
ascribed thereto in the Loan Agreement. As used in this Agreement:
"AGREEMENT" shall mean this Stock Pledge
Agreement.
"CHIEF EXECUTIVE OFFICE" shall mean where
Pledgor is deemed located pursuant to ss.9103(3)(d) of the Code.
"COLLATERAL" shall mean the Pledged
Shares, the Future Rights, and the Proceeds, collectively.
"FUTURE RIGHTS" shall mean: (a) all
shares of stock (other than Pledged Shares) of the Issuers, and all securities
convertible or exchangeable into, and all warrants, options, or other rights to
purchase, shares of stock of the Issuers; (b) to the extent
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of Pledgor's interest therein, all shares of, all securities convertible or
exchangeable into, and all warrants, options, or other rights to purchase shares
of stock of any Person in which Pledgor, after the date of this Agreement,
acquires a direct equity interest, irrespective of whether such Person is or
becomes a Subsidiary of Pledgor; and (c) the certificates or instruments
representing such additional shares, convertible or exchangeable securities,
warrants, and other rights and all dividends, cash, options, warrants, rights,
instruments, and other property or proceeds from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of such shares.
"HOLDER" and "HOLDERS" shall have the
meanings ascribed thereto in SECTION 3 of this Agreement.
"ISSUERS" shall mean each of the Persons
identified as an Issuer on SCHEDULE A attached hereto (or any addendum thereto),
and any successors thereto, whether by merger or otherwise.
"LIEN" shall mean any lien, mortgage,
pledge, assignment (including any assignment of rights to receive payments of
money), security interest, charge, or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, or any agreement to give any security interest).
"LOAN AGREEMENT" shall have the meaning
ascribed thereto in the recitals to this Agreement.
"PLEDGED SHARES" shall mean all of the
shares identified as Pledged Shares on SCHEDULE A attached hereto (or any
addendum thereto).
"PLEDGOR" shall have the meaning ascribed
thereto in the preamble to this Agreement.
"PROCEEDS" shall mean all proceeds
(including proceeds of proceeds) of the Pledged Shares and Future Rights
including all: (a) rights, benefits, distributions, premiums, profits,
dividends, interest, cash, instruments, documents of title, accounts, contract
rights, inventory, equipment, general intangibles, deposit accounts, chattel
paper, and other property from time to time received, receivable, or otherwise
distributed in respect of or in exchange for, or as a replacement of or a
substitution for, any of the Pledged Shares, Future Rights, or proceeds thereof
(including any cash, stock, or other securities or instruments issued after any
recapitalization, readjustment, reclassification, merger or consolidation with
respect to the Issuers and any claims against financial intermediaries under
ss.8313(2) of the Code or otherwise); (b) "proceeds," as such term is used in
ss.9306 of the Code; (c) proceeds of any insurance, indemnity, warranty, oR
guaranty (including guaranties of delivery) payable from time to time with
respect to any of the Pledged Shares, Future Rights, or proceeds thereof; (d)
payments (in any form whatsoever) made or due and payable
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to Pledgor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Pledged Shares,
Future Rights, or proceeds thereof; and (e) other amounts from time to time paid
or payable under or in connection with any of the Pledged Shares, Future Rights,
or proceeds thereof.
"SECURED OBLIGATIONS" shall mean all
Obligations owing by Pledgor to Secured Party of any kind or description arising
out of or outstanding under, advanced or issued pursuant to, or evidenced by the
Loan Agreement, the other Loan Documents, or this Agreement, irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, voluntary or involuntary, whether now existing
or hereafter arising, and including all interest (including interest that
accrues after the filing of a case under the Bankruptcy Code) and any and all
costs, fees (including attorneys fees), and expenses which Pledgor is required
to pay pursuant to any of the foregoing, by law, or otherwise.
"SECURED PARTY" shall have the meaning
ascribed thereto in the preamble to this Agreement, together with its successors
or assigns.
"SECURITIES ACT" shall have the meaning
ascribed thereto in SECTION 9(C) of this Agreement.
(b) CONSTRUCTION.
(i) Unless the context of
this Agreement clearly requires otherwise, references to the plural include the
singular and to the singular include the plural, the part includes the whole,
the term "including" is not limiting, and the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase "and/or."
The words "hereof," "herein," "hereby," "hereunder," and other similar terms in
this Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. Article, section, subsection, exhibit,
and schedule references are to this Agreement unless otherwise specified. All of
the exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference to any of the following
documents includes any and all alterations, amendments, restatements,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable: this Agreement, the Loan Agreement, or any of the other Loan
Documents.
(ii) Neither this Agreement nor
any uncertainty or ambiguity herein shall be construed or resolved against
Secured Party or Pledgor, whether under any rule of construction or otherwise.
This Agreement has been reviewed by both of the parties and their respective
counsel and shall be construed and interpreted according to the ordinary meaning
of the words used so as to fairly accomplish the purposes and intentions of the
parties hereto.
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(iii) In the event of any
direct conflict between the express terms and provisions of this Agreement and
of the Loan Agreement, the terms and provisions of the Loan Agreement shall
control.
2. PLEDGE.
(a) As security for the prompt payment and
performance of the Secured Obligations in full by Pledgor when due, whether at
stated maturity, by acceleration or otherwise (including amounts that would
become due but for the operation of the provisions of the Bankruptcy Code),
Pledgor hereby pledges, grants, transfers, and assigns to Secured Party a
security interest in all of Pledgor's right, title, and interest in and to the
Collateral.
(b) If any wholly owned Subsidary of Pledgor shall at
any time be merged into any other wholly owned Subsidiary of Pledgor, or shall
be dissolved, then, in either case, upon delivery to Secured Party of evidence,
reasonably satisfactory to Secured Party, of such merger or dissolution, Secured
Party shall deliver to Pledgor the pledged certificates representing the pledged
shares of such wholly owned Subsidiary.
3. DELIVERY AND REGISTRATION OF COLLATERAL.
(a) All certificates or instruments
representing or evidencing the Collateral shall be promptly delivered by Pledgor
to Secured Party or Secured Party's designee pursuant hereto at a location
designated by Secured Party and shall be held by or on behalf of Secured Party
pursuant hereto, and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to Secured Party
(b) Upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have the right, at any
time in its discretion and without notice to Pledgor, to transfer to or to
register on the books of the Issuers (or of any other Person maintaining records
with respect to the Collateral) in the name of Secured Party or any of its
nominees any or all of the Collateral. In addition, Secured Party shall have the
right at any time to exchange certificates or instruments representing or
evidencing Collateral for certificates or instruments of smaller or larger
denominations.
(c) If, at any time and from time to
time, any Collateral (including any certificate or instrument representing or
evidencing any Collateral) is in the possession of a Person other than Secured
Party or Pledgor (a "Holder"), then Pledgor shall immediately, at Secured
Party's option, either cause such Collateral to be delivered into Secured
Party's possession, or execute and deliver to such Holder a written
notification/instruction, and take all other steps necessary to perfect the
security interest of Secured Party in such Collateral, including obtaining from
such Holder a written acknowledgement that such Holder holds such
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Collateral for Secured Party, all pursuant to ss.9115 of the Code or other
applicable law governing the perfectioN of Secured Party's security interest in
the Collateral in the possession of such Holder. Each such
notification/instruction and acknowledgement shall be in form and substance
satisfactory to Secured Party.
(d) Any and all Collateral (including
dividends, interest, and other cash distributions) at any time received or held
by Pledgor shall be so received or held in trust for Secured Party, shall be
segregated from other funds and property of Pledgor and shall be forthwith
delivered to Secured Party in the same form as so received or held, with any
necessary endorsements; PROVIDED that cash dividends or distributions received
by Pledgor, if and to the extent they are not prohibited by the Loan Agreement,
may be retained by Pledgor in accordance with SECTION 4 and used in the ordinary
course of Pledgor's business.
(e) If at any time and from time to time any
Collateral consists of an uncertificated security or a security in book entry
form, then Pledgor shall immediately cause such Collateral to be registered or
entered, as the case may be, in the name of Secured Party, or otherwise cause
Secured Party's security interest thereon to be perfected in accordance with
applicable law.
4. VOTING RIGHTS AND DIVIDENDS.
(a) So long as no Event of Default shall have
occurred and be continuing, Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Collateral or any part
thereof for any purpose not inconsistent with the terms of the Loan Documents
and shall be entitled to receive and retain any cash dividends or distributions
paid in respect of the Collateral.
(b) Upon the occurrence and during the
continuance of an Event of Default, all rights of Pledgor to receive and retain
cash dividends or distributions that it would otherwise be entitled to exercise
or receive and retain pursuant to SECTION 4(a) shall cease, and all such rights
shall thereupon become vested in Secured Party, who shall thereupon have the
sole right to receive and retain such cash dividends and distributions. Pledgor
shall execute and deliver (or cause to be executed and delivered) to Secured
Party all such instruments as Secured Party may reasonably request for the
purpose of enabling Secured Party to receive the dividends and distributions
that it is entitled to receive and retain pursuant to the preceding sentence.
(c) Upon the occurrence and during the
continuance of an Event of Default in respect of which Secured Party has
accelerated the Obligations, all rights of Pledgor to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant
to SECTION 4(A) shall cease, and all such rights shall thereupon become vested
in Secured Party, who shall thereupon have the sole right to exercise such
voting or other consensual rights. Pledgor shall execute and deliver (or cause
to be executed and
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delivered) to Secured Party all such proxies and other instruments as Secured
Party may reasonably request for the purpose of enabling Secured Party to
exercise the voting and other rights which it is entitled to exercise pursuant
to the preceding sentence.
5. REPRESENTATIONS AND WARRANTIES. Pledgor represents,
warrants, and covenants, in each case to the best of its knowledge, information,
and belief, as follows:
(a) Pledgor has taken all steps it deems
necessary or appropriate to be informed on a continuing basis of changes or
potential changes affecting the Collateral (including rights of conversion and
exchange, rights to subscribe, payment of dividends, reorganizations or
recapitalization, tender offers and voting rights), and Pledgor agrees that
Secured Party shall have no responsibility or liability for informing Pledgor of
any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto;
(b) All information herein or hereafter
supplied to Secured Party by or on behalf of Pledgor in writing with respect to
the Collateral is, or in the case of information hereafter supplied will be,
accurate and complete in all material respects;
(c) Pledgor is and will be the sole legal and
beneficial owner of the Collateral (including the Pledged Shares and all other
Collateral acquired by Pledgor after the date hereof) free and clear of any
adverse claim, Lien, or other right, title, or interest of any party other than
Liens in favor of Secured Party;
(d) This Agreement, and the delivery to
Secured Party, or its designee, of the Pledged Shares representing Collateral
(or the delivery to all Holders of the Pledged Shares representing Collateral of
the notification/instruction referred to in SECTION 3 of this Agreement),
creates a valid, perfected, and first priority security interest in one hundred
percent (100%) of the Pledged Shares in favor of Secured Party securing payment
of the Secured Obligations, and all actions necessary to achieve such perfection
have been duly taken;
(e) SCHEDULE A to this Agreement is true and
correct and complete in all material respects; without limiting the generality
of the foregoing: (i) all the Pledged Shares are in certificated form, and,
except to the extent registered in the name of Secured Party or its nominee
pursuant to the provisions of this Agreement, are registered in the name of
Pledgor; and (ii) the Pledged Shares as to each of the Issuers constitute at
least the percentage of all the fully diluted issued and outstanding shares of
stock of such Issuer as set forth in SCHEDULE A to this Agreement;
(f) There are no presently existing Future
Rights or Proceeds owned by Pledgor, except as set forth in SCHEDULE C hereto;
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(g) The Pledged Shares have been duly authorized
and validly issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral
pursuant to this Agreement nor the extensions of credit represented by the
Secured Obligations violates Regulation T, U or X of the Board of Governors of
the Federal Reserve System.
6. FURTHER ASSURANCES.
(a) Pledgor agrees that from time to time, at
the expense of Pledgor, Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
reasonably desirable, or that Secured Party may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor will: (i) at the request of Secured Party, mark conspicuously
each of its records pertaining to the Collateral with a legend, in form and
substance reasonably satisfactory to Secured Party, indicating that such
Collateral is subject to the security interest granted hereby; (ii) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or reasonably desirable, or as
Secured Party may request, in order to perfect and preserve the security
interests granted or purported to be granted hereby; (iii) allow inspection of
the Collateral by Secured Party or Persons designated by Secured Party; and (iv)
appear in and defend any action or proceeding that may affect Pledgor's title to
or Secured Party's security interest in the Collateral.
(b) Pledgor hereby authorizes Secured Party
to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
Pledgor where permitted by law. A carbon, photographic, or other reproduction of
this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Pledgor will furnish to Secured Party,
upon the request of Secured Party: (i) a certificate executed by an authorized
officer of Pledgor, and dated as of the date of delivery to Secured Party,
itemizing in such detail as Secured Party may request, the Collateral which, as
of the date of such certificate, has been delivered to Secured Party by Pledgor
pursuant to the provisions of this Agreement; and (ii) such statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may request.
7. COVENANTS OF PLEDGOR. Pledgor shall:
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(a) Perform each and every covenant in the Loan
Documents applicable to Pledgor;
(b) At all times keep at least one
complete set of its records concerning substantially all of the Collateral at
its Chief Executive Office as set forth in SCHEDULE B hereto, and not change the
location of its Chief Executive Office or such records without giving Secured
Party at least thirty (30) days prior written notice thereof;
(c) To the extent it may lawfully do so, use
its best efforts to prevent the Issuers from issuing Future Rights or Proceeds,
except for cash dividends and other distributions, if any, that are not
prohibited by the terms of the Loan Agreement to be paid by any Issuer to
Pledgor;
(d) Upon receipt by Pledgor of any material
notice, report, or other communication from any of the Issuers or any Holder
relating to all or any part of the Collateral, deliver such notice, report or
other communication to Secured Party as soon as possible, but in no event later
than five (5) days following the receipt thereof by Pledgor; and
8. SECURED PARTY AS PLEDGOR'S ATTORNEY-IN-FACT.
(a) Pledgor hereby irrevocably appoints
Secured Party as Pledgor's attorney-in-fact, with full authority in the place
and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise,
from time to time at Secured Party's discretion, to take any action and to
execute any instrument that Secured Party may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including: (i) upon the
occurrence and during the continuance of an Event of Default, to receive,
endorse, and collect all instruments made payable to Pledgor representing any
dividend, interest payment or other distribution in respect of the Collateral or
any part thereof to the extent permitted hereunder and to give full discharge
for the same and to execute and file governmental notifications and reporting
forms; (ii) to issue any notifications/instructions Secured Party deems
necessary pursuant to SECTION 3 of this Agreement; or (iii) to arrange for the
transfer of the Collateral on the books of any of the Issuers or any other
Person to the name of Secured Party or to the name of Secured Party's nominee.
(b) In addition to the designation of Secured
Party as Pledgor's attorney-in-fact in SUBSECTION (A), Pledgor hereby
irrevocably appoints Secured Party as Pledgor's agent and attorney-in-fact to
make, execute and deliver any and all documents and writings which may be
necessary or appropriate for approval of, or be required by, any regulatory
authority located in any city, county, state or country where Pledgor or any of
the Issuers engage in business, in order to transfer or to more effectively
transfer any of the Pledged Shares or otherwise enforce Secured Party's rights
hereunder.
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9. REMEDIES UPON DEFAULT. Upon the occurrence and
during the continuance of an Event of Default:
(a) Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein, under
the Loan Agreement, or otherwise available to it, all the rights and remedies of
a secured party on default under the Code (irrespective of whether the Code
applies to the affected items of Collateral), and Secured Party may also without
notice (except as specified below) sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange, broker's board
or at any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon such
other terms as Secured Party may deem commercially reasonable, irrespective of
the impact of any such sales on the market price of the Collateral. To the
maximum extent permitted by applicable law, Secured Party may be the purchaser
of any or all of the Collateral at any such sale and shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply all or any part of the Secured Obligations as a credit on account of the
purchase price of any Collateral payable at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay, or appraisal that it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) calendar days notice to Pledgor of the time
and place of any public sale or the time after which a private sale is to be
made shall constitute reasonable notification. Secured Party shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. To the maximum extent permitted by law, Pledgor hereby waives any
claims against Secured Party arising because the price at which any Collateral
may have been sold at such a private sale was less than the price that might
have been obtained at a public sale, even if Secured Party accepts the first
offer received and does not offer such Collateral to more than one offeree.
(b) Pledgor hereby agrees that any sale or
other disposition of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, or other financial
institutions in the City of Los Angeles, California in disposing of property
similar to the Collateral shall be deemed to be commercially reasonable.
(c) Pledgor hereby acknowledges that the sale
by Secured Party of any Collateral pursuant to the terms hereof in compliance
with the Securities Act of 1933 as now in effect or as hereafter amended, or any
similar statute hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state securities
laws may require strict limitations as to the manner in which Secured Party or
any
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subsequent transferee of the Collateral may dispose thereof. Pledgor
acknowledges and agrees that in order to protect Secured Party's interest it may
be necessary to sell the Collateral at a price less than the maximum price
attainable if a sale were delayed or were made in another manner, such as a
public offering under the Securities Act. Pledgor has no objection to sale in
such a manner and agrees that Secured Party shall have no obligation to obtain
the maximum possible price for the Collateral. Without limiting the generality
of the foregoing, Pledgor agrees that, upon the occurrence and during the
continuation of an Event of Default, Secured Party may, subject to applicable
law, from time to time attempt to sell all or any part of the Collateral by a
private placement, restricting the bidders and prospective purchasers to those
who will represent and agree that they are purchasing for investment only and
not for distribution. In so doing, Secured Party may solicit offers to buy the
Collateral or any part thereof for cash, from a limited number of investors
deemed by Secured Party, in its reasonable judgment, to be institutional
investors or other responsible parties who might be interested in purchasing the
Collateral. If Secured Party shall solicit such offers, then the acceptance by
Secured Party of one of the offers shall be deemed to be a commercially
reasonable method of disposition of the Collateral.
(d) If Secured Party shall determine to
exercise its right to sell all or any portion of the Collateral pursuant to this
Section, Pledgor agrees that, upon request of Secured Party, Pledgor will, at
its own expense:
(i) use its best efforts to
execute and deliver, and cause the Issuers and the directors and officers
thereof to execute and deliver, all such instruments and documents, and to do or
cause to be done all such other acts and things, as may be necessary or, in the
opinion of Secured Party, advisable to register such Collateral under the
provisions of the Securities Act, and to cause the registration statement
relating thereto to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to make all amendments and
supplements thereto and to the related prospectuses which, in the opinion of
Secured Party, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto;
(ii) use its best efforts to
qualify the Collateral under the state securities laws or "Blue Sky" laws and to
obtain all necessary governmental approvals for the sale of the Collateral, as
requested by Secured Party;
(iii) cause the Issuers to
make available to their respective security holders, as soon as practicable, an
earnings statement which will satisfy the provisions of Section 11(a) of the
Securities Act;
(iv) execute and deliver, or
cause the officers and directors of the Issuers to execute and deliver, to any
person, entity or governmental authority as Secured Party may choose, any and
all documents and writings which, in Secured Party's
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reasonable judgment, may be necessary or appropriate for approval, or be
required by, any regulatory authority located in any city, county, state or
country where Pledgor or the Issuers engage in business, in order to transfer or
to more effectively transfer the Pledged Shares or otherwise enforce Secured
Party's rights hereunder; and
(v) do or cause to be done all
such other acts and things as may be necessary to make such sale of the
Collateral or any part thereof valid and binding and in compliance with
applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM
EXTENT PERMITTED BY LAW: (I) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL
HEARING PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE
COLLATERAL AS PROVIDED IN THIS SECTION; (II) ALL RIGHTS OF REDEMPTION, STAY, OR
APPRAISAL THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE
OF LAW OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (III) EXCEPT AS SET
FORTH IN SUBSECTION (a) OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR
ADVERTISEMENT FOR SALE.
10. APPLICATION OF PROCEEDS. Upon the occurrence and during
the continuance of an Event of Default, any cash held by Secured Party as
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in SECTION 9 shall be applied from time to time by
Secured Party as provided in the Loan Agreement.
11. DUTIES OF SECURED PARTY. The powers conferred on Secured
Party hereunder are solely to protect its interests in the Collateral and shall
not impose on it any duty to exercise such powers. Except as provided in Section
9207 of the Code, Secured Party shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT,
ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS
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AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION
OF SECURED PARTY, IN ANY OTHER JURISDICTION IN WHICH THE COLLATERAL IS LOCATED
IN CONNECTION WITH THE EXERCISE OF SECURED PARTY'S RIGHTS AND REMEDIES AS A
SECURED CREDITOR WITH RESPECT TO SUCH COLLATERAL. EACH OF PLEDGOR AND SECURED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12.
13. AMENDMENTS; ETC. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part of
Secured Party to exercise, and no delay in exercising any right under this
Agreement, any other Loan Document, or otherwise with respect to any of the
Secured Obligations, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured Obligations preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided for in this Agreement or otherwise with respect to any of the Secured
Obligations are cumulative and not exclusive of any remedies provided by law.
14. NOTICES. Unless otherwise specifically provided herein,
any notice or other communication herein required or permitted to be given shall
be in writing and shall be delivered in the manner set forth in the Loan
Agreement.
15. CONTINUING SECURITY INTEREST. This Agreement shall create
a continuing security interest in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement; (ii) be binding upon Pledgor and its
successors and assigns; and (iii) inure to the benefit of Secured Party and its
successors, transferees, and assigns. Upon the indefeasible payment in full of
the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, the security interests
granted herein shall automatically terminate and all rights to the Collateral
shall revert to Pledgor. Upon any such termination, Secured Party will, at
Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination. Such documents
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shall be prepared by Pledgor and shall be in form and substance reasonably
satisfactory to Secured Party.
16. SECURITY INTEREST ABSOLUTE. To the maximum extent
permitted by law, all rights of Secured Party, all security interests hereunder,
and all obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of
any of the Secured Obligations or any other agreement or instrument relating
thereto, including any of the Loan Documents;
(b) any change in the time, manner, or place of
payment of, or in any other term of, all or any of the Secured Obligations, or
any other amendment or waiver of or any consent to any departure from any of the
Loan Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection
of any other collateral, or any release or amendment or waiver of or consent to
departure from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise
constitute a defense available to, or a discharge of, Pledgor.
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgor; or (B) pursue any other remedy in Secured Party's power whatsoever.
17. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement or be given any substantive effect.
18. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
19. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same Agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed
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counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
20. WAIVER OF MARSHALING. Each of Pledgor and Secured Party
acknowledges and agrees that in exercising any rights under or with respect to
the Collateral: (i) Secured Party is under no obligation to marshal any
Collateral; (ii) may, in its absolute discretion, realize upon the Collateral in
any order and in any manner it so elects; and (iii) may, in its absolute
discretion, apply the proceeds of any or all of the Collateral to the Secured
Obligations in any order and in any manner it so elects. Pledgor and Secured
Party waive any right to require the marshaling of any of the Collateral.
21. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND SECURED PARTY
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
[signature page to follow]
14
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
----------------------------------
Title:
------------------------------
QUANTUM NORTH AMERICA, INC.,
a Delaware corporation
By
----------------------------------
Title:
------------------------------
S-1
<PAGE>
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: Quantum North America, Inc.
PLEDGED SHARES
<TABLE>
<CAPTION>
Former Name, if Pledgor's
Number of Certificate any, in which Percentage Jurisdiction of
Issuer Shares Class Number(s) Certificate Issued Ownership Incorporation
- ------ ------ ----- --------- ----------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: QUANTUM NORTH AMERICA, INC.,
a Delaware corporation
Address of Chief Executive Office:
15821 Ventura Boulevard
5th Floor
Encino, California 91436
<PAGE>
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds
<PAGE>
TRADEMARK SECURITY AGREEMENT
(HOLDINGS)
This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as
of December ___, 1998 is made by NATIONAL MEDIA CORPORATION, a Delaware
corporation ("Holdings"), in favor of FOOTHILL CAPITAL CORPORATION, a California
corporation, ("Lender").
RECITALS
A. Borrower and Secured Party are contemporaneously herewith
entering into that certain Loan and Security Agreement dated as of the date
hereof (as amended, restated, modified, supplemented, refinanced, renewed, or
extended from time to time, the "Loan Agreement"), pursuant to which Secured
Party has agreed to make certain financial accommodations to Holdings.
B. Holdings has executed in favor of Secured Party that
certain General Continuing Guaranty, dated as of the date hereof (the
"Guaranty"), in favor of Secured Party, respecting certain obligations of
Borrower owing to Secured Party under the Loan Agreement.
C. Holdings and Secured Party are contemporaneously herewith
entering into that certain Security Agreement, dated as of the date hereof (the
"Security Agreement"), pursuant to which Holdings has granted to Secured Party a
security interest in (among other things) all general intangibles of Holdings.
D. As one of the conditions precedent to the obligations of
Lender under the Loan Agreement, Holdings has agreed to execute and deliver this
Agreement to Lender for filing with the PTO and with any other relevant
recording systems in any domestic jurisdiction, and as further evidence of and
to effectuate Lender's existing security interests in the trademarks and other
general intangibles described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Holdings hereby agrees in favor of
Lender as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"BORROWER" means Quantum North America, Inc., a Delaware
corporation.
1
<PAGE>
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in
the Loan Agreement.
"GUARANTIED OBLIGATIONS" shall have the meaning ascribed
thereto in the Loan Agreement.
"LIEN" means any pledge, security interest, assignment, charge
or encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"PROCEEDS" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined at UCC Section 9306, all insurance proceeds and all
proceeds of proceeds. Proceeds shall include (i) any and all accounts, chattel
paper, instruments, general intangibles, cash and other proceeds, payable to or
for the account of Holdings, from time to time in respect of any of the
Trademark Collateral, (ii) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to or for the account of Holdings from time to time
with respect to any of the Trademark Collateral, (iii) any and all claims and
payments (in any form whatsoever) made or due and payable to Holdings from time
to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Trademark Collateral by any Person
acting under color of governmental authority, and (iv) any and all other amounts
from time to time paid or payable under or in connection with any of the
Trademark Collateral or for or on account of any damage or injury to or
conversion of any Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and
any successor thereto.
"TRADEMARK COLLATERAL" has the meaning set forth in SECTION 2.
"TRADEMARKS" has the meaning set forth in SECTION 2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of California.
"UNITED STATES" and "U.S." each mean the United States of
America.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the
extent the context otherwise requires:
2
<PAGE>
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto, respectively, and to a
subsection or a clause is, unless otherwise stated, a reference to a subsection
or a clause of the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a whole and not
merely to the specific Section, subsection, paragraph or clause in which the
respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to.
(vii) Any captions and headings are for convenience
of reference only and shall not affect the construction of this Agreement.
(viii) Capitalized words not otherwise defined herein
shall have the respective meanings ascribed to them in the Security Agreement.
(ix) In the event of a direct conflict between the
terms and provisions of this Agreement and the Loan Agreement, it is the
intention of the parties hereto that both such documents shall be read together
and construed, to the fullest extent possible, to be in concert with each other.
In the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of the Loan Agreement shall control and
govern; PROVIDED, HOWEVER, that the inclusion herein of additional obligations
on the part of Holdings and supplemental rights and remedies in favor of Lender
(whether under federal law or applicable California law), in each case in
respect of the Trademark Collateral, shall not be deemed a conflict in the Loan
Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY INTEREST. To secure the
Guarantied Obligations, Holdings hereby grants, assigns, transfers and conveys
to Lender a continuing security interest in all of Holdings' right, title and
interest in and to the following
3
<PAGE>
property, whether now existing or hereafter acquired or arising and whether
registered or unregistered (collectively, the "Trademark Collateral"):
(i) all state (including common law) and
federal trademarks, service marks and trade names, corporate
names, company names, business names, fictitious business
names, trade styles, trade dress, logos, other source or
business identifiers, designs and general intangibles of
like nature, now existing or hereafter adopted or acquired,
together with and including all licenses therefor held by
Holdings, and all registrations and recordings thereof, and
all applications filed or to be filed in connection
therewith, including registrations and applications in the
PTO, any State of the United States (but excluding each
application to register any trademark, service mark, or
other mark prior to the filing under applicable law of a
verified statement of use (or the equivalent) for such
trademark or service mark) and all extensions or renewals
thereof, including without limitation any of the foregoing
identified on SCHEDULE A hereto (as the same may be amended,
modified or supplemented from time to time), and the right
(but not the obligation) to register claims under any state
or federal trademark law or regulation and to apply for,
renew and extend any of the same, to sue or bring opposition
or cancellation proceedings in the name of Holdings or in
the name of Lender for past, present or future infringement
or unconsented use thereof, and all rights arising therefrom
throughout the world (collectively, the "Trademarks");
(ii) all claims, causes of action and
rights to sue for past, present or future infringement or
unconsented use of any Trademarks and all rights arising
therefrom and pertaining thereto;
(iii) all general intangibles related to
or arising out of any of the Trademarks and all the goodwill
of Holdings' business symbolized by the Trademarks or
associated therewith; and
(iv) all proceeds of any and all of the
foregoing Trademark Collateral (including license royalties,
rights to payment, accounts receivable and proceeds of
infringement suits) and, to the extent not otherwise
included, all payments under insurance (whether or not
Secured Party is the loss payee thereof) or any indemnity,
warranty or guaranty payable by reason of loss or damage to
or otherwise with respect to the foregoing Trademark
Collateral. For purposes of this Agreement, the term
"proceeds" includes whatever is receivable or received when
Trademark Collateral or proceeds are sold, licensed,
collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes,
without limitation, all rights to payment, including
returned premiums, with respect to any insurance relating
thereto.
(b) CONTINUING SECURITY INTEREST. Debtor agrees that this
Agreement shall create a continuing security interest in the Trademark
Collateral which shall remain in effect until terminated in accordance with
SECTION 17.
4
<PAGE>
(c) INCORPORATION INTO SECURITY AGREEMENT. This Agreement
shall be fully incorporated into the Security Agreement and all understandings,
agreements and provisions contained in the Security Agreement shall be fully
incorporated into this Agreement. Without limiting the foregoing, the Trademark
Collateral described in this Agreement shall constitute part of the Collateral
in the Security Agreement.
(d) PERMITTED LICENSES. Anything in the Loan Agreement or
this Agreement to the contrary notwithstanding, Holdings may grant non-exclusive
licenses of the Trademark Collateral (subject to the security interest (if any)
of Secured Party therein) in the ordinary course of business consistent with
past practice.
3. FURTHER ASSURANCES; APPOINTMENT OF LENDER AS
ATTORNEY-IN-FACT. Holdings at its expense shall execute and deliver, or cause to
be executed and delivered, to Lender any and all documents and instruments, in
form and substance reasonably satisfactory to Lender, and take any and all
action, which Lender may reasonably request from time to time, to perfect and
continue perfected, maintain the priority of or provide notice of Lender's
security interest in the Trademark Collateral and to accomplish the purposes of
this Agreement. If Holdings refuses to execute and deliver, or fails timely to
execute and deliver, any of the documents it is requested to execute and deliver
by Lender in accordance with the foregoing, Lender shall have the right, in the
name of Holdings, or in the name of Lender or otherwise, without notice to or
assent by Holdings, and Holdings hereby irrevocably constitutes and appoints
Lender (and any of Lender's officers or employees or agents designated by
Lender) as Holdings' true and lawful attorney-in-fact with full power and
authority, (i) to sign the name of Holdings on all or any of such documents or
instruments and perform all other acts that Lender reasonably deems necessary or
advisable in order to perfect or continue perfected, maintain the priority or
enforceability of or provide notice of Lender's security interest in, the
Trademark Collateral, and (ii) to execute any and all other documents and
instruments, and to perform any and all acts and things for and on behalf of
Holdings, which Lender reasonably may deem necessary or advisable to maintain,
preserve and protect the Trademark Collateral and to accomplish the purposes of
this Agreement, including (A) after the occurrence and during the continuance of
any Event of Default, to defend, settle, adjust or institute any action, suit or
proceeding with respect to the Trademark Collateral, (B) after the occurrence
and during the continuance of any Event of Default, to assert or retain any
rights under any license agreement for any of the Trademark Collateral, and (C)
after the occurrence and during the continuance of any Event of Default, to
execute any and all applications, documents, papers and instruments for Lender
to use the Trademark Collateral, to grant or issue any exclusive or
non-exclusive license with respect to any Trademark Collateral, and to assign,
convey or otherwise transfer title in or dispose of the Trademark Collateral.
The power of attorney set forth in this SECTION 3, being coupled with an
interest, is irrevocable so long as this Agreement shall not have terminated in
accordance with SECTION 17.
4. REPRESENTATIONS AND WARRANTIES. Holdings represents and
warrants to Lender, in each case to the best of its knowledge, information, and
belief, as follows:
5
<PAGE>
(a) NO OTHER TRADEMARKS. SCHEDULE A sets forth, as of the
Closing Date, a true and correct list of all of the existing Trademarks (whether
registered or otherwise), or for which any application for registration has been
filed with the PTO or any corresponding or similar trademark office of any other
U.S. jurisdiction, and that are owned or held (whether pursuant to a license or
otherwise) and used by Holdings.
(b) TRADEMARKS SUBSISTING. Each of the Trademarks listed
in SCHEDULE A is subsisting and has not been adjudged invalid or unenforceable,
in whole or in part, and, to the best of Holdings' knowledge, each of the
Trademarks is valid and enforceable.
(c) OWNERSHIP OF TRADEMARK COLLATERAL; NO VIOLATION. (i)
Holdings has rights in and good and defensible title to the existing Trademark
Collateral, (ii) with respect to the Trademark Collateral shown on SCHEDULE A
hereto as owned by it, Holdings is the sole and exclusive owner thereof, free
and clear of any Liens and rights of others (other than the security interest
created hereunder and other than Permitted Liens), including licenses,
registered user agreements and covenants by Holdings not to sue third persons,
and (iii) with respect to any Trademarks for which Holdings is either a licensor
or a licensee pursuant to a license or licensee agreement regarding such
Trademark, each such license or licensing agreement is in full force and effect,
Holdings is not in material default of any of its obligations thereunder and,
(i) other than the parties to such licenses or licensing agreements, or (ii) in
the case of any non-exclusive license or license agreement entered into by
Holdings or any such licensor regarding such Trademark, the parties to any other
such non-exclusive licenses or license agreements entered into by Holdings or
any such licensor with any other Person, no other Person has any rights in or to
any of the Trademark Collateral. To the best of Holdings' knowledge, the past,
present and contemplated future use of the Trademark Collateral by Holdings has
not, does not and will not infringe upon or violate any right, privilege or
license agreement of or with any other Person.
(d) NO INFRINGEMENT. To the best of Holdings' knowledge,
no material infringement or unauthorized use presently is being made of any of
the Trademark Collateral by any Person.
(e) POWERS. Holdings has the unqualified right, power and
authority to pledge and to grant to Lender a security interest in all of the
Trademark Collateral pursuant to this Agreement, and to execute, deliver and
perform its obligations in accordance with the terms of this Agreement, without
the consent or approval of any other Person except as already obtained.
5. COVENANTS. Until such time as this agreement is terminated
pursuant to SECTION 17, Holdings agrees that it will comply with all of the
covenants, terms and provisions of this Agreement, the Loan Agreement and the
other Loan Documents, and Holdings will promptly give Lender written notice of
the occurrence of any event that could have a material adverse effect on any of
the Trademarks or the Trademark Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Trademarks for
which Holdings is a licensee.
6
<PAGE>
6. FUTURE RIGHTS. For so long as any of the Guarantied
Obligations shall remain outstanding, or, if earlier, until Lender shall have
released or terminated, in whole but not in part, its interest in the Trademark
Collateral, if and when Holdings shall obtain rights to any new Trademarks, or
any reissue, renewal or extension of any Trademarks, the provisions of SECTION 2
shall automatically apply thereto and Holdings shall give to Lender prompt
notice thereof. Holdings shall do all things reasonably deemed necessary or
advisable by Lender to ensure the validity, perfection, priority and
enforceability of the security interests of Lender in such future acquired
Trademark Collateral. If Holdings refuses to execute and deliver, or fails
timely to execute and deliver, any of the documents it is requested to execute
and deliver by Lender in connection herewith, Holdings hereby authorizes Lender
to modify, amend or supplement the Schedules hereto and to re-execute this
Agreement from time to time on Holdings' behalf and as its attorney-in-fact to
include any future Trademarks which are or become Trademark Collateral and to
cause such re-executed Agreement or such modified, amended or supplemented
Schedules to be filed with the PTO.
7. LENDER'S DUTIES. Notwithstanding any provision contained in
this Agreement, Lender shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to Holdings or
any other Person for any failure to do so or delay in doing so. Except for the
accounting for moneys actually received by Lender hereunder or in connection
herewith, Lender shall have no duty or liability to exercise or preserve any
rights, privileges or powers pertaining to the Trademark Collateral.
8. REMEDIES. Upon the occurrence and during the continuation
of an Event of Default, Lender shall have all rights and remedies available to
it under the Security Agreement and applicable law (which rights and remedies
are cumulative) with respect to the security interests in any of the Trademark
Collateral or any other Collateral. Holdings agrees that such rights and
remedies include the right of Lender as a secured party to sell or otherwise
dispose of its Collateral after default, pursuant to UCC Section 9504. Holdings
agrees that Lender shall at all times have such royalty-free licenses, to the
extent permitted by law, for any Trademark Collateral that is reasonably
necessary to permit the exercise of any of Lender's rights or remedies upon or
after the occurrence of (and during the continuance of) an Event of Default with
respect to (among other things) any tangible asset of Holdings in which Lender
has a security interest, including Lender's rights to sell inventory, tooling or
packaging which is acquired by Holdings (or its successor, assignee or trustee
in bankruptcy). In addition to and without limiting any of the foregoing, upon
the occurrence and during the continuance of an Event of Default, Lender shall
have the right but shall in no way be obligated to bring suit, or to take such
other action as Lender deems necessary or advisable, in the name of Holdings or
Lender, to enforce or protect any of the Trademark Collateral, in which event
Holdings shall, at the request of Lender, do any and all lawful acts and execute
any and all documents required by Lender in aid of such enforcement. To the
extent that Lender shall elect not to bring suit to enforce such Trademark
Collateral, Holdings, in the exercise of its reasonable business judgment,
agrees to use all reasonable measures and its diligent efforts, whether by
action, suit, proceeding or otherwise, to prevent the infringement,
misappropriation or violation thereof by others and
7
<PAGE>
for that purpose agrees diligently to maintain any action, suit or proceeding
against any Person necessary to prevent such infringement, misappropriation or
violation.
9. BINDING EFFECT. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by Holdings and Lender and their respective
successors and assigns.
10. NOTICES. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
11. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the security interests
hereunder in respect of any Trademark Collateral are governed by federal law, in
which case such choice of California law shall not be deemed to deprive Lender
of such rights and remedies as may be available under federal law.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Security Agreement, together with the Schedules hereto and thereto, contains the
entire agreement of the parties with respect to the subject matter hereof and
supersede all prior drafts and communications relating to such subject matter.
Neither this Agreement nor any provision hereof may be modified, amended or
waived except by the written agreement of the parties as provided in the Loan
Agreement. Notwithstanding the foregoing, Lender may re-execute this Agreement
or modify, amend or supplement the Schedules hereto as provided in SECTION 6
hereof.
13. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
14. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement
15. SECURITY AGREEMENT. Holdings acknowledges that the rights
and remedies of Lender with respect to the security interest in the Trademark
Collateral granted hereby are
8
<PAGE>
more fully set forth in the Security Agreement and all such rights and remedies
are cumulative.
16. NO INCONSISTENT REQUIREMENTS. Holdings acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
Holdings agrees that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
17. TERMINATION. Upon the payment in full of the Guarantied
Obligations, including the cash collateralization, expiration, or cancellation
of all Guarantied Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement, this Agreement shall terminate, and
Lender shall execute and deliver such documents and instruments and take such
further action reasonably requested by Holdings, at Holdings' expense, as shall
be necessary to evidence termination of the security interest granted by
Holdings to Lender hereunder, including cancellation of this Agreement by
written notice from Lender to the PTO.
[Remainder of page intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
NATIONAL MEDIA CORPORATION,
a Delaware corporation
By:
---------------------------------
Name:
--------------------------------
Title:
-------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
---------------------------------
Name:
--------------------------------
Title:
-------------------------------
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On _____________, 1998, before me, __________________, Notary
Public, personally appeared ________________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On ___________, 1998, before me, _____________________, Notary
Public, personally appeared ___________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------------
Signature
[SEAL]
S-2
<PAGE>
SCHEDULE A
to the Trademark Security Agreement
TRADEMARKS OF HOLDINGS
<TABLE>
<CAPTION>
- ------------------------------ ----------------- --------------------- ------------------------ ----------------------
Registration/ Registration/
TYPE JURISDICTION MARK APPLICATION DATE APPLICATION NO.
- ------------------------------ ----------------- --------------------- ------------------------ ----------------------
<S> <C> <C> <C> <C>
- ------------------------------ ----------------- --------------------- ------------------------ ----------------------
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</TABLE>
A-1
<PAGE>
EXHIBIT 10.7
PATENT SECURITY AGREEMENT
(HOLDINGS)
THIS PATENT SECURITY AGREEMENT (this "Agreement"), dated as of December ,
1998 is made by NATIONAL MEDIA CORPORATION, a Delaware corporation ("Holdings"),
in favor of FOOTHILL CAPITAL CORPORATION, a California corporation ("Lender").
RECITALS
A. Borrower and Secured Party are contemporaneously herewith entering into
that certain Loan and Security Agreement dated as of the date hereof (as
amended, restated, modified, supplemented, refinanced, renewed, or extended from
time to time, the "Loan Agreement"), pursuant to which Secured Party has agreed
to make certain financial accommodations to Holdings.
B. Holdings has executed in favor of Secured Party that certain General
Continuing Guaranty, dated as of the date hereof (the "Guaranty"), in favor of
Secured Party, respecting certain obligations of Borrower owing to Secured Party
under the Loan Agreement.
C. Holdings and Secured Party are contemporaneously herewith entering into
that certain Security Agreement, dated as of the date hereof (the "Security
Agreement"), pursuant to which Holdings has granted to Secured Party a security
interest in (among other things) all general intangibles of Holdings.
D. As one of the conditions precedent to the obligations of Lender under
the Loan Agreement, Holdings has agreed to execute and deliver this Agreement to
Lender for filing with the PTO and with any other relevant recording systems in
any domestic or foreign jurisdiction, and as further evidence of and to
effectuate Lender's existing security interests in the patents and other general
intangibles described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Holdings hereby agrees in favor of Lender as
follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
-1-
<PAGE>
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
Section 101 ET SEQ.), as amended, and any successor statute.
"BORROWER" means Quantum North America, Inc., a Delaware corporation.
"EVENT OF DEFAULT" shall have the meaning ascribed to such thereto in
the Security Agreement.
"GUARANTIED OBLIGATIONS" shall have the meaning ascribed thereto in
the Guaranty.
"LIEN" means any pledge, security interest, assignment, charge or
encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"PATENT COLLATERAL" has the meaning set forth in SECTION 2.
"PATENTS" has the meaning set forth in SECTION 2.
"PROCEEDS" means whatever is receivable or received from or upon the
sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Patent Collateral, including
"proceeds" as defined at UCC Section 9306, and all proceeds of proceeds.
Proceeds shall include (i) any and all accounts, chattel paper,
instruments, general intangibles, cash and other proceeds, payable to or
for the account of Holdings, from time to time in respect of any of the
Patent Collateral, (ii) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to or for the account of Holdings from time to
time with respect to any of the Patent Collateral, (iii) any and all claims
and payments (in any form whatsoever) made or due and payable to Holdings
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Patent
Collateral by any Person acting under color of governmental authority, and
(iv) any and all other amounts from time to time paid or payable under or
in connection with any of the Patent Collateral or for or on account of any
damage or injury to or conversion of any Patent Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and any
successor thereto.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of California.
"UNITED STATES" and "U.S." each mean the United States of America.
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(b) TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings ascribed to
them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the extent the
context otherwise requires:
(i) Any reference to a Section or a Schedule is a reference to a
section hereof, or a schedule hereto, respectively, and to a subsection or
a clause is, unless otherwise stated, a reference to a subsection or a
clause of the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and the like
mean and refer to this Agreement as a whole and not merely to the specific
Section, subsection, paragraph or clause in which the respective word
appears.
(iii) The meaning of defined terms shall be equally applicable to both
the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be deemed
to be followed by the words "without limitation."
(v) References to agreements and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications
thereto.
(vi) References to statutes or regulations are to be construed as
including all statutory and regulatory provisions consolidating, amending
or replacing the statute or regulation referred to.
(vii) Any captions and headings are for convenience of reference only
and shall not affect the construction of this Agreement.
(viii) Capitalized words not otherwise defined herein shall have the
respective meanings ascribed to them in the Security Agreement.
(ix) In the event of a direct conflict between the terms and
provisions of this Agreement and the Loan Agreement, it is the intention of
the parties hereto that both such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each
other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan Agreement shall
control and govern; PROVIDED, HOWEVER, that the inclusion herein of
additional obligations on the part of the Holdings and supplemental rights
and remedies in favor of Lender (whether under California law or
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applicable federal law), in each case in respect of the Patent Collateral,
shall not be deemed a conflict with the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY INTEREST. As security for the
payment and performance of the Guarantied Obligations, Holdings hereby grants,
assigns, transfers, and conveys to Lender a continuing security interest in all
of Holdings' right, title and interest in, to and under the following property,
whether now existing or hereafter acquired or arising (collectively, the "Patent
Collateral"):
(i) all letters patent of the U.S. or any other country, all
registrations and recordings thereof, and all applications for letters
patent of the U.S. or any other country, owned, held, or used by Holdings
in whole or in part, including all existing U.S. patents and patent
applications of Holdings which are described in SCHEDULE A hereto, as the
same may be amended or supplemented pursuant hereto from time to time, and
together with and including all patent licenses held by Holdings, including
such patent licenses which are described in SCHEDULE A hereto, together
with all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof and the inventions disclosed therein, and all
rights corresponding thereto throughout the world, including the right to
make, use, lease, sell and otherwise transfer the inventions disclosed
therein, and all proceeds thereof, including all license royalties and
proceeds of infringement suits (collectively, the "Patents");
(ii) all claims, causes of action and rights to sue for past, present
and future infringement or unconsented use of any of the Patents and all
rights arising therefrom and pertaining thereto;
(iii) all general intangibles (as defined in the UCC) and all
intangible intellectual or other similar property of Holdings of any kind
or nature, whether now owned or hereafter acquired or developed, associated
with or arising out of any of the Patents and not otherwise described
above; and
(iv) all products and Proceeds of any and all of the foregoing.
(b) CONTINUING SECURITY INTEREST. Holdings agrees that this Agreement
shall create a continuing security interest in the Patent Collateral which shall
remain in effect until terminated in accordance with SECTION 16.
(c) INCORPORATION INTO SECURITY AGREEMENT. This Agreement shall be
fully incorporated into the Security Agreement and all understandings,
agreements and provisions contained in the Security Agreement shall be fully
incorporated into this
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Agreement. Without limiting the foregoing, the Patent Collateral described in
this Agreement shall constitute part of the Collateral in the Security
Agreement.
(d) LICENSES. Anything in the Security Agreement or this Agreement to
the contrary notwithstanding, Holdings may grant non-exclusive licenses of the
Patent Collateral (subject to the security interest (if any) of Lender therein)
in the ordinary course of business and consistent with past practice.
3. FURTHER ASSURANCES; APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT.
Holdings at its expense shall execute and deliver, or cause to be executed and
delivered, to Lender any and all documents and instruments, in form and
substance satisfactory to Lender, and take any and all action, which Lender may
reasonably request from time to time, to perfect and continue perfected,
maintain the priority of or provide notice of Lender's security interest in the
Patent Collateral and to accomplish the purposes of this Agreement. If Holdings
refuses to execute and deliver, or fails timely to execute and deliver, any of
the documents it is requested to execute and deliver by Lender in accordance
with the foregoing, Lender shall have the right to, in the name of Holdings, or
in the name of Lender or otherwise, without notice to or assent by Holdings, and
Holdings hereby irrevocably constitutes and appoints Lender (and any of Lender's
officers or employees or agents designated by Lender) as Holdings' true and
lawful attorney-in-fact with full power and authority, (i) to sign the name of
Holdings on all or any of such documents or instruments, and perform all other
acts, that Lender deems necessary or advisable in order to perfect or continue
perfected, maintain the priority or enforceability of or provide notice of
Lender's security interest in, the Patent Collateral, and (ii) to execute any
and all other documents and instruments, and to perform any and all acts and
things for and on behalf of Holdings, which Lender may deem necessary or
advisable to maintain, preserve and protect the Patent Collateral and to
accomplish the purposes of this Agreement, including (A) upon the occurrence and
during the continuance of any Event of Default, to defend, settle, adjust or
institute any action, suit or proceeding with respect to the Patent Collateral,
(B) upon the occurrence and during the continuance of any Event of Default, to
assert or retain any rights under any license agreement for any of the Patent
Collateral, including any rights of Holdings arising under Section 365(n) of the
Bankruptcy Code, and (C) upon the occurrence and during the continuance of any
Event of Default, to execute any and all applications, documents, papers and
instruments for Lender to use the Patent Collateral, to grant or issue any
exclusive or non-exclusive license with respect to any Patent Collateral (it
being understood that so long as no Event of Default has occurred and is
continuing, Holdings may grant or issue non-exclusive licenses in the ordinary
course of business and consistent with past practice with respect to the Patent
Collateral and subject to the security interest (if any) of Lender therein), and
to assign, convey or otherwise transfer title in or dispose of the Patent
Collateral. The power of attorney set forth in this SECTION 3, being coupled
with an interest, is irrevocable so long as this Agreement shall not have
terminated in accordance with SECTION 16.
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Nothing in this Agreement shall obligate Holdings to commence any
suit, proceeding or other action for infringement of any of the Patents that are
immaterial to Holdings' business.
4. REPRESENTATIONS AND WARRANTIES. Holdings represents and warrants to
Lender, in each case to the best of its knowledge, information, and belief, as
follows:
(a) NO OTHER PATENTS. A true and correct list of all of the existing
Patents owned, held (whether pursuant to a license or otherwise) or used by
Holdings, in whole or in part, is set forth in SCHEDULE A.
(b) VALIDITY. Each of the Patents listed on SCHEDULE A is subsisting
and has not been adjudged invalid or unenforceable, in whole or in part, all
maintenance fees required to be paid on account of any Patents have been timely
paid for maintaining such Patents in force, and, to the best of Holdings'
knowledge, each of the Patents is valid and enforceable.
(c) OWNERSHIP OF PATENT COLLATERAL; NO VIOLATION. (i) Holdings has
rights in and good title to the existing Patent Collateral, (ii) with respect to
the Patent Collateral shown on SCHEDULE A hereto as owned by it, Holdings is the
sole and exclusive owner thereof, free and clear of any Liens and rights of
others (other than the security interest created hereunder), including licenses,
shop rights and covenants by Holdings not to sue third persons and (iii) with
respect to any Patent for which Holdings is either a licensor or a licensee
pursuant to a license or licensee agreement regarding such Patent, each such
license or licensing agreement is in full force and effect, Holdings is not in
default of any of its obligations thereunder and, other than the parties to such
licenses or licensing agreements, no other Person is known by Holdings to have
any rights in or to any of the Patent Collateral. To the best of Holdings'
knowledge, the past, present and contemplated future use of the Patent
Collateral by Holdings has not, does not and will not infringe upon or violate
any right, privilege or license agreement of or with any other Person.
(d) NO INFRINGEMENT. To the best of Holdings' knowledge, no material
infringement or unauthorized use presently is being made of any of the Patent
Collateral by any Person.
(e) POWERS. Holdings has the unqualified right, power and authority to
pledge and to grant to Lender a security interest in all of the Patent
Collateral pursuant to this Agreement, and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement, without the consent
or approval of any other Person except as already obtained.
5. COVENANTS. So long as any of the Guarantied Obligations remain
unsatisfied, Holdings shall comply with all of the covenants, terms and
provisions of this Agreement, the Security Agreement and the other Loan
Documents, and Holdings will
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promptly give Lender written notice of the occurrence of any event that could
have a material adverse effect on any of the Patents or the Patent Collateral,
including any petition under the Bankruptcy Code filed by or against any
licensor of any of the Patents for which Holdings is a licensee.
6. FUTURE RIGHTS. Except as otherwise expressly agreed to in writing
by Lender, for so long as any of the Guarantied Obligations shall remain
outstanding, or, if earlier, until Lender shall have released or terminated, in
whole but not in part, its interest in the Patent Collateral, if and when
Holdings shall obtain rights to any new patentable inventions, or become
entitled to the benefit of any Patent, or any reissue, division, continuation,
renewal, extension or continuation-in-part of any Patent or Patent Collateral or
any improvement thereof (whether pursuant to any license or otherwise), the
provisions of SECTION 2 shall automatically apply thereto and Holdings shall
give to Lender prompt notice thereof. Holdings shall do all things deemed
necessary or advisable by Lender to ensure the validity, perfection, priority
and enforceability of the security interests of Lender in such future acquired
Patent Collateral. Holdings hereby authorizes Lender to modify, amend or
supplement the Schedules hereto and to re-execute this Agreement from time to
time on Holdings' behalf and as its attorney-in-fact to include any future
patents which are or become Patent Collateral and to cause such re-executed
Agreement or such modified, amended or supplemented Schedules to be filed with
the PTO.
7. REMEDIES. Upon the occurrence and during the continuance of an
Event of Default, Lender shall have all rights and remedies available to it
under the Security Agreement and applicable law (which rights and remedies are
cumulative) with respect to the security interests in any of the Patent
Collateral or any other Collateral. Holdings agrees that such rights and
remedies include the right of Lender as a Lender to sell or otherwise dispose of
its Collateral after default, pursuant to UCC Section 9504. Holdings agrees that
Lender shall at all times have such royalty free licenses, to the extent
permitted by law, for any Patent Collateral that is reasonably necessary to
permit the exercise of any of Lender's rights or remedies upon the occurrence of
an Event of Default with respect to (among other things) any tangible asset of
Holdings in which Lender has a security interest, including Lender's rights to
sell inventory, tooling or packaging which is acquired by Holdings (or its
successor, assignee or trustee in bankruptcy). In addition to and without
limiting any of the foregoing, upon the occurrence and during the continuance of
an Event of Default, Lender shall have the right but shall in no way be
obligated to bring suit, or to take such other action as Lender deems necessary
or advisable, in the name of Holdings or Lender, to enforce or protect any of
the Patent Collateral, in which event Holdings shall, at the request of Lender,
do any and all lawful acts and execute any and all documents required by Lender
in aid of such enforcement. To the extent that Lender shall elect not to bring
suit to enforce such Patent Collateral, upon the occurrence and during the
continuation of an Event of Default, Holdings, in the exercise of its reasonable
business judgment, agrees to use all reasonable measures and its diligent
efforts, whether by action, suit, proceeding or otherwise, to prevent the
infringement, misappropriation or violations thereof by others and for that
purpose agrees
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<PAGE>
diligently to maintain any action, suit or proceeding against any Person
necessary to prevent such infringement, misappropriation or violation.
8. BINDING EFFECT. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by Holdings and Lender and their respective
successors and assigns.
9. NOTICES. All notices and other communications hereunder shall be in
writing and shall be mailed, sent or delivered in accordance with the Loan
Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, except to the
extent that the validity or perfection of the security interests hereunder in
respect of the Patent Collateral are governed by federal law, in which case such
choice of California law shall not be deemed to deprive Lender of such rights
and remedies as may be available under federal law.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Security Agreement,
together with the Schedules hereto and thereto, contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
drafts and communications relating to such subject matter. Neither this
Agreement nor any provision hereof may be modified, amended or waived except by
the written agreement of the parties, as provided in the Security Agreement.
Notwithstanding the foregoing, Lender may re-execute this Agreement or modify,
amend or supplement the Schedules hereto as provided in SECTION 6 hereof.
12. SEVERABILITY. If one or more provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect in any jurisdiction or
with respect to any party, such invalidity, illegality or unenforceability in
such jurisdiction or with respect to such party shall, to the fullest extent
permitted by applicable law, not invalidate or render illegal or unenforceable
any such provision in any other jurisdiction or with respect to any other party,
or any other provisions of this Agreement.
13. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement
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14. SECURITY AGREEMENT. Holdings acknowledges that the rights and remedies
of Lender with respect to the security interest in the Patent Collateral granted
hereby are more fully set forth in the Security Agreement and all such rights
and remedies are cumulative.
15. NO INCONSISTENT REQUIREMENTS. Holdings acknowledges that this Agreement
and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and Holdings
agrees that all such covenants, terms and provisions are cumulative and all
shall be performed and satisfied in accordance with their respective terms.
16. TERMINATION. Upon the indefeasible payment in full of the Guarantied
Obligations, including the cash collateralization, expiration, or cancellation
of all Guarantied Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement, this Agreement shall terminate and
Lender shall execute and deliver such documents and instruments and take such
further action reasonably requested by Holdings and at Holdings' expense as
shall be necessary to evidence termination of the security interest granted by
Holdings to Lender hereunder.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
NATIONAL MEDIA CORPORATION,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On _______________, 1998, before me, ______________________________,
Notary Public, personally appeared ________________________, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On _________________, 1998, before me, ______________________________,
Notary Public, personally appeared ___________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
S-2
<PAGE>
SCHEDULE A
to the Patent Security Agreement
UNITED STATES PATENTS, PATENT APPLICATIONS, AND PATENT LICENSE
<TABLE>
<CAPTION>
- ---------------- --------------- ----------- ------------ -------------------------------------------------------
FILING PATENT FILING FILING
COUNTRY NUMBER DATE STATUS TITLE
- ---------------- --------------- ----------- ------------ -------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
A-1
<PAGE>
Exhibit 10.8
STOCK PLEDGE AGREEMENT
(SUBSIDIARIES)
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
December ___, 1998, is entered into among POSITIVE RESPONSE TELEVISION, INC., a
Delaware corporation, NATIONAL MEDIA HOLDINGS, INC., a Delaware corporation, and
SUZANNE PAUL HOLDINGS PTY LIMITED, a company organized under the laws of
Australia (each a "Pledgor", and collectively "Pledgors"), and FOOTHILL CAPITAL
CORPORATION, a California corporation ("Secured Party"), with reference to the
following:
WHEREAS, each Pledgor beneficially owns the specified number
of shares identified as Pledged Shares in the Persons identified as Issuers on
SCHEDULE A attached hereto (or any addendum thereto);
WHEREAS, Borrower and Secured Party are parties to that
certain Loan and Security Agreement (the "Loan Agreement"), of even date
herewith, pursuant to which Secured Party has agreed to make certain financial
accommodations to Borrower;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Borrower pursuant to the Loan Agreement, Pledgors
desire to pledge, grant, transfer, and assign to Secured Party a security
interest in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
Definitions.All initially capitalized terms used herein
and not otherwise defined herein shall have the meaning ascribed thereto in the
Loan Agreement. As used in this Agreement:
"AGREEMENT" shall mean this Stock Pledge Agreement.
"BORROWER" shall mean Quantum North America, a Delaware
corporation.
"CHIEF EXECUTIVE OFFICE" shall mean where each Pledgor is
deemed located pursuant to Section 9103(3)(d) of the Code.
"COLLATERAL" shall mean the Pledged Shares, the Future
Rights, and the Proceeds, collectively.
"FUTURE RIGHTS" shall mean: (a) all shares of stock
(other than Pledged Shares) of the Issuers, and all securities convertible or
exchangeable into, and all warrants, options, or other rights to purchase,
shares of stock of the Issuers; (b) to the extent of any Pledgor's interest
therein, all shares of, all securities convertible or exchangeable into, and all
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warrants, options, or other rights to purchase shares of stock of any Person in
which any Pledgor, after the date of this Agreement, acquires a direct equity
interest, irrespective of whether such Person is or becomes a Subsidiary of
Pledgor; and (c) the certificates or instruments representing such additional
shares, convertible or exchangeable securities, warrants, and other rights and
all dividends, cash, options, warrants, rights, instruments, and other property
or proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
"HOLDER" and "HOLDERS" shall have the meanings ascribed
thereto in SECTION 3 of this Agreement.
"ISSUERS" shall mean each of the Persons identified as an
Issuer on SCHEDULE A attached hereto (or any addendum thereto), and any
successors thereto, whether by merger or otherwise.
"LIEN" shall mean any lien, mortgage, pledge, assignment
(including any assignment of rights to receive payments of money), security
interest, charge, or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, or any
agreement to give any security interest).
"LOAN AGREEMENT" shall have the meaning ascribed thereto
in the recitals to this Agreement.
"PERMITTED LIENS" means, with respect to each Pledgor,
(a) Liens held by Secured Party, (b) Liens for unpaid taxes that either (i) are
not yet due and payable or (ii) are the subject of Permitted Protests, (c) Liens
set forth on SCHEDULE P-1, (d) Liens arising from deposits made in connection
with obtaining worker's compensation or other unemployment insurance, (e) Liens
or deposits to secure performance of bids, tenders, or leases, incurred in the
ordinary course of business of such Pledgor and not in connection with the
borrowing of money, (f) Liens arising by reason of security for surety or appeal
bonds in the ordinary course of business of such Pledgor, and (g) Liens of or
resulting from any judgment or award that reasonably could not be expected to
result in a Material Adverse Change and as to which the time for the appeal or
petition for rehearing of which has not yet expired, or in respect of which such
Pledgor is in good faith prosecuting an appeal or proceeding for a review and in
respect of which a stay of execution pending such appeal or proceeding for
review has been secured.
"PLEDGED SHARES" shall mean all of the shares identified
as Pledged Shares on SCHEDULE A attached hereto (or any addendum thereto).
"PLEDGOR" and "PLEDGORS" shall have the meaning ascribed
thereto in the preamble to this Agreement.
"PROCEEDS" shall mean all proceeds (including proceeds of
proceeds) of the Pledged Shares and Future Rights including all: (a) rights,
benefits, distributions, premiums, profits, dividends, interest, cash,
instruments, documents of title, accounts, contract rights, inventory,
equipment, general intangibles, deposit accounts, chattel paper, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in exchange for, or as a replacement of or a substitution for, any
of the Pledged Shares, Future Rights, or proceeds
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<PAGE>
thereof (including any cash, stock, or other securities or instruments issued
after any recapitalization, readjustment, reclassification, merger or
consolidation with respect to the Issuers and any claims against financial
intermediaries under Section 8313(2) of the Code or otherwise); (b)
"proceeds," as such term is used in Section 9306 of the Code; (c) proceeds of
any insurance, indemnity, warranty, or guarantY (including guaranties of
delivery) payable from time to time with respect to any of the Pledged
Shares, Future Rights, or proceeds thereof; (d) payments (in any form
whatsoever) made or due and payable to any Pledgor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Pledged Shares, Future Rights, or
proceeds thereof; and (e) other amounts from time to time paid or payable
under or in connection with any of the Pledged Shares, Future Rights, or
proceeds thereof.
"SECURED OBLIGATIONS" shall mean all Obligations owing by
Borrower to Secured Party of any kind or description arising out of or
outstanding under, advanced or issued pursuant to, or evidenced by the Loan
Agreement or the other Loan Documents, irrespective of whether for the payment
of money, whether direct or indirect, absolute or contingent, due or to become
due, voluntary or involuntary, whether now existing or hereafter arising, and
including all interest (including interest that accrues after the filing of a
case under the Bankruptcy Code) and any and all costs, fees (including attorneys
fees), and expenses which Borrower is required to pay pursuant to any of the
foregoing, by law, or otherwise.
"SECURED PARTY" shall have the meaning ascribed thereto
in the preamble to this Agreement, together with its successors or assigns.
"SECURITIES ACT" shall have the meaning ascribed thereto
in SECTION 9(C) of this Agreement.
(A) CONSTRUCTION.
(i) Unless the context of this Agreement clearly
requires otherwise, references to the plural
include the singular and to the singular
include the plural, the part includes the
whole, the term "including" is not limiting,
and the term "or" has, except where otherwise
indicated, the inclusive meaning represented
by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and other
similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to
any particular provision of this Agreement.
Article, section, subsection, exhibit, and
schedule references are to this Agreement
unless otherwise specified. All of the
exhibits or schedules attached to this
Agreement shall be deemed incorporated herein
by reference. Any reference to any of the
following documents includes any and all
alterations, amendments, restatements,
extensions, modifications, renewals, or
supplements thereto or thereof, as applicable:
this Agreement, the Loan Agreement, or any of
the other Loan Documents.
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<PAGE>
(ii) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or
resolved against Secured Party or any Pledgor,
whether under any rule of construction or
otherwise. On the contrary, this Agreement has
been reviewed by all of the parties and their
respective counsel and shall be construed and
interpreted according to the ordinary meaning
of the words used so as to fairly accomplish
the purposes and intentions of the parties
hereto.
(iii) In the event of any direct conflict between
the express terms and provisions of this
Agreement and of the Loan Agreement, the terms
and provisions of the Loan Agreement shall
control.
2. PLEDGE.
(a) As security for the prompt payment and performance of
the Secured Obligations in full by Borrower when due, whether at stated
maturity, by acceleration or otherwise (including amounts that would become due
but for the operation of the provisions of the Bankruptcy Code), Pledgor hereby
pledges, grants, transfers, and assigns to Secured Party a security interest in
all of Pledgor's right, title, and interest in and to the Collateral.
(b) If any Person whose shares of stock are pledged by
any Pledgor pursuant hereto shall at any time have earnings and profits which,
because of such pledge, will result in taxable income to such Pledgor pursuant
to IRC Section 952, then Secured Party, upon written notice of the foregoing,
shall (i) release its liens in the shares of stock of such Person to the extent
necessary to avoid the recognition of income by such Pledgor pursuant to IRC
Section 952, and (ii) deliver to such Pledgor the pledged certificates
representing the number of shares of stock in which Secured Party has released
its lien; PROVIDED, HOWEVER, Secured Party shall have no obligation to deliver
such shares unless and until such Pledgor shall have delivered, or caused to be
delivered to Secured Party, certificates in such denominations as are necessary
(if any) for Secured Party to deliver such certificates while retaining
certificates representing the number of shares of stock in which Secured Party
has retained its liens.
(c) If any wholly owned Subsidiary of any Pledgor shall
at any time be merged into any other wholly owned Subsidiary of such Pledgor, or
shall be dissolved, then, in either case, upon delivery to Secured Party of
evidence, reasonably satisfactory to Secured Party, of such merger or
dissolution, Secured Party shall deliver to the applicable Pledgor the pledged
certificates representing the pledged shares of such wholly owned Subsidiary.
3. DELIVERY AND REGISTRATION OF COLLATERAL.
(a) All certificates or instruments representing or
evidencing the Collateral shall be promptly delivered by each Pledgor to Secured
Party or Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery, or
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shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to Secured Party.
(b) Upon the occurrence and during the continuance of an
Event of Default, Secured Party shall have the right, at any time in its
discretion and without notice to any Pledgor, to transfer to or to register on
the books of the Issuers (or of any other Person maintaining records with
respect to the Collateral) in the name of Secured Party or any of its nominees
any or all of the Collateral. In addition, Secured Party shall have the right at
any time to exchange certificates or instruments representing or evidencing
Collateral for certificates or instruments of smaller or larger denominations.
(c) If, at any time and from time to time, any Collateral
(including any certificate or instrument representing or evidencing any
Collateral) is in the possession of a Person other than Secured Party or any
Pledgor (a "Holder"), then the applicable Pledgor shall immediately, at Secured
Party's option, either cause such Collateral to be delivered into Secured
Party's possession, or execute and deliver to such Holder a written
notification/instruction, and take all other steps necessary to perfect the
security interest of Secured Party in such Collateral, including obtaining from
such Holder a written acknowledgement that such Holder holds such Collateral for
Secured Party, all pursuant to Sections 9115 of the Code or other applicable law
governing the perfectIon of Secured Party's security interest in the Collateral
in the possession of such Holder. Each such notification/instruction and
acknowledgement shall be in form and substance satisfactory to Secured Party.
(d) Any and all Collateral (including dividends,
interest, and other cash distributions) at any time received or held by any
Pledgor shall be so received or held in trust for Secured Party, shall be
segregated from other funds and property of such Pledgor and shall be forthwith
delivered to Secured Party in the same form as so received or held, with any
necessary endorsements; PROVIDED that cash dividends or distributions received
by such Pledgor, if and to the extent they are not prohibited by the Loan
Agreement, may be retained by such Pledgor in accordance with SECTION 4 and used
in the ordinary course of Pledgor's business;
(e) If at any time and from time to time any Collateral
consists of an uncertificated security or a security in book entry form, then
the applicable Pledgor shall immediately cause such Collateral to be registered
or entered, as the case may be, in the name of Secured Party, or otherwise cause
Secured Party's security interest thereon to be perfected in accordance with
applicable law.
4. VOTING RIGHTS AND DIVIDENDS.
(a) So long as no Event of Default shall have occurred
and be continuing, each Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral or any part thereof for
any purpose not inconsistent with the terms of the Loan Documents and shall be
entitled to receive and retain any cash dividends or distributions paid in
respect of the Collateral.
(b) Upon the occurrence and during the continuance of an
Event of Default, all rights of each Pledgor to receive and retain cash
dividends or distributions that it
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would otherwise be entitled to receive and retain pursuant to SECTION 4(A),
shall cease, and all such rights shall thereupon become vested in Secured Party,
who shall thereupon have the sole right to receive and retain such cash
dividends and distributions. Each Pledgor shall execute and deliver (or cause to
be executed and delivered) to Secured Party all such proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to receive the dividends and distributions that it is entitled to
receive and retain pursuant to the preceding sentence.
(c) Upon the occurrence and during the continuance of an
Event of Default in respect of which Secured Party has accelerated the
Obligations, all rights of each Pledgor to exercise the voting and other
consensual rights that it would otherwise be entitled to exercise pursuant to
SECTION 4(A) shall cease, and all such rights shall thereupon become vested in
Secured Party, who shall thereupon have the sole right to exercise such voting
or other consensual rights. Each Pledgor shall execute and deliver (or cause to
be executed and delivered) to Secured Party all such proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights which it is entitled to
exercise pursuant to the preceding sentence.
5. REPRESENTATIONS AND WARRANTIES. Each Pledgor represents,
warrants, and covenants, in each case, to the best of its knowledge,
information, and belief, as follows:
(a) such Pledgor has taken all steps it deems necessary
or appropriate to be informed on a continuing basis of changes or potential
changes affecting the Collateral (including rights of conversion and exchange,
rights to subscribe, payment of dividends, reorganizations or recapitalization,
tender offers and voting rights), and such Pledgor agrees that Secured Party
shall have no responsibility or liability for informing such Pledgor of any such
changes or potential changes or for taking any action or omitting to take any
action with respect thereto;
(b) All information herein or hereafter supplied to
Secured Party by or on behalf of such Pledgor in writing with respect to the
Collateral is, or in the case of information hereafter supplied will be,
accurate and complete in all material respects;
(c) such Pledgor is and will be the sole legal and
beneficial owner of the Collateral (including the Pledged Shares and all other
Collateral acquired by such Pledgor after the date hereof) free and clear of any
adverse claim, Lien, or other right, title, or interest of any Person other than
Permitted Liens;
(d) This Agreement, and the delivery to Secured Party of
the Pledged Shares representing Collateral (or the delivery to all Holders of
the Pledged Shares representing Collateral of the notification/instruction
referred to in SECTION 3 of this Agreement), creates a valid, perfected, and
first priority security interest in one hundred percent (100%) of the Pledged
Shares in favor of Secured Party securing payment of the Secured Obligations,
and all actions necessary to achieve such perfection have been duly taken;
(e) SCHEDULE A to this Agreement is true and correct and
complete in all material respects; without limiting the generality of the
foregoing: (i) all the Pledged Shares
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are in certificated form, and, except to the extent registered in the name of
Secured Party or its nominee pursuant to the provisions of this Agreement, are
registered in the name of the applicable Pledgor; and (ii) the Pledged Shares as
to each of the Issuers constitute at least the percentage of all the fully
diluted issued and outstanding shares of stock of such Issuer as set forth in
SCHEDULE A to this Agreement;
(f) There are no presently existing Future Rights or
Proceeds owned by Pledgor, except as set forth in SCHEDULE C hereto;
(g) The Pledged Shares have been duly authorized and
validly issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to this
Agreement nor the extensions of credit represented by the Secured Obligations
violates Regulation T, U or X of the Board of Governors of the Federal Reserve
System.
6. FURTHER ASSURANCES.
(a) Each Pledgor agrees that from time to time, at the
expense of such Pledgor, such Pledgor will promptly execute and deliver all
further instruments and documents, and take all further action that may be
necessary or reasonably desirable, or that Secured Party may request, in order
to perfect and protect any security interest granted or purported to be granted
hereby or to enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, such Pledgor will: (i) at the request of Secured
Party, mark conspicuously each of its records pertaining to the Collateral with
a legend, in form and substance reasonably satisfactory to Secured Party,
indicating that such Collateral is subject to the security interest granted
hereby; (ii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or reasonably desirable, or as Secured Party may request, in order to perfect
and preserve the security interests granted or purported to be granted hereby;
(iii) allow inspection of the Collateral by Secured Party or Persons designated
by Secured Party; and (iv) appear in and defend any action or proceeding that
may affect such Pledgor's title to or Secured Party's security interest in the
Collateral.
(b) Each Pledgor hereby authorizes Secured Party to file
one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral without the signature of such
Pledgor where permitted by law. A carbon, photographic, or other reproduction of
this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Each Pledgor will promptly furnish to Secured Party,
upon the request of Secured Party: (i) a certificate executed by an authorized
officer of such Pledgor, and dated as of the date of delivery to Secured Party,
itemizing in such detail as Secured Party may request, the Collateral which, as
of the date of such certificate, has been delivered to Secured Party by such
Pledgor pursuant to the provisions of this Agreement; and (ii) such statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may request.
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7. COVENANTS OF PLEDGORS. Each Pledgor shall:
(a) Perform each and every covenant in the Loan Documents
applicable to such Pledgor;
(b) At all times keep at least one complete set of its
records concerning substantially all of the Collateral at its Chief Executive
Office as set forth in SCHEDULE B hereto, and not change the location of its
Chief Executive Office or such records without giving Secured Party at least
thirty (30) days prior written notice thereof;
(c) To the extent it may lawfully do so, use its best
efforts to prevent the Issuers from issuing Future Rights or Proceeds, except
for cash dividends and other distributions, if any, that are not prohibited by
the terms of the Loan Agreement to be paid by any Issuer to such Pledgor; and
(d) Upon receipt by such Pledgor of any material notice,
report, or other communication from any of the Issuers or any Holder relating to
all or any part of the Collateral, deliver such notice, report or other
communication to Secured Party as soon as possible, but in no event later than
five (5) days following the receipt thereof by such Pledgor.
8. SECURED PARTY AS EACH PLEDGOR'S ATTORNEY-IN-FACT.
(a) Each Pledgor hereby irrevocably appoints Secured
Party as such Pledgor's attorney-in-fact, with full authority in the place and
stead of such Pledgor and in the name of such Pledgor, Secured Party or
otherwise, from time to time at Secured Party's discretion, to take any action
and to execute any instrument that Secured Party may reasonably deem necessary
or advisable to accomplish the purposes of this Agreement, including: (i) upon
the occurrence and during the continuance of an Event of Default, to receive,
endorse, and collect all instruments made payable to such Pledgor representing
any dividend, interest payment or other distribution in respect of the
Collateral or any part thereof to the extent permitted hereunder and to give
full discharge for the same and to execute and file governmental notifications
and reporting forms; (ii) to issue any notifications/instructions Secured Party
deems necessary pursuant to SECTION 3 of this Agreement; or (iii) to arrange for
the transfer of the Collateral on the books of any of the Issuers or any other
Person to the name of Secured Party or to the name of Secured Party's nominee.
(b) In addition to the designation of Secured Party as
such Pledgor's attorney-in-fact in SUBSECTION (A), each Pledgor hereby
irrevocably appoints Secured Party as such Pledgor's agent and attorney-in-fact
to make, execute and deliver any and all documents and writings which may be
necessary or appropriate for approval of, or be required by, any regulatory
authority located in any city, county, state or country where such Pledgor or
any of the Issuers engage in business, in order to transfer or to more
effectively transfer any of the Pledged Shares or otherwise enforce Secured
Party's rights hereunder.
9. REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of an Event of Default:
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(a) Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein, under
the Loan Agreement, or otherwise available to it, all the rights and remedies of
a secured party on default under the Code (irrespective of whether the Code
applies to the affected items of Collateral), and Secured Party may also sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable, irrespective of the impact of any such sales on the
market price of the Collateral. To the maximum extent permitted by applicable
law, Secured Party may be the purchaser of any or all of the Collateral at any
such sale and shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Collateral sold at any such public sale, to use and apply all or any part of the
Secured Obligations as a credit on account of the purchase price of any
Collateral payable at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of any
Pledgor, and each Pledgor hereby waives (to the extent permitted by law) all
rights of redemption, stay, or appraisal that it now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted.
(b) Foothill shall give notice of the disposition of the
Collateral as follows: (i) Foothill shall give the applicable Pledgor and each
holder of a security interest in the Collateral who has filed with Foothill a
written request for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made; (ii) the notice shall be
personally delivered or mailed, postage prepaid, to the applicable Pledgor at
the address of its Chief Executive Office, as set forth on SCHEDULE B, at least
5 days before the date fixed for the sale, or at least 5 days before the date on
or after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Collateral that
threatens to decline speedily in value or that is of a type customarily sold on
a recognized market. Notice to Persons other than the applicable Pledgor shall
be sent to such addresses as they have furnished to Foothill; if the sale is to
be a public sale, Foothill also shall give notice of the time and place by
publishing a notice one time at least 5 days before the date of the sale in a
newspaper of general circulation in the county in which the sale is to be held;
(c) Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. To the maximum extent permitted
by law, each Pledgor hereby waives any claims against Secured Party arising
because the price at which any Collateral may have been sold at such a private
sale was less than the price that might have been obtained at a public sale,
even if Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree.
(d) Each Pledgor hereby agrees that any sale or other
disposition of the Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies, or other financial institutions in the
City of Los Angeles, California in disposing of property similar to the
Collateral shall be deemed to be commercially reasonable.
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(e) Each Pledgor hereby acknowledges that the sale by
Secured Party of any Collateral pursuant to the terms hereof in compliance with
the Securities Act of 1933 as now in effect or as hereafter amended, or any
similar statute hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state securities
laws may require strict limitations as to the manner in which Secured Party or
any subsequent transferee of the Collateral may dispose thereof. Each Pledgor
acknowledges and agrees that in order to protect Secured Party's interest it may
be necessary to sell the Collateral at a price less than the maximum price
attainable if a sale were delayed or were made in another manner, such as a
public offering under the Securities Act. No Pledgor has an objection to sale in
such a manner and agrees that Secured Party shall have no obligation to obtain
the maximum possible price for the Collateral. Without limiting the generality
of the foregoing, each Pledgor agrees that, upon the occurrence and during the
continuation of an Event of Default, Secured Party may, subject to applicable
law, from time to time attempt to sell all or any part of the Collateral by a
private placement, restricting the bidders and prospective purchasers to those
who will represent and agree that they are purchasing for investment only and
not for distribution. In so doing, Secured Party may solicit offers to buy the
Collateral or any part thereof for cash, from a limited number of investors
deemed by Secured Party, in its reasonable judgment, to be institutional
investors or other responsible parties who might be interested in purchasing the
Collateral. If Secured Party shall solicit such offers, then the acceptance by
Secured Party of one of the offers shall be deemed to be a commercially
reasonable method of disposition of the Collateral.
(f) If Secured Party shall determine to exercise its
right to sell all or any portion of the Collateral pursuant to this Section,
each Pledgor agrees that, upon request of Secured Party, such Pledgor will, at
its own expense:
(i) use its best efforts to execute and
deliver, and cause the Issuers and
the directors and officers thereof
to execute and deliver, all such
instruments and documents, and to do
or cause to be done all such other
acts and things, as may be necessary
or, in the opinion of Secured Party,
advisable to register such
Collateral under the provisions of
the Securities Act, and to cause the
registration statement relating
thereto to become effective and to
remain effective for such period as
prospectuses are required by law to
be furnished, and to make all
amendments and supplements thereto
and to the related prospectuses
which, in the opinion of Secured
Party, are necessary or advisable,
all in conformity with the
requirements of the Securities Act
and the rules and regulations of the
Securities and Exchange Commission
applicable thereto;
(ii) use its best efforts to qualify the
Collateral under the state
securities laws or "Blue Sky" laws
and to obtain all necessary
governmental approvals for the sale
of the Collateral, as requested by
Secured Party;
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(iii) cause the Issuers to make available
to their respective security
holders, as soon as practicable, an
earnings statement which will
satisfy the provisions of Section
11(a) of the Securities Act;
(iv) execute and deliver, or cause the
officers and directors of the
Issuers to execute and deliver, to
any person, entity or governmental
authority as Secured Party may
choose, any and all documents and
writings which, in Secured Party's
reasonable judgment, may be
necessary or appropriate for
approval, or be required by, any
regulatory authority located in any
city, county, state or country where
such Pledgor or the Issuers engage
in business, in order to transfer or
to more effectively transfer the
Pledged Shares or otherwise enforce
Secured Party's rights hereunder;
and
(v) do or cause to be done all such
other acts and things as may be
necessary to make such sale of the
Collateral or any part thereof valid
and binding and in compliance with
applicable law.
Each Pledgor acknowledges that there is no adequate remedy at law for failure by
it to comply with the provisions of this Section and that such failure would not
be adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
(e) EACH PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT
PERMITTED BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING
PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS
PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT
IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR
STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH IN
SUBSECTION (A) OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR
ADVERTISEMENT FOR SALE.
10. APPLICATION OF PROCEEDS. Upon the occurrence and during
the continuance of an Event of Default, any cash held by Secured Party as
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in SECTION 9 shall be applied from time to time by
Secured Party as provided in the Loan Agreement.
11. DUTIES OF SECURED PARTY. The powers conferred on Secured
Party hereunder are solely to protect its interests in the Collateral and shall
not impose on it any duty to exercise such powers. Except as provided in Section
9207 of the Code, Secured Party shall have no duty
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with respect to the Collateral or any responsibility for taking any necessary
steps to preserve rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT,
ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY
OTHER COURT IN WHICH SECURED PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 12.
13. AMENDMENTS; ETC. No amendment or waiver of any provision
of this Agreement nor consent to any departure by any Pledgor herefrom shall in
any event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part of
Secured Party to exercise, and no delay in exercising any right under this
Agreement, any other Loan Document, or otherwise with respect to any of the
Secured Obligations, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured Obligations preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided for in this Agreement or otherwise with respect to any of the Secured
Obligations are cumulative and not exclusive of any remedies provided by law.
14. NOTICES. Unless otherwise specifically provided herein,
any notice or other communication herein required or permitted to be given shall
be in writing and shall be delivered to Secured Party, and to each Pledgor in
care of Borrower, in the manner set forth in the Loan Agreement.
15. CONTINUING SECURITY INTEREST. This Agreement shall create
a continuing security interest in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement; (ii) be binding upon each Pledgor and
its successors and assigns; and (iii) inure to the benefit of Secured Party and
its successors, transferees, and assigns. Upon the indefeasible payment in full
of the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, the security interests
granted herein shall automatically terminate and all
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rights to the Collateral shall revert to the applicable Pledgor. Upon any such
termination, Secured Party will, at any Pledgor's expense, execute and deliver
to such Pledgor such documents as such Pledgor shall reasonably request to
evidence such termination. Such documents shall be prepared by such Pledgor and
shall be in form and substance reasonably satisfactory to Secured Party.
16. SECURITY INTEREST ABSOLUTE. To the maximum extent
permitted by law, all rights of Secured Party, all security interests hereunder,
and all obligations of each Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of any of the
Secured Obligations or any other agreement or instrument relating thereto,
including any of the Loan Documents;
(b) any change in the time, manner, or place of payment
of, or in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise
constitute a defense available to, or a discharge of, such Pledgor.
To the maximum extent permitted by law, each Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
such Pledgor; or (B) pursue any other remedy in Secured Party's power
whatsoever.
17. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement or be given any substantive effect.
18. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
19. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same Agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement
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20. WAIVER OF MARSHALING. Each Pledgor and Secured Party
acknowledges and agrees that in exercising any rights under or with respect to
the Collateral: (i) Secured Party is under no obligation to marshal any
Collateral; (ii) may, in its absolute discretion, realize upon the Collateral in
any order and in any manner it so elects; and (iii) may, in its absolute
discretion, apply the proceeds of any or all of the Collateral to the Secured
Obligations in any order and in any manner it so elects. Each Pledgor and
Secured Party waive any right to require the marshaling of any of the
Collateral.
21. WAIVER OF JURY TRIAL.
EACH PLEDGOR AND SECURED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PLEDGOR AND SECURED PARTY REPRESENTS THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
22. WAIVERS.
(a) To the maximum extent permitted by law, each Pledgor
hereby waives: (i) notice of acceptance hereof; (ii) notice of any loans or
other financial accommodations made or extended under the Loan Agreement, or the
creation or existence of any Obligations; (iii) notice of the amount of the
Obligations, subject, however, to such Pledgor's right to make inquiry of
Secured Party to ascertain the amount of the Obligations at any reasonable time;
(iv) notice of any adverse change in the financial condition of Borrower or of
any other fact that might increase such Pledgor's risk hereunder; (v) notice of
presentment for payment, demand, protest, and notice thereof as to any
instrument among the Loan Documents; (vi) notice of any unmatured Event of
Default or Event of Default under the Loan Agreement; and (vii) all other
notices (except if such notice is specifically required to be given to such
Pledgor under this Agreement) and demands to which such Pledgor might otherwise
be entitled.
(b) To the fullest extent permitted by applicable law,
each Pledgor waives the right by statute or otherwise to require Secured Party
to institute suit against Borrower or to exhaust any rights and remedies which
Secured Party has or may have against Borrower. Each Pledgor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Secured Obligations shall have been fully and finally
indefeasibly paid) of Borrower or by reason of the cessation from any cause
(other than that the Secured Obligations shall have been fully and finally
indefeasibly paid) whatsoever of the liability of Borrower in respect thereof.
(c) To the maximum extent permitted by law, each Pledgor
hereby waives: (i) any rights to assert against Secured Party any defense (legal
or equitable), set-off,
14
<PAGE>
counterclaim, or claim which such Pledgor may now or at any time hereafter have
against Borrower or any other party liable to Secured Party on account of or
with respect to the Secured Obligations; (ii) any defense, set-off,
counterclaim, or claim, of any kind or nature, arising directly or indirectly
from the present or future sufficiency, validity, or enforceability of the
Secured Obligations; (iii) any defense arising by reason of any claim or defense
based upon an election of remedies by Secured Party including, to the extent
applicable, the provisions of ss.ss. 580d and 726 of the California Code of
Civil Procedure, or any similar law of California or any other jurisdiction;
(iv) the benefit of any statute of limitations affecting such Pledgor's
liability hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law, each Pledgor
hereby waives any right of subrogation such Pledgor has or may have as against
Borrower with respect to the Secured Obligations. In addition, each Pledgor
hereby waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Secured Obligations. Each Pledgor also hereby waives any
right to proceed or to seek recourse against or with respect to any property or
asset of Borrower. Each Pledgor hereby agrees that, in light of the waivers
contained in this Section, such Pledgor shall not be deemed to be a "creditor"
(as that term is defined in the Bankruptcy Code or otherwise) of Borrower,
whether for purposes of the application of Sections 547 or 550 of the United
States Bankruptcy Code or otherwise.
(e) If any of the Secured Obligations at any time are
secured by a mortgage or deed of trust upon real property, Secured Party may
elect, in its sole discretion, upon the occurrence or during the continuance of
an Event of Default, to foreclose such mortgage or deed of trust judicially or
nonjudicially in any manner permitted by law, before or after enforcing this
Agreement, without diminishing or affecting the liability of each Pledgor
hereunder. Each Pledgor understands that (a) by virtue of the operation of
California's antideficiency law applicable to nonjudicial foreclosures, an
election by Secured Party nonjudicially to foreclose such a mortgage or deed of
trust probably would have the effect of impairing or destroying rights of
subrogation, reimbursement, contribution, or indemnity of such Pledgor against
Borrower or guarantors or sureties, and (b) absent the waiver given by such
Pledgor herein, such an election might estop Secured Party from enforcing this
Agreement against such Pledgor. Understanding the foregoing, and understanding
that such Pledgor is hereby relinquishing a defense to the enforceability of
this Agreement, each Pledgor hereby waives any right to assert against Secured
Party any defense to the enforcement of this Agreement, whether denominated
"estoppel" or otherwise, based on or arising from an election by Secured Party
nonjudicially to foreclose any such mortgage or deed of trust. Each Pledgor
understands that the effect of the foregoing waiver may be that such Pledgor may
have liability hereunder for amounts with respect to which such Pledgor may be
left without rights of subrogation, reimbursement, contribution, or indemnity
against Borrower or guarantors or sureties. Each Pledgor also agrees that the
"fair market value" provisions of Section 580a of the California Code of Civil
Procedure shall have no applicability with respect to the determination of such
Pledgor's liability under this Agreement.
23. WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS AGREEMENT, EACH PLEDGOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS
15
<PAGE>
PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER
ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2808, 2809, 2810, 2815,
2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND 2850, TO THE EXTENT
APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580A, 580B, 580C,
580D, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE
CALIFORNIA CIVIL CODE.
(A) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, EACH PLEDGOR HEREBY WAIVES ALL
RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY SECURED PARTY,
EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH
RESPECT TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED SUCH PLEDGOR'S
RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION
OF SECTION 580D OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
24. SUBORDINATION. If at any time, or from time to time, any
Subsidiary of any Pledgor shall enter into financing arrangements, then Secured
Party shall subordinate, on terms and conditions reasonably satisfactory to
Secured Party, its Liens on the Stock of such Subsidiary to the Liens of the
lender providing such financing.
[Remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, the Pledgors and Secured Party have caused
this Agreement to be duly executed and delivered by their officers thereunto
duly authorized as of the date first written above.
POSITIVE RESPONSE TELEVISION, INC.,
a Delaware corporation
By
----------------------------------------------
Title:
-------------------------------------------
NATIONAL MEDIA HOLDINGS, INC.,
a Delaware corporation
By
-----------------------------------------------
Title:
-------------------------------------------
SUZANNE PAUL HOLDINGS PTY LIMITED,
a company organized under the laws of Australia
By
-----------------------------------------------
Title:
-------------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
-----------------------------------------------
Title:
-------------------------------------------
S-1
<PAGE>
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: POSITIVE RESPONSE TELEVISION, INC.
PLEDGED SHARES
<TABLE>
<CAPTION>
FORMER NAME, IF PLEDGOR'S
NUMBER OF CERTIFICATE ANY, IN WHICH PERCENTAGE JURISDICTION OF
ISSUER SHARES CLASS NUMBER(S) CERTIFICATE ISSUED OWNERSHIP INCORPORATION
- ------ -------- ----- ----------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: NATIONAL MEDIA HOLDINGS, INC.
PLEDGED SHARES
<TABLE>
<CAPTION>
FORMER NAME, IF PLEDGOR'S
NUMBER OF CERTIFICATE ANY, IN WHICH PERCENTAGE JURISDICTION OF
ISSUER SHARES CLASS NUMBER(S) CERTIFICATE ISSUED OWNERSHIP INCORPORATION
- ------ -------- ----- ----------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: SUZANNE PAUL HOLDINGS PTY LIMITED,
PLEDGED SHARES
<TABLE>
<CAPTION>
FORMER NAME, IF PLEDGOR'S
NUMBER OF CERTIFICATE ANY, IN WHICH PERCENTAGE JURISDICTION OF
ISSUER SHARES CLASS NUMBER(S) CERTIFICATE ISSUED OWNERSHIP INCORPORATION
- ------ -------- ----- ----------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: POSITIVE RESPONSE TELEVISION, INC.,
a Delaware corporation
Address of Chief Executive Office:
15821 Ventura Boulevard, 5th Floor
Encino, California 91436
Pledgor: NATIONAL MEDIA HOLDINGS, INC.,
a Delaware corporation
Address of Chief Executive Office:
15821 Ventura Boulevard, 5th Floor
Encino, California 91436
Pledgor: SUZANNE PAUL HOLDINGS PTY LIMITED,
a company organized under the laws of Australia
Address of Chief Executive Office:
15821 Ventura Boulevard, 5th Floor
Encino, California 91436
<PAGE>
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds: [None.]
<PAGE>
COPYRIGHT SECURITY AGREEMENT
----------------------------
(HOLDINGS)
This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated
as of December , 1998 is made by NATIONAL MEDIA CORPORATION, a Delaware
corporation ("Holdings"), in favor of FOOTHILL CAPITAL CORPORATION, a
California corporation ("Secured Party").
RECITALS
--------
A. Borrower and Secured Party are contemporaneously herewith
entering into that certain Loan and Security Agreement dated as of the date
hereof (as amended, restated, modified, supplemented, refinanced, renewed, or
extended from time to time, the "Loan Agreement"), pursuant to which Secured
Party has agreed to make certain financial accommodations to Holdings.
B. Holdings has executed in favor of Secured Party that
certain General Continuing Guaranty, dated as of the date hereof (the
"Guaranty"), in favor of Secured Party, respecting certain obligations of
Borrower owing to Secured Party under the Loan Agreement.
C. Holdings and Secured Party are contemporaneously herewith
entering into that certain Security Agreement, dated as of the date hereof (the
"Security Agreement"), pursuant to which Holdings has granted to Secured Party a
security interest in (among other things) all general intangibles of Holdings.
D. As one of the conditions to the obligations of Secured
Party under the Loan Agreement, Holdings has agreed to execute and deliver this
Agreement to Secured Party for filing with the United States Copyright Office
and with any other relevant recording systems in any domestic jurisdiction, and
as further evidence of and to effectuate Secured Party's existing security
interests in the copyrights and other general intangibles described herein.
ASSIGNMENT
----------
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Holdings hereby agrees in favor of
Secured Party as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
1
<PAGE>
"BORROWER" means Quantum North America, Inc., a Delaware
corporation.
"COPYRIGHT COLLATERAL" has the meaning set forth in SECTION 2.
"COPYRIGHTS" has the meaning set forth in SECTION 2.
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in
the Security Agreement.
"GUARANTIED OBLIGATIONS" shall have the meaning ascribed
thereto in the Guaranty.
"LIEN" means any pledge, security interest, assignment, charge
or encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of California.
"UNITED STATES" and "U.S." each mean the United States of
America, including all territories thereof and all protectorates thereof.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
ascribed to them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the
extent the context otherwise requires:
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto,
respectively, and to a subsection or a clause is, unless
otherwise stated, a reference to a subsection or a clause of
the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a
whole and not merely to the specific Section, subsection,
paragraph or clause in which the respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms
defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without
limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent
amendments, restatements,
2
<PAGE>
supplements, refinancings, renewals, extensions, and other
modifications thereto and thereof.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation
referred to.
(vii) Any captions and headings are for convenience
of reference only and shall not affect the construction of
this Agreement.
(viii) Capitalized words not otherwise defined
herein shall have the respective meanings ascribed to them in
the Security Agreement.
(ix) In the event of a direct conflict between the
terms and provisions of this Agreement and the Loan Agreement,
it is the intention of the parties hereto that both such
documents shall be read together and construed, to the fullest
extent possible, to be in concert with each other. In the
event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan
Agreement shall control and govern; PROVIDED, HOWEVER, that
the inclusion herein of additional obligations on the part of
Holdings and supplemental rights and remedies in favor of
Secured Party (whether under California law or applicable
federal law), in each case in respect of the Copyright
Collateral, shall not be deemed a conflict with the Loan
Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY. Holdings, as
security for the payment and performance of the Guarantied Obligations, hereby
grants, assigns, transfers and conveys to Secured Party a continuing security
interest in all of Holdings' right, title and interest in, to and under the
following property, whether now existing or hereafter acquired or arising or in
which Holdings now has or hereafter acquires or develops an interest and
wherever the same may be located (the "Copyright Collateral"):
(i) all copyrights, rights, titles and interests in
and to published and unpublished works of authorship that
Holdings owns or uses in its business or will in the future
adopt and so use, and all copyrights in any original or
derivative works of authorship and all works protectable by
copyright that are presently, or in the future may be, owned,
created, authored (excluding all works for hire created by
Holdings for any other Person), acquired or used (whether
pursuant to a license or otherwise) by Holdings, in whole or
in part (collectively, the "Copyrights"), all copyright
registrations and applications for copyright registration that
have heretofore been or may hereafter be issued thereon or
applied for in the United States, including registrations,
recordings, supplemental registrations and pending
applications for registration in the United States Copyright
Office (the "Registrations"), all common law and other rights
in and to the Copyrights throughout the world, including all
copyright licenses (collectively, the "Copyright Rights"), and
3
<PAGE>
all renewals and extensions thereof, throughout the world,
including all proceeds thereof (such as, by way of example and
not by limitation, license royalties and proceeds of
infringement suits), the right (but not the obligation) to
renew and extend such Copyrights, Registrations and Copyright
Rights and to register works protectable by copyright and the
right (but not the obligation) to sue or bring proceedings in
the name of Holdings or in the name of Secured Party for past,
present and future infringements or violations of the
Copyrights, Registrations and Copyright Rights, and recover
damages for past, present and future infringements or
violations thereof, and all rights corresponding thereto
throughout the world, including:
(A) all of Holdings' right, title and interest
in and to all copyrights or rights or interests in
copyrights registered or recorded in the United States
Copyright Office, including the Registrations listed on
SCHEDULE A attached hereto, as the same may be amended
or supplemented pursuant hereto from time to time;
(B) all of Holdings' right, title and interest
in and to all renewals and extensions of any such
copyrights, including renewals or extensions of the
Registrations listed on SCHEDULE A attached hereto, that
may be secured under the law now or hereafter in force
and effect;
(C) all of Holdings' right, title and interest
to make and exploit all derivative works based on or
adopted from all works covered by any of the Copyright
Collateral; and
(D) all of Holdings' right, title and interest
pursuant to or under licensing or other contracts in
favor of Holdings pertaining to copyrights and works
protectable by copyright presently or in the future
owned or used by third parties;
(ii) all inventions, designs, registrations, trade
secrets, proprietary rights, corporate or other business
records, computer programs, source codes, object codes, data
bases and all other intangible personal property at any time
used in connection with the businesses of Holdings (referred
to herein as "Proprietary Rights");
(iii) all general intangibles (as defined in the
UCC) and all intangible intellectual or other similar property
of Holdings of any kind or nature, whether now owned or
hereafter acquired or developed, associated with or arising
out of any of the Copyrights, Registrations, Copyright Rights
or Proprietary Rights and not otherwise described above; and
(iv) all proceeds of any and all of the foregoing
Copyright Collateral (including license royalties, rights to
payment, accounts receivable and proceeds of infringement
suits) and, to the extent not otherwise included, all payments
under insurance (whether or not Secured Party is the loss
payee thereof) or any
4
<PAGE>
indemnity, warranty or guaranty payable by reason of loss or
damage to or otherwise with respect to the foregoing Copyright
Collateral. For purposes of this Agreement, the term
"proceeds" includes whatever is receivable or received when
Copyright Collateral or proceeds are sold, licensed,
collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including returned
premiums, with respect to any insurance relating thereto.
(b) CONTINUING SECURITY INTEREST. Holdings agrees that
this Agreement shall create a continuing security interest in the Copyright
Collateral which shall remain in effect until terminated in accordance with
SECTION 17.
(c) INCORPORATION INTO SECURITY AGREEMENT. This Agreement
shall be fully incorporated into the Security Agreement and all understandings,
agreements and provisions contained in the Security Agreement shall be fully
incorporated into this Agreement. Without limiting the foregoing, the Copyright
Collateral described in this Agreement shall constitute part of the Collateral
in the Security Agreement.
(d) PERMITTED LICENSING. Anything in the Security
Agreement or this Agreement to the contrary notwithstanding, Holdings may
license to any other Person the Copyright Collateral on a non-exclusive basis,
free and clear of Secured Party's security interest (other than its security
interest in the proceeds of such license).
3. REPRESENTATIONS AND WARRANTIES. Holdings represents and
warrants to Secured Party and for the benefit of Secured Party, in each case to
the best of its knowledge, information, and belief, the following:
(a) TRUE AND COMPLETE LIST. Set forth in SCHEDULE A is a
true and complete list of Copyrights, Registrations, and Copyright Rights owned,
held, or used (whether pursuant to a license or otherwise) by Holdings, in whole
or in part;
(b) POWERS. Holdings has full power, authority and legal
right to pledge and to grant to Secured Party a security interest in all right,
title, and interest of Holdings in and to the Copyright Collateral pursuant to
this Agreement, and to execute, deliver and perform its obligations in
accordance with the terms of this Agreement, without the consent or approval of
any other Person except as already obtained;
(c) VALIDITY. Each of the Registrations of Holdings
referred to in SCHEDULE A is valid, subsisting and enforceable, and Holdings has
properly complied in all material respects with all applicable statutory and
regulatory requirements, including all notice requirements, in connection with
each of such Registrations, and, no claim has been made that the use of any of
such Copyrights does or may infringe or otherwise violate the rights of any
third Person, except as set forth in Schedule 3.8 of the Security Agreement;
(d) TITLE. Holdings has rights in and good title to the
Copyright Collateral shown on the schedules hereto as being owned by it, is the
sole and exclusive
5
<PAGE>
owner of the entire and unencumbered right, title and interest in and to such
Copyright Collateral, free and clear of any Liens (other than Liens in favor of
Secured Party); for any Copyright Collateral for which Holdings is either a
licensor or a licensee pursuant to a license or licensing agreement regarding
such Copyright Collateral, each such license or licensing agreement is in full
force and effect, Holdings is not in material default of any of its obligations
thereunder and, other than (i) the parties to such licenses or licensing
agreements, or (ii) in the case of any non-exclusive license or license
agreement entered into by Holdings or any such licensor regarding such Copyright
Collateral, the parties to any other such non-exclusive licenses or license
agreements entered into by Holdings or any such licensor with any other Person,
no other Person has any rights in or to any of such Copyright Collateral;
(e) NO VIOLATION. The execution, delivery and performance
by Holdings of this Agreement do not violate any provision of law or the
articles of incorporation or by-laws of Holdings or result in a breach of or
constitute a default under any contract, obligation, indenture or other
instrument to which Holdings is a party or by which Holdings may be bound;
(f) AUTHORIZATION. This Agreement has been duly
authorized, executed and delivered, and constitutes a legal, valid and binding
agreement of Holdings enforceable in accordance with its terms; and
(g) SECRECY. Holdings has taken and will continue to take
all reasonable steps to protect the secrecy of all trade secrets relating to any
of its unpublished Copyright Collateral and its Proprietary Rights.
4. COVENANTS. Holdings covenants that so long as this
Agreement shall be in effect, Holdings shall:
(a) FURTHER ACTS. On a continuing basis, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places, all such instruments and documents, including appropriate financing and
continuation statements and security agreements, and take all such action as may
be necessary or advisable or may be requested by Secured Party to carry out the
intent and purposes of this Agreement, or for assuring, confirming or protecting
the grant or perfection of the security interest granted or purported to be
granted hereby, to ensure Holdings' compliance with this Agreement or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to the Copyright Collateral. Without limiting the generality of the
foregoing sentence, Holdings:
(i) hereby authorizes Secured Party in its sole
discretion if Holdings refuses to execute and deliver, or
fails timely to execute and deliver , any of the documents it
is requested to execute and deliver by Secured Party, to
modify this Agreement without first obtaining Holdings'
approval of or signature to such modification by amending
SCHEDULE A hereof to include a reference to any right, title
or interest in any existing Copyright, Registration or
Copyright Right or any Copyright, Registration or Copyright
Right acquired or developed by Holdings after
6
<PAGE>
the execution hereof, or to delete any reference to any right,
title or interest in any Copyright, Registration or Copyright
Right in which Holdings no longer has or claims any right,
title or interest; and
(ii) hereby authorizes Secured Party, in its sole
discretion, to file one or more financing or continuation
statements if Holdings refuses to execute and deliver, or
fails timely to execute and deliver, any such amendment
thereto it is requested to execute and deliver by Secured
Party, any amendments thereto, relative to all or any portion
of the Copyright Collateral, without the signature of Holdings
where permitted by law;
(b) COMPLIANCE WITH LAW. Comply, in all material
respects, with all applicable statutory and regulatory requirements in
connection with any and all of the Copyright Collateral that is the subject of
the Registrations and give such notice of copyright, prosecute such material
claims, and do all other acts and take all other measures which, in Holdings'
reasonable business judgment, may be necessary or desirable to preserve, protect
and maintain such Copyright Collateral and all of Holdings' rights therein,
including diligently prosecute any material copyright application pending as of
the date of this Agreement or thereafter;
(c) COMPLIANCE WITH AGREEMENT. Comply with each of the
terms and provisions of this Agreement, and not enter into any agreement (for
example, a license agreement) which is inconsistent with the obligations of
Holdings under this Agreement without Secured Party's prior written consent; and
(d) LIEN PROTECTION. Not permit the inclusion in any
contract to which Holdings becomes a party of any provision that could or might
impair or prevent the creation of a security interest in favor of Secured Party
in Holdings' rights and interest in any property included within the definitions
of the Copyrights, Registrations and Copyright Rights acquired under such
contracts.
5. NEW COPYRIGHTS, REGISTRATIONS AND COPYRIGHT RIGHTS. If
Holdings shall obtain rights to or develop any new works protectable by
copyright, or become entitled to the benefit of any Copyright Rights,
Registration or application for Registration not described on the schedules
hereto, or any renewals or extension of any Copyright, Copyright Rights or
Registration, the provisions of this Agreement shall automatically apply
thereto. Holdings shall give Secured Party written notice (a) of any such work
or such rights of material value to Holdings or the operation of its businesses
and (b) any such Registration, applications for Registration or renewal or
extension of any Copyright. Concurrently with its filing of an application for
any Registration for any Copyright, Holdings shall execute and deliver a
supplement to this Agreement in form and substance satisfactory to the Secured
Party (or, at the election of Secured Party, a new Copyright Security Agreement
substantially in the form of this Agreement and otherwise in form and substance
satisfactory to the Secured Party), pursuant to which Holdings shall grant and
reaffirm its grant of a security interest to the extent of its interest in such
Registration as provided herein to Secured Party, and Holdings
7
<PAGE>
shall cause such agreement to be recorded in the offices and jurisdictions
indicated by Secured Party.
6. COPYRIGHT REGISTRATION, RENEWAL AND LITIGATION.
(a) REGISTRATION. Except to the extent otherwise
permitted under the Security Agreement, Holdings shall have the duty diligently
to make any application for Registration on any existing or future unregistered
but copyrightable works that are material to Holdings' business or operations
and to do any and all acts which are reasonably necessary or desirable to
preserve, renew and maintain all rights in all Copyrights, Registrations and
Copyright Rights; PROVIDED, HOWEVER, that Holdings shall not be obligated to
renew any Obsolete Copyrights (as defined in the Loan Agreement). Any expenses
incurred in connection therewith shall be borne solely by Holdings. Except as
otherwise permitted in the Security Agreement or this SECTION 6(A), Holdings
shall not do any act or omit to do any act whereby any of the Copyright
Collateral may become abandoned or fall into the public domain or fail to renew
any Copyright, Registration or Copyright Right owned by Holdings without the
prior written consent of Secured Party.
(b) PROTECTION. Except as provided in SECTION 8 and
notwithstanding SECTION 1, Holdings shall have the right and obligation to
commence and diligently prosecute in its own name, as real party in interest,
for its own benefit and at its own expense, such suits, proceedings or other
actions for infringement or other damage as are in its reasonable business
judgment necessary to protect the Copyright Collateral or any of Holdings'
rights therein. Holdings shall provide to Secured Party any information with
respect thereto requested by Secured Party. Secured Party shall provide at
Holdings' expense all necessary cooperation in connection with any such suit,
proceeding or action including joining as a nominal party if Secured Party shall
have been satisfied that it is not incurring any risk of liability because of
such joinder. Holdings shall provide at its expense representation acceptable to
Secured Party for the common interest of Holdings and Secured Party with respect
to such proceedings.
(c) NOTICE. Holdings shall, promptly upon its becoming
aware thereof, notify Secured Party in writing of the institution of, or any
adverse determination in, any proceeding, application, suit or action of any
kind described in SECTION 6(A) OR 6(B), or regarding Holdings' claim of
ownership in any of the Copyrights, Registrations or Copyright Rights, its right
to register the same, or its right to keep and maintain such registration,
whether before the United States Copyright Office or any United States court or
governmental agency. Holdings shall provide promptly to Secured Party any
information with respect thereto requested from time to time by Secured Party.
7. REMEDIES. Following the occurrence and during the
continuation of an Event of Default, Secured Party shall have all rights and
remedies available to it under the Security Agreement and the other Loan
Documents and applicable law (which rights and remedies are cumulative) with
respect to its security interests in any of the Copyright Collateral or any
other Collateral. Holdings agrees that such rights and remedies include the
8
<PAGE>
right of Secured Party as a secured party to sell or otherwise dispose of its
Collateral after default, pursuant to UCC Section 9504. Holdings agrees that
Secured Party shall at all times have such royalty free licenses, to the extent
permitted by law, for any Copyright, Copyright Rights, Proprietary Right and any
other Copyright Collateral that is reasonably necessary to permit the exercise
of any of Secured Party's rights or remedies upon the occurrence and during the
continuation of an Event of Default with respect to (among other things) any
asset of Holdings in which Secured Party has a security interest, including
Secured Party's rights to sell or license general intangibles, inventory,
tooling or packaging which is acquired by Holdings (or its successors, permitted
assignees, or trustee in bankruptcy). In addition to and without limiting any of
the foregoing, upon the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right but shall in no way be obligated to
bring suit, or to take such other action as Secured Party deems necessary or
advisable, in the name of Holdings or Secured Party, to enforce or protect any
Copyright, Registration, Copyright Right or Proprietary Right, and any license
thereunder, in which event Holdings shall, at the request of Secured Party, do
any and all lawful acts and execute any and all documents required by Secured
Party in aid of such enforcement. To the extent that Secured Party shall elect
not to bring suit to enforce any Copyright, Registration, Copyright Rights,
Proprietary Right, or any license thereunder, Holdings, in the exercise of its
reasonable business judgment, agrees to use all reasonable measures and its
diligent efforts, whether by action, suit, proceeding or otherwise, to prevent
the infringement, misappropriation or violation thereof by others and for that
purpose agrees diligently to maintain any action, suit or proceeding against any
Person necessary to prevent such infringement, misappropriation or violation.
8. AUTHORIZATION. If Holdings fails to comply with any of its
obligations hereunder, Secured Party may do so in Holdings' name or in Secured
Party's name, but at Holdings' expense, and Holdings hereby agrees to reimburse
Secured Party in full upon demand for all reasonable expenses, including
reasonable attorneys fees, incurred by Secured Party in protecting, defending
and maintaining any of the Copyright Collateral or any right, title or interest
of Holdings or Secured Party therein. Holdings hereby appoints Secured Party,
and authorizes, directs and empowers Secured Party to make, constitute and
appoint any officer or agent of Secured Party as Secured Party may select, in
its exclusive discretion, as the true and lawful attorney-in-fact of Holdings,
with the power, (a) if Holdings refuses or fails to do so timely, to execute in
the name of Holdings any financing statement or other instrument and any
modification, supplement or amendment to this Agreement or any supplemental
Copyright Security Agreement described in SECTIONS 4(A) OR 5 hereof, and do such
other acts on Holdings' behalf, that Secured Party may deem necessary or
advisable to accomplish the purposes hereof, and (b) upon the occurrence and
during continuation of any Event of Default, (i) to endorse Holdings' name on
all applications, documents, papers and instruments necessary for Secured Party
to use any of the Copyright Collateral, (ii) to assert or retain any rights
under any license agreement for any of the Copyright Collateral, including any
rights of Holdings arising under Section 365(n) of the Bankruptcy Code, and
(iii) to grant or issue any exclusive or nonexclusive license under any of the
Copyright Collateral to anyone else, or as may be necessary for Secured Party to
assign, pledge, convey or otherwise transfer title in or dispose of any of the
Copyright Collateral or any other
9
<PAGE>
collateral to anyone else. Holdings hereby ratifies all that such attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney is
coupled with an interest and is irrevocable until termination of this Agreement.
9. NOTICES. All notices and other communications hereunder to
or from Secured Party and Holdings shall be in writing and shall be mailed, sent
or delivered in accordance with the Security Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the security interests
hereunder in respect of any Copyright Collateral are governed by federal law, in
which case such choice of California law shall not be deemed to deprive Secured
Party of such rights and remedies as may be available under federal law.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Security Agreement, together with the Schedules and Exhibits hereto and thereto,
which are incorporated herein by this reference, contains the entire agreement
of the parties with respect to the subject matter hereof and supersede all prior
drafts and communications relating to such subject matter. Neither this
Agreement nor any provision hereof may be modified, amended or waived except by
the written agreement of the parties, as provided in the Security Agreement.
Notwithstanding the foregoing, Secured Party may re-execute this Agreement,
modify, amend or supplement the Schedules hereto or execute a supplemental
Copyright Security Agreement, as provided herein, and the terms of any such
modification, amendment, supplement or supplemental Copyright Security Agreement
shall be deemed to be incorporated herein by this reference.
12. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
13. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement
10
<PAGE>
14. SECURITY AGREEMENT. Holdings acknowledges that the rights
and remedies of Secured Party with respect to the security interest in the
Copyright Collateral granted hereby are more fully set forth in the Security
Agreement and the other Loan Documents and all such rights and remedies are
cumulative.
15. NO INCONSISTENT REQUIREMENTS. Holdings acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
Holdings agrees that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
16. TERMINATION. Upon the final payment in full in cash of the
Guarantied Obligations and the full and final termination of any commitment to
extend any financial accommodations under the Loan Agreement, this Agreement
shall terminate, and Secured Party shall execute and deliver such documents and
instruments and take such further action reasonably requested by Holdings, at
Holdings' expense, as shall be necessary to evidence termination of the security
interests granted by Holdings to Secured Party hereunder.
[Remainder of page intentionally left blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
NATIONAL MEDIA CORPORATION,
a Delaware corporation
By:
---------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
----------------------------------------
Name
---------------------------------------
Title:
-------------------------------------
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, ________________________,
Notary Public, personally appeared , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on
the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On , 1998, before me, _____________________,
Notary Public, personally appeared , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on
the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------------
Signature
[SEAL]
S-2
<PAGE>
SCHEDULE A
COPYRIGHT REGISTRATIONS
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Holdings Country of Registered Copyright Registration Date Registration Number
Registration
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
COPYRIGHT APPLICATIONS
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Holdings Country of Application for Application Date Application Number
Application Copyright
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
*Note: Reference Attached Form TX Applications, application number
to be provided upon receipt from Copyright Office.
A-1
<PAGE>
Exhibit 10.10
SUBORDINATION AGREEMENT
(INTERCOMPANY)
THIS SUBORDINATION AGREEMENT (this "Agreement"), is entered into as of
December ___, 1998 between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill") and the undersigned Subsidiaries of NATIONAL MEDIA
CORPORATION, a Delaware corporation (individually and collectively, the
"Holdings Subsidiaries"), with reference to the following recitals of fact:
WHEREAS, Quantum North America, Inc., a Delaware corporation
("Debtor") and Foothill have entered into that certain Loan and Security
Agreement dated as of the date hereof (as amended, modified, renewed, extended,
or replaced from time to time, the "Loan Agreement"), pursuant to which Foothill
has agreed to make certain loans to Debtor;
WHEREAS, the Holdings Subsidiaries have made or hereafter may make
loans and other advances to Debtor; and
WHEREAS, the Holdings Subsidiaries have agreed to the subordination of
such indebtedness to it, upon the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN LOAN AGREEMENT. All capitalized terms used in
this Agreement and not otherwise defined herein shall have the meanings assigned
to them in the Loan Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"Dollars" means and refers to United States of America dollars or such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts in the United States
of America.
"Insolvency Event" has the meaning set forth in SECTION 3.
"Senior Debt" shall mean all indebtedness and liabilities (including
all principal, interest (including interest accruing after the commencement of a
Proceeding whether or not such interest is allowed as a claim therein), default
interest, fees, charges, and collection expenses) now or hereafter owed by
Debtor under the Loan Agreement or any other Loan Document.
"Subordinated Debt" means all indebtedness, liabilities and other
monetary obligations of Debtor owing to the Holdings Subsidiaries, whether now
existing or hereafter
<PAGE>
arising, and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, including all principal, all interest
accrued thereon, all fees, and all other amounts payable by Debtor to the
Holdings Subsidiaries.
"Subordinated Debt Documents" means any agreement, note, or other
document evidencing the Subordinated Debt.
"Subordinated Debt Payment" means any payment or distribution by or on
behalf of Debtor, directly or indirectly, of assets of Debtor of any kind or
character, whether in cash, property or securities, including on account of the
purchase, redemption or other acquisition of Subordinated Debt, as a result of
any collection, sale or other disposition of collateral, or by setoff, exchange
or in any other manner, for or on account of the Subordinated Debt.
"Subordinated Lender Remedies" means any action which results in (i)
the sale, foreclosure, realization on or liquidation of any of Debtor's assets
or properties (ii) the execution on any judgment obtained against Debtor, (iii)
the acceleration of the Subordinated Debt, (iv) the filing of any petition or
lien under any bankruptcy, insolvency or creditors' rights laws with respect to
Debtor, or (v) the institution or exercise against Debtor of any suit, legal
action, arbitration or other enforcement remedy.
(c) INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto. References to statutes or regulations are to be construed
as including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to. The captions and headings are
for convenience of reference only and shall not affect the construction of this
Agreement.
SECTION 2 SUBORDINATION TO PAYMENT OF SENIOR DEBT.
All payments on account of the Subordinated Debt shall be subject,
subordinate and junior, in right of payment and exercise of remedies, to the
extent and in the manner set forth herein, to the prior payment, in full, in
cash (or other consideration acceptable to Foothill in its sole discretion and
agreed to by Foothill) of the Senior Debt.
SECTION 3 SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF DEBTOR.
In the event of any payment or distribution of assets or properties of
Debtor of any kind or character, whether in cash, property, or securities, upon
the dissolution, winding up, or total or partial liquidation or reorganization,
readjustment, arrangement, or similar proceeding relating to Debtor or its
property, whether voluntary or involuntary, or in bankruptcy, insolvency,
-2-
<PAGE>
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshaling or composition of the assets
and liabilities of Debtor, or otherwise (such events, collectively, the
"Insolvency Events"): (i) all amounts owing on account of the Senior Debt shall
first be paid, in full, in cash, or payment provided for in cash (or other
consideration acceptable to Foothill in its sole discretion and agreed to by
Foothill), before any Subordinated Debt Payment is made; and (ii) to the extent
permitted by applicable law, any Subordinated Debt Payment to which any Holdings
Subsidiary would be entitled except for the provisions hereof, shall, in the
event of any such Insolvency Event, be paid or delivered by the trustee in
bankruptcy, receiver, assignee for the benefit of creditors, or other
liquidating agent making such payment or distribution directly to Foothill for
application to the payment of the Senior Debt in accordance with clause (i),
after giving effect to any concurrent payment or distribution or provision
therefor to Foothill in respect of such Senior Debt.
SECTION 4 PAYMENTS ON SUBORDINATED DEBT.
(a) PERMITTED PAYMENTS. So long as (i) no Event of Default has
occurred and is continuing or would result therefrom, and (ii) after giving
effect to such Subordinated Debt Payments Debtor shall have Excess Availability
of not less than $3,000,000, Debtor may make, and the Holdings Subsidiaries
shall be entitled to receive, Subordinated Debt Payments made in the ordinary
course of business.
(b) PROHIBITION ON PAYMENTS. Notwithstanding the provisions of
SUBSECTION 4(A) above, (i) upon the occurrence and during the continuation of
any Event of Default, or (ii) if, after giving effect to such Subordinated Debt
Payment, Debtor shall have Excess Availability of less than $3,000,000 then, in
either case, no Subordinated Debt Payment shall be made or agreed to be made by
Debtor or accepted by any Holdings Subsidiary on account of the principal of,
premium or interest on, or any other amounts in respect of the Subordinated
Debt, and Debtor shall not segregate or hold in trust money for any such payment
or distribution
SECTION 5 SUBORDINATION OF REMEDIES.
As long as any Senior Debt shall remain outstanding and unpaid, no
Holdings Subsidiary shall, without the prior written consent of Foothill:
(i) accelerate, make demand, or otherwise make due and payable prior
to the original stated maturity thereof any Subordinated Debt or bring suit or
institute any other actions or proceedings to enforce its rights or interests in
respect of the obligations of Debtor owing to such Holdings Subsidiary;
(ii) exercise any rights under or with respect to guaranties of the
Subordinated Debt, if any;
(iii) exercise any rights to setoffs and counterclaims in respect of
any indebtedness, liabilities or obligations of such Holdings Subsidiary to
Debtor against any of the Subordinated Debt; or
-3-
<PAGE>
(iv) commence, or cause to be commenced, or join with any creditor
other than Foothill in commencing, any bankruptcy, insolvency or receivership
proceeding against Debtor.
SECTION 6 PAYMENT OVER TO FOOTHILL.
Notwithstanding the provisions of SECTIONS 3, 4, AND 5, in the event
that any Subordinated Debt Payments shall be received in contravention of such
SECTIONS 3, 4, AND 5 by any Holdings Subsidiary before all Senior Debt is paid,
in full, in cash (or other consideration acceptable to Foothill in its sole
discretion and agreed to by Foothill), such Subordinated Debt Payments shall be
held in trust for the benefit of Foothill and shall be paid over or delivered to
Foothill for application to the payment, in full, in cash (or other
consideration acceptable to Foothill in its sole discretion and agreed to by
Foothill) of all Senior Debt remaining unpaid to the extent necessary to give
effect to such SECTIONS 3, 4, AND 5, after giving effect to any concurrent
payments or distributions to Foothill in respect of the Senior Debt.
SECTION 7 AUTHORIZATION TO FOOTHILL.
If, while any Subordinated Debt is outstanding, any Insolvency Event
shall occur relating to Debtor or its property: (i) Foothill is hereby
irrevocably authorized and empowered (in the name of any one or more Holdings
Subsidiaries or otherwise), but shall have no obligation, to demand, sue for,
collect, and receive every payment or distribution in respect of the
Subordinated Debt and give acquittance therefor and to file claims and proofs of
claim (if any Holdings Subsidiary refuses to file, or does not timely file, such
claims or proofs of claims) and take such other action as it may deem necessary
or advisable for the exercise or enforcement of any of the rights or interests
of Foothill; and (ii) each Holdings Subsidiary shall promptly take such action
as Foothill reasonably may request (A) to collect the Subordinated Debt for the
account of Foothill and to file appropriate claims or proofs of claim in respect
of the Subordinated Debt, (B) to execute and deliver to Foothill such powers of
attorney, assignments, and other instruments as it may request to enable it to
enforce any and all claims with respect to the Subordinated Debt, and (C) to
collect and receive any and all Subordinated Debt Payments to the extent
permitted by applicable law.
SECTION 8 CERTAIN AGREEMENTS OF THE HOLDINGS SUBSIDIARIES.
(a) NO BENEFITS. Each Holdings Subsidiary understands that there may
be various agreements among Foothill and Debtor evidencing and governing the
Senior Debt, and such Holdings Subsidiary acknowledges and agrees that such
agreements are not intended to confer any benefits on such Holdings Subsidiary
and that Foothill shall have no obligation to such Holdings Subsidiary or any
other Person to exercise any rights, enforce any remedies, or take any actions
which may be available to them under such agreements.
(b) NO INTERFERENCE. Each Holdings Subsidiary acknowledges that Debtor
has granted Foothill a security interest in all of Debtor's assets, and agrees
that, so long as such Holdings Subsidiary holds Subordinated Debt, such Holdings
Subsidiary will not interfere with or in any manner oppose a disposition of any
Collateral by Foothill in accordance with the terms of the agreements governing
such grants and applicable law.
-4-
<PAGE>
(c) RELIANCE BY FOOTHILL. Each Holdings Subsidiary acknowledges and
agrees that Foothill will have relied upon and will continue to rely upon the
subordination provisions provided for herein and the other provisions hereof
in entering into the Loan Documents and making or making the Advances
thereunder.
(d) WAIVERS. Each Holdings Subsidiary waives any and all notice of the
incurrence of the Senior Debt or any part thereof and any right to require
marshaling of assets.
(e) OBLIGATIONS OF HOLDINGS SUBSIDIARIES NOT AFFECTED. Each Holdings
Subsidiary agrees that at any time and from time to time, without notice to or
the consent of such Holdings Subsidiary , without incurring responsibility to
such Holdings Subsidiary , and without impairing or releasing the subordination
provided for herein or otherwise impairing the rights of Foothill hereunder: (i)
the time for Debtor's performance of or compliance with any of its agreements
contained in the Loan Documents may be extended or such performance or
compliance may be waived by Foothill; (ii) the agreements of Debtor with respect
to the Loan Documents may from time to time be modified by Debtor and Foothill
for the purpose of adding any requirements thereto or changing in any manner the
rights and obligations of Debtor or Foothill thereunder; (iii) the manner, place
or terms for payment of Senior Debt or any portion thereof may be altered or the
terms for payment extended, or the Senior Debt may be renewed in whole or in
part; (iv) the maturity of the Senior Debt may be accelerated in accordance with
the terms of any present or future agreement by Debtor and Foothill; (v) any
Collateral may be sold, exchanged, released or substituted in accordance with
the Loan Documents and any Lien in favor of Foothill may be terminated,
subordinated, or fail to be perfected or become unperfected; (vi) any Person
liable in any manner for Senior Debt may be discharged, released, or
substituted; and (vii) all other rights against Debtor, any other Person, or
with respect to any Collateral may be exercised (or Foothill may waive or
refrain from exercising such rights) in accordance with the Loan Documents.
(f) RIGHTS OF FOOTHILL NOT TO BE IMPAIRED. No right of Foothill to
enforce the subordination provided for herein or to exercise its other rights
hereunder shall at any time in any way be prejudiced or impaired by any act or
failure to act by Debtor hereunder or under or in connection with the other Loan
Documents or by any noncompliance by Debtor with the terms and provisions and
covenants herein or in any other Loan Document, regardless of any knowledge
thereof Foothill may have or otherwise be charged with.
(g) FINANCIAL CONDITION OF DEBTOR. No Holdings Subsidiary shall have
any right to require Foothill to obtain or disclose any information with respect
to: (i) the financial condition or character of Debtor or the ability of Debtor
to pay and perform Senior Debt; (ii) the Senior Debt; (iii) the Collateral or
other security for any or all of the Senior Debt; (iv) the existence or
nonexistence of any guarantees of, or any other subordination agreements with
respect to, all or any part of the Senior Debt; (v) any action or inaction on
the part of Foothill or any other Person; or (vi) any other matter, except as
otherwise expressly required by any provision of any Loan Document or law
(except to the extent that any otherwise applicable requirement of law has been
waived by such Holdings Subsidiary pursuant to a legally enforceable waiver).
-5-
<PAGE>
(h) ACQUISITION OF LIENS OR GUARANTIES. Unless otherwise expressly
permitted under the Loan Documents, no Holdings Subsidiary shall, without the
prior consent of Foothill, acquire any right or interest in or to any Collateral
or accept any guaranties for the Subordinated Debt.
SECTION 9 SUBROGATION.
(a) SUBROGATION. Until the payment and performance in full of all
Senior Debt, each Holdings Subsidiary shall not have, and shall not directly or
indirectly exercise, any rights that it may acquire by way of subrogation under
this Agreement, by any payment or distribution to Foothill hereunder or
otherwise.
(b) PAYMENTS OVER TO THE HOLDINGS SUBSIDIARIES. If any payment or
distribution to which the Holdings Subsidiaries would otherwise have been
entitled but for the provisions of SECTION 3, 4, OR 5 shall have been applied
pursuant to the provisions of SECTION 3, 4, OR 5 to the payment of all amounts
payable under the Senior Debt, the Holdings Subsidiaries shall be entitled to
receive from Foothill any payments or distributions received by Foothill in
excess of the amount sufficient to pay in full all amounts payable under or in
respect of the Senior Debt. If any such excess payment is made to Foothill,
Foothill shall promptly remit such excess to the Holdings Subsidiaries and until
so remitted shall hold such excess payment for the benefit of the Holdings
Subsidiaries. Each Holdings Subsidiary hereby agrees that the remittance by
Foothill of such excess to any Holdings Subsidiary shall be deemed a remittance
for the benefit of all the Holdings Subsidiaries.
SECTION 10 CONTINUING AGREEMENT; REINSTATEMENT.
(a) CONTINUING AGREEMENT. This Agreement is a continuing agreement of
subordination and shall continue in effect and be binding upon the Holdings
Subsidiaries until payment and performance in full of the Senior Debt. The
subordinations, agreements, and priorities set forth herein shall remain in full
force and effect regardless of whether any party hereto in the future seeks to
rescind, amend, terminate, or reform, by litigation or otherwise, its respective
agreements with Debtor.
(b) REINSTATEMENT. This Agreement shall continue to be effective or
shall be reinstated, as the case may be, if, for any reason, any payment of the
Senior Debt by or on behalf of Debtor shall be rescinded or must otherwise be
restored by Foothill, whether as a result of an Insolvency Event or otherwise.
SECTION 11 TRANSFER OF SUBORDINATED DEBT.
No Holdings Subsidiary may assign or transfer its rights and
obligations in respect of the Subordinated Debt or any interest in the
Subordinated Debt without the prior written consent of Foothill (which consent
shall not be unreasonably withheld), and any such transferee or assignee, as a
condition to acquiring an interest in the Subordinated Debt shall agree to be
bound hereby, in form reasonably satisfactory to Foothill.
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<PAGE>
SECTION 12 OBLIGATIONS OF DEBTOR NOT AFFECTED.
The provisions of this Agreement are intended solely for the purpose
of defining the relative rights against Debtor of the Holdings Subsidiaries, on
the one hand, and Foothill, on the other hand. Nothing contained in this
Agreement shall (i) impair, as between Debtor and the Holdings Subsidiaries, the
obligation of Debtor to pay its obligations with respect to the Subordinated
Debt as and when the same shall become due and payable in accordance with the
terms thereof, or (ii) otherwise affect the relative rights against Debtor of
the Holdings Subsidiaries, on the one hand, and the creditors of Debtor (other
than Foothill), on the other hand.
SECTION 13 FURTHER ASSURANCES AND ADDITIONAL ACTS.
(a) ENDORSEMENT OF SUBORDINATED DEBT DOCUMENTS. At the request of
Foothill, all documents and instruments evidencing any of the Subordinated Debt
shall be endorsed with a legend noting that such documents and instruments are
subject to this Agreement, and the Holdings Subsidiaries shall promptly deliver
to Foothill evidence of the same.
(b) FURTHER ASSURANCES AND ADDITIONAL ACTS. Each of the Holdings
Subsidiaries and Debtor shall execute, acknowledge, deliver, file, notarize and
register at its own reasonable expense all such further agreements, instruments,
certificates, financing statements, documents and assurances, and perform such
acts as Foothill reasonably shall deem necessary or appropriate to effectuate
the purposes of this Agreement, and promptly provide Foothill with evidence of
the foregoing reasonably satisfactory in form and substance to Foothill.
SECTION 14 NOTICES.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including by facsimile
transmission) and shall be mailed, sent, or delivered at or to the address or
facsimile number of the respective party or parties set forth below:
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
Attn: Business Finance Division Manager
Telecopier: 310.478.9788
With a copy to: BROBECK, PHLEGER & HARRISON LLP
550 S. Hope Street, Suite 2100
Los Angeles, CA 90071
Attn: John Francis Hilson, Esq.
Telecopier: 213.239.1324
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<PAGE>
If to any Holdings C/O NATIONAL MEDIA CORPORATION
Subsidiary: 15821 Ventura Boulevard, 5th Floor
Encino, California 91436
Attn: Daniel M. Yukelson
Telecopier: 818.461.6530
With a copy to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa Street, Suite 2400
Los Angeles, California 90017
Attn: William Jarblum, Esq.
Telecopier: 213.896-0400
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other parties. All notices and communications sent in accordance with this
section shall be effective (i) if delivered by hand, when delivered; (ii) if
sent by mail, upon the earlier of the date of receipt or five (5) Business Days
after deposit in the mail, first class (or air mail, with respect to
communications to be sent to or from the United States), postage prepaid; and
(iii) if sent by facsimile transmission, when sent.
SECTION 15 NO WAIVER; CUMULATIVE REMEDIES.
No failure on the part of Foothill to exercise, and no delay in
exercising, any right, remedy, power, or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power, or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power, or privilege. The rights and
remedies under this Agreement are cumulative and not exclusive of any rights,
remedies, powers, and privileges that may otherwise be available to Foothill.
SECTION 16 COSTS AND EXPENSES.
(a) PAYMENTS BY DEBTOR. Debtor agrees to pay to Foothill on demand the
reasonable out-of-pocket costs and expenses of Foothill, and the reasonable fees
and disbursements of counsel to Foothill, in connection with the negotiation,
preparation, execution, and delivery of this Agreement, and any amendments,
modifications, or waivers of the terms thereof.
(b) PAYMENTS BY DEBTOR AND THE HOLDINGS SUBSIDIARIES. Each of Debtor
and the Holdings Subsidiaries jointly and severally agrees to pay to Foothill on
demand all reasonable out-of-pocket costs and expenses of Foothill, and the fees
and disbursements of counsel, in connection, following a breach hereof, with the
enforcement or attempted enforcement of, and preservation of rights or interests
under, this Agreement, including any reasonable out-of-pocket losses, costs and
expenses sustained by Foothill as a result of any failure by any of the Holdings
Subsidiaries to perform or observe its obligations contained in this Agreement.
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SECTION 17 SURVIVAL.
All covenants, agreements, representations and warranties made in this
Agreement shall, except to the extent otherwise provided herein, survive the
execution and delivery of this Agreement, and shall continue in full force and
effect so long as any Senior Debt remains unpaid. Without limiting the
generality of the foregoing, the obligations of Debtor and the Holdings
Subsidiaries under SECTION 16 shall survive the satisfaction of the Senior Debt.
SECTION 18 BENEFITS OF AGREEMENT.
This Agreement is entered into for the sole protection and benefit of
the parties hereto and their successors and assigns, and no other Person shall
be a direct or indirect beneficiary of, or shall have any direct or indirect
cause of action or claim in connection with, this Agreement.
SECTION 19 BINDING EFFECT.
This Agreement shall be binding upon, inure to the benefit of and be
enforceable by Debtor, the Holdings Subsidiaries, and Foothill and their
respective successors and assigns.
SECTION 20 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF CALIFORNIA.
SECTION 21 SUBMISSION TO JURISDICTION.
EACH HOLDINGS SUBSIDIARY HEREBY (i) SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL COURTS OF
THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE OF ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH COURTS, (iii) IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED BY
APPLICABLE LAW) ANY OBJECTION WHICH THEY NOW OR HEREAFTER MAY HAVE TO THE LAYING
OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING
COURTS, AND ANY OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND (iv) AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PERMITTED BY LAW.
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SECTION 22 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of Debtor, Foothill, and the Holdings Subsidiaries with respect to the matters
set forth herein and supersedes any prior agreements, commitments, drafts,
communications, discussions, and understandings, oral or written, with respect
thereto.
(b) AMENDMENTS AND WAIVERS. No amendment to any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by Debtor, the Holdings Subsidiaries, and Foothill; and no waiver of
any provision of this Agreement, or consent to any departure by Debtor or the
Holdings Subsidiaries therefrom, shall in any event be effective unless the same
shall be in writing and signed by Foothill. Any such amendment, waiver, or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 23 CONFLICTS.
In case of any conflict or inconsistency between any terms of this
Agreement, on the one hand, and any documents or instruments in respect of the
Subordinated Debt, on the other hand, then the terms of this Agreement shall
control.
SECTION 24 SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Agreement shall be
prohibited by or invalid under any such law or regulation in any jurisdiction,
it shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Agreement or the validity or effectiveness of such provision in any other
jurisdiction.
SECTION 25 INTERPRETATION.
This Agreement is the result of negotiations between, and has been
reviewed by counsel to, Foothill, the Holdings Subsidiaries, and Debtor and is
the product of all parties hereto. Accordingly, this Agreement shall not be
construed against Foothill merely because of Foothill's involvement in the
preparation hereof.
SECTION 26 COUNTERPARTS; TELEFACSIMILE EXECUTION.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
an original executed counterpart of this Agreement. Any party delivering
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<PAGE>
an executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement, but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
SECTION 27 TERMINATION OF AGREEMENT.
Upon payment and performance in full of the Senior Debt, this
Agreement shall terminate and Foothill shall promptly execute and deliver to
Debtor and the Holdings Subsidiaries such documents and instruments as shall be
necessary to evidence such termination; provided, however, that the obligations
of Debtor and the Holdings Subsidiaries under SECTION 16 shall survive such
termination.
SECTION 28 AGREEMENTS RELATIVE TO A BANKRUPTCY PETITION.
If, while any Subordinated Debt is outstanding, a petition under
chapter 11 of the Bankruptcy Code shall be filed by or against Debtor, no
Holdings Subsidiary shall accept a plan under chapter 11 of the Bankruptcy Code
if the class in which Foothill's claim is place (i) is an impaired class under
such plan, and (ii) has not accepted such plan.
[Remainder of page left intentionally blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
FOOTHILL CAPITAL CORPORATION,
a California Corporation
By:
---------------------------
Name:
-------------------------
Title
-------------------------
S-1
<PAGE>
NATIONAL MEDIA HOLDINGS, INC.,
a Delaware corporation
NATIONAL MEDIA HOLDINGS, INC,
a Delaware corporation
QUANTUM INTERNATIONAL LIMITED,
a company organized under the
laws of the United Kingdom
QUANTUM FAR EAST LTD.,
a company organized under the
laws of New Zealand
QUANTUM MARKETING INTERNATIONAL, INC.,
a Delaware corporation
QUANTUM INTERNATIONAL JAPAN COMPANY,
a company organized under the laws of Japan
DIRECT AMERICA CORPORATION,
a Delaware corporation
NANCY LANGSTON & ASSOCIATES, INC.,
a Delaware corporation
POSITIVE RESPONSE TELEVISION, INC.,
a Delaware corporation
POSITIVE RESPONSE MEDIA, INC.,
a California corporation
QUANTUM PRODUCTIONS AG,
a company organized under the laws of Switzerland
PRESTIGE MARKETING LIMITED,
a company organized under the
laws of New Zealand
SUZANNE PAUL HOLDINGS PTY LIMITED,
a company organized under the
laws of Australia
SUZANNE PAUL (AUSTRALIA) PTY LIMITED,
a company organized under the laws of Australia
TELE-SHOPPING PTY LIMITED,
a company organized under the laws of Australia
QUANTUM POLAND,
a company organized under the laws of Poland
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
for each of the above name Persons
S-2
<PAGE>
DEBTOR ACKNOWLEDGEMENT
Debtor has received a copy of, and has read, the foregoing Subordination
Agreement. Debtor agrees to be bound by such agreement, and not to take any
action that would breach or violate the terms thereof. Debtor consents to the
execution, delivery, and performance of such agreement by Foothill and the
Holdings Subsidiaries, and agrees that Debtor's obligations to Foothill and the
Holdings Subsidiaries are not diminished by such agreement. Debtor acknowledges
that it has no rights under the foregoing agreement and is not a third party
beneficiary of such agreement.
Dated as of the date first set forth above:
QUANTUM NORTH AMERICA, INC.
a Delaware corporation
By:
-------------------------
Name:
-----------------------
Title:
----------------------
S-3
<PAGE>
Exhibit 10.11
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), is entered
into as of December ___, 1998 between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill") and NATIONAL MEDIA CORPORATION, a Delaware corporation
("Holdings"), with reference to the following recitals of fact:
WHEREAS, Quantum North America, Inc., a Delaware corporation
("Debtor") and Foothill have entered into that certain Loan and Security
Agreement dated as of the date hereof (as amended, modified, renewed, extended,
or replaced from time to time, the "Loan Agreement"), pursuant to which Foothill
has agreed to make certain loans to Debtor;
WHEREAS, Holdings has made or hereafter may make loans and
other advances to Debtor; and
WHEREAS, Holdings has agreed to the subordination of such
indebtedness to it, upon the terms and subject to the conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, conditions, representations, and warranties set forth herein and for
other good and valuable consideration, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) TERMS DEFINED IN LOAN AGREEMENT. All capitalized terms
used in this Agreement and not otherwise defined herein shall have the meanings
assigned to them in the Loan Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"Dollars" means and refers to United States of America dollars
or such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts in the
United States of America.
"Insolvency Event" has the meaning set forth in SECTION 3.
"Senior Debt" shall mean all indebtedness and liabilities
(including all principal, interest (including interest accruing after the
commencement of a Proceeding whether or not such interest is allowed as a claim
therein), default interest, fees, charges, and collection expenses) now or
hereafter owed by Debtor under the Loan Agreement or any other Loan Document.
"Subordinated Debt" means all indebtedness, liabilities and
other monetary obligations of Debtor owing to Holdings, whether now existing or
hereafter arising, and whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or
<PAGE>
undetermined, including all principal, all interest accrued thereon, all fees,
and all other amounts payable by Debtor to Holdings.
"Subordinated Debt Documents" means any agreement, note, or
other document evidencing the Subordinated Debt.
"Subordinated Debt Payment" means any payment or distribution
by or on behalf of Debtor, directly or indirectly, of assets of Debtor of any
kind or character, whether in cash, property or securities, including on account
of the purchase, redemption or other acquisition of Subordinated Debt, as a
result of any collection, sale or other disposition of collateral, or by setoff,
exchange or in any other manner, for or on account of the Subordinated Debt.
"Subordinated Lender Remedies" means any action which results
in (i) the sale, foreclosure, realization on or liquidation of any of Debtor's
assets or properties (ii) the execution on any judgment obtained against Debtor,
(iii) the acceleration of the Subordinated Debt, (iv) the filing of any petition
or lien under any bankruptcy, insolvency or creditors' rights laws with respect
to Debtor, or (v) the institution or exercise against Debtor of any suit, legal
action, arbitration or other enforcement remedy.
(c) INTERPRETATION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. References to agreements and other
contractual instruments shall be deemed to include all subsequent amendments and
other modifications thereto. References to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to. The captions and
headings are for convenience of reference only and shall not affect the
construction of this Agreement.
SECTION 2 SUBORDINATION TO PAYMENT OF SENIOR DEBT.
All payments on account of the Subordinated Debt shall be
subject, subordinate and junior, in right of payment and exercise of remedies,
to the extent and in the manner set forth herein, to the prior payment, in full,
in cash (or other consideration acceptable to Foothill in its sole discretion
and agreed to by Foothill) of the Senior Debt.
SECTION 3 SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF DEBTOR.
In the event of any payment or distribution of assets or
properties of Debtor of any kind or character, whether in cash, property, or
securities, upon the dissolution, winding up, or total or partial liquidation or
reorganization, readjustment, arrangement, or similar proceeding relating to
Debtor or its property, whether voluntary or involuntary, or in bankruptcy,
insolvency, receivership, arrangement or similar proceedings or upon an
assignment for the benefit of
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<PAGE>
creditors, or upon any other marshaling or composition of the assets and
liabilities of Debtor, or otherwise (such events, collectively, the "Insolvency
Events"): (i) all amounts owing on account of the Senior Debt shall first be
paid, in full, in cash, or payment provided for in cash (or other consideration
acceptable to Foothill in its sole discretion and agreed to by Foothill), before
any Subordinated Debt Payment is made; and (ii) to the extent permitted by
applicable law, any Subordinated Debt Payment to which Holdings would be
entitled except for the provisions hereof, shall, in the event of any such
Insolvency Event, be paid or delivered by the trustee in bankruptcy, receiver,
assignee for the benefit of creditors, or other liquidating agent making such
payment or distribution directly to Foothill for application to the payment of
the Senior Debt in accordance with clause (i), after giving effect to any
concurrent payment or distribution or provision therefor to Foothill in respect
of such Senior Debt.
SECTION 4 PAYMENTS ON SUBORDINATED DEBT.
(a) PERMITTED PAYMENTS. So long as (i) no Event of Default has
occurred and is continuing or would result therefrom, and (ii) after giving
effect to such Subordinated Debt Payments Debtor shall have Excess Availability
of not less than $3,000,000, Debtor may make, and Holdings shall be entitled to
receive, Subordinated Debt Payments made in the ordinary course of business.
(b) PROHIBITION ON PAYMENTS. Notwithstanding the provisions of
SUBSECTION 4(A) above, (i) upon the occurrence and during the continuation of
any Event of Default, or (ii) if, after giving effect to such Subordinated Debt
Payment, Debtor shall have Excess Availability of less than $3,000,000 then, in
either case, no Subordinated Debt Payment shall be made or agreed to be made by
Debtor or accepted by Holdings on account of the principal of, premium or
interest on, or any other amounts in respect of the Subordinated Debt, and
Debtor shall not segregate or hold in trust money for any such payment or
distribution
SECTION 5 SUBORDINATION OF REMEDIES.
As long as any Senior Debt shall remain outstanding and
unpaid, Holdings shall not, without the prior written consent of Foothill:
(i) accelerate, make demand, or otherwise make due and payable
prior to the original stated maturity thereof any Subordinated Debt or bring
suit or institute any other actions or proceedings to enforce its rights or
interests in respect of the obligations of Debtor owing to Holdings;
(ii) exercise any rights under or with respect to guaranties
of the Subordinated Debt, if any;
(iii) exercise any rights to setoffs and counterclaims in
respect of any indebtedness, liabilities or obligations of Holdings to Debtor
against any of the Subordinated Debt; or
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<PAGE>
(iv) commence, or cause to be commenced, or join with any
creditor other than Foothill in commencing, any bankruptcy, insolvency or
receivership proceeding against Debtor.
SECTION 6 PAYMENT OVER TO FOOTHILL.
Notwithstanding the provisions of SECTIONS 3, 4, AND 5, in the
event that any Subordinated Debt Payments shall be received in contravention of
such SECTIONS 3, 4, AND 5 by Holdings before all Senior Debt is paid, in full,
in cash (or other consideration acceptable to Foothill in its sole discretion
and agreed to by Foothill), such Subordinated Debt Payments shall be held in
trust for the benefit of Foothill and shall be paid over or delivered to
Foothill for application to the payment, in full, in cash (or other
consideration acceptable to Foothill in its sole discretion and agreed to by
Foothill) of all Senior Debt remaining unpaid to the extent necessary to give
effect to such SECTIONS 3, 4, AND 5, after giving effect to any concurrent
payments or distributions to Foothill in respect of the Senior Debt.
SECTION 7 AUTHORIZATION TO FOOTHILL.
If, while any Subordinated Debt is outstanding, any Insolvency
Event shall occur relating to Debtor or its property: (i) Foothill is hereby
irrevocably authorized and empowered (in the name of Holdings or otherwise), but
shall have no obligation, to demand, sue for, collect, and receive every payment
or distribution in respect of the Subordinated Debt and give acquittance
therefor and to file claims and proofs of claim (if Holdings refuses to file, or
does not timely file, such claims or proofs of claims) and take such other
action as it may deem necessary or advisable for the exercise or enforcement of
any of the rights or interests of Foothill; and (ii) Holdings shall promptly
take such action as Foothill reasonably may request (A) to collect the
Subordinated Debt for the account of Foothill and to file appropriate claims or
proofs of claim in respect of the Subordinated Debt, (B) to execute and deliver
to Foothill such powers of attorney, assignments, and other instruments as it
may request to enable it to enforce any and all claims with respect to the
Subordinated Debt, and (C) to collect and receive any and all Subordinated Debt
Payments to the extent permitted by applicable law.
SECTION 8 CERTAIN AGREEMENTS OF HOLDINGS.
(a) NO BENEFITS. Holdings understands that there may be
various agreements among Foothill and Debtor evidencing and governing the Senior
Debt, and Holdings acknowledges and agrees that such agreements are not intended
to confer any benefits on Holdings and that Foothill shall have no obligation to
Holdings or any other Person to exercise any rights, enforce any remedies, or
take any actions which may be available to them under such agreements.
(b) NO INTERFERENCE. Holdings acknowledges that Debtor has
granted Foothill a security interest in all of Debtor's assets, and agrees that,
so long as Holdings holds Subordinated Debt, Holdings will not interfere with or
in any manner oppose a disposition of any Collateral by Foothill in accordance
with the terms of the agreements governing such grants and applicable law.
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<PAGE>
(c) RELIANCE BY FOOTHILL. Holdings acknowledges and agrees
that Foothill will have relied upon and will continue to rely upon the
subordination provisions provided for herein and the other provisions hereof in
entering into the Loan Documents and making or making the Advances thereunder.
(d) WAIVERS. Holdings waives any and all notice of the
incurrence of the Senior Debt or any part thereof and any right to require
marshaling of assets.
(e) OBLIGATIONS OF HOLDINGS NOT AFFECTED. Holdings agrees that
at any time and from time to time, without notice to or the consent of Holdings,
without incurring responsibility to Holdings, and without impairing or releasing
the subordination provided for herein or otherwise impairing the rights of
Foothill hereunder: (i) the time for Debtor's performance of or compliance with
any of its agreements contained in the Loan Documents may be extended or such
performance or compliance may be waived by Foothill; (ii) the agreements of
Debtor with respect to the Loan Documents may from time to time be modified by
Debtor and Foothill for the purpose of adding any requirements thereto or
changing in any manner the rights and obligations of Debtor or Foothill
thereunder; (iii) the manner, place or terms for payment of Senior Debt or any
portion thereof may be altered or the terms for payment extended, or the Senior
Debt may be renewed in whole or in part; (iv) the maturity of the Senior Debt
may be accelerated in accordance with the terms of any present or future
agreement by Debtor and Foothill; (v) any Collateral may be sold, exchanged,
released or substituted in accordance with the Loan Documents and any Lien in
favor of Foothill may be terminated, subordinated, or fail to be perfected or
become unperfected; (vi) any Person liable in any manner for Senior Debt may be
discharged, released, or substituted; and (vii) all other rights against Debtor,
any other Person, or with respect to any Collateral may be exercised (or
Foothill may waive or refrain from exercising such rights) in accordance with
the Loan Documents.
(f) RIGHTS OF FOOTHILL NOT TO BE IMPAIRED. No right of
Foothill to enforce the subordination provided for herein or to exercise its
other rights hereunder shall at any time in any way be prejudiced or impaired by
any act or failure to act by Debtor hereunder or under or in connection with the
other Loan Documents or by any noncompliance by Debtor with the terms and
provisions and covenants herein or in any other Loan Document, regardless of any
knowledge thereof Foothill may have or otherwise be charged with.
(g) FINANCIAL CONDITION OF DEBTOR. Holdings shall not have any
right to require Foothill to obtain or disclose any information with respect to:
(i) the financial condition or character of Debtor or the ability of Debtor to
pay and perform Senior Debt; (ii) the Senior Debt; (iii) the Collateral or other
security for any or all of the Senior Debt; (iv) the existence or nonexistence
of any guarantees of, or any other subordination agreements with respect to, all
or any part of the Senior Debt; (v) any action or inaction on the part of
Foothill or any other Person; or (vi) any other matter, except as otherwise
expressly required by any provision of any Loan Document or law (except to the
extent that any otherwise applicable requirement of law has been waived by
Holdings pursuant to a legally enforceable waiver).
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(h) ACQUISITION OF LIENS OR GUARANTIES. Unless otherwise
expressly permitted under the Loan Documents, Holdings shall not, without the
prior consent of Foothill, acquire any right or interest in or to any Collateral
or accept any guaranties for the Subordinated Debt.
SECTION 9 SUBROGATION.
(a) SUBROGATION. Until the payment and performance in full of
all Senior Debt, Holdings shall not have, and shall not directly or indirectly
exercise, any rights that it may acquire by way of subrogation under this
Agreement, by any payment or distribution to Foothill hereunder or otherwise.
(b) PAYMENTS OVER TO HOLDINGS. If any payment or distribution
to which Holdings would otherwise have been entitled but for the provisions of
SECTION 3, 4, OR 5 shall have been applied pursuant to the provisions of SECTION
3, 4, OR 5 to the payment of all amounts payable under the Senior Debt, Holdings
shall be entitled to receive from Foothill any payments or distributions
received by Foothill in excess of the amount sufficient to pay in full all
amounts payable under or in respect of the Senior Debt. If any such excess
payment is made to Foothill, Foothill shall promptly remit such excess to
Holdings and until so remitted shall hold such excess payment for the benefit of
Holdings.
SECTION 10 CONTINUING AGREEMENT; REINSTATEMENT.
(a) CONTINUING AGREEMENT. This Agreement is a continuing
agreement of subordination and shall continue in effect and be binding upon
Holdings until payment and performance in full of the Senior Debt. The
subordinations, agreements, and priorities set forth herein shall remain in full
force and effect regardless of whether any party hereto in the future seeks to
rescind, amend, terminate, or reform, by litigation or otherwise, its respective
agreements with Debtor.
(b) REINSTATEMENT. This Agreement shall continue to be
effective or shall be reinstated, as the case may be, if, for any reason, any
payment of the Senior Debt by or on behalf of Debtor shall be rescinded or must
otherwise be restored by Foothill, whether as a result of an Insolvency Event or
otherwise.
SECTION 11 TRANSFER OF SUBORDINATED DEBT.
Holdings may not assign or transfer its rights and obligations
in respect of the Subordinated Debt or any interest in the Subordinated Debt
without the prior written consent of Foothill (which consent shall not be
unreasonably withheld), and any such transferee or assignee, as a condition to
acquiring an interest in the Subordinated Debt shall agree to be bound hereby,
in form reasonably satisfactory to Foothill.
SECTION 12 OBLIGATIONS OF DEBTOR NOT AFFECTED.
The provisions of this Agreement are intended solely for the
purpose of defining the relative rights against Debtor of Holdings, on the one
hand, and Foothill, on the other hand.
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Nothing contained in this Agreement shall (i) impair, as between Debtor and
Holdings, the obligation of Debtor to pay its obligations with respect to the
Subordinated Debt as and when the same shall become due and payable in
accordance with the terms thereof, or (ii) otherwise affect the relative rights
against Debtor of Holdings, on the one hand, and the creditors of Debtor (other
than Foothill), on the other hand.
SECTION 13 FURTHER ASSURANCES AND ADDITIONAL ACTS.
(a) ENDORSEMENT OF SUBORDINATED DEBT DOCUMENTS. At the request
of Foothill, all documents and instruments evidencing any of the Subordinated
Debt shall be endorsed with a legend noting that such documents and instruments
are subject to this Agreement, and Holdings shall promptly deliver to Foothill
evidence of the same.
(b) FURTHER ASSURANCES AND ADDITIONAL ACTS. Each of Holdings
and Debtor shall execute, acknowledge, deliver, file, notarize and register at
its own reasonable expense all such further agreements, instruments,
certificates, financing statements, documents and assurances, and perform such
acts as Foothill reasonably shall deem necessary or appropriate to effectuate
the purposes of this Agreement, and promptly provide Foothill with evidence of
the foregoing reasonably satisfactory in form and substance to Foothill.
SECTION 14 NOTICES.
All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including by facsimile
transmission) and shall be mailed, sent, or delivered at or to the address or
facsimile number of the respective party or parties set forth below:
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
Attn: Business Finance Division Manager
Telecopier: 310.478.9788
With a copy to: BROBECK, PHLEGER & HARRISON LLP
550 S. Hope Street, Suite 2100
Los Angeles, CA 90071
Attn: John Francis Hilson, Esq.
Telecopier: 213.239.1324
If to Holdings: NATIONAL MEDIA CORPORATION
15821 Ventura Boulevard, 5th Floor
Encino, California 91436
Attn: Daniel M. Yukelson
Telecopies: 818.461.6530
With a copy to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa Street, Suite 2400
Los Angeles, California 90017
Attn: William Jarblum, Esq.
Telecopier: 213.896-0400
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The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other parties. All notices and communications sent in accordance with this
section shall be effective (i) if delivered by hand, when delivered; (ii) if
sent by mail, upon the earlier of the date of receipt or five (5) Business Days
after deposit in the mail, first class (or air mail, with respect to
communications to be sent to or from the United States), postage prepaid; and
(iii) if sent by facsimile transmission, when sent.
SECTION 15 NO WAIVER; CUMULATIVE REMEDIES.
No failure on the part of Foothill to exercise, and no delay
in exercising, any right, remedy, power, or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power, or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power, or privilege. The rights and
remedies under this Agreement are cumulative and not exclusive of any rights,
remedies, powers, and privileges that may otherwise be available to Foothill.
SECTION 16 COSTS AND EXPENSES.
(a) PAYMENTS BY DEBTOR. Debtor agrees to pay to Foothill on
demand the reasonable out-of-pocket costs and expenses of Foothill, and the
reasonable fees and disbursements of counsel to Foothill, in connection with the
negotiation, preparation, execution, and delivery of this Agreement, and any
amendments, modifications, or waivers of the terms thereof.
(b) PAYMENTS BY DEBTOR AND HOLDINGS. Each of Debtor and
Holdings jointly and severally agrees to pay to Foothill on demand all
reasonable out-of-pocket costs and expenses of Foothill, and the fees and
disbursements of counsel, in connection, following a breach hereof, with the
enforcement or attempted enforcement of, and preservation of rights or interests
under, this Agreement, including any reasonable out-of-pocket losses, costs and
expenses sustained by Foothill as a result of any failure by any of Holdings to
perform or observe its obligations contained in this Agreement.
SECTION 17 SURVIVAL.
All covenants, agreements, representations and warranties made
in this Agreement shall, except to the extent otherwise provided herein, survive
the execution and delivery of this Agreement, and shall continue in full force
and effect so long as any Senior Debt remains unpaid. Without limiting the
generality of the foregoing, the obligations of Debtor and Holdings under
SECTION 16 shall survive the satisfaction of the Senior Debt.
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<PAGE>
SECTION 18 BENEFITS OF AGREEMENT.
This Agreement is entered into for the sole protection and
benefit of the parties hereto and their successors and assigns, and no other
Person shall be a direct or indirect beneficiary of, or shall have any direct or
indirect cause of action or claim in connection with, this Agreement.
SECTION 19 BINDING EFFECT.
This Agreement shall be binding upon, inure to the benefit of
and be enforceable by Debtor, Holdings, and Foothill and their respective
successors and assigns.
SECTION 20 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
SECTION 21 SUBMISSION TO JURISDICTION.
HOLDINGS HEREBY (i) SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL COURTS OF THE UNITED
STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE OF ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH COURTS, (iii) IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE
LAW) ANY OBJECTION WHICH THEY NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE
OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY
OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM AND (iv) AGREES THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 22 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of Debtor, Foothill, and Holdings with respect to the matters set
forth herein and supersedes any prior agreements, commitments, drafts,
communications, discussions, and understandings, oral or written, with respect
thereto.
(b) AMENDMENTS AND WAIVERS. No amendment to any provision of
this Agreement shall in any event be effective unless the same shall be in
writing and signed by Debtor, Holdings, and Foothill; and no waiver of any
provision of this Agreement, or consent to any departure by Debtor or Holdings
therefrom, shall in any event be effective unless the same
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<PAGE>
shall be in writing and signed by Foothill. Any such amendment, waiver, or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 23 CONFLICTS.
In case of any conflict or inconsistency between any terms of
this Agreement, on the one hand, and any documents or instruments in respect of
the Subordinated Debt, on the other hand, then the terms of this Agreement shall
control.
SECTION 24 SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Agreement shall be
prohibited by or invalid under any such law or regulation in any jurisdiction,
it shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Agreement or the validity or effectiveness of such provision in any other
jurisdiction.
SECTION 25 INTERPRETATION.
This Agreement is the result of negotiations between, and has
been reviewed by counsel to, Foothill, Holdings, and Debtor and is the product
of all parties hereto. Accordingly, this Agreement shall not be construed
against Foothill merely because of Foothill's involvement in the preparation
hereof.
SECTION 26 COUNTERPARTS; TELEFACSIMILE EXECUTION.
This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
an original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement, but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
SECTION 27 TERMINATION OF AGREEMENT.
Upon payment and performance in full of the Senior Debt, this
Agreement shall terminate and Foothill shall promptly execute and deliver to
Debtor and Holdings such documents and instruments as shall be necessary to
evidence such termination; provided, however, that the obligations of Debtor and
Holdings under SECTION 16 shall survive such termination.
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<PAGE>
SECTION 28 AGREEMENTS RELATIVE TO A BANKRUPTCY PETITION.
If, while any Subordinated Debt is outstanding, a petition
under chapter 11 of the Bankruptcy Code shall be filed by or against Debtor,
Holdings shall not accept a plan under chapter 11 of the Bankruptcy Code if the
class in which Foothill's claim is placed (i) is an impaired class under such
plan, and (ii) has not accepted such plan.
Holdings shall have the right, for 90 days after the
confirmation of a plan under chapter 11 of the Bankruptcy Code to purchase all
of the Stock and other securities of Borrower received by Foothill pursuant to
such plan for total consideration, in cash, equal to (a) the difference between
(i) the dollar amount of the Obligations, MINUS (ii) the cash received by
Foothill pursuant to such plan; PLUS (b) interest on such difference (at the
rate then applicable to Advances under the Loan Agreement).
[Remainder of page left intentionally blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
FOOTHILL CAPITAL CORPORATION,
a California Corporation
By:
-------------------------------
Name:
-------------------------------
Title
-------------------------------
NATIONAL MEDIA CORPORATION,
a Delaware corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
S-1
<PAGE>
DEBTOR ACKNOWLEDGEMENT
Debtor has received a copy of, and has read, the foregoing Subordination
Agreement. Debtor agrees to be bound by such agreement, and not to take any
action that would breach or violate the terms thereof. Debtor consents to the
execution, delivery, and performance of such agreement by Foothill and Holdings,
and agrees that Debtor's obligations to Foothill and Holdings are not diminished
by such agreement. Debtor acknowledges that it has no rights under the foregoing
agreement and is not a third party beneficiary of such agreement.
Dated as of the date first set forth above:
QUANTUM NORTH AMERICA, INC.
a Delaware corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
S-2
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
December _, 1998, is entered into between NATIONAL MEDIA CORPORATION, a Delaware
corporation ("Pledgor"), and FOOTHILL CAPITAL CORPORATION, a California
corporation ("Secured Party"), with reference to the following:
WHEREAS, Pledgor beneficially owns the specified number of
shares identified as Pledged Shares in the Persons identified as Issuers on
SCHEDULE A attached hereto (or any addendum thereto);
WHEREAS, Borrower and Secured Party are parties to that
certain Loan and Security Agreement (the "Loan Agreement"), of even date
herewith, pursuant to which Secured Party has agreed to make certain financial
accommodations to Borrower;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Borrower pursuant to the Loan Agreement, Pledgor
desires to pledge, grant, transfer, and assign to Secured Party a security
interest in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
Definitions.All initially capitalized terms used herein and
not otherwise defined herein shall have the meaning ascribed thereto in the Loan
Agreement. As used in this Agreement:
"AGREEMENT" shall mean this Stock Pledge Agreement.
"BORROWER" shall mean Quantum North America, a Delaware
corporation.
"CHIEF EXECUTIVE OFFICE" shall mean where Pledgor is deemed
located pursuant to ss.9103(3)(d) of the Code.
"COLLATERAL" shall mean the Pledged Shares, the Future Rights,
and the Proceeds, collectively.
"EARTHLINK STOCK" shall have the meaning ascribed thereto in
the Security Agreement.
"FUTURE RIGHTS" shall mean: (a) all shares of stock (other
than Pledged Shares) of the Issuers, and all securities convertible or
exchangeable into, and all warrants, options, or other rights to purchase,
shares of stock of the Issuers; (b) to the extent of Pledgor's interest therein,
all shares of, all securities convertible or exchangeable into, and all
warrants,
<PAGE>
options, or other rights to purchase shares of stock of any Person in which
Pledgor, after the date of this Agreement, acquires a direct equity interest,
irrespective of whether such Person is or becomes a Subsidiary of Pledgor; and
(c) the certificates or instruments representing such additional shares,
convertible or exchangeable securities, warrants, and other rights and all
dividends, cash, options, warrants, rights, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
"HOLDER" and "HOLDERS" shall have the meanings ascribed
thereto in SECTION 3 of this Agreement.
"ISSUERS" shall mean each of the Persons identified as an
Issuer on SCHEDULE A attached hereto (or any addendum thereto), and any
successors thereto, whether by merger or otherwise.
"LIEN" shall mean any lien, mortgage, pledge, assignment
(including any assignment of rights to receive payments of money), security
interest, charge, or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, or any
agreement to give any security interest).
"LOAN AGREEMENT" shall have the meaning ascribed thereto in
the recitals to this Agreement.
"PERMITTED LIENS" shall have the meaning ascribed to
it in the Security Agreement.
"PLEDGED SHARES" shall mean all of the shares
identified as Pledged Shares on SCHEDULE A attached hereto (or any addendum
thereto).
"PLEDGOR" shall have the meaning ascribed thereto in
the preamble to this Agreement.
"PROCEEDS" shall mean all proceeds (including
proceeds of proceeds) of the Pledged Shares and Future Rights including all: (a)
rights, benefits, distributions, premiums, profits, dividends, interest, cash,
instruments, documents of title, accounts, contract rights, inventory,
equipment, general intangibles, deposit accounts, chattel paper, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in exchange for, or as a replacement of or a substitution for, any
of the Pledged Shares, Future Rights, or proceeds thereof (including any cash,
stock, or other securities or instruments issued after any recapitalization,
readjustment, reclassification, merger or consolidation with respect to the
Issuers and any claims against financial intermediaries under ss.8313(2) of the
Code or otherwise); (b) "proceeds," as such term is used in ss.9306 of the Code;
(c) proceeds of any insurance, indemnity, warranty, or guarantY (including
guaranties of delivery) payable from time to time with respect to any of the
Pledged Shares, Future Rights, or proceeds thereof; (d) payments (in any form
whatsoever) made or due and payable to Pledgor from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Pledged Shares, Future Rights, or proceeds thereof; and (e)
other amounts from time
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<PAGE>
to time paid or payable under or in connection with any of the Pledged Shares,
Future Rights, or proceeds thereof.
"SECURED OBLIGATIONS" shall mean all Obligations
owing by Borrower to Secured Party of any kind or description arising out of or
outstanding under, advanced or issued pursuant to, or evidenced by the Loan
Agreement, the other Loan Documents, or this Agreement, irrespective of whether
for the payment of money, whether direct or indirect, absolute or contingent,
due or to become due, voluntary or involuntary, whether now existing or
hereafter arising, and including all interest (including interest that accrues
after the filing of a case under the Bankruptcy Code) and any and all costs,
fees (including attorneys fees), and expenses which Borrower is required to pay
pursuant to any of the foregoing, by law, or otherwise.
"SECURED PARTY" shall have the meaning ascribed
thereto in the preamble to this Agreement, together with its successors or
assigns.
"SECURITIES ACT" shall have the meaning ascribed
thereto in SECTION 9(C) of this Agreement.
(a) CONSTRUCTION.
(i) Unless the context of this Agreement
clearly requires otherwise, references
to the plural include the singular and
to the singular include the plural, the
part includes the whole, the term
"including" is not limiting, and the
term "or" has, except where otherwise
indicated, the inclusive meaning
represented by the phrase "and/or." The
words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in
this Agreement refer to this Agreement
as a whole and not exclusively to any
particular provision of this Agreement.
Article, section, subsection, exhibit,
and schedule references are to this
Agreement unless otherwise specified.
All of the exhibits or schedules
attached to this Agreement shall be
deemed incorporated herein by reference.
Any reference to any of the following
documents includes any and all
alterations, amendments, restatements,
extensions, modifications, renewals, or
supplements thereto or thereof, as
applicable: this Agreement, the Loan
Agreement, or any of the other Loan
Documents.
(ii) Neither this Agreement nor any
uncertainty or ambiguity herein shall be
construed or resolved against Secured
Party or Pledgor, whether under any rule
of construction or otherwise. On the
contrary, this Agreement has been
reviewed by both of the parties and
their respective counsel and shall be
construed and interpreted according to
the ordinary meaning of the words used
so as to fairly accomplish the purposes
and intentions of the parties hereto.
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<PAGE>
(iii) In the event of any direct conflict
between the express terms and provisions
of this Agreement and of the Loan
Agreement, the terms and provisions of
the Loan Agreement shall control.
"SECURITY AGREEMENT" means that certain Security
Agreement, dated as of the date hereof, between Pledgor and Secured Party.
2. PLEDGE.
(a) As security for the prompt payment and
performance of the Secured Obligations in full by Borrower when due, whether at
stated maturity, by acceleration or otherwise (including amounts that would
become due but for the operation of the provisions of the Bankruptcy Code),
Pledgor hereby pledges, grants, transfers, and assigns to Secured Party a
security interest in all of Pledgor's right, title, and interest in and to the
Collateral.
(b) If any Person whose shares of stock are pledged
by Pledgor pursuant hereto shall at any time have earnings and profits which,
because of such pledge, will result in taxable income to Pledgor pursuant to IRC
Section 952, then Secured Party, upon written notice of the foregoing, shall (i)
release its liens in the shares of stock of such Person to the extent necessary
to avoid the recognition of income by Pledgor pursuant to IRC Section 952, and
(ii) deliver to Pledgor the pledged certificates representing the number of
shares of stock in which Secured Party has released its lien; PROVIDED, HOWEVER,
Secured Party shall have no obligation to deliver such shares unless and until
Pledgor shall have delivered, or caused to be delivered to Secured Party,
certificates in such denominations as are necessary (if any) for Secured Party
to deliver such certificates while retaining certificates representing the
number of shares of stock in which Secured Party has retained its liens.
(c) If any wholly owned Subsidiary of Pledgor shall
at any time be merged into any other wholly owned Subsidiary of Pledgor, or
shall be dissolved, then, in either case, upon delivery to Secured Party of
evidence, reasonably acceptable to Secured Party, of such merger or dissolution,
Secured Party shall deliver to Pledgor the pledged certificates representing the
pledged shares of such wholly owned Subsidiary.
3. DELIVERY AND REGISTRATION OF COLLATERAL.
(a) All certificates or instruments representing or
evidencing the Collateral shall be promptly delivered by Pledgor to Secured
Party or Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Secured Party; PROVIDED, HOWEVER, that the
Earthlink Stock need not be delivered by Pledgor to Secured Party so long as the
Earthlink Stock is subject to a Permitted Lien and is in the possession of the
creditor having such Permitted Lien.
(b) Upon the occurrence and during the continuance of
an Event of Default, Secured Party shall have the right, at any time in its
discretion and without notice to Pledgor, to transfer to or to register on the
books of the Issuers (or of any other Person
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<PAGE>
maintaining records with respect to the Collateral) in the name of Secured Party
or any of its nominees any or all of the Collateral. In addition, Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Collateral for certificates or instruments of smaller
or larger denominations.
(c) If, at any time and from time to time, any
Collateral (including any certificate or instrument representing or evidencing
any Collateral) is in the possession of a Person other than Secured Party or
Pledgor (a "Holder"), then Pledgor shall immediately, at Secured Party's option,
either cause such Collateral to be delivered into Secured Party's possession, or
execute and deliver to such Holder a written notification/instruction, and take
all other steps necessary to perfect the security interest of Secured Party in
such Collateral, including obtaining from such Holder a written acknowledgement
that such Holder holds such Collateral for Secured Party, all pursuant to
ss.ss.9115 of the Code or other applicable law governing the perfectIon of
Secured Party's security interest in the Collateral in the possession of such
Holder. Each such notification/instruction and acknowledgement shall be in form
and substance satisfactory to Secured Party.
(d) Any and all Collateral (including dividends,
interest, and other cash distributions) at any time received or held by Pledgor
shall be so received or held in trust for Secured Party, shall be segregated
from other funds and property of Pledgor and shall be forthwith delivered to
Secured Party in the same form as so received or held, with any necessary
endorsements; PROVIDED that cash dividends or distributions received by Pledgor,
if and to the extent they are not prohibited by the Loan Agreement, may be
retained by Pledgor in accordance with SECTION 4 and used in the ordinary course
of Pledgor's business;
(e) If at any time and from time to time any
Collateral consists of an uncertificated security or a security in book entry
form, then Pledgor shall immediately cause such Collateral to be registered or
entered, as the case may be, in the name of Secured Party, or otherwise cause
Secured Party's security interest thereon to be perfected in accordance with
applicable law.
4. VOTING RIGHTS AND DIVIDENDS.
(a) So long as no Event of Default shall have
occurred and be continuing, Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Collateral or any part
thereof for any purpose not inconsistent with the terms of the Loan Documents
and shall be entitled to receive and retain any cash dividends or distributions
paid in respect of the Collateral.
(b) Upon the occurrence and during the continuance of
an Event of Default, all rights of Pledgor to receive and retain cash dividends
or distributions that it would otherwise be entitled to exercise or receive and
retain pursuant to SECTION 4(A) shall cease, and all such rights shall thereupon
become vested in Secured Party, who shall thereupon have the sole right to
receive and retain such cash dividends and distributions. Pledgor shall execute
and deliver (or cause to be executed and delivered) to Secured Party all such
proxies and other instruments as Secured Party may reasonably request for the
purpose of enabling Secured Party
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<PAGE>
to receive the dividends and distributions that it is entitled to receive and
retain pursuant to the preceding sentence.
(c) Upon the occurrence and during the continuance of
an Event of Default in respect of which Secured Party has accelerated the
Obligations, all rights of Pledgor to exercise the voting and other consensual
rights pursuant to SECTION 4(A) shall cease, and all such rights shall thereupon
become vested in Secured Party, who shall thereupon have the sole right to
exercise such voting or other consensual rights. Pledgor shall execute and
deliver (or cause to be executed and delivered) to Secured Party all such
proxies and other instruments as Secured Party may reasonably request for the
purpose of enabling Secured Party to exercise the voting and other rights which
it is entitled to exercise pursuant to the preceding sentence.
5. REPRESENTATIONS AND WARRANTIES. Pledgor represents, warrants,
and covenants, in each case, to the best of its knowledge, information, and
belief, as follows:
(a) Pledgor has taken all steps it deems necessary or
appropriate to be informed on a continuing basis of changes or potential changes
affecting the Collateral (including rights of conversion and exchange, rights to
subscribe, payment of dividends, reorganizations or recapitalization, tender
offers and voting rights), and Pledgor agrees that Secured Party shall have no
responsibility or liability for informing Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto;
(b) All information herein or hereafter supplied to
Secured Party by or on behalf of Pledgor in writing with respect to the
Collateral is, or in the case of information hereafter supplied will be,
accurate and complete in all material respects;
(c) Pledgor is and will be the sole legal and
beneficial owner of the Collateral (including the Pledged Shares and all other
Collateral acquired by Pledgor after the date hereof) free and clear of any
adverse claim, Lien, or other right, title, or interest of any Person other than
Permitted Liens and Liens in favor of Secured Party;
(d) This Agreement, and the delivery to Secured Party
of the Pledged Shares representing Collateral (or the delivery to all Holders of
the Pledged Shares representing Collateral of the notification/instruction
referred to in SECTION 3 of this Agreement), creates a valid, perfected, and
first priority security interest in one hundred percent (100%) of the Pledged
Shares in favor of Secured Party securing payment of the Secured Obligations,
and all actions necessary to achieve such perfection have been duly taken;
(e) SCHEDULE A to this Agreement is true and correct
and complete in all material respects; without limiting the generality of the
foregoing: (i) all the Pledged Shares are in certificated form, and, except to
the extent registered in the name of Secured Party or its nominee pursuant to
the provisions of this Agreement, are registered in the name of Pledgor; and
(ii) the Pledged Shares as to each of the Issuers constitute at least the
percentage of all the fully diluted issued and outstanding shares of stock of
such Issuer as set forth in SCHEDULE A to this Agreement;
(f) There are no presently existing Future Rights or
Proceeds owned by Pledgor, except as set forth in SCHEDULE C hereto;
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(g) The Pledged Shares have been duly authorized and
validly issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to
this Agreement nor the extensions of credit represented by the Secured
Obligations violates Regulation T, U or X of the Board of Governors of the
Federal Reserve System.
6. FURTHER ASSURANCES.
(a) Pledgor agrees that from time to time, at the
expense of Pledgor, Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
reasonably desirable, or that Secured Party may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor will: (i) at the request of Secured Party, mark conspicuously
each of its records pertaining to the Collateral with a legend, in form and
substance reasonably satisfactory to Secured Party, indicating that such
Collateral is subject to the security interest granted hereby; (ii) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or reasonably desirable, or as
Secured Party may request, in order to perfect and preserve the security
interests granted or purported to be granted hereby; (iii) allow inspection of
the Collateral by Secured Party or Persons designated by Secured Party; and (iv)
appear in and defend any action or proceeding that may affect Pledgor's title to
or Secured Party's security interest in the Collateral.
(b) Pledgor hereby authorizes Secured Party to file
one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral without the signature of Pledgor
where permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(c) Pledgor will promptly furnish to Secured Party,
upon the request of Secured Party: (i) a certificate executed by an authorized
officer of Pledgor, and dated as of the date of delivery to Secured Party,
itemizing in such detail as Secured Party may request, the Collateral which, as
of the date of such certificate, has been delivered to Secured Party by Pledgor
pursuant to the provisions of this Agreement; and (ii) such statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may request.
7. COVENANTS OF PLEDGOR. Pledgor shall:
(a) Perform each and every covenant in the Loan
Documents applicable to Pledgor;
(b) At all times keep at least one complete set of
its records concerning substantially all of the Collateral at its Chief
Executive Office as set forth in SCHEDULE B hereto, and not change the location
of its Chief Executive Office or such records without giving Secured Party at
least thirty (30) days prior written notice thereof;
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(c) To the extent it may lawfully do so, use its best
efforts to prevent the Issuers from issuing Future Rights or Proceeds, except
for cash dividends and other distributions, if any, that are not prohibited by
the terms of the Loan Agreement to be paid by any Issuer to Pledgor; and
(d) Upon receipt by Pledgor of any material notice,
report, or other communication from any of the Issuers or any Holder relating to
all or any part of the Collateral, deliver such notice, report or other
communication to Secured Party as soon as possible, but in no event later than
five (5) days following the receipt thereof by Pledgor.
8. SECURED PARTY AS PLEDGOR'S ATTORNEY-IN-FACT.
(a) Pledgor hereby irrevocably appoints Secured Party
as Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to
time at Secured Party's discretion, to take any action and to execute any
instrument that Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (i) upon the occurrence
and during the continuance of an Event of Default, to receive, endorse, and
collect all instruments made payable to Pledgor representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof to the extent permitted hereunder and to give full discharge for the
same and to execute and file governmental notifications and reporting forms;
(ii) to issue any notifications/instructions Secured Party deems necessary
pursuant to SECTION 3 of this Agreement; or (iii) to arrange for the transfer of
the Collateral on the books of any of the Issuers or any other Person to the
name of Secured Party or to the name of Secured Party's nominee.
(b) In addition to the designation of Secured Party
as Pledgor's attorney-in-fact in SUBSECTION (A), Pledgor hereby irrevocably
appoints Secured Party as Pledgor's agent and attorney-in-fact to make, execute
and deliver any and all documents and writings which may be necessary or
appropriate for approval of, or be required by, any regulatory authority located
in any city, county, state or country where Pledgor or any of the Issuers engage
in business, in order to transfer or to more effectively transfer any of the
Pledged Shares or otherwise enforce Secured Party's rights hereunder.
9. REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of an Event of Default:
(a) Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein, under
the Loan Agreement, or otherwise available to it, all the rights and remedies of
a secured party on default under the Code (irrespective of whether the Code
applies to the affected items of Collateral), and Secured Party may also, in
accordance with the Security Agreement and as otherwise specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable, irrespective of the impact of any such sales on the
market price of the Collateral. To the maximum extent permitted by applicable
law, Secured Party may be the purchaser of any or all of the Collateral at any
such sale and shall be entitled,
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<PAGE>
for the purpose of bidding and making settlement or payment of the purchase
price for all or any portion of the Collateral sold at any such public sale, to
use and apply all or any part of the Secured Obligations as a credit on account
of the purchase price of any Collateral payable at such sale. Each purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted
by law) all rights of redemption, stay, or appraisal that it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. To the maximum extent permitted
by law, Pledgor hereby waives any claims against Secured Party arising because
the price at which any Collateral may have been sold at such a private sale was
less than the price that might have been obtained at a public sale, even if
Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree.
(b) Pledgor hereby agrees that any sale or other
disposition of the Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies, or other financial institutions in the
City of Los Angeles, California in disposing of property similar to the
Collateral shall be deemed to be commercially reasonable.
(c) Pledgor hereby acknowledges that the sale by
Secured Party of any Collateral pursuant to the terms hereof in compliance with
the Securities Act of 1933 as now in effect or as hereafter amended, or any
similar statute hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state securities
laws may require strict limitations as to the manner in which Secured Party or
any subsequent transferee of the Collateral may dispose thereof. Pledgor
acknowledges and agrees that in order to protect Secured Party's interest it may
be necessary to sell the Collateral at a price less than the maximum price
attainable if a sale were delayed or were made in another manner, such as a
public offering under the Securities Act. Pledgor has no objection to sale in
such a manner and agrees that Secured Party shall have no obligation to obtain
the maximum possible price for the Collateral. Without limiting the generality
of the foregoing, Pledgor agrees that, upon the occurrence and during the
continuation of an Event of Default, Secured Party may, subject to applicable
law, from time to time attempt to sell all or any part of the Collateral by a
private placement, restricting the bidders and prospective purchasers to those
who will represent and agree that they are purchasing for investment only and
not for distribution. In so doing, Secured Party may solicit offers to buy the
Collateral or any part thereof for cash, from a limited number of investors
deemed by Secured Party, in its reasonable judgment, to be institutional
investors or other responsible parties who might be interested in purchasing the
Collateral. If Secured Party shall solicit such offers, then the acceptance by
Secured Party of one of the offers shall be deemed to be a commercially
reasonable method of disposition of the Collateral.
(d) If Secured Party shall determine to exercise its
right to sell all or any portion of the Collateral pursuant to this Section,
Pledgor agrees that, upon request of Secured Party, Pledgor will, at its own
expense:
9
<PAGE>
(i) use its best efforts to execute and
deliver, and cause the Issuers and the
directors and officers thereof to
execute and deliver, all such
instruments and documents, and to do or
cause to be done all such other acts and
things, as may be necessary or, in the
opinion of Secured Party, advisable to
register such Collateral under the
provisions of the Securities Act, and to
cause the registration statement
relating thereto to become effective and
to remain effective for such period as
prospectuses are required by law to be
furnished, and to make all amendments
and supplements thereto and to the
related prospectuses which, in the
opinion of Secured Party, are necessary
or advisable, all in conformity with the
requirements of the Securities Act and
the rules and regulations of the
Securities and Exchange Commission
applicable thereto;
(ii) use its best efforts to qualify the
Collateral under the state securities
laws or "Blue Sky" laws and to obtain
all necessary governmental approvals for
the sale of the Collateral, as requested
by Secured Party;
(iii) cause the Issuers to make available to
their respective security holders, as
soon as practicable, an earnings
statement which will satisfy the
provisions of Section 11(a) of the
Securities Act;
(iv) execute and deliver, or cause the
officers and directors of the Issuers to
execute and deliver, to any person,
entity or governmental authority as
Secured Party may choose, any and all
documents and writings which, in Secured
Party's reasonable judgment, may be
necessary or appropriate for approval,
or be required by, any regulatory
authority located in any city, county,
state or country where Pledgor or the
Issuers engage in business, in order to
transfer or to more effectively transfer
the Pledged Shares or otherwise enforce
Secured Party's rights hereunder; and
(v) do or cause to be done all such other
acts and things as may be necessary to
make such sale of the Collateral or any
part thereof valid and binding and in
compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
10
<PAGE>
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT
PERMITTED BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING
PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS
PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT
IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR
STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH IN
SUBSECTION (A) OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR
ADVERTISEMENT FOR SALE.
10. APPLICATION OF PROCEEDS. Upon the occurrence and during the
continuance of an Event of Default, any cash held by Secured Party as Collateral
and all cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
pursuant to the exercise by Secured Party of its remedies as a secured creditor
as provided in SECTION 9 shall be applied from time to time by Secured Party as
provided in the Loan Agreement.
11. DUTIES OF SECURED PARTY. The powers conferred on Secured
Party hereunder are solely to protect its interests in the Collateral and shall
not impose on it any duty to exercise such powers. Except as provided in Section
9207 of the Code, Secured Party shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY
OTHER COURT IN WHICH SECURED PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
OF PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 12.
13. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part of
Secured Party to exercise, and no delay in exercising any right under this
Agreement, any other Loan Document, or otherwise with respect to any of the
Secured Obligations, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured
11
<PAGE>
Obligations preclude any other or further exercise thereof or the exercise of
any other right. The remedies provided for in this Agreement or otherwise with
respect to any of the Secured Obligations are cumulative and not exclusive of
any remedies provided by law.
14. NOTICES. Unless otherwise specifically provided herein, any
notice or other communication herein required or permitted to be given shall be
in writing and shall be delivered in the manner set forth in the Loan Agreement.
15. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement; (ii) be binding upon Pledgor and its
successors and assigns; and (iii) inure to the benefit of Secured Party and its
successors, transferees, and assigns. Upon the indefeasible payment in full of
the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, the security interests
granted herein shall automatically terminate and all rights to the Collateral
shall revert to Pledgor. Upon any such termination, Secured Party will, at
Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination. Such documents shall be
prepared by Pledgor and shall be in form and substance reasonably satisfactory
to Secured Party.
16. SECURITY INTEREST ABSOLUTE. To the maximum extent permitted by
law, all rights of Secured Party, all security interests hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of any of
the Secured Obligations or any other agreement or instrument relating thereto,
including any of the Loan Documents;
(b) any change in the time, manner, or place of
payment of, or in any other term of, all or any of the Secured Obligations, or
any other amendment or waiver of or any consent to any departure from any of the
Loan Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any
other collateral, or any release or amendment or waiver of or consent to
departure from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise
constitute a defense available to, or a discharge of, Pledgor.
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgor; or (B) pursue any other remedy in Secured Party's power whatsoever.
12
<PAGE>
17. HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
18. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
19. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one and the same Agreement. Delivery
of an executed counterpart of this Agreement by telefacsimile shall be equally
as effective as delivery of an original executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement
20. WAIVER OF MARSHALING. Each of Pledgor and Secured Party
acknowledges and agrees that in exercising any rights under or with respect to
the Collateral: (i) Secured Party is under no obligation to marshal any
Collateral; (ii) may, in its absolute discretion, realize upon the Collateral in
any order and in any manner it so elects; and (iii) may, in its absolute
discretion, apply the proceeds of any or all of the Collateral to the Secured
Obligations in any order and in any manner it so elects. Pledgor and Secured
Party waive any right to require the marshaling of any of the Collateral.
21. WAIVER OF JURY TRIAL.
PLEDGOR AND SECURED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND SECURED PARTY REPRESENT THAT EACH
HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
22. WAIVERS.
(a) To the maximum extent permitted by law, Pledgor
hereby waives: (i) notice of acceptance hereof; (ii) notice of any loans or
other financial accommodations made or extended under the Loan Agreement, or the
creation or existence of any Obligations; (iii) notice of the amount of the
Obligations, subject, however, to Pledgor's right to make inquiry of Secured
Party to ascertain the amount of the Obligations at any reasonable time; (iv)
notice of
13
<PAGE>
any adverse change in the financial condition of Borrower or of any other fact
that might increase Pledgor's risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Pledgor under this Agreement) and demands
to which Pledgor might otherwise be entitled.
(b) To the fullest extent permitted by applicable
law, Pledgor waives the right by statute or otherwise to require Secured Party
to institute suit against Borrower or to exhaust any rights and remedies which
Secured Party has or may have against Borrower. Pledgor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Secured Obligations shall have been fully and finally
indefeasibly paid) of Borrower or by reason of the cessation from any cause
(other than that the Secured Obligations shall have been fully and finally
indefeasibly paid) whatsoever of the liability of Borrower in respect thereof.
(c) To the maximum extent permitted by law, Pledgor
hereby waives: (i) any rights to assert against Secured Party any defense (legal
or equitable), set-off, counterclaim, or claim which Pledgor may now or at any
time hereafter have against Borrower or any other party liable to Secured Party
on account of or with respect to the Secured Obligations; (ii) any defense,
set-off, counterclaim, or claim, of any kind or nature, arising directly or
indirectly from the present or future sufficiency, validity, or enforceability
of the Secured Obligations; (iii) any defense arising by reason of any claim or
defense based upon an election of remedies by Secured Party including, to the
extent applicable, the provisions of ss.ss. 580d and 726 of the California Code
of Civil ProceduRe, or any similar law of California or any other jurisdiction;
(iv) the benefit of any statute of limitations affecting Pledgor's liability
hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law, Pledgor
hereby waives any right of subrogation Pledgor has or may have as against
Borrower with respect to the Secured Obligations. In addition, Pledgor hereby
waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Secured Obligations. Pledgor also hereby waives any right to
proceed or to seek recourse against or with respect to any property or asset of
Borrower. Pledgor hereby agrees that, in light of the waivers contained in this
Section, Pledgor shall not be deemed to be a "creditor" (as that term is defined
in the Bankruptcy Code or otherwise) of Borrower, whether for purposes of the
application of Sections 547 or 550 of the United States Bankruptcy Code or
otherwise.
(e) If any of the Secured Obligations at any time are
secured by a mortgage or deed of trust upon real property, Secured Party may
elect, in its sole discretion, upon the occurrence or during the continuance of
an Event of Default, to foreclose such mortgage or deed of trust judicially or
nonjudicially in any manner permitted by law, before or after enforcing this
Agreement, without diminishing or affecting the liability of Pledgor hereunder.
Pledgor understands that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by
Secured Party nonjudicially to foreclose such a mortgage or deed of trust
probably would have the effect of impairing or destroying rights of subrogation,
14
<PAGE>
reimbursement, contribution, or indemnity of Pledgor against Borrower or
guarantors or sureties, and (b) absent the waiver given by Pledgor herein, such
an election might estop Secured Party from enforcing this Agreement against
Pledgor. Understanding the foregoing, and understanding that Pledgor is hereby
relinquishing a defense to the enforceability of this Agreement, Pledgor hereby
waives any right to assert against Secured Party any defense to the enforcement
of this Agreement, whether denominated "estoppel" or otherwise, based on or
arising from an election by Secured Party nonjudicially to foreclose any such
mortgage or deed of trust. Pledgor understands that the effect of the foregoing
waiver may be that Pledgor may have liability hereunder for amounts with respect
to which Pledgor may be left without rights of subrogation, reimbursement,
contribution, or indemnity against Borrower or guarantors or sureties. Pledgor
also agrees that the "fair market value" provisions of Section 580a of the
California Code of Civil Procedure shall have no applicability with respect to
the determination of Pledgor's liability under this Agreement.
23. WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SS.SS.
2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND
2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE SS.SS. 580A,
580B, 580C, 580D, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF TITLE 14
OF THE CALIFORNIA CIVIL CODE.
(a) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGOR HEREBY WAIVES ALL
RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY SECURED PARTY,
EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH
RESPECT TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED PLEDGOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION OF SECTION
580D OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
24. SUBORDINATION. If at any time, or from time to time, any
Subsidiary of Pledgor, other than Borrower, shall enter into financing
arrangements, then Secured Party shall subordinate, on terms and conditions
reasonably satisfactory to Secured Party, its Liens on the Stock of such
Subsidiary to the Liens of the lender providing such financing.
[Remainder of page intentionally left blank]
15
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have
caused this Agreement to be duly executed and delivered by their officers
thereunto duly authorized as of the date first written above.
NATIONAL MEDIA CORPORATION, a
Delaware corporation
By
Title:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
----------------------------------------
Title:
--------------------------------------
S-1
<PAGE>
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: NATIONAL MEDIA CORPORATION
PLEDGED SHARES
<TABLE>
<CAPTION>
Former Name, if Pledgor's
Number of Certificate any in Which Percentage Jurisdiction Of
Issuer Shares Class Number(s) Certificate Issued Ownership Incorporation
- ------ --------- ------- ----------- ------------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: NATIONAL MEDIA CORPORATION, a Delaware corporation
Address of Chief Executive Office:
15821 Ventura Boulevard, 5th Floor
Encino, California 91436
<PAGE>
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds: [None.]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,467
<SECURITIES> 5,700
<RECEIVABLES> 43,799
<ALLOWANCES> (6,936)
<INVENTORY> 15,087
<CURRENT-ASSETS> 77,191
<PP&E> 20,861
<DEPRECIATION> (11,609)
<TOTAL-ASSETS> 121,252
<CURRENT-LIABILITIES> 63,414
<BONDS> 0
0
1
<COMMON> 307
<OTHER-SE> 50,705
<TOTAL-LIABILITY-AND-EQUITY> 121,252
<SALES> 252,978
<TOTAL-REVENUES> 252,978
<CGS> 0
<TOTAL-COSTS> 234,126
<OTHER-EXPENSES> 54,437
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,030
<INCOME-PRETAX> (38,615)
<INCOME-TAX> 335
<INCOME-CONTINUING> (38,950)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,876
<CHANGES> 0
<NET-INCOME> (34,074)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)
</TABLE>
